Key Insights for Accountants, Internal Auditors & Business Owners
Pharmacies are some of the most vulnerable retail businesses in Kenya. Drugs expire, stock disappears quietly, prices are easily manipulated, and supplier fraud can drain margins without detection. When we audit pharmacies at Aura & Co, our focus is simple: seal leakages, strengthen controls, and protect profitability.
Below is a refined audit framework that blends practical field insights with structured audit methodology.
- Understand the Pharmacy Workflow
Before carrying out any audit procedures, map out how the business operates. Clarity at this stage defines the quality of the entire audit.
Key areas to understand:
- Sales channels: Cash, M-Pesa, insurance, and POS billing
- Drug categories: POM (Prescription Only Medicines), OTC, supplements, medical consumables
- Inventory flow: Ordering → Receiving → Storage → Dispensing → Expiry monitoring → Returns
- Roles & access rights: Pharmacist, cashier, store clerk, buyer, supervisor
- Pricing systems: Who sets prices? How are mark-ups applied? Is there approval for changes?
A clear process map = a targeted, efficient audit.
- Identify High-Risk Leakage Points
Pharmacies lose money mainly through:
- Unrecorded or under-recorded sales
- Unauthorized discounts and voids
- Stock substitution (switching expensive drugs with cheaper brands)
- Expiry write-offs and poor stock rotation
- Fake, inflated or duplicated supplier invoices
- POS vs Cash/M-Pesa mismatches
Your task: test every point where drugs or money can disappear.
- Audit Sales, Dispensing & Revenue
Sales audits in pharmacies must be detailed. Key tests include:
- POS vs actual cash/M-Pesa reconciliation
- Match prescriptions to items dispensed to detect substitution or unbilled sales
- Review voids, returns, manual price overrides, and discounts
- Check sales patterns across shifts and staff
- Verify insurance claims (if applicable)
Red flags:
- Frequent voids
- Missing deposits
- Manual price changes
- Sales spikes/declines when specific staff are on shift
- Audit Inventory – The Heart of Pharmacy Losses
Inventory is the most sensitive area.
What to audit:
- Physical stock counts (scheduled and surprise)
- Expiry analysis and write-off approvals
- Movement of high-risk drugs – antibiotics, injectables, ARVs, controlled substances
- System stock vs physical stock reconciliation
- Stock rotation practices (FEFO)
Most pharmacies leak money through expired drugs, pilferage, and poor record-keeping.
- Review Procurement & Supplier Management
Procurement fraud in pharmacies is common yet subtle.
Validate:
- Price lists and supplier agreements
- Inflated invoices vs market rates
- Payments for goods not received
- Duplicate invoices
- Unauthorized suppliers or purchases
- Segregation of duties (ordering vs receiving)
A strong procurement review usually exposes hidden leakages.
- Cash, M-Pesa & Bank Reconciliations
Daily reconciliation is non-negotiable.
Review:
- POS sales vs banking slips
- M-Pesa statements vs POS records
- Petty cash usage and approvals
- Reconciliation timeliness
You are looking for:
- Unbanked sales
- Staff holding money overnight
- Timing differences
- M-Pesa skimming
Good pharmacies reconcile every morning without fail.
- Staff & Payroll Audit
Staff fraud is more common in pharmacies than owners expect.
Verify:
- Existence of staff on payroll (no ghost workers)
- Shift attendance vs dispensing activity
- Overtime claims
- Stock movements linked to specific staff
- Access rights in the POS/management system
Patterns such as “missing expensive stock only when X is on shift” are critical audit findings.
- Strengthen Internal Controls
After identifying gaps, recommend measures such as:
- A robust Pharmacy Management System (PMS) with user rights
- Daily stock & sales reconciliation
- Restricted access to high-value drugs
- Weekly monitoring of expiries
- Supplier vetting and approved supplier lists
- Clear pricing policies and approval levels
A well-controlled pharmacy is predictable, profitable, and easy to manage.
Read also about Top 5 Missed Tax Deductions for Kenyan SMEs
- Technology & Automation – The Game Changer
Modern pharmacies thrive when they automate:
- Inventory tracking
- Expiry alerts
- M-Pesa integration
- Multi-branch reporting
- Daily sales dashboards
- E-prescription and dispensing logs
Automation significantly reduces fraud and human error, making audits smoother and more accurate.
The Outcome?
A pharmacy that is:
- Streamlined
- Controlled
- Profitable
- Transparent
- Audit-ready throughout the year
If your pharmacy is struggling with shrinkage, expired stock, POS discrepancies, procurement fraud, or weak record-keeping, Aura & Co can help you audit, automate and strengthen your systems so you can focus on serving customers and growing sustainably.