ceo richard scrushy

Richard Scrushy : 

Presented by: Richard Scrushy Michael W. Rankine Amber Karkauskas Nancy Nomiko Heather Lampert Joni Haston First CEO charged in violation of the SOX law

Abstract : 

Presentation will review Srcushy’s background, psychological profile, accounting principles violated, how the fraud could have been prevented, and how it relates to the fraud triangle. Examine how he committed what would become one of the greatest frauds in U.S. history. Abstract

Abstract : 

Abstract In the following video is an interview with former CFO of Scrushy’s company, Health South. Mr. Aaron Beam shares his perspective of how such fraud took place. Press play 

Background Analysis : 

Scrushy grew up in a middle-class family. He was active in sports and choir and worked many jobs as a young adult. He married at a young age. He and his wife had two children together. They later divorced, and Scrushy went on to marry two other times and fathered seven more children. He dropped out of high school but later completed his GED and went to college. He became a Registered Respiratory Therapist. He began his career as a teacher in Respiratory Therapy. Background Analysis

Psychological Profile : 

Scrushy’s start to success He had the strong will and drive to achieve his dream of HealthSouth. Once HealthSouth took off he was the king of his empire. Scrushy the narcissist Egotistical traits He managed like a dictator of selfishness. He loved receiving praise. He was looking to be applauded constantly. He devoted time away from HealthSouth to be a rock star. Vanities He was always well dressed. He was proud of his possessions and of his role as a CEO for HealthSouth . Psychological Profile

Psychological Profile : 

Psychological Profile Scrushy’s life now After his arrest he turned to Jesus He is preaching religion on local TV He still enjoys being in the center of attention

Fraud Triangle : 

Perceived Pressures Financial pressure from high spending in Scrushy’s personal and business life; He self-indulged and craved high ticket items; Fear of job dissatisfaction by Board of Advisors and the investors; Because of continued fraudulent company financials, Scrushy felt that he had to continue building the lie so as not to be discovered. Fraud Triangle

Fraud Triangle : 

Perceived Opportunity Because of Scrushy’s narcissism, he used whatever means necessary to exploit the opportunities he envisioned; He maintained the culture and system of controls throughout HealthSouth, specifically when it came to Accounting procedures and entries; Encouraged collusion from his executive team and CFO’s and they acquiesced to his manipulations; Fraudulent statements allowed Scrushy to impair the judgment of the government, Board of Advisors, investors and the public. Fraud Triangle

Fraud Triangle : 

Rationalization The more the Scrushy perceived opportunity and/or pressure, the less rationalization he required to be motivated to commit fraud; Scrushy’s personal financial pressures and vices, along with draining fiduciary responsibilities on behalf of HealthSouth, drove him to engineer and exploit financial statement fraud opportunities. Fraud Triangle

Accounting Principles Violated : 

According to the United States Securities Commission website, accounting principles violated by HealthSouth Corp since 1999 had overstated its earnings by at least $1.4 million. This massive overstatement occurred because HRC's founder, Chief Executive Officer and Chairman of the Board, Richard M. Scrushy ("Scrushy"), insisted that HRC meet or exceed earnings expectations established by Wall Street analysts. Accounting Principles Violated

Accounting Principles Violated : 

When HRC's earnings fell short of such estimates, Scrushy directed HRC's accounting personnel to "fix it" by artificially inflating the company's earnings to match Wall Street expectations. To balance HRC's books, the false increases in earnings were matched by false increases in HRC's assets. Accounting Principles Violated

Accounting Principles Violated : 

The creation of “cookie-jar” reserves in connection with HealthSouth's acquisitions. Capitalization of “start-up” costs, promotional and marketing expenses, and inventory and supply expenses . Failure to expense or write off assets at closed facilities. Failure to adjust corporate accounts to reflect changes made to the books of local facilities. GAAP accounting Principles Violated were: Accounting Principles Violated

