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Investigation for a healthcare multinational

Engagement: The client was a subsidiary of a healthcare major. In India, the company operates through distributors. Sales prices are governed by price lists with mark-ups at each stage of the distribution chain. Institutional sales are at discounted prices, driven by negotiations between the institution and the company. Institutions (hospitals) are introduced by the distributor to the company. These are then approved for availing the discounted prices. Sales are routed through the distributor who gets an over-riding commission on the sales value.

The company was getting several complaints on its whistle-blower hotline about the abuse of the special pricing for institutional sales. Distributors were diverting products meant for institutions (invoiced at discounted prices) into the regular market for sale at the retail price. SKP was asked to unearth the modus operandi of the malpractice and identify specific cases with evidence of wrong-doing.

SKP reviewed the processes for:

  • Appointment of distributors
  • Vetting of institutions
  • Approval of sales contracts
  • Dispatch of goods, delivery and invoicing

We also did substantive testing of controls and conducted field visits including meeting various participants in the supply chain, including the institution’s staff.

Based on the substantive tests and complaints registered on the hotline, we identified transactions that needed to be investigated. For these transactions, we checked every document (e.g. purchase order, delivery receipt) that evidenced each leg of the deal. Wherever possible, we traced these back into the institutions’ own internal records to establish the authenticity of the document.

Value Delivered

  • Established the modus operandi of the fraud
  • Identified distributors and the company’s sales staff who were involved, along with evidence