Idea Transcript
NIGHT AUDIT Objectives of the lesson: At the end of the lesson the learner will be able to: Explain the functions of the night audit Explain the role of the night auditor Explain the various terms and formulae related to night audit Explain the various modes of conducting night audit and the documents needed in these Explain the step-wise procedure of conducting the night audit Explain the errors normally found while conducting a night audit Key terms related to a night audit The night audit is a daily review of guest accounts and non-guest accounts having activity, against revenue centre transaction information which helps guarantee accuracy in front office accounting. A successful audit will result in balanced accounts, accurate statements, appropriate credit monitoring and timely reports to management. Since hotels operate 24 hours a day, seven days a week, it is important to review an verify the accuracy and completeness of it’s accounting records. Whatever the mode of audit the audit routine would remain relatively unchanged. The audit is called a night audit because hotels generally perform it at night. FUNCTIONS OF THE AUDIT Specifically, the audit is concerned with: Verifying posted entries Balancing accounts Resolving room status discrepancies Monitoring credit limitations Producing operational reports THE ROLE OF THE NIGHT AUDITOR The role of night auditor requires attention to accounting detail, procedural controls, and guest credit restrictions. The auditor should be aware of the nature of cash transactions affecting the front office. The auditor tracks room revenues, occupancy percentages, and other front office statistics and prepares a summary of cash, cheques and credit card activities. These data reflect the hotel’s financial performance for the day. The night auditor summarises the results of operations for reporting to management. So, the functions of a night auditor will include: 1. Establishing the end of day. 2. Ensures accuracy of FO accounting records and balances them 3. Reconciles all financial transactions between hotel and guests.
4. Calculates the total revenue generated during the day. 5. Verifies and validates the cashier’s posting of charges in guest folios. 6. Posts room charges in the guest folios. 7. Transfers unpaid guest accounts to city ledger. 8. Monitors the house limits of guests. 9. Prepares a high balance report of guest accounts nearing or crossing their house limit. 10. Monitors current status of discounts, meal coupons and other promotional activities that are carried out at FO. 11. Tracks important operating statistics of the hotel for the day- room occupancy %, ARR, RevPAR, Yield, etc. 12. Prepares reports for management analysis and action and future planning. COMMON NIGHT AUDIT TERMS: ESTABLISHING THE END OF DAY The night auditor generally works on the night shift from 2300 hrs to 0700 hrs, compiling and balancing the transactions of the day. An end of day is an arbitrary stopping point for the business day so that the audit can be considered complete through that time. This time is usually the hours at which the least number of transactions would occur and which frequently occurs in the night shift. The period from the point of time that the audit begins until the audit is complete may be called audit work time. Transactions affecting front office accounts received during the audit work time are not posted until the audit is complete and are considered to be part of the next business day. CROSS REFERENCING
Transactional documentation identifies the nature and amount of a transaction and is the basis for data input to an accounting system. For each transaction, the original revenue centre records/documents the transaction type (cash, charge or paid-out) and it’s monetary value. The front office staff posts an entry to the appropriate folio based on the documentation/vouchers received. In non-automated and semi-automated operation, supporting documents produced by different individuals serve as cross-reference sources. Although the auditor receives information on room revenues from the room rack, room rate postings should be checked against the housekeeping’s report on occupied rooms to ensure that rates have been posted for all the occupied rooms. Likewise, food and beverage postings are usually performed on the basis of vouchers or guest checks received at the front desk. The restaurant’s sales journal can be used to prove front desk postings. The auditor’s review of a day’s postings lead to a reconciliation of front office accounts against revenue center and other departmental records. ACCOUNT INTEGRITY Sound internal controls techniques help ensure the accuracy, completeness, and integrity of the accounting process.
