HealthSouth Fraudulent Accounting

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We learned in class by watching the 6 video clips regarding the big Scandal with HealthSouth that one the two major activities in their fraud was falsely capitalizing regular expenses In a nutshell HealthSouth is A Public company who is providing outpatient rehabilitation services, They noticed that the business is not that great as they proclaimed, business is not so profitable and it also have too much expenses which this will end up taking away from the profit and they will show lower earnings that expected so they came up with a fraudulent idea to create false entries in their books by claiming that the expenses they have is not real expenses, they called it investing like everyone understands when a business is buying a building its not called a expenses which will show the business less profitable ,it is the opposite the business is growing, the same think they did with entering regular expenses like payroll or utility expenses But in order the books should look a little acceptable and no one should come up on their fraud instantly and specially the lower level bookkeeping team by doing their day to day entries and knowing that utility expenses is not a capital improvement they had to do it in a professional way Let’s go in to details of entering an expenses and closing it off by year end so we can understand how they did it to avoid being suspicious for their bookkeepers and it should be polished nicely REGULAR EXPENSES ENTRY As we learned in class by keeping accounting on the simple way of a General ledger the entries goes as follows, every entry is A Debit for 1 account following with a credit on the other for Example when you have a Rent Expenses of $ 15,000 meaning you taking out money from cash account to p... ... middle of paper ... ...ncreasing the capital So ( Falsely ) the books looked very good the business is ending up making money and again the trial balance and the account equation are correct EASY WAYS TO DETECT • Audit the assed account which was increased by year end from the expenses account trough the income summery account, this is a easy way because you don’t need to go over each individual expenses account what was entered during the year , you will need to check only this particular entry with his details • Making an appraisal report by every year end and the total Appraised value needs to match the total number of the assed account , and if it does not match you know that some false transactions were entered ,but remember you will need to calculate on the appraisal report the depreciation expenses towards the market value increase or decrease for the last year assed totals .

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