Last Updated 17 Aug 2022

Healthsouth Accounting Scandal

Category Accounting
Words 2293 (9 pages)

HealthSouth Accounting Scandal HealthSouth is the one of the largest providers of inpatient rehabilitative healthcare services in the U. S. HealthSouth is fully operational in 26 states across the United States and also in Puerto Rico. HealthSouth serves patients in various settings such as; inpatient rehabilitation hospitals, long-term acute care hospitals, outpatient rehabilitation satellite clinics and home health agencies. HealthSouth’s hospitals are able to provide an advanced care to patients that are recovering from neurological disorders, orthopedic, cardiac and pulmonary conditions, spinal cord injury, and amputations.

HealthSouth’s corporate is office is located at 3660 Grandview Parkway Suite 200, Birmingham, Alabama 35243. The company employs around 26,000 people. The company is listed as an Industry Healthcare Facilities. The symbol used by HealthSouth is HLS. The SIC code is 8060-Hospitals. (http://investor. healthsouth. com/) Richard Scrushy the founder of HealthSouth was at one time described by Steve Barnes of the AP as a self-made son of the new South, a former teenage parent who hauled himself up from a menial job to become the emperor of the new economy.

The problem was that the emperor of HealthSouth that he was describing would be later dethroned by an accounting scandal that would involve lies, bribery, and mail fraud, and deceit, prison time for several individuals, obstruction of justice and auctions. Richard Marin Scrushy was born in August 1952 in Selma Alabama. Richard grew up attending the Methodist church. Like any teenager he held several jobs. He attended Jefferson State Community College and became a Respiratory Therapist after studying at University of Alabama in Birmingham. Scrushy transferred to St.

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Louis, Missouri, then was promoted to the regional director of the respiratory therapy division of Lifemark Corporation. He then moved to Houston, Texas, and advanced in the company to the company’s COO. In 1984, Scrushy realized his dream of creating a comprehensive outpatient rehabilitation facility and founded Amcare in Little Rock, Arkansas. Amcare’s new name was HealthSouth. HealthSouth started trading publicly in 1986. (www. biography. com/articles/Richard-Scrushy-235385) Richard Scrushy and some of his closest friends founded HealthSouth in 1984.

The company was formed and had growth in mind from the beginning. The founding members had a plan for growth. By the end of 1987, after expanding into worker’s compensation and sports medicine, HealthSouth has doubled its revenues and had nearly $100 million in assets. By 2001, HealthSouth had more than $4. 3 billion in revenue and treated more than 100,000 patients a day around the world. The company had 60,000 employees and more than 2000 locations across the country. To accomplish the task of expansion HealthSouth opted to take over other companies with financial issues.

In 2003 the company HealthSouth, the largest U. S. operator of rehabilitation-hospitals, was under investigation by the Securities and Exchange Commission and the U. S. Justice Department for overstating earnings by $2. 5 billion since 1999. In 2003, HealthSouth CEO Richard M. Scrushy directed company employees to falsely report grossly exaggerated company earnings in order to meet stock holder expectations. HealthSouth had been dishonest about its income. Richard Scrushy the HealthSouth executive was one of the first executives to be charged under the Sarbanes Oxley Act.

In all a total of fifteen HealthSouth employees, including all five of the former chief financial officers, pleaded guilty to criminal charges. However the former CEO Richard Scrushy refused to admit any wrong doing involving HealthSouth. When HealthSouth requested that Scrushy resign he refused to honor the request. (www. washingtonpost. com) On October 16, 2003, Richard Scrushy flat out refused to testify before congress in a hearing. He angered lawmakers that said Scrushy had been at the center of an organization HealthSouth whose employees were intimidated and at times threatened if they challenged his authority.

Then on November 4, 2011, Mr. Richard Scrushy the ousted leader of HealthSouth was indicted on charges that he directed a $2. 7 billion fraud which designed to inflate the company’s stock prices to fund his super-luxurious lifestyle. Mr. Scrushy had purchased items like a Lamborghini, a 92-foot yacht, a private jet, paintings by Renior as well as Picasso, and a mansion surrounded by water. Next a Delaware judge on November 23, 2003, ordered Scrushy to repay $25 million in loans that he obtained from the company in 1999.

