Internal Audit

Internal Audit Checklist for Hotels

Internal Audit Checklist for Hotels

Hotel Industry is one of the fastest-growing industries in India. This is one special type of industry which will never cease to exist because whatever travelling will not stop, no matter what. People will keep shifting and travelling to different cities for different pieces of work. India is also a hub for tourism, so we also have a lot of foreigners coming to visit our country. Hence, the hotel industry has become a huge source of revenue generation in the nation. So, a proper check is required on the hotels to see if they are following the norms set by the country and paying taxes on time or not.

Internal Audit Role in the Hotel Industry

The internal audit enables to check off the high-risk areas with a special focus on adding value and constant improvement. It assists in executing long and short-term audit plans. For this purpose, audits shall be executed in a planned and systematic manner.

The preparation of audit schedules is done, the discussion notes are prepared, and the final audit reports are accordingly prepared. In order to reduce the possibility of fraud, procedures should be established to protect the assets. Under the guidance of the Manager of Corporate Governance, the execution of various projects is completed. Through online tools, the compliance framework is managed. The key risks are identified by the continuous monitoring of the KPIs. The meetings are scheduled with the functional heads and key stakeholders on a monthly basis in order to understand and identify the key risks. The internal audit also checks the risks and policies of the enterprise. Value is added by conducting IFC and taking the audit reviews.

Documents to be verified

There are many different roles of an auditor in hotel audit, as explained below-

To verify Cash sales

The hotels which have no lodging facilities, the entire sale there is on a cash basis. So, the internal checks must be very efficient, and they should ensure that sales are regularly accounted for. A series of manual bills or electronic billing machines may be used. An Internal check ensures the report is prepared for daily sales and it coincides with the total of the bill roll.

Credit sales verification

The supporting documents for credit sales are the guest bills. In the reception wing of the hotel, the guest bills are prepared. These bills should contain the room service charges, rent of the rooms, laundry, etc. The register maintained for the guests shall contain information regarding the nature of the occupied rooms, how many days the guests are staying, and the number of persons who have occupied the rooms. The internal check must also ensure the daily reporting of the rooms occupied in the previous night, along with the number of persons who have occupied the room. This report can be prepared by the housekeeper, who does not have any control over the accounts department.

The auditor shall cross-verify the guest register and bills of their room occupancy. The cash books verify the collection of the cash collected from the guests. Verification of the cash book against the guest bills shall confirm the collection of cash from the guests. The auditor shall ensure that the bills are duly authorized. It is also the duty of the auditor to ensure that the tax which is charged in the guest bills is duly remitted to the concerned tax authorities.

Stocks verification

The probability of the pilferage of food items is actually high because of their nature. Hence, the stock movement records should be maintained in a very accurate manner. So, in order to avoid pilferage, the internal control procedures must be clearly maintained. Wherever the stock is kept, unauthorized entry of the people should be prohibited. The issue and receipt must be done under the effective supervision of responsible persons.

At the time of the physical verification of stock, the auditor needs to ensure his presence. An auditor can also rely upon the valuation, which is carried out by professional valuers in case he/she believes that the methods and procedure of valuation of items are suitable to the nature of items.

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Verification of the Payments made to the Travel Agents

Some hotels operate in different ways; their bookings for rooms, halls or parties take place through similar agencies that conduct the same. The auditor should make sure that the due amount is collected within the consented period. At the time of verifying the commission which is being paid to the agents, it must be ensured that the commission is according to the agreement that is made between the agent and the management.

Verification of Payment made to Laborers

The turnover of labour is very high in the hotel sector; hence, the number of casual labourers who are employed has increased. At the time of festivals and parties, the labourers are employed for a few hours also. If the records that are maintained relating to wage payments are inadequate, then the probability of cash misappropriation becomes very high. The auditor must insist on the maintenance of wage records in a proper manner and also implement adequate control mechanisms.

Assets verification

In addition to the usual assets like land and building, furniture, vehicles, plant and machinery, etc., in the hotels, the semi-fixed assets, for example, cutleries, blankets, and curtains are accounted for and controlled. The accounting method for these special items shall be prescribed by the auditor, and he must ensure that the recommended method is also complied with by the management team.

Miscellaneous items verification

Many hotels maintain a separate counter for exchanging foreign currencies for Indian currency. In this scenario, it is the duty of the auditor to ensure that the requirements of statutes for such conversions are met.

