Healthsouth Fraud Essay

In 1984, Richard Scrushy, an ex-respiratory technician started his own business, the initial national chain of orthopedic hospitals and outpatient centers in the United States called HealthSouth[x1]. Later in 1996, the company was found out perpetrated by its executives of accounting fraud around 2.7 billion US dollars behind the fast growth during the years. This is due to the demand of increasing the stock price and meeting analyst expectations that unintentionally put the pressures on the company’s CEOs to continuously leverage its growth. With the supported environment, HealthSouth began to play tricks towards the law of accounting procedures and policies that the procedures will be considered legal if none of them directly violate GAAP, …show more content…
The method called plugging holes with dirt by altering the earning numbers like inappropriately recording the expenses, estimating the reimbursement on insurance higher than usual, also overrating the fixed assets, and using the fault reserve accounting, which gradually conducted by Scurshy and further 5 CFOs in HealthSouth until 2003. The fraud had been concealed for so long since HealthSouth executives were the former auditors at Ernst & Young, or E&Y that they absolutely know how to cover the fraud from being public by deceiving the E&Y auditors that who took the role in auditing HealthSouth at that time. Finally, there were several outside sources helped E&Y auditors to discover the accounting fraud conducted in HealthSouth from the ex-bookkeeper at the company and the company’s shareholders with warnings and doubts towards capital accounts, accounts receivable, and outpatient treatment without precertification. Afterwards, the fraud was revealed to the federal investigators by the former CFO in HealthSouth, Weston Smith since he did not want to lie anymore. Scurshy and his executives family, or the CFOs then sentenced for five years in the