1

EFFECT OF INTERNAL FRAUD INVESTIGATION

PRACTICES ON CORPORATE GOVERNANCE

PERFORMANCE IN GFLAXOSMITHKLINE PLC IN THE

UNITED KINGDOM
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Contents
1. Introduction..................................................................................................................................3
1.2. OBJECTIVE AND AIM.............................................................................................................4
1.3. RESEARCH RATIONALE..........................................................................................................4
1.4. RESEARCH QUESTIONS..........................................................................................................6
1.5. SCOPE OF THE STUDY.................................................................................................................7
2. SIGNIFICANCE AND BACKGROUND OF RESEARCH STUDY................................................................7
3. CHAPTER TWO: LITERATURE REVIEW.........................................................................................10
2.1. LITERATURE REVIEW...............................................................................................................10
2.2. Content analysis.......................................................................................................................11
2.3. The relationship between IFI and corporate governance.......................................................12
2.4. IFI and improvement on corporate performance................................................................14
2.5. IFI and (re) occurrence of fraud...........................................................................................15
2.6. IFI and the detection of fraud..............................................................................................16
CHAPTER THREE: RESEARCH METHODOLOGY....................................................................................20
3.1. Research Approach and design................................................................................................20
3.2. Research sampling...................................................................................................................21
1.1.1 Unit of analysis.............................................................................................................22
1.1.2 Variables......................................................................................................................22
Limitations...................................................................................................................................22
3.3. Description and sources of secondary data selected..............................................................23
1.1.3 Data Collection Procedures..........................................................................................23
3.4 Quality of secondary data.........................................................................................................23
3.5. Secondary Data Ethical measures............................................................................................24
Data Collection Procedures.........................................................................................................24
Confidentiality and Anonymity....................................................................................................24
Privacy.........................................................................................................................................24
Risks.............................................................................................................................................25
Results communication and use of proper citations....................................................................25
Chapter 4 - Research Findings.............................................................................................................25
4.1 Introduction...............................................................................................................................25
Impacts of Internal Fraud Investigations on corporate performance........................................32
Chapter 5 - Analysis Of The Findings....................................................................................................38
5.1 Evaluation of Findings................................................................................................................38
5.2 Re-assessment of Research Questions concerning research findings and literature..............42
References..........................................................................................................................................47
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Appendices..........................................................................................................................................60

Chapter 1
1. Introduction

The GlaxoSmithKline (GSK) Group is a leading pharmaceutical company and one of the

world’s largest pharmaceutical companies with some 7,600 employees offering a wide range

of innovative medicines, products and services in around 70 countries. The GSK Group

employs more than half a million people worldwide and generated sales of nearly GBP 9.1

billion (USD 12.5 billion) in 2010. With over 10 product launches globally every week and

close to 400 new medicines in development, GSK is the first choice when it comes to

innovation. (Gsk annual report 2020)

GLAXOSMITHKLINE is one of the world's largest pharmaceutical companies and one

of the main pharmaceutical manufacturers in the world. The company develops and markets

different kinds of medicines for the treatment of diseases. The company is also known for its

impressive reputation, being a market leader on both sides of the Atlantic Ocean.

In order to achieve specific objectives by assessing the effect of internal Fraud

investigation practices and corporate governance performance and especially the effect of

internal Fraud investigation practices , we have decided to conduct a research design and

conduct a literature review where appropriate. The main objective of this study was to assess

the effect of internal Fraud investigation practice on corporate governance performance and

particularly provide recommendations for improving such practices by using external experts

from their own industry sector.

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The report presents the concept of internal Fraud investigation and its relationship with

corporate governance. It also analyses how internal Fraud investigations are conducted, as

well as their impact on corporate governance performance in GLAXOSMITHKLINE UK

(GSK).

1.2. OBJECTIVE AND AIM

This research provides a description of the extent of fraud, fraud investigation practices

and its effect on corporate governance performance of GlaxoSmithKline (GSK) in United

Kingdom (UK). There are a number of studies that draw attention to the importance of fraud

analysis on the functional capabilities of corporations.

This investigation is the results of a study conducted by researchers at the University of

Edinburgh in the UK. In this study, the researchers analyzed historical data and information

on decisions made by UK’s Medicines and Healthcare products Regulatory Agency (MHRA)

regarding the investigation of fraud and corruption in 2015, which has led to mixed results.

The outcome of this study will help companies comply with new regulations that exist for

internal employee fraud investigations, as well as provide further insight on corporate

governance performance. SSRN Electronic Journal, 2015,

1.3. RESEARCH RATIONALE

The study explores the role of internal Fraud investigation practices and corporate

governance performance in GLAXOSMITHKLINE UK. The research aims to inform

business leaders, senior managers and board members about the impact of internal Fraud

investigations on corporate governance performance and other strategic issues.

This report will analyze the effect of internal Fraud investigation practices and corporate

governance performance in GlaxoSmithKline UK. Using this information, we will create an

accurate and detailed understanding of how effective internal investigations are at improving
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corporate governance performance by analyzing how these two factors interact with each

other. The results from this study can be used to assist further research into the effects of

related issues such as corporate governance, fraud and corruption (Hu, Haifeng, et al 2021.)

The main reason for conducting this study is that the board of directors of

GlaxoSmithKline (GSK), a pharmaceutical company which produces over 300 products and

services has repeatedly been accused of serious fraud. GSK has a number of differences

between UK, US and other European boards including Europe’s largest generic drug

company with annual revenues in excess £12bn. In response to these criticisms the company

has undergone a significant internal re-organisation through which it has focused on

corporate governance standards as well as implementing an extensive code of conduct (Luu,

Dung Tien 2018).

The results suggest that the level of fraud investigation within a company is linked to its

corporate governance performance. The analysis of fraud investigations in terms of depth and

frequency shows that companies with low level of internal fraud investigations had the lowest

level of corporate governance, while those with high levels of fraud investigations had higher

level of corporate governance. The detection rate and recovery rate were also found to be

affected by the corporate governance practices employed by the company; companies with

low levels of internal control over financial reporting exercise control over assets, but seem to

have less control over assets themselves than other companies (Setiawan, Santy, 2017).

Our study is concerned with the effect of internal Fraud investigation practices and

corporate governance performance in GLAXOSMITHKLINE UK. To determine the

relationship between these variables, we use panel data to analyze five out of six consecutive

years. This period includes a period of economic growth, where reported profits increased by

an average of 26 percent per year. The other two years are referred to as recessions. We also
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analyze two comparison firms to determine how their misconduct investigations differ from

those of GSK. Our results show that GSK's management is more likely than other

pharmaceutical companies to have failed at regulating internal fraud than the competition.

Our findings suggest that if GSK continues its current path, this may pose a risk to the U.K.'s

role as a leader in biopharmaceutical innovation and significantly add to our welfare

(Raharjanti, Ayu Irmasari, and Rais Sani Muharrami. 2014- 2017).

1.4. RESEARCH QUESTIONS

The study investigates the effect of internal Fraud investigation practices and corporate

governance performance in GLAXOSMITHKLINE UK. It also explores potential models for

making fraud detection a competitive advantage. This thesis uses a mixed methods approach

(quantitative, qualitative) to explore the relationships between internal Fraud investigation

practices and corporate governance performance.

1. How internal fraud investigation have impact on corporate governance performance?

The results from this study suggest that internal Fraud investigation practices and

corporate governance performance are both positively related, with the former being a means

of ensuring better performance. The findings also suggest that GLAXOSMITHKLINE UK

has improved its corporate governance through good internal Fraud investigation practices"

This research study investigated the relationship between internal fraud investigation

practices and corporate governance performance in GlaxoSmithKline UK. Our findings

revealed that the key factors (Internal Communicators and Internal Auditors) played a crucial

role in effective internal audit practice, accountability for financial results and transparency

of company preferences.

