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SUBMITTED To : Sir. Javaid Zafar
S
ubmitted by :Sana Munir
MBO - II
CORPORATE GOVERNANCE :CORPORATE GOVERNANCE :ACCOUNTINGSCANDAL
COMSATS INSTITUTEOF INFORMATIONTECHNOLOGY 
 
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CORPORATE GOVERNANCE
TABLE OF CONTENTS
1 COMPANY INTRODUCTION AND HISTORY ...................................... 32 CORPORATE BUSINESS ACTIVITIES .............................................. 6
2.1 Rehabilitation Hospitals ................................................................. 62.2 Outpatient Therapy Services ........................................................... 62.3 Long Term Acute Care Hospital ...................................................... 62.4 Home Health .................................................................................. 62.5 Rehabilitation Technology ............................................................... 7
3 ACCOUNTING SCANDAL .............................................................. 8
3.1 To Meet Wall Street’s Expectation ................................................... 83.2 Insider Trading ............................................................................... 93.3 Personal Profit ............................................................................. 103.4 Hiding the Fraud: To Restructure ................................................... 10
 4 DETECTION OF ACCOUNTING FRAUD .......................................... 12
4.1 Red Flags ......................................................................................................... 12
5 PENALTIES FOR FRAUD ............................................................. 13
5.1 Richard Scrushy ........................................................................... 135.2 Chief Financial Officers Charges .................................................... 13
6 AUDITOR’S ROLE IN FRAUD ....................................................... 15
6.1 Ernst and Young Auditors ............................................................. 156.2 FEES paid to E&Y for services ........................................................ 166.3 Charges or penalties for E&Y ........................................................ 16
7 BOARD OF DIRECTORS .............................................................. 17
7.1 Healthsouth Board Viewed As Beholden To Scrushy ........................ 177.2 Doubts Created ......................................................................................................... 177.3 New Members In Board Of Director ......................................................................................................... 18
8 CORPORATE SOCIAL RESPONSIBILITY ........................................ 199 CONCLUSION ........................................................................... 20
 
 
CORPORATE GOVERNANCE
1COMPANY INTRODUCTION AND HISTORY 
Healthsouth Corporation is the leading provider of medical rehabilitation health care andoutpatient surgery services in the UnitedStates. With more than 1,900 locations in theUnited States, the United Kingdom, andAustralia, Healthsouth provides physical andother therapy in its rehabilitation facilities,offers imaging services through its diagnosticcenters, and provides nonemergency surgicalservices at its outpatient surgery centers. Thecompany also has occupational medicineclinics that deal exclusively with patientssuffering from work-related health conditions. Healthsouth has contracts with managed care plans, insurance companies, and major corporations, including Wal-Mart and Goodyear.Healthsouth also has alliances with professional sports associations and schools to supplyrehabilitative and sports medicine services.
A New Twist on Rehabilitation Services: 1980s
 Healthsouth was being established by the idea of RichardScrushy. Before the establishment of the Healthsouth, the previous rehabilitation companies were proceeding withstereotype functions. But Healthsouth added new rehab centersto its chain throughout the middle and late 1980s. Because of the company's unique concept for rehabilitation services, thecompany was successful and became model for other companies in the rehab industry. Rather than focusing on aspecific rehab niche, Healthsouth appealed to the medicalcommunity by offering a number of rehabilitation programstailored for different sicknesses.By 1988 Healthsouth was operating a network of 21 outpatientfacilities, 11 inpatient facilities, and seven rehabilitationequipment centers in 15 states, making it a leader in the U.S.rehabilitation industry. Revenues shot up to $114 million in1989 and then to $181 million in 1990, about $13 million of which was netted as income. In fact, Healthsouth managed to post successive profits every year after 1985.
Rapid Growth through Acquisitions in the Early 1990s
 
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