I take this opportunity to express my sincere gratitude towards my project guide for this constant encouragement & valuable guidance during completion of this project. I would also like to thanks PROF.NILESH KOLI, DR. MATHEWS head department of commerce & PRINCIPAL S.T.GADADE, CHANGU KANA THAKUR COLLEGE of their support & motivation for completion of my project work. I also extend my sincere thanks to all the staff members of the department of commerce for their support & help for project work. Finally I express my thanks to all who have supported me in completing my project work.
The study is based on the secondary data and information available in various books, magazines and internet websites. The information has been collected from various sources with proper acknowledgement. I have not conducted any primary Survey nor collected any primary data. My project work is an descriptive analysis of information available in Various books, magazines and websites.
The goal of an audit is to form and express an opinion on financial statements. The audit is performed to get reasonable assurance on whether the financial statements are free of material misstatement. An audit also includes assessing the accounting principles used and the significant estimates made by the management. Audit conclusions and reporting are one of the principles governing an audit. Reporting is the last procedure of the process of an audit. The main purpose of audit is to judge the reliability of the financial statements and the supporting accounting records for a particular financial period. The Companies Act, 1956 requires that the auditor of a company has to state whether in his opinion the accounts disclose a true and fair view of the state of company's affairs, profit and Loss Account and Balance Sheet of the state of affairs of a business, the auditor carries out a process of examination and verification of books of accounts and relevant documents.Such an examination will enable the auditor to report to his client on the financial condition and working results of the organization. While carrying out the examination of the various books of accounts, relevant documents and evidences, the auditor may came across certain errors and frauds. Despite such a possibility the detecting of errors and frauds is an incidental object. However, laymen have always associated the detection of errors and frauds as the main function of an auditor which is not true. At the same time audit also discloses how far the accounting system adopted in the organisation is adequate and appropriate in recording the various transactions as well as the weakness of these systems.
MEANING OF AN AUDIT OF HOTEL:
An audit is a set of procedures or steps a Public Accounting firm follows when auditing a company. These procedures often translate to most audits regardless of the business industry and sector. Hotel audits can occur on the corporate or franchise level. Many hotels use a franchise model in the business environment. Hotel franchisors use audits to ensure each franchise operates according to regulatory standards and the hotel standard operating procedures. 3
THE PROCEDURES OF AUDIT CHECKLIST FOR HOTEL
The procedures for audit checklist are as follows:
Auditors begin the audit process by meeting with the Hotel top management. This allows the auditors to understand which type of audit they will conduct and which areas will be included in the audit. Audits typically fall under the financial or compliance designation. Financial audits include a review of the hotel’s financial statements, internal controls and accounting procedures. Compliance audits review the business operations of a hotel, which primarily includes the functions or processes outside of the hotel’s financial processes.
An audit plan outlines the specific steps or information for the hotel audit. Auditors will also create and request a sample of information from the hotel to test against national accounting standards or the company’s operating procedures. An audit time line is another feature of the audit plan; this ensures auditors will complete all functions within a certain time period and do not drag the audit on too long and hamper the hotel’s operations.
Fieldwork is where the majority of audit work takes place. Auditors will review how the hotel records income, expenses and handles its cash management functions. Hotels with gift shops, recreation centers or other facilities will also have these items included in the audit. Auditors will attempt to measure and assess how the hotel manages financial information. Auditing a hotel franchise is typically different than auditing the entire hotel operation. Franchisees usually have less information and are more inclusive than the entire
corporate organization. Corporate hotel audits usually focus on corporate-level information rather than individual franchise figures.
Audits typically end with a follow-up meeting with corporate management. Auditors will discuss any variation or improprieties that create misstatements on the hotel’s financial or business reports. External audits will typically result in an official opinion that is released to outside business stakeholders. Internal audits report information for management use and does not usually require an official audit report unless requested by management Standard operating procedures help audit specialists review a firm's operating environment, controls, processes and policies. Such procedures also aid an auditor in ensuring that corporate policies adhere to regulatory standards and industry practices. An internal or external auditor also reviews financial records to ensure that such records are accurate and complete. An auditor evaluates the hotel business entity's operating environment to detect important factors that materially, i.e., significantly, affect its operations. Such factors could be external or internal and short- or long-term. An audit specialist also reviews the hotel's activities to ensure that such activities are legal and comply with regulatory rules. External factors influencing the hotel's business may include governmental mandates, industry trends, business practices and economic sector outlooks. Internal elements that could affect a company's activities are senior management's leadership style and ethics, human resource procedures and occupational health or safety policies.
