The risk of fraud in fast tracking targeted COVID-19 therapeutics
Chief Compliance Officer support
The COVID-19 outbreak continues to have a devastating impact across the globe. Economists speak in unison about an imminent global financial crisis. This is defined by a fundamental split: the time before COVID-19 and the “new normal” which will define the “next normal”. Life Sciences companies are at the same time in the spotlight and under pressure to find a vaccine or response to contain the virus.
In such times of crisis, “business as usual” does not exist. Business models are challenged and senior executives can be more focused on sustainability and financial resilience than on ethics, compliance, and fighting fraud. Furthermore, in a crisis, there may be a temptation to think that normal rules can be overlooked or no longer be applied.
However, regulatory scrutiny will still exist in the future, bribery and corruption will remain unacceptable, and fraud will still be a threat for corporates. So, while the attention of the senior executives is focused on different areas of the business, compliance officers and/or investigation teams should ensure that everyone in the organisation continues to understand that normal standards do still apply.
What then do we see in the market as the main fraud risks for companies in the Life Sciences sector right now?
Introducing new third-party vendors without proper due diligence is a real risk as companies try to find alternative sources of supply to remedy disrupted supply chains. Fast tracking new suppliers and other business partners (customers, suppliers, agents, intermediaries or other advisors) due to either the closure of existing agents/distributors/suppliers or their inability to deliver the volume of materials needed. This may lead to the risk of working with disreputable or even restricted parties.
Increased dealings with public officials
Regulatory approvals and alliances with new partners can increase the dealings with public officials. Companies are under pressure to react quickly, and expedite processes wherever possible. In many countries, health care professionals or health fund administrators are employees of the government, or work at public institutions. They can therefore be considered “public officials” under many bribery laws. In some countries, especially in emerging markets, public officials are paid less than their private practice counterparts. So, any small gift offered may be perceived as an attempt to gain influence.
In addition, we also expect Life Sciences companies to inevitably encounter more challenging ethical issues. Companies must balance repurposing drugs to fight COVID-19 with maintaining the supply of these drugs to patients, who use them for other needs, ensuring they do not create a fear of shortages in the market. The pandemic risks people stockpiling drugs, off-label usage, and self-medicating. How should companies serve everyone and not create panic on the market?
The current situation has changed the way we think about health care, including people and organisations. Life Sciences companies experience unseen pressure from both outside and inside their organisations. While in the previous business world there was always some stress on various business areas, suddenly firms face a complete new level of constraint.
There is clear external pressure from governments and regulatory bodies, along with the expectation from society that they will develop “a solution” to the virus whether it is a vaccine or an effective therapy. In addition, financial markets and investors are looking for researchers and promising future product developments. While financial performance is still a key metric in a company evaluation we see outsized reaction to news on therapy or drug development - irrespective of whether it is positive or negative.
Internal pressure from management is pervasive: each organisation reacted to the pandemic with both structural and operational measures. The rapid implementation of many of these measures means the effects might not have been fully considered. Understandably, business continuity was a top priority and potential fraud risks may not have been fully considered e.g.when fast-tracking approval processes in response to remote working. Some of the controls may have been loosened to meet management expectations on continuous delivery and operations.
Every organisation consists of human beings. While organisations have their business objectives and do everything to survive the crisis, the human element cannot be be forgotten. Employees are under personal and professional pressure now and it is difficult to manage for many. Such pressure can blindside people and tremendously increase the risk of human error. While this puts people into unprecedented situations, organisational controls were designed to address the risk of human error: and this is the exact time when companies have to trust their control frameworks and their effectiveness.
In uncertain times, it can become tempting to justify dishonest actions. Life Sciences companies work with various external parties during research and development, exposing them to third-party risks. With many companies under financial strains as a result of the COVID-19 crisis, these risks are particularly important now and even harder to manage. Apart from the risk in business partners and vendors, the uncertainty and extreme pressure on internal colleagues can easily lead to temptation and wrongdoing. The justification always seems obvious and often understandable: management wants to keep the company running to protect jobs and headcount; researchers must get to the results faster so they can help sick people. In times of crisis, it becomes easier to loosen rules in the rush to achieve urgent goals, and while the goal itself can be above reproach, the consequences of actions justified for short-term expediency will hit hard when the storm is over.
This is the time when any Fraud Risk Management system is put to the test. Understanding the firm-wide risks across the organisation and by changing where necessary, Life Sciences companies can truly live up to their mission and purpose so they can make an impact that matters.