This paper explores the effect of internal Fraud investigation practices and corporate

governance performance in GlaxoSmithKline (GSK), UK. The authors use a natural

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experiment to estimate the impact of both corporate fraud investigation practices and

performance on corporate governance. They find that a significantly higher number of

insiders have been charged with misusing company resources, insider trading offences and

market abuse compared to outsiders. Our results indicate that improving internal fraud

investigation procedures can have a positive impact on corporate governance performance

over time, by mitigating the risks of punishment to insiders who commit infractions.

1.5. SCOPE OF THE STUDY

This research is focused on the effect of internal fraud investigation practices and

corporate governance performance in GlaxoSmithKline plc, a British pharmaceutical

company. The first chapter provides a presentation on the study’s background, methodology,

and findings. The next chapter examines whether internal fraud investigations have an effect

on corporate governance performance while launching development projects within the

company. The final chapter focuses on the findings presented in detail using hand-picked

examples to present insights into who is responsible for the successes or failures of an

organization following internal fraud investigations

2. SIGNIFICANCE AND BACKGROUND OF RESEARCH

STUDY

The company GLAXOSMITHKELIN UK has a history of internal fraud investigations

and corporate governance performance. The current CEO, Dr. Patrick Boyle, has had the

position since 2001. During this time, the company has grown from a small biotech firm in

the UK to an international pharmaceutical giant with a presence in over 50 countries. (GSK

corporate governance report 2021).

In 2011, the company was involved in an internal fraud investigation that resulted in

criminal charges being brought against two employees at the company. The investigation
 8

revealed that one employee had been stealing patient records and selling them to other

companies while another employee was using his access to steal money from patients'

accounts. Both employees were fired from their jobs at GLAXOSMITHKELIN UK as a

result of these investigations, but neither charge was ever proven at trial or appealed.

Another case involving GLAXOSMITHKELIN UK occurred in 2014 when four

members of management including Dr. Boyle resigned from their positions due to an

investigation into possible corruption within the company's China operations (Jiang 2015).

This investigation resulted in criminal charges being brought against several executives

including Dr. Boyle who was charged with accepting bribes.

This research investigates the effectiveness of internal fraud investigation practices and

corporate governance performance at GlaxoSmithKline (GSK) UK. The study contributes to

our understanding of the performance effect on the specific fraud prevention methods used at

the company level, especially on internal audit’s work plan and effectiveness. The objective

is for a deeper understanding of the scope and efficacy of internal audit activities in a global

organization in identifying fraud cases when it occurs. We find that GSK's internal audit

technique does not have a significant effect on GSK's financial performance, but does affect

corporate governance in accounting-related issues as well as risk management activities. Luu,

Dung Tien 2020.

The present study is designed to determine the effect of internal fraud investigation

practices and corporate governance performance in GLAXOSMITHKLINE UK. The

problems associated with research on ethical issues within organisations have received

considerable attention over the past decade. Theoretical models, including neo-institutional

theory, risk management theory, and the governance model are closely examined in this

paper. To illustrate the application of relevant theories within a real case study,
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`GlaxoSmithKline', a major pharmaceutical company will be used for illustrative purposes.

By using statistical analysis, we can conclude that there was no significant relationship

between board composition and shareholding as well as institutional quality with

GLAXOSMITHKLINE`s fraud control effectiveness using quantitative data from SEC

filings of 1998-2007 period. There is also no significant correlation between board

composition and shareholding with respect to controlling corruption indicators at

GlaxoSmithKline (Sareen, V.K., and Subhash Chander 2009).

To make up for the lack of a corporate governance stand, Brandt et al. (2008) provide

that corporate board members must be independent and objective, thus allowing them to

avoid personal or political concerns. To be effective, this requires that all members of the

board be independent from direct or indirect relationship with the party investigated by the

SEC enforcement action or settlement.

This investigation is the results of a study conducted by researchers at the University of

Edinburgh in the UK. In this study, the researchers analyzed historical data and information

on decisions made by UK’s Medicines and Healthcare products Regulatory Agency (MHRA)

regarding the investigation of fraud and corruption in 2015, which has led to mixed results.

The outcome of this study will help companies comply with new regulations that exist for

internal employee fraud investigations, as well as provide further insight on corporate

governance performance.
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3. CHAPTER TWO: LITERATURE REVIEW

2.1. LITERATURE REVIEW

The purpose of this review is to study the effect of Internal Fraud investigation practices

and corporate governance performance GLAXOSMITHKLINE UK on a common perception

of fraud management. Using medium-tail statistical analysis, we found that there are

significant differences in fraud management between UK (the largest taxpayers) and non-UK

firms. However, fraud management practices did not influence the level of governance index.

The results show that fraud control has an important impact on the corporate governance

performance but it does not have a significant impact on performance control at all.

This report looks at the effectiveness of GLAXOSMITHKLINE UK's internal fraud

investigation practices and corporate governance performance through analysing the

company's past and present actions. It also describes how GLAXOSMITHKLINE UK's

directors could have been more active in preventing or detecting fraud, how their efforts have

been assessed and reviewed.

Corporate governance is a set of management practices and controls designed to protect

the interests of shareholders, creditors and other stakeholders by providing an appropriate

level of control and liability. Corporate governance includes the setting of standards for

directors, management’s role in allocating resources, monitoring performance and replacing

management when necessary. Internal Fraud investigation is one of the effective methods for

implementing corporate governance practice as it can teach internal auditors about effective

fraud investigation technique.

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Sub headings

 Analysis Of GLEXOSMITHKELIN ’s Corporate Governance

 Impact Of Internal Investigation On Corporate Governance Performance

 The Key Role Of Internal Investigation In Corporate Governance Performance

The literature on internal fraud investigation(s) (IFI) and its adoption in the corporate

sphere is rather limited and often US-Centric. In conducting an in-depth literature review on

the impact of IFI on corporate governance performance, and to adequately address relevant

concepts, this chapter has divided into two parts based on the viewpoints on existing

literature. The first section of this chapter discusses our method for finding relevant research

while the second section deals with the concept of corporate governance and the impact of

IFI practices on corporate performance, the occurrence of fraud and as applicable to GSK,

the occurrence of fraud within the organization and the resulting effects.

2.2. Content analysis

In it’s totality, this section consists of information gathered from the outcome of a broad

search conducted and aimed at identifying relevant research using specific key terms 1

conducted in five business and accounting databases: ABI/INFORM, Business Source

Complete, Emerald, ProQuest, and Scopus.

In total, 64 articles were identified and reviewed. Of the 64 articles identified, only 12

were directly relevant to the research question. The remaining 52 articles were either not

directly relevant or they were duplicates. The 12 articles that were directly relevant to the

research question were all published in academic journals. The goal of the literature review is

1
See Appendix 1 for the list of key terms used.
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to gain an understanding of the existing research and debates relevant to the topic under

review and to identify its applicability within the context of GSK.

2.3. The relationship between IFI and corporate governance

According to Adekoya (2019), corporate governance is a set of management practices

and controls designed to protect the interests of shareholders, creditors and other stakeholders

by providing an appropriate level of control and liability. Succinctly put, it is a set of

processes, techniques and regulations by which a business is managed (Adekoya, 2019).

Corporate governance includes the setting of standards for directors, management’s role in

allocating resources, monitoring performance - financial, human resources or customer

service - and replacing management when necessary.

On the other hand, governance refers specifically to internal controls, procedures and

policies put in place by an organization to ensure the accuracy and validity of its financial

reporting. Adequate internal controls help organizations to achieve their business objectives

and protect their assets ((Bandsuch, Crown & Thies, 2018).

