Internal Controls

KV Pharmaceutical Collapse Underscores Industry Risks

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KV Pharmaceutical's office and warehouse in Earth City, Missouri, near St. Louis. The company restated revenue and earnings for 2007 and 2008.

The recent trouble at KV Pharmaceutical Company, a specialty drug company near St. Louis, Missouri, illustrates the high costs and risks associated with the pharmaceutical industry and the importance of internal controls.

On July 29, 2008, agents from the U.S. Food and Drug Administration (FDA), the body that regulates the pharmaceutical industry, seized $24.2 million worth of unapproved drugs from KV Pharmaceutical Company, a $578 million specialty drug maker located in Bridgeton, Missouri.  Since then, the NYSE-listed company has been in turmoil with CEOs and CFOs coming and going, board members being dismissed or resigning and its auditor, KPMG, citing numerous material weaknesses in the company's internal controls.

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