What are the pros and cons of each of her options?
s leading providers of healthcare during the Show more National Health Company (NHC) became one of the nations leading providers of healthcare during the early 2000s through aggressive mergers and acquisitions. The company provides both in and out patient care such as convalescent care rehabilitation physical therapy outpatient surgical centers ultrasounds mammograms MRIs CT scans and other medical services. The companys rapid expansion initially resulted in a substantial amount of profit and success in the healthcare market. However it became increasingly difficult to maintain the growth and expansion in light of the economic climate continued pressure from Medicare the insurance companies to cut costs competition from other health field carriers and the concern over potential government funded health care programs. As the NHCs management failed to sustain the expected growth its management resorted to other strategies that not only maintained the expectation of its shareholders but would also allow management to keep their extravagant life style.In this case we will follow the struggles and anguish faced by Karen Larson NHCs Chief Financial Officer as she battles her way through making the right financial and corporate governance decisions and not to allow herself to be allured by fancy titles avarice and greed as well as upper management pressure placed before her. We will present not only the decisions she has to make but also the outcome of her decisions. Background National Health Company (NHC) is one of the nations largest providers of healthcare. It is ranked in the top ten nationally in terms of size and revenue. The company reached its ranking by expanding rapidly through aggressive mergers and acquisitions throughout the late 1990s through the 2006. The company had 50 facilities across the nation in 1990. By 2006the company had purchased another 28 hospitals and 45 outpatient rehabilitation facilities from National Health Enterprise.In 2003 NHC purchased ReLive a major healthcare chain. In 2005 NHC acquired Medical Surgical Corporation Novacare Health Imaging Horizon and several other healthcare providers with acquisition costs totaling approximately $2.5 billion. The buying binge positioned the companyas one of the major players in the healthcare industry.As the expansions continued the NHCs stockholders became accustomed to a period during which they enjoyed double digit growth rate in their investments. Yet once this growth began to truly slow down management and Karen Larson NHCs Chief Financial Officer (Karen) did not pay any heed but instead took various steps to ensure that the price of the stock would continue to soar. In December 2008 Karen was celebrating a triumphant moment in her career. She had been made the CFO in a company she loved. For Karen this moment did not come soon enough. For 20 years she had set her sight on this position. She had toiled in the trenches putting in long hours and sacrificing even her vacation time in hopes of attaining her dream job. Achieving this position was a fitting culmination of her years of dedication. It was a richly deserved reward that she cherished and relished. Now Karen was too pre-occupied with her thoughts. As she sat huddled in the corner of her dark prison cell surrounded by belligerent mentally unstable inmates Karen Larsons mind could not help but revisit the fateful day when her plunge from the lofty perch in a major corporation to the bowels of prison began. Painfully it was time for her to trace back her steps to what had brought her here. The Plan No sooner had Karen settled on her new position when her troubles started. Approximately nine months into her new job Karen Larson was lying awake sleepless and listless on her bed. Her thoughts wandering around the meeting she had earlier in the day with several other members in upper-level management. George Dawson (George) the CEO of the company had gathered all the members of upper-level management with direct relations to the finance and treasury departments. George had started the meeting with a speech about how proud he was to be working with such trustworthy and loyal associates and how he was very fond of everyone and how they were all like family to him. After Georges welcoming introduction the real topic of the meeting came into play. George stated that Im sure youre all aware of our current financial position as a company. Karen and everyone there nodded with the understanding of his statement. He continued This recent quarter has been very bleak the bleakest one this company has ever seen in its history. Everyone continued to nod in agreement with his words. George went on However I believe our company can pull through this stumble. All I ask is a small favor in order to bring the company to new heights. A deep silence swept across the room in the anticipation of his next words. All I ask is that we hide the stumble we had this quarter from the public. Not everyone in the public might agree with our strengths and abilities. And if word got out that we the giant in the healthcare industry was faltering it would hurt the company as a whole. And we wouldnt want that now would we? Whispers started out among everyone all at once at the notion of what was being asked of them. George the CEO of the company the one that she had looked up to was asking her and everyone else in the room to commit fraud and falsify the accounting books and records. George started to silence the whispers as he continued I will hold personal responsibility in this act and request. All Im asking for is to make this one quarter look positive to the eyes of the public. And next quarter Ill ensure the company truly has a positive quarter. Ill let you all think it over for a few days and well continue this meeting then. Over the next several days Karen agonized over the decisions that she was going to have to make yet there were so many unanswered questions. These questions continued to spin in her mind. Was she really a part of the play to deceive the public? And if she wasnt should she tell someone about the companys wrongdoings and the CEO? She thought about the sincerity ofGeorge Dawson when he stated that he would bring the company into positivecash flow over the next quarter in line with the financial markets expectations. Then she thought about all her fellow associatesall of her friends and all of the people who worked under her. She hadbeen working for NHC for over 20 years she had worked hard and diligently to gain her last position as Chief Financial Officer. She had also worked hard to gain the trust and loyalty of her fellow associates. However what the members of top management had asked her to do against the oath she had sworn when she became a CPA and her fiduciary duties as one of the officers in the company. It also went against the very morals and fibers of her upbringings and had left her in utter turmoil. She continued to ponder. What would have been the outcomes if the company had reported a loss? What would have been the outcomes if she and those involved did not get caught in the fraud they were about to commit? What was she going to do? The Afterthought A debate raged in Karens head. She thought if she agreed to commit fraud then the company would have no reason to lay off any of their workers. All of the jobs would be saved. But then what if the jobs were saved but the investors lost their money? She shook the thoughts out of her head. It was only going to be this one quarter as far as she could tell and dared to believe and hope for. She convinced herself then that agreeing to commit to the act would be the best course especially if everyone else in the meeting agreed to it. She didnt want to be the outcast nor did she want to disappoint everyone. She didnt want to constantly have to look over her back with all the ridicules about why she didnt go along with the decision. And she definitely wasnt going to tell anyone for fear of losing her own position in the company; the position that she had worked so hard to achieve. Karen had finally decided that she was going to accept the CEOs plea. The next meeting took place around October of 2009. The meeting room was quiet. All her fellow upper management associates looked tired as if they too didnt get very much sleep the last few days. But they also all had a stern look; she could tell that everyone else probably went through a similar ordeal to her own. She could also see in their eyes as they waited for George that they were all going to agree with what George had proposed a few days earlier.As George walked through the doors of the meeting room he was quick to notice the deadly silence and was quick to break it and get down to business. He askedSo has everyone come to a decision? They all nodded their heads. What is it then? George asked Are you with or against me? A short silence fell over everyone as no one seemed willing to be the first to admit to conspiring to the devious plan. Then Patricia Kim the corporations in-house counsel stood up and gave her answer I agree to your idea George and stand behind you and your decision all the way. At that moment everyone else was quick to chime in with similar affirmations.The rest of the meeting went into a discussion of how they were going to hide this from the public and cover their tracks to make it difficult for an auditor to find the deception if one ever came to investigate. The plan that they came up with was to decrease a contra asset account as well as the expense accounts either of which would increase earnings and correspondingly the assets. In addition they were going to create fictitious journal entries to correspond with the generally accepted accounting principles. Furthermore they were going to create false documents to support the bogus accounting entries.After the meeting adjourned George came into Karens office and said we are going to be reporting all of this additional…
