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Lessons from the Largest Fraud
after Worldcom and Enron
Weston Smith www.WestonSmith.biz
THE CREATION OF HEALTHSOUTH
Quality
Efficiency
Timing
International
TONE AT THE TOP
STAGES OF THEHEALTHSOUTH FRAUD
Valuations
Acquisition Accounting
Mergers & Charges
Dirt and Hole Accounting
The Mechanics The Rationalizations
Intimidation
It’s a One Time Thing
Greed & Selfishness
Everybody Does It
Sustaining & Fear of
Discovery
I. VALUATIONS
Manipulation of Contractuals and Bad Debts
II. ACQUISITION ACCOUNTING
Capitalization of Start Up Costs
“Conservative” Accounting for Acquisitions
III. MERGERS & CHARGES
Frequent “One-Time” Charges
Merger Costs
Impairments
Contract Terminations
Asset Write-Downs
Deal Costs
IV. DIRT AND HOLE ACCOUNTING
Spreading to Income Statement and
Balance Sheet
126,000 Journal Entries
Former Chairman of the Board of Satyam, upon revelation of fraudulent revenue of more
than $1 Billion over 6 years
It “was like riding a tiger, not
knowing how to get off
without being eaten”
COVER-UP
FREEDOM
There are two
freedoms - the
false, where a man
is free to do what he
likes; the true,
where he is free to
do what he ought.
Charles Kingsley
The Toll on the Innocent
PURPOSE
Perspective
Uncompromising
Realistic
Patient
Objective
Sincere
Ethical
