...a governmental body, which is produced by a legislature. Regulatory agencies are implemented to enforce laws of legislative functions, executive functions, and judicial functions. The regulatory agencies plays a central role in the operation of the financial sector. There are a numerous variances of regulatory agencies, which all serve a different purpose in business law enforcement. Some of which include the Environmental Protection Agency, Occupational Health and Safety Administration, and the Securities and Exchange Commission. For the purpose of this paper, a description of the Securities and Exchange Commission will be given. Further describing the regulations which will protect the public from fraud within corporations and what that represents in the Sarbanes-Oxley Act of 2002. The Securities and Exchange Commission The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation (SEC.gov, 2013). The SEC is the regulatory agency which governs securities markets and protects investors. It is a regulatory agency which oversees securities transactions, activities of financial professionals and mutual fund trading to prevent fraud and intentional deception (SearchFinancialSecurity.com, 2015). The SEC is composed of five commissioners, three of which may not belong to the same political party. The commissioners serve staggered terms of five years. The Divisions of the SEC ...
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... 1 Business Ethics HealthSouth: The Scrushy way—Activity 8 Melinda S. Whitman Dr. Jennifer Scott Northcentral University May 19, 2013 HEALTHSOUTH: THE SCRUSHY WAY 2 Table of Contents Introduction…………………………………………………………………………….. 3 Richard Scrushy Represented the American Dream…………………………………… 3 The Sarbanes-Oxley Act was enacted in 2002…………………………………………. 4 What caused the demise of HealthSouth?...……………………………………. 5 Characteristics of Unethical CEOs……………………………………………………… 6 Was Richard Scrushy narcissistic?.……………………………………………………. 7 Impact on Stakeholders………………………………………………………………… 8 Outcome and Fairness of Punishment…………………………………………………. 9 Conclusion……………………………………………………………………………... 10 References……………………………………………………………………………… 12 HEALTHSOUTH: THE SCRUSHY WAY 3 Introduction For at least 20 years, HealthSouth represented a new concept in health care. Its founder, Richard Scrushy was the embodiment of the American dream. His rise was meteoric, yet ultimately the empire he created collapsed due to fraud of his creation. Richard Scrushy Represented the American Dream Richard Scrushy came from humble beginnings. He was born in Selma, Alabama, dropped out of high school, married, and...
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...Health Alternatives, INC – Fraud Brian O’Rourke, Katharina Ryska 10/14/2013 Introduction Scandals like Enron, Worldcom and Tyco have taught society about CEO’s fudging financial statements in order to make some extra money. With millions of dollars lost for the shareholders, members of the management engaging in fraudulent activity face high penalties. However, these penalties do not stop executives from trying to scam the system. World Health Alternatives, Inc got negative press following a big fraud investigation. The company with its number of wholly owned subsidiaries provides “medical, professional, and administrative staffing services to the healthcare industry in the United States.” By comprising nurse and physician staffing one would expect the company to have integrity. This paper is going to look at the fraud case, auditor’s responsibility, financial statements as well as the charges against the auditor. Furthermore, this paper is trying to see if the SEC allegations were warranted against the auditor. Overview of the Case According to the SEC, World Health Altneratives, Inc (World Health) engaged in fraudulent and improper conduct from at least May 2003 – August 2005. They manipulated accounting entries by understating expenses and liabilities, which made World Health look more financially sound. According to the SEC Website, “every annual and quarterly report that World Health filed with the Commission contained false financial statements”. Another part...
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...Use the Fraud Triangle and Fraud Scale to critically analyse the actions of Bernie Ebbers and Scott Sullivan during the WorldCom saga/ What does your analysis suggest? Dennis Greer’s fraud triangle is a key framework in analysing the ‘factors that cause someone to commit occupational fraud’ (ACFE-The Fraud Triangle, Association of Certified Fraud, Examiners Available from:http://www.acfe.com/fraud-triangle.aspx [January 2014]). The three elements that make up the model are perceived pressure, perceived opportunity and rationalisation. In reference to the events of WorldCom, which has been labelled to date, ‘one of the biggest accounting scandals in history’ (CNN Money- WorldCom’s Financial Bomb, Available from:http://money.cnn.com/2002/06/25/news/worldcom/. [June 2002]) the initial pressures that were the driving force behind the actions of CEO, Bernie Ebbers and CFO Scott Sullivan are quite vast. Firstly Ebbers, was faced with the managerial strain of financial pressure on management due to the decline in the economic environment and the high expectations of Wall Street. As a result, he was aware that the key to growth was in acquisition and mergers, which required an illusion of a solid investment portfolio and therefore ‘a heavy dependence on the performance of WorldCom shares’ (Forbes- Bernie Ebbers Guilty, Available from: http:// www.forbes.com/2005/03/15/cx_da_0315ebbersguilty). In addition, Ebbers was fuelled by greed, ‘nearly a billionaire’...
