W/P REF.
HOTEL DEPARTMENT OPERATIONAL AUDIT PROGRAM AUDIT STEPS 1.
Review previous audit files and reports to become familiar with areas of concern. 2. As the audit progresses, review material exceptions or discuss with management areas that internal auditing is uncovering during the audit. 3. Conduct an informal pre-exit conference once all audit steps have been completed to ensure that management knows what to expect in the upcoming draft audit report. 4. Finalize all files and draft an audit report for review by the chief audit executive. AUDIT OBJECTIVES 1.
Determine that the hotel department and related functions are following company policies and procedures. 2. Determine that the company's hotel-related assets are properly safeguarded and accounted for. AUDIT PROCEDURES 1.
Review the hotel-related hotel-related department's procedures procedures manuals — such as the front office, laundry, revenue audit — and discuss with the appropriate department personnel to determine if there are any areas of concern that they might have over the operations. 2. Complete the internal control questionnaire. 3. Complete the working papers stipulated in this audit program. AUDIT PROGRAM A. FRONT OFFICE (Room Rates)
H-1 1.
Obtain the most recent month's financial statements and management reports for hotel operations. Extract figures for monthly average occupancy, average room rate, and room revenue. Obtain explanations for material fluctuations from budget. 2. Obtain the updated hotel comparison analysis maintained by the hotel Manager and compare hotel performance with competitor and industry averages. Obtain explanations for material deviations for room rates and what is being charged by competitors for the same period. Determine whether management explanations are reasonable and attach a summary to the working paper. 3. Inquire how room rate maintenance is performed and updated in the front office reservation system, and how overrides are changed, controlled, and deleted. In summary form, prepare the observations and document observed control weaknesses in the working papers.
DONE BY
DATE
H-2
B. FRONT OFFICE (Reservation System) 1.
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H-3
Obtain the daily reservation report and determine that there is evidence of review by the reservation/front office manager of entries keyed in by the reservation clerks — in particular the room rates quoted to customers. Test 10 of the quoted room rates in the daily reservation report to the reservation forms. Ensure the reservation forms or computer entries are signed by the reservation clerk, or that some other documentation exists. Also, ensure that proper reservation forms are prepared for all reservations made. Inquire from the credit department how customers' credit limits/credit standings are taken into account when accepting reservations for hotel rooms. Check the reservation file to ensure that written confirmation is received for travel agent guests — telex, fax, or e-mail form — and attached to the reservation form, documenting any noncontracted rates extended to the agents/guests. Compare a sample of 10 suspended credit limit correspondence memos to the reservation system to ensure that all suspended accounts are updated into the system.
C. FRONT OFFICE (Room Billing) 1.
Select 10 entries with a $0 room rate from the daily list of rooms and trace to the comp form or other comparable document, ensuring it is approved by the proper member of management. Reasons for authorization should be documented and acceptable in accordance with hotel policy. 2. Test 10 registration cards to the corresponding occupied room on the room status/key report and the daily room charges report to ensure that all occupied rooms are billed. 3. Selecte 10 occupied rooms noted on the room status/key report and tie to the corresponding registration card. Note: This test is to ensure that registration exist for rooms that are occupied already to prevent the room being rented twice. 4. Review the reasonableness of room rates per the daily room charge report and test 10 rates to the corresponding reservation form or standard price list/customer contract for unusual or exceptional rates. H-4
D. REVENUE AUDIT (Daily Audit) 1.
Using a revenue audit checklist, observe one daily hotel audit performed by the revenue audit staff. Compare your observations to their approved, written checklist and document variations in memo form to the working paper. 2. Choose three days of daily revenue audit packets for the hotel revenue audit. Obtain vouchers for all revenue adjustment transactions — that day's voids, nonguest paid outs, guest paid outs, previous day corrections, and refunds — and trace total voucher amounts to the final revenue detail report to determine if all adjustments are supported by vouchers. If vouchers do not balance, document procedures for daily balancing. 3. Review vouchers for propriety, proper completion — including guest name,
room or account number, date, amount, adequate explanation, name of preparer, and approval. Refund vouchers and guest paid outs should include the guest signature. Paid outs should be supported with a receipt. Trace 10 percent of the vouchers for each day tested to the folio to ensure that the account was affected properly. 4. For the three days tested, trace totals to the general ledger. 5. Review tax documentation to determine that tax rates are appropriate for the following areas: Room service delivery charges, banquet service charges, package plans, and mandatory restaurant service charges. 6. For any exceptions prepared by revenue audit for the three days tested, ensure that management responded properly. H-5
E. REVENUE AUDIT (Contracts) 1.
Obtain the contract between the hotel and the pay TV provider. Include a copy of commission terms and discuss procedures used by management to ensure pay TV revenue is recorded on the financial statements. Research and document any concerns that arise during this testing. 2. If the property has an "on command" video or other system with a percentage commission due the hotel, review last two months' invoices to determine if the commission received complies with the contract, and the amount remitted was properly calculated prior to p ayment. Research and document any concerns that arise during this testing. 3. Review lease/rental agreements, if any, for hotel space. Determine that the recorded revenues agree to the terms specified. Include copies of applicable lease documents in working papers. H-6
F. REVENUE AUDIT (Accounts Receivable) 1.
Review the current accounts receivable (A/R) aging report. Select at least 25 accounts and determine whether or not all categories of receivables are adequately covered. Heavier concentration should be placed on old and unusual items. The total amount selected for testing should be between 15 percent and 20 percent of the city ledger. Test for the following: •
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Agreement to supporting documentation, either on file with the applicable folios, banquet checks, and other related documents, or to online billing. Initial billing date is timely, based on check-out date. Consistent documentation is maintained of collection efforts and approved direct bill authorization. Unusual items are reasonable (e.g., credit balances, returned checks, skip accounts, one company with balance in several different categories.)