When you look at his salary in 2002, it included 3 million in salary, 10 million in bonus pay, and 99. 3 million in stock sales. It should not have been difficult for him to pay the $25 million he was ordered to repay from 1999. From 1996 through 2002 it was later discovered by the government that HealthSouth had reported 2. 74 billion in phony profits. In January 2004 the lawyers representing the former HealthSouth Corp. chief Richard Scrushy filed court motions that posed questions about the ability of the grand jury’s fairness.

The grand jury that had indicted Scrushy and demanded additional information from prosecutors was under attack. Meanwhile, in July of 2004 a grand jury indicted two of the former HealthSouth Corp executives Robert Thomson and James Reilly both for a bribery scheme that included the company’s $50 million contract to run a hospital in the country of Saudi Arabia. September 28, 2004, Prosecutors said that the government would not seek additional prison time for former HealthSouth Corp. assistant controller Emery Harris who was resentenced after serving five months for fraud.

On September 29, 2004, Federal prosecutors made an announcement about obstruction-of justice charges against HealthSouth’s Corp. founder Richard Scrushy. Scrushy was accused deliberately lying to regulators and urging subordinate to lie to support his story while using his position of power to intimidate them. The former chief HealthSouth scandal did not slow Richard Scrushy down at all. He continued to live the larger than lifestyle that he had become accustomed to before HealthSouth’s fortunes plunged. His larger than life persona follows him everywhere and he definitely acted the part.

While his employees pleaded guilty to various fraud charges and their assets were being seized under federal forfeiture laws Scrushy continued to think of only himself. (www. nytimes. com/2003/09/26/business/healthsouth-scandal. com) The case against HealthSouth Corp. founder Richard Scrushy collapsed in June 2005 under the weight of the personal baggage carried by key witnesses and the “smoking guns” the prosecutor. In Birmingham, Alabama, on June 28, 2005, after only 21 days of deliberation, the jury of men and women cleared Mr. Scrushy of all 36 criminal charges of which he was tried.

The charges included conspiracy, securities fraud, mail fraud and a single charge under the Sarbanes-Oxley Act. The Sarbanes-Oxley Act was a statue Congress enacted to force companies to strengthen their internal controls and mandate penalties for CEOs and finance chiefs that sign false financial filings. The verdict handed the government down a defeat in its high profile campaign against corporate corruption and its first attempt to try to convict a CEO for violating the Sarbanes-Oxley which were both huge failures. Four months later he was indicted on new charges of bribery and mail fraud in connection ith former Alabama governor Don Siegelman. Scrushy was accused of donating $500,000 to Seigleman’s campaign in exchange for a seat on a state hospital regulatory board. Both Scrushy and Seigleman were convicted on multiple charges, including bribery, mail fraud, and obstruction of justice. Both men received sentences of close to seven years in federal prison. (www. biography. com/articles/Richard-Scrushy-235385 ) The accounting scandal was described by Securities and Exchange Commission that since 1999 the company and its profit statements were overstated by $2. 5 billion since 1997 according to the wall street journal.

To boost profits HealthSouth executives overbooked certain revenue accounts that later “bled out” into revenue, according to the journal story. Scrushy was accused of insider trading and was fired as HealthSouth’s chairman and CEO. In 2009, Scrushy was ordered to pay HealthSouth shareholders $2. 9 billion to settle a civil suit. Scrushy is presently serving his imposed sentence at the Beaumont Federal Correctional Complex in Beaumont, Texas. (www. biography. com/articles/Richard-Scrushy-235385 ) He is 58 years old and is scheduled to be released from prison on 06-08-2013. He will be 60 years old when he is released from prison.

He is still married to his wife Leslie Ann Jones. He has nine children and several grandchildren. He was sued and his personal items were auction off to pay judgments ordered by the court against him. Other people that worked with him at HealthSouth admitted guilt and were sentenced to prison while Scrushy maintained his innocence. He is not serving time in prison for his accounting scandal but for charges that stemmed from him trying to purchase a seat on the state hospital regulatory board. I guess his story really is about an average guy going rags to riches becoming greedy and power obsessed then going to prison for several years.