This includes cash control techniques and other internal control measures that include more than one individual at different phases of the sale. Internal control suggests that different people post, verify, and collect for sales transactions. For instance, a front desk agent may perform the posting, an auditor, the verification and a cashier verifies the settlement. The auditor proves account integrity by cross-referencing account postings with departmental source documentation. The audit process is complete when front office and department account totals have been proven correct. If the audit process presents an out-of-balance position, the audit process is not considered complete. GUEST CREDIT MONITORING
Account integrity is also related to supervision of guest and non-guest credit limitations. Credit limits are set depending on a variety of factors, such as credit card company floor limits, the hotel’s house limit or another figure based on the guest’s reputation as a good or poor credit risk. The night auditor must be aware of these limits. High account balances must be noted during the posting process. At the close of each front office business period, an auditor is responsible for identifying to management which accounts have reached or exceeded their credit limits for appropriate action. AUDIT POSTING FORMULA: Steps followed in the audit are based on the basic posting formula: Previous Balance + Debits – Credits = Net Outstanding Balance
The net outstanding balance of one transaction becomes the previous balance for the next transaction. DAILY AND SUPPLEMENTAL TRANSCRIPTS (for manual systems) A daily transcript is a detailed report of all guest accounts that indicates each charge transaction that affected a guest account that day. This is segmented by revenue centre, type of transaction and overall total. A supplemental transcript is used to accomplish the same analysis for non-guest accounts. The daily and supplemental transcripts are the basis for a consolidated report of accounting data against which departmental totals are matched. The total of charged purchases reported by the hotel’s coffee shop should equal the amount of coffee shop charge purchases posted to guest and non-guest folios. These transcripts are worksheets designed to detect posting errors. They facilitate the full audit routine by identifying out-of-balance figures in advance of a detailed review.
OPERATING MODES for the Night Audit: Night audit may be conducted manually, mechanically, or electronically in 3 ways: 1. Non-automated mode- manual mode 2. Semi-Automated mode- using machines 3. Fully Automated mode- computerised mode 1. Non- automated mode (Manual method): Here four major forms are used in addition to vouchers produced by the hotel’s revenue centre: Folios Cash sheets Daily and supplemental transcripts Audit recapitulation sheets The night auditor prepares daily and supplemental transcripts by copying the day’s activities from each account folio to the appropriate line on the transcript. The transcript columns are summarised to determine the total charges for the day. Information from the transcripts and cash sheets is transferred to the recapitulation sheets to provide a summary of the day’s activity. See Format. Manual and semi-automated audit routines are tedious with the forms being cumbersome and chances of making errors while copying and computing are high. 2. Semi-automated mode: Posting machines record guest charges on folios and simultaneously perform a number of other activities that simplify the work of the front desk agent and the auditor. Posting machines may be either electro-mechanical or electronic. In general, front desk agents post charges to account folios based on vouchers received from the POS. Physical posting to folios involves locating the folio, removing it from the folio bucket, entering the account’s previous balance into the posting machine, posting the charge, balancing the folio and re-filing it in the folio bucket. If an incorrect previous balance is entered in the process of the posting, it will cause the folio to be in error and the audit to be out of balance. As an account folio is posted, several other actions take place as well: The voucher used to initiate the posting is imprinted with the same information posted to the guest folio, providing machine printed verification that the voucher has been posted. The same information is printed onto a paper tape to provide the machine with an audit trail and to serve as a journal record. An audit trail is an organized flow of source documents detailing each event in the processing of a transaction. The amount of the posted charge is added to the running total for the department originating the posting; departmental totals are helpful in end-of-shift and end-of-day reporting. Forms used in a semi-automated system include cash reports- equivalent to the front office cash sheets of the non-automated audit- and an auditors report, sometimes referred to as a D card or D report that is a listing of total charges posted to the guest accounts by all departments. 3. Fully automated mode: This is by far the simplest to perform. These can be interfaced with POS equipment, call accounting systems and other revenue centre devices for quick and accurate automatic postings directly to electronic account folio.
Computerised systems enable the auditor to spend more time auditing transactions and analysing front office activities. The guest ledger audit is compared with the final daily report for balancing. The previous balance for each account is retained with the system. The computer conducts various checks to ensure that postings are correct. The computer keeps track of each posting by time; shift, employee, folio number, and department so it maintains a detailed audit trail for all accounting activity. Computer systems can also organize, compile, and print records faster than can be done manually. The computer can process a large amount of data, perform several computations, and generate accurate account totals. A fully automated audit routine may also be called a system update. System updates are run daily to allow for report production, system file reorganization, and system maintenance and to establish an end of day. Computerised systems also offer instant access to information, allowing management to keep a constant check on operations. Reports detailing revenue data, occupancy status, and other operational information can be easily generated on request. THE AUDIT PROCESS: ( Very Important) The discovery and correction of errors in posting charges to establish accurate records is what the audit process is about. Discrepancies found during an audit must be corrected. Due to the transient/temporary nature of hotel business, an audit is conducted everyday. Large complex hotels require closer account scrutiny due to the volume of transactions posted. The following steps are common to the sequence of a night audit. 1. Complete outstanding postings 2. Reconcile room status discrepancies 3. Balance all departments 4. Verify room rates 5. Verify no-show reservations 6. Post room rates and tax 7. Prepare reports 8. Deposit cash 9. Back up the system 10. Distribute reports Some of these steps may be condensed or combined in an automated process. The audit procedures are discussed in detail below: 1. Complete outstanding postings: This is the first step of an audit. Although most front offices attempt to post transactions to the proper accounts as they are communicated, a night auditor must confirm that all transactions have been posted prior to starting the audit. Incomplete posting will lead to errors in account balancing and summary reporting. The auditor verifies that all voucher postings for revenue centre transactions have been completed. He may also need to post previously unposted front office cash transactions.
