Health South’s scandal Project Paper Hanxuan. Yang ACCT 202 Introduction to Managerial Accounting 5/2/2014

Project Paper
ACCT 202
Hanxuan.Yang
5/2/2014 Health South’s scandal

Introduction: In 1986, Health South completed the stock issuing and listing on the New York stock exchange. In past ten years later 1986, Health South frenzied merge related company, in 2002, Health South has become the largest private health care company in the nation, and it has many clinic, surgery centers and sanatorium all over 50 states in American, Australia, Canada and Britain. In March, 2003, Health South 's financial scandal beginning show up, this financial scandal have most people into that break the financial scandal record in listed company area all over the world . Have a false profits almost $2,500,000,000 let Health South become the world's second which have largest "accounting fraud".
What happened and why(In my opinion) In the Health South’s scandal, every links of the corporate management, especially the administration section, the board of directors and certified public accountant show up a serious offense. In the Health South 's scandal, every links of the corporate management, especially the administration section, the board of directors and certified public accountant show up a serious offense, which is the reason why Health South can pass through the forecast which come from Wall Street analysts, expectations, so it is the main reason let investors suffered huge losses. 1. Authoritarian management Health South use centralized management and let Scrushy to be the core. Scrushy is the founder of Health South, is also the chairman of the board and chief executive officer, he emphasizes his core position in corporate management, implement the "dictatorship". Because blind expansion, Health South bear a heavy financial burden, just for maintain his authority, Scrushy let accounting personnel to tamper the financial statements in order to eliminate the doubts of the people. 2. Board of directors is dereliction of duty In the face of people such as Scrushy, Health South 's board of directors will exist in name only, and Scrushy don't like employ independent directors. In 2001, the federal government and attorney general of the U.S.A sue Health South because their frequent affiliated transactions and insurance fraud with Medicare, but the Audit Committee have not made any response for these questions . And we found there are two numbers who work for Audit Committee have close transaction with Health South, Just imagine this, the executives and their directors are stand in ambiguous place, board of directors not possible to effectively supervise the managers. 3. Helpless internal auditing department Health South’s internal audit departments has no effect because audit committee is dereliction of duty，while they working they constantly get thwarted, unable to carry out financial audit and performance audit. Health South 's internal audit staff complained: "we can not contact the important books data, some modules of accounting software, we also do not have privileges to get access ." Lost the financial supervision, Health South 's quality of accounting information is not have guaranteed anymore.
The failure of CPA 1. The basis of CPA audit be undermined which independence is lost Data shows, until the Health South fire KY, Health South has been the biggest customer that KY have in Bermingham office. Only in 2001, Health South give $3700000 to KY . The direct economic