An audit specialist reviews the hotel's controls and processes to understand how such controls function. Processes function properly if the operating environment is adequate. A control may be a list of instructions or policies that a firm's managers put into place to avoid losses due to fraud, error or technological problems. An auditor may learn about a firm's controls by reading prior years' reports and working papers, talking with departmental and segment-level employees, reviewing industry publications and evaluating an organization's 5
Risks and Controls Self-Assessment (RCSA) reports. An RCSA is a periodic (quarterly or yearly) document that explains a firm's appraisal and ranking of internal risks.
For example, a company might rank risks as "High," "Medium" or "Low" or "Risk 1," "Risk 2" or "Risk 3" based on expected losses.
An external or internal auditor applies generally accepted auditing standards to ensure that the Hotel's internal controls, processes and procedures are adequate and operating effectively. A control is adequate when it shows a detailed list of instructions for employees to carry out duties, report operating problems and understand decision-making mechanisms. An effective control rectifies internal problems properly. An auditor focuses on "critical" controls, i.e., controls that are important to major processes or mechanisms.
Test Account Balances
An auditor tests account balances if the operating environment of the hotel is inadequate or not functioning properly. An audit expert ensures that such balances are fair, accurate and in compliance with industry standards, regulatory criteria and Generally Accepted Accounting Principles (GAAP). "Fair" means objective and accurate in accounting or finance terminology. A complete financial report includes four summaries: a balance sheet (statement of financial position), a statement of profit and loss (statement of income) a statement of cash flows and a statement of shareholders' equity.
Normally, a separate person from the front office is made responsible for making all advance bookings/reservations. Reservations may be made based on direct inquiries from the guests or through other diverse sources such as travel agents, reservation networks ( in the case of an enterprise operating a chain of hotels), secretaries of executives and through sales and marketing department. The person responsible for making reservations normally prepares a list of bookings for the next day, inter alia, stating room rate to be charged, discount to be allowed on the standard rate, billing instructions, airport pick-up status and expected date and time of departure, etc. the list so prepared is sent to other departments for taking necessary action at their end.
Filling of Registration Card
Each guest is required to fill-up a registration card at the front office.
registration card normally records the name and address of the guest, the nationality, passport number (in case of a foreign national), the arrival date and time as also the expected departure date and time. The registration card is required to be signed by the guest and a responsible office of the hotel. After the guest has filled-in and signed the registration card, the room number allotted to the guest as also tariff to be charged is filled-in. The discount allowed to the customer on the standard rate is also recorded on the registration card. The discount granted to the customer can be either contractual or based on the negotiations made across the counter. The arrival of customer is also recorded in the guest folio of the guest ledger.
How TO Audit End of Day Process in Hotels
Night Audit / End of Day process in Hotels: The Front office Audit is usually referred as Night Audit because most hotels generally carried out the audit works during the late evening hours. The most convenient time to perform the audit was during the late evening and early morning hours, This helps the front office staffs to work with minimal interruption and also most of the hotel outlets and revenue centers are closed during this time. The audit is a daily review of guest account transactions recorded against revenue center transactions. The routine helps guarantee the accuracy, reliability and thoroughness of front office accounting. Night audit is generally comprised with the below functions: Shift Commencement:
Taking the shift handover from the evening shift.
Counting and tallying the cash float.
Printing essential Shift reports.
Opening the Night audit Cashier.
Reading the Log book and also listing down any pending tasks / follow ups from the evening shifts.
Look for any uncleared traces for the day and take necessary actions.
Balance Food And Beverage outlets:
The Outlets will close their day, hand over the Check copy and drop the cash collection at front desk.
