HAMG 1313- Front Office Procedures The Night Audit

1. HAMG 1313-Front Office ProceduresThe Night Audit

2. HAMG 1313Front Office Procedures Controls

3. Introduction • Control is the process of evaluating actual performance, comparing actual performance to goals and taking action on a difference between performance and goals • Much of the responsibility for control is delegated to the hotel’s accounting department • Successful hotel and lodging manager is able to decide which type of control system is most appropriate for his or her establishment • Controls can be grouped into three categories • Preliminary • Concurrent • Feedback Virginia Stipp Lawrence

4. Preliminary Control • Designed to identify what factors are essential in the selection of a hotel’s employees, vendors, materials and supplies that will become essential for the hotel to deliver to its guests the quality of services they expect Virginia Stipp Lawrence

5. Preliminary control of human resources increases the probability that the hotel will match its needs and the skills, abilities and attitudes of the staff that is hired Preliminary control of materials is the responsibility of the departments in which the materials are used Preliminary control of capital is the monitoring of the acquisition and utilization of capital Preliminary control of capital is done through the use of certain criteria Payback calculates the total number of years necessary for a proposal capital acquisition to repay its original cost Rate of Return divides any additional net income after taxes and depreciation by the original cost of the investment to measure its profitability Discounted Rate of Return takes into account the time value of money where the future value of the funds must be considered and discounted to today’s value Capital budget is used to plan the sources and uses of funds Preliminary Control (continued) Virginia Stipp Lawrence

6. Concurrent Controls • These are personal, on-the-spot observations by the General Manager, department heads and supervisors to determine whether ongoing business objectives are being pursued by their employees • What are some examples? Virginia Stipp Lawrence

7. Feedback Controls • Those which can give information about the progress of a business toward achieving financial goals • These are the controls I most often utilized • The most widely-used feedback controls in hospitality are financial statements and standard cost analyses Virginia Stipp Lawrence

8. Financial Statements Summaries of the assets, liabilities, equity, revenues and expenses of a hotel GM also needs to understand the standards of liquidity, inventory turnover and ability to meet short-term obligations Liquidity measures a hotel’s ability to meet current, short-term obligations as they become due (i.e., current ratio of assets to liabilities) Accounts receivable turnover is the ratio of credit sales to average accounts receivable; higher the turnover, the more rapidly accounts receivable can be converted to cash Inventory turnover is the ratio of the costs of goods sold to average inventory; a high inventory turnover indicates a low balance of goods, which means they are being consumer in large quantities by a hotel’s guests, while a low ratio may reflect over-investment in inventory Solvency is the ability of a hotel to meet is long-term obligations Standard Cost Analysis compares actual costs with estimated costs – if there is a large discrepancy management should take corrective action Feedback Controls (continued) Virginia Stipp Lawrence

9. Front Office Accounting • A system of vouchers, journals, ledgers and folios designed to flow a guest’s financial transactions and summarize outstanding balances into a running total • Beyond the scope of this course to get into the “nitty gritty” about front office procedures • The Uniform System of Accounts for Hotels was developed in 1926 and is used to keep all hotel accounting procedures similar – now called the Uniform System of Accounts Virginia Stipp Lawrence

10. Night Audit Hard position to fill Usually pays 10-25% above desk clerk hourly rate Provides up-to-the-minute statistics and financial statements so that management can make effective decisions regarding operations Staff in a full-service hotel may include several auditors depending on number of outlets, closing time of outlets and size of property Night auditors typically work the 11:00 p.m. – 7:00 a.m. shift, but not necessarily Audit of the guests’ accounts is the duty of the night auditor In a limited service hotel the night auditor is the manager, PBX operator, security guard, sales director, desk clerk and auditor Night auditor is responsible for the daily update of accounts receivable (continued on next slide) Front Office Accounting (continued) Virginia Stipp Lawrence

11. Front Office Accounting (continued) • Night Auditor (continued) • Accounts receivable • Posting of outstanding charges from all revenue centers • Verification and posting of room rates and taxes • Completion of day’s end balances by department; all totals must balance • Prepares reports such as Daily or SONA • Preparation of cash deposit • System backup • Resolution of room status problems Virginia Stipp Lawrence

12. Front Office Accounting (continued) • Front Office Cashier • Cashiering procedure involves opening the station, posting guest charges, accepting payments on guest accounts, posting city ledger charges, marking corrections, doing transfers, doing a bucket check, and closing the shift (balanced) Virginia Stipp Lawrence

13. Accounts Receivable • When a guest checks out and does not settle the account immediately with payment, a receivable is created • Charges are transferred by the accounts receivable clerk from the guest ledger to the city ledger • The accounting department creates a bill which is mailed to each guest having an outstanding account • A city ledger can include many sub-classes including employees, guests and house expense Virginia Stipp Lawrence

14. Accounts Payable • They are monies owed by the hotel to its suppliers, telephone, utilities, advertising, etc. • An accounts payable clerk is responsible for assigning vendor numbers to and maintaining up-to-date addresses on all suppliers • Makes a check-list of expenses accrued on a regular (usually monthly ) basis such as telephone, utilities, etc. to make sure these bills are not overlooked • Compare vendor statements and invoices for errors, such as omissions or discrepancies • Ensure that all payments go out before the cutoff date, or month-end Virginia Stipp Lawrence