Horsthuis (2019) analyzed how different internal corporate governance mechanisms

impacted the performance of Dutch listed firms. The study was conducted using OLS

regressions between 2012 and 2017. It was found that depending on how performance is

measured, the effects would be either negative or positive and that board size is significantly

related to firm performance; negatively when accounting-based measures were used and

positively when market-based/hybrid measures were used. This is likely because the latter

takes into account the long-term effects of corporate governance. Essentially, establishing

that the effect of internal governance mechanisms including IFI on an organization’s

performance is context-specific and heterogeneous.

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In a similar vein, Ortega (2021), opined that businesses that lack corporate governance

and financial reporting may be less profitable and more likely to close due to poor

management, lack of capital, and liquidity. Tornyeva and Wereko (2012) looked into how

corporate governance affects the financial performance of insurance companies in Ghana.

They gathered secondary data from the national insurance commission, as well as primary

data through administering interview questionnaires. The study conducted a panel data

analysis and found that insurance companies in Ghana with large board size, Board skill,

management skill, longer serving CEOs, size of audit committee, audit committee

independence foreign ownership institutional ownership dividend policy annual general

meeting are positively associated with the financial performance. Ultimately, the research

recommended that good corporate governance practices should be adopted by insurance

companies in order to not only improve their financial performance, but also to protect the

shareholders’ interests. More importantly, compliance with good governance must be ensured

by regulatory authorities and appropriate sanctions for non-compliance should be enforced in

order to facilitate the growth of the insurance industry.

Although firm legislation does not provide a complete framework for business

governance, there are some aspects of business legislation that can help us understand the

essential relationships in the business world. The United Kingdom’s business regulation, the

headquarters of GSK, are derived from both statute and common law.

All companies incorporated in the United Kingdom undergo legal law, irrespective of

their size (Rutherford, 2018). Nevertheless, GSK as a public interest companies is subject to

higher legislative requirements while the Memorandum and Articles of Association

determine the internal management of the business through which the BOD derive their

powers. According to Miller (2019) the Articles of Association allow supervisors to give their

power to board committees and executive supervisors.

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2.4. IFI and improvement on corporate performance

Al-Jaifi et al. (2017) found in their analysis of the relationship between corporate

governance and stock market liquidity in Malaysia that companies with strong corporate

governance - and strong IFI - enhance their stock market liquidity. Mihret (2014) offers a

new perspective of IFI as a control mechanism that doesn't just create value, but also

continually increases the return on investment. Prawitt et al. (2009) find in their study that

when IFI is present, it decreases the use of earnings management—otherwise known as

financial engineering where accounting methods are used to make financial statements falsely

look good. Thus creating a false positive image for the company.

The study conducted by Jiang et al. (2016) found that there is a positive correlation

between assured companies' operating performance and the level of involvement from

internal investigation functions (IIF). More so, Carcello et al. (2017), Lin et al. (2011), and

Oussii and Taktak (2018) all documented the finding that IFI has a positive effect on risk

management, internal control systems, and quality control, respectively.

In the last few years, environmental regulations have gotten stricter and people now

expect corporations to be sustainable. Because of this, sustainability has become a recent

internal control topic. Trotman and Trotman (2015) find that internal control mechanisms

plays a vital role in the disclosure and reporting of greenhouse emissions and energy

consumption, however, they state that this topic will get even more attention in the future.

Altogether, this stream of research tries to identify the positive financial effects of IFIs

since it is more than a “cost center” or merely a 'support function' and creates value in

different areas. That being said, it is pertinent to reiterate that even companies with strong

internal controls and IFI functions are not immune from fraud (Daoud, 2021).
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2.5. IFI and (re) occurrence of fraud

GlaxoSmithKline
Pharmaceutical Plc, a UK
based multinational
pharmaceutical company, is
renowned for manufacturing
medicines. Headquartered in
the United Kingdom, present
in
over 150 countries and with a
staff strength of over a
100,000, GSK’s origin dates to
the
1800. GSK has since then
undergone several
organisational changes
including a corporate
 16

merger between Glaxo and

Welcome (1995) and
SmithKline Beecham and
Glaxo Welcome
(2000)
Fraud, as we know it, has existed since 300 BC when shipping merchant Hegestratos

changed the world by attempting to con the insurers of a shipload of valuable goods by

sinking the boat but keeping the cargo, and claiming the loss anyway (Kornitzer,2020). It is

any activity that involves deception in order to achieve a gain. When it’s a “knowing

misrepresentation of the truth or concealment of a significant detail with the intent of

influencing another person to do something that would be harmful to him or her,” it is

considered fraud (Black’s Law Dictionary). To put it another way, it is simply deceit with an

intent to illegally gain a financial advantage over a person or an entity (www.fraud.com,

n.d.).

In the early 1900s, the US government established the Federal Bureau of Investigation

(FBI) to investigate federal crimes. The FBI soon began to investigate cases of fraud, and it

quickly became one of the leading agencies in charge of investigating fraud cases. (Federal

Bureau of Investigation, 2019). 44740

Despite fraud being in existence for more than twenty centuries, it continues to evolve

and the number of fraud cases continue to grow at an unprecedented rate. A report by the US

Federal Trade Commission reveals that in 2021, there were over 4.2 million fraud cases
 17

reported, 2.8 million were fraud related complaints and 1.4 were identity theft complaints..

The world continues to grapple with the devastating effects of financial crimes. In this digital

age, financial fraud has become more sophisticated than ever. This has necessitated the

accompanying hype generated in the last few years regarding internal fraud investigations

(Lagesse, 2021).
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2.6. IFI and the detection of fraud

Torpey and Sherrod (2011) argue that fraud will occur irrespective of deterrence

measures put in place by organizations. As such, organizations ought to develop and

implement robust fraud response mechanisms that prevent or minimise the re-occurrence of

losses. Biegelmand and Bartow (2013) recognize the establishment of fraud response strategy

but stress the importance of the right tone set by top leadership within the organisation. In

setting the tone at the top, leadership should define multiple ways of reporting incidences of

fraud on detection or suspicion (HM Treasury, 2003; Biegelman & Bartow, 2013).

According to the ACFE (2010) fraud prevention and detection should be tackled in

multiple ways through numerous mechanisms. Banisar (2006) recommends that incidences of

fraud must be reported within the legislative structures over and above the individual

organizational structures provided that there is whistleblower protection. In a similar vein,

Cascarino (2013) states that whistle-blowers or confidential informers are key elements in

fraud response strategies.

Both PwC (2007) and Wells (2007) posited that whistle-blowing is an effective fraud

detection tool if it is supported by a reliable and long-lasting structure. In fact, Amaram

(2015) recognises that the world’s most serious frauds were detected through whistle-

blowing. In contrast, Ayagre and Aidoo-Buannel (2014) found that whistle-blowing actually

has a negative correlation with fraud detection, meaning it is unattractive and inefficient. The

impact of internal investigation on the occurrence of fraud has been widely researched in

recent years. The conclusion from these studies is that effective internal investigation can

play a significant role in reducing the incidence of fraud.

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The ACFE defines internal fraud investigations as “a process conducted by an

organisation to collect, review and assess evidence of potential fraudulent activity within the

organization.” Internal fraud investigations are fact-finding in nature and are conducted by

organizations in response to alleged fraudulent misconduct, to establish the veracity or

otherwise of the claim and, if substantiated, determine those involved including the

perpetrator(s), the loss and potential for recoupment. Wolff (2021) succinctly defines internal

fraud investigations as fact-finding missions that a company’s conduct in response to

evidence or an allegation of fraud.

Its importance can therefore not be over emphasized as it ensures that evidence is

gathered in a professional and unbiased manner. Internal fraud investigation adds value to the

organization (and its stakeholders) by providing purpose, role, and an opportunity to improve

the effectiveness of processes and controls. However, it also has limitations which must be

considered when designing the investigative process.

Furthermore, IFIs discover, document, and resolve instances of fraud within the

organization. It may include investigating employee misconduct, vendor fraud, or financial

statement fraud. Irrespective of the nature, the role of all internal investigations is to provide

objective information to support decision making by management. This includes identifying

potential risks, assessing the impact of fraud on the organization, and making

recommendations for corrective action.