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...Running head: IMPORTANCE OF ETHICS IN ACCOUNTING Importance of Ethics in Accounting Everest University Importance of Ethics in Accounting Accounting fraud is common but is not as trivial as the common cold; a typical organization loses annual revenues of nearly 5 percent to fraud. In addition, almost one-quarter of reported fraud is exceeding $1 million dollars. The accounting industry is constantly growing and changing. Consequently, difficult decisions have to be made every day. While accountants follow a simple code of conduct; nevertheless, due to the infamous scandal of Enron, the Sarbanes-Oxley Act of 2002 was constructed to reestablish confidence in the public marketplace. The importance of ethics and integrity are highly significant to individuals in this profession. In fact, ethical behavior in accounting is described as “societies accepted standards of moral behavior that is behaviors as right rather than wrong” (Nickels, McHugh, & McHugh, 2013, p. 91). Therefore, accounting as a whole plays a significant role in society and business. At one time, society considered professional accountants to have the highest standard in ethical and moral conduct. While maintaining accurate and truthful statements is an essential part of financial reporting; therefore, as a society as a whole it is essential that a professional accountant fully understand the importance of ethical values. One unquestionably problematic misconception is that ethics consist of...
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...FRAUDULENT COMPANIES: THE WORLDCOM FRAUD Introduction The purpose of this report is to investigate and discuss the accounting fraud that occurred at WorldCom in order to recommend improved strategies to Berkshire Hathaway’s management for avoiding investments in companies with fraudulent financials. Accounting fraud is a crime committed by high level employees at an organization to manipulate the organization’s financial statements and intentionally disguise company performance. The fraud is committed without the knowledge of owners (shareholders and investors) to benefit the individuals perpetrating or committing the fraud and results in a negative impact on the owners. This report will give a brief background on WorldCom and the telecommunications industry, and then discuss the details of the WorldCom accounting fraud in order to provide relevant recommendations to Berkshire Hathaway, Inc. for mitigating future losses due to investing in fraudulent companies. We expect management to become more knowledgeable regarding high fraud risk investments and therefore make better informed investment decisions. Recommendations to Berkshire Hathaway include improving current risk assessment procedures and enhancing investment policies. WorldCom and the Telecommunications Industry WorldCom was the leader of the telecommunications industry during the 1990’s; in 2000, WorldCom was the 25th largest company in the world (Anderson, 2013, p. 48). The telecommunications industry...
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...that always add up perfectly. In fact, accounting fraud is one of the largest scandals found today. When an accountant enters an engagement with a client, who are they liable to? Certainly not just to the client, but also anyone who could negatively be affected by a material misstatement, as well as the government. These responsibilities are not easily assumed, nor are they equally distributed. Accountants assume a large responsibility to their clients. They enter a contractual agreement through an engagement letter, and use engagement letters to minimize the risk they assume under the contract. Many engagement letters include memos limiting the recovery. (Reinstein, Lobingier, & Green, 2009) Accountants expressly agree to do a project by a specific date, and imply that the work will be completed carefully. If an accountant breaches the contract, they can be found liable for damages. If it can be found that an accountant did not act with skill and competence, causing harm to their client, negligence can be proved. Accountants also may be found guilty of fraud. Fraud can be proved if an accountant makes a false statement, knowing it is false, and the client relies on the information, resulting in damages. Another liability to the client is the trust clients give their accountants. They are liable to keep the information confidential and to use it only for the client’s benefit. (Beatty, Samuelson, & Bredeson, 2013, pp. 432-434) As defined in Sec. ET-501 of the AICPA...
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...these new members have had extensive law experience. Identify Strengths and Weaknesses and Alternatives: The first thing that the board needed to do was set up offices and recruiting staff. Since there was no staff at first the board members took it among themselves to identify, interview, and hire new staff. A few of these new staff members included a director of registration and inspection as well as a director of human resources. In April of 2003 PCAOB received an official certification from SEC at which time there were about 30 employees with this organization. PCAOB was established by Congress in order to protect investors and the public interest by promoting accurate, informative, and independent audit reports. The PCAOB aims to improve audit quality, reduce the risks of auditing failures in the U.S. public securities market and promote public trust in both the financial reporting process and auditing profession. (PCAOB, 2012). PCAOB necessitate senior financial managers to enforce a code of conduct ("The sarbanes-oxley act," 2003). This code...
