GlaxoSmithKline Fraud Case

Introduction

The British giant drug maker GlaxoSmithKline Plc has of late received one of the biggest criminal charge penalties as a fraud from endorsing two of their admired drugs with no approval in usage and a failure to unveil the safety information on the third drug (Thomas & Schmidt, 2012). Alongside the charges was the lack of proper marketing by the company through provision of luxurious option holidays to the doctors, European hunting trips, highly paid speaking tours and tickets to Madonna concert. According to the prosecution proceedings, the company unlawfully promoted a drug named Paxil for treating depression in people below the age of 18 years, which instead was made for adults, in the years between 1998 and 2008. Between 1999 and 2003, the firm was said to make promotions for Wellburtrin, a drug for reducing weight, cure for sexual dysfunction, a drug made for only depression. The judiciary alleged that the firm had failed to report to FDA, the safety information on particular post- marketing and from two studies of the cardiovascular safety of the drug Avandia in the years between 2001 and 2007. The company’s CEO however was remorseful on mistakes done and said that it was a big lesson to them.

Question 1: Nature of fraud and the impact to the company

The drug manufacturer was faced with fraud from marketing and promotion of drugs Paxil, Wellburtrin, Advair, Lamictal and Zofran, which were not approved for usage by the Food and Drug Administration, a practice that experts refer to as off-label marketing (Thomas & Schmidt, 2012). In addition, the company was found guilty and charged with inducing doctors to do marketing of their drugs in summits, a practice that was claimed to turn ordinary vendors to hit sellers.

The fraud incidence had strong impacts on the drug manufacturer GlaxoSmithKline. First the company was to pay a fine for the criminal-civil offence amounting to $3 billion (Thomas & Schmidt, 2012). Secondly, GlaxoSmithKline lost trust from the State, Food and Drug Administration and the consumer market. Thirdly, the company’s name got defamed because of their greed and ill practice of promoting illegal drugs, which were not, awarded approval by Food and Drug Administration and on of the matter corrupting doctors to do promotions on their behalf.

Question 2: Management’s responsibility to the stakeholders to protect and securing the company from the fraudulent activity

Fraud is generally a dishonest adventure that should not be allowed in any institution. A company’s management has the responsibility to assess risks of fraud and come up with anti-fraud measures for the safety of the company. Moreover, the management has the right of providing mechanisms for the company’s personnel to give information on disreputable practices, cases of real or assumed fraud or any other breach to moral code policy of the company (Caliyurt & Idowu, 2012). GlaxoSmithKline company management committee as shareholders’ representatives could have liaised with the manufacturing department to make sure each drug composition was well analyzed and samples of the same presented to the Food and Drug administration for chemical analyses and approval. By so doing, the management could save the company from being trailed by the authorities. If the company had earlier presented their approval samples with the board and failed to approve then they still keep waiting other than doing against the law. The company’s management could also have consulted the sales department to stop sales promotion and sales of drugs that are not yet approved. on top of the above measures, the company could have encouraged auditing from both internal and external bodies to verify and get advice on any instigated motives of promoting drugs which have not been approved by the relevant bodies. Such measures could save the company since the managerial department could do further consultations with the stakeholders before the whole processes drawing attention to the State.

Question 3: The Effect of Corporate Environment and Culture

In any organization, there need to have a vigor culture for open and clear communications in all the players with no fear of vengeance or reprisal, hence the functional environment can be said to form a basis of a jingle inside control on fiscal report (Albrecht., Albrecht & Zimbelman, 2011). The top management should be clear in its endeavors and be stern on the corporate ethics. Since the 1950s, the fraud triangle has never changed, with the three basic aspects, which can be employed to forecast any fraud probabilities in an organization. These include an opportunity, incentive/pressure, and outlook/explanation. In the GlaxoSmithKline case, such factors could have led to the fraud circus. Indeed, the management used pressure/incentives to motivate the doctors in promoting their illegal drugs. This factor among others like high paid speaking tours and tickets to Madonna concerts encouraged and motivated those involved in carrying out sales and promotion of the drugs fearlessly.

On the other hand, outlook/explanation could have contributed to fraud. This is because some employees might have been known and intended to commit fraud. In any case, great incentives and pressure may lure a person to have an outlook of acknowledging fraud. Indeed, opportunities might have evolved which could have promoted and encouraged fraud. Some cultures in a company may contribute to fraud. Every company has its own distinctive working climate, which defines how employees relate to their work practices and methodologies (Goldmann & Kaufman, 2009). Therefore, management ethics has control on the work environment to prevent fraud. If the management encourages unethical practices in the organization then fraud is likely to occur. Moreover, employees of the company might have committed fraud out of egoist/local box without their knowledge. In this case, the company’s management might have been using the employees to commit fraud to maximize its profits (Caliyurt & Idowu, 2012).

Question 4: the impact to the company or brand because of the fraudulent activity;

The company faced hefty fines due to the criminal-civil offence from the Justice Department. The company’s management proved unfaithful to the stakeholders. Stakeholders can withdraw their shares if a company starts operating in an unethical manner (Kovacich, 2007). The drugs were banned from the market and the corporation committed to screening by the government officials for a five years. Therefore, the company was forced to conform to the standards as required by the Food and Drug Administration.

Question 5: Measures that could have prevented and/or detected the fraud

The company at large could have incorporated CPA, who on other hand could have gathered data from assorted departments in the firm and involve directors, managers, employees, and stakeholders to instill plans against fraud. The panel of directors and the audit body could have evaluated the managerial detection of risk to fraud, implement anti-fraud mechanisms and develop a suitable tone at the top. The management could also have assessed risks of fraud and implement mechanisms against fraud or minimize it to reasonable levels (Koleter, 2003). The management could also have mobilized employees to communicate any fraud related practice. Other measures could involve internal auditors, independent auditors and antifraud experts to examine, evaluate and advice the management on any foreseen fraud in the near future.

References

Albrecht C. C., Albrecht O.C, Zimbelman F.M, (2011). Fraud Examination. Cengage Learning, USA.

Caliyurt .K, & Idowu O. S. (2012), Emerging Fraud: Fraud Cases from Emerging Economies. London: Springer, London.

Goldmann, P. & Kaufman, H. (2009). Anti-fraud Risk and Control Workbook. New York: John Wiley & Sons.

Koleter W.J. (2003). Fraud Exposed: What You Don’t Know Could Cost Your Company Millions, New York: John Wiley & Sons.

Kovacich L.G, (2007), Fighting Fraud: How to Establish and Manage an Anti-Fraud Program, Butterworth-Heinemann, London, UK.

Thomas, K. & Schmidt, S. M. (2012). Glaxo Agrees to Pay $ 3 Billion in Fraud Settlement. Retrieved from http://www.nytimes.com/2012/07/03/business/glaxosmithkline-agrees-to-pay-3-billion-in-fraud-settlement.html?pagewanted=all&_r=0