The better the question
How do you build trust as you scale and conform?
Effectively meeting legal requirements was crucial — but that was just the starting point for Teva.
Managing the risks of corruption arising from third parties is one of the most difficult challenges facing global organizations. Enforcement of the US Foreign Corrupt Practices Act (FCPA) has increased significantly in recent years, with companies paying a record US$2.9 billion to resolve cases in 2019, according to the FCPA Blog. The FCPA Clearinghouse shows third-party intermediaries have been involved in 89% of enforcement actions. Worldwide, anti-corruption efforts have intensified, with increased cooperation among different jurisdictions.
Teva Pharmaceutical Industries, headquartered in Israel, is a global leader in generic and specialty medicine. In 2016, it agreed to a settlement with US authorities over FCPA violations. Teva agreed to enhance its compliance program and improve due diligence for third parties while reporting to an independent compliance monitor for three years. And if that wasn’t a big enough challenge, the pharmaceutical giant underwent a corporate restructuring program designed to cut US$3 billion in costs.
Teva was processing up to 2,000 requests to use third parties every year.
Lori Queisser, who became Teva’s Global Chief Compliance Officer in 2015, knew meeting legal requirements would just be a starting point. The company’s lengthy compliance processes were hurting productivity, without necessarily reducing third-party risk. Teva’s official goal became to “build the best and most respected global compliance program in the industry — a program that works in partnership with the business to prevent issues.”
Queisser discovered that a spate of corporate acquisitions had saddled Teva with a dozen legacy systems, each with its own finance and procurement processes, some of them manual. Getting approval to engage a third-party representative could take weeks or even months. Teva, which has roughly half a million vendors and customers, was processing up to 2,000 requests to use third parties every year.
“We were spending millions and millions of dollars on third-party due diligence, as does every US-listed public company, but we weren’t reducing our risk,” Queisser says.
The better the answer
The goal: enhance vendor compliance while speeding business decisions
The EY approach is data driven with the help of innovative workflow design and analytics technologies.
Queisser was looking for a “game-changer, to make a disruptive move in this space.” Teva therefore engaged EY Forensic & Integrity Services to develop a due diligence system designed to be proactive rather than reactive, using advanced analytics and technology. EY professionals built a database using both proprietary data and public records such as regulatory filings, court rulings, sanction lists and news reports. Assembling the right data was critical to gaining the insights needed to vet third parties. It also laid the groundwork to apply advanced analytics and artificial intelligence (AI) to evaluate risks even more effectively.
Teva and EY professionals developed business rules that helped enable algorithms to calculate a risk score for each potential business relationship. The pre-screening tool allows vendors with a low-risk ranking to be engaged immediately (subject to an executed contract), while higher-risk parties face more probing, such as a questionnaire, investigation or deliberation by a due-diligence committee. In a 30-day pilot, the system evaluated risk for twice as many third parties as Teva had previously assessed over an eight-month period.
At the same time when Teva began integrating the pre-screening tool into its business processes, the company was using dozens of purchase-to-payment (P2P) processes, often implemented differently across 60 countries. Teva needed to make sure its procurement policies were followed consistently as related to the engagement of third parties. The EY teams collaborated with Teva to design an innovative, transparent workflow that walks business users through the control process, routes relevant information to the right people, and creates an audit trail. The system automates the process based on business rules applied to key decision points, with disparate P2P systems feeding data into the pre-screening tool.
RiskMate provides pre-secreening for more than 300 M entities.
Change management was a huge challenge. Teva’s business owners are accountable for compliance but they had to be convinced that the changes needed to effectively implement a new system were worth making. It wasn’t just a matter of gaining buy-in among a few leaders — nearly 40% of Teva’s 43,000 employees were scheduled for training by the end of 2019.
Using the new pre-screening tool for Teva’s reconciliation efforts went a long way to gain the trust of business stakeholders. Compliance professionals, along with the finance and procurement teams, had to identify all customers and vendors worldwide to determine if they met the definition of a third-party representative and to perform proper due diligence if it hadn’t already been done. The first phase, which was done manually, took more than a year to cover ten countries. But the second phase, which used the pre-screening tool to automatically assign risk levels, took less than five months to reconcile vendors and customers in 26 countries.
“That really helped us to gain the trust of management and the trust of the business sponsors that would be using the tool on a daily basis,” says Tali Guy, Vice President of Compliance and Third-Party Due Diligence.
Implementing a new workflow along with data analytics has sped up all aspects of the due diligence process, from data collection, cleansing and analysis to risk-ranking and evaluation. The pre-screening tool contains roughly 25 million records in more than 45 service categories. The system can also tap into other proprietary databases, providing pre-screening for more than 300 million entities. A case management tool manages tasks from a central dashboard, enhanced by interactive visualizations and audit trails to give leaders the information they need to make informed and timely decisions.
The better the world works
Delivering timely results for business owners
The new approach provides resource efficiency while offering quicker response, increased visibility and consistency at the same time.
The time needed to gain approval for engaging third parties has dropped from weeks or months to as little as just a few hours. This allows the compliance team to focus on examining higher risks. In 2020, about 75% of Teva’s third-party representatives will be pre-screened through the new tool.
Previously, business stakeholders received no information on a request to engage a third party until it was approved or denied. Now, they can go into the system and see the status of every request. The system automatically reminds third parties and business sponsors to complete questionnaires and denies requests if a timely response isn’t made.
We are leaning into compliance rather than looking in the rearview mirror.
Dashboards help enable users to view all third parties and their risk levels. Another benefit of the pre-screening tool is Teva now has a vetted database of vendors and customers. This data- and analytics-driven approach has helped Teva shorten the time required to onboard third parties, drive consistency everywhere it does business, and reduce the cost of third-party due diligence.
Teva’s compliance leaders expect their data- and analytics-driven approach to reducing risk will continually become more proactive, while providing valuable insights that help in business planning and decision-making. Teva is exploring the use of advanced AI technologies to enhance pre-screening of third parties. Machine-learning algorithms can be trained on reviews, investigations, approvals and denials to create a predictive model that identifies risk indicators for potential new relationships.
While these advanced technologies are still in their early stages, they could eventually suggest new innovations for evaluating third parties. In addition, this system can easily be adapted for other compliance programs such as detecting counterfeit drugs or adhering to privacy regulations.
“We are leaning into compliance rather than looking in the rearview mirror,” Queisser says.
The primary goal of Teva’s compliance function is to provide business owners with the right tools, resources, policies and training to help them make better decisions. This new approach not only manages risk more efficiently — it also positions the compliance function as a driving force for change within the company and as a model for the entire industry.
This case study was first published by MIT Sloan Management Review Connections.
Show article references#Hide article reference
- Foreign Corrupt Practices Act Clearinghouse,” Stanford Law School, accessed June 10, 2020, http://fcpa.stanford.edu.
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