Understanding and controlling financial fraud in the drug industry

Author:Isaac Akomea-Frimpong, Charles Andoh
Position:Western Sydney University – Penrith Campus, Kingswood, Australia

Purpose This study aims to assess the fraud cases, factors and control measures of financial fraud in the drug industry with evidence from Ghana. Drug industry and pharmaceutical are the same, and they are used interchangeably in this study. Design/methodology/approach Data from questionnaires were collected from 412 manufacturers, wholesalers and retailers of the drug industry.... (see full summary)

Understanding and controlling
nancial fraud in the
drug industry
Isaac Akomea-Frimpong
Western Sydney University Penrith Campus, Kingswood, Australia, and
Charles Andoh
University of Ghana Business School, Accra, Ghana
Purpose This study aims to assess thefraud cases, factors and control measures of nancial fraud in the
drug industry with evidencefrom Ghana. Drug industry and pharmaceutical are the same, and they are used
interchangeablyin this study.
Design/methodology/approach Data from questionnaires were collected from 412 manufacturers,
wholesalers and retailersof the drug industry. Data were presented and analysed with descriptive statistics
and probit regression.
Findings Results show that,in general, stealing of drugs, stealing of cash, usageof fake cheques, falsied
documents and dubious accounting practices are some of the fraud cases in the industry. Factors such as
gender, educational level,religious beliefs, regulatory 7measures, pressure, rationalization and opportunities
inuence nancial fraud in the drug industry. Control measures such as thorough assessment of products,
regular review of fraud policies,installation of fraud-detection software and effective internalsystems could
reduce the menace.
Research limitations/implications The paper addressesa number of theoretical and systemicissues
on nancial fraud in the drug industrybut with limited specic quantitative data or calculationsas well as
limited sample size. Furtherstudies could offer a more quantitative approachwith a larger sample size in an
attempt,for instance, to estimate the nancial costs of nancialfraud to the drug industry.
Practical implications This paper openlytackles various attempted frauds and nancialmalfeasances
from stakeholder perspectives in the drug industry. Practical measures have been given to tackle the
consequencesof the menace.
Originality/value This paper is geared towards providingvaluable learning points for stakeholders in
the drug industry to handledaily operations to assist them in detecting and preventingsimilar occurrence of
Keywords Pharmacy, Ghana, Drug, Factors, Control measures, Financial fraud
Paper type Research paper
1. Introduction
Financial fraud has been identied as a major threat to the growth and well-being of
stakeholdersassociated with drug (pharmaceutical) industriessuch as consumers, rms and
economies across the globe for the past two decades (Anderson, 2012;Shepherd, 2018).
Financial fraud has been dened as the use of means to attain unfair nancial gains to the
detriment of the victims who suffer the scam (Marcel and Cowen, 2014). It is a deliberate
action which is planned and executed by the fraudsters to dupe stakeholders in the drug
industry. Financial fraud releases great nancial burden on drug industries running into
billions of US dollars.Gullkvist and Jokipii (2013)explained that nancial fraudis committed
fraud in the
drug industry
Journalof Financial Crime
Vol.27 No. 2, 2020
pp. 337-354
© Emerald Publishing Limited
DOI 10.1108/JFC-06-2019-0071
The current issue and full text archive of this journal is available on Emerald Insight at:
because of perceived nancial and non-nancial pressures, perceived opportunities to
commit the crime andrationalization or justication of the fraudulent practices. These three
reasons were explained in detail in Fraud Triangle Theorypropounded by the
criminologist, Donald Cressey, in 1973 (Shi et al.,2017;Free, 2015). Fraudsters in the drug
industry perpetuate numerous scandals ranging from transacting fake drugs, taking bribes,
falsify documents, laundering in money transfers and other illegal nancial transactions to
harm the entire industry. It has been estimatedthat nancial fraud costs the pharmaceutical
industry over$30bn every year and it is considered as a protableventure for the fraudsters.
Also $260bn (e180bn) or approximately 6 per cent of global health-care spending is lost to
fraud each year.Advanced economies suchas the UK and Northern Ireland lose7.29 per cent
(approximatelyUS$ 415bn) of the industrys annualrevenue to fraud (www.who.int/bulletin/
volumes/89/12/11 -021211.pdf). This data is alarming and the worse can be said of the
situation in developing economies. Walker et al. (2018) posited that 25 per cent of the
pharmaceutical products supplied in developing countries are fake. Between 30 and 60 per
cent of such drugs are transacted in Africa (including Ghana) and Asia. China and India
(developing economies) lead the way in the production and exportation of fake drugs inthe
world, and these countries experience high fraudulent practices compared to other nations
(Cyranoski, 2017;Chaudhry and Cesareo, 2017). Furthermore, 800,000 people die every year
because of fakepharmaceutical productswith much casualties in the developing countries[1].
This necessitates a diplomatic wakeup call which Ghana has done little to heed to ght this
menace.There are almost no studies whichexist on nancial fraudin drug industry in Ghana
according to the research papers reviewed by the authors of this paper. Studies on nancial
fraud in the drug industries were prevalent in the advanced countries with little in the
developingeconomies such as Ghana. Thefollowing research objectivesare addressed in this
to identify the nancial fraud practices in the pharmaceutical industry in Ghana;
to examine factors affecting the nancial fraud in the drug industry in Ghana; and
to assess measures for controlling nancial fraud in the drug industry in Ghana.
In this study, drug industryand pharmaceutical industry are used interchangeably.
The rest of the study is organized into Section 2, the literature review which presents
detailed related studies on nancial fraud in the drug industry with an underlying fraud
theory. In Section 3, the research method is presented. Section 4 captures the data analysis
and discussion of ndings. Section 5 presents the conclusions and recommendations of the
2. Literature review
2.1 Fraud in the drug industry in Ghana
The incidence of fraudulent transactions and substandard drugs have become a serious
menace confronting health-care delivery in Ghana (Donkor et al.,2012). The preponderance
of spurious and counterfeit drugs and nancial scams are modern-day menace whichhave
assumed alarming dimension. Lynas (2013) and Joudaki et al. (2016) outlined the factors
responsible for the rising wave of scams in the pharmaceutical industry as consisting of the
following: lack of political will, lack or inadequate legislation prohibiting counterfeiting of
drugs and nancial scams, weak nationalregulatory authority, shortage or erratic supply of
drugs, high cost of medicines, inefcient co-operation among stakeholders, trade involving
several intermediaries, poor accounting practices, corruption and conict of interest. Bate
and Boateng (2007) posited that in developing countries such as Ghana, essential and

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