Auditors Get an Insider's View of Corporate Fraud
Apr. 12, 2010
After meeting his future boss for a job interview, Aaron Beam told his wife, “I’ve just met the most brilliant young businessman I’m ever going to meet – or possibly the biggest con artist.”
The latter turned out to be the case, as Beam told about 400 internal auditing professionals earlier this month at UT Dallas’ fifth annual Fraud Summit. The former healthcare executive shared the inside story of the massive accounting fraud that crippled outpatient healthcare giant HealthSouth.
UT Dallas Fraud Summit
Held annually by the School of Management’s Center for Internal Auditing, the UT Dallas Fraud Summit has become one of the nation’s top fraud conferences for professionals in the internal auditing field.
This year’s conference raised $75,000 for the school’s internal auditing program, $22,000 of which will be dedicated to internal audit scholarships.
For more information about the UT Dallas Internal Audit Program, visit:
The conference, co-sponsored by the School of Management’s Center for Internal Auditing, featured a cross-section of government and law enforcement representatives who gathered to discuss the latest in fraud trends, schemes and prevention techniques.
Beam, himself a convicted felon, learned his lesson the hard way after working for Richard Scrushy, the former HealthSouth CEO accused of ordering his employees to “cook the books.”
Beam had barely started his first day of work when Scrushy asked him to sit in on a contract presentation to Scrushy’s boss. During the meeting, Scrushy told his boss, “Aaron and I worked on this contract last night for hours,” Beam said.
“I didn’t know what to think. I hadn’t been to work for 30 minutes and I’d already been included in a lie,” Beam recalled. “Today, looking back, I realize that at that very moment, Richard Scrushy was probably testing me to see what kind of player I was and how I’d react to being included in a lie.”
Drawing on his recently published book, HealthSouth: The Wagon to Disaster, Beam recounted lessons learned. The book looks at the meteoric rise and colossal collapse of HealthSouth - from a two-room office, to a global corporation with more than 2,200 facilities, to the $2.7 billion accounting fraud that landed Beam in prison.
The fraud, he said, took everything he had, including his 25-acre “Beam Acres” estate outside Mobile, Ala., with a million-dollar home, tennis and basketball courts, regulation-size football field and a music stage. He has gone from a CFO earning $500,000 a year to running his own one-man, lawn-care business in Alabama.
After working together at Lifemark Corp. in Houston, Beam joined Scrushy in forming HealthSouth, built on a new concept dreamed up by Scrushy. It expanded quickly, and Scrushy’s charisma and salesmanship propelled its growth and stock price.
“He was very much the darling of Wall Street,” Beam said. “It was quite impressive to see Richard Scrushy perform. I remember many times we would go present at investor conferences. Richard would make his presentation, and I’d watch the investors leave, make calls in the lobby, and the stock would go up 1, 2 and 3 points. It was like if you knew when Richard Scrushy was speaking, you had insider information.”
Scrushy, Beam said, became “an ego on steroids,” adding that the CEO quit wearing a watch because “it was always whatever time Richard wanted it to be.”
As HealthSouth’s revenues grew to more than $3.5 billion, Beam enjoyed luxury items that were the signature of his success: a beach house, condo in the French Quarter, private planes, fancy cars, even Hermes ties worth $30,000.
“I was a rock star,” Beam told the audience. “I could go into any restaurant and see people pointing out that they wanted to talk to me, meet me and tell me what a great job I was doing. It was pretty heavy stuff.”
In 1996, things took an ugly turn when Scrushy realized the company would not meet Wall Street’s expectations and then demanded fraud to make up the difference, Beam said. But after misrepresenting the numbers for four quarters, Beam said he felt anguished and guilt-ridden.
“I just didn’t have the courage or the ethical bearing to stand up to Richard. I didn’t say ‘No, this is wrong,’” Beam said. “My life changed. I couldn’t sleep. I had crossed the line and had done something I couldn’t deal with, and it was just terrible.”
Ashamed of his part of HealthSouth’s fraud, Beam retired in 1997 and moved to Beam Acres, where he lived until the company’s fraud was revealed in 2003. Beam pleaded guilty to bank fraud and served three months at Maxwell Air Force Base.
After the HealthSouth fraud news broke, the prosecuting attorney said that 17 people came forward and admitted their involvement, said Beam. “One person denied knowing about it: Richard Scrushy,” he said. Beam said Scrushy spent more than $20 million on lawyers and also bought a TV station where he broadcasted himself preaching at an inner-city church. Despite the testimony of Beam and other HealthSouth executives, Scrushy was acquitted, but in 2006, he was convicted in a separate case of bribing an Alabama governor and is now serving a seven-year prison term.
Among Beam’s words of wisdom: “If you’re asked to commit fraud, just say ‘no.’ It shouldn’t be a hard decision. … You have to set a high standard of ethical behavior or you will get into a mess like I did,” Beam said.
“Today I’m a felon, and that’s what I’ll be for eternity,” Beam said. “Before the fraud broke, people would ask me what I did before I retired and I’d say I was founder and former CFO of HealthSouth. But today when people ask me what I did before I retired I kind of look away and say I was an accountant and hope they don’t ask me any other questions.”
Aaron Beam said he had barely started work at HealthSouth before becoming involved in one of the most massive fraud cases in U.S. corporate history. He was the company's chief financial officer.
The title and cover of HealthSouth: The Wagon to Disaster refer to convicted CEO Richard Scrushy's repeated exhortation to “all those aboard the HealthSouth wagon” to pull their share of the load or get off.