The auditor must check that the occupancy in progress on the date of the balance sheet is accounted for and valued. The auditor can also investigate the financial statements by making a comparison of the food cost, the occupancy ratio and the ratios applicable to the hotel industries.

Types of Hotel Audits

The travel managers have to spend a lot of time negotiating the rates and setting up their hotel programs. But, this laborious process still doesn’t assure accuracy. All the work can be jeopardized in case of errors. Examples of this include incorrectly loading the rates of hotels, commissions and policies for cancellation. The internal audits on hotels help to fix these issues, and they also provide benefits like saving the company’s money, etc.

Audits also provide travel managers and travellers peace of mind because now they know all the aspects of their program. At the same time, it is also important to understand all types of hotel audits and the differences between all of them.

There are seven types of Hotel Audits, which are defined below:-

  1. Rate Availability Audits- These are the most common types of hotel audits. It exists to keep a check on the rates, agreement terms with the suppliers, etc. This audit also validates that the rates are loaded on specific dates at the right price. The rates must be available on specific dates so as to enable the travellers to have access to these prices when needed and to book at the prevailing and negotiated prices.
  2. Rate Load Audits- As the name itself suggests, the rate load audits investigate the fact that the rates are uploaded into the system or not. In a GBTA study that was conducted to find out existing scenarios of the rate loads, it was discovered that the rates were loaded incorrectly 16% of the time; a third of respondents also detected errors and inaccuracy for more than 20% of the time.                      Rate load audits also help in order to confirm that the rates are entered into the designated GDS properly. Because errors might occur at the time of loading, or rates might be uploaded before the rates are officially negotiated. One can also review if the loaded rates into the GDS are the best rates or not. The rate load audit also assists in knowing about the discounted and static rates for blackout and seasonality dates.
  1. Rate Parity Audits- It is the practice of maintaining compatible rates for the same room types through all the distribution channels like OTAs (Online Travel Agencies) or hotel websites, third-party channels, etc. It also compares the negotiated discounts for specific properties. It helps to validate that no other consumer site is offering rates which are lower than your negotiated rates.
  2. Amenity Audits- The travel managers have to check whether the negotiated rate amenities are uploaded into the system or not. These amenities should also be available to travellers as per the promise made to them. If the travellers are unable to view the amenities as promised over the portal, it can cause frustration in them, and they might choose to opt for cancellation.                     In an HRS and GBTA survey of around 23k hotel rates, it was discovered that in 16% of the rates, a breakfast that was supposed to be included was not included, or it was listed at a higher cost than what was negotiated. Amenity audits also ensure that the negotiated amenities are included within the negotiated rates and they also prevent the travellers from paying extra costs for the amenities which are not even loaded like breakfast, parking and wifi etc.
  1. Cancellation Audits- A cancellation policy means the time period in which the hotel requires a traveller so that he/she can cancel the booking at an appropriate time before they are charged for the same. Generally, the window for cancellation ranges from 24 to 72 hours. In order to prevent unnecessary cancellation fees, this type of audit confirms whether the negotiated policy is correct and loaded timely. The cancellation audit verifies that the approved cancellation timeframes are noted in the GDS or not.
  2. Bar Audits- The BAR stands for the ‘Best Available Rate’. It is the lowest rate which is offered by the hotel. It can change weekly or maybe multiple times a day. The best available rate audits allow travellers to capture the best rate that is available at the preferred hotel property.              There are auditing platforms that allow for the inclusion of alternate property rate benchmarking. It gives you the chance to capture the BAR rates from different hotel properties existing in the same tier with the same amenities and room types.
  3. Reverse (Squatter) Audits- It checks for the rates that were loaded in the GDS but they were not approved by the company in the first place. In this way, such type of fraud is detected. The squatters, or non-preferred properties, may enter rates into the program, which are disguised as the preferred client rates, or some hotels may also upload rates into your system even before they are accepted to the program.            The unapproved rates take the business away from the negotiated properties. It also alters the Duty of Care Plan and negotiates the overall savings. These audits also help so that one can remove them from the GDS and help the travellers not book these properties where the negotiated rates do not align with what is uploaded.
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Areas of Revenue Generation in Hotels

Room Rent

It is one of the most revenue-generating points in the hotel industry. By using the accounting software, the billing is done. For example, most of the hotels use PMS software, which is really popular in the hotel industry. This type of rent is charged on the basis of the fixed tariff as per the category of room. Certain discounts may also be offered to the customers, and it depends on various factors like holidays and seasons, etc. Sometimes, special discounts are also offered to different sections of people like delegates and students and VIPs etc. For some special guests, complimentary rooms are also provided. Because the celebrity residence really increases the reviews of the hotels.

