Preventing fraud and corruption in pharma and life sciences

By Chris Wheal

March 27, 2024

Supply chains, distributors or your own staff could be taking bribes or committing fraud

A leading pharma and life science sector accountant has warned that fraud and bribery are rife in the sector. The alarm has been raised by Nigel Layton, global head of pharma and life sciences at top accountancy firm Mazars.

Layton, who has worked for many firms in the sector around the globe, said: “I have learned that there are many fraud and bribery risks within the life sciences industry and they are commonly seen across different jurisdictions.”

Although he cited examples of bribery and corruption in the Middle East and China, he said other risks were more widespread. Procurement fraud, for example, was “widespread in the life sciences and pharmaceutical industry”. 

Layton said: “I have seen procurement processes abused or not followed in order to favour a particular supplier for reasons such as personal connection or a kickback to a member of a manufacturer’s procurement team. There have been examples of opportunistic procurement fraud as companies use family members to create an illusion of a competitive tender.”

The fraud-buster urged companies to review a sample of completed tenders to ensure the procedures were followed appropriately.

Fraud-busting tips

Layton had some other key messages:

• Ensure distributors comply with anti-bribery and corruption laws by having an audit clause in the distributor agreement. “Distributor audits should be detailed and cover a review of policies and procedures and transaction testing,” he said.
• Watch out for re-charging costs from clinical research organisations and other R&D partners. Layton said: “Third-party open-book audit clauses are vital in these contracts and should be activated, as necessary.”
• When exporting, avoid “professional services” invoices from customs agents as these mask illegal bribes. 
• Train staff and any third parties acting on your behalf to ensure they do not offer any inducements to healthcare professionals that would be classed as illegal payments.
• Conduct regular cyber security testing to identify IT vulnerabilities.
• Keep a close eye out for internal fraud around invoice, expenses and HR. This includes phoney and doctored invoices, exaggerated personal travel and restaurant bills and insiders helping hackers change bank details and other financial data. 

Layton was writing for Accountancy Age.

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