Print the Outlet wise sale report from the Front office software ( PMS) and tally / balance the revenues with similar report from the Point of Sale ( POS ) software. This will ensure that all revenues generated at the POS has been captured by the PMS.
If there is any missing checks then the same has to be posted manually, Like wise any duplicate postings has to be voided.
Tally the cash posting in PMS and print the cash receipt for the dropping done by restaurant team.
Check if there is any Tips for the resturant staff on credit card, Handover the same after making the corresponding paidout entry on the system.
Once all restaurants had dropped their cash check out the Payment Master room ( PM ) for Cash, Credit Card and City Ledger. ( Eg: 9001, 9010, 9015 etc.)
Check the lost posting PM to see if there is any lost interface posting lying on the folio.
Check-out the Lost posting PM room after taking any corrective / allowance.
Audit and keep things ready for the End of Day:
Keep the duplicate copy of restaurant checks sorted according to the floor number / Room number and place them on to the respective rooms folders / slots.
Print the Payment made today by all Method of Payments ( Cash, Credit card, Bill to Company etc. ) and tally the same with corresponding payment for the day.
Take out all Invoice generated for the day and Tick mark net to the amount on the 'Payment report' for the day to indicate that payment type and the amount appearing on the folio is matching with the amount and type on the report.
Reconcile all Bill to company settlement for the day and make sure that the corresponding billing letter and copy of the restaurant checks are attached to the same.
Print Reports for all interfaces from PMS:
Posting report for Telephone postings.
Posting report for Internet postings.
Posting report for In Room Movie rentals.
Refer the server report for all the above interfaces and tally the revenue with those posted on the PMS.
Circle the last transaction to verify and also to ensure that the last charges has posted in the evening and not stopped sometime during the day.
Reconcile all posting these must balance guest accounts.
Sign all the posting reports.
Log all Vacant Rooms, resolve room status and discrepancies. Count the Key's in the slot ( For hotels using Manual Metal keys ) Check the Rate check report / Rate variance report:
Make sure that the correct room rate is entered on to the reservations.
Any Zero rate rooms to be investigated and identified for Sharer, Complementary, House user or PM rooms.
Investigate all Rate discrepancy.
Check for correct assignment for Market and source segments to the reservation.
Verify all correct by ticking or highlighting both the rate and the reservation / billing instructions.
Sign off on the report once completed.
Balance Credit Cards:
Print the 'Payment report only Credit Card' report from PMS.
Perform the Batch closing on all EDC / CCD machines.
Compare the settlements on the Batch close report with the 'Credit Card' report printed from PMS.
Place a tick next to the amount of the report to indicate that paperwork is in order and complete.
Do this for ALL payments made today. All paperwork must be filed in order of the report.
Please ensure the end of day credit card terminal docket says settlement successful.
Complete the Credit Card Reconciliation Form.
Both PMS and credit card MUST balance to each other.
Complete settlement on all the credit card terminals – after midnight
Check Pending Arrivals:
Check all pending arrivals left.
Show check in for those rooms which has been prepaid or has a guaranteed payment form agent or Company.
All non arrivals that have not been prepaid need to be processed as a no show during EOD.
Check Pending departures:
Review pending departures.
If there are any departures left corss check the same with the bell boy errand card for departures to make sure that the room has departred. And show check out for the same on the system.
Retrieve the Payments as at now sorted by MOP printed earlier
Verify all cash drops
Balance any paid outs from same or previous days
Prepare deposit slip and express banking bag for net cash and cheques
Cash Register closure:
Cash Register / Cash register closure. You must ensure all cash registers are closed (the only way to do this is to ensure you have all the cash register closure reports).
You must ensure that there are no outstanding departures/arrivals (including group masters).
Print Shift Reports before closure.
Ensure that all postings are accounted for.
Close Cash Register.
Sign on the report printed while closing cash register.
Pre End Of Day Final Check:
ALL Cash registers are CLOSED (reopen and close all registers to ensure they are closed)
There are NO departures still to depart.
There are NO non-guaranteed arrivals still to arrive (including group masters).
Check if there is a printer connected with enough paper loaded on to the computer you are running the EOD on.
Log out all computers except the one on which the EOD will be performed.
