Unitedhealth Group Case

Richard Veller, the new CFO for Union Medical Center, began to change the operations of their management. Richard Veller looked to change UMC to an industrial system, which meant that the hospital would view cases as products. Just like any ordinary business, these products would have cost objects and would require an accounting system. In order to allocate costs appropriately, UMC was required to organize their cases into Diagnosis Related Groups to create a functional management control system. These changes brought certain internal issues into the spotlight. If solutions are not found, the hospital will not be able to implement their plans.

“UnitedHealthcare provides network-based health care benefits for a full spectrum of customers in the health benefits market” such as students and individuals; sole proprietorships to multi-site, large national employers; promotion of health benefits to Medicare retirees and beneficiaries; and provides Medicaid and community programs (UnitedHealthcare, 2010). UnitedHealth Group 2012 revenue was $11.3 billion. The company is continuously growing through various mergers and acquisitions within the US and Europe, increasing members and revenues (Keepournhspublic, n. d.).

One of the main defenses E&Y took during the early stages of the HealthSouth suit was the fact that the SEC had no well-defined rules with regards to audit-related practices. Another defense was the mere fact that E&Y never faced a criminal indictment for the HealthSouth fraud. This was mainly due to the statute of limitations placed on securities fraud. It sets it at the earlier of (a) 2 years after the discovery of the facts constituting the violation or (2) 5 years after such violation. Thus, the DOJ was unable to file criminal charges against the firm because the partner on the audit (G. Marcus Neas) was “unaware” of the fraud in 1993.

Overview of the Case: The Securities and Exchange Commission claims Mark D. Begelman misused proprietary information regarding the merger of Bluegreen Corporation with BFC Financial Corporation. Mr. Begelman allegedly learned of the acquisition through a network of professional connections known as the World Presidents’ Organization (Maglich). Members of this organization freely share non-public business information with other members in confidence; however, Mr. Begelman allegedly did not abide by the organization’s mandate of secrecy and leveraged private information into a lucrative security transaction. As stated in the summary of the case by the SEC, “Mark D. Begelman, a member of the World Presidents’ Organization (“WPO”), abused

The United Way of America and United Way International are part of a federation of nonprofit organizations formed by caring people to serve the needs of their communities. They bring neighborhoods together and facilitate measures toward making a difference to better the world. They have over 1,300 local United Ways in the United States and over 3,000 United Way organizations operating in 45 countries. They raise funds and distribute them to the most effective local service providers, build strong alliances, and coordinated volunteer support among charities. An obstacle that United Way needs to overcome is how many people want to have their donation used in a specific manner. Some people are not interested in giving their

HealthSouth Corporation was one of the largest publicly traded owners of rehabilitative hospitals within the Untied States and paved the way for its industry. However, prior to 2003 the company had a very dark secret: fraud. In 2003 HealthSouth was accused of making $2.7 billion in false journal entries in the company’s system (Helios, 2013). These false entries allowed the corporation to inflate its earnings and revenue. While the corporation was dabbling in a fraudulent, aggressive account system, auditors were unable to detect the extent of the fraud occurring. If not for Michael Vines and Weston Smith, HealthSouth Corporation might have continued its false entries and continued deceiving shareholders and even Wall Street itself. HealthSouth serves as a historical example of how corporate culture can use fraud and deception schemes to not only rationalize what it is doing, which is an element of the fraud triangle, but also encourage fraudulent financial statements.

Between the years 2000 and 2002 there were over a dozen corporate scandals involving unethical corporate governance practices. The allegations ranged from faulty revenue reporting and falsifying financial records, to the shredding and destruction of financial documents (Patsuris, 2002). Most notably, are the cases involving Enron and Arthur Andersen. The allegations of the Enron scandal went public in October 2001. They included, hiding debt and boosting profits to the tune of more than one billion dollars. They were also accused of bribing foreign governments to win contacts and manipulating both the California and Texas power markets (Patsuris, 2002). Following these allegations, Arthur Andersen was investigated for, allegedly,

I think if the VA or any government ran healthcare organization would adapt a pay-for-performance compensation program, the culture would change, because the employees would be more motivated to perform well; as a result, there will be an increase of quality of care provided to patients which, in return, would inhere to better medical outcomes.

