Business and Management
Submitted By dolfanblondie13
Intro to HealthSouth Fraud Case Review
In 2003, HealthSouth was accused of one the largest accounting fraud cases in healthcare history and those involved are still being tried today, nine years later. HealthSouth was founded in Birmingham, Alabama in the year 1984 by a respiratory therapist name Richard Scrushy. By the year 1999, HealthSouth had grown to house 230 surgical centers, 120 inpatient hospitals, 5 medical centers, 129 diagnostic centers and 1379 outpatient rehab centers and was worth an estimated billion dollars.
It was revealed that HealthSouth started their downward spiral in the year 2002, which paralleled the timeframe that Scrushy sold of ~ $100,000 in HealthSouth Stock Options. Within the following 6 plus months to follow, the FBI announced allegations against HealthSouth and opened a criminal investigation for probable SEC violations.
The FBI investigation initially uncovered wrong doings from the years 1999-2002 where Scrushy had overstated his salary 1 million + dollars to meet expectations of shareholders and Wallstreet. Unfortunately, this was just the beginning, and as forensic accountants dug deeper, the FBI soon found that HealthSouth’s corporate accountants were adjusting entries to offset liabilities, reduce expense accounts and state elevated salaries to balance their bookkeeping. It was reported ~$373 million dollars of cash on the books was fictitious.
It was eventually revealed that all four Accounting Statements were incorrect and that much of the inflated numbers were modifications made to the contractual adjustments and agreements; which in turn, made it fairly easy to hide from outside auditors. The outside auditing firm used by HealthSouth was Ernest and Young, LLP. Ernest &Young, LLP not only was hired as...
HealthSouth Corporation is based in Birmingham, Alabama, and is one of americas largest healthcare services providers. The HealthSouth Corporation is perhaps Best known for its rehabilitation services. The HealthSouth Corporation has more than 1,900 facilities in the united states, Canada, Australia, and Puerto Rico including both in and outpatient rehabilitation facilities and surgery centers.
The whole sad saga blew up in March 2003. HealthSouth imploded. Not only had HealthSouth indulged in fraud but its growth and dominance was because its fraud was far larger, had gone on for much longer, and was far more ingenious than any of its peers. In the 5 years between 1997 and 2003 the sum involved was US $2.7 billion. The company itself subsequently estimated that the total fraud over the years was in the region of US $4 billion. The amount of the fraud increased over the years peaking after 1997.
HealthSouth had found a far cleverer way of defrauding the system and lining the pockets of its founder and his close associates. It was just so simple. It knew the marketplace, the culture and the interdependency of the whole system. It banked on the fact that its auditors and its bankers who made a lot of money doing business with the company would not want to know, would not look and if they looked would not want to see. At most they would see only small individual discrepancies which they could ignore.
Many alleged that HealthSouth accountants would present Scrushy with the accounts which fell far short of analysts inflated predictions. This was unacceptable to Scrushy who handed them back and told them to "fix it" which they systematically and carefully did until the accounts matched or exceeded predictions. This was not done in writing. HealthSouth could not have predicted that 15 years later Worldcom and ...