Accounting Principles Violated : 

Failure to adjust corporate accounts to reflect changes made to the books of local facilities. Failure to properly account for employee loans; improper recording of gains on sale on investments. Failure to recognize losses; and failure to properly account for properties leased by HealthSouth. GAAP accounting Principles Violated were: Accounting Principles Violated

Fraud Prevention Scenarios : 

Company Culture Establish proper policies and procedures within company to discourage improper business and accounting. Clearly defined expectation of employees and punishment sanctions known by staff. Encourage a “whistle-blowing” policy to support employees to report unethical activities. Fraud Prevention Scenarios

Fraud Prevention Scenarios : 

Company Controls A proper system of control and segregation of duties is imperative in running a successful and law abiding company. A system of controls requires proper authorization and documentation of such approvals for all transactions. Fraud Prevention Scenarios

Fraud Prevention Scenarios : 

Audit Environment Auditors should be third-party, independent auditors, there should be no residual link between these professionals and member of the staff.   Auditors should have review audit trails within the accounting system and follow-up with verifying all supporting documentation for authenticity during the sampling process.   They should have observe and interview employees of any activities occurring within the company. The auditors should also look for re-performance of certain transactions, and if the lower and mid-level staff were unable to duplicate or back-up such entries, this should been a flag of fraud Fraud Prevention Scenarios

Fraud Prevention Scenarios : 

Board of Directors A proper Board should be in place providing an independent overview of the financial reports provided by the company. An impartial board would make decisions based on the performance of the company in the interest of the shareholder . The Board would review financials, make or assist in making managerial decisions, and implement change. Fraud Prevention Scenarios

Conclusion : 

Richard Scruschy: a Boy  Scout, average background, played baseball, piano, and guitar became one of the United States most infamous white-collar criminals of all time.   There were not many controls in place at the time of his crime and perhaps that is what led him to keep on going. However, today the Securities and Exchange Commission along with the federal government has more strict laws in place to prevent such an act from occurring. Conclusion Fraud Crimes = Jail Time

Works Citedin presentation : 

Anti-fraud [Clipart]. Retrieved on September 29, 2010 from: http://www.ddslister.com/wp-content/uploads/2009/06/fraud.jpg   Donaldson, Thomas (Creator). Lightonpro (Poster) (2009, September 24). Interview: Aaron Bean, The Slippery Slope [Video]. Retrieved on September 29, 2010 from: http://www.youtube.com/watch?v=WbhpglzmuFg   HealthSouth, building [Photograph]. Retrieved on September 29, 2010 from: http://www.healthsouth.com/images/page_pics/corporate_office.jpg   Logo of HealthSouth [Logo]. Retrieved on September 29, 2010 from: http://scisupportgroup.webs.com/GAL_HealthSouth_01.jpg   Mug shot of Richard Scrushy [Photograph]. Retrieved on September 29, 2010 from: http://www.localmugshots.net/Richard_Scrushy.jpg   Profile of Richard Scrushy, musician. [Photograph]. Retrieved on September 29, 2010 from: http://blog.al.com/businessnews/2009/07/large_Scrushy%20assets%200703.jpg   Richard Scrushy, family [Photograph]. Retrieved on September 30, 2010 from: http://blog.al.com/spotnews/large_Siegelman%20Trial.jpg Richard Scrushy, musician. [Photograph]. Retrieved on September 29, 2010 from: http://media.al.com/businessnews/photo/scrushy-sings---1025jpg-345c0996855ffc94_medium.jpg   Richard Scrushy, smiling. [Photograph]. Retrieved on September 29, 2010 from: http://cache3.asset-cache.net/xc/57028932.jpg?v=1&c=IWSAsset&k=2&d=77BFBA49EF878921F7C 3FC3F69D929FD1580705A5D0646ED2D870A95993F27067D89BA3BA05FCB0DF06BF04B24B4128C Works Citedin presentation