Fraud: what starts small can snowball: most episodes of financial fraud start as "tweaks" or "adjustments." Experts say that most often, its the culture that is to blame, and as the schemes deepen, individual reservations are simply overwhelmed.

• Author: Sweeney, Paul
• Position: Fraud

The situation is vexing. You are a mid-level financial manager at a company, and you're attending a meeting with Wall Street analysts. Your boss--who just happens to be the company's chief financial officer--brilliantly reels off an array of statistics projecting a rosy picture of growth in revenues and net earnings. Too bad that the numbers are inflated and untrue.

Suddenly and without warning, the CFO looks over at you and demands corroboration. "Isn't that correct?" he demands.

Welcome to the hot seat. What do you do? Agree with him? After all, he is your boss. Do you mumble something unintelligible and excuse yourself from the room? Or do you make it known that the numbers are wrong?

That scenario is among the numerous ethical dilemmas that employees at MCI--the reconstituted telecommunications company rising from the ashes of scandal-ridden WorldCom Inc.--are asked to confront in training sessions these days. So far, more than 3,000 persons at the 55,000 employee company have either undergone the training or are registered for it, reports Richard Breeden, former chairman of the Securities and Exchange Commission and president of a his own consulting firm in Greenwich, Conn. Breeden, who was appointed corporate monitor by the bankruptcy court, is overseeing MCI's return to respectability.

"If people just remembered what their mothers taught them, it would carry them a long way," Breeden says. "But one of the things about ethical decisions is that they can come up quickly. In a business environment, you don't have time talk to your mother or your minister."

Training programs like the one at MCI today teach employees what they should have learned at home or in Sunday school. In addition, they emphasize what many ethicists and corporate reformers increasingly recognize: that most of the scandals that have beset Corporate America have deep roots in dysfunctional organizations, the dictates of which too frequently overwhelm an employee's better angels.

It should come as no surprise. The social critic and religious philosopher Reinhold Niebuhr anticipated the fundamental causes of recent business skullduggery in the 1930s, when he wrote Moral Man and Immoral Society. In the book, Niebuhr argues that insidious institutions and peer pressures can compel otherwise honorable individuals to engage in sinister acts and perpetuate injustice.

As the past couple of years have shown, the outsized financial frauds that have landed top executives in jail, driven companies into bankruptcy, deprived investors of their life savings and thrown the financial markets into turmoil were aided and abetted by intelligent and law-abiding citizens.

Indeed, experts in the fields of law, accounting and business ethics say that one crucial lesson to be learned from the fraud at Enron Corp., WorldCom, HealthSouth Corp., Global Crossing Inc...