HealthSouth Officials All Flush About 'Pristine Audit' Costs

At a time when HealthSouth Corp.’s finances were spiraling into scandal, the company was paying its audit firm Ernst & Young LLP more to check for clean toilets than it was for clean books.

The allegation was brought to light Thursday as part of a House hearing looking into HealthSouth’s $2.7 billion accounting scandal.

"By hundreds of thousands of dollars, Ernst & Young was charging more to check the magazine racks and the toilets than they were to do the audit," Rep. Cliff Stearns, R-FL, said during the House Energy and Commerce subcommittee hearing.

Former CEO and founder Richard M. Scrushy devised a program called "Pristine Audits" whereby Ernst & Young auditors were hired during 2000 and 2001 to perform inspections of the cleanliness and physical appearance of HealthSouth's approximately 1,800 surgical and rehabilitation facilities.

Scrushy was indicted earlier this week on 85 federal criminal charges, including conspiracy, securities fraud, wire fraud, mail fraud, making false statements, providing false certifications and money laundering.

The auditors were given a 50-point checklist as a guide in their examination of such features as stains on toilets and ceilings, liners in trash receptacles, and the orderliness of magazines in waiting rooms.

Ernst & Young was paid more for the Pristine Audits than for financial audits, but all of the services were categorized as audit-related fees on HealthSouth's financials. Since 2000, the SEC has required publicly held firms to identify how much is paid to audit firms for non-audit-related services.

At Thursday’s hearing, Stearns said that Ernst & Young was paid more than $2.6 million to do the pristine audits and $2.1 million in 2000 and 2001 to conduct financial audits.

Stearn confronted the company’s acting chief executive officer, chairman of the board and two current board members to find out what they knew about Ernst & Young being paid more to inspect facilities than to audit the books, the Wall Street Journal reported.

"I did not know about the total charges," said Joel Gordon, HealthSouth's acting chairman.