IFI has several benefits that add value to the organization. It helps to ensure compliance

with laws and regulations, protects the reputation of the organization, and can help to prevent

future occurrences of fraud. Additionally, IFI can help to improve the effectiveness of

processes and controls by identifying weaknesses and recommending improvements

(Alzeban and Sawan 2016; Singh and Newby 2010).

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Despite the clear benefits of effective internal investigation, there are some potential

drawbacks that should be considered including the cost of the investigation, the potential for

damage to relationships within the organization, and the risk that the findings will not be

accepted by management. Additionally, IFI can be time-consuming and may require

specialized skills and knowledge which if lacking would have no impact on the reoccurrence

of fraud.

According to KPMG (2006) IFI as a response mechanism may involve internal fraud

investigators and external law firms/enforcement agencies. While Biegelman and Bartow

(2012) recommend that every organization should be equipped with internal fraud

investigators, Modugu and Anyaduda (2013) argue that this singular approach may not be

effective as most organizations do not have certified fraud examiners or forensic accountants

in their employ. The ACFE (2015) highlights that the in-house investigators are not

appropriately capacitated leading to high rate of unsuccessful judicial process should the

suspects be subjected to prosecution. The study further point out that over 40% of in-house

investigators do not have performance metrics while others have metrics perceived to be

ineffective, for example usage of cases closed year-on-year. The ACFE (2015) study found

that in-house investigators are ineffective across multiple sectors including the

pharmaceutical industry. This IFI inadequacy can be linked to high occurrences of fraud as

the criminals are not deterred.

To mitigate this, the ACFE study provides insights that organizations should use in

designing IFI strategies. The first is establishing an independent and objective internal

investigative function. The internal investigators should also be properly trained and their

performance evaluated using effective metrics. Additionally, regular fraud risk assessment

should be conducted to establish new trends and update the organization’s response strategy.
 21

Given these, one can reasonably argue that for management to successfully use IFI as a tool

for curbing the occurrence of fraud, internal investigations should only be conducted in cases

where there is a reasonable belief that fraud has occurred, that the expected benefits outweigh

the costs and the organization has the necessary resources and expertise. In the absence of

these, it is advisable that management self-reports the matter to law enforcement.

Self-reporting is another common response strategy adopted by organizations. This

involves disclosing information about the fraud to regulatory authorities or other interested

parties. Self-reporting is often done voluntarily, but there are cases where it is mandatory. For

example, under the Sarbanes-Oxley Act of 2002, organizations are required to self-report any

material internal control weaknesses. Additionally, some jurisdictions have laws that require

organizations to self-report certain types of fraud. Self-reporting has several benefits,

including demonstrating the organisation’s commitment to compliance and transparency.

Additionally, it can help the organization avoid or mitigate regulatory penalties.

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CHAPTER THREE: RESEARCH METHODOLOGY

This chapter documents the research philosophy, research approach and design, sampling

design, data collection methods and quality as well as the ethical considerations related to this

research. The study adopted a pragmatism research philosophy and a convergent parallel

mixed methods design in conducting this study. Creswell and Plano Clark (2018) posit that

pragmatism is an approach that understands that reality is multiple, complex, and dynamic; as

such, the researcher needs to be flexible enough to accommodate these realities in their

research process. Given the exploratory nature of this study, the application of a pragmatism

research philosophy was considered more appropriate.

3.1. Research Approach and design

Cooper and Schindler (2008) define research design, as the blueprint or plan for the

collection, measurement and analysis of data., The study adopted the case study research

design. Cooper and Schindler (2008) state that case study design is an intensive examination

of a particular situation or instance. Yin (2009) suggests that case study research is relevant

for gaining a rich understanding of the context of the research and the processes being

enacted, especially where unique cases are identified. Simply put, the case study design is

effective in gathering both qualitative and quantitative data that can be used to answer the

research questions.

It has considerable ability to generate answers to the ‘what’, ‘why’ and ‘how’ questions.

As such it is often used in explanatory studies. Because of the need for in-depth

understanding and analysis of the case, a mix of data collection methods is encouraged. The

case study method was therefore used to study GSK’s management action regarding IFI and

the resulting impact on its practices and reputation. Multiple data sources – publicly available
 23

information - were used to allow for an in-depth and holistic analysis of the IFI function and

its impact within GSK.

3.2. Research sampling

The target population for this study includes all healthcare companies that have been

sanctioned by the FCPA DOJ for corrupt practices. The U.S. Sentencing Commission’s

FCPA Corporate Penalty Policy Statement (9/29/2015) was used to identify these cases. This

source provides information on the largest monetary penalties imposed on organisations for

FCPA violations. The population of interest is limited to health care companies because of

the recent increase in regulatory sanctions against this industry.

In 2016, there were 21 corporate resolutions with health care companies, which

represented 38% of all corporate resolutions (U.S. Department of Justice, 2017). This is up

from 11% in 2015 and 5% in 2014 (U.S. Department of Justice, 2017). Furthermore, four of

the top 10 corporate resolutions by monetary penalty involved health care companies (U.S.

Department of Justice, 2017).The DOJ’s Fraud Section Annual Report for Fiscal Year 2017

provides information on the largest FCPA cases by monetary penalty. The report lists

corporate resolutions in chronological order, starting with the largest monetary penalty. Only

corporate actions are considered in this study; individual actions are excluded.

The following inclusion criteria were used to identify potential participants for this

study:

a) healthcare companies with the largest FCPA Enforcement Actions from the DOJ;

b) healthcare companies that have been involved in FCPA Enforcement Actions by the DOJ

from 1977 to 2022;

c) healthcare companies that operate in a range of different countries.

 24

The following exclusion criteria were used to identify potential participants for this

study:

a) healthcare companies that have not been involved in FCPA Enforcement Actions by the

DOJ in recent years; and

b) companies that do not operate in a range of different countries.

Given this, a total of 37 companies were identified (refer to Appendix 1 for a detailed list
of the companies) out of which, a three healthcare companies which met the inclusion criteria
were selected and included in the study.

These companies are listed in Table 1.

S Year of Size of
Company Name Country
/N Action Penalty (USD)
1 Pfizer Inc. United States 2012 $60 million
2 United
GlaxoSmithKline plc Kingdom 2012 $3 billion
3 Johnson & Johnson United States 2011 $70 million

1.1.1 Unit of analysis

The unit of analysis for this study is GSK, an individual healthcare company that was

penalized by the DOJ for fraudulent practices.

1.1.2 Variables

The dependent variable in this study is the size of the penalty imposed by the DOJ on a

healthcare company, measured in millions of US dollars. The independent variables include

measures of a company’s financial performance, as well as dummy variables for whether the

company is a for-profit or non-profit organization.

Limitations

There are several limitations to this study. First, the data are limited to those cases in

which the DOJ has imposed a penalty on a healthcare company. This means that the sample

does not include all instances of healthcare fraud and abuse. Second, the data are secondary

data, which may be subject to errors and biases. Finally, this study is limited to examining
 25

only the financial consequences of fraud and abuse penalties imposed by the DOJ and the

resulting impact of management’s decision to implement IFI as an internal control measure. It

does not examine other potential consequences, such as damage to a company’s reputation.

GlaxoSmithKline
Pharmaceutical Plc, a UK
based multinational
pharmaceutical company, is
renowned for manufacturing
medicines. Headquartered in
the United Kingdom, present
in
over 150 countries and with a
staff strength of over a
100,000, GSK’s origin dates to
the
1800. GSK has since then
undergone several
 26

organisational changes
including a corporate
merger between Glaxo and
Welcome (1995) and
SmithKline Beecham and
Glaxo Welcome
(2000)
3.3. Description and sources of secondary data selected

The data for this study come from secondary sources. Specifically, data on healthcare

fraud and abuse penalties imposed by the DOJ were obtained from the Federal Register. Data

on other financial indicators, and corporate governance IFI-related actions come from annual

reports filed with the Securities and Exchange Commission (SEC) by public companies.

