Current and former board members of HealthSouth Corp., Birmingham, Ala., told lawmakers that there was nothing to raise red flags and nothing the company's board could have done at the time to prevent the massive accounting fraud allegedly committed by senior management between 1996 and March 2003. The proper procedures were in place to ensure compliance with federal law and accounting principles, but "When someone is determined to commit fraud, it's very difficult to find," HealthSouth acting Chairman Joel Gordon said. Gordon was among several witnesses testifying today at a daylong hearing of the House Energy and Commerce Committee's oversight and investigations subcommittee on HealthSouth's financial problems. Also on the witness list released yesterday were Ernst & Young officials who formerly worked on the company's HealthSouth account and a UBS Warburg research analyst.
The hearing focused on whether the board of the rehabilitation and surgery center chain could have been more vigilant in preventing the alleged accounting fraud, currently estimated at $2.7 billion over the eight-year period. Board members said that until this past March, when they first heard allegations of fraud, they had been reassured by then-CEO Richard Scrushy and other senior management members that all was well at the company and that corporate practices were proper. Scrushy was charged with participating in and benefiting from the alleged fraud in an 85-count criminal indictment unsealed yesterday. Fifteen other former HealthSouth managers have reached plea agreements with the government in the ongoing investigation. -- by Tony Fong