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Adopt Sarbanes-Oxley Act provisions now

Compliance Monitor, May 20, 2003

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Though voluntary, most providers have adopted the Office of Inspector General's compliance guidelines. So too should your organization adopt the relevant provisions of the Sarbanes Oxley Act (SOA), even though they are voluntary for nonpublic organizations. The SOA is designed to prevent the following:

In March 2002, the Securities and Exchange Commission (SEC) said it charged HealthSouth, the largest provider of outpatient surgery, diagnostic, and rehabilitative healthcare services-and its chief executive officer and chairman-with massive accounting fraud. The SEC's complaint alleged that, since at least 1999, HealthSouth systematically overstated earnings in order to meet or exceed earnings expectations. In the third quarter of 2002, approximately 10% of HealthSouth's assets were overstated, according to the SEC.

In addition, HealthSouth's CEO illegally approved financial statements when he knew or was reckless in not knowing that they were materially false and misleading. This occurred after the SEC started to require executive officers of major public companies to certify the accuracy and completeness of their financial statements (August 2002).

The SEC also alleged that HealthSouth's actions violated and/or aided and abetted violations of the antifraud, reporting, books-and-records, and internal controls provisions of the federal securities laws. Consequently, the SEC is seeking a permanent injunction against HealthSouth and its CEO, civil money penalties, and expulsion of all ill-gotten gains or losses avoided by both defendants. The SEC has also prohibited the CEO from serving again as an officer or director of a public company.

The lesson in all this: While you cannot undo what may have already taken place, adopting SOA and moving quickly to adopt more stringent, government-endorsed controls, will help you send a message to employees and executives that you are serious about compliance.

This column was written by Hank Vanderbeek, MPA, CIA, CFE. IRP, Inc.

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