“I Should Have Said No.”

A CFO who confessed to fraud wants business students to learn from his mistakes. An interview with Aaron Beam, former CFO, HealthSouth Corp.

At 66, Aaron Beam is getting on with his life. Six years ago Beam made headlines by admitting that he cooked the books at HealthSouth Corp., the Birmingham, Alabama-based provider of inpatient and outpatient rehabilitation services that he co-founded. The four men who succeeded Beam as finance chief also confessed to the $2.7 billion accounting fraud, which took place between 1996 and 2002. All five CFOs pleaded guilty to criminal charges and testified that HealthSouth co-founder and CEO Richard Scrushy was behind the fraud. But the defense hammered away at their credibility during Scrushy’s 2005 trial, and Scrushy was acquitted of all charges. (He was, however, convicted of bribery in 2006, and is currently serving an 82-month sentence in a Texas federal prison.)

Released after three months in a minimum-security pen, Beam retreated to his small hometown of Loxley, Alabama. Having sold his $3 million dream home to pay restitution and legal fees, Beam now lives modestly and mows lawns for a living. But he is also developing another career: educational speaker. By telling his story to business students, Beam thinks he can teach a highly personal lesson in ethics that will stick.

Most CFOs can probably tell stories about the CEOs they’ve worked with, but in your case it sounds like an especially difficult relationship.
Unless you were there and experienced it, it’s hard to understand. You couldn’t tell [Scrushy] no on anything. I have seen him so mad over minor things that I actually feared for my physical safety. I often joke with students that if Richard Scrushy and Hannibal Lecter were in a fight, I would bet on Richard Scrushy.

How did the fraud begin?

By 1994 or ’95 we were a Fortune 500 company and the largest company in Alabama; we had 40,000 employees in all 50 states. But as we matured, it got more and more difficult to make our numbers. You can’t keep growing at 20% to 30% every year on the bottom line. To keep the Street from lowering its estimates, we started lowering our reserves for bad debts; when we did acquisitions we would change the estimates of the companies we were acquiring so we could apply those estimates to our earnings as we went forward.

We committed fraud in the summer of ’96, when we could no longer change estimates to make earnings. We thought we could make a lot of entries small enough that the auditors wouldn’t detect them. So one night, during the second quarter of ’96, I said, “OK, let’s do it,” and we credited revenue that did not exist and we debited assets that did not exist.

You kept committing fraud until you quit in 1997. How did you feel during that time?
I felt rotten. It was terrible. My hope was that after we had done it once, we wouldn’t have to do it again. But after doing it for four quarters, I felt like it wasn’t going to end, so that’s when I left. We had dug ourselves a hole.

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