2. Reconcile room status discrepancies: Room status discrepancies must be resolved in a timely manner. Such errors can lead to lost revenue and omissions in postings. The front office must keep room status current and accurate to monitor the number of rooms available for sale. The night auditor is responsible for ensuring that discrepancies between the daily housekeeping report and the front office room status are reconciled before the end of the day. If the front office believes a guestroom is occupied, but it is reported as vacant on the housekeeping report, the auditor should look for an active folio (folio with a balance outstanding) If the folio has a balance, possibilities are: a. The guest may have departed but forgotten to check out b. The guest may be a skipper c. The front desk agent may not have closed the folio d. After verifying that the guest has in fact departed, the auditor should process the check out and set the folio aside for management review and follow-up. If the folio has been settled, the front office room status system should be updated to show that the room is vacant. In a computerised system, the check out process automatically changes the room’s status. 3. Balance all departments: The night auditor balances all departments using source documents (vouchers made at the POS). Vouchers received at the front desk and other source documents are totalled and compared to revenue centre summaries. This step includes preparing the daily and supplemental transcripts and finalising the daily transcript recapitulation sheet. Total restaurant sales figure comprises all sales incurred at restaurants or food outlets in the hotel that is compared against the daily sales report of each restaurant. Room service sales are mentioned similarly but separately from restaurant sales. Banquet sales figures are again mentioned separately and will be checked against the daily function sheets to ensure that all scheduled functions have been billed. Sales figures for alcoholic beverages from various POS may be reported separately. The postings to guest and non-guest accounts must equal the amounts charged at the revenue centre for the front office accounting system to be considered in balance. An out of balance condition indicates a need to investigate the correctness and thoroughness of postings. However, a balance in account and departmental totals does not necessarily mean that the proper accounts were selected for posting. Posting the correct amount to an incorrect account would still present an in- balance total. Common errors in the night audit: a. Pick-up error- if previous folio balances are entered incorrectly, the ending balance will also be incorrect. To trace this error it will be necessary to review all previous and ending balances on every folio.
b. Transposition error- these are easiest to identify. It occurs when numbers are reversed, e.g. entering 523 instead of 532. Subtracting the lower number from the higher number can identify this. If the result is a whole number, the problem is more likely a transposition error. c. Missing folios- an account could be out of balance because a folio has been filed incorrectly. d. Transfer of charge to a wrong account (say restaurant to laundry or bar) or to a wrong room number. 4. Verify room rates: The night auditor is required to complete Room Revenue and Room Count Report/ Room Rate Variance Report that shows the rack rate for each room and the actual rate at which the room was sold, providing an opportunity to analyse room revenues. If a room’s rack rate and actual rates differ, there may be certain possibilities. One, if a member of a group or corporate rate guest occupied the room, is the discounted rate correct? Second, if there is only one guest in the room and the actual rate is approximately half the rack rate, is the guest part of a shared reservation and if so, did the other guest register? A Room Rate Variance Report is prepared by the night auditor to keep track of such variances between the room rate to be charged and the actual room rate charged to his folio. This helps monitor and control the rate discounting tendency of the FO staff which in turn keeps a check on fall of room revenue, ARR, RevPAR and Yield statistics. 5. Verify no-show reservations: The night auditor may be responsible for clearing the reservation rack and posting charges (retention charges) to no-show accounts after confirming that the reservation was guaranteed and the guest never arrived. A hotel should take care to record cancellations properly to avoid charging a guest for no-show charges when not applicable. 6. Post room rate and tax: typically done at the end of day.
