Chris Farnon is a veterinary surgeon, specialising in pigs. His customers are pig farmers, large and small, throughout the state. To support his practice he also operates All Creatures Veterinary Supplies Pty Ltd (ACVS), which supplies drugs and other supplies to pig farmers. Most of the drugs can only be sold on a vets prescription, but the sale of other supplies is unrestricted (although there are safety issues surrounding the storage of some items).

The drugs and other supplies are ordered in bulk from local and overseas suppliers. Most sales are made to farmers on the receipt of a telephoned purchase order. The sales order is taken by a clerk in the office and entered into the computer system. This generates a packing slip for the storeman, who then takes the supplies from the shelves and packages them for delivery. Often there are not sufficient supplies in stock to complete an order so that part of the order is held over until more supplies are obtained.

Purchase orders are initiated by the storeman when stocks are running low. The storeman has to be careful not to hold too much stock because there are strict regulations regarding use by dates for drugs. Sometimes an order of drugs and supplies is not received in full from the suppliers because they are waiting for delivery from the manufacturer. In this case, the storeman makes a note in his diary to follow up and obtain the missing items at a later date.

Clients are often in a hurry to receive their drugs and Chris often takes drugs with him when he visits a farm. When he remembers, Chris leaves a note for the storeman explaining which drugs he has taken. ACVS maintains a perpetual inventory system and the storeman is responsible for periodic stocktakes to confirm the accuracy of the inventory records.

(a) What strengths and weaknesses can you identify in the inventory control system at ACVS?

(b) What substantive procedures would you recommend for purchases given your assessment of the control system?