Hotels operates round the clock, non-stop. So a system must exist to review the accuracy of the account- ing records which can be classifi ed as of guest and non-guest. An audit process is meant to fulfi ll this need. The audit is a daily review of guest account transaction recorded at the front desk against revenue centre transactions. This routine work guarantees the accuracy, reliability and thoroughness of the front offi ce accounting. The front offi ce audit also includes non-guest accounts. A successful audit helps in:
Balancing guest accounts Balancing non-guest accounts
Preparing accurate account statements
Maintaining appropriate account credit monitoring Timely preparation of reports
The front offi ce audit is normally called the night audit, hotels generally perform it during the night.
During late evening or night most of the hotel outlets, if not all, are closed and allows the audit jobs to be performed without any hindrance. The daily charging period of hotel is the hotel day or otherwise called accounting day. The night closes the books on one hotel day and opens on the other.
Importance of Night Audit
The night audit is the control process whereby the fi nancial activity of guests’ accounts are maintained and balanced. This process tracks charges and payments (debits and credits) and the departmental re- ceipts and charges, on a daily basis. This working defi nition encompasses not only the mechanical proof- ing of totals of charges and payments but the further review of account activity by the management . The front offi ce manager will be able to monitor the credit activity of guests, project daily cash fl ow from room sales and monitor projected and actual sales for the various departments.
Learning the process of the night audit can provide valuable information for someone who plans to continue in the hotel industry. It will also provide the necessary objective overview to evaluate the hotel’s fi nancial activity. Students will become aware of the role of the general manager, as the night audit allows a review of all the fi nancial activity that takes places in a hotel in one day. Based on that review, the general manager must determine how it should be adapted to meet the expenses and profi t goals for the accounting period. It also allows the general manager to see if marketing plans and operational activities have accomplished their stated profi t goals. The night audit provides insight into how each department must be monitored to produce an acceptable income statement. It pulls together the plans and operations of a hotel on a daily basis, not just at the end of an accounting period. Ultimately, the night audit allows general managers to make good fi nancial decisions based on current and cumulative data.
Functions of the Night Audit (Night Auditor)
The night audit is concerned with the following functions:
Verifying posted entries to guest and non-guest account Balancing all front offi ce accounts
Resolving room status and the discrepancies
Monitoring guest credit limits and identifying high balance accounts Producing operational and managerial report
The night auditor should be familiar with accounting details, the operational procedure and the guest credit restrictions. The night auditor prepares a daily summary of cash, cheques and credit card transactions that occurred at the front desk. He also prepares various operating statistics like occupancy percentage, room revenue, etc. All these data refl ect the front offi ce’s fi nancial performance of a day. The night auditor summarizes and reports the results of operations to the front offi ce manager and these data are used to prepare various statistical analysis.
Establishing ‘End of Day’
Front offi ce department of a hotel must decide a time which is considered to be the end of its accounting day or hotel day. An ‘End of Day’ is simply an arbitrary stopping point for the business day. The front offi ce must establish an End of Day so that the audit can be considered complete through a specifi c and consistent point of time. Usually, the closing time of various revenue producing outlets or when there are least activities is considered to be the end of day, immaterial of the hour of the day. The period when the accounting day ends and until the audit work is complete, is called audit work time.
Cross Referencing
Various departments of hotel classify and record all the transactions as cash, credit (charge) or paid-out.
They are posted to guest and non-guest folios. A voucher is used to communicate transactional infor- mation. Transactional documentation is important to have accurate records and effective control and is the basis for data input for front offi ce accounting system. For control purposes and accounting system, they should have supporting documents to verify each transaction. Various supporting documents such as restaurant bills, guest folio, etc. provide cross reference information. Night auditor checks room rate postings on bill folios against the housekeeping report of occupied rooms and front offi ce room rack.
This is called bucket check. Similarly, F&B postings to bill folios and non-guest folios are based on vouchers sent to the front desk. The cross reference is done with the help of the F&B sales summary.
The review of daily postings confi rm the accuracy of front offi ce accounts to the records of revenue producing departments.