The security exchange commission filed charges against Rite Aid’s senior executives on June 21, 2002. ("SEC Announces Fraud Charges Against Former Rite Aid Senior Management") These charges were on the basis of accounting fraud and were filed against senior leadership ranging from the former CEO to a former Vice Chairman, specifically Martin Grass the chief executive officer, Frank Bergonzi the chief financial officer, and Franklin Brown a former vice chairman. Security and exchange commission alleged that “Rite Aid overstated its income and every quarter from May 1997 to May 1999.” ("SEC Announces Fraud Charges Against Former Rite Aid Senior Management") they also alleged that there were related party transactions that were never reported as well as finance committee meetings had had the minutes fabricated by Grass. The Securities and Exchange Commission is looking to have several punishments placed on the executives. “The commission is seeking this disgorgement of annual bonuses and imposition of civil penalties against Grass, Bergonzi, and Brown.” ("SEC Announces Fraud Charges Against Former Rite Aid Senior Management"). Disgorgement of annual bonuses as required by section 304 of Sarbanes-Oxley act of 2002. This essentially requires that the executives forfeit any bonuses or income that they had earned during the 12 month period following the start of the fraud. “Any bonuses or other incentives or equity-based compensation that they received during the 12

UnitedHealth Group is a diversified health care company, and a worldwide leader in helping people live healthier lives and taking the necessary steps in making the health system work better for everyone. The UnitedHealth group serves more than 85 million individuals worldwide with health benefits and services. In 2012, they produced revenues of $110.6 billion and were ranked number 17 in the Fortune 500. The economic and political segments would rank the highest in influencing the UnitedHealth Group.

Aflac is Fortune 500 insurance company founded which was founded in 1955 by three brothers, Bill, Paul and John Amos. “Since its beginning Aflac has believed that the best way to succeed in our business is to value people. Treating employees with care, dignity and fairness are founding principles of Aflac” Today, Aflac employs more than 4,500 people and has more than 71,000 licensed independent agents throughout the United States and Japan according to the New York Stock Exchange business summary. Its principal business is supplemental health and life insurance. Aflac’s insurance business sells cancer plans, care plans, medical/sickness riders, living benefit life plans, general medical indemnity plans, and ordinary

Prior to Sarbanes-Oxley and the creation of the PCAOB, the auditing industry regulated itself. Between the years 2000 and 2001 Ernst and Young, Price Waterhouse Cooper, and Arthur Anderson were involved in cases that proved the need for an oversight board (Coates, 2007). Ernst and Young settled a shareholder lawsuit for $335 million; Price WaterHouse Cooper was found to have over 8,000 instances where their auditors held stock in the company they were auditing even though it was a violation of SEC rules; and the SEC charged Arthur Anderson with fraud.

With health care insurance being the most popular business in the United States UnitedHealth Group now faces federal investigation for compensating Chief Executive Officer (CEO) William McGuire with option profits profiting $1.6 billion. Many other chief executives are questioning if this types of practice in legal, while others are say that the boards of directors of UnitedHealth Group are too easy at the same time generous.

Many employees and investors were negatively impacted and hurt by Scrushy’s lies. Many, if not all, of the employees that were involved with the family meeting and fraud lost their jobs, were fined and sentenced to time in prison. Scrushy himself was fired and was fined. Scrushy had an income of over 300 million and when he was found guilty for the actions at HealthSouth he was fined 2.9 billion in repayment to the company (Former). This massive fine left Scrushy unable to even pay his own prison housings. The HealthSouth Scandal was the first scandal to be tried with the Sarbanes-Oxley Act. The Sarbanes-Oxley Act “carried stiff penalties and prison time for white-collar criminals” (Scrushy). The downfall of HealthSouth became a large warning to other companies to avoid fraud because the Sarbanes-Oxley Act is unforgiving and harsh. After HealthSouth was exposed, questions began to rise about HealthSouth’s independent auditors, Ernest and Young. On a particular audit, it was “unclear if Ernest and Young failed to identify the fraud or they were intentionally ignoring it” (HealthSouth Scandal). HealthSouth fired Ernest and Young soon after a deeper investigation by PricewaterhouseCoopers. PricewaterhouseCoopers “carried out a forensic audit and uncovered the facts and figures of the fraud” (“HealthSouth Scandal”). After this discovery, PwC replaced Ernest and Young and became HealthSouth’s new auditors.

The Securities and Exchange Commission (SEC) found that Bally Total Fitness Holding Corporation, a nationwide commercial operator of fitness centers, fraudulently accounted for three types of revenues it received from members. The SEC also charged the audit firm and six partners for their roles in the accounting violations. Visit the SEC’s website (www.sec.gov) and search the link to “Litigation