Health South Scandal

Richard Marin Scrushy was born in Selma, Alabama in August 1952. Richard Scrushy studied at the University of Alabama at Birmingham and later graduated from Jefferson State Community College as a Registered Respiratory Therapist. He then relocated to St. Louis, Missouri working as the regional director of Lifemark Corporation’s respiratory therapy division. Scrushy then moved to Houston, Texas as COO of Lifemark Corporation. Scrushy founded Amcare in Little Rock, Arkansas in 1984 focused on outpatient rehabilitation. Amcare changed its name to Health South and started trading as a public company in 1986. Scrushy was the Chief Executive Officer until 2005 when he had to leave the company following $2.88 billion losses for the company and its shareholders where he was held personally responsible in 2008. Richard Scrushy is 64 years old and served seven years in federal prison after being indicted for mail fraud and bribery charges with the former governor of Alabama Don Siegelman. Scrushy was ordered to pay $2.9 billion to settle a civil lawsuit filed by HealthSouth shareholders. Richard Scrushy is a charismatic leader; he inspired his employees and cultivated loyalty through recruiting employees from Alabama, paid them well and offered them stock options.

A short term control that will aid in addressing the problem of accounting fraud is having good internal controls and enforced code of ethics that provides set documented guidelines on the ethical and moral behavior within an organization (Turner & Weickgenannt, 2008). The management in an organization has to establish, enforce, and exemplify principles of ethical conduct preventing the problem of accounting fraud evident at Health South led by Richard Scrushy. There would not have been the accounting fraud at Health South if Scrushy exemplified ethical conduct. The second strategy of controlling accounting fraud is using clear accounting rules and auditing procedures (Sandretto, 2011). This will allow a reduction of accounting fraud, embezzlement, and manipulation that is evident as is the Health House case.