Finally, data on compliance actions come from the SEC’s Enforcement Database.

1.1.3 Data Collection Procedures

The data for this study was collected from a variety of sources including peer-reviewed

journals, company websites, professional organizations, government agencies and annual

reports. The data was analyzed and synthesized to identify the key themes emerging from the

literature. The data was then organized into a comprehensive report that formed the basis of

this study.
 27

3.4 Quality of secondary data

The study used secondary data validated through a combination of literature review,

document analysis and review. The quality of the secondary data was ensured by conducting

a detailed review of the sources used to generate the data. The sources used were credible and

provided accurate information. The data was further validated through a review of the

literature on GSK’s internal control framework and its corporate investigation practices.

Despite the high quality of the secondary data, the study takes into consideration some

limitations when interpreting the findings of the study. First, the sources used to generate the

secondary data may not be representative of all aspects of GSK’s corporate governance

practices, internal control framework and corporate investigation practices. Second, the data

may not be up-to-date and may not reflect recent changes to GSK’s internal control

framework and corporate investigation practices. Finally, the data may be subject to

interpretation and may not provide a complete picture of GSK’s internal control framework

and corporate investigation practices.

3.5. Secondary Data Ethical measures

Ethical considerations were observed and maintained during the entire study by ensuring

that issues of confidentiality and privacy were maintained. The research instrument did not

ask or contain any personal questions or personally identifiable information. No risks were

anticipated or foreseen in conducting this study.

Data Collection Procedures

All data collected for this study was done so through publicly available sources that did

not require any special permission or ethical approval. These sources included annual reports,

company websites, and industry reports. No primary data was collected for this study.
 28

Confidentiality and Anonymity

Given the nature of the research and to protect the reputation of the companies included

in this study, all data was aggregated and reported at the industry level and based on publicly

available information. No confidential and/or internal information will be released as part of

this study. All information specifically within the knowledge of the researcher by virtue of

her experience working as an employee of one of the listed companies in the study have not

been used as part of the study.

Privacy

No personal information was collected as part of this study. As such, no issues of privacy

were anticipated or foreseen.

Risks

No risks were anticipated or foreseen in conducting this study.

Results communication and use of proper citations

The author ensures that the documented study outcome is free of plagiarism or research

misconduct. In addition, the results are communicated in the author’s words. The author also

ensured that all sources used in the research were appropriated cited.

Chapter 4 - Research Findings

4.1 Introduction

In the first part of this section, this research will delve into the results and findings of the

extent of fraud, fraud investigation practices, and its effect on corporate performance, with a

case study of GlaxoSmithKline (GSK) based in the United Kingdom. The second part will

look into the impacts of IFI on Corporate governance in GSK. Reflecting on the previous
 29

case studies, which this research is building on, the research conducted by the University of

Edinburg in the UK on fraud and corruption depicts how it is prevalent however, this research

noted there were mixed results to ascertain its extent. This lack of clarity on the effect &

relationship that arises between IFI & corporate governance performance in pharmaceuticals

(GSK) led this paper into seeking and investigating this to understand the impacts and

propose mitigations. In these findings, the level of fraud investigation within a company is

linked to its corporate governance performance. As identified, The analysis of fraud

investigations in terms of depth and frequency shows that companies with a low level of

internal fraud investigations had the lowest level of corporate governance, while those with

high levels of fraud investigations had a higher level of corporate governance. It is conclusive

to identify that IFI used as a tool to influence corporate governance can have positive and

negative effects based on the level and performance of corporate governance. To ascertain

these findings, in the six years that this research did obtain data, GSK management was noted

to have failed at regulating internal fraud more than the competition.

To implicate GSK's failure in mitigating fraud, according to Coombes R. (2008) for

example, the UK government did introduce strict measures and rules on drug trial results

after a complaint and move to prosecute GSK for non-disclosure and fraud charges. MHRA

chief executive, Kent Wood, in an interview acknowledged that even after the charges were

dropped, he remained concerned that GSK could have reported the information earlier than it

did. This implicates the idea that this could have been financial exploitation. He emphasized

that all healthcare companies have a responsibility to patients & they should report any,

adverse data signals as soon as they are detected. This research did observe that the

investigations into the case showed important weaknesses in GSK corporate governance &

fraud mitigation.
 30

To understand the nature & how internal fraud investigations have an impact on

corporate governance performance, this thesis did comparatively observe that corporate

governance issues have become a prevalent problem in corporate firms and there is a need to

propose effective fraud detection methods and mechanisms. Most internal audit functions of

many firms have adopted varied practices of fraud risk management, yet it is still prevalent.

Obonyo (n.d). This grave problem including, corruption, asset misappropriation as well as

fraudulent financial reporting continues to grow upward affecting public and private

organizations in all countries and industries. In her findings, on the effects of internal audit

practices on fraud risk management in state corporations, from a Kenyan perspective, she

observes that there is much to the extent to which IFI practices contribute to the success of

fraud risk management in state corporations.

4.2 Results & Findings.

This research did find out that GSK's history is marred by corporate fraud & had one of

the largest healthcare fraud charges, therefore, implicating these results. The United States

Department of Justice (2012) in their official report noted that GlaxoSmithKline had agreed

to plead guilty and pay $3 billion to resolve the criminal charges & civil liabilities that arose

from the company’s unlawful promotion of some prescription drugs. These findings did

observe that the company had failed to report certain data safety & its civil liability including

alleged false price reporting. The Department of Justice (2012) furthers that GSK was guilty

of three-count criminal information that also included two counts of introducing misbranded

drugs into interstate commerce and one count of failure to report safety data about their drugs

to the FDA. Under the terms of the plea agreement, The Department of Justice (2012) notes

that GSK was to pay a total of $1 billion as well as a criminal fine of $956,814,400 & a

forfeiture amounting to $43,185,600. This research also observes that these criminal counts
 31

were also incorporating other non-monitory compliance commitments & certifications by

GSK’s US president & board of directors.

GSK was also inclined to pay $2 billion to mitigate its civil liabilities with the federal

state government under the false claims Act. The Department of Justice (2012). These resolve

claims as this paper identified were concerned with resolving pricing fraud allegations

relating to Paxil, Wellbutrin & Avandia drugs. According to the then deputy secretary of the

department of health & human services (HHS), Bill Corr, this historic fraud settlement

became a milestone in the long-term efforts to stamp out healthcare fraud, targeting the

cheaters who are out making a profit at the expense of public safety. To understand the nature

of the fraud, this report did consider the criminal plea agreement under the provisions of the

Food, Drug & Cosmetic Act.

Figure 1.0. Department of Justice (2012)

In the first case considered in this research findings dated 2012, & concerned with Paxil

drug, the US government alleged that from April 1998 to August 2003, GSK promoted Paxil

unlawfully that it treats depression in under 18 patients though it was noted not approved for

pediatric use. To implicate the fraud further, the United States also alleged that there was

participation in and preparation of publishing material and distributing false and misleading

information in a medical journal article. The Department of Justice (2012). In its arguments
 32

into the case, the United States accused GSK of sponsoring dinner programs, lunch programs

& spa programs that were similar to promoting the use of Paxil in children and adolescents.

The company also was noted to have paid a speaker to talk to doctors and pay for their meals

& spa treatment. Since 2004, this research observed that GSK had falsely labeled Paxil to

influence its use. The following official report by The Department of Justice (2012) was a

substantive point of view into the nature of the fraud by GSK in the United States.

Figure 1.1 GSK healthcare fraud. Department of Justice (2012).

