Healthsouth Fraud

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Healthsouth Fraud

By | December 2012
Page 1 of 4
HealthSouth Fraud Case Review

Michelle F. White
June 6, 2012 HPA 726

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...