Alere, Inc: Sales Before Delivery, Commissions Behind the Invoice

The Alere, Inc FCPA case produced a Securities and Exchange Commission settlement requiring a $9.2 million civil penalty over premature revenue reporting and the accounting for improper foreign payments. The agency alleged that employees counted undelivered products as sales while overseas subsidiaries misrecorded payments tied to government customers. For someone inside sales, finance or distribution, the telling details were ordinary paperwork: delivery receipts, consulting expenses and a credit memo.

Alere sold diagnostic tests for infectious disease, cardiometabolic disease and toxicology. Based in Massachusetts, the company grew partly by acquiring foreign businesses, required them to adopt its revenue policy, and delegated revenue decisions to the subsidiaries. Their local entries flowed into Alere’s financial statements. The SEC’s September 28, 2017 order followed that chain from the warehouse and customer account to the public company’s books.

What the SEC Order Says About Alere’s Accounting

The Alere order covered both premature revenue recognition and improperly recorded overseas payments. Its books and records and internal accounting controls allegations under the Foreign Corrupt Practices Act reached both strands. The Securities and Exchange Commission also alleged securities fraud in the South Korean early-sales scheme, while the payment allegations centered on Colombia and India.

On the sales side, the question was when a sale counted and what documents supported that date. On the payment side, it was who an expense really paid and how the company recorded it. Both could reach the same consolidated accounts through a foreign subsidiary’s accounting.

South Korea’s Alleged Early Sales Started in the Warehouse

The Securities and Exchange Commission alleged that Standard Diagnostics, Alere’s South Korean subsidiary, deliberately reported sales before delivery to meet quarterly and annual targets for its African business. The practice involved employees in sales, marketing, customer service and the warehouse. By the end of 2015, the agency said, the subsidiary’s finance director and a finance manager were also aware of and complicit in it.

The order describes two versions of the scheme. In one, goods remained in the subsidiary’s warehouse while employees created false delivery documents or falsified shipping documents. In the other, a shipping agent picked up products just before quarter-end and stored them until the customer requested delivery. Employees used the agent’s pickup receipts as evidence of delivery to the customer.

A pickup became a sale. We see the problem in the gap between what the warehouse knew and what the financial statements claimed: the product could still be waiting for its customer while the revenue had already made the quarter. According to the SEC, these early sales accounted for approximately 29% of Standard Diagnostics’ reported revenue in the fourth quarter of 2015.

The SEC alleged that the finance managers concealed the practice during Alere’s internal review and from its independent auditors, and that premature reporting continued during the review. Alere’s own annual report disclosure, reproduced in the order, described fabricated documents and overridden inventory controls. It also acknowledged knowledge inside finance:

Customer Agreements Told a Different Revenue Story

Other revenue allegations turned on the terms of the sale and where the goods remained. In China, the SEC said, customers signed declarations postponing delivery while products stayed in Alere’s warehouses. The subsidiary nevertheless booked the revenue too early.

African distributor agreements created another mismatch. Some contracts retained Alere’s ownership of the products until the distributor paid in full, but finance staff either failed to review those terms or did not understand their effect on revenue recognition. The SEC alleged that subsidiaries counted the revenue upon delivery despite those contractual restrictions.

This is where product distribution becomes financial reporting. The order described agreements requiring distributors to store goods separately, label them as Alere’s property and allow Alere to take them back. A shipping date alone could not explain a sale whose contract left those rights with the supplier.

According to the order, Alere’s revisions and restatements shifted more than $260 million into later reporting periods. The sales eventually became recognizable and were collected, but had been recorded in the wrong quarters.

Colombia’s Consulting Expenses and Alleged Customer Influence

The Securities and Exchange Commission alleged that BioSystems, later renamed Alere Colombia, disguised payments benefiting a customer’s purchasing manager as consulting expenses. Alere had acquired the Colombian distributor and kept its former owner as general manager. That manager oversaw the customer relationship and directed the payments, according to the order.

The customer was a health insurance organization responsible for arranging health services for its members. It had operated as a private entity, but Colombia’s Ministry of Health took control during 2011 through 2013. The SEC treated its employees as government officials during that period. The purchasing manager continued recommending the subsidiary’s products as the customer’s status changed, the agency said.