If material, or if unusual items are noted, test for proper controls, including review of the high balance report and Telecheck procedures. 3. Trace the total of the aging report to the general ledger and the A/R recap
report. 4. Review write-offs, and if material, review selected write-offs for adequate support, proper collection efforts, proper approval, and reason for write-off. Be alert to consistent causes (e.g. front desk personnel failure to follow established hotel policies). H-7
G. CASH and CHECKS 1.
Obtain the mail check-register log for the last two-week period. Trace all hotel checks received to the bank-certified deposit slip and to the respective posting to the general ledger. 2. Review the mail check register log to ensure: •
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Proper segregation of duties exists among the employee who opens the mail and logs the checks, the person who deposits the items to the bank account, and the person who posts the checks received to the A/R ledger. Copies of logs are filed chronologically for proper recordkeeping purposes.
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Perform a surprise cash count on two open hotel cashier drawers. Include a copy of the surprise count sheet with the working papers. Investigate material variances. 4. Review and count the petty cash voucher box to ensure proper balancing. Ensure that appropriate backup documentation exists in the bank for petty cash activity. H-8
H. HOTEL LAUNDRY 1.
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H-9
Verify that billings from the laundry contractor are checked to delivery/service records provided by the contractor, and unit prices are agreed to the services agreement with the contractor. Ensure the delivery/service record is verified by hotel staff. Trace a sample of laundry contractor billings to guest billings for laundry services. Trace guest billings to the daily sales transactions report or similar document, and the guest ledger to ensure that revenue has b een captured in the accounts. Ensure that "free of charge" laundry services, if any, outside of the ordinary linen provided to guests, staff, and outside parties (e.g. entertainers) are in compliance with hotel policies and procedures. Document other observations and concerns regarding the laundry operation within the facility.
I. ADVANCE DEPOSITS AND REFUNDS 1.
Select one month's advance deposit account activity and obtain a copy of the general ledger transactions. 2. Trace a block of 10 refund payments to accounts payable vouchers and verify the following:
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H-10a
Refund is supported by copy of deposit ticket. Refund was for correct amount. Refund was payable to the correct payee. Refund is listed on transaction list used to update master deposit listing. Refund is for a reservation cancelled in advance. Endorsement on cancelled check agrees with the name of the payee.
For deposits applied at the front desk, main cage, vault, or mail receipts, agree a sample of 10 transactions in the most recent month to the general ledger. Trace the check to a bank deposit slip. Obtain a copy of the guest folio and verify the deposit was app lied to the correct guest's account. Review the general ledger control account for any adjusting journal entries to the advance deposit account and explain the nature of adjustments. Obtain a copy of the finance department's reconciliation of the advance deposit account and determine that all reconciling and outstanding items are reasonable. Determine if there are stale items in this account that should be written off.
J. HOTEL COMPLIMENTARY ITEMS 1.
Obtain a copy of the current master complimentary (comp) list reflecting who can approve complimentary services. Verify that: • •
Employees listed are currently active employees. Comp privileges authorized for the individuals listed were approved by senior management. Check a sample of documentation to validate the employees' level of authorization.
2. Select the most recent month of complimentary activity for detail testing and perform the following: •
H-10b
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Review transactions in the comp clearance account. Agree entries to applicable journal entries and indicate purpose of such entries.
Select one day's transaction report and obtain comp charges for the day. Agree actual comp charges to transaction total. Review each comp folio and verify the following: •
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That comp is supported by documentation signed by an employee who is authorized to comp at that level. That charges authorized for comp are according to policy (i.e., a comp room should not include food and beverages if not authorized as
such). For complimentary food and beverage (F&B) charges p osted to the complimentary master folio at the front desk — the customers' hotel account for the period of their stay — agree the actual restaurant charges to the folio and verify that the comp is signed by an employee who is authorized to comp at that level. 5. Obtain a copy of the daily complimentary worksheet for the date being reviewed and perform the following steps: 4.
H-10c
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H-10d
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Obtain the month-end comp worksheet and perform the following steps: •
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H-10e
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Reconcile the total charges shown on the worksheet to the transaction total and F&B recap totals. Explain any variances or reconciling items. Verify that information shown on the comp worksheet agrees with the applicable comp folio and are posted into the proper category.
Verify computation of total comps, tax adjustments, and n et comps for the month. Trace total to the comp clearing general ledger account. Trace tax adjustments to related tax accounts.
Determine how comp charges are handled for computing room tax and document procedures in the workpapers: •
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Verify that procedures being followed are in compliance with applicable tax regulations. Test computation of related tax adjustments to determine if the method used is reasonable.
