Health South Fraud

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1. What elements of the fraud triangle (opportunity, pressure/motivation, and attitude/rationalization) are evident in the HealthSouth fraud? Which of these are most significantly related to the fraud? Based on the material and video, the evident in the HealthSouth fraud that related to the fraud triangle includes the following points: 1) Incentive/Motivation/Pressure: * Declining in margin, revenue, profit, due to the change in nature of Medicare industry ( after the new regulation for reimbursement in this industry had been passed) * Rapid growth for a company in the healthcare industry * The pressure of losing belief from investor in Wall Street, investment analyst and other creditors, if HealthSouth can’t meet the expectation * Scrushy’s personal financial situation depends on the value of stock and option he received from HealthSouth. If the poor performance is released, his wealth would be negatively affected and of course he wouldn’t be able to afford his luxury life style. 2) Opportunities: * The value of account balance in HealthSouth’s books is significantly based on estimates, such as bad debt and other liabilities, which allows the management to manipulate easily. * The ineffective in internal control, monitoring and control environment among the firm, which allows Scrushy control everything, do what he wants, or fire who goes against him. Also, the collusion between the management, involving bribing the auditor, makes the opportunities for committing fraud are more obvious. 3) Rationalization: * The management, especially the CEO and controller, agree on using “flexible accounting” for bookkeeping in order to meet the expectation and hide the poor performance. * Scrushy’s idea is that he is smarter than other people, so people should listen to him and do what he order them to do to keep “the company more

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