The wake of destruction from the HealthSouth accounting scandal not only affected Scrushy but the employees that served prison time and their families. Later even the Governor of Alabama was influenced by the former HealthSouth executive and also served time in prison. HealthSouth continues to operate today. It is The company that was started by Scrushy was not destroyed by the scandal. The HealthSouth headquarters is still located in Alabama. The influence that comes with money and power is something that is really obvious in this story.

Scrushy was able to influence his employees into reporting false financial information by grossly exaggerating company earnings in order to manipulate stockholders into thinking that HealthSouth had met their expectations and he was able to manipulate the governor of Alabama into allowing him a seat on the state hospital regulatory board. Richard Scrushy committed accounting scandal that would involve lies by directing employees to file false financial information in order to deceive stockholder about earnings, bribery, mail fraud, prison time for several individuals employed by HealthSouth.

His destructive behavior continued and later included the governor of Alabama going to prison with Scrushy. Scrushy was one man that built a mega successful business. Although the business was not destroyed by the founder during his quest for power some of the people had their lives forever altered by his decisions. Richard Scrushy directed his staff to file phony profits totaling 2. 7 billion. He then denied directing his staff to report false profits. He was acquitted of 36 charges related to HealthSouth fraud but others admitted guilt and served time in prison for the crimes.

Scrushy was sued and forced to auction off his assets to pay restitution. He later attempted to buy a seat on the hospital board for the state of Alabama for $500,000 and was tried and sent to prison for 7 years. The HealthSouth case is interesting because it has negative stock holder equity. The return on common stock for HealthSouth Consolidated was -28. 63% and the debt to equity ratio are negative as well. The total asset turnover in 2010 was 94. 29% yet the company continues to operate. The Net income in 2010 was 939. 8 million.

Perhaps the preferred stock is being paid large amounts so the common shares of stock would get nothing. I wonder if any of the Scrushy family has preferred stock left in HealthSouth since he was the founder. Scrushy went from being a healthcare worker to the owner of HealthSouth then to prison for bribery instead of any charges stemming from his wrong doing at HealthSouth. In summary, Richard Scrushy had odd jobs as a teenager; he later went to college to become a Respiratory Therapist. He went to work for Lifemark Corporation. He climbed his way through the ranks.

He later decided to start his own company which is now known as Amcare that later changed its name to HealthSouth. HealthSouth was a successful company. The company made lots of money. The company made Scrushy a very wealthy man. His life story is story was one from rags to riches. He was married a total of three times and has several children. He became a very influential man in Alabama. He is still married to his third wife whom he met while a Bahaman vacation. Richard Scrushy thought he was above the law. Scrushy thought he was untouchable.

He never admitted guilt for his part in the HealthSouth Accounting Scandal nor did he serve any prison time for it. He was required to auction off items as ordered by the court to pay restitution. The HealthSouth Accounting Scandal could have been avoided if the person that started the company Richard Scrushy had not directed company employees to falsely report grossly exaggerated company earnings in order to meet stock holder expectations. It is my opinion that he should have reported the corrected information and the chain of events that followed would not have occurred.

If he made the decision to report the correct information then his HealthSouth employees would not have been sentenced to prison and his company could have sustained a loss. HealthSouth remains open at its stock is trading at about $24-26 dollars a share. Works Cited "Richard Scrushy Biography - Biography. com. " Biography. com. N. p. , n. d. Web. 18 Apr. 2011. <http://www. biography. com/articles/Richard-Scrushy-235385>. "Richard Scrushy Biography - Biography. com. " Biography. com. N. p. , n. d. Web. 11 Apr. 2011. <http://www. biography. com/articles/Richard-Scrushy-235385>. "HealthSouth Corporation - Investor Overview. HealthSouth Corporation - Investor Overview. N. p. , n. d. Web. 10 Apr. 2011. <http://investor. healthsouth. com/>. KOLATA, GINA. "Health News - The New York Times. " The New York Times - Breaking News, World News & Multimedia. N. p. , n. d. Web. 14 Apr. 2011. <http://www. nytimes. com/healthsouth-scandal. com>. "The Washington Post: National, World & D. C. Area News and Headlines - washingtonpost. com. " The Washington Post: National, World & D. C. Area News and Headlines - washingtonpost. com. N. p. , n. d. Web. 13 Apr. 2011. <http://www. washingtonpost. com>.

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