Clinical Trial Accruals: How Finance Teams Avoid Quarter-End Surprises
Clinical trials are complex endeavors, often spanning years and rarely aligning with a company’s accounting periods.
And therein lies the challenge: how do finance teams accurately track trial accrual and avoid nasty surprises when closing out the quarter? When the numbers don’t line up, there is a distinct ripple effect in financial statements, and investors and decision-makers will undoubtedly feel the consequences.
Fortunately, with a disciplined approach, teams can improve accuracy, reduce volatility, and fortify collaborations with clinical teams. If you need some practical strategies, keep reading, as that’s what today’s post is all about.
The Problem with Clinical Trial Accruals
Clinical trial costs include much more than invoices, and in that sense, they have little resemblance to normal operational costs. We must consider that the actions that trigger expenses (lab costs, patient visits, site monitoring, etc.) often occur months before the invoice arrives, creating a gap between the activities and when the expenses are recorded.
Adding to the challenges is the need to capture data from multiple sources, so finance rarely has real-time visibility into everything.
Other factors that can throw a wrench into the system include complex contract structures, milestone payments, and variable costs associated with patient activities. It’s never straightforward.
Enrollment rates, protocol changes, and individual site performance also impact costs and can vary wildly.
Due to the invoice lag, invoices often arrive with missing information, delaying reconciliation.
Without a structured system, finance teams may end up under- or over-accruing, which, at the end of the quarter, may be impossible to correct efficiently.
So, what could happen?
These pesky timing issues can ripple through the entire organization, causing distorted financials and raising questions from stakeholders.
Teams may appear to be under- or over-budget, skewing resource allocation.
There is also an audit risk, as poor accrual processes can trigger compliance concerns.
When these dominoes fall, finance will almost certainly lose credibility with leadership, and operations may be adversely impacted.
Moving from a reactive to a proactive state will help to bring the accrual process back into balance.
Building a Strong and Accurate Accrual Process
In best practice, finance teams must build their accrual process on the following three pillars:
Data integration. The first step is gaining visibility into trial activities. Partnering with clinical teams and IT is essential to pull data from relevant systems into a consolidated view. Examples of data sources may include:
Patient enrollment data
Patient visit data
Vendor contracts (terms and budgets)
Historical payment and invoicing patterns
When this information is aligned with operational data, finance can generate accurate statements without waiting for invoices to arrive.
Standardized processes. Staying consistent is critical. There should be clear rules around how the various types of costs are accrued:
Per-patient costs are accrued based on either actual visits or milestones.
Pass-through costs should be estimated based on past trends or vendor estimates.
Milestone payments should be recognized when related activities are more or less complete.
Fixed fees should be either tied to the project’s progress or spread out evenly over the course of the trial.
Proceeding this way will help to make accruals less subjective and more defensible in an audit.
Collaborate across teams. Accrual accuracy hinges on close collaboration with clinical ops, vendors, and procurement teams. In best practice:
Check in regularly with stakeholders to validate assumptions.
Use centralized dashboards that align metrics for all stakeholders.
Assign ownership of data inputs and updates.
Maintain feedback loops so you can adjust assumptions based on actuals.
Working together is the key to minimizing surprises. With diligence, they can certainly become less frequent.
Transforming from Reactive to Predictive Accruals
Traditionally, accrual processes tend to look backward. Because of this, assumptions are often based on incomplete data and previous periods that may have little bearing on present reality.
Modern methodologies have shifted to predictive models, which allow us to anticipate costs based on what’s happening in real-time.
Elements of this approach may include activity-based forecasting, which looks at expected patient activity rather than past spending trends and trial timelines.
Refreshing accruals monthly or even weekly to account for new data will reduce the need for massive quarter-end adjustments.
Creating multiple timeline and enrollment scenarios will help you understand what could happen before it does.
Technology Enables More Accurate Accruals
Enabling a better accrual process will require better tools and access to data, but the benefits will be felt in improved accuracy and confidence.
Here are a few tips from the experts at Growise:
Use an integrated planning platform that connects to relevant data systems.
Automate data extraction from CTMS and EDC systems.
Apply analytics tools to identify trial trends and anomalies.
Use workflow automation where possible to streamline accrual reviews and approvals.
Automation makes your accrual process more accurate and frees up employee time to focus on other tasks. The trial gains visibility, enabling a clearer snapshot of what’s happening in real time.
Sample Monthly Accrual Workflow
Like any winning team, you need a game plan to win. A structured process lends consistency and reduces the incidence of surprises at the end of the quarter.
Here’s what the accrual experts at Growise suggest:
Pull in activity data from all clinical systems and vendors.
Update models based on the most recent enrollment and visit data.
Review assumptions with operations personnel.
Compare accruals to previous periods to identify variances.
Document all changes and decisions.
Report findings to relevant stakeholders and, if needed, discuss them.
Having applied this process, you will have identified and addressed all adjustments by the time quarter-end arrives.
The Bottom Line: Avoid Surprises with a Strategic Accruals Process
Clinical trial accounting is complex, but it doesn’t have to be unpredictable. With a repeatable process in place, clinical finance teams can lead with confidence at quarter-end and avoid surprises.
Invest in systems, people, relationships, and processes, and your financials will become stronger and more reliable.
Set up a call with Growise to learn how we can help.