The prevention and detection of corruption in pharmaceutical companies

Abstract

This paper analyzesthree recent cases of pharmaceutical corruption and develops a governance framework, using the fraud diamond theory [7], for the prevention of corruption. Pharmaceutical companies rely heavily on marketing strategies to gain the loyalty of prescribing doctors and patients [32]. These aggressive marketing activities sometimes take an illegal twist by turning into corruption. In 2011, Johnson & Johnson agreed to pay US$70 million to settle Department of Justice charges related to foreign bribery. This paper shows that the following strategies are effective at preventing pharmaceutical corruption: Offering employee assistance programs and revising performance goals tied to sales or stock prices; using transformational leadership; offering and certifying employee training on key company policies and anti-bribery legislations; using open-door policies and anonymous reporting mechanisms; assessing corruption risks associated with doing business in the world's poorest countries and contracting with third-party agents; implementing proper anti-corruption controls such as segregating the research funding function from the sales division; and detecting common corruption schemes, such as fictitious marketing agreements with off-shore entities and sham contracts with doctors, through the analysis of relevant red flags. This paper contributes to academia and the forensic accounting profession by discussing strategies and red flags analyses that should be implemented by pharmaceutical companies to prevent corruption. It extends previous research by tying together various strategies into a single framework for the prevention of pharmaceutical corruption. This framework will help deter pharmaceutical corruption and improve internal controls in this industry.