In the second day of Richard Scrushy’s civil trial, the court heard from HealthSouth CEO Jay Grinney, who has led the company since 2004.
On the stand, Grinney testified about the conditions of the company when he was hired and explained what had to be done to keep the company from going bankrupt.
When federal investigators exposed the massive accounting fraud in 2003, HealthSouth had virtually no internal controls, the system of checks and balances meant to prevent fraud and malfeasance. The lack of internal controls was unlike anything he had seen at other companies, Grinney said.
HealthSouth had to amend nearly 90 percent of its accounts to reflect real numbers, and the company had to spend more than one million man-hours cleaning up the fraud, he said.
Grinney said that a CEO is responsible for making accurate statements to shareholders and the public. A CEO who saw the same documents Scrushy saw should be able to see fraud of the magnitude of HealthSouth’s fraud, Grinney testified.
In the last five years, HealthSouth has implemented a comprehensive system of internal controls to prevent fraud. According to Grinney, a material fraud, which the company defines as more than $10 million, could not happen there today without being detected.
Under cross examination, Scrushy’s lawyer, Jack McNamee, questioned Grinney about business decisions the company has made during his tenure. In particular, McNamee questioned the loss of two high-profile surgeons, James Andrews and Larry LeMack, and the sale of the unfinished “digital hospital.”
Finally, McNamee grilled Grinney on how the company concluded Scrushy had participated in the fraud.
"We concluded that it could not have occurred without his knowledge, could not have been perpetrated without his knowledge," Grinney said.
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