15. A complete inventory, including both in-use and stored inventories, should be taken at least twice each year Prior to the inventory, a meeting should be scheduled by the Controller to go through specific duties, procedures, teams, etc. Work in teams to ensure honesty and integrity When doing linen inventory or glassware/silverware inventory, make sure process has a “stop point” so that items are not recounted or missed Accounting for Losses Loss can occur because of theft or damage All department heads should maintain records disclosing quantities and identification of damage over time During the inventory, any broken or damaged pieces spotted by the counter should be set aside – at no time should damaged inventory be included in the count Inventory Control Virginia Stipp Lawrence

16. Quality control is the assignment of checking quality to the last person involved in the preparation of a product or service Total Quality Control (TQC) or Total Quality Management (TQM) is a system for integrating the quality-development, quality-maintenance and quality-improvement efforts of the various groups in an organization to provide service at the most economical levels that ensure full customer satisfaction To practice TQC is to develop, design, produce and service a quality product that’s economical, useful and always satisfactory to the customer Concerns addressed by quality planning include: Establishing quality guidelines Building quality into all policies and procedures Procuring only quality products Ensuring in-process and finished product quality Following inspection guidelines Handling and following up on customer complaints Educating and training for quality Quality Control Virginia Stipp Lawrence

17. Quality Control (continued) • Principles behind TQC include: • Quality is what the customer says it is • Quality is a way of managing • Quality and innovation are mutually dependent • Quality requires continuous improvement • Quality involved a complete system connection customers and suppliers Virginia Stipp Lawrence

18. Summary • Controls are designed to evaluate actual performance, compare actual performance to goals and to take action on any differences • Controls are divided into • Preliminary, concurrent and feedback • Front Office Accounting is a complicated system of vouchers, journals, ledgers and folios in conjunction with night auditor work to keep everything in line and balanced • Night auditor is an important and intensive position to ensure balanced accounting • Accounts payable and receivable are also important in a hotel’s financial destiny • Inventory control helps keep the hotel successful and catch theft or excessive damage which can be costly • Total Quality Control (TQC) separates the great hotels from the average hotels Virginia Stipp Lawrence

19. Night Audit A daily comparison of Guest and Non-guest Accounts with Revenue Center Transactions Virginia Stipp Lawrence

20. Functions Of The Night Audit 1. Verify posted account entries 2. Balance all front office accounts 3. Resolve room status discrepancies 4. Monitor guest credit restrictions 5. Produce reports Virginia Stipp Lawrence

21. Night Audit The night audit focuses on two areas: 1. The discovery and correction of front office accounting Errors 2. The creation of accounting and management Reports Virginia Stipp Lawrence

22. Night Audit Audit Work Time • Time from beginning to end of night audit. • “End of Day” is when the audit begins. • Transactions received during this time are held and posted once the audit is completed. Audit Trail • Flow of source documents which details each step in the processing of a transaction. • Use cash register tapes as a cross-reference. Virginia Stipp Lawrence

23. Night Audit Bucket Check • Cross check folios with housekeeping report and room rack. • Make sure all occupied rooms are charged. Audit is complete when: • Totals for all guest, non-guest and departmental accounts are in balance. • If it is out of balance, you have to find it!! Virginia Stipp Lawrence

24. Night Audit Process 1. Complete Outstanding Postings • First step in the night audit process • Post all transactions before “End of Day” 2. Reconcile Room Status Discrepancies • Perform a Bucket Check • Errors can lead to lost revenue • Not a problem in fully-automated hotels Virginia Stipp Lawrence

25. Night Audit Process 3. Balance All Departments Trial Balance - Balance front office accounts with departmental transactions. 4. Verify Room Rates & No-Shows Room Revenue & Count Report • Compares rack rate to actual rate No-shows • Check Duplicates and Misspellings Virginia Stipp Lawrence

26. Night Audit Process 5. Post Room & Tax Semi-automated system • Post room & tax separately for every room 6. Prepare & Distribute Reports • Distribution of reports is the final step in the night audit process. 7. Clear or Back-Up the System • Clear = Semi-automated system • Back-Up = Fully-automated system Virginia Stipp Lawrence

27. Night Audit Reports Department Detail & Summary Report • Verifies that all transactions were properly posted High Balance Report • Identifies guest and non-guest accounts that are approaching the hotel’s credit limit. Daily Operations Report • The most important outcome of the night audit. • Summarizes the day’s business and provides hotel operating statistics. Virginia Stipp Lawrence

28. CityRoomsOccADR Las Vegas 120,294 88.1% $67.03 Orlando 94,281 78.3% $85.97 LA/LB 80,706 70.5% $88.99 Atlanta 75,318 67.2% $78.74 Chicago 73,424 70.9% $107.16 U.S. Lodging Statistics Virginia Stipp Lawrence

29. Common Errors Corrected During The Night Audit Balance Pickup Errors • Incorrectly enter the folio’s previous balance • Does not happen with fully automated systems Transposition Errors • Transaction numbers are reversed • Post $25 instead of $52 • Subtract numbers and divide by 9 • 52 - 25 = 27 • 27/ 9 = 3 (Whole number) Virginia Stipp Lawrence