The Clinical Trial Accruals Tradeoff: A False Choice

Bring up “Clinical Trial Accruals” to finance or clinical operations teams at most clinical-stage life sciences companies and watch the pained look cross their face. To be sure, there are organizations with healthy accrual practices. But the majority of Sponsors, regardless of size, do not fit in the “healthy accruals” camp. These organizations are limited by resource bandwidth, industry-agnostic toolsets and communication gaps between finance and clinical functions. Many rely on spreadsheets to manage complex and constantly changing budgets.

In this resource-constrained and complex environment, many Sponsors make near-term trade-offs to simplify the clinical trial accrual process. These trade-offs can have long-term repercussions – from cash management implications to heavy rework to prepare the requisite historical financials for IPO.

The good news? There are steps – and tools – these Sponsor organizations can leverage to avoid the all-too-common pitfalls of managing clinical trial accruals.

Start with a detailed forecast model

In many Sponsor organizations, accrual calculations start with the clinical operations lead recounting the events of the period. The finance team uses the resulting accrual estimates to re-forecast the remaining study costs through the completion of the trials. Sponsors with healthy accrual practices operate the other way around. These organizations begin their clinical trial with a granular forecast approved by their auditors. The forecast serves as the starting point for monthly accrual estimates. It is important the forecast is driven at an appropriately detailed level: functional or phase level on the services budget grid received by the contract research organization (CRO) and at a fixed vs. variable cost level on the investigator payments. The timing of costs (i.e., how they are expected to be incurred over the trial timeline) is set at a granular level, and informed by anticipated clinical trial dynamics, cadences, and timelines.

Manage accruals on a monthly basis

According to Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS), accrual best practices dictate managing accruals on a monthly basis. But many Sponsors – taking into account the complexity and resource drain of calculating clinical trial accruals – decide the time/effort trade-off to track monthly accruals isn’t worth it and manage accruals on a quarterly basis. In these cases, organizations risk taking a potentially significant accrual reversal in the month following the expense leading to inaccurate monthly accounting. This can become particularly problematic during IPO preparation (when several years of financials are being reviewed), or during annual accounting audits. 

Use the right level of detail

More often than not, Sponsors make oversimplifying assumptions when forecasting and booking their accruals. Given the limitations of spreadsheets -- and compounded by the complexity of the budget grid and number of trials managed -- many Sponsors end up straight-lining costs across the entire trial. This oversimplified approach to forecasting trial budgets and booking accruals without granular calculations can lead to significant accrual balances. Sponsors should leverage knowledge of clinical trial cadence to forecast at least at the functional/category level to ensure more accurate forecasting and accrual expense calculation.

Use evidence to confirm events

For most Sponsor organizations, using real-time evidence to inform accruals – while important for accuracy – proves to be incredibly challenging. Electronic Data Capture (EDC) and Clinical Trial Management System (CTMS) data, while helpful, are challenging to use for validation. Manual manipulation and usage is constrained by data volume and veracity. Quality issues in the form of wrongly-coded visits and double counted entries abound. And, in most cases, EDC and CTMS systems do not communicate with the financial tech stack. Organizations using this data often spend significant time configuring, downloading and integrating the data into unwieldy excel spreadsheets. Many Biotechs decide this isn’t worth it. But the tradeoff is that these organizations skip using the available evidence despite the potential increase in accrual accuracy with event-confirming data.

Request monthly accrual reports from your CRO

Sponsors have the most leverage they will ever have during the RFP process and Work Order negotiation. Many Sponsors concentrate on the budget grid and payment schedule during this critical time. These Sponsors either do not know or forego asking their CRO vendors for ongoing documentation to make their accrual and invoice validation processes easier. And importantly, auditors will generally prefer a third-party source for accruals versus internal calculations. Sponsors have an important opportunity to negotiate monthly accrual reports as part of the Work Order.

Use software designed for the clinical trial accrual use-case

This is where Auxilius comes in. We recognize the challenges Sponsors face when managing clinical trials. That’s why we’ve designed a scalable, flexible and data-driven clinical trial accrual solution. The platform enables Sponsors to set a robust forecast at a granular activity and patient level with bespoke patient, site and project-phase drivers. Auxilius’ workflow solution prompts ecosystem stakeholders (clinical operations, vendors and finance) at month close to validate in-platform accrual calculations informed by clinical evidence from EDC and CTMS integrations. 

Get in touch with our team to learn more.