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 vet's prescription, but the sale of other supplies is unrestricted (although there are safety issues surrounding the storage of some items).

Sales: 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.

Inventory: 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.

i. What weaknesses can you identify in the above controls at ACVS?

ii. For each weakness, determine the key assertion at risk.

iii. For each weakness, suggest specific internal controls which could be implemented to mitigate the risks. For each control suggested, specify whether it is preventive control or detective control.

Internal Control Issues