Tag Archives: Accounting

HealthSouth, Inc.: A Case of Corporate Fraud

Background

The 1960s found 17-year-old Richard Scrushy pumping gas in Selma, Alabama, thinking of better opportunities. With his then-wife pregnant, Scrushy found his first real job working alongside his mother as a respiratory technician.5 After graduating from the University of Alabama, Scrushy was hired at an entry-level position at Lifemark Corp, a Houston-based health-care company.5 He worked his way up the ladder and, in no time, was running the company’s pharmacy, physical rehab, and merger departments.5 In 1984, Scrushy received a $1 million loan from Citicorp Venture Capital to start his own company, HealthSouth, Inc.5 HealthSouth, the first national chain of orthopedic hospitals and outpatient centers, quickly became one of United States’ largest owners and operators of inpatient rehabilitative hospitals.1,5 By 1996, when Scrushy took his company public, HealthSouth had a massive market value of over $12 billion.2 However, in retrospect, HealthSouth’s growth, market value, and financial statement values were not nearly what they appeared to be, as HealthSouth executives had perpetrated an upwards of $2.7 billion of accounting fraud.3

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The Rationalization of Fraud

With our discussion of Enron this week, I was reminded of an article I read in Audit class about the Psychology of Fraud. I feel as though we often hear stories about different accounting/financial fraud that have happened either in recent or past events and look at the perpetrators as awful, moral-lacking people without considering how one gets to the point of committing fraud.

The article highlights a massive bank fraud by Toby Groves and I felt as though remaking the conversation between Toby and a skeptical interviewer would be able to shed some light on how executives justify committing fraud in their companies.

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