Title: Kraupner Pharmacy audit plan
Kraupner pharmacy is a drugstore located at 457 Knickerbocker Ave. Brooklyn, NY11237. Kraupner pharmacy deals with medicine prescription and over the counter drugs and needs. Services offered include; addressing medical needs through having a variety of drug stock, provision of delivery services on the day of purchase. Services provided are convenient and flexible and has specialists in compounding medicine, that is, particular needs of a patient are met through adding some flavour or taste to their prescriptions. Delivery of the pharmacy’s products after working time is offered among other medical-related services (Utech, Jaskela & Webster, 2019). Over the counter services include beauty products, cosmetics, pain relievers, feminine needs, among others. Besides over the counter and medication needs, Kraupner Pharmacy deals with interior design, toys purses and gift. Kraupner pharmacy gets its product from different suppliers and stored in one store. Further, they offer online services that help in the marketing of the pharmacy and also selling their supplies online.
The pharmacy has professional pharmacists tasked with;
Dispensation of prescribed medication. Involves counting of tablets, labelling bottles and giving out drugs to patients. During the dispensation of medicines, pharmacists should communicate with the prescriber in case of unclear prescription given to a patient. A pharmacist should also confirm on the dosage formulation whether in liquid form or tablets form.
Medication reviewing for its effectiveness and safety. The patients are informed of the precautions taken when under a particular prescription, and the effects of the medicines prescribed. The patients are trained when and how to take doses and how to reduce drug’s side effects, and
Pharmacists are also engaged in the provision of information concerning drugs.
Kraupner Pharmacy is in a highly competitive industry, and within its surrounding, there are many other pharmacies with major chains whose purchasing power are higher. Therefore, it tries it’s very best to offer customer friendly services, hire professional staff, have suitable structures in pricing and insurance contracts managed effectively to gain competitive advantage.
Kraupner pharmacy, a local, independent pharmacy earns its revenue through prescribed drugs, over the counter items like painkillers, cosmetics and supplements like vitamins. Most of its revenue is from the dispensation of prescriptions. Gross profit of the pharmacy is obtained by deducting the pharmacy’s total revenue with its total cost.
In the determination of the dispensation costs; the pharmacy considers both the direct and indirect costs incurred. The direct costs incurred comprise of salaries to the staff; packaging costs, delivery of drugs, marketing and insurance associated fees. According to Thomas, John & Ashoush, et al. (2019), the indirect costs are costs which are not directly related to dispensing of medicine and other operations but are of great importance to the running of the pharmacy. For instance, rent paid, utility bills, outsourced services like legal and accountant services. Pharmacy indirect sales are also determined, which include advertising cost of the pharmacy and fees in relation to transactions, for example, running a credit card. As claimed by Nitadpakorn, Farris & Kittisopee, (2017), the pharmacy indirect sales help in the determination of transactions related to the prescriptions dispensed volume. Once the direct costs, indirect costs and indirect pharmacy sales are added up, total expenses in the dispensation of a drug are derived. With the total costs, one can identify the total cost incurred in the dispensation of a prescription. It is obtained by dividing the total expenses related to the dispensation of a prescription with the number of prescriptions that are dispensed. For instance, if Kraupner pharmacy has a total expense of $2,500,000 per year and $500,000 prescriptions within the same year, the cost of dispensation will be $2500000/500000 giving a total cost of $5.00. Regardless of the price, the dispensation of any prescription costs the pharmacy $5.00.
In the running of the business operations, Kraupner pharmacy is highly regulated in compliance with the New York Board of Pharmacy regulations. According to Weiss, Scherer, hantarat, et al. (2019), the rules and laws address the legal and safe dispensations of medicines and also the business operations of a pharmacy. Issues discussed in the activities of the pharmacy include; closing either temporarily or permanent, corporate officer changing, changing of a pharmacy’s name among others.
Business risks in the Kraupner pharmacy include;
Competition from more significant pharmacies; Pharmacies are in a highly competitive industry. Some of the factors that may make a pharmacy to stand out among others are the variety of the services offered and their pricing structure. Around New York City, Kraupner pharmacy faces stiff competition from Kings Speciality pharmacy. King’s Speciality pharmacy is among the leading supplier of speciality and pharmaceutical in New York City. The pharmacy is located conveniently at four places in New York City. It offers a variety of specialised services to a wide range of patients, for instance, cardiovascular, rheumatology, Crohn’s disease, hepatitis C, and transplant, among others. With such services being offered by the pharmacy, people would prefer to visit the pharmacy more compared to Kraupner pharmacy. Also, Kings Pharmacy is greatly assisting its patients in covering for their medical costs through a program known as patient assistance program. The program is in collaboration with insurance companies that supports eligible patients to pay part or all the medication bill. Since the plan is for the specific pharmacy, patients are loyal to the pharmacy to reap the benefit.