Reconciliation of Daily Report to Folios
A reconciliation of the daily report to the taxpayer's folios is not necessary to verify gross receipts unless the taxpayer's internal control is nonexistent or ineffective. NOTE: This procedure will more commonly be used to verify non-taxable room receipts.
Alternative Records If records are not available or insufficient, then the following may be used:
City Hotel returns
The taxpayer's City Hotel returns may be used to compare state amount reported; however, since this is an internal report it may not be reliable. The taxpayer's bank statement may also be used to obtain gross taxable receipts by adding the deposits for each period. When bank statements are used, an allowance should be made for deposits verified as non-receipts such as loans. If records are not available, then the taxpayer's return must be estimated. To establish an estimate, use room capacity and average room charge.
Deductions The non-taxable room receipts that a taxpayer may claim are:
The nature of these non-taxable room receipts and the procedures used to verify them will be discussed in this portion of the chapter. Bad Debts The Hotel Occupancy Tax Return does not allow for the deduction of bad debts; even so, it is the policy of the Comptroller's office to allow the deduction. If a taxpayer has not taken a deduction for a bad debt(s), then a credit should be allowed. Bad debts are allowed when they are written off the taxpayer's Federal Income Tax Return or when past history indicates that the debt recorded in the general ledger will be written off on the Federal Income Tax Return. The audit procedure used should verify that the bad debt deduction is valid. The procedure should consist of checking the taxpayer records to determine if there is an account related to bad debts. If there is not a bad debt account, determine how bad debts are handled by the taxpayer. If there is a bad debt account, analyze the account to determine if the bad debt(s) related to hotel receipts can be separated into taxable and nontaxable groups. If a large number of the customers are exempt or permanent residents, the hotel bad debt account must be further analyzed to determine which debts specifically relate to customers that were charged hotel tax. Only the bad debts that were originally treated as a taxed transaction should be written off as a bad debt (for State tax purposes). The taxpayer records should be examined for recoveries of bad debt(s) which have previously been written off and not subsequently reported. If this is the case the hotel tax should be reported in the period it is recovered. The State does not allow Credit interest for bad debts. Any refunds due to bad debts should be scheduled on a separate exam so that credit interest can be waived on that particular exam. A footnote needs to be added that this exam contains bad debts and no credit interest will be granted on bad debts.
Permanent Residents The number of permanent residents is significant at residential hotels and semi-residential hotels. Refer to Chapter 2 for the definition and policies regarding permanent residents. Some hotels that may cater to permanent residents are residential hotels. These are hotels that cater to a clientele that normally stays longer than 30 days. The clientele may not have a formal lease agreement but usually pays on a weekly or monthly basis with a deposit agreement. Residential hotels will sometimes have transient tenants when rooms are available. Semi-residential hotels cater to both the transient and permanent resident clientele. Semiresidential hotels usually designate the number of rooms needed for overnight stay as well as those for permanent residents. Transient Hotels usually do not have many permanent residents. These hotels cater to clientele who stay overnight or for a short period of time. NOTE: In the Entrance Conference and the initial examination of the audit records, the type of hotel should be established. The extent of the audit procedure used will depend upon the type of clientele of the hotel.
Audits on Residential or Semi-Residential Hotels For a residential or semi-residential hotel, two revenue accounts are usually kept for clientele: one for clientele designated as transient and another for permanent clientele. The revenue accounts will normally be traceable to a monthly receipts journal that summarizes the receipts of each day. A residential and semi-residential hotel will normally have either a revenue card by room or a Monthly Summary Report instead of a daily revenue balance sheet that should show:
The check-in date
The occupant of the room
The period of payment 15
The base rate, and
Possibly the check out date
(An example of a Monthly Summary Report is in Chapter 3.) The frequency of payment (i.e., weekly, semi-monthly or monthly) would indicate the probability of a resident staying less than 30 days. A client paying monthly is more likely to stay more than 30 days. If monthly summaries are nonexistent or inadequate, then the deposit agreement should be examined. The deposit agreement normally will show the date of occupancy and vacancy. Initially, the deposit agreement may be sampled to determine if the number of clientele who remain less than 30 days is significant. If this test indicates that a significant number of the hotel's clientele stay less than 30 days, then the auditor should trace the number of clientele who remained less than 30 days to:
The room revenue balance sheets, and
Use the average room rate times the length of occupancy.
