Auditing the pharmaceutical and healthcare industry is a specialized field requiring a rigorous combination of international auditing standards and strict legal regulations from the Ministry of Health. This is especially relevant in the context of Vietnam tightening regulations on the business of pharmaceuticals and medical supplies. Pharmacy Law 2016 and Decree 155/2018/ND-CPTherefore, conducting audits is not only a legal requirement but also a tool that helps businesses assess the integrity of their quality management systems (QMS) and transparently channel the massive capital investments in research and production.
In reality, errors in drug inventory management or marketing expense accounting can lead to heavy tax penalties and serious legal risks. According to post-audits by authorities, over 301 pharmaceutical companies faced difficulties in comparing production batch records with year-end financial reports. Therefore, understanding the nature and process of pharmaceutical and healthcare audits is crucial for businesses to control risks, protect their reputation, and contribute to ensuring consumer health and safety through products that meet GMP and GDP standards.
Why is auditing in the pharmaceutical and healthcare industry crucial?
The pharmaceutical and healthcare industries are unique in that they directly relate to human lives and are subject to a complex system of legal regulations. Regular audits of the pharmaceutical and healthcare sector help businesses build a strong "immune system" against market fluctuations and policy changes.
Ensure compliance with Good Practice Standards (GXP).
Standards such as GMP (Good Manufacturing Practice), GDP (Good Distribution Practice), and GLP (Good Laboratory Practice) are prerequisites for survival in the industry. Auditors will review the consistency between actual operations and standard operating procedures (SOPs).
Financial and tax risk control
Pharmaceutical businesses often incur significant costs related to discounts, commissions, and marketing. Without professional pharmaceutical and healthcare auditing, these expenses can easily be disallowed by tax authorities during tax settlements due to a lack of valid documentation or inability to demonstrate their relevance to business operations.
Transparency in drug pricing and bidding processes.
For entities participating in centralized drug procurement bidding at public hospitals, auditing helps verify the reasonableness of the cost of goods sold, thereby ensuring that their qualifications remain clean and meet the transparency standards of the Procurement Law.
Relevant legal framework and current regulations auditing of the pharmaceutical and healthcare industry
To conduct accurate audits of the pharmaceutical and healthcare industry, auditors and chief accountants need to have a thorough understanding of the following legal framework:
| Legal documents | Main adjustments | Impact on auditing |
| Law on Pharmaceuticals No. 105/2016/QH13 | General regulations on the production, trading, import and export of pharmaceuticals. | The basis for verifying the legality of the license. |
| Circular 20/2017/TT-BYT | Regulations concerning controlled substances. | The focus of the audit is on inventory and storage. |
| Circular 35/2018/TT-BYT | Regulations on Good Manufacturing Practice (GMP) for pharmaceuticals. | Auditing the production process and quality. |
| Accounting Law 2015 | Corporate financial accounting standards. | Auditing the accuracy of financial statements. |
| Decree 125/2020/ND-CP | Imposing administrative penalties for tax and invoice violations. | Assess potential tax risks. |
The primary task of auditing the pharmaceutical and healthcare sector is to compare actual business practices with the relevant documents, aiming to eliminate systematic irregularities.
Key areas in pharmaceutical and healthcare industry audits
A comprehensive audit goes beyond just the numbers on the balance sheet; it delves into every corner of the healthcare supply chain.
Auditing the Quality Management System (QMS)
This is the "heart" of the pharmaceutical business. Audits in the pharmaceutical and healthcare industry focus on evaluating how businesses handle deviations, manage change (Change Control), and implement corrective and preventive actions (CAPA). If a manufacturing defect is not properly documented, the risk of a mass product recall is very high.
Inventory and expiration date management audit
Medicines are commodities with a strict shelf life. Auditors will examine:
- Inventory withdrawal method (usually FEFO – First-In, First-Out).
- Procedures for handling medications that are about to expire and returned medications.
- Storage conditions (temperature, humidity) must comply with GDP/GSP requirements.
Batch document and record audit
Production batch records are the highest legal evidence of drug quality. Audits in the pharmaceutical and healthcare industry require meticulous comparison between the amount of raw materials, losses during production, and the amount of finished products in inventory. Any unexplained discrepancies can be considered a risk of asset loss or fraud.
Auditing marketing and scientific conference expenses.
The healthcare industry typically organizes scientific events such as seminars and drug presentations. Auditors will review the authenticity of guest lists, event venues, and the reasonableness of these expenses in relation to regulations on advertising expense limits.
Classification of audits in the pharmaceutical and healthcare industry.
Based on the purpose and the entity performing the audit, the pharmaceutical and healthcare industry audits are divided into the following common types:
Internal Audit (First Party Audit)
This is carried out by the company's own internal control department. The goal is to detect errors before an independent inspection or audit team arrives. This activity needs to be maintained quarterly to ensure the highest level of readiness.
