Ethic Management

Chapter 1 : Ethnics and Business
Case : Aaron Beam and the HealthSouth Fraud
Question 1 :
Which of the “obstacles” to moral behavior do you see at work in Aaron Beam’s behavior and thinking? In Scrushy’s ?

Moral brings the meaning of private conduct based on strict adherence to a sanctioned or accepted code or dogma of what is right or wrong, particularly as proclaimed in a sacred book, or by a non-secular group or sect. Moral behavior is the way of peoples’ acts or conducts oneself based on accepted code or dogma of what is right or wrong, particularly as proclaimed in a sacred book, or by a non-secular group or sect.

Referring to the case, there is few “obstacle” to moral behavior at work in Aaron Beam’s behavior and thinking. Firstly, he failed to notice the future consequences might bring to him and the company when he was pressured and awed by Scrushy and eventually start commit fraud by moved some of the company’s startup cost from the “expenses” column to the “capital investments” column, which enable the company to manipulated and showed the large profit in the financial statement.

To convince himself, he described the move and action to himself as “aggressive accounting” , not “fraudulent” although the action committed include “little “misleading to investors and bounds of accounting rules. Besides, from Aaron Beams’ point of view, his action at least disclosed the information needed and the information was sophisticated enough to investors in understanding the position of the company. However, it is clear that Aaron Beam violate the morality as he was using the loopholes of the General Accounting Standard Principles (GAAP) and tend to manipulate the meaning of “expenses” and “capital investments” in financial statements so that large profit can be showed to current and potential investors. In accounting standards, it defined as misrepresentation.

Second, as the action committed before bring substantial wealthy to himself and to his partners, Richard Scrushy, he continued using the “aggressive accounting” practices in the company’s financial reports. When the company expanded their business to other locations, he had some of the costs capitalized instead of being expensed, and sometimes the added revenues from the new locations were listed as revenue growth from the company’s previous locations. Besides, instead of writing off unpaid receivables, Beam just kept them on the books as company “assets”.

Aaron Beam continued to reassure himself with the thought that “astute investors knew what they are doing and saw it as financial gamemanship and not outright fraud. Regardless how Aaron Beam reassure and convinced himself what he did are not fraud, it is clearly showed that Aaron Beam had obsessed with the wealth provided although he was dilemma with the action he committed at the beginning. As he saw the “aggressive accounting” is financial gamesmanship and not a fraudulent, hence he can reassured himself by he did not against the standards of accounting and harming the wealthy of the investors.

Lastly, in the situation of negotiating a new credit agreement and getting the extension of credit amounting $1.25 billion during the shortfall of the company, Aaron Beam have to keep as much as information about the shortfall as possible from leaking out of the company. He believe everything would be okay and shortfall will not last longer.

To provide favorable quarterly financial statements, Aaron Beam decided to fix the company books with two people from Finance Department and other employees. They went through the earning reports of HealthSouth clinics scattered around the country by inserting many small additional revenue in each report and then consolidated all the reports into a single corporate report. Aaron Beam believe that inserting small revenue will not involve high risk or exposure as he knew that external auditors will only check the validity of large revenue entries.

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