financial accounting

Answer 1)

Healthsouth is a public healthcare company that earns majority of its profits from treatments and hospitalisations. In this healthcare field, business records are kept of the period when treatment is provided. Reimbursement of claims is also a way to earn revenue which is a time taking process and does not takes place suddenly. Sometimes, there exist a misbalance between the revenue earned and service provided for a period, in which handling reimbursements could not be done efficiently.

This misbalance leads to display higher revenue than service provided.

Therefore, Healthsouth had to manipulate their earnings to show balance in front of income tax department.

Answer 2)

Healthsouth’s fraud was discovered in 2003 which almost led to organisation’s bankruptcy. This happened because the organisation had trusted panel of experienced accountants who took advantage of the policies and contributed in healthsouth fraud.

Answer 3)

Healthsouth covered up, increasing its earnings by overstating the assets and estimating that in next quarter they would lower it down to balance it. This was done by increasing the value of property, equipment, etc. so it does not create any contradiction to the auditors. The company went to extremes and produced false documents in front of the auditing teams and tried to prove they were true.

They also created fraud entries, bonuses, third party transactions, etc. to cover up the fraud.

Answer 4)

Federal bureau of investigation or FBI raided healthsouth’s headquarters and seized company’s financial records, then it filed a complaint against the organisation for accounting fraud after seeing variations in assets. These led to the audit failures.