Overview

A global pharmaceutical company with extensive operations in China faced allegations of severe FCPA violations, involving fraudulent expense claims by sales representatives, third-party travel agencies, and luxury hotels over a three-year period. The allegations raised concerns about systemic corruption, putting the company at risk of significant regulatory penalties from the US SEC.

The company engaged H&A to conduct a comprehensive expense verification to uncover fraudulent transactions, confirm the authenticity of receipts, and assess the scale of the misconduct.

Challenges

The pharmaceutical company faced the following key challenges:

• Thousands of receipts and purchase orders associated with alleged fraudulent events needed to be reviewed.
• Geographical spread: The fraudulent claims spanned 55 cities across China, many in remote locations where local cooperation could be difficult.
• A lack of clear processes for validating expense claims, increasing the risk of repeat infractions.

The company needed immediate and conclusive evidence to address regulatory concerns and implement remediation measures to prevent further violations.

Our Approach

H&A deployed a multi-phased approach to uncover the fraud and provide actionable insights to the client and their legal counsel.

1. Document Verification and Database Review

Our team conducted a detailed review of thousands of receipts, notes, and purchase orders associated with the suspected fraudulent events.

• We verified the authenticity of receipts through database cross-referencing and pattern analysis to detect anomalies.
• Common fraud indicators included falsified hotel stays, inflated expenses, and duplicate claims.

2. On-the-Ground Enquiries Across China

Recognising that many receipts required physical verification, we deployed dozens of consultants to visit hotels in 55 cities, including remote locations.

• Using excellent people skills and persistence, our consultants made direct enquiries with hotel management to confirm whether the claimed events took place.
• Most hotels cooperated, providing valuable confirmation of non-existent events or falsified expense amounts.

3. Data Analysis and Reporting

The data collected from both document verification and on-the-ground enquiries revealed:

• 10% of the events never took place.
• 10% of the events had falsely inflated expenses.
• These infractions represented over 28% of the total monetary value of the suspected events.

Outcome

Our findings confirmed the validity of the allegations and provided the client with a clear understanding of the extent of the fraud. This enabled the company to:

• Report accurate findings to the SEC, addressing regulatory concerns and avoiding further penalties.
• Implement remediation procedures in China, including improved expense verification processes and employee compliance training.

H&A also worked with the client to design and implement enhanced internal controls, ensuring that future expense claims would be subject to stricter verification protocols.

Impact

• The client avoided significant regulatory penalties by proactively addressing the FCPA violations.
• Expense reporting processes were overhauled to reduce the risk of future fraud.
• The company strengthened its internal compliance framework in China, reinforcing its commitment to ethical business practices.

This case demonstrates H&A’s ability to conduct large-scale fraud investigations across challenging geographies and deliver conclusive evidence to clients facing regulatory scrutiny.