Assignment: Profit Health South

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Assignment: Profit Health South

Assignment: Profit Health South

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After the Enron bankruptcy, the federal government passed strict corporate account- ability standards known as the Sarbanes-Oxley Act of 2002 (SOX; see appendix 1.1 in chapter 1). While the standards only apply to publicly held, for-profit organizations, many not-for-profit organizations are attempting to comply with the standards. New York and California passed Sarbanes-Oxley–like state legislation in 2005, and in those states it applies to not-for-profits. Concerned that SOX compliance costs would force not-for-profits out of business in a sluggish economy, other states have been reluctant to pass comprehensive legislation. However, several states have established audit thresholds typically holding larger not-for-profits to stricter audit standards (Cohen 2012).

exHIbIt 2.1 Financial

Organization Chief of Medical Staff

Chief Nursing Officer

Director Clinical Services

Director Support Services

Chief Medical Officer

Chief Financial Officer

Chief Compliance Officer

Chief Information Officer

Privacy OfficerManagement

of working capital


Financial capital expenditures

Financial accounting

Managerial accounting

Tax accounting

Patient accounting

Internal auditing

Finance Committee

Audit Committee

Governing Body

Chief Executive Officer

Chief Operating Officer

Controller Treasurer

00_Nowicki (2339) Book.indb 34 5/17/17 10:57 AM

C h a p t e r ➤ 2 : ➤ O r g a n i z a t i o n ➤ o f ➤ F i n a n c i a l ➤ M a n a g e m e n t 3 5

fInAncIAl orgAnIzAtIon

In November 2003, Richard Scrushy, founder and former chair of for-profit HealthSouth, was indicted for 85 counts of conspiracy, fraud, and money laundering. The indictment alleged that Scrushy was the mastermind of a wide-ranging scheme to inflate the rehabilitation and outpatient-care company’s earnings to meet Wall Street expectations. The indictment further alleged that Scrushy added at least $2.7 billion in fictitious income to HealthSouth’s books during a multiyear conspiracy dating back to 1996. Scrushy became the first CEO (and as a result, healthcare became the first industry) indicted under Sarbanes-Oxley, which holds the CEO personally liable for financial misreporting. In what was characterized as healthcare’s trial of the century, the jury in the five-month Scrushy trial acquitted Scrushy of all federal charges after 21 days of deliberation. Even though five of HealthSouth’s CFOs testified against Scrushy, the jury chose to favor the defense’s portrayal of Scrushy’s character. Legal analysts also criticized the prosecution’s strategy to prove 85 counts over a six-month trial.

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