Pharma giant Novartis AG agreed in 2016 to pay $25 million to settle charges that it violated the Foreign Corrupt Practices Act when two China-based subsidiaries bribed doctors and others to prescribe its drugs. The settlement represented yet another example of the failure of compliance of the T&E policies and highlighted the practice of relying on targeted gifts, meals, entertainment, and travel expenditures designed to increase sales.
The Novartis enforcement action, however, provides an important reminder to all companies that strict oversight and monitoring of gift-giving, hospitality, and travel expenditures are required to conduct business.
In reviewing some of the illegal activities, some of the activities stand as important compliance reminders for every company and compliance professional. Here are few of them below:
Two sales representatives submitted fake receipts for approximately $8,100 as part of their employee expense reimbursement requests, which were approved by a regional sales manager. The proceeds were used to entertain and provide gifts to healthcare providers.
One sales representative submitted a fake $1,154 receipt to purchase holiday gifts for 25 healthcare providers when the proceeds were actually used to pay for spa and sauna sessions for HCPs. A regional sales manager approved the purchase.
Novartis China retained numerous third-party travel and event planning vendors to organize and manage marketing for HCPs events, both locally within China, and outside China. The range of services varied but in some cases, vendors arranged the venue, food, entertainment, flights, hotels, and transit depending upon the location of the event and number of participants. Despite the widespread use of third-party travel and event planning vendors in China, Novartis did not have sufficient internal accounting controls or anti-corruption compliance measures in connection with the use of these vendors. Among other things, Novartis failed to conduct sufficient training of its sales staff and managers to prevent and detect inappropriate payments made to and/or through these vendors, failed to conduct proper due diligence in connection with these vendors and failed to ensure sufficient and appropriate support for the selling and marketing expenses submitted by these vendors.
In 2009, Sandoz China sponsored twenty Chinese HCPs to attend the American College of Surgeons 95th Annual Clinical Congress in Chicago. While the Clinical Congress was devoted to educational purposes, the HCPs were also provided purely sightseeing or recreational activities, such as an excursion to Niagara Falls. Sandoz China also paid for travel to the U.S. for spouses of the HCPs, $150 in "pocket" or "walking around" money, and cover charges at a strip club. A senior manager of Sandoz China and other Sandoz China employees accompanied the HCPs to Chicago.
In 2011, a Chinese travel company submitted several invoices totaling approximately $25,000 ostensibly in connection with lectures by an HCP to other HCPs. The invoices were paid and recorded as legitimate expenses despite the lack of any confirmation: (1) that the lecture was organized by Sandoz China and held in the venue for which an invoice was submitted; and (2) that the lecture was attended by HCPs.
In 2009 and 2010, Sandoz China paid healthcare providers to collect and analyze patient medical data for the stated purpose of better understanding the use and reaction of a particular Novartis drug among patients. In reality, the studies did not provide any legitimate medical data but rather were used to financially reward HCPs who had prescribed the drug. The studies were not approved by the Novartis Global Clinical Quality Assurance group, as policy required, and the 5 studies did not collect or analyze substantive patient data regarding the drug. Despite the lack of real scientific data, payments of approximately $88-135 per data submission were made to the prescribing HCPs. The payments made to HCPs under these studies totaled approximately $522,000 between 2009 and 2010.
The latest DOJ compliance directives stress companies need to embrace technology, data, and build real-time monitoring of transactions and risk-based assessment and updation of compliance policies. With an automated real-time transaction audit program in place, these issues in the expense reports could have been easily mitigated.
Robana is a T&E Audit Automation product that audits 100% of a company's expenses, in real-time, reducing time & effort in management approvals and Finance team verification before reimbursements.
Download our sample expense analysis report today to learn how you can improve compliance, establish better controls, and protect your bottom line.