Recently, Novartis came to a settlement with the SEC about an FCPA action. In case you are unfamiliar, the key points of the violation are this:
- Novartis AG agreed 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.
- Novartis subsidiaries gave money and gifts to doctors and other health care professionals in China.
- Novartis improperly recorded the payments as travel and entertainment, conferences, lecture fees, marketing events, educational seminars, and medical studies.
- One example in 2011, 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 health care professionals.
- Novartis agreed to disgorge $21.5 million and pay $1.5 million in prejudgment interest, and a $2 million penalty.
- The SEC said Novartis "failed to devise and maintain a sufficient system of internal accounting controls and lacked an effective anti-corruption compliance program to detect and prevent the schemes."
My conclusion is that there is a strong possibility that Novartis could have had a chance to avoid or reduce the $25 million penalty if they had a solution, like Oversight Insights On Demand™ for FCPA in place. I’m pretty confident that our software would have picked up the $8,100 in bogus expenses as outliers as well as some of the other activity identified in the blog post. Even if we didn’t catch the risky transactions, the fact is with IOD for FCPA, Novartis would have had a program that demonstrated to the SEC (and most likely the Department of Justice) a good faith effort to comprehensively monitor their T&E transactions for such non-compliant and illegal activity. Having a software in place in addition to manual oversight also points to the lack of effectiveness of manager approval, either through negligence or collusion.
It seems pretty risky for any of these global businesses with international interests not to use a solution like ours when so much is at stake monetarily. Especially given the uptick in FCPA violations in the last few years – the SEC is looking for bad behavior. I bet the price for Insights On Demand would look pretty reasonable in hindsight to organizations like Novartis compared to what it cost them for being so vulnerable.
After all, our goal is to enable our clients to have foresight before it’s too late. It will cost less than $25 million – you can count on that.