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...Busbee Dwight Frazier December 12, 2013 A. Executive Summary: The paper highlights the case analysis on one of the big financial fraud which occurred from 1986-2003. The case of HealthSouth is based on fraud, greed and corporate governance. The HealthSouth case shows that unethical management cannot succeed; sooner or later the truth comes out. The case highlights many key points and the major reason for the fraud was the result of failures of various standard mechanisms of control including the external auditors, the underwriters, and the board of directors, the financial market regulators and the analysts. HealthSouth was one of the country's largest providers of outpatient surgery, diagnostic imaging, and rehabilitation services, operating over 1,800 locations and reporting revenues of $4 billion. The company's management improperly accounted for some $2.7 billion of assets and earnings. Seventeen HealthSouth executives agreed to plead guilty to various charges in connection with this massive accounting fraud. B. Statement of the Problem: Thus, in the HealthSouth case, the research shows that it was close to the real life examples of the people who were “just employed”; however at the same time their transformation from the line of law-abiding citizens towards the law-breaking villains. Apparently the small compromises in morality and ethics led towards the greater compromises and as a result it turned into a full-scale commitment fraud (Johnson, 2005). C. Causes...
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...International Journal of Business and Social Science Vol. 4 No. 13; October 2013 Cooking the Books: The Case of Malaysian Listed Companies Fathilatul Zakimi Abdul Hamid Rohami Shafie Zaleha Othman Wan Nordin Wan Hussin Faudziah Hanim Fadzil School of Accountancy Universiti Utara Malaysia Sintok, 06010 Kedah Malaysia. Abstract Cooking the books refers to fraudulent accounting activities undertaken by a business to falsify its financial statements. Thus, the objectives of this study are to investigate what the cooking-the-books activities carried out by businesses consist of, how they conduct them, and what the impact is on the business and its shareholders. The case study sample companies are two Malaysian companies that had received various awards from reputable third-party organizations. On the other hand, the activities undertaken in both companies have caused them to be labelled as Malaysian mini Enrons. We employ a qualitative research methodology as most prior research employs a quantitative methodology to investigate the determinant factors in businesses’ cooking-the-book activities. The result of the study shows that the managers have used their positions, prior experience, and regulatory loopholes in their activities. Furthermore, the financial report restatement and higher reported earnings are the early warning signals of their activities. As a result of this, the Malaysian Securities Commission has revised the corporate governance code, and among others incorporated...
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...Introduction………………………………………………………………………………………..4 Richard Scrushy-Biography……………………………………………………………………….5 Health South History………………………………………………………………………………6 Health South Down Fall…………………………………………………………………………...7 Sentence…………………………………………………………………………………………...8 Sentence…………………………………………………………………………………………...9 Conclusion……………………………………………………………………………………….10 References……………………………………………………………………………………….11 Abstract This paper looks at the rise and fall of the Health South Corporation along with its founder and CEO, Richard Scrushy. One of the biggest fraud cases in recent history, this one company over- stated its revenue by four billion dollars, causing many people to lose both their life savings and their jobs. Over fifteen people received jail sentences, and even the Governor of Alabama went to prison. Richard Scrushy was sentenced to seventy (70) months in prison. Introduction Mr. Scrushy started his company in 1986, and by 2003 he had lost everything. However, what happened in those seventeen years was spectacular. Scrushy started a small firm which grew into a nationwide company employing over sixty thousand employees. By all appearances he was the golden boy in the medical insurance industry - acquiring other, smaller companies in order to expand his own corporation and enhance his own income. During those seventeen years Mr. Scrushy’s income exploded; he purchased lucrative homes, expensive art, cars and yachts. His personal life soared upwards. His reputation...
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...Misreporting of financial results have occurred in companies from various countries, such as personal computer maker Dell intentionally revised its results from 2003 to 2006 and in the first quarter of 2007. In 2006, the Malaysian express freight and freighter charter company Transmile Group restated its 2005 profit of RM75 million to a loss of RM370 million as a result of fictitious sales. This essay will analyse the incentives of companies misreporting their financial results in relation to how they have breached the objective and guidelines of financial reporting. According to the International Accounting Standards Board (IASB), the objective of financial reporting is to provide financial information about the entity to existing and perspective investors, lenders and other creditors for them to make informed decisions which involve buying, selling or holding equity and debt instruments of the entity. And to evaluate and predict the “entity's ability to generate cash in the future; its future borrowing needs and how future profits and cash flows will be distributed; its likely success in raising further finance and meeting its financial commitments as they fall due” (Weygandt et al., 2013, p. 487). There are two fundamental characteristics of financial reporting: relevance and faithful representation. Financial information is considered relevant if it assists in predicting future events. Whether or not the information is relevant also depends on if it...