According to the SEC, approximately $275,000 in improper payments ran from 2007 through at least 2012, beginning before Alere acquired the business. The supposed consultants were the purchasing manager’s husband, sister-in-law and friend. The SEC alleged that none provided legitimate consulting work sufficient to justify the payments.

The same customer account generated approximately $3.18 million in profits during 2011 through 2013, according to the order. That puts the supposed consulting work beside the business it allegedly helped retain. We see what the agency alleged was a purchasing relationship dressed up as professional services, with the customer’s relatives and associate on the receiving end.

According to the order, Alere’s corporate management discovered the payments during an internal investigation in 2015. The SEC alleged that the consulting entries had already flowed into Alere’s consolidated books and that its controls failed to prevent and detect the payments over several years. The customer relationship, the service actually performed and the accounting description had to be understood together.

India’s Alleged Commission Written Into the Test-Kit Price

The Securities and Exchange Commission alleged that Alere India’s distributor obtained approval for a commission to government officials tied to orders for malaria testing kits. The business began with a contract to supply a national disease-control program. The distributor’s letter to Alere India’s vice president of marketing and sales put the proposed bargain in writing.

According to the order, local officials offered to increase orders from 200,000 to 1,000,000 kits if they received a four percent commission. The agency alleged that the vice president approved it, and the distributor incorporated the increased commission into kit prices. Alere India failed to record the additional commission in its books.

The payment trail then appeared in a request for a credit memo. The distributor said it had paid officials in connection with the initial order, deducted the commission from its payment to Alere India and explained the deduction on the accompanying invoice. The alleged healthcare procurement bribery surfaced in a sales approval and an account reconciliation.

According to the order, new management discovered the unpaid credit memo, and Alere’s corporate management opened an investigation. It directed the subsidiary to refuse the memo, and the distributor reimbursed the withheld commission. The SEC said Alere nevertheless retained approximately $150,000 in profits from the increased contract. Recovering the deduction left the benefit of the business in place.

When a Supplier Carries the Payment

A distributor’s account can reveal a payment that the manufacturer’s ledger does not name. The Alere India allegations made that concrete through the commission approval, invoice deduction and requested credit. A comparable accounting disguise appeared in Fresenius Medical Care, where the SEC alleged that a supplier took over payments to doctors while the company’s recorded expenses fell:

A 2022 study in the Journal of Forensic and Investigative Accounting examines how health care corruption can operate through procurement, payment systems, supply chains and care delivery. Its case analysis also describes staff circumventing controls despite flagged transactions and policies. For an insider, that makes the explanation for a changed price or reduced payment just as revealing as the expense label: someone may know what the supplier agreed to absorb.

What an Insider Could Connect

The evidence connecting a decision, payment and false record in Alere’s case crossed departments. Warehouse staff could see goods awaiting delivery, sales personnel knew the customer arrangements, and the distributor’s invoice explained its commission deduction. The SEC’s account shows why the employee who understands one side of a transaction can explain what the other side’s paperwork obscures.

The same question runs through each strand: what did the document represent, and what did the business actually do? A pickup receipt represented delivery, a consulting expense represented a service, and a distributor’s short payment carried an explanation about officials’ commissions. We work with insiders to connect that business knowledge to the documents and the decisions behind them.

What the Alere Settlement Required

The Securities and Exchange Commission’s order required Alere to stop the securities and accounting violations it described. Alongside the civil penalty, it ordered Alere to return $3,328,689 in profits.

A whistleblower whose information helps the Securities and Exchange Commission bring a successful enforcement action can receive a whistleblower award of 10% to 30% of the sanctions collected. Separately, for false claims involving U.S. government money, a whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. We assess the payments, accounting and government-money connection with you to identify the case your information can support.

You Know What the Entry Leaves Out

If you know why a sale was booked early or what a distributor’s commission really paid for, talk with our whistleblower experts. We build your strongest FCPA whistleblower case with you and bring in FCPA whistleblower lawyers who understand diagnostic sales, overseas payments and corporate accounting. You gain partners who can connect the local transaction to the company’s decisions and stay beside you through the case.