Lessons learned from a multibillion dollar fraud
In the latest article from the Journal of Accountancy dated August 22, 2018, Aaron Beam, the former CFO at HealthSouth discusses his tenure at the company and offers advice for professionals about fraud. Mr. Beam spent 3 months in prison for his role in the HealthSouth fraud. He explains that profit pressure was the driving force for the company to go public. Investors needed to see at least one profitable quarter so HealthSouth had to get "creative". Read more about the HealthSouth fraud here: https://www.nytimes.com/2004/01/21/business/healthsouth-audit-finds-as-much-as-4.6-billion-in-fraud.html.
Mr. Beam's personal involvement in the fraud scheme was fueled by his pride and excitement to be a part of such a fast growing company where his net worth kept increasing with his stock options, salary and bonuses which afforded him luxuries such as expensive cars, million dollar home and vacation properties, clothes, jewelry and many other luxuries. He was so caught up with his own personal wealth along with promises to Wall Street of growth and earnings that he could not stop. After serving 3 months in a maximum security prison for his involvement in the fraud, Beam emerged a better man. He was labeled a felon, had to pay restitution and on top of that he was unemployed. He discussed finding a job at a golf course mowing the lawns but after management discovered who he was, they fired him. He found himself back on the unemployment bench. It was there that his wife encouraged him to use his time and experience talking with companies about fraud. He began speaking at LSU to business students about fraud. In the interview with Neil Amato (Journal of Accountancy), he provided advice to universities and companies noting that while in school students should be prepared for unethical things. They should study companies that were involved in fraud such as Enron, Worldcom, and HealthSouth to understand the dynamics of what happened, know how to handle fraud and what to do if faced with an unethical issue. He also stated that companies should have a Corporate Compliance Officer, have ethics policies and provide mandatory ethics training to employees.
In his parting words in the interview he said that a CFO has to realize that his job is to communicate with the public, management and everybody the true financial condition of the company in order to build trust. You want people to invest in your company and buy your products because they trust you and your numbers. Don't succumb to the pressure to fudging the numbers because in the long run you will lose trust of the public. You might win in the short run but in the long run you're not going to succeed.
Journal of Accountancy. Lessons learned from a multibillion dollar fraud. Hosted by Neil Amato. August 22, 2018. https://www.journalofaccountancy.com/podcast/healthsouth-fraud-lessons-learned.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=23Aug2018