Changes in government regulations. According to the federal, state and local laws, pharmacies should provide limited English proficient (LEP) patients with translators and interpreters to equality in the provision of services and promotion of public health. According to (DISCRIMINATION COMPLAINT submitted to the STATE OF NEW YORK OFFICE OF THE ATTORNEY GENERAL CIVIL RIGHTS BUREAU 120 Broadway, 23rd Floor New York, NY 10271-03332, n.d.), Kraupner pharmacy practices discriminate against LEP individuals seeking services at the facility. They are deprived off access to essential programs and services offered by the pharmacy. Human rights laws in New York city bans discrimination based on colour, race or national origin, among other factors at public places (Grisinger, 2018). Pharmacies are under the definition of a public place. In the bad medicine report, (Wootton, 2007), immigrants have suffered for so many years in getting health care services in New York pharmacies as they lack adequate interpretation and translation services. The situation strains provision of quality health care to LEP patients which may lead to complications.
Audit risks
rjee, Maletta, & Moreno, (2016), risk of material misstatement in any company/organisation is brought about by the inherent risk and control risk. Control risks are risks as a result of malfunctioning of controls put in place in an organisation to prevent and correct misstatements. Inherent risks are as a result of vulnerability to error because of an item’s nature, for instance, estimation of a legal obligation.
Inventory misstatement is of one the significant audit risk that would affect Kraupner pharmacy. The pharmacy not only dispenses medicines but also deals with other products like cosmetics supplements and decoration. In the pharmacy, staffs serve customers at the counter, get the prescriptions patients to require and are the same people at the closure of the day who balance off the books of accounts. The pharmacy lack segregation of duties and such would lead to the risk of theft at the pharmacy. One task being done by several people greatly help in the concealment of errors occurring as the staff would easily blame each other. The staff may also collaborate in concealing an error, giving leeway to theft. To cover up for theft, the pharmacists are likely to provide a wrong figure of the total inventory which would, in turn, lead to a misstatement in the preparation of the pharmacy’s financial statements. The risk will impact the existence assertion of some inventory. Theft is a control risk.
The pharmacy acquires its supplies on both on cash and credit terms. Therefore, there is a temptation to manipulate its financial statements to impress its creditors and investors. utical products within the city, Kaupner pharmacy is likely to exaggerate its financial statements to show its profitability, thus attracting investors. Manufacturers of pharmaceutical products would want to supply their products through a reputable pharmacy. The manufacturers for the first time would know the popularity of a pharmacy through its returns.
Further, Kraupner pharmacy is faced with the risk of the wrong valuation of assets and liabilities. The risk is likely to occur as there is no physical security for assets, for instance, compounding machines and its crucial spare parts and furniture, in the pharmacy. There should be an individual responsible for security inside the pharmacy, which is not the case. Any staff operating in the pharmacy can carry an asset which will only be noticed after a long time. Assets are also likely to be damaged, either knowingly or unknowingly. In the financial statements, it may be indicated that an asset was acquired, which could not case. The other option that the pharmacy should have in place instead of security personnel is regular inspection of its assets. Despite the presence of the CCTV camera within the pharmacy, they are not serviced frequently, and thus some do not function. In the identification of the camera’s functionality, it was through going the camera footage for six months. It came to my knowledge that two of the camera are not working. One of the non-functional cameras is located at the entrance of the two and stopped working three months ago. It is clear that the maintenance of the CCTV camera is almost neglected. It was an issue of concern as the cameras serve as the premise’s watchdog. Upon consultation on the number of times, the cameras were checked; a few staff confirmed that it was only when an item went missing or when a customer complained attention was paid to the cameras. Since the pharmacy mostly deals with the dispensation of prescription, some of the cosmetic products may be forgotten. Due to the varying prices from time to time in the market, the wrong valuation of such products arises in the financial statements. In the valuation
Audit procedure
As stated by Brown, Dermanson, Higgs, et al.,(2019), audit procedure is the techniques, processes and methods used by an auditor in obtaining audit evidence so that their opinion is expressed and to ensure that the audit risks have been addressed.