The posting of room rates and tax to all guest folios is
Direct posting of these to the electronic room folios in a computerised system is one of the greatest advantages of a PMS. After such posting, a Room Rate and Tax Report may be made for the management. 7. Prepare reports: The auditor is responsible for preparation of reports indicating the status of front office activities. Department detail and summary reports are produced and filed with the source documents for the accounting division. The daily report of operations summarises the day’s business and provides insight into revenues, receivables, operating statistics and cash transactions related to the front office. (Format) The High Balance Report identifies guests who are approaching an account credit limit. (Format)
Manager’s report, also called an Early Bird Report (because it is the first thing the GM gets to see on his table before the morning meeting!) is a listing of occupancy statistics from the previous day, such as occupancy percentage; yield percentage, average daily rate, and number of guests. Such data is necessary for monitoring the operation of a business. (Format) Departmental Daily Sales Reports that indicate, in one report, the total sales of every department and in many hotels, will also contain details of accounts receivables, bank deposits, cashiers report and room statistics, and so on. (Format) 8. Deposit cash: Since account and departmental balancing often involves cash transactions, cash depositing may depend on a successful audit. If front office cash receipts have not yet been deposited, the auditor compares the postings of cash payments and paid outs with actual cash in hand. The cash, credit card vouchers, and charges received during the business day from cash, charges, and accounts receivable transactions must be deposited in the hotel’s bank accounts or transferred to hotel’s internal accounts receivable. The credit card totals are added here because, in some circumstances, the credit card voucher is considered cash at the time of deposit. The night auditor will provide a summary of the components of the bank deposit. The cash and various credit card totals that have been deposited must match the total cash sales plus the cash received and applied to outstanding accounts receivable minus total paid outs. The total cash and credit card payments received, which are reported on the cashier’s report, will match the total bank deposit figure. 9. Back up the system: This step applies only to computerised front office systems. Since such a system does away with the need for a room rack, reservation cards, etc., it becomes very dependent on the proper functioning of the computer systems. Back up reports must be run in a timely manner to enable smooth operation in the event of a systems failure. End of day reports are developed and printed by the computer which include guest lists, room status report, guest ledger report- showing the ending account balances of all registered guests, activity report- containing expected arrival and departure information for the next several days. Computer output should also be recorded onto disks. A system back up is made after each audit and stored in a safe place for reference. 10. Distribute reports: The night auditor must take care to deliver appropriate reports in a meaningful format and a timely manner. If all of the reports are completed accurately and delivered in a timely manner, more informed operational decisions could be made. AUTOMATED SYSTEMS UPDATE- computerised mode: System updates are run daily. Since computer systems perform continuous audits on transactional postings as they occur, there may be little need for the night auditor to actually post account entries. A front office accounting system may interface with the POS devices for automatic postings from call accounting systems, in-room movies and bars, and the like.
In the case of guaranteed reservations no-shows, postings may be programmed to flow automatically to a billing file. Room status discrepancies are unusual in a fully automated system, since the room rack is eliminated, and registration and check out functions are internally connected to room status functions. The housekeeping’s room status report is rapidly updated and this is automatically reconciled with the room status at reception. This results in a Discrepancy Report that can be printed for further action. Even a skipper room comes to light faster resulting in its resale without further loss of revenue. Audit balancing is maintained continuously. As a charge purchase is entered at the POS, it is instantaneously posted to a guest folio and a departmental control folio. A control folio is an accounting document used internally to support all account postings by departments. To balance the departments, the computer tests all control folios against the non-control folio entries. An imbalance is just as likely to identify a problem in automatic posting techniques as a shortcoming in accounting procedures. End- of-day reports are developed and printed by the computer which includes guest lists, room status report, guest ledger report- showing the ending account balances of all registered guests, activity report- containing expected arrival and departure information for the next several days. Computer output should also be recorded onto disks. A system back up is made after each audit and stored in a safe place. Daily back-up = copying of all information on disks, magnetic tape and storing them. Systems back-up = eliminating account and other transaction information which is no longer of value, e.g. expired guest folios at least 3 days old are deleted from active storage files and are archived or stored as tapes, etc. Computer systems can be programmed to produce a variety of reports of various length and content. Reservation confirmations, Revenue Centre Summaries, Expected Arrival and Departure Lists, Folios for guests expected to depart, a Daily Report of Operations, Room Status Reports, and invoices for non-guest accounts are common products of an automated system.
