The Scandal Of Healthsouth Corporation Scandal

The Enron and WorldCom scandals were arguably the incidents that permanently changed the procedures for accounting controls. In response to these incidents, the Sarbanes-Oxley Act (SOX) of 2002 was passed. Once the knowledge of these scandals was made public, a number of subsequent accounting scandals were discovered in public companies such as Tyco International, HealthSouth, and American Insurance Group. In addition, a then-employee-owned company, Post, Buckley, Schuh & Jernigan, Inc. (dba PBS&J, now known as “Atkins North America, Inc.”), was also hit by a similar accounting scandal. Henceforth, a case study of PBS&J is presented where we will examine the fraudulent transactions that

One of the main defenses E&Y took during the early stages of the HealthSouth suit was the fact that the SEC had no well-defined rules with regards to audit-related practices. Another defense was the mere fact that E&Y never faced a criminal indictment for the HealthSouth fraud. This was mainly due to the statute of limitations placed on securities fraud. It sets it at the earlier of (a) 2 years after the discovery of the facts constituting the violation or (2) 5 years after such violation. Thus, the DOJ was unable to file criminal charges against the firm because the partner on the audit (G. Marcus Neas) was “unaware” of the fraud in 1993.

Organizational misconduct is the chief cause behind corporate accounting scandals. The trusted executives of the corporation participation in actions during a scandal are corrupt and illegal. In the United States, the Securities and Exchange Commission (SEC) is typically the government agency that investigates such scandals. One of the most notorious corporate accounting scandals in the United States is the HealthSouth Corporation scandal of 2003. HealthSouth Corporation is one of the United States largest health care providers with locations nationwide. A deeper inspection of the HealthSouth scandal is needed to understand how it transpired by assessing how it was executed, the accounting issues and root of the issue, how it was exposed, the results to the company and its officers, and warranted ramifications as an outcome of the scandal.

HealthSouth Corporation was incorporated in January 1984 in Birmingham, Alabma by the founder Richard M. Scrushy. HealthSouth Corporation is the leading provider of medical rehabilitation health care and outpatient surgery services in the United States. Richard M. Scrushy was the former CEO& Founder of HealthSouth Corporation, and there were 5 CFO which were Aaron Beam, Weston, Smith, Bill Owens, Michael Martin and Tadd Mcvay.

HealthSouth grew rapidly during the 1980’s and 1990’s. This growth was largely due to acquisitions. HealthSouth owned more than 330 hospitals worldwide. It was also during this time that Scrushy became known as one of the highest paid CEOs in the United States.

In addition, associated with the misapplication of accounting methods, the financial industry has been plagued with one disaster after another involving numerous scandals from top leading American companies. Consequently, the Sarbanes-Oxley Act was passed in 2002 compromising eleven sections that are generated to insure the responsibilities of the company’s managers and executives. This act identifies criminal penalties for particular unethical practices and currently has new policies that a corporation must follow in their financial reporting. The following examples describe some of biggest accounting methods as a result of the greed and the outrage of the ethical and financial misconduct by the senior management of public corporations.

The story of HealthSouth begins with two of the most well know founders. Richard Scrushy was a bold, charismatic man of middle-class beginnings. He would rise from a mason to one of the highest earning CEO’s in the country due mainly to his ability to drive, charm, and manipulate those around him. Driven by the desire to attain wealth and status Scrushy was hired in at LifeMark where he rose through the ranks as a result of his unbridled competitive nature and workaholic tendencies.

The push for ethical practices is hitting financial managers from all angles from patient advocate groups, IRS, regulation bodies, and more. The scrutiny of financial reports has never been more important. One area under the microscope in financial reporting by hospitals seems to be its tax exempt status. The potential for tax misconduct is high and calls into question if hospital should be tax exempt (Valletta, 2005). This area is calling strongly for strict ethical guidelines. Health care organizations operate in a different market segment. Publicly traded organizations need to watch their earnings reports, while the health care sector is concerned with payments, hospital length stays, and admissions. To become more transparent and reduce the chances of unethical behavior some hospitals, including the Mayo Foundation, New York Presbyterian, and Ascension Health post audited financial statements online (Valletta, 2005). In another attempt to curb financial mishaps and abuses the financial statements for the medical industry must be signed off on by CEOs and

