The Accounting Scandal of Healthsouth Short Summary

The Accounting Scandal of HealthSouth HealthSouth Corporation is based in Birmingham, Alabama, it is the largest provider of rehabilitative health care services. It operates in 26 states in the United States of America and in Puerto Rico. HealthSouth provides rehabilitation hospitals, long term heightened care hospitals, outpatient rehabilitation satellite clinics and home health agencies. HealthSouth was found by Richard Scrushy in the year 1984 and was called Amcare, Inc. It opened its first facility in Arkansas and later on that year another one in Birmingham.

In 1985 the company changed its name into HealthSouth Rehabilitation Corporation, in 1990 the company expanded to 50 facilities around the US. HealthSouth finished out in 1992 with $400 million and in 1993 the company made its first large acquisition when it bought 28 hospitals and 45 outpatient rehabilitation facilities from National Medical Enterprise for around $300 million in cash; this doubled the company’s annual revenue to $1 billion. Scrushy became one of the most paid CEO’s, from 95 to 98 Scrushy earned $8. 3 million in salary, more than $23 million in bonuses, $4. million in stock option award and $700,000 in other compensations. By the year 2002 Scrushy owned 5. 1% of HealthSouth shares, which equaled to $20. 9 million of the company’s shares. HealthSouth is known for the massive accounting fraud that was discovered in 2003 and this accounting fraud almost led the company to bankrupt. Although HealthSouth emerged from this experience and has so far had a successful recovery, but the memory of the scandal is still and will always be fresh. HealthSouth problems started to show in the middle of 2002.

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Scrushy sold about $75 million of HealthSouth stock several days before the company announced those big losses, on top of that the 7. 7 million shares that he sold between the year 1999 and 2001. The Securities and Exchange Commission started investigating in the company to realize whether the sales were related to the loss, which would be violating to the trading rules. HealthSouth financial officer William Owens contributed with the securities and exchanges commission and became an informer by recording his conversation with Scrushy to provide the government evidence for their case.

In one of the conversation Scrushy said to William Owens that he could get killed if he fixed the financial statements immediately, but this problem could easily be dealt with over time. On March 19 of the year 2003, Securities and Exchange Commission brought the trading of HealthSouth to an end on the New York stock exchange, charging the company for inflating its earnings by more than 10 percent and overstated its profits by more than $2. 5 billion between 1999 and 2002. HealthSouth’s trading reached to $30. 81 in the year 1998, but ever since the trading of the company has been put to an end it reached to $3. 1 per share. One week later, Owens pleaded guilty to changing and editing the company’s financial statements. On March 31, the board of directors fired Scrushy and Owens and the auditors Ernest & young. The company removed Scrushy’s name from the conference center and hired a restricting firm to help the company to avoid bankruptcy. As HealthSouth started reviving from the scandal, Scrushy’s problems were only starting. In October of the year 2003 Scrushy faced more than 85 charges, including charges that he falsified accounts at the HealthSouth’s company which lead to $2. billion fraud of investors, by reporting conjured profits. Federal officials charged Scrushy with fooling investors into thinking that the company met earning profits to boost the company’s stock price; to support his luxurious lifestyle. At the trial some of the former executives of HealthSouth testified against Scrushy claiming he ordered the accounting manipulation, but these officials were pleaded guilty so they agreed to testify against Scrushy to lower their sentence; therefore prosecutors could not come up with evidence to tie Scrushy with the fraud.

Judge Karen then dismissed 49 charges out of the 85 against Scrushy, Scrushy however faced further court action, and in 2006 he was convicted of conspiracy, mail fraud and bribery. He was sentenced in 2007 eighty two months of prison and 3 years of probation and ordered to $150,000 of fines and costs of his confinement. Ever since the accounting scandal was revealed and found, HealthSouth have taken many steps to turn the company around to the better and into becoming a stronger company. It got a new senior management team and the directors working in the company when the fraud occurred have been fired.

HealthSouth was able to avoid bankruptcy by selling assets and by renewing contracts. Hundreds of experts were brought to help in reconstructing the company’s record, improve the accounting policies and more. HealthSouth even got approved by the NYSE in October of the year 2006, as part of corporate restricting plan; the company also sold its diagnostics division, surgery division and outpatients divisions on 2007. With this new structure for HealthSouth firmly in place, the company continues moving ahead to the best and it will leave whatever happened behind in the past.

Resources: * http://www. huffingtonpost. com/2010/03/17/biggest-accounting-scanda_n_502181. html#s74418&title=Madoff_Scandal_ * http://www. scribd. com/doc/16379247/Accounting-Fraud-at-HealthSouth * http://www. uow. edu. au/~/bmartin/dissent/documents/health/access_healthsouth. html * http://american-business. org/2533-healthsouth-scandal. html * http://en. wikipedia. org/wiki/HealthSouth * http://www. washingtonpost. com/wp-dyn/articles/A695-2003Nov4. html

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