Fraud was extensively discussed in this class. There are threeconditions that must be present for management fraud to exist.First, identify each of these three conditions. Then, for eachcondition, identify two risk factors related to the risk ofmisappropriation of assets.

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Question: Healthsouth & Fraud Risk Factors Healthsouth, the largest provider of outpatient surgery and ...

Healthsouth & Fraud Risk Factors

Healthsouth, the largest provider of outpatient surgery and diagnostic and rehabilitation services in the US at the time, overstated its earnings by at least $1.4 billion from 1999 to 2003 to meet Wall Street analystsâ expectation of earnings. Ernst & Young was the auditor during this period. The following indications of fraud were present during the audits:

In December 2001, Healthsouth was charged fraud in overbilling Medicare for physical therapy services it never performed and submitting falsified documents to justify the claims. Without admitting wrongdoing, HealthSouth in May 2001 agreed to pay $8.2 million to settle a separate Justice Department civil lawsuit that accused the company of fraudulently overbilling Medicare.

Mr. Richard Scrushy, who co-founded HealthSouth in 1984, was well known inside and outside the company for his domineering management style.

HealthSouth directors, including a member of the board's audit committee, had significant business dealings with the company.

HealthSouth had substantial allowances, the size of which is open to wide management discretion, to reflect the difference between the amounts that HealthSouth would bill insurers for its services and the smaller amounts it actually expected to collect.

HealthSouth grew rapidly through acquisitions.

HealthSouth's 2000 pretax earnings more than doubled to $559 million, though its sales grew only 3%. Pretax earnings for 2001 were nearly twice 1999 levels, although sales rose just 8%.

Ernst & Young responded to the inquiry by the SEC stating, âWhen individuals are determined to commit a crime, as was the case with certain executives of HealthSouth, a financial audit cannot be expected to detect that crime.â

Using the information provided and the fraud risk factors, identify the incentives and pressures, opportunities, and attitudes and rationalizations that were present at HealthSouth. Given this information, do you feel that Ernst & Young should have uncovered the fraud at HealthSouth?

orchidelk198

The fraud triangle is a framework designed to explain thereasoning behind oneâs decision to commit fraud. The three stages;perceived pressure, opportunity and rationality (ACFE. 2017). Theprimary purpose of data analysis is to evaluate and test data usingthe logical reasoning of each component of information provided inrelations to what happened and when. When fraud occurs; you needsolid proof that will stand up in the court of law which includesan audit trail.

With todayâs technology often âcomputer-assisted audittechniques (CATTs)â software such as ACL is used for frauddetection, prevention, and risk management (SNHU.edu. 2017). Theidea of fraud risk assessment will further help to identify thearea where fraud could occur within an organization and the relatedschemes such as inventory fraud, account payable fraud, payrollfraud, or cash receipts fraud and it was used to commit thecrime.

CAATs provides the ability to analyze, compute, and sort a massamount of data within an organization at one time throughcommands such as identifying duplication, gaps,cross-tabulating between sub-folders, dollar amountlimits, or cut-off dateâs to mention a few. Each time anactivity is done a log is created within the project organized bydate; while indicating where additional information is neededwithin a folder header.

Audits continue to be conducted at periodic intervals andexpress opinions on historical data. To remain a valuable andrelevant service to investors, creditors, and others who useaudited financial statements, auditing must find a way to evolve.Softwareâs such as ACL are designed to identify irregularities orpatterns in transactions that could indicate the likelihood fraudor internal control weakness by identifying red flags.

Question :

How computer-assisted audit software such as Audit CommandLanguage (ACL) can assist in these investigations.

Healthsouth & Fraud Risk Factors

Healthsouth, the largest provider of outpatient surgery and diagnostic and rehabilitation services in the US at the time, overstated its earnings by at least $1.4 billion from 1999 to 2003 to meet Wall Street analystsâ expectation of earnings. Ernst & Young was the auditor during this period. The following indications of fraud were present during the audits:

In December 2001, Healthsouth was charged fraud in overbilling Medicare for physical therapy services it never performed and submitting falsified documents to justify the claims. Without admitting wrongdoing, HealthSouth in May 2001 agreed to pay $8.2 million to settle a separate Justice Department civil lawsuit that accused the company of fraudulently overbilling Medicare.

Mr. Richard Scrushy, who co-founded HealthSouth in 1984, was well known inside and outside the company for his domineering management style.

HealthSouth directors, including a member of the board's audit committee, had significant business dealings with the company.

HealthSouth had substantial allowances, the size of which is open to wide management discretion, to reflect the difference between the amounts that HealthSouth would bill insurers for its services and the smaller amounts it actually expected to collect.

HealthSouth grew rapidly through acquisitions.

HealthSouth's 2000 pretax earnings more than doubled to $559 million, though its sales grew only 3%. Pretax earnings for 2001 were nearly twice 1999 levels, although sales rose just 8%.

Ernst & Young responded to the inquiry by the SEC stating, âWhen individuals are determined to commit a crime, as was the case with certain executives of HealthSouth, a financial audit cannot be expected to detect that crime.â

Using the information provided and the fraud risk factors, identify the incentives and pressures, opportunities, and attitudes and rationalizations that were present at HealthSouth. Given this information, do you feel that Ernst & Young should have uncovered the fraud at HealthSouth?

amaranthplatypus160

Fraud was extensively discussed in this class. There are threeconditions that must be present for management fraud to exist.First, identify each of these three conditions. Then, for eachcondition, identify two risk factors related to the risk ofmisappropriation of assets.

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