Compliance Auditing & Monitoring

1. November 16, 2004 Compliance Auditing & Monitoring 3.02 Auditing and Monitoring for Compliance Sheryl Vacca, CHC West Coast Practice Leader, Life Sciences & Health Care Regulatory Deloitte & Touche LLP Karen R. Lines, Esq. Associate General Counsel Genentech, Inc. South San Francisco, CA

2. Building the Emerging Model Code of Conduct Corporate Policies Board & Executive Committee Corporate Compliance Program Compliance Standards Financial Risk Regulatory Risk Systems/IT Risks Operational Risks Standard Operating Procedures Day-to-Day Operations Departmental Procedures

3. Designing an integrated compliance program that operates as one unit rather than many silos is challenging The business’s processes and operations often function in silos The compliance-related risks touch every aspect of the organization’s business & are difficult to “compartmentalize” The design should be based upon the organization’s business strategies The design should result in an organization-wide compliance monitoring plan The Compliance Program Design Dilemma Business Strategy Risk Mitigation Monitoring Business Processes

4. Create a Compliance “Crosswalk” • Monitoring plan should be designed with the Compliance Program dilemma in mind. • Monitoring creates the crosswalk between the Business Strategies and the Risk Areas. Monitoring Quality Control and Drug Safety Vaccines will be available for the public Risk Area Apply to more than one business strategy Business Strategy Will be impacted by many risk areas Monitoring

5. The vast majority of health care/life science regulatory & compliance program requirements align with Sarbanes & Internal Audit standards. Focus on Regulatory Risks and Controls • Federal Sentencing Guidelines • Calls for evaluation of internal controls • HHS Office of Inspector General • Regulatory-specific standards • Employee Training • Compliance Audits • Sarbanes • Calls for evaluation of internal controls • COSO Standards • Compliance with laws and regulations

6. How Sarbanes 404 Integrates into your Auditing and Monitoring • Objectives • Operations • Financial reporting • Compliance • Components of a 404 Readiness • Monitoring • Information & Communication • Control Activities • Risk Assessment • Control Environment

7. Auditing and Monitoring Cycle Develop Review Criteria Define Review Scope & Assumptions Define Review Sample Reaudit Define Methodology Education, Remedial Action Review Process for Each Risk Area Test Inter-rater Reliability with Multiple Reviewers Finalize Report & Corrective Action Plan Conduct Review Obtain Management Response Validate Findings Document Observations & Findings

8. Continuous Monitoring Cycle • Monitoring never ends… each review leads to the next, and the monitoring plan and unplanned issues drive additional monitoring activities. It is a continuous process… Re-audit and add new audits to the cycle Define Review Scope & Assumptions Finalize Report & Corrective Action Plan Finalize Report & Corrective Action Plan Define Review Scope & Assumptions Finalize Report & Corrective Action Plan Develop Review Criteria Define Review Scope & Assumptions Develop Review Criteria Obtain Management Response Document Observations & Findings Define Review Sample Obtain Management Response Develop Review Criteria Define Review Sample Document Observations & Findings Conduct Review Document Observations & Findings Define Review Sample Conduct Review Test Interrator Reliability Test Interrator Reliability Conduct Review Re-audit and add new audits to the cycle

9. Practical Considerations Related to Auditing and Monitoring Strategy • Developing your Auditing and Monitoring Plan • Deciding what to monitor • Prioritize Risk Areas • Internal Factors, i.e.: any system changes, people changes, new practice, etc. • External Factors, i.e.: new regulation, national and local enforcement activity • Compliance Program evaluation • Identify controls that make the process work : PROCESS AUDIT • Determine overall purpose effective: OUTCOMES AUDIT • Resources available to execute plan • Consider integration with Internal Audit Plan • Identify timeframes for audits • Communication and Commitment to Plan

10. Developing Your Audit Approach • Deciding the scope • Narrow down the purpose of the audit • Avoid scope creep before you start • Resources available to execute the audit • Methodology • Sample size determination • Communication/Reporting Results

