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May 22, 2003 | New York Post

A congressional committee says regulators and auditors were warned of accounting problems at HealthSouth as early as 1998 and they want to know why nothing was done about it.

"We now have evidence that five years ago warnings were given to HealthSouth's corporate watchdogs their outside auditor, Ernst & Young, and perhaps even the SEC about the accounting shenanigans at the company. Yet no one appears to have listened," said a statement from Committee on Energy and Commerce Chairman Billy Tauzin (R.-La.) and Oversight and Investigations Subcommittee Chairman James Greenwood (R.-Pa.).

They are investigating the matter.

A memo dated Nov. 11, 1998, from a "Fleeced Shareholder" asks various detailed questions such as, "How can the HS outpatient clinics treat patients without precertification, book the revenue, and carry it after being denied payment?"

On March 19, the SEC filed a civil lawsuit claiming HealthSouth chairman Richard Scrushy had committed massive accounting fraud and overstated earnings by $1.4 billion. Since then the Justice Department has reached plea agreements with five ex-CFOs and six other employees. One employee detailed another $1.1 billion in fraudulent accounting.

According to people familiar with the probe, Ernst & Young met with Tauzin's committee Friday and pointed it to the document. When the memo was received in November 1998, E&Y partner Dick Dandurand called CFO Michael Martin and general counsel William Horton to inquire about the issues.

A spokesman for Ernst & Young could not be reached for comment.

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