It was the mid-1990s and Aaron Beam, HealthSouth’s chief financial officer and co-founder was flying high. The average guy who hadn’t made more than $200,000 a year was now a millionaire buying a new luxury car every year, flying around the country in Gulf Streams and purchasing real estate for himself and his wife.
He had no idea that an otherwise normal day at the office would change his life, sending him to prison and setting him on a mission to warn others of the ethical dangers of wealth and success.
In the summer of 1996, HealthSouth, the country’s largest provider of outpatient surgery and rehabilitative services, didn’t make its earnings goals. Rather than report the company’s shortfall, the company’s then-CEO, Richard Scrushy, demanded the books be fixed, Beam told a room of controllers, accountants, chief financial officers and other healthcare managers during an ethics certification course offered by the Maine chapter of the Healthcare Financial Management Association on Monday.
“If you’d told me that day when we first cooked the books that when I walked outside the FBI was going to arrest me, I wouldn’t have done it,” Beam said. “You let yourself think that you’re not going to get caught. It’s foolish to think that way but you really let yourself think that you’re not going to get caught.”
And for a long time, Beam, Scrushy and a series of CFOs didn’t get caught. When the fraud did come to light in 2003, it stunned the nation. Beam, who had retired from the company in 1997, and his successors, all spent time in jail for their roles in the fraud.
Scrushy was acquitted of criminal charges but in a civil trial was found guilty of defrauding shareholders. He has been ordered to pay $2.8 billion in restitution. Scrushy did go to jail, though for a charge not related to the accounting fraud. He is finishing his final year of a seven-year sentence for bribing former Alabama governor, Don Siegelman.
[See also: Former HealthSouth CEO loses civil case appeal.]
“I stand before you here today telling you that I’m a coward,” Beam said in the soft cadence of his southern heritage. “I could not imagine being the one to stand up to (Scrushy) and cause his net worth to go down by $100 million. I did what a lot of people do, I took the easy way out.”
Committing fraud, said the former CFO, had consequences he couldn’t and didn’t foresee. It nearly destroyed him emotionally, which is why he retired to everyone’s surprise in 1997 at the age of 54, just a year after the fraud began.
“I was living a lie. It was terrible,” Beam said. “I didn’t want to be a whistleblower because I knew Richard would turn it on me. I knew he’d bring more lawyers, guns and money to the party than I would and I didn’t want to battle the guy.”
The accounting fraud also had unintended consequences for the company. “The damage that you do in the fraud is so massive that it’s really hard to understand,” he said.
The ripple effects of the accounting fraud included Medicare fraud, bank fraud, flimsy due diligence that resulted in bad acquisitions, diminishing employee morale and overpayment of income and property taxes.
“When you start a fraud like this,” Beam told his audience in Augusta, “you never dream it’s going to cause these things.”
To avoid an ethics meltdown of the proportions that lead to the accounting fraud at HealthSouth, Beam advised that companies support their goals with values, create a culture that allows employees to speak up and report things safely, ensure that the board is strong, avoid conflicts of interest and have clear rules about conflicts of interest and be aware of the basics of economics and economic cycles.
After fulfilling his three-month sentence at a federal minimum-security prison, Beam started his own company mowing lawns because he couldn’t get hired anywhere and he wrote a book and began talking at colleges and universities about his HealthSouth experiences.
“You need to put ethics first in everything you do,” he tells his audiences. “If not, you can count on riding the slippery slope like I did. I never, never dreamed I would go to prison and that I would be a convicted felon… but I did. It can happen to you. Trust me.”
Follow HFN associate editor Stephanie Bouchard on Twitter @SBouchardHFN.