First of all, audit work should be addressed to inventory despite being controlled tightly as it is the most prone to misstatement. In the mitigation of inventory misstatement at Kraupner pharmacy, I would like to use analytical procedures. The analytical procedure is used in the relationship analysis of non-financial and financial data. In this study, comparison of inventory from the prior periods would be used in the determination of the actual inventory. When using such information, it would easy in the identification of variations in the inventory and also track the causes of these variations. Observation in the recalculation of the inventory is done in obtaining the actual figures. As claimed by Christensen, Cottrell, & Budd (2016), an auditor should be satisfied with the procedure by an organisation in its inventory counting. At the Kraupner pharmacy, a discussion is done on the counting procedure and observation when the counting is done. In the counting process, different types of products should be assigned different count tags. For instance, cosmetics should be grouped differently from supplements. An auditor should personally count some of the inventory and trace the amount he/she derives with the amount given at the counter and also to ascertain all count tags assigned to the inventory have been accounted. Confirmations of the inventory in the store should be done to ensure it matches with that at the counter. The auditor should also be keen to ensure that the inventory has given exists through verification. Verification will not only help the auditor to confirm the product’s existence but also inspect its condition. As stated by Penner, Kreuze & Langsam (2016), the cost at which the inventory is recorded should be the lowest cost or the net realisable value. The medicine and the other supplies in the store that is counted should belong to Kraupner pharmacy as opposed to the on consignment inventory and inventory owned by the customers. Goods owned by the customer can be counter checked by going through the sales ledger and receipts/invoices given to the customers. This procedure will greatly help in also identifying if there is theft in the pharmacy.
Audit procedure for revenue
A substantive test will be conducted, which involves the examination of the financial statements and the supporting documents to whether there is an error committed. Revenue in any organisations is attributable to its total sales. As stated previously in the study, Kraupner pharmacy mainly generates its revenue from its sale, especially in the dispensation of medications. To verify that the revenue reported is not wrongly stated, the main focus should be on sales both on cash and credit terms. In auditing the debtors, the auditor should acquire all the receivable reports to match them with general ledger. The auditor should also obtain the receipts of all payment done by the debtors. One should add up all the total debtors to trace the total amount of debtors in the general ledger. A further step of directly contacting the customers to verify on their debts, payments already are made and mode of payment, allowances granted and likelihood to pay is taken. The auditor should also know the criteria used in giving allowances and also writing off bad debts. The staff may dispense medication and report it as a debt and later write it off as a bad debt to cover for theft.
Audit procedure for fixed assets.
The first step would be to confirm the existence of the assets as reported in the financial statement. In the case of acquisition of a new asset, the procedure in the procurement of the asset from the suppliers, how it gets to the pharmacy and the payment processes should be investigated. Depreciation used in the current year should be consistent with the prior years. Also, the proper procedure for disposal of assets should be followed. The auditor should inspect for appropriate documentation of information regarding all assets.
References
Christensen, T. E., Cottrell, D. M., & Budd, C. (2016). Advanced financial accounting. NY McGraw-Hill/ Irwin,.References
Penner, J., Kreuze, J., & Langsam, S. (2016). Analysis of Simplification of Accounting Initiative for Inventory and Update of Other Simplification Proposals. Journal of Corporate Accounting & Finance, 27(4), 9-12.
DISCRIMINATION COMPLAINT submitted to the STATE OF NEW YORK OFFICE OF THE ATTORNEY GENERAL CIVIL RIGHTS BUREAU 120 Broadway, 23rd Floor New York, NY 10271-03332.
Wootton, D. (2007). Bad medicine: doctors doing harm since Hippocrates. Oxford University Press.
Utech, T. W., Jaskela, M. C., & Webster, W. L. (2019). U.S. Patent No. 10,380,326. Washington, DC: U.S. Patent and Trademark Office.
Thomas, D., John, D., Ashoush, N., Lega, F., & Li, H. (2019). Market Access, Pharmaceutical Pricing, and Healthcare Costs. In Clinical Pharmacy Education, Practice and Research (pp. 249-259). Elsevier.
Nitadpakorn, S., Farris, K. B., & Kittisopee, T. (2017). Factors affecting pharmacy engagement and pharmacy customer devotion in community pharmacy: A structural equation modeling approach. Pharmacy Practice (Granada), 15(3).
Weiss, L., Scherer, M., Chantarat, T., Oshiro, T., Padgen, P., Pagan, J., … & Yin, H. S. (2019). Assessing the Impact of Language Access Regulations on the Provision of Pharmacy Services. Journal of Urban Health, 96(4), 644-651.
Grisinger, J. L. (2018). Municipal Administrative Constitutionalism: The New York City Commission on Human Rights, Foreign Policy, and the First Amendment. U. Pa. L. Rev., 167, 1669.
Bhattacharjee, S., Maletta, M. J., & Moreno, K. K. (2016). The role of account subjectivity and risk of material misstatement on auditors’ internal audit reliance judgments. Accounting Horizons, 30(2), 225-238.
Brown, V. L., Dickins, D., Hermanson, D., Higgs, J., Jenkins, J. G., Nolder, C., … & Smith, K. W. (2019). Comments of the Auditing Standards Committee of the Auditing Section of the American Accounting Association on Proposed Statement on Auditing Standards (SAS) Audit Evidence. Current Issues in Auditing.