Honesty and leadership

Another aspect of the chaotic exam was the way the school dealt with it, and this made me think of the responsibility of individuals, managers, and leaders when things go wrong. And how that behavior communicates the value of the people, and the institution.
Back to the wrong exams.

Here is then how it was handled.
We, the students were first told that it might have been a mistake, that it may indeed be a level higher than what we were supposed to do. One of the proctors then checked with administration. The message was they checked, and that there was only this one test. This was either a lie, or they are grossly incompetent: it takes less than 5 minutes with a simple search to determine that there are indeed different exams, and that the one we received was the wrong one. 
We were then told that we signed in for the exam, implying that we should have know better than to sign in. Except that we could not have known when we signed in, that we were about to get the wrong material. They appeared to be laying the responsibility on us as the students for the mistake. To round it off, we were told that if we leave we would fail and be responsible for the additional cost of a retake. 

Here is how it might have been handled. 
First of all, one would expect a process to be in place to prevent this from happening. If it didn't I would expect the administration to have the basic skills to check, and find the mistake. 
The next step is to come out and acknowledge the mistake. I get the awkwardness of this, I have been there enough times, but it actually creates trust when a mistake is acknowledged. Then one could have presented the students with a choice to either take this exam, or not. Those who want to take the exam can stay, and take their chances. Those who would prefer to wait for a rescheduled exam are then also free to leave, with no threat of failing or additional cost. 
The administration could also have recommended that everyone take the exam, even knowing that it is wrong since the students may pass it anyway. But, that a follow-up, corrected exam will be scheduled right away.

The difference is that the first approach will either make you look like a fool or a liar, or both, but either not to be trusted. The second approach will show you as human, as competent even when imperfect, as being a person (and institution you represent) of integrity. 

The fact is that mistakes happen. My first manager said, the only people not making mistakes are the ones not doing anything. 

When it does happen, how do you deal with it?