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Strategies to Prevent Internal Fraud

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As employees can be key perpetrators of fraud, creating and implementing best practices with regard to insiders is a key part of an enterprise’s everyday risk management procedures. For example, developing internal controls that involve multiple layers of review for financial transactions, and arranging independent reviews of the company’s financial records can prevent malfeasance, detect ongoing fraud and prevent it from continuing.

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In fact, according to Kroll’s 2019 Global Fraud and Risk Report, businesses discovered insider fraud by conducting internal audits 38% of the time, through external audits 20% of the time and from whistleblowers 11% of the time.

Technology solutions provider Column Case Investigative recently examined five common types of fraud that businesses face, including employees falsifying their timesheets to steal money from the company, taking intellectual property or passing off counterfeit items as genuine, funneling money away from vendors to themselves, or soliciting favors or compensation from clients or vendors for preferential treatment. These tactics can impact a company’s profits and expose it to possible litigation, but also pose risk to its reputation with customers and partners, as well as its competitiveness.

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To best mitigate these risks, the provider recommended that companies do their due diligence in the hiring process to detect any warning signs that applicants may have a motive to commit fraud. To limit intellectual property theft and misuse, they should limit access to important information and materials.

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Enterprises can also create clear ethical standards for employee conduct and a positive culture in which workers are happier, more committed to the company and more comfortable reporting fraud when they see or suspect it happening.

Check out the infographic below for more best practices to mitigate employee fraud risks:

Johnson & Johnson to Pay $572 Million in Opioid Crisis Lawsuit

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This week, a judge in Oklahoma ordered pharmaceutical company Johnson & Johnson to pay $572 million for its role in the opioid crisis that has ravaged the country and killed more than 6,000 people in Oklahoma alone. The ruling is the first to hold a drug manufacturer responsible for the crisis, which was fueled by companies flooding the market with addictive painkillers and pushing doctors to overprescribe the drugs. The amount is far less than the $17.5 billion that the state’s attorney general sought, and the company says it plans to appeal the ruling.

Cleveland County District Judge Thad Balkman ruled that the state met its burden in arguing that the company created a “temporary public nuisance” by using “misleading marketing and promotion of opioids,” and added in his ruling that “those actions annoyed, injured or endangered the comfort, repose, health or safety of Oklahomans.”

Judge Balkman cited Johnson & Johnson’s deceptive and aggressive marketing of painkillers to doctors, and the company’s practice of discouraging its sales representatives from discussing addiction or other negative consequences of using the drugs, while encouraging their prescription for both moderate and severe pain. The company also sought to convince doctors that they were under-prescribing pain medications and that having patients ask for higher doses was not a sign of addiction, just indicative of needing more to address their pain.

Johnson & Johnson markets the painkillers Duragesic (fentanyl) and Nucynta, both of which contain opioids. The company has also long manufactured the raw ingredients for other companies’ opioid-based painkillers, having bought a company in Tasmania in the 1980s that grows poppies and processed opium. According to the New York Times, by the height of the opioid epidemic, the company had become “the leading supplier for the ingredients in painkillers in the United States,” having developed a specific strain of poppy that provided the basis for Purdue’s Oxycontin, as well as manufacturing and supplying ingredients for “a range of other drugs, including hydrocodone, morphine, codeine and buprenorphine.”

Michael Ullmann, Johnson & Johnson’s general counsel, released a statement calling the judgement “a misapplication of public nuisance law that has already been rejected by judges in other states.” He also noted, “The unprecedented award for the state’s ‘abatement plan’ has sweeping ramifications for many industries and bears no relation to the company’s medicine or conduct.”

The amount decided for damages may actually seem low—$572 million will reportedly only fund a single year of Oklahoma’s opioid recovery plan, which the state estimates will cost $12.7 billion to $17.5 billion over 20 to 30 years. The company’s stock even rose this week, which some attribute to relief over the relatively low damages.

However, many are cheering the Oklahoma ruling as other lawsuits near their court dates. This includes a massive federal lawsuit scheduled for October in Cleveland, Ohio, that brings together more than 2,000 separate cases. Judge Balkman’s decision that the company’s activities constituted a public nuisance opens the door for similar rulings in other state cases, and an additional legal avenue for holding companies responsible for their part in the epidemic.

Also this week, Oxycontin manufacturer Purdue Pharma pledged to pay $10 billion to $12 billion to settle thousands opioid-related claims, according to NBC News. Purdue had been part of the Oklahoma suit, but to avoid the lawsuit, Purdue agreed in March to pay a $270 million settlement to establish an addiction treatment and research center at Oklahoma State University, and provide continued funding over five years. Purdue’s owners the Sackler family also agreed to pay $75 million to the center for five years. In May, Israel-based Teva Pharmaceuticals also settled with Oklahoma for $85 million, which will further fund the state’s effort to combat opioid addiction.

Inclusion Does Not Stop Workplace Bias, Deloitte Survey Shows

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In Deloitte’s 2019 State of Inclusion Survey, 86% of respondents said they felt comfortable being themselves all or most of the time at work, including 85% of women, 87% of Hispanic respondents, 86% of African American respondents, 87% of Asian respondents, 80% of respondents with a disability and 87% of LGBT respondents. But other questions in the company’s survey show a more troubling, less inclusive and productive office environment, and may indicate that simply implementing inclusion initiatives is not enough to prevent workplace bias.

While more than three-fourths of those surveyed also said that they believed their company “fostered an inclusive workplace,” many reported experiencing or witnessing bias (defined as “an unfair prejudice or judgment in favor or against a person or group based on preconceived notions”) in the workplace. In fact, 64% said that they “had experienced bias in their workplaces during the last year” and “also felt they had witnessed bias at work” in the same time frame. A sizable number of respondents—including 56% of LGBT respondents, 54% of respondents with disabilities and 53% of those with military status—also said they had experienced bias at least once a month.

