Forensic Approach to Reel Off Diversion of the Institutional Product to Local Markets

The pharmaceutical industry is heavily regulated due to its impact on public health. Despite strict regulations in India, drug diversion to the normal market remains a persistent problem, compromising patient safety and industry credibility. Diversion refers to the sale of pharmaceutical products outside authorized channels, resulting in unsafe or counterfeit products entering the market. 

Recently, the management of a multinational pharmaceutical company operating in more than 20 countries worldwide approached us. The company has a significant presence in India, with central and forwarding centers (CFCs) in over eight states to cater to its vast customer base. Some of the CFCs are designated to supply institutional products to medical institutions, government hospitals and other such institutions, while others are responsible for retail products, over-the-counter supplies and more. The company's management was concerned that some of its institutional products were finding their way into the normal market, and they engaged our team to identify any irregularities or fraudulent activities in their supply chain. 

We designed our scope of review which included a comprehensive examination of the entire supply chain process, including inventory management at the factory, warehouse and CFCs, as well as distribution procedure, personnel management and sales practices. To uncover practices happening on the ground, we also included covert procedures, which involved observing the actions of distributors, retailers and wholesalers suspected of diverting institutional products. We tracked the serial numbers and batch codes to ascertain the route taken by the product from the factory to the point of diversion. We also conducted a market survey by interacting with end customers to understand their perspectives on the sourcing places. 

Based on the scope mentioned, the following procedures were conducted for identifying diversion of institutional products to local markets: 

• Comprehensive review of the supply chain process: This involved examining the entire supply chain process, including inventory management at the factory, warehouse and CFCs, as well as distribution procedures, personnel management and sales practices.  
• Covert procedures: To observe the actions of distributors, retailers and wholesalers suspected of diverting institutional products, we employed covert procedures such as conducting secret surveillance, mystery shopping and conducting investigations in a discreet manner.  
• Serial number and batch code tracking: By tracking the serial numbers and batch codes of institutional products, we were able to determine the route taken by the product from the factory to the point of diversion.  
• Market survey: Conducting a market survey involved interacting with end customers to understand their perspectives on the sourcing places.  
• Identify irregularities or fraudulent activities: During the comprehensive review of the supply chain process, we looked for any irregularities or fraudulent activities, such as missing inventory records or discrepancies between the number of institutional products produced and the amount sold through authorized channels. 
• Analyze inventory records: By analyzing inventory records, we were able to identify any discrepancies between the number of institutional products produced and the amount sold through authorized channels.  
• Interview personnel: We interviewed personnel involved in the supply chain process to gain insights into their practices and identify any potential red flags.  
• Cross-check invoices: By cross-checking the invoices of distributors, wholesalers and retailers with the product serial numbers and batch codes, we were able to verify the legitimacy of the products and the supply chain process.  
• Surprise inspections: Surprise inspections of warehouses, CFCs and retail outlets were conducted to identify any diversion of institutional products to local markets.  

Based on the exercise, the following fraud observations were identified: 

A comprehensive review of the supply chain process was conducted to identify potential weak points in the system allowing institutional products to be diverted to the local market. Covert procedures were employed, such as conducting secret surveillance, mystery shopping and discreet investigations to gather evidence without alerting suspected parties. Serial number and batch code tracking helped identify the exact location and parties involved in the diversion. Market surveys were conducted to understand customers' perspectives on sourcing places. Irregularities and fraudulent activities such as missing inventory records or discrepancies between production and sales were investigated. Personnel involved in the supply chain process were interviewed, invoices were cross-checked, and surprise inspections were conducted to prevent the diversion of institutional products. 

Our learnings from the above case: 

• Conducting a comprehensive review of the entire supply chain process is essential to identify potential weak points in the system that could allow institutional products to be diverted to the local market. 
• Covert procedures such as secret surveillance, mystery shopping and discreet investigations can help gather evidence without alerting suspected parties. 
• Tracking serial numbers and batch codes can help identify the exact location and parties involved in the diversion of institutional products. 
• Conducting market surveys can help understand customers' perspectives on sourcing places and identify any suspicious or unauthorized sources of institutional products. 
• Conducting surprise inspections of warehouses, CFCs and retail outlets can help prevent the diversion of institutional products and gather evidence.