The House Energy and Commerce Committee began an investigation yesterday into what auditors and board members knew about questionable accounting and billing practices at HealthSouth Corp.
Committee Chairman W. J. "Billy" Tauzin (R-La.) and ranking minority member John D. Dingell (D-Mich.) sent letters to HealthSouth's board of directors and to Ernst & Young, which audited the rehabilitation company until it was fired last month. The committee is seeking information on accounting tricks that regulators allege inflated the company's earnings by about $2.5 billion since 1997.
The Securities and Exchange Commission has charged the Birmingham company and former chief executive Richard M. Scrushy with civil fraud. Ten current and former employees of HealthSouth have either pleaded or agreed to plead guilty to criminal fraud charges.
The House committee wants letters and e-mails that passed between the company, its auditors and board members about accounting troubles and Medicare billing practices. The committee also wants the names of HealthSouth employees who attended meetings at which the financial tricks were discussed.
The committee asked Ernst & Young to reveal how much it was paid for audits, consulting services and other work it performed for HealthSouth and companies controlled by Scrushy and other board members. "We're trying to determine what, if anything, Ernst & Young knew about the accounting shenanigans at HealthSouth," said Ken Johnson, a spokesman for the House committee.
Johnson said the committee plans hearings on the HealthSouth collapse this summer. Spokesmen for HealthSouth and Ernst & Young said yesterday that they will cooperate with congressional investigators.
Ernst & Young said in a prepared statement that HealthSouth officials had deceived auditors by creating "false documents to support fictitious accounting entries."
Ernst & Young has said it is not the subject or target of a criminal investigation.
Meanwhile, a court hearing into whether Scrushy should have access to millions of dollars to pay for living expenses and lawyers -- in accounts that the SEC has frozen -- entered its third week. Scrushy's attorney, Thomas V. Sjoblom, said his client is being set up by former employees and there is no evidence that Scrushy knew anything about HealthSouth's accounting problems until March.
Sjoblom noted that his client "is chairman of a New York Stock Exchange-listed company who is winding down and phasing out."
"He's not going to go to the accounting staff and tell them which invoices to change," the lawyer said. "It's ridiculous."
"Scrushy basically moved to Florida in 2001. . . . You're talking about someone who was not even around," Sjoblom said.
Staff writer Brooke A. Masters contributed to this report.