Listening to those who say they have witnessed or experienced bias is especially important. When asked to more specifically categorize the bias they experienced and/or witnessed in the past year, 83% said that the bias in those incidents was indirect and subtle (also called “microaggression”), and therefore less easily identified and addressed. Also, the study found that those employees who belonged to certain communities were more likely to report witnessing bias against those communities than those outside them. For example, 48% of Hispanic respondents, 60% of Asian respondents, and 63% of African American respondents reported witnessing bias based on race or ethnicity, as opposed to only 34% of White, non-Hispanic respondents. Additionally, 40% of LGBT respondents reported witnessing bias based on sexuality, compared to only 23% of straight respondents.

While inclusion initiatives have not eliminated bias, Deloitte stresses that these programs are important and should remain. As Risk Management previously reported in the article “The Benefits of Diversity & Inclusion Initiatives,” not only can fostering diversity and inclusion be beneficial for workers of all backgrounds, it can also encourage employees to share ideas for innovations that can help the company, keep employees from leaving, and insulate the company from accusations of discrimination and reputational damage.

But building a more diverse workforce is only the first step, and does not guarantee that diverse voices are heard or that bias will not occur. Clearly, encouraging inclusion is not enough and more can be done to curtail workplace bias. And employees seeing or experiencing bias at work has serious ramifications for businesses. According to the survey, bias may impact productivity—68% of respondents experiencing or witnessing bias stated that bias negatively affected their productivity, and 70% say bias “has negatively impacted how engaged they feel at work.”

Deloitte says that modeling inclusion and anti-bias behavior in the workplace is essential, stressing the concept of “allyship,” which includes, “supporting others even if your personal identity is not impacted by a specific challenge or is not called upon in a specific situation.” This would include employees or managers listening to their colleagues when they express concerns about bias and addressing incidents of bias when they occur, even if that bias is not apparent to them or directly affecting them or their identity specifically.

According to the survey, 73% of respondents reported feeling comfortable talking about workplace bias, but “when faced with bias, nearly one in three said they ignored bias that they witnessed or experienced.” If businesses foster workplaces where people feel comfortable listening to and engaging honestly with colleagues of different backgrounds, create opportunities for diversity on teams and projects, and most importantly, address bias whenever it occurs, they can move towards a healthier, more productive work environment.

Insulin Pumps Recalled After Hacking Vulnerability Revealed

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After the U.S. Food and Drug Administration (FDA) expressed concern this week that some of its internet-connected insulin pumps are vulnerable to hacking and could not be patched, medical device manufacturer Medtronic Plc has announced that they would offer an exchange for the 4,000 patients who are reportedly using the vulnerable devices. If patients are using vulnerable out-of-warranty models, Medtronic is offering a newer replacement at a discounted price, and in-warranty models will be replaced free of charge.

The Medtronic insulin pumps in question work by regularly providing insulin to the patient with the help of a continuous glucose monitor (CGM), which uses Bluetooth to connect to a computer via a CareLink USB device. This system allows patients to remotely send the device commands and share data with their health care providers. These devices are part of an industry-wide push to connect medical devices to the internet (as part of the wider internet of things, or IoT) to allow more efficient and cost-effective communication between patients and providers.

While the exact nature of the insulin pump vulnerability is unclear at this time—neither the FDA nor Medtronic has disclosed any technical details—the danger from someone exploiting the vulnerability is very serious and could be potentially fatal. According to the FDA, “an unauthorized person (someone other than a patient, patient caregiver, or health care provider) could potentially connect wirelessly to a nearby MiniMed insulin pump with cybersecurity vulnerabilities. This person could change the pump’s settings to either over-deliver insulin to a patient, leading to low blood sugar (hypoglycemia), or stop insulin delivery, leading to high blood sugar and diabetic ketoacidosis.” In a letter to patients using one of the vulnerable pumps, Medtronic confirmed the potential danger, saying that “An unauthorized person with special technical skills and equipment could potentially connect wirelessly to a nearby insulin pump to change settings and control insulin delivery.”

Fortunately, there have not been any reported cases of anyone exploiting the vulnerability, but it is not the case of such an issue affecting these devices. In 2011, a security researcher was able to hijack nearby Medtronic insulin pumps, giving him the ability to deliver potentially fatal doses of insulin to patients within 300 feet. After the vulnerability was revealed, Medtronic released a statement saying that it was working to improve their devices’ security.

This March, it was also revealed that Medtronic’s connected pacemakers, clinic programmers and home monitors were also vulnerable to hacking. In that case, Dutch security researchers discovered the security flaws, which the company reportedly initially denied before the FDA began an investigation. The agency later issued a warning about the pacemakers, and Medtronic released a patch for the software. As with the insulin pumps, there were no reported cases of anyone taking advantage of the security flaw before the fix was implemented.

Speaking to CBS News after the March incident, the FDA’s Dr. Suzanne Schwartz said, “Any device can be hacked and that’s often not understood,” adding that companies are not prepared for this reality and that “we still have a ways to go.” This week, the FDA released a set of recommendations regarding the latest insulin pump vulnerability, including a suggestion to patients: “Talk to your health care provider about a prescription to switch to a model with more cybersecurity protection.”

Such cases highlight the continuing potential risks of internet-connected medical devices. As discussed in the recent Risk Management article “Diagnosis: Risk—The Product Liability Challenges of Diagnostic Health Tech,” cyber vulnerability is only one of the many challenges for manufacturers and users of connected medical devices. These devices—especially ones that provide medical diagnostic data—have scores of built-in product liabilities that could land their manufacturers (as well as any number of other companies in the devices’ chain of distribution) in legal trouble if something goes awry.