In a similar case, two years later after the initial documented fraud case in 2012, Jourdan

A. et al (2014) identify that China had fined GSK plc a record 3 billion Yuan ($489 million)

for paying bribes to the doctors to use its drugs. This is noted to be a damaging chapter for

the company. According to the report, a court in the southern city of Changsha suspended a

jail sentence for Mark Reily, who was the former head of GSK in China as well as four other

executives to a sentence between two & four years according to the state news as cited by

Jourdan A. et al (2014). This finding did implicate that governments are increasingly

regulating and cracking down on corporate malpractice. In a written apology, GSK is noted to

acknowledge that the activities in china were a total breach of “GSK’s corporate governance
 33

& compliance procedures. It however did ascertain & promised to become a model for

reform in china’s healthcare system. This as the research came to identify is the application of

IFI strategies to influence corporate governance performance. This research needed to

observe that GSK, as identified earlier, is marred by a couple of fraud cases as Jourdan A. et

al (2014) report article on Reuters.com. The United States and China were not the only

regions exposing the fraud in GSK. This research identified that there were also fraud

allegation charges under the Foreign Corrupt Practices Act, Jourdan A., et al (2014) that

prohibits bribery of public officials. In addition to the high-profile Chinese case, this paper

also identified other corruption practices on a smaller scale in Syria, Poland, Iraq, Jordan, and

Lebanon. Jourdan A. et al (2014).

To offer insight into these findings, this research did identify the following press release,

dated 2014 by GSK, acknowledging the existence of such fraud cases in the UK 2 years after

the first, and second case studies, which came at a former date. It also identified the following

attached report from the department of justice (2012), on the fraud accusations of GSK.
 34

Figure 1.2. GSK fraud. Department of Justice (2012)

Figure 1.3. GSK fraud acknowledgment. GSK (2014)

In the case study research design that this research chose to identify its findings, it was

critical to further asses more research studies ascertain the objective of this research and the

impacts of IFI in corporate governance. Companies charged with government, financial

reporting and stakeholder fraud, & regulatory violations between, 1978-2001 as this research

identified, Marciukaityte D. et al. (2006) observe how they tend to increase their proportions

of outside directors on their boards of directors as well as the monitoring committees of these

boards. In this study in the United States on how governance and performance change after

fraud accusations, results showed that the outcome of such companies that were accused of

fraud was comparable in the long run, concerning stock price and operation performance, to

the companies not charged with fraud. The sample companies assessed during the identified

period led to the conclusion that the impact of Internal Fraud Investigations on corporate

performance was a collective improvement in the internal control systems. Marciukaityte D.

et al. (2006). Following these accusations of fraud, they help repair a company’s tarnished

reputation and try to reinstate confidence in the firm.

 35

In a similar case study on the firms listed on the Indonesian stock exchange, the findings

on the effects of IFI observed that the disclosure of fraud, internal control, and information

technology has a positive effect on company performance. Ahnan (2020). It is emphasized

that these effects strengthen financial performance and weaken non-financial performance.

Impacts of Internal Fraud Investigations on corporate performance

To ascertain the impacts of IFI & internal control measures on GSK corporate

governance, this research did consider investigating how the company later reacted to the

fraud reports that implicated its reputation and corporate standing in the US market. As

emphasized earlier in this report, the impact of Internal Fraud Investigations on corporate

performance was a collective improvement in the internal control systems. Marciukaityte D.

et al. (2006). This research did take into consideration the impacts on both the company and

the government jurisdiction. In its findings, GSK plc needed to take measures to rearrange

and restructure its corporate governance to influence a collective improvement and regain

public trust after the fraud accusations dated in earlier years (the 1990s) including the 2012 &

2014 fraud criminal case reports.

This research did observe that GSK put in place a value assurance program, which

according to the Financial Reporting Committee (FRC), was at the forefront of the new

changes stipulated in the code of conduct of corporate firms, especially in the pharmaceutical

industry. This program identified was designed to evaluate the maturity level of each of the

four GSK values in the culture as well as to support the business further to embed these

values in a meaningful and impactful way. In their report on assuring company values, FRC

ascertains that these changes are an important component of GSK’s internal assurance plan &

supporting GSK’s public commitments and building its reputation externally. (FRC, n.d). In a

UK government report on, restoring trust in audit & corporate governance (2021), the

government in the consultations noted in its white paper provides this research oversight of
 36

the government's plan of action in light of the comments received from the public. The

government in setting up this framework did note that there was a sudden and major

corporate collapse that caused serious economic & social damage in the UK calling to

question the aspects of corporate reporting & governance systems. This led to the creation of

a new regulator ARGA under FRC's new recommendations. The following (figure 4.) is the

official publication of these findings from the UK government. (GSK, 2021).

This research did observe that the government did put in place strict measures on the

scope of regulation to incorporate large private companies that had a public interest in

meeting audit reporting and regulatory frameworks. To implicate this finding, the research

did observe that the strict rules put in place were also reflected in the internal control of GSK.

From this perspective, this research has provided a sample (figure 5.) of the internal controls,

fraud & dividends policy proposed by the white paper concerning Internal fraud

investigations in corporate firms in the UK.

Figure 1.4. UK government's Action plan on corporate governance breach

 37

Figure 1.5. UK’s internal control measures on fraud & dividends.

To identify the nature and impacts of IFI on GSK based on corporate governance

measures, this research did find out that in their 2018 annual general report to shareholders,

the chairman governance statement declared that the company was undergoing corporate

governance reforms. GSK (2018). In its statement, it was clear that GSK had sort to regain

and build trust in its business.

Figure 1.6. GSK corporate governance reform. (GSK, 2018).

 38

A GSK publication on its Ethics & compliance program in its US operations, GSK

identified that it is committed to establishing and maintaining an effective compliance

program that runs following the “Compliance program guidance for pharmaceutical

manufacturers. This was after a publication by the office of inspector general, U.S department

of health & human services (HHS-OIG). This compliance as was emphasized, was to instill

GSK’s commitment to the highest standards of corporate conduct. (GSK, n.d). This research

identified that the impacts of IFI on GSK were substantial, as is the case of China, where the

corporate organ was sacked and jailed not forgetting the fines imposed. In the united states,

as this research finds out, the internal control structure was redesigned to habituate this new

compliance program. To implicate these changes, GSK announced that the compliance

program was to prevent and detect violations of laws or company policies. As identified

earlier under HHS-OIG. GSK was also of the view that despite implementing the Corporate

compliance program, it expected that its employees would comply with the established code

of conduct and policies established to support it. The following figure is a sample of the

publication. (GSK, n.d)

 39

Figure 1.7. GSK ethics compliance program. (GSK, n.d)

In its compliance, this research did establish that to effect, there was a change of

leadership & structure. This report observed that there was a new leadership and a

compliance officer to serve as the focal point for compliance activities. This compliance

officer was to effect changes in the organization necessary to facilitate independent judgment.

Supporting this corporate compliance officer were compliance officers working with GSK

business units. (GSK, n.d). This research did also establish that GSK did put up compliance

committees whereby there was established an internal framework to ensure principal risks are

reviewed & monitored, for example, incidents of compliance failures as identified in the code

of conduct. (GSK, n,d). The following is the sample GSK compliance committees' internal

control framework posted on their official portal.

Figure 1.8. GSK compliance internal control framework. (GSK, n.d).

This research did also identify that there were also notable changes to the code of

conduct in commercial practices policies. The following is the identified sample of GSK

commercial practices policies.

 40

Figure 1.9. GSK commercial practices policies. (GSK, n.d).