Revenue from Food & Beverages

The below-mentioned points should be taken care of while examining the revenue obtained from foods & beverages-

The sales are divided into types at the restaurants, these are to the resident customer and to walk-in customers. The sale which is made to the resident customer should be recorded in the combined bill whereas a cash receipt should be issued for the sales made to the walk-in customers. As per the applicable rate, VAT or the value-added tax should also be charged.

Food & Beverages Revenue from Minibar

The auditor should also verify the revenue generated from the minibar. It is the little fridge that is placed in the rooms of the guests in branded hotels. A lot of hotels keep the minibar stocked with food items, liquor, etc. The billing for these items is made by making the guests fill out a self-declaration form kept in the minibar for this specific purpose. The attendant who has been assigned the duty checks the consumption and bills.

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Revenue from Banquets

Usually, the rate which is offered is a composite price for food and beverages including the rent of the hall. These composite rates are based on per person. Now, let’s say the actual cover falls below the contracted rate, and then the billing is done on the minimum guaranteed cover.

Revenue from Telephone & Internet

Who does not use mobile phones these days? They are also a huge source of revenue generation in the restaurants and hotels. An auditor needs to carefully verify the telephone bills that are charged through the EPABX system and the internet services that are charged through the internet service-providing system. Service tax is charged for the internet services. In states like Kerala, a Luxury tax is charged on telephonic bills.

Applicable Laws

There are laws that are applicable specifically to the hotel industry.

Applicable lawsSubjectLevy on
Service TaxCentral ActOn dry cleaning services, room rent
Luxury Tax ActState ActThe rent for luxury that is provided
State Excise ActState ActOn the service of liquor
Food Safety & Standard Act, 2006Central ActFor the quality of food, etc
Central Excise ActCentral ActOn cakes and pastries
VAT (Value added tax)State ActOn foods and other goods
Contract Labour (Regulation and Abolition) ActCentral ActOn the employment of contract labour

Conclusion

As we have seen above, the hotels occupy a great place in the area of revenue generation for the nation. By properly utilizing the tax and revenue collected from the hotels, we can use this money to increase the efficiency of the other crucial sectors of the country. Owing to the high population of the nation, we are always engrossed with several issues that we need to fix in time, like poverty, corruption, etc. When proper auditing is ensured and conducted, we can get a lump sum amount to address the other issues in the country.

FAQs

  1. What is an internal audit in the hotel industry?

    Internal audit in the hotel industry refers to the checks and investigation of the revenue that is generated from the hotel industry.

  2. What is meant by internal audit?

    It is the evaluation of the internal controls and mechanisms of an industry, which includes the accounting processes.

  3. What is an internal audit in the industry?

    Internal audit in the industry refers to the checks on the accounting processes and the internal controls of the industry.

  4. What are the 3 types of internal audits?

    The main three types of internal audits are financial, compliance, and operational audits. 

  5. What is the role of the internal audit?

    It reviews and analyses the company’s data and financial documents.

  6. What is the checklist for hotel audits?

    It includes checks on the amenities and services that are provided by the hotels. For example, the register is maintained or not about the guests, the food that is to be provided to the guests, the cooling facilities like AC, etc.

  7. How do I make a checklist for a hotel?

    The checklist should include taking a room out of order, disinfecting the guest areas, or checking the freshness of the food items that are being served.

  8. What is a guest room checklist?

    It assesses the different aspects of a guest room, which includes the lighting of the bathroom and the entrance door.

  9. What is the housekeeping checklist?

    The housekeeping checklist includes whether the windows are cleaned, the counters and sinks are cleaned or not, etc.

  10. How do I make a housekeeping checklist?

    A housekeeping checklist contains the cleaning of the refrigerator,  oven, and microwave, emptying the garbage, dusting the kitchen light, etc.

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