HEALTHSOUTH SCANDAL

Company background
 Company was found in 1984 in Birmingham, Alabama
 Company is involved in providing health care services and products
 Employed more than 60,000 employees and have 2,000 facilities
around the world
 Largest publicly traded health care company in USA
What happened & When?
 In2002, CEO sold $75 million of stocks days before the company
recorded huge loss
 SEC and FBI started investigation. FBI raided their headquarter in
2003
 Investigationfound that the company had overstated the revenue
and assets over $3.8 billions to $4.6 billions between 1996 and 2003
 False information drove inflated market value of the firm
 Once the fraud was exposed, the stock price falls and investors lost
millions of dollars
How the books were cooked?
 Pressures
 CEO, and other top officials found that their actual
performance was below market expectation
 CEO ordered the finance staff to to “fix it”
 CFO and Managers held “family meeting” to discuss how to cook
the books during these meetings
 Bookkeeper, Michael Vines was
How the books were cooked?
 Opportunity
 Weak internal controls.
Lotsof fictitious entries that overstated the revenue and assets
were created without being detected
Fake documents were created to hide the entries
 Weak corporate governance, CEO and chairman was one
person
 Rationalization
 Blaming supervisors
 Low morale
 Penalty
 CEO was acquitted of 36 counts of fraud and but was convicted
for bribery
 CEO is now released
 The
company now has renamed as Encompass Health
and relisted again in 2006
 Q&A

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