If these records are not available for residential or semi-residential hotels, then examination of the customer's folios may be required. Audits on Transient Hotels Permanent residents are rare in transient hotels; therefore, the taxpayer does not usually keep detail summary records for transient hotels. Information regarding permanent residents may be taken from the Room Revenue Sheet or the folio. The Room Revenue Sheets will show the customer's name and hotel room number. The auditor may obtain these for the period that the exemption was claimed to determine if the customer stayed for 30 consecutive days. If the Room Revenue Balance Sheet is inadequate or unavailable, then the folios must be examined. NOTE: Extensive examination of folios should not be necessary unless there are no Summary records through which differences can be specifically identified. 16
Folios are usually filed by the date of the last charges. Therefore, folios can be randomly sampled by days. The folios will show the date of arrival and the date of departure for determining if a customer qualifies as a permanent resident. The registration card may indicate the client's expected length of stay. It may be necessary to examine the registration cards to determine if the first 30 days are exempt. A transient hotel may claim a substantial amount of deductions if it caters to companies such as railroads or airlines. These companies reserve rooms for their personnel. The number of rooms contracted or paid for are usually not the same each day. Refer to Chapter 2 for treatment of permanent residents. The records necessary to determine the minimum number of rooms rented include the:
City ledger (billing)
Daily revenue balance sheet
Sampling auditing techniques may be used if the records are numerous or unavailable. Exempt Organizations Some organizations that contract and pay the hotel directly for rooms are exempt from Hotel Occupancy Tax. Refer to Chapter 2 for the definition and policies regarding exempt organizations. Some organizations exempt from sales tax ARE NOT exempt from paying hotel occupancy tax. These organizations may contract for a banquet or meeting room within a hotel as well as for room rentals; both need to be verified. When an exempt organization contracts and pays for a room, the taxpayer should obtain a Hotel Occupancy Tax Exemption Certificate. (Refer to Hotel Occupancy Tax Rule 3.161.) Non-taxable room rentals must be verified. To determine if these non-taxable room rentals are valid a sample may be taken. The size and nature of the sample would depend on the materiality of the exemptions claimed and the summary records available for verification of the exemptions.
HOTEL AUDIT PROGRAMME SCOPE OF AUDIT WORK IN RESPECT OF HOTELS/RESTAURANTS INTERNAL CONTROL
CONTENT OF REMARKS CHECKING
Checking of guest main bills with reference to arrival/departure register, tariff, occupancy report – levy of expenditure tax and luxury tax
reference to delegation of powers as well as from propriety angle.
FOOD & BEVERAGES
Checking of F&B sales bills with reference to menu 18
rates and levy of sales tax
Checking of daily sales summaries with reference to F&B sales bills and cash tendered at Front Office.
Checking of charge vouchers with reference to daily sales summaries and guest main bills.
Checking of F&B cash and charge vouchers with KOTs
Checking of BWS sales with reference to consumption
Scrutiny of Internal checks/controls for adequacy
Review of existing menu rates whether rates are raised in accordance with cost of production.
Checking of Banquet bills with reference to function forms acknowledged by the parties, rates charged in accordance with prescribed rates agreed
rates in accordance with delegation of powers including charge of sales tax and expenditure tax checking of bills with Banquet KOTs and posting of bills into bill register.
Scrutiny of internal checks/ controls for adequacy
LICENCE FEE :
Checking of bills raised on licencees with reference to agreements including charge of electricity wherever applicable.
Scrutiny of individual licence files for ascertaining whether laid down procedure for allotments of space have been followed including fixation of licence fee.
Review of disputed cases of recovery of licence fee and action taken.
MISCELLANEOUS RECEIPTS :
With reference to guest main bills raised.
OPERATIONAL EXPENDITURE :
Consumption of Provision & Beverages :
Kitchen consumption register – checking of receipts from the main stores and consumption with reference to sales.
reference to picking sheets and receipts of bar items from the main stores.