A forensic audit conducted by PricewaterhouseCoopers concluded that HealthSouth Corporation 's cumulative earnings were overstated by anywhere from $3.8 billion to $4.6 billion, according to a January 2004 report issued by the scandal-ridden health-care concern. HealthSouth acknowledged that the forensic audit discovered at least another $1.3 billion dollars in suspect financial reporting in addition to the previously estimated $2.5 billion. The scandal 's postmortem report

HealthSouth Corporation was one of the largest publicly traded owners of rehabilitative hospitals within the Untied States and paved the way for its industry. However, prior to 2003 the company had a very dark secret: fraud. In 2003 HealthSouth was accused of making $2.7 billion in false journal entries in the company’s system (Helios, 2013). These false entries allowed the corporation to inflate its earnings and revenue. While the corporation was dabbling in a fraudulent, aggressive account system, auditors were unable to detect the extent of the fraud occurring. If not for Michael Vines and Weston Smith, HealthSouth Corporation might have continued its false entries and continued deceiving shareholders and even Wall Street itself. HealthSouth serves as a historical example of how corporate culture can use fraud and deception schemes to not only rationalize what it is doing, which is an element of the fraud triangle, but also encourage fraudulent financial statements.

Between the years 2000 and 2002 there were over a dozen corporate scandals involving unethical corporate governance practices. The allegations ranged from faulty revenue reporting and falsifying financial records, to the shredding and destruction of financial documents (Patsuris, 2002). Most notably, are the cases involving Enron and Arthur Andersen. The allegations of the Enron scandal went public in October 2001. They included, hiding debt and boosting profits to the tune of more than one billion dollars. They were also accused of bribing foreign governments to win contacts and manipulating both the California and Texas power markets (Patsuris, 2002). Following these allegations, Arthur Andersen was investigated for, allegedly,

As the WMI accounting fraud case shows, change exposes organizations to considerable financial fraud risks. The top officials used acquisitions and merger as means to perpetuate this fraud. This financial fraud took place due to the organizational breakdown of internal and external audit controls. As a result, the top management was able to commit this massive fraud without facing any resistance. It never occurred to them that they were violating the law because what mattered to them was pocketing as much as they could.

With the avalanche of accounting scandals that have rocked the public, people tend to have increasingly high expectation that auditors are accountable for detecting all frauds, while the standards require auditors to provide reasonable, but not absolute, assurance. The purpose of the report is to discuss the accountability of auditors in detecting fraud by analysing a $16.9 million fraud of Otago District Health Board (ODHB) perpetrated by Swann and Harford from 2000 to 2006. The report will explain the event, the fraud, the stakeholders, the role of auditors and the current situation.

Question 1 Summarize 1 one page how you would explain Enron’s ethical meltdown: Enron was an energy company founded by Kenneth Lay in 1985 through a merger of vast networks of natural gas lines. Enron specialized in wholesale, natural gas, and electricity, and made its money as a wholesaler between suppliers and customers rather than actually owning any. Enron in fact didn’t own any assets, which made their accounting procedures very unusual. The lack of accounting transparency at Enron allowed the company’s managers to make Enron’s financial performance better than it actually was. The organizational culture at Enron was to blame for it’s ethical meltdown. Enron’s accounting scheme slowly began to erode its ethical practices, which soon led the culture of Enron to become a more aggressive and misleading business practice. Enron reported profits from joint partnerships that were not yet attained in order to keep stock prices up (or make wall street happy). As this was happening employees began to notice the ethics in senior management (leadership) deteriorating, and soon after they to would follow in their footsteps. Senior management thought they were saving their company from financial ruin and though lying was ok if it meant saving the company. Investors would surely sell their stocks if they really knew the situation the

On March 19 of the year 2003, Securities and Exchange Commission brought the trading of HealthSouth to an end on the New York stock exchange, charging the company for inflating its earnings by more than 10 percent and overstated its profits by more than $2.5 billion between 1999 and 2002. HealthSouth’s trading reached to $30.81 in the year 1998, but ever since the trading of the company has been put to an end it reached to $3.91 per share. One week later, Owens pleaded guilty to changing and editing the company’s financial statements.