HEALTHSOUTH: A CASE STUDY IN CORPORATE FRAUD

HealthSouth: A Case Study in Corporate Fraud



Abstract

The paper highlights the case analysis one of the big financial fraud which occurred from 2002-2004. The case of HealthSouth is based on fraud, greed and corporate governance. The HealthSouth case shows that unethical management cannot succeed; sooner or later the truth comes out. The case highlights many key points and the major reason for the fraud was the result of failures of various standard mechanisms of control including the external auditors, the underwriters, and the board of directors, the financial market regulators and the analysts.

HealthSouth: A Case Study in Corporate Fraud

Introduction

It can be said that the efficient governance system are well mechanized in lace for detecting and bring forth the frauds cases in front of the public for a reason that the misallocation of the resources will be stopped. However still a question that arises is that what type of control mechanism are actually effective for preventing from the corporate frauds.

Moreover the new millennium has faces a remarkable disclosures of corporate fraud cases, not just in the U.S but all around the globe. Thus, all these frauds are marked important not just because of the magnitude; in fact the time period is also taken under consideration. The case that is to be discussed is about the HealthSouth fraud which has shown that the duration and magnitude of this case was actually the result of failures of various standard mechanisms of control including the external auditors, the underwriters, and the board of directors, the financial market regulators and the analysts (Johnson, 2010).

Justification or Significance of Selected Case

HealthSouth was one of the country's largest providers of outpatient surgery, diagnostic imaging, and rehabilitation services, operating over 1,800 locations and reporting revenues of $4 billion. The company's management improperly accounted for some $2.7 billion of assets and earnings. Seventeen HealthSouth executives agreed to plead guilty to various charges in connection with this massive accounting fraud.

The HealthSouth case shows that unethical management cannot succeed; sooner or later the truth comes out. For decades Richard M. Decades for Richard M. Scrushy benefited and gained a huge fortune based on fraud, it could not prevent him from being sentenced to prison.

Thus, in the HealthSouth case, the research shows that it was close to the real life examples of the people who were “just employed”, however at the same time their transformation from the line of law-abiding citizens towards the law-breaking villains. Apparently the small compromises in morality and ethics led towards the greater compromises and as a result it turned into a full-scale commitment fraud (Johnson, 2009).

Case Description

In 1984, Richard M. Scrushy founded the company in Delaware AmcareInc, which would be renamed in 1995 as HealthSouth Corporation and became the largest provider of health services in the United States of America.

HealthSouth went public in 1986 and began trading on the NASDAQ Stock Market. The company entered the Stock Exchange NYSE under the symbol HRC in ...