There are many problems involved in any hotel audit, some of which are peculiar to the hotel industry such as control of cash assume greater proportions. Almost all sales points in a hotel make both cash and credit sales. The auditor should reconcile the total sales reported with the total of the bills issued the sales point; this total may take the form of a bill roll or a series of numerically controlled bills. This numerical control must be checked to ensure that all bills are included in the total. The cash element of the sales must then be checked to the cash records and the credit sales in total and detail to the guest’s bills. The special problems in a hotel audit can be summarised as follows :
(1) Internal Controls – Pilfering is one of the greatest problems in any hotel and the importance of internal control cannot be over stressed. It is the responsibility of management to introduce controls which will minimise the leakage as far as possible. Evidence of their success is provided the preparation of regular perhaps weekly, trading accounts for each sales point and a detailed scrutiny of the resulting profit percentages, with any deviation from the anticipated form being investigated. The auditor should obtain these regular trading accounts for the period under review, examine them and obtain explanations for any apparent deviations. If the internal control in a hotel is weak or perhaps breaks down, then a very serious problem exists for the auditor. As a result of the transient nature of many of his clients’ records, the auditor must rely to a very large extent on the gross margin shown the accounts. As a result, the scope of his audit tests will necessarily be increased and, in the event of a material margin discrepancy being unexplained he will have to consider qualifying his audit report.
(2) Room Sales – The charge for room sales is normally posted to guest bills the receptionist or in the case of large hotels the night auditor. The source of these entries is invariably the guest register and audit tests should be carried out to ensure that the correct number of guests are charged for the correct period. Any difference between the charge rates used on the guests’ bills and the standard room rate should be investigated to ensure that they have been properly authorised. In many hotels, the housekeeper prepares a daily report of the rooms which were occupied the previous night and the number of beds kept in each room. This report tends not to be permanently retained and the auditor should ensure that a sufficient number of reports are available for him to test both with the guest register and with the individual guest’s bill.
(3) Stocks – The stocks in any hotel are both readily portable and saleable particularly the food and beverage stocks. It is therefore extremely important that all movements and transfers of such stocks should be properly documented to enable control to be exercised over each individual stores areas and sales point. The auditor should carry out tests to ensure that all such documentation is accurately processed. Areas where large quantities of stock are held should be kept locked, the key being retained the departmental manager. The key should be released only to trusted personnel and unauthorised persons should not be permitted in the stores areas except under constant supervision. In particular, any movement of goods in or out of the stores should be checked, it is not unknown for a full crate to be removed in error as an empty crate. Many hotels use specialised professional valuers to take and value the stocks on a continuous basis throughout the year. Such a valuation is then almost invariably used as the basis of the balance sheet stock figure at the year end. Although such valuers are independent of the audit client, it is important that the auditor satisfies himself that the amounts included for such stocks are reasonable. In order to satisfy himself of this the auditor should consider attending at the physical stock taking and carrying out certain pricing and calculation tests. The extent of such tests could well be limited since the figures will have been prepared independently of the hotel.
(4) Fixed Assets – The accounting policies for fixed assets of individual hotels are likely to differ. However, many hotels account for certain quasi-fixed assets such as silver and cutlery on stock basis. This can lead to confusion between each stock items and similar assets which are accounted for on a more normal fixed assets basis. In such cases it is important that very detailed definitions of stock items exist and the auditor should carry out tests to ensure that the definitions have been closely followed.
(5)Casual Labour – The hotel trade operates to very large extent of casual labour. The records maintained of such wage payments are frequently inadequate. The auditor should ensure that defalcation on this account does not take place suggesting proper controls to the management.
(6) Other points :
- For ledgers coming through travel agents or other booking agencies the bills are usually made on the travel agents or booking agencies. The auditor should that money are recovered from the travel agents or booking agencies as per the terms of credit allowed.
- Commission, if any, paid to travel agents or booking agents should be checked reference to the agreement on that behalf.
- The auditor should ensure that proper records re-maintained for booking of halls and other premises for special parties and recovered on the basis of the tariff.
- The auditor should verify a few restaurant bills reference to K.O.T.s (Kitchen Order Tickets) or basic record. This would enable the auditor to ensure that controls regarding revenue cycle are in order.
- The auditor should see that costs of renovation and redecoration are treated as deferred revenue expenditure, where as costs of major alterations and additions to the hotel building and facilities capitalised.
- The auditor should ensure that proper valuation of occupancy-in-progress at the balance sheet date is made and included in the accounts.
- The auditor should satisfy himself that all taxes collected from occupants on food and occupation have been paid over to the proper authorities.
- In large hotels it is usual to operate a booth to facilitate conversion of foreign currencies to Indian rupees. The auditor should ensure compliance with the various applicable provisions of Foreign Exchange Regulation Act, 1973 and the rules framed Foreign Exchange Dealer’s Association.