HealthSouth Corporation Financial Fraud

In 2003, the US Securities and Exchange Commission accused the HealthSouth Corporation of misrepresenting net income.

Assignment and Questions Research the HealthSouth Corporation financial fraud in your library or on the Internet. Your research may include a review of the three references listed here:

Barry, K. 2009. “HealthSouth’s Corporate Accounting Scandal: A Case Study in Fraudulent Financial Reporting.” Published June 9.

Stanford Graduate School of Business. 2011. “Ethics and Fraud at HealthSouth: Lessons from Inside a Corporate Meltdown.” YouTube video of a presentation by Aaron Beam, the first CFO at HealthSouth Corporation, after he got out of jail. Uploaded January 13.

Weld, L. G., P. M. Bergevin, and L. Magrath. 2004. “Anatomy of a Financial Fraud.” CPA Journal. Published August.

Once you complete your research, answer the following questions:

1. What were the underlying reasons or economic motivations for the fraud?

2. What was the specific nature of the fraud? Which financial statements were inaccurate due to the fraud?

3. Who were the HealthSouth external, independent auditors? What did they receive in fees for 2001?

4. Did the external auditors uncover the fraud? Why or why not? If not, how was the fraud uncovered?

5. Were any employees criminally indicted, and, if so, what were their positions with HealthSouth Corporation?

6. Has anyone gone to jail over the fraud? If so, who and for how long?

7. What were the consequences of the fraud to stock investors in HealthSouth Corporation?

8. What financial metrics (ratios) might have pointed to the fraud before it was discovered?

9. What is “hindsight bias,” and how might it affect your answer to the previous question?

10. What, if any, lessons can we learn from this fraud?

Type of assignment: case study

Subject: Healthcare

Pages: 2/550

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