Based on these findings, this research did conclude that in this report, the impacts of

Internal Fraud Investigations on corporate performance was a collective improvement in the

internal control systems. Marciukaityte D. et al. (2006). These findings did observe that GSK

established better frameworks in its internal lines of communication with mechanisms for

reporting concerns of possible misconduct & breaches of the code of conduct. It is observed

that to comply with the ethical standards set forth to curb the corporate performance breach

identified, IFI positively influences the leadership styles and it instigates changes that are

positive toward success. It is also conclusive to observe that the impacts of IFI on corporate

governance are negative as it arises that some of the major corporations caught up in fraud

end up undergoing losses in settlement and fines as well as destroying stakeholder trust.
 41

Chapter 5 - Analysis Of The Findings

5.1 Evaluation of Findings

This research in the analysis of its findings did consider the use of descriptive analysis

techniques to understand the nature and outcome of its findings. Based on the research

methodology identified, case study analysis, this paper did engage in assessing correlated

research to ascertain the behavior in question. Sloman K (n.d) on research trends in

descriptive analysis identifies that it involves direct observation of target behavior in

naturalistic contexts to gather information on contagious & potential relevant events in the

absence of experimental manipulation. This research notes that it enables analysis and

identifying events that are correlated with a certain occurrence of some target response. This

paper chose this technique as it allows a comprehensive functional assessment of the problem

behavior before conducting experimental functional analysis. Sloman K (n.d). The benefits

that were sorted from this technique were noted as an easy means to gather the baseline rate

of problem behavior, & identify particular antecedents/consequences to incorporate into the

functional analysis.

Consequently, this research did consider that this data analysis technique is not effective

when used as a sole analysis and that it requires a blend of other techniques like experimental

and analytical to ascertain results. It was also observed that this technique takes a huge

amount of time and data to assess the complex data collected.

This study, in its implicating the impacts of IFI on corporate governance in GSK did

account for the outcomes of this study. This study aims to analyze the effects of internal audit

practices in fraud risk management in GSK, it did ascertain from previous case studies that

fraud policies contribute to the success of fraud risk management. Obonyo (2017) did

conclude that various fraud policies that were studied including establishing fraud reporting
 42

channels, & internal audit functions and committees were noted to maintain a record of

prevented fraudulent activities. Deloitte (2014) identifies that a strong anti-fraud stance &

comprehensive approaches to combating fraud are gradually taking shape and becoming a

prerequisite to protecting firms appropriately. It is emphasized that firms not adhering to such

methods are noted to face increased vulnerabilities to fraud. As this research identified,

companies with a low level of IFI were noted to report a low level of corporate performance.

GSK as noted in the findings, and having large fraud criminal cases implicates that this

outcome is relatively going to implicate companies negatively. In a case where IFI is low-

rated, fraud is prevalent and with a case study of GSK, this becomes relatively true. GSK is

noted to lower its guard in its internal control measures leading to fraud and corruption in its

commercial practices in the US & china leading to a re-evaluation of the commercial

practice's policies.

In a KPMG forensic report (2014), internal audits, & organizations' code of conduct are

the key drivers that management has to communicate to employees key standards of

acceptable behavior and business code of conduct. Statistically, there is a significant

relationship between fraud policy and the success of fraud risk management. According to

Obonyo (2017), using the Pearson Chi-square to test this interdependence showed that fraud

policy influences the success of fraud risk management. From her study in Kenyan corporate

firms, she quantitatively observes that this has a combined mean of 3.19, a standard deviation

of 1.072 & a variance of 1.149. This positive correlation defines the idea behind the

companies that were implicated with fraud being more productive and successful after a

period, to compare with those with no fraud issues, after implementing IFI mechanisms. This

research did ascertain that using this method, GSK was planning to restructure its corporate

governance, and re-introduce a code of conduct, & ethics in its business as noted in the

findings. The removal of and reassignment of corporate roles as well as the establishment of
 43

effective communication & reporting channels, impacted GSK fraud policy exhibiting

positive correlations with the success of fraud risk management.

Announcements of the actual or alleged fraud are associated with significant costs that

must be borne by the firm’s shareholders including regulatory costs, court-imposed fines, and

penalties by the product and capital markets as consequences of the loss of reputation.

(Marciukaityte, 2006). The reputational costs that are associated with such fraud arise from

the loss of business or a fall in the company’s stock price because of the expectation that the

firm may commit further fraud. It is well observed that given the well-documented costs –

incurred by the firms that are accused of corporate fraud, it is imperative to expect these

companies to enhance their internal control systems so they lower the probability of future

fraud. These changes and enhancements at the board level help to repair the company’s

reputation and restore confidence in the firm. (Marciukaityte, 2006). GSK in its compliance

program seeks to re-establish confidence and trust after the fraud allegations implicating its

reputation.

To ascertain fraud prevention and success of fraud risk management through IFI, this

research did observe that fraud prevention contributes to the success of fraud risk

management. Obonyo, (2017). If a company has sensitized its staff on the common fraud

within its business processes & how to avoid them, established automated controls to capture

anti-fraud activities, fraud risk management & prevention strategy become successful.

According to GSK (n.d), the establishment of the code of conduct and ethics allowed GSK to

train & educate employees at all levels of the firm to help them make better-informed choices

through a variety of programs. To implicate this finding, GSK was noted to create reporting

concern channels in its internal lines of communication to encourage employees & workers

as well as any other group that does business with them to make it possible for reporting

possible misconduct, known breaches of its code of conduct. Ideally, this research identified
 44

that these concerns are to be reported before the problems develop. It is observed that people

are encouraged to seek help & get to report concerns or any suspected cases of misconduct

through the management line, a compliance officer, HR, or a legal representative. This

research finding implicated GSK in that it applied the proposed actions as identified in figure

1. (GSK, n.d).

Figure 2.0. GSK corporate prevention mechanism. (GSK, n.d).

To ascertain the extent to which fraud detection contributes to the success of fraud risk

management, Obonyo (2017) observes that there should be put in place identification of fraud

investigation protocols that are followed when fraud is detected, the process of the fraud

investigations, and the corrective actions that are to take place in such occurrences of fraud. It

is noted that there is a positive & significant relationship between the successes of fraud risk

management & fraud detection. It was imperative to identify that organizations that have put
 45

in place these mechanisms of detecting fraud and misconduct early stand a better chance of

detecting fraud and misconduct early. This is conclusive that internal audits add value

through the improvement of the control & monitoring environments within the firm to detect

fraud.

GSK in its operation, marred by corruption and fraud, as this research observes,

establishes a compliance program in line with the new set standards of FRC, and under the

support of ARGA in ensuring that there is transparency and accountability of corporate

governance implicates the level and extent and impacts of IFI into corporate governance. This

research also notes that as contrary identified, Horsthuis (2019) analyzed how different

internal corporate governance mechanisms impacted the performance of Dutch listed firms.

The study was conducted using OLS regressions between 2012 and 2017. It was found that

depending on how performance is measured, the effects would be either negative or positive

and that board size is significantly related to firm performance; negatively when accounting-

based measures were used and positively when market-based/hybrid measures were used.

This is likely because the latter takes into account the long-term effects of corporate

governance. Essentially, establishes that the effect of internal governance mechanisms

including IFI on an organization’s performance is context-specific and heterogeneous. This

would mean that the impacts vary from firm to firm.

5.2 Re-assessment of Research Questions concerning research findings and

literature

In line with the research objective to provide a detailed description of the extent of fraud,

fraud investigation practices, and its effect on the corporate governance performance of GSK.

This research did find that GSK has been in the limelight with criminal fraud cases

implicating its failure in corporate governance, especially the implementation of internal

control mechanisms. It was noted that This finding did implicate that governments are
 46

increasingly regulating and continuing to crack down on corporate malpractice. In a written

apology, GSK is noted to acknowledge that the activities in china were a total breach of

“GSK’s corporate governance & compliance procedures. This research needed to observe

that GSK, as identified earlier, is marred by a couple of fraud cases as Jourdan A. et al (2014)

report article on Reuters.com. These results affect the outcome of these findings to implicate

the research objective.