Account Integrity
Internal control helps to perform audit job accurately. It is an internal control that no single person should be responsible for accounting of all transactions. If a single person is responsible, then mistakes will not be detected. That is why auditing is not done by the person who posts various transactions. The audit process is complete when the totals for all the guests, non-guests and departmental accounts are proven correct and all are in balance. Auditing is considered incomplete as long as it presents an out of balance position. In this case, a thorough checking of all accounts statement, supporting documents, vouchers and departmental documents are very essential.
Guest Credit Monitoring
The credit monitoring depends on factors like fl oor limit, house limit, reputation of guest and status of a guest as a potential credit risk. At the close of each accounting day, the night auditor should identify those accounts that have reached or crossed the credit limits. These accounts are called high balance accounts. A report listing these accounts is called high balance report.
Audit Posting Formula
Previous Balance (PB) + Debits (DR) Credits (CR) = Net Outstanding Balance (NOB) PB + Charges – Payments Received = NOB
Suppose a guest has Rs 20000 as his previous balance on a particular day. On that day, he has availed services and facilities worth Rs 3000, and made payment of Rs 15000 at the front offi ce cash. At the end of the day, the net outstanding balance of that account will be follows:
Rs 20000 + Rs 3000 Rs 15000 = Rs 8000 Daily and Supplemental Transcript
A daily transcript Visitor Tabular Ledger (VTL) or Guest Ledger Transcript (GLT) is used as a detailed report of all guest accounts (see Fig. 4.40). It indicates those guests’ accounts that had some transactional activity during the day. A supplemental transcript is used to record the day’s transactional activity for non-guest accounts. Together, the daily and supplemental transcripts detail all transactions of the day.
Indian Hotel Visitors Tabular Ledger Date:_____________
Room No.
Name No. of Person GRC No.
Arrival Time Departure Time Rate
Plan Breakfast Lunch Tea/Coffee Dinner Snacks Soft Drinks Alcoholic Beverages Tobacco
Telephone Laund ry VPO
Miscellaneous Transfer Daily Total Balance B/F Dr.
Cr.
Grand Total Dr.
Cr.
(Less) Deposit (Cash) Allowances Ledger Transfer Balance C/F Dr.
Cr.
Total Dr.
Cr.
Fig. 4.40 Visitors tabular ledger
Night Audit Procedure
The main objectives of night auditing are as follows:
Correction of the front offi ce accounting errors, if any, and Creation of Accounting and Management Reports
In the night audit process, various accounts are compared with the source documents and entries.
Discrepancies found must be corrected so that front offi ce accounting system is in balance.
The various steps of night auditing are as follows:
1. Check posting: It is the duty of the front offi ce staff to post various transactions onto the proper folio as and when they arrive at the front desk. The night auditor must confi rm about the post- ing before starting the audit process. Charges posted with wrong date will confuse guests and complicate cross referencing. Incomplete posting will result in errors in account balancing and
complicate summary reporting. To verify this, the night auditor checks all vouchers and their postings on the proper folios.
2. Reconcile Room Status Discrepancies: Errors in room status can lead to loss of revenue, con- fusion at front offi ce, uncontrollable room revenue or omission in posting. The night auditor reconciles discrepancies between housekeeper’s report and the front offi ce room status report. If the housekeeper’s report says that a room is vacant while the front offi ce report does not say so, then the possibility can be as follows:
Guest has departed and forgotten to check-out Guest might be a skipper
Front offi ce cashier must not have closed the folio properly at check-out
If such situations arise, then the night auditor closes the folio and keeps it aside for front offi ce man- ager to review and follow-up.
3. Verify Room Rates: The night auditor completes a room revenue and count report. This shows the rack rates and selling prices of rooms. If a discount is given, the night auditor considers the following factors:
Whether the discount rate is correct or not as per the policy of the hotel.
Is that a shared reservation?
If the room is given on complementary, he checks back-up documents.
This report forms the basis for Room Revenue Analysis.
4. Balance All Departments: The night auditor balances all revenue-producing departments using source documents. He balances all the front offi ce accounts against departmental transaction in- formation. Vouchers received at the front desk are totaled and compared with departmental sales summaries. When the front offi ce accounting system is out of balance, the correctness and thor- oughness of accounting postings must be investigated. A detailed department audit is conducted and individual posting reviewed until the front offi ce account error is corrected.
