FPP Blog Series: Issue 19: Common Errors in Pharmacy Accounting Systems

Blog Post

Date: 12 October 2017

One of the most important aspects of running a business, especially community pharmacy businesses, are the financial and accounting systems.

Owners base decisions on this data, as do banks, valuers, future partners and owners, the Australian Taxation Office etc. So many people are making important decisions on this data. With this in mind it is imperative the financial and accounting systems you employ in your business are accurate and thorough.

To help pharmacy owners we will be going through the top errors commonly found in pharmacy accounting systems.

1) Stock Movements not considered – a common element missing on most internal accounts is the monthly movement in stock values. Considering the size of the investment most pharmacies make in stock, it would make sense this is managed and measured regularly. This can have a big impact on the assessment of any pharmacies performance and is a vital component.

The question is how you measure Stock on Hand (SOH) at any given time. Some pharmacy owners will base the stock on hand value on the Point of Sale system data. Others will base stock movements on a defined Gross Profit margin with regular adjustments to the physical stock takes. Either method has positives and negatives.

2) Inaccurate recording of closing stock values - Your Point Of Sale (POS) system can give you Stock on Hand reports which provide you with a stock value, but the accuracy may be questionable. Many experienced owners and pharmacy accountants will tell you their SOH reports are notorious for being inaccurate, unless strict data management is performed. Poor POS housekeeping can produce negative stock counts (understated) or stock numbers well higher than what is on the shelf (overstated). There are been many examples of businesses presenting accounts based on a POS stock value that bears no resemblance to what is on the shelf. The pharmacy owner and manager must ensure this is managed properly to ensure accurate financial data.

To ensure your POS stock counts are correct you must undertake regular stock takes. We would suggest twice a year. One must be at 30 June and the other half way through the year. 31 January is usually a good month to do so. By undertaking regular stock takes and updating the POS stock counts you not only have a more reliable stock reporting systems but you also have more reliable financial reports.

3) Customer Debtors not reconciled – many pharmacies have customers with accounts that they maintain, yet their financial systems and reporting may not properly account for this. Proper financial systems would ensure customer debtors are reconciled each month and taken up in the financial records of the business. Also like stock management, the customer debtor’s system also needs to be managed properly to ensure the outstanding balances are correct and recoverable. Talk to your accountant about how to deal with those amounts that are not recoverable (bad debts).

4) PBS Debtors – another item that is often not taken up is the PBS amounts owing at the end of any given month. Again, this can be quite a large amount and is a fundamental component of pharmacy income. These monies represent amounts owing to the business and should be treated as an accrual, no different than Customer Debtors.

5) Scripts Owing – those pharmacies that deal extensively with residential care facilities often have large numbers of scripts owing from doctors. Outstanding owing scripts can become a significant problem from a cash flow perspective. Of course besides the outstanding PBS funds, pharmacies leave themselves at risk of regulatory issues if the owing scripts are not received by the prescriber in a timely manner. Ensure the value of the scripts owing are identified and recorded in the financial accounts monthly.

We will explore this topic further next week. The important issue here is some financial systems are lacking in accuracy and completeness. It is advisable for pharmacy owners to seek the right advice from an experienced pharmacy accountant before making any changes to their financial systems. You should also ensure your financial systems and data recording protocols are accurate.
Pharmacy owners are making significant financial decisions based on this data, as are their bank managers, accountants and financial advisers. It is vital these processes are improved by regular review and reconciliation of discrepancies.

Written by John Thornett FCA CTA, Director, Peak Strategies Pty Ltd.

Every effort has been made to ensure that the information and/or advice contained in these pages are free from error and/or omission. You should seek your own advice prior to acting on any information contained within these pages. No responsibility can be accepted by the Pharmacy Guild of Australia or its employees involved in the preparation of these pages for any claim which may arise from a person acting on information and/or advice contained herein.

Contact: Andria Aird
Phone: 08 9429 4100

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Page last updated 12 October 2017