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Auditor reportedly knew about company's accounting peculiarities; ''there was no problem.'' Plus: PCAOB riles foreign auditors. And: what's wrong with corporate websites? Plenty.
Got accounting discrepancies? No problem.
Or, that's what auditors from Ernst & Young seem to have told HealthSouth officers after learning last June about apparent discrepancies in the company's financials. This, according to reported testimony in federal court on Wednesday.
E&Y auditor James Lamphron testified that former HealthSouth asset manager Michael Vines sent an e-mail to the auditor, complaining about the company's "misallocation between asset and expense accounts." According to a Reuter's report of the testimony, Lamphron also stated that he informed former finance chief William Owens - who has since agreed to plea guilty to fraud charges - and George Strong, head of the HealthSouth board's audit committee, about Vines' complaint.
E&Y's investigation of the matter beyond that communication, however, is not clear. U.S. District Judge Inge Johnson asked Lamphron: "Did you check any invoices against any checks?" Reportedly, Lamphron responded: "I don't know that we did that."
Still, Lamphron defended his audit team's actions in his testimony: "We reached a point where we were satisfied with the explanation the company provided to us," he said. "The situation that Mr. Vines described was in fact happening, but our procedures determined there was no problem with what they did and that's still our conclusion."
Judge Johnson is considering whether to maintain a temporary freeze on the assets of fired HealthSouth chief executive Richard Scrushy. Scrushy's lead attorney Thomas Sjoblom denies that Scrushy knew anything about the alleged scam. If professional accountants could not catch the problems, he argued in court, his client "could not know this level of detail."
As CFO.com reported yesterday, Barbara Patton, manager of HealthSouth's accounts payable department, also testified that she has doubts that Scrushy knew what was apparently going on in the HealthSouth finance department.
According to charges filed by the Department of Justice, HealthSouth fraudulently overstated earnings by $2.5 billion.
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