Pharmaceutical counterfeiting and fraud also pose an immense problem for the pharmaceutical industry. In addition to being a threat to patient safety, the good name and financial well-being of pharmaceutical companies is reliant on the control of its products from manufacture to sale. With the rapid growth of online pharmacies, with the potential to bypass safeguards, together with increasingly sophisticated technologies enabling the production of convincing fakes, fraud and counterfeiting is no longer just a problem in developing countries and requires innovative technical solutions to overcome.
As long as the motivation exists for staff and external parties to commit fraud, pharmaceutical and other industries will never be able to fully eradicate its impact. However, there is much that can be done to reduce the opportunity for fraud by creating the right anti-fraud environment and proactively addressing the risks.
Companies rely heavily on their systems of internal controls to manage fraud risk but this is not enough to tackle fraud effectively. Employees need to be involved in the fight against fraud. There are three steps to achieve this:
- communicate responsibilities to staff
- raise employees awareness of fraud
- provide employees with the ability to report suspicions.
Only by assessing and understanding fraud risks can pharmaceutical companies hope to manage them. This requires:
- looking back at fraud already suffered and capturing, collating, reviewing and communicating this data
- looking forward at future risks by assessing data on attempted frauds, liaising with other pharmaceutical companies or the police and having a detailed knowledge of the companies own potential weaknesses in processes and controls.
Pharmaceutical companies are increasingly investing in developing markets to take advantage of lower costs and have access to previously untapped customers. India is a prime example. However, fraud and risk issues abound. Following are factors which can lead to disruption and/or failure in overseas investments:
- misleading management representations ― in one case it was discovered that the business to be invested in existed only on paper and that supporting documents had been forged
- sources of wealth and business track record ― it may be that the business in question is involved in crime
- interference by state or public bodies ― corruption may be an issue
- unnecessarily complex corporate structures ― these may hide sanctioned country ownership of businesses or fraud
- weak corporate governance ― employees may not be controlled adequately
- non-core activities ― it may be discovered that the core activity of the business about to be invested in, is not in fact pharmaceuticals.
Pharmaceutical companies wishing to invest in developing markets must take steps to fully understand local factors, never accept any information at face value and evaluate their potential investment thoroughly pre-deal.
In order to restore confidence after the accounting scandals of corporate giants such as Enron the Sarbanes-Oxley Act was introduced in the U.S. in 2002. Relating to all sectors, including pharmaceutical, section 404 stipulates that management is responsible for evaluating the effectiveness of internal controls over financial reporting. Furthermore, internal controls must assist in preventing and detecting fraud.
Exporting IT and other functions to low wage-cost countries is a growing trend in all industries including pharmaceutical. Sending R&D and clinical testing off shore to India is an example. The key drivers for moving operations abroad are a low cost base, 24-hour service, a highly educated workforce and English as a second language.
Off shoring carries numerous risks and dangers. These include risks related to fraud and corruption, which have the potential to damage a company’s performance, reputation, intellectual property rights and customer confidence.
- unprotected personal data leading to the opportunity for identity theft
- employee bribery, manipulation and extortion
- undeveloped fraud risk management
- sanctions for failure to meet regulatory requirements
- systems and people easier to corrupt due to economic, legal and cultural factors
- integrity and competency levels taken for granted
- loss of reputation and customer confidence.
- in-depth corporate intelligence to help to inform decisions
- tightly drawn contracts and service level agreements
- thorough employee background checks
- clear and well-enforced policies detailing responsibility and accountability with respect to fraud
- close supervision and monitoring supported by robust internal controls.