11. Sampling Methodologies • Things to Consider: • The purpose of the sample or the review objective • The universe/population/sources of data • The size of the sample • What you are going to do with the results

12. What should you consider before you decide what your sample size will be? Who do you expect to share the information with and what is their frame of reference? Are you trying to figure out whether there is really a problem? What is the organization’s perspective on “fixing” problems? What resources are available to audit this area? Does Senior Management agree this risk area is important? What is the worst case scenario if this audit reflects unfavorable outcomes? Attorney/Client Privilege? Sampling Methodology

13. Is the review for: Self - disclosure? Education? Part of an on-going monitoring plan? Response to the federal government, subpoena, carrier or FI? Known risk area? Purpose of the Sample

14. Other Considerations • Priority • Internal • External • Timeframe of data collection • concurrent • retrospective • Availability of data • Manual • Leverage Technology

15. Leveraging Technology Sophistication of solution

16. Define Review Scope & Assumptions Develop Review Criteria Conduct Review Document Findings and Observations Obtain Management Response Finalize Report & Corrective Action Plan Practical Application : Case Study Risk Area Review Process Compliance Training Managed Care Contracting

17. Define Review Scope & Assumptions Conduct interviews with Business Process Owners Review Policies & Procedures Review Education and Training materials Document scope & assumptions Develop Review Criteria Test Review Criteria Enter criteria into database Conduct Review Review documentation Enter findings into database Document Findings and Observations Query database for exception findings Summarize observations Develop recommendations Obtain Management Response Share findings with Business Process Owners Obtain reactions to recommendations Draft a Corrective Action Plan Finalize Report & Corrective Action Plan Case Study Review Process Risk Area Compliance Training Managed Care Contracting

18. Corrective Action Plan

19. Sample Report Card • Develop the Report Card Department Risk Area Inducements Privacy Privacy Notice Employee Training Complaints Employee Discipline Authorizations Minimum Necessary Access to Records Amendment of Records Confidential Communications Facility Directory Business Associate Agreements Admissions Customer Service Marketing Medical Records Or

20. Integration into Business Strategy • Use monitoring findings to develop and document ROI • Assist the business process owners to identify root cause of findings • Use corrective action to enhance efficiency and mitigate risk • Organization-wide (vs. silo) allow program leverage

21. Summary • An effective Auditing and Monitoring approach provides a method to: • Assist in identifying risk to the business that may have been otherwise undetected internally • Assist by identifying if the controls developed to remediate a risk are working and have actually helped to mitigate the risk • Assist with preventing a real and/or potential risk from escalating by early detection through auditing which may help avoid additional harm to the company’s business • Provides a “good faith” organization the ability to approach their real and/or potential risk weaknesses with a reasonable, scaleable method • Auditing and Monitoring is a critical element for an effective compliance program which helps to drive compliance and behavior.

22. Karen R. Lines, Esq. Associate General Counsel Genentech, Inc. South San Francisco, California krl@gene.com (650) 225-8673 Ms. Lines is Associate General Counsel with Genentech, Inc. in South San Francisco, California. Genentech, Inc. is a biotechnology company that discovers, develops, manufactures and markets human pharmaceuticals for significant unmet medical needs. She manages a team of lawyers responsible for providing legal advice and guidance to Genentech’s commercial organization. In the past few years, much of her focus has been on leading ongoing efforts to enhance Genentech’s Commercial Compliance Program. She began her legal career in private practice in Wilmington, Delaware. Ms. Lines is admitted to the practice of law in California, Delaware and Pennsylvania. Sheryl Vacca, CHC West Coast Practice Leader Life Sciences and Health Care Regulatory Deloitte & Touche LLP (714) 436-7710 svacca@deloitte.com Ms. Vacca is the West coast Leader for Deloitte & Touche’s National Life Sciences and Health Care Regulatory practice. She has assisted several life science companies develop their compliance programs, investigations, perform risk assessments and develop auditing and monitoring plans for the compliance department. She has significant experience consulting with life sciences and health care organizations on compliance issues including self disclosure, writing plans of correction, implementing systems in response to plans of correction, implementing QA systems and general regulatory compliance.