How to manage clinical trial accruals with Auxilius
by Erin Warner Guill
Numerous outsourced vendors. Work ongoing across various geographies. The lack of real-time transparency on what is occurring at research sites. Sound familiar? It’s no surprise to anyone in the life sciences community that clinical trials are incredibly complex and financially convoluted. In this environment, the most basic financial and operational processes become a burden. It's no surprise then, that otherwise straightforward financial processes like accruals become a huge thorn in the side of most biotechs, resulting in friction, frustration, and financial ambiguity for sponsors. Through dozens of conversations, Auxilius has found significant barriers to a best-in-class accruals process – which is why we built our software solution which is designed specifically for clinical trials – to overcome these hurdles and offer a lifeline to a compliant and effective foundation for success.
Accurate and sound accrual processes are a requirement of compliant financial procedures. Without the right process and governance, all companies are at risk of misstatements, incremental audits, and remediation. It is crucial that your accruals are accurate: low estimates can lead sponsors to spend more than they have and fall short on capital to cover their commitments; high accruals estimates limit cash flow and program investments unnecessarily.
Despite the need for sponsor-controlled accuracy, the increasing trend of outsourcing in the clinical trials market is leading to less specificity and control in accruals management. Sponsors large and small are opting to use CROs to manage sub-contracts with all vendors; CROs themselves are consolidating and offering a broader range of services to sponsors, including negotiated MSAs with many investigator sites. “I find it easier to have the CRO hold most sub-contractors … but we are a small start-up of 5 employees. It makes engaging all those vendors manageable for me,” shares one biotech leader. However, this makes tracking accruals even more challenging, inserting a middle layer between the sponsor and the vendor incurring trial expenses and adding an arms-length distance to accruals data. “Our CRO will say they paid the investigator $250k, but they can’t tell us which visits were paid for or what is left to complete in the study.” Sites are rarely prepared to provide timely updates on services rendered: “We need to accrue for specific activities as they complete (e.g., visits). AMC billing departments are not very agile, and there are always huge lags getting updates.”
What is happening today?
To track accruals data (to the extent they can), sponsors plant the flag of process on top of industry-agnostic tools or spreadsheets already used in other areas of the business, including Google Docs and Smartsheets. Many sponsors rely on Excel to forecast and update accruals, meaning teams must communicate updates and changes manually and require regular meetings across finance and clinical teams to refine clinical data inputs from vendors. And as your team is probably well aware, there are significant downsides to management via spreadsheet: a single user often creates or maintains the model, creating a risky process if they depart for any reason; there are not clear change logs of what was edited and by whom, leading to potential risk during audits; there are no user-level controls, giving anyone with access the ability to edit at will; there are no clear signoff and diligence processes baked in, requiring meetings and manual updates to ensure the right folks have seen and cleared the final results. These limitations are an auditor’s nightmare and your financial team’s reality.
As you scale, the scrutiny (and complexity) continues to build. First, process must be built. According to Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS), accruals should be managed monthly as best practice. But given the very real complexity and resource drain this can entail, many sponsors opt for a quarterly basis until an IPO nears. This can lead to accrual reversal or inaccurate monthly accounting but does reduce the burden on staff. Second, fundraising can be daunting: many private market investors require sophisticated financials and line of sight on spend & accruals. Biotech business models mean you are often (or always) thinking about fundraising, and sound financial processes are a need-to-have. Third, well before IPO, sponsors need to develop robust SOX control protocols, including defining accruals methodologies and the internal processes and systems to track accruals consistently. Creating and routinely testing controls can help reduce risk for material misstatement or material weakness during an audit, and at the critical IPO juncture, private sponsors must make significant investments in internal FTEs / technology and external consultants to serve as a foundation for a successful IPO. Waiting to become compliant until IPO can be a massive financial and resource-draining headache. Finally, once you are public, the scrutiny continues year after year and quarter after quarter – process is paramount, and missteps may be catastrophic.
The good news: no matter your company’s stage, Auxilius can help you build and maintain an effective and accurate accruals process. Here’s how:
Auxilius is matched to your requirements and needs
As your organization begins its engagement with Auxilius – the only software designed specifically to manage clinical trial financials and vendor management –, we work with you to outline or refine a granular forecast approved by your auditors. The forecast serves as the starting point for monthly accrual estimates and the foundation for your new process: we know it is crucial to meet your organization’s needs up front. It is important this forecast is driven at an appropriately granular level: functional or phase level on the services budget grid received by the contract research organization and at a fixed vs. variable cost level on the investigator payments – we help guide your onboarding and ensure data integrity. The timing of costs (i.e., how they are expected to be incurred over the trial timeline) is set at a detailed level in the platform with your logic referenced; updates are informed in the platform by anticipated clinical trial dynamics, cadences, and milestones. You can set activities by driver – time, patient, site – in your forecast methodology at the outset to validate schedules against your ongoing clinical activities throughout the trial. Clinical data points will dynamically drive financial costs in the software, filling the gap in communication and coordination created by most spreadsheet management processes.
Auxilius gathers and surfaces relevant insights
With this as a starting point, Auxilius uses data feeds from your eClinical tool (i.e., EDC) to inform – and continuously improve – the investigator portion of your month close accrual estimate. Auxilius prompts users to justify edits and archives methodology changes made in platform to support audit readiness. Typically tracked in spreadsheets, Patient Tracking in Auxilius covers enrollment and visit completion, giving you a birds-eye view of your study participation. Informed by this data, investigator-detail views and forecasts give you clear visibility into both month end and total accrued investigator costs.
Auxilius isn’t meant to replace your accounting software: instead, sponsors leverage Auxilius’ integrations with prominent systems. Auxilius provides the “Accrued Expense or Prepaid Expense” calculation at the end of the period for export into your ERP.
Alignment through Auxilius allows you to scale and unify
Where do most traditional processes fall short? Unifying stakeholders and unifying data across the financial scope of a trial. To ensure you aren’t scrambling to close out the period, Auxilius’ workflow prompts ecosystem stakeholders (clinical operations, vendors, and finance) at month or quarter close to validate and confirm in-platform accrual calculations. Auxilius adapts vendor estimates into the system for display alongside the Sponsor’s view of the world (Forecast and EDC data) to give Sponsors optionality on accrual estimates. Auditors differ on vendor estimates vs. a Sponsor’s view of the world so Auxilius provides both to ensure you are compliant based on your organization’s approach. If you are doing quarterly close today, Auxilius makes it possible to adopt GAAP-compliant monthly close without investing additional person-hours to the challenge.
On the reporting side, you can easily track accuracy against actuals to improve methodologies and support audit readiness, ensure capitalization for upcoming quarters, and provide accurate inputs for fundraising or investor reporting. To ensure your stakeholders stay aligned, you will have access to a clear view of budget and forecasts across activities. You can update these forecasts based on actuals (i.e., actual spend to date) and change orders. You can reconcile and validate schedules against underlying clinical activities and milestones, allowing you to gauge financial performance and runway clearly and consistently. As your company scales, the software scales alongside you, with different roles and workflows for teams across your enterprise – aligned data creates accuracy and accuracy helps guide action across your organization.
Taken as a whole, Auxilius offers a completely novel way of approaching the clinical trials accruals process – informed by data, facilitated by software, and intuitive to the way you work. To learn more about how the solution can support your clinical trial accruals, book a demo today.
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