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...government regulations covering the Securities Acts of 1933 and 1934, The Foreign Corrupt Practices of Act of 1977 and finally Sarbanes-Oxley Act. B. Origin of Securities Acts of 1933 and 1933 (Beatty, Samuelson & Bredeson, 2013) C. Genesis of the enactment of The Foreign Corrupt Practices of 1977. D. Origin of Sarbanes-Oxley Act and its enactment (retrieving information from: https: www.soxlaw.com/introduction.htm) 11. Securities Acts of 1933 and 1934 A. Registration requirement includes the statement and prospectus B. Annual, Quarterly reports and Form 8-k C. Inside Trading D. Private Offerings E. Blue Sky Laws F. Antitrust (The Sherman Act, The Clayton Act, and The Robinson-Patman Act) 111. The Foreign Corrupt Practices Act (FCPA) of 1977 makes it illegal for an American businessperson to give anything of value to any foreign official in order to influence an official decision. A. Applicability of the Act B. Prohibitions under the Act C. Penalties for Violations of the Act 1. Criminal 2. Civil 3. others D. Defense under FCPA 1. Lawful payment 2. Bona fide expenditures E. Fraud/Scandal of the FCPA of 1977 1. Detection method 2. Importance of Early Detection 3. Big problems for small corporations/organizations 4. Types of fraud and who is involved 1V. Sarbanes Oxley Act A. The effects of Sarbanes-Oxley Act on corporate culture (1) Increase in accounting costs (2) Increased records-management requirements (3) Salary increases (4) Increase in...
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...REVIEW OF ACCOUNTING ETHICS: HEALTHSOUTH CORPORATION SCANDAL Dannie Lover Professor Seedgrass Financial Accounting South University October 9, 2013 THE ORGANIZATION In 2003, the Securities and Exchange Commission (SEC) charged HealthSouth Corporation, the nations’ largest provider of outpatient surgery, diagnostic and rehabilitative healthcare services, and its Chief Executive Officer and Chairman Richard M. Scrushy with a massive accounting fraud. Scrushy, along with several of his former colleagues allegedly inflated HealthSouth’s pre-tax earnings. [Knapp] Founded in 1984 in Birmingham, Alabama, with more than 50,000 employees and nearly 2000 facilities across all states, HealthSouth earned recognition as a top-five performer in the S&P 500 index. This thriving company grew rapidly and became publicly traded within two years of existence. The company is believed to have overstated its profits by at least 1.4 billion since 1999, in order to meet or exceed Wall Street earnings expectations and maintain market price for stock. [Press Release 2003] THE ALLEGIATION The allegation came just after an earnings restatement and insider-trading charge triggered the investigation, sending HealthSouth stock tumbling to a record low. [Romano 2003] Many attempts at whistle blowing were suppressed, when employees expressed concerns due to falsification of documents. One accountant in particular, was quickly silenced and moved to a dead end job outside of Accounting...
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...THE ROLE OF INTERNAL AUDITING IN FRAUD PREVENTION AND INVESTIGATION. INTRODUCTION. Internal auditing is charged with the overall responsibility of reviewing, evaluating and monitoring the organization’s internal controls to ensure efficiency. Its functions include a detailed testing of transactions and balances, and performing routine or sometimes, random checks as a precautionary measure. During this process, an auditor might uncover fraudulent practices, which would otherwise have gone unnoticed. This paper intends to clarify the difference between auditing and fraud investigation, fraud indicators, highlight the role of audits in fraud prevention and investigation. THEORETICAL FRAMEWORK AND CONCLUSION. Paul A. Rodrigues said, “It has been aptly said that auditors look at the ‘donut’ and fraud examiners look at the ‘hole’” (Auditing vs. Fraud Examination, para. 2). That statement indicates a difference between auditing and fraud investigation; audits are reoccurring (on a regular basis), fraud investigations are not (only when there is sufficient predication); an audits scope is general, that of fraud investigations are specific (allegation based); an audit’s objective is to express a general opinion, a fraud examination’s is to affix blame where an allegation is confirmed (adapted from the ACFE Fraud Examiners Manual). That being said, an internal audit is party to a fraud investigation along side forensic investigators, legal counsel, law enforcement and the lot...
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