Note: Mathematical balance in guest accounts against departmental totals does not necessarily mean that the proper accounts were selected for posting. Posting the correct amount in an incor- rect account would still present an in-balance total. This type of error usually goes unnoticed until a guest has a problem with validity of an entry in the statement.
Departmental Balancing Sequence:
1. Sort vouchers by originating departments.
2. Consider each department’s vouchers separately (a) Separate correction vouchers
(b) Total the corrections
3. Verify corrections. The total of correction vouchers should tally with correction fi gures on the front offi ce shift report.
4. Consider the vouchers again.
(a) Total the rest of the outstanding vouchers.
(b) Check individual transaction values on the bottom of the vouchers against the fi gure on the departmental report.
5. The vouchers should tally with the department’s fi gures. If it does not tally, the error should be resolved.
(a) Verify date: It should be correct date (current days date).
(b) Check individual posting against supporting document.
(c) Post any additional corrections or adjustments.
6. All of the back-up data should be for the accounting department to review.
5. Verify No-Show Reservations: The night auditor is also responsible for fi ling and posting charg- es to no-show account. This should be done very carefully as at times a duplicate reservation is done or a separate data is created as the name of the guest was misspelled at the time of reserva- tion. At times, if cancellations are not recorded correctly, guests might be billed incorrectly.
6. Post Room Rates and Taxes: Posting of room rates and taxes take place at the end of day. After these are posted, a room rate and tax report is generated for the front offi ce manager to review.
7. Prepare Reports: The night auditor prepares reports that indicate the status of the front offi ce activities. The reports which are prepared by the night auditor includes the following:
Final Departmental Detail and Summary Report Daily Operations Report
High Balance Report/High Risk Report Group Occupancy Report
VIP Occupancy Report
Final departmental detail and summary report is prepared to check if the transactions were cor- rectly posted. The daily operations report is very important as it refl ects into revenues, receiv- ables, operating statistics and cash transactions related to the front offi ce. The group occupancy report consolidates the groups, rooms occupied by them, number of group members, revenue generated by them, etc. In addition to these, some other reports specifi c to the property are also generated.
8. Deposit Cash: The night auditor prepares a cash deposit voucher as part of the night audit pro- cess. He compares the posting of cash payments and paid-outs with actual cash in hand.
(Cash payment by guests – Paid-outs = Cash in hand)
9. Clear or Back-up the System: In front offi ce accounting system, totals must be cleared at the end of day. This is done by simply moving the closing balance from night audit report to the opening balance of the next day’s report. In mechanized system, the account is brought down to zero and this is controlled by the night auditor. Sometimes a separate card called the Z-Card is used to verify this, which is attached with the night auditor’s report. In computerized system, a back-up is copied on a storage device and stored safely.
10. Distribute Report: Since the front offi ce information is sensitive, the night auditor must deliver reports to authorized individuals. The distribution of the night audit reports is the fi nal step of night audit process, and it is important to front offi ce operation. Important managerial decisions can be made if all night audit reports are completed accurately and delivered on time.
Goal of Preparing the Night Audit Report
Students studying hotel front offi ce management may ask, ‘Why should the night audit report be pre- pared?’ It offers a massive amount of daily operational fi nancial feedback that provides an immediate opportunity for managers to react and respond. The night audit report is the key in maximizing the ef- fi ciency of a hotel. The daily fi gures regarding room occupancy, yield percentage, and average daily rate provide managers with daily opportunities to improve a slow sales period. Guests who demand an accurate folio complete with guest charges can be helped more effi ciently as a result of this process.
As you begin your career in the hotel industry, take the opportunity to review the fi nancial statistics generated by the night audit report. It will provide a capsule review of the importance of departmental fi nancial activities and their role in delivering hospitality. This background will also provide you with an insight into the decision-making process, which in turn helps various departments adhere to their budgets.
Duties and Responsibilities of Night Auditor
The night auditor is an offi cial of the hotel who performs certain audit functions in respect of the revenue accounting. This audit function is carried out in the night and that is why the incumbent is known as the night auditor. The night audit is performed in the night because the guests’ accounts and the departmental sales accounts and records are closed and submitted at midnight. Moreover, all the restaurant bills, re- cords, vouchers and documents become free and can be made available for auditing in the night as there is less of activity in the Front Offi ce at that time. The functions of a night auditor are as follows:
1. Room Audit: The room sale of the hotel is checked with the help of the following records and documents:
(a) Guest Registration Card.
