Accounting and Audit Enforcement
Perform a search on several publicly traded U.S. health care companies and choose an organization that has been accused of committing health care fraud.
Instructions
Write a 6 page paper in which you:
1. Evaluate the level of SOX regulations that applies to for-profit and not-for-profit health care organizations, indicating whether mandating SOX requirements for nonprofits might reduce fraud and increase corporate governance. Provide support for the rationale.
2. Determine whether SOX has been effective in regulating ethical behavior of for-profit health care organizations. Defend the position.
3. Review the audit report issued by the external auditing firm from the company's website for the year it was accused of fraud. Then, determine whether the external auditors were negligent in preparing the audit report for the company. Formulate an opinion regarding which internal control was deficient or which GAAP was violated. Defend the position.
4. Determine which provision(s) of SOX was/were violated in the health care fraud case in question. Indicate whether SOX adequately provides sanctions to deter the behavior or whether changes are needed to the regulations to remedy the issue(s) and thus ensure compliance.
5. Based on the fraudulent activity that occurred, recommend two improvements to the internal control environment to reduce those occurrences. Provide detailed recommendations.
6. Use at least four quality academic resources in this assignment. Note: Wikipedia and other websites do not qualify as academic resources
SOX regulations
Name:
Instructor:
Institution:
Date:
Introduction
After a dreadful period of corporate scandals in the United States, the Sarbanes-Oxley Act, or simply SOX regulations, was enacted to restore financial markets' confidence. The act closes loopholes in public companies by extending board members' oversight responsibilities to auditing procedures and financial transactions. Although SOX regulations have effectively addressed financial fraud in other industries, the healthcare industry has experienced a significant rise in fraudulent practices in the last decade. Since 2010, the National Health Care Anti-Fraud Association (NHCAA) estimates that 10% of the country's health outlay is lost each year because of fraud. In 2020, the Department of Justice (DOJ) recovered $1.8 in healthcare fraud settlements and fines. A significant portion of that amount was the $117 million paid by Universal Health Services, Inc. as a settlement for submitting false claims to Medicaid and Medicare. Based on Universal Health Services fraudulent case, this paper examines the effectiveness of SOX regulations in promoting ethical behaviors of for-profit and not-for-profit health care organizations.
Evaluation of SOX regulations regarding for-profit and not-for-profit healthcare organizations
With two notable exceptions, the Sarbanes-Oxley Act provisions primarily affect all publicly traded companies, including those that operate in the healthcare industry. SOX regulations dictate that the lead partner of the auditing company must be replaced after five years. Although this provision does not imply that public healthcare companies must change their external auditing firms after every five years, York-Wyatt (2015) argues that doing so is the only way of complying with SOX regulations. Subjecting not-for-profits healthcare organizations to the Sarbanes-Oxley Act provisions will enhance corporate governance and reduce fraud cases. For instance, Blodgett (2014) indicates that changing the lead auditor after every five years is a good accounting practice for both for-profit and not-for-profit healthcare companies. Since auditing firms may grow accustomed to a firm's financial procedures, this regulation will enable not-for-profit healthcare companies to closely examine their financial practices. Similarly, the regulations regarding the disclosure of all accounting policies to the audit committee also align with good practice standards. Extensive disclosure of internal control practices will enable audit committees to make more informed judgments regarding not-for-profit healthcare companies' financial and management state.
The effectiveness of SOX in regulating the ethical behaviors of for-profit healthcare companies
Although most people believe SOX regulations apply in businesses only, these regulations also apply in healthcare organizations. SOX has an important role in regulating the ethical behavior of healthcare organizations. These organizations are supposed to comply with the codes of ethics. This, in return, assists in boosting the performance of employees and eliminating deceptive behaviors existing in these organizations. Therefore SOX regulations assist these corporations in resolving conflicts, enhancing self-regulation and corporate governance.
The Sarbanes-Oxley Act of 2002 has proved to be efficient in regulating the ethical conduct of for-profit health care companies. Before establishing SOX regulations, for-profit health care companies were somehow exempted from legal action because it was believed that ethical resolutions related to healthcare existed in gray areas and could not be determined based on objective data or quantitative analysis (Beal and Griffin, 2016). Apart from adhering to SOX regulations, the majority of for-profit healthcare companies employ compliance and ethics programs that clarify and communicate the required ethical standards to employees. Some for-profit healthcare organizations have exceeded the Sarbanes-Oxley Act requirements and contracted full-time attorneys who evaluate all their marketing and financial decisions (Langabeer et al., 2017). As a result, SOX regulations have successfully instilled ethical behavior standards in the management and operation of for-profit healthcare companies.
According to Blodgett et al. (2014), the implementation of SOX regulations in health care organizations reduces deceptive practices like inappropriate marketing and advertising of products, billing of frauds, and involvement in issues that affect the personal care of patients. It can be concluded that SOX has several advantages in health care organizations.
Review of Universal Health Services' report
DOJ's case against Universal Health Services, Inc was based on false claims between 2006 and 2019. However, all the company's audit reports in that period do not raise any internal control issues. For instance, in 2019, the auditing was conducted by PricewaterhouseCoopers. The main objective was to "test and evaluate the design and operating effectiveness of internal control based on the assessed risk" (Universal Health Services). Despite the company engaging in false claims for over 12 years, the final 2019 audit report stated that "the Company maintained, in all material respects, effective internal control over finan...