THE NIGHT AUDIT PROCEDURE IN COMPUTERISED ACCOUNTING SYSTEMS- automated mode: In such a system there is not only less labour involved, but also less chances for errors- the transcription types, and also because the computer blocks certain types of errors, like posting charges to a vacant room, etc. However, some verification is still required; for example, cashiers can post a charge to another occupied room by mistake. A computerised auditing system can be customised to the need of the hotel and can follow the general pattern below:
1. Print a D-sheet from the computer- for departmental details of charge purchases ( not paid by cash) of the day. 2. Verify cashiers’ work. 3. Instruct the computer to post room charges and taxes to each guest folio. 4. Perform one or more of the following steps: Verify that the housekeepers’ reports and room reports were properly reconciled to each other and to the computerised room rack. Verify that purchases and advances have been posted to the correct room number. Verify transfers from one folio to another. It is easy for charges to “disappear” on a computer system as a result of such transfers. Verify that all credit card vouchers are on hand and reconciled to the day’s credit card sales. The night auditor might then instruct the computer to perform all the chores involved with closing out the current day and to begin a new day with the next day’s date. The complexity of the computerised system requires better-trained personnel to input the data correctly and also to interpret it correctly. The printouts of reports can be difficult to interpret, leading to oversights and errors due to “hidden” information or “missing” information. KEY TERMS: 1. Account ageing- a method of tracking past due accounts according to the date the charges originated. 2. Account receivable- an amount owed to the hotel. 3. Account payable- an amount owed by the hotel (for purchases made, etc. 4. Auditing- the process of verifying front office accounting records for accuracy and completeness. 5. Audit trail- an organised flow of source documents detailing each step in the processing of a transaction. 6. City account or non-guest account- an account created to track the financial transactions of a local business with charge privileges or a former guest whose account was not satisfactorily settled at check out. 7. City ledger- is a collection of folios of unregistered hotel guests who maintain accounts with the hotel. 8. Control folio- an accounting document used internally by a front office computer to support all account postings by a department during a system update routine. 9. Daily operations report- prepared by the Night Auditor, which summarises the hotel’s financial activities during a 24-hour period and provides insight into revenues, receivables, operating statistics and cash transactions related to the front office. Also called the “early bird report”. 10. Daily transcript- a detailed report of all guest accounts that indicates each charge transaction (credit transaction) that affected a guest account that day. It is used to detect posting errors. 11. D-report- a listing of totals of the amount of charges or credit sales, posted to the guest accounts by different departments.
12. D- card- used in semi-automated systems contains the totals row of the daily transcript, but is oriented vertically in column format rather than as a row 13. Front office cash sheet- a form completed by FO cashiers, which lists each disbursement or receipt of cash during a shift. It is used to reconcile cash on hand with the transactions that occurred during the shift. 14. Guest account- a record of financial transactions that occur between a guest and the hotel. 15. Guest ledger- set of accounts for all guests currently registered in the hotel. Also called Transient ledger or Rooms ledger. 16. High Balance Report/ High Risk Accounts Report/ Credit Limit Exceeded Report- a report prepared during the night audit to monitor guest accounts with high outstanding balances to avoid extension of credit without proper precautions. 17. Room Revenue and Count Report/ Room Rate Variance report- that shows the rack rate for each room and the actual rate at which the room was sold, providing an opportunity to analyse room revenue and efficiency of the front office. 18. Supplemental transcript- a detailed report of all non-guest accounts that indicates each charge transaction that affected a non-guest account that day. 19. System update- a fully automated audit routine that accomplishes many of the same functions as a non-computerised night audit routine and more. Daily system updates enable file reorganisation, system maintenance and report production and provide an end-of-day time frame. 20. Zero out- to settle, in full, the balance of an account folio as the guest checks out. 21. Daily back-up - copying of all information on disks, magnetic tape and storing them per say. 22. Systems back-up - eliminating account and other transaction information which is no longer of value, e.g. expired guest folios at least 3 days old are deleted from active storage files and are archived or stored as tapes, etc. Assignment: Q1. What is a night audit? Q2. What are the functions of a night audit? Q3. Define the role of a night auditor. Q4. What do you understand by ‘cross referencing‘in the night audit? How is it carried out? Q5. What is the role of the night auditor in monitoring of credit? Q6. List the steps of the night audit process. Q7. What is the importance of the step of night audit of “resolving room status discrepancies”? Q8. How would you “balance the departments” during a night audit? Q9. Why does the night auditor need to verify no-show reservations? Q10. What are the possible types of errors that can occur in accounts during the day/night? Q11. What is the importance of the step regarding room rate postings made in folios? Why are room rate postings done in the night audit? Q12. What is the High Balance report/ High Risk Account Report- who prepares it and what is its importance? Q13. What is the “Room Rate Variance Report? Who prepares it and why? Q14. What is a system update and its importance to the smooth running of hotel operations? Q15. How has computerisation improved assisted the functioning of a smooth night audit?
Q16. Explain the following: a. Daily transcript b. Supplemental transcript c. Daily back up d. Systems back up e. Control folio f. Audit trail g. Early bird report h. D- report i. Formula used in night auditing Q17. List at least ten reports prepared during the night audit Q18. Draw the formats of: a. Managers Daily Report b. Room Rate Variance Report c. High Balance/ High Risk Account Report d. Daily Report of Operations e. Departmental Daily Sales Reports f. Daily Flash Report g. Front Office Activity report h. Daily Transcript
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