VideoApparently, the House Energy and Commerce Committee is trying to catch its next big fish.
While there are decidedly several hooks in HealthSouth aleady, the committee on Tuesday launched its own investigation into the financial and business relationships at the scandal-ridden hospital chain. The committee is also looking into what role -- if any -- independent auditor Ernst & Young played in the alleged accounting fraud.
The committee has requested records from both auditing firm and client regarding HealthSouth's $2.5 billion earnings overstatement.
The probe comes on the heels of accounting fraud investigations into the company by the Department of Justice, Securities and Exchange Commission, and a U.S. attorney in Birmingham, Ala.
As CFO.com reported yesterday, HealthSouth's former treasurer and CFO Malcolm McVay became the tenth former HealthSouth executive to either plead guilty (or agree to plead guilty) to criminal charges of conspiracy to commit fraud and for filing false financial reports.
Reportedly, the House Energy and Commerce Committee has requested records and minutes of HealthSouth board meetings dating back to 1996, as well as records of business relationships between board members or their immediate families and HealthSouth. In a letter to E&Y Chairman James Turley, the committee also requested records of all non-audit compensation the firm received from HealthSouth for the same timeframe.
House representatives appear to be licking their chops over the chance to hold a public hearing and subpoena HealthSouth managers and directors this summer. "Some of these financial dealings between [HealthSouth] board members raise serious questions," said investigations subcommittee Chairman James Greenwood, R-Pa., in a USA Today article. "I can't wait to hear what these guys say under oath. Whose interests were they looking after, their own or the shareholders?"
The House committee has already subpoenaed several executives from Enron, Global Crossing, and WorldCom in other accounting fraud investigations over the last year. E&Y and HealthSouth have reportedly agreed to cooperate with the investigation.
Testimony Reveals Simple Rules for Accounting Fraud
The once-fuzzy picture of how HealthSouth arrived at an alleged $2.5 billion earnings overstatement is slowly coming into focus.
Yesterday in federal court, a Health South treasury department staffer explained how the alleged fraud was accomplished. And like most treasury foul-ups, it involved making manual entries in a computer system.
Barbara Patton, manager of HealthSouth's accounts payable department, reportedly testified that invoices received by HealthSouth are typically entered into an advanced software system that conducts a "computer audit." The system also creates reports as it generates checks.
But according to an Associated Press account of Patton's testimony, the alleged participants in the fraud waited until the computer completed monthly operating reports. The participants then typed in false information elsewhere in the computer system that was later merged into consolidated corporate statements.
Sidestepping the checks and balances is "real easy," Patton reportedly testified. While she designed her department's systems of checks and balances, says claims she was unaware of how the fraud was accomplished until she read media accounts.
Patton's testimony came as U.S. District Judge Inge Johnson considered whether to maintain a temporary freeze on the assets of fired HealthSouth chief executive Richard Scrushy.
Patton, however, cast doubts on whether Scrushy knew about the faked accounting entries she described. "I'm not sure he was that detailed," she said, according to the newswire story. "You had to read the general ledger line by line to see it."
Scrushy attorney Tom Sjoblom maintains his client's innocence, saying he didn't know about the scheme until two days before criminal charges were filed.
Duke Energy Finance Exec Departs
Jeffrey Boyer is no longer vice president for planning and finance with Duke Energy Corp.'s Duke Power unit. But no one seems to know why.
A recent Dow Jones Business News story confirmed that Boyer — also a former Duke Energy corporate controller — had left the company. "We don't talk about why people are no longer with the company," company spokesman Tom Williams told Dow Jones. And Boyer himself could not be reached for the story.
Boyer was Duke's corporate controller from 1997 to 1999, which includes the period an auditor hired by state regulators reportedly said Duke Power inappropriately made accounting changes that shifted expenses from its unregulated enterprises to its regulated utilities. Williams wouldn't say when Boyer left or under what circumstances. Nor would he comment on whether the departure was in any way related to the audit or any investigation of the allegations.
As CFO.com reported last year, Duke Power paid a $25 million penalty to customers after an independent audit by Grant Thornton LLP discovered that the utility had understated earnings by more than $123 million from 1998 to 2000. A whistleblower from Duke Power's finance department, Barron Stone, originally charged the company with lowering the results.
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