Corporate Compliance

Testimony in Scrushy trial leads auditor to sue HealthSouth

Compliance Monitor, March 30, 2005

Ernst & Young, LLP, filed suit against HealthSouth on March 18, alleging that the Birmingham, AL-based rehab provider conspired to hide massive accounting fraud, which exposed the auditing firm to lawsuits and damaged its reputation, the Associated Press (AP) reported March 29.

The suit alleges that testimony in the ongoing fraud trial of former HealthSouth CEO Richard Scrushy "shows executives at the rehabilitation chain faked financial documents to hide the scheme from Ernst & Young," which served as HealthSouth's auditor from 1996-2002, the AP reported. At least two former HealthSouth chief financial officers have testified during Scrushy's trial that company fraud--which allegedly inflated earnings figures by $2.7 billion to meet Wall Street's expectations--was hidden from auditors.

"The purpose--and the effect--of the company's deception was to conceal the fraud from Ernst & Young and to frustrate the performance of its work," according the suit. The auditor is seeking unspecified damages for lost business, as well of any litigation costs incurred related to HealthSouth's alleged fraud.

Most Popular