As has been reported in other outlets, the Wall Street Journal has a very good article (paid subscription required) about the complete ethical lapse at Ernst & Young that resulted in them being the auditor of record for PeopleSoft while Ernst & Young was also busy working on a joint venture with PeopleSoft at the same time. The SEC penalty: no new E&Y clients for six months.

This is basically the same thing that came back and bit Arthur Andersen too: their inability to separate out consulting work from auditing work. But that makes no sense to me, speaking as a businessperson: if someone is asking you to “check their books” and make sure that everything is properly and accurately reported, how can they also ask you to help them make a different venture a success and – the key question – how on Earth can you be braindead enough to say “yes”?

I liken this decision, though, to asking my accountant to also invest in my startup, or, perhaps more to the point, join my startup. But it’s worse than that, because if I ask my accountant to get involved, that’s one person and a small amount of currency. What Ernst & Young did with PeopleSoft was a far, far greater thing, a project that was far grander in scope and therefore even that much more of an ethical and professional lapse.

And in case you don’t think this is some sort of illness at E&Y, they also apparently have a profit-sharing relationship with American Express, and accepted rebates from AMR and Continental Airlines, among other firms. Is it any surprise that this investigation is being run by the federal government (the SEC)?

Meanwhile, trying to put the best possible spin on it, E&Y spokesperson Charlie Perkins said “Independence is the cornerstone of our practice and our obligation to the public.” Uh huh. By contrast, the SEC calls these decisions “reckless, highly unreasonable and negligent”.

Me? I call it unacceptable. Completely unacceptable. Too much “business as usual” and large corporation arrogance. And I’m glad to see this entire business segment being cleaned up a bit. It’s a real testament to the value of checks and balances in a free market economy.