health south corp - accounting scandal
TRANSCRIPT
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CORPORATE GOVERNANCE
PRESENTED TO: SIR JAVAID ZAFARPRESENTED BY : SANA MUNIR
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HEALTHSOUTH CORPORATION
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HEALTHSOUTH INTRODUCTION
leading provider of medical rehabilitation more than 1,900 locations Various facilities
Rehabilitation hospital Outpatient Therapy Services Long Term Acute Care Hospital Home Health Rehabilitation Technology
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HISTORY
Established in 1984, Richard Scrushy, CEO and Chairman of Board Of Directors
Appealed to medical community Expanded and Profited Rapid Growth through Acquisitions Fall and Rise Of Revenues within Same
Year
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ACCOUNTING SCANDAL
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1. To meet Wall Street’s Expectation
1.
FIX
THE
EARNINGS
To Make up the shortfall
Meetings were organized
In 1997, Attendees refered as family members
Fill the "gap" or "hole"
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Income Before Income Taxes And Minority Interests
1. To meet Wall Street’s Expectation
2.
OVER
STATED
EARNINGS
Income (Loss) before Income Taxes and Minority Interests (in $ millions)
1999Form 10-K
2000Form 10-K
2001Form 10-K
June 30, 2002
Actual $(191)
$194 $9 $157
Reported 230 559 434 340
Misstated Amount 421 365 425 183
Misstated Percentage 220% 188%
4,722%
119%
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2. Insider Trading
1997, Scrushy planned to sell stock, & wanted to maintain the current stock price.
Scrushy advised to abandon the manipulation he refused and said, "not until I sell my stock.“
1998, selling of stock, announced that company is likely to miss the analysts' estimates for 1998 and 1999.
2003, Sold 5.2 million shares for $14.05 and about 2.5 million more shares back to HealthSouth at $10.06 each, Share value dropped by 50%
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He has sold at least 7,782,130 shares of Healthsouth’s stock since 1999
99-02, Healthsouth paid Scrushy $9.2 million in salary.
Scrushy received $6.5 million from Healthsouth during 2001 in "Bonus/Annual Incentive Awards”
3. Personal Profits
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1992 "absolutely necessary" to restructure
1999, split inpatient and outpatient services
2002, Recomposing the plan.
4. Hiding the Fraud: To Restructure
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DETECTION OF THE FRAUD
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Detection of Fraud
On Radar of SEC
Fleeced Shareholder
An employee of Healthsouth had written a letter to the E&Y audit team
An employee sent an email to Healthsouth's auditor, Ernst & Young, also used Yahoo Forum.
A former CFO of Healthsouth, Weston Smith, was a whistle blower 2003
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PENALTIES FOR FRAUD
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Richard Scrushy CEO and Chairman
Falsified financial results by $2.7 billion since 1996.
Was not pleaded guilty
Has been indicted on 85 counts in a massive federal fraud
Government's court filed six "crimes, acts or wrongs"
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Chief Financial Officers
Malcolm McVay, was sentenced to 6months home detention and five years probation after the tenure, also fined $10,000 and ordered him to forfeit $50,000.
Michael Martin to five years probation, also fined Martin $50,000 and ordered him to forfeit gains of $2,375,000.
Aaron Beam, was sentenced to three months in jail, was also fined $10,000 and ordered to forfeit $275,000.
Weston Smith, who blew the whistle on the accounting scandal ,was given 27 months in prison and was also ordered to forfeit $1.5 million
William Owens, was sentenced to five years in prison. Owens is contesting the government's request that he forfeit $12 million in assets.
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Ernst and Young
ROLE OF AUDITORS
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Healthsouth employees were Previous employees of E&Y
Overlooking the accounts Why to be Picky??? Ernst & Young received$1.16m (pounds
700,000) in audit fees and $2.39m in "audit- related fees" in 2001.
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Penalties to Ernst and Young
Still had not been charged with criminal conduct in the fraud.
But the accounting firm still in 2007 was subjected to multiple lawsuits.
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BOARD OF DIRECTORS
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Scrushy, Chairman of Board of Directors
Healthsouth board viewed as beholden to Scrushy
Doubts created on Scrushy’s actions Board Members Shareholders Dismissed the concept
2002, Recruiting the outside investor
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CORPORATE SOCIAL RESPONSIBILITY
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CONCLUSION
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QUESTIONS ???
THANK U