Summary

The “Unearthing Pharma Fraud” article discusses the case of Rew Cook who is the sales manager at Good Health Inc. (GHI). The firm distributes pharmaceutical products and medical/dental equipment to pharmacies in France. An audit by the outsourced internal audit firm Alan & Blanche revealed fraudulent activity in Cook’s sales department. Cook took advantage of the internal control weaknesses present in GHI operations and was able to make a personal gain to the tune of $200,000.

Cook’s main fraud was a result of keeping pharmacies in the dark in regards to the rules associated with bonuses and promotional products from hitting targets. This way Cook could favor the pharmacy of his choice, and in return would accept kickbacks from favoring particular pharmacies. Also due to pushing high sales, without netting in sales returns, he was not only able to receive higher commissions based on inflated sales, but also create a name for himself that he could use to ignore many rules, specifically HR policies.

Control Weaknesses

There were many kinds of control weaknesses in the “Unearthing Pharma Fraud” Case; the first, limited controls related to the control environment. With no processes set to interview employees who left the division or the company, in order to review employee performance or management performance. No controls were set to prevent management override, as Cook hired clerks, on company payroll without HR knowledge.

Another lack of control was found on the process level control side. The process for issuing promotional and bonus products to pharmacies was not clearly defined, so the use of the promotional products was up to manager discretion allowing for exploitation of the process. In addition there was no reconciliation on sales returns resulting in the ability to falsify sales and thus sales managers would receive more