The SEC charged and found guilty, fifteen executives ith accounting fraud they also admitted that they were a part of the fraud. If they had co-operated with the authorities the fraud would have been detected. Nobody wanted to decrease their wealth that occurred due to their unethical practices. According to (Lublin & Carms, 2003 paral ) one Of the directors, made a statement that they were not aware of what was going on. Their loss of accountability and transparency is obvious. They became oblivious to the fact that they were cheating investors of millions of dollars. Confusion is apparent because they did not know what was ethical anymore.
Richard Scrushy was the mastermind behind this fraud. The Board of directors attested to the fact that Scrushy, should be held accountable. They eventually figured out his intentions and became aware that his scheme was not in the best interest of the company and the shareholders. Ms. Diane Henze, who was the former Vice President of finance realized what was going on and reported her suspicions to HealthSouth’s compliance department. Due to her suspicion and whistle blowing she was transferred to another division (Reeves, 2005). HealthSouth Board of Directors were not treated the same.
Board leaders such as Larry D, Striplin Junior were treated favorably. He received contracts for millions of dollars, to install glass at a HealthSouth in 2002. According to Striplin his company had the lowest bid of 5. 9 million dollars. Scrushy acted surprised when he heard about this and stated that if he was aware of this, it would not have occurred. Within a few months after winning the bid, Striplin resigned from the litigation panel of which he was member. He was awarded, the chairmanship of the board of directors committee and resigned from the auditing committee. Cubin, 2003. This was definitely a tactic constructed via Scrushy and his longtime pal Stiplin, since he benefited financially from this as well. HealthSouth’s auditor knew of the accounting fraud five years, before it became public. They were tipped off, by an anonymous HealthSouth shareholder. A memo dated November 1998, was sent to the accounting firm, concerning a possible accounting fraud. The memo consisted of information regarding bookkeeping violations at the rehabilitation services company. Questions such as: “How can some hospitals have NO bad debt reserves? How did the E&Y auditors in Alabama miss this stuff?
Are these clever tricks to pump up the numbers, or something that a novice accountant could catch? How can the company carry tens of millions of dollars in accounts receivable that are well over 360 days? ” the shareholder asked in the letter. Ernst & Young stated they conducted a review at the time the allegations were made and did not see were the issues raised affected the presentation of HealthSouth’s financial statements. HealthSouth employees were also affected. According to Rossbacher, “The business of HealthSouth certainly eems as if it was based on cheat and fraud, not health care.
The employees were working for years on designing and implementing the company’s criminal structure and layout. ” The frauds were obvious and the crimes were apparent (Rossbacher, 2006, p. 203). Fraud, bad attitude, hypocrisy, disrespect, frankness and deceit were a common and day to day practice among HealthSouth employees. Employees became scared of losing their jobs, also afraid of Scrushy compulsive authoritarian leadership style. Once a job responsibility was given, it was accepted and no questions should be sked.
They adapted their behavior according to the situation. HealthSouth became Birmingham (HealthSouth hometown) largest private employers, 3500 employees in an around the city. This was short lived; thousands of workers were laid off Employees who were suspected of pleading guilty were sacked or suspended (Jennings. 201 1). Pension plan held 3. 3 million dollars shares of HealthSouth stock now a fraction of its previous value. Accurate financial statements were not given to investors. They made their financials attractive for Wall Street to attract more investors.
Companies uch as USB and Citi encouraged investors to invest in HealthSouth Stock. They refused to contribute to the balance of budget Act. They stated this would have a negative impact on the company. This Act was to assist in reducing Medicare spending which HealthSouth relied on. Since Medicare fraud was a major part of their profits and they depended on it to increase their personal wealth and status. The investors had huge loss on their stocks and shares fell once the fraud came public. Investors’ confidence In HealthSouth declined and they stopped investing in the company (Bucyr2010).
The real purpose for the HealthSouth organization, was not only to generate profit, but to provide impatient and outpatient Medicare service. To gain profits from Medicare became Scrushy and his counterparts’ main purpose. They submitted Medicare bills and gain profits on services that were not rendered to patients. As the first rule of business states, ‘Once in business stay in business’ was a thing of the pass during that time at HealthSouth. The fraud had impacted the patient’s services. This was caused by the reduction in staff, hence the decrease in quality service.
The patients filed complaints about this. They received a high padded bill but the services did not compensate for this. The unethical practices of HealthSouth fraud impacted, Weston Smith, one of the Chief Financial Officers. USA Today post, dated September 2005; refer to Weston, as the main Whistleblower in the accounting fraud at HealthSouth. He got the longest sentence, which was 2 years. The former executive was sentenced to probation. Weston initially employed by Richard Scrushy as a middle manager then climbs up the corporate ladder and became CFO after a few years within the company.
He spoke about greed becoming a motivating actor in his life, as well as the fear of getting caught. The fraud started out with $40,000 to tens of millions of dollars every quarter. ‘The effect on the fraud was not so much about the $3 billion dollar fraud, its more about the critical lessons learnt”. (Weston, 2003). What are the critical lessons? Ethics must be internalized. We must take ownership of its principles. There is no such thing as “business ethics. ” Ethics is ethics. The same decisions we make in our personal lives affect our business decisions and vice versa. Unethical behavior must be recognized at its root level.