To account for the analysis of the effect of internal Fraud investigation practices and

corporate governance performance in GlaxoSmithKline UK, this research did identify that

one drastic effect to the company in breach of the code of conduct is financial and

reputational loss. This research did identify that GSK underwent massive fines and settlement

fines to implicate the consequences of weak IFF and corporate governance. As identified in

the introduction chapter, The results from this study suggest that internal Fraud investigation

practices and corporate governance performance are both positively related, with the former

being a means of ensuring better performance. The findings also suggest that

GLAXOSMITHKLINE UK has improved its corporate governance through good internal

Fraud investigation practices." This is an important finding suggesting a great concern in the

corporate governance of pharmaceutical firms as identified by the UK, US & Chinese

government fraud reports. It is imperative therefore to identify the need to establish sound

internal control measures to detect and prevent fraud on the verge of safeguarding the

reputation and integrity of firms as well as saving on costs.

To account for the investigation into the relationship between internal fraud

investigations and corporate governance, these findings revealed that the key factors (Internal

Communicators and Internal Auditors) played a crucial role in effective internal audit

practice, accountability for financial results, and transparency of the company preferences. It

furthered that a significantly higher number of insiders have been charged with misusing
 47

company resources, insider trading offenses, and market abuse compared to outsiders. Our

results indicate that improving internal fraud investigation procedures can have a positive

impact on corporate governance performance over time, by mitigating the risks of

punishment to insiders who commit infractions. This research emphasizes that the identified

relationships are financial and non-financial based on the context.

In an observation, whistle-blowing is an effective fraud detection tool if it is supported

by a reliable and long-lasting structure. PwC (2007) and Wells (2007). The establishment of

internal communication mechanisms was identified to be as a defense mechanism to prevent

and detect fraud. As stated in the finding, GSK did put up mechanisms to detect and prevent

further fraud cases from occurring. This as was noted, was best for the business shareholders

and the company's reputation. The impact of IFI on the occurrence of fraud has been widely

researched in recent years. The conclusion from these case studies is that effective internal

investigation can play a significant role in reducing the incidence of fraud. Furthermore, IFIs

discover, document, and resolve instances of fraud within the organization. It may include

investigating employee misconduct, vendor fraud, or financial statement fraud. Irrespective

of the nature, the role of all internal investigations is to provide objective information to

support decision-making by management. This includes identifying potential risks, assessing

the impact of fraud on the organization, and making recommendations for corrective action.

It was critical that this research sort to re-emphasize that despite the clear benefits of an

effective internal investigation, some potential drawbacks should be considered including the

cost of the investigation, the potential for damage to relationships within the organization,

and the risk that the findings will not be accepted by management. According to KPMG

(2006), IFI as a response mechanism may involve internal fraud investigators and external

law firms/enforcement agencies like in the case of the department of justice investigating the
 48

fraud claims of GSK. The role-play of independent firms in audit reporting has been noted to

be an effective tool to monitor and prevent occurrences of fraud in businesses.

As this research documented, some jurisdictions have laws that require organizations to

self-report certain types of fraud. This implies that Self-reporting has several benefits,

including demonstrating the organization’s commitment to compliance and transparency.

Additionally, it can help the organization avoid or mitigate regulatory penalties. This

common scenario has been associated with GSK in a way to mitigate the loss of trust and

reputation through the fraudulent activities identified.

Fraud policies independently contribute to the success of fraud risk management. As this

report identified, periodic assessment of fraud risk exposure does contribute to the success of

fraud risk management and influences corporate governance. As identified in the findings,

GSK after the fraud accusations did set up robust mechanisms to ensure that its standards are

followed to regain its lost glory and reputation. This implies the idea that a strong anti-fraud

stance & comprehensive approaches to combating fraud are gradually taking shape and

becoming a prerequisite to protecting firms appropriately. It is emphasized that firms not

adhering to such methods are noted to face increased vulnerabilities to fraud. Deloitte (2014).

This research did also identify that there were also notable changes to the code of conduct in

commercial practices policies in GSK to mitigate the consequences of fraud. Based on these

findings, this research did conclude that in this research, the impact of Internal Fraud

Investigations on corporate performance was a collective improvement in the internal control

systems. Marciukaityte D. et al. (2006). These findings did observe that GSK established

better frameworks in its internal lines of communication with mechanisms for reporting

concerns of possible misconduct & breaches of the code of conduct.

 49

It is conclusive to observe that IFI mechanisms and approaches to corporate governance

are key in establishing reputable firms that adhere to corporate responsibility. The lack of IFI

mechanisms allows a company to be prone to fraud and its consequences risking its corporate

structures and shareholder trust. It is important to note that putting up IFI impacts corporate

performance as a collective solution to mitigate weak corporate governance.

 50

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 63

Appendices

Appendix 1
S
/N Healthcare companies with FCPA Enforcement Actions
1 AGA Medical’s Involvement in China in 1997
2 Akzo Nobel’s Involvement in the United Nations Oil-for-Food Program from 2000 to 2003
3 Alere’s Involvement in Africa, Asia, and Latin America
4 Alexion’s Involvement in Several Countries between 2010 and 2015
5 Analogic’s Involvement in Several Countries from 2001 to 2011
6 AstraZeneca’s Involvement in China and Russia between 2005 and 2010
7 Bio-Rad Laboratories’ Involvement in Russia, Vietnam, and Thailand between 2005 and 2010
8 Biomet’s Involvement in Argentina, Brazil and China from 2000 to 2008 and in Brazil and Mexico from 2008 to 2013
9 Bristol-Myers Squibb’s Involvement in China between 2009 and 2014
1 Bruker’s Involvement in China between 2005 to 2011
0
1 Cardinal Health’s Involvement in China between 2010 and 2016
1
1 Diagnostics Products’s Involvement in China from 1991 to 2002
2
1 Eli Lilly Subsidiaries’ Involvement in Multiple Countries between 1994 and 2009
3
1 Fresenius Medical Care’s Involvement in Multiple Countries between 2009 and 2016
4
1 General Electric’s Involvement in the United Nations Oil-for-Food Program from 2000 to 2003
5
1 GlaxoSmithKiline’s Involvement in China between 2010 and 2013
6
1 HealthSouth’s Involvement in Saudi Arabia from 2000 to 2003
7
1 Immucor’s Involvement in Italy in 2003
8
1 Johnson and Johnson’s Involvement in Multiple Countries from 1998 to 2007
9
2 Micrus’ Involvement in Multiple Countries from 2002 to 2004
0
2 Nature’s Sunshine Products’ Involvement in Brazil in 2000
1
2 Nordion’s Involvement in Russia between 2004 and 2011
2
2 Novartis’ Involvement in China from 2009 to 2013
3
2 Novartis’ Involvement in Multiple Countries between 2012 and 2016
4
2 Novo Nordisk’s Involvement in the United Nations Oil-for-Food Program from 2000 to 2003
5
2 Olympus’ Involvement in Latin America between 2006 and 2011
6
2 Orthofix International N.V.’s Involvement in Brazil
7
2 Orthofix International’s Involvement in Mexico from 2003 to 2010
8
2 Pfizer/Wyeth’s Involvement in Multiple Countries between 1997 and 2007
9
3 Sanofi’s Involvement in Multiple Countries Between 2007 and 2015
0
3 Schering-Plough’s Involvement in Poland from 1999 to 2002
1
3 SciClone Pharmaceuticals’ Involvement in China from 2007 to 2012
 64

2
3 Smith & Nephew’s Involvement in Greece from 1998 to 2008
3
3 Stryker Corporation’s Involvement in Multiple Countries between 2003 and 2008
4
3 Stryker Corporation’s Involvement in Multiple Countries between 2010 and 2017
5
3 Syncor International’s Involvement in Multiple Countries between 1985 and 2002
6
3 Teva Pharmaceutical Industries Ltd.’s Involvement in Russia, Ukraine, and Mexico
7