Henderson County Hospital is a 700-bed hospital employing 18 pharmacists. Most of the drugs they dispense are prepacked; however, they do compound and prepare baby formula and intravenous solutions. In the preparation of these products, they use the drug lactose, purchased in one-pound containers.

The hospital’s purchasing agent places an order for lactose when the supply on hand reaches the established reorder point. The chief pharmacist then places a weekly requisition for the lactose he estimates will be needed.

One year ago, the hospital experienced a critical shortage of lactose due to Federal Drug Administration restrictions on the manufacturers. During this time the hospital was unable to obtain enough lactose to compound and mix the required baby formula and intravenous solution.

They had to purchase the baby formula and intravenous solution already mixed at a significantly increased cost. For the last six months the chief pharmacist has directly ordered from the supplier an extra supply of lactose to ensure against another shortage. This supply is stored in the pharmacy department.

The controller was unaware of this situation until the external auditors asked management if the large supply of lactose was necessary.

Required:

Suggest controls that would prevent the carrying of excess inventory.