Second Party Audit
This often occurs when a multinational pharmaceutical corporation wants to evaluate a contract manufacturing plant in Vietnam, or a hospital evaluates a medical supplies supplier. This type of pharmaceutical and healthcare audit focuses on supply capacity and quality consistency.
Third-Party Audit
These are independent audits conducted by reputable auditing firms or regulatory agencies such as the Drug Administration of Vietnam (Ministry of Health). Certifications from these audits have high legal value, helping businesses affirm their position in the market.
Clinical Audit
For hospitals and clinics, clinical audits focus on evaluating treatment protocols, the effectiveness of medication use in patients, and healthcare procedures to continuously improve clinical outcomes.
The 5-step process for conducting professional audits in the pharmaceutical and healthcare industry.
For an audit to deliver real value, it needs to follow a structured process standardized by experts from the MAN – Master Accountant Network:
Step 1: Plan and define the scope
Define specific objectives (e.g., tax audit or GMP compliance audit) and select a team of auditors with in-depth knowledge of pharmacology and pharmaceutical accounting.
Step 2: Preliminary survey and risk assessment
Gather legal documents, financial reports from previous years, and a list of key products. Assess the most error-prone areas in the supply chain.
Step 3: Conduct a field inspection.
This is the most crucial stage of the pharmaceutical and healthcare audit. Auditors will directly visit warehouses and production facilities, interview staff, and cross-check original documents.
Step 4: Summarize findings and discuss
Draft a report outlining non-compliance points and financial risks. Organize a meeting with the company's leadership to explain and clarify these issues.
Step 5: Release the report and monitor CAPA.
Provide a formal audit opinion and recommendations for improvement. A successful audit of the pharmaceutical and healthcare industry is one where the company implements corrective actions effectively afterward.
Common errors discovered through audits. pharmaceutical and healthcare industry
Below is a summary of common errors we frequently encounter during our audits of the pharmaceutical and healthcare industry in Vietnam:
| Error group | Specific example | Potential consequences |
| Financial management | Incorrect cost of goods sold accounting due to failure to properly calculate production losses. | Profit discrepancies, underpayment of corporate income tax. |
| Comply with GXP | The SOP has not been updated according to the latest circular from the Ministry of Health. | The production/business license has been revoked. |
| Invoice management | Using invoices from "phantom" businesses for marketing expenses. | They were ordered to pay back taxes and were fined for administrative violations. |
| Internal control | There is a lack of separation of duties between the warehouse manager and the warehouse accountant. | Loss of medication is common, especially with psychotropic drugs. |
Application of technology in modern pharmaceutical and healthcare auditing.
In the 4.0 era, auditing is no longer a manual, paper-based task. New technologies are changing the way audits are conducted in the pharmaceutical and healthcare industries:
- Specialized ERP system for the pharmaceutical industry: Enables instant traceability from raw materials to the consumer.
- Data Analytics: Using algorithms to detect unusual transactions in millions of pharmaceutical invoices, helping auditors focus on high-risk areas.
- Blockchain: Being applied to increase transparency in the supply chain of vaccines and treatments, and to prevent counterfeit drugs.
Conclude
Auditing the pharmaceutical and healthcare industry is not just a routine inspection procedure, but a core strategy for building trust with clients and regulatory authorities. In an industry where even the smallest mistakes can lead to serious health and legal consequences, possessing a robust internal control system and transparent audit reports is an invaluable asset for any business.
To optimize management processes and ensure absolute safety in terms of tax and legal compliance for pharmaceuticals, businesses need a partner who understands both the language of accounting and the language of the medical industry. MAN – Master Accountant Network is proud to be a leading provider of auditing services for the pharmaceutical and healthcare industry, in-depth accounting and tax consulting, and the establishment of internationally standardized internal control systems. We are committed to providing complete peace of mind, allowing businesses to focus on their mission of caring for public health without worrying about compliance risks.
Service contact information at MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
- Mobile/Zalo: 0903 963 163 – 0903 428 622
- Email: man@man.net.vn
Content production by: Mr. Le Hoang Tuyen – Founder & CEO MAN – Master Accountant Network, Vietnamese CPA Auditor with over 30 years of experience in Accounting, Auditing and Financial Consulting.
Frequently Asked Questions about Pharmaceutical and Healthcare Auditing
Do newly established pharmaceutical companies need to be audited immediately?
By law, foreign-invested enterprises or publicly traded companies are required to have their financial statements audited annually. However, for domestic pharmaceutical companies, conducting internal audits of the pharmaceutical and healthcare industry from the outset is extremely necessary to standardize SOP procedures and avoid legal violations later on.
What are the typical audit costs for the pharmaceutical and healthcare industry?
Costs depend on the size of the business, the number of product lines, and the scope of the audit (financial, compliance, or systems). MAN always provides cost-effective solutions based on the client's specific needs.
How does a GMP compliance audit differ from a regular financial audit?
Financial audits focus on numbers and the accuracy of reports. Meanwhile, GMP compliance audits in the pharmaceutical and healthcare industry focus on technical processes, production environment, equipment calibration, and product safety.