(b) Guest Arrival Sheet: Arrival–Departure Register (c) Guest Departure Sheet: Arrival–Departure Register (d) Housekeeper’s Report
(e) Night Receptionist’s Room Sales Report
The night auditor is to ascertain the total number of various types of rooms sold during the day and compare the same with the total amount of room revenue reported and accounted for. In case of discrepancy, he has to check each guest account to fi nd whether the room charges have been posted correctly. He is also to see whether each room sold has been duly charged.
2. Audit of Departmental Credits: The hotel has several sales outlets such as restaurants, bars, room service, telephone, swimming pool and other minor operational departments. Each credit sale in each of their departments is charged to the guest account in the front offi ce. Each credit voucher raised by the departments is simultaneously posted to guest bill folio and to the debit of guest account maintained through either visitor’s tabular ledger or through any mechanical system. At the end of the day, the night auditor should ensure that the total credits as per the de- partmental sales summary tally with the departmental credit totals of the tabular ledger or that of the machine balances. In case of discrepancy, he has to check the posting of each credit voucher and reconcile the departmental credits.
3. Checking the Brought-Forward Account in Guest Account: The night auditor verifi es all the brought forward balances of guest accounts with the corresponding carry forward balances of the previous day. He has to check each guest bill in the process.
4. Checking the Credits to the Guest Account: The guest account can be credited by allowances, cash payments or transfer to city ledger. The total amount of allowances, cash payments and city ledger transfers as per guest accounts (i.e., either as per machine balance or as per total of the rel- evant columns in VTL) should tally with the allowance journal, cash collections (as per cashier’s report) record of daily city ledger transfer respectively.
5. Checking the Daily Trial Balance: After reconciling both the charges and credits to the guest accounts, the night auditor has to ensure the arithmetic accuracy of the guest billing through the following equation:
(Dr)Daily Brought Forward Balance + Departmental Credit Sales
= (Cr) Allowances + Payments + City Ledger + Carry Forward Balances
The above balances can be obtained from the departmental total of the VTL or from the memory of the machine under mechanized system of front offi ce accounting.
6. Preparation of the Daily Sales Recapitulation: After completing the day’s audit, the night audi- tor has to prepare a sales recapitulation based on the departmental sales records submitted to him for verifi cation. The sales recapitulation shows the day’s sales under various heads like room, food, laundry, telephone, swimming pool and other sales or income.
Night Audit Verifi cation
Various types of posting, mathematical and clerical errors can be identifi ed through a sound night audit system. Among the most typical errors are those involving previous balance pick-up, transpositions and misplaced folios.
1. Pickup Errors: The front offi ce cashier accesses the previous balance (pick-up) of a folio, post the debits and credits, and calculates a new current balance. If the previous balance is picked-up (entered) wrongly, the current balance will also be wrong. This happens in the bill folio and not in the night audit. Pick-up errors are most diffi cult to locate and all the folios are to be reviewed to locate them.
2. Transposition Errors: These errors are easiest to identify. They occur when the numbers related to transactions are reversed while entering. For example, Rs 938 is entered as Rs 983. Transposi- tion errors are identifi ed by subtracting the smaller number from the larger one and then dividing the result by 9. If the result is a whole number, then the error is most likely to be a transposition error.
{(983 938) / 9 = 45 / 9 = 5}
Transposition errors are also called the Rule of 9’s by the night auditors.
2. Missing Folios: Many times, the front offi ce accounting system is out balance; a folio is fi led incorrectly or been misplaced from the folio bucket. After check-out, the settled folios are placed separately in the forwarding section. At times, current folios are placed in the forwarding section or settled folios are placed along with the current folios. To tackle such a case, the front desk staff should be very cautious and aware of what is happening there.
Sometimes some folios are kept separately for review, for example folios with high risk bal- ance or folios with some disputes. In that case a note should be left behind so that others may come to know about the situation.
Formulas for Balancing the Night Audit Report
The following formulas will provide you with an understanding of how to balance the night audit:
Formula to balance Guest Ledger
Total Revenue – Paid-outs and non-collect Sales = Daily Revenue – Total Cash Income – Today’s Outstanding Income (A/R Income) = 0 (zero)