Case Analysis

HealthSouth is one of the nation's largest healthcare services providers

-Investors and lenders focus on revenues and become less concerned with profitability.

-Earnings at HealthSouth were overstated by anywhere from $3.8 Billion to $4.6 Billion over several years. This false information drove

inflated market values for the rum, which attracted more capital investment_

-The majority of HealthSouth's management team participated in committing fraud.

Case Analysis

the market value was exposed as inflated by fraud, thousands of investors lost money as the price of the dock collapsed.

-HealthSouth used unethical accounting measures (aggressive accounting techniques)

-In short, top company officials reviewed quarterly unpublished financial results and compared the results to market expectations. If

they were short, managers were ordered to "fiitAgftf&flhh&d "family meetings. to manipulate the results which they called "filling the

gap." Staff ("family members.) then made false entries inflating assets and income. Finally, false documents were crea.1 to hide the

false entries.

What Should We Do?

• Fraud will be caught and it will be punished, the lives of those who committed the fraud have largely been destroyed.

• None of that is comfort to the thousands of employees and investors of HealthSouth who lost significant portions of their life savings

due to the theft and deceit of relatively few people.

The Effect

• A management team that is intent and unified attempt to override the audit can easily do so.

• Collusion among several members of management makes the commission of crimes almost impossible to stop and difficult to catch.

• Small concessions lead to greater compromises and, unchecked, will lead to serious ethical lapses and even clime. Ilia is amongst the

management team.

The effect continued.....

• Personal morality and ethics make up the collective morality and ethics of a corporation.

• A legal or ethical compromise opens up the possibility °Mat original compromise being used as blackmail to participate further. Mr.

Crumpler's story is an illustration of the continuing leverage of a criminal enterprise once there has been participation. It is perhaps the

most insidious pathway from ehristake" to airainal involveme

Signing off on a substandard product:

• Laura going against management outweighs going with it

• Any malfunctions would reflect poorly on Laura end the company

o Malfunctions can have a great effect on her employmentstatus

o Quality standards not rnet = Lawsuits

• Losing the company contract is better than having a malfunctioning product