Comparison of monthly BWS and cigar and 21
cigarettes cost with laid down standards and cost in other hotels.
Employees remuneration and benefits :
Salary bills with reference to attendance and leaves records and personnel files etc.
Pay fixation in respect of promotion cases
Payment of DA whether in accordance with orders on the subject
Medical benefits in accordance with rules framed by Hqrs.
Payment of bonus in accordance with Bonus Act or other orders of the Management.
Overtime allowance – analysis for suggestions, if any.
Power and Fuel – Payment with reference to the bills, consumption of fuel as per records – suggestions if any, on savings in electricity and
Repairs & Maintenance – Payment with reference to bills review of consumpti8on of materials/storescontracts awarded for R&M to outside parties with reference to laid down procedures – Comparative study of R&M cost with other hotels.
Up-keep service cost – payment with reference to bills.
House Keeping :
Review of stock-cum-consumption register and linen and blanket register with reference to receipts and consumption.
Review of consumption of various stores items with reference to rooms and F&B sales.
Scrutiny of procedure followed for write-off of linen and blankets.
Write-off and Breakages – Scrutiny of system followed for write off and breakages of crockery, cutlery, glassware and kitchen utensils – whether
register is maintained.
Telephone & Telex Expenditure – Review of expenditure on telephone and telex etc. vis-a-vis income alongwith internal check/controls and suggestions for further controls if any.
Decoration and flowers – Recovery from guests and payment to suppliers review.
ADMINISTRATIVE EXPENDITURE :
TA, DA & Conveyance, printing and stationery, postage,
advertisement, publicity and sales promotion, entertainment (with reference to prescribed norms). Running
& maintenance of vehicles, bank and
music, expenses on cultural shows including income, commission to travel agents etc. with reference to payment vouchers etc.
STORES AND PURCHASE :
Scrutiny and review of purchase cases with reference to laid down Purchase and Store Procedure manual and delegation of powers.
Checking of stores ledgers with stores receipt vouchers and issue vouchers alongwith authority requisitioning the stores and cross checking of receipts with security records.
Review of old/obsolete and surplus stores and action taken for transfer to other units where required or disposal.
Review of minimum, maximum and recording level fixed.
suggestions for reducing the inventory if any.
SUNDRY DEBTORS OUTSTANDING :
Checking of posting of guest main bills into parties accounts in the city ledger with reference to EBR.
Review of outstanding period wise
Review of court cases and follow up action
Review of old outstanding considered nonrecoverable for write-off
Review of oustandings with reference to authority letters of customers.
possibility/steps for adjustments against debit balances.
ENGINEERING AND OTHER CONTRACTS :
Review and scrutiny of contracts awarded with reference to delegation of powers and whether prescribed procedures have been followed.
Review of dismantled/surplus material and its disposal / transfer to other units where required.
FUND FLOW :
Review of funds flow statements with actual collection and utilisation of funds and suggestions, if any for maximising return/transfer of funds to Hqrs.
BOOKS OR ACCOUNTS AND MONTHLY REPORTS :
Review of position of maintenance of Books of Accounts and suggestions for updating.
Review of monthly trial balance
Review of Management information system reports for accuracy
Review of sub-ledgers for advances with General Ledger for reconciliation.
Reconciliation of City ledger with General Ledger.
Review of Bank reconciliation statements.
Contractors, suppliers & employees for adjustment
Verify the integrity of the management control system.
Verify that the department compiled its enrolment data according to the definitions in the Program Announcement.
Verify that the project leader employed strategies outlined in the project proposal and project reports according to proposal budget.
Verify that personnel appointed to the grants actually worked on the grants.
Verify that all expenses of hotel were governed by use of the proper procurement procedures in compliance with statute.
Verify that the institution and the department uses equipment purchased with grant funds on the grant and that the needs of the grant justified the purchase.
Verify that federal expenditures reported to the Coordinating Board were expended as reported and in the time frame given by the reports.
Verify that travel paid from grant funds is actually related to grant activities and conforms to state guidelines.
Verify that the grantee received approval from the Coordinating Board for budget transfers in excess of those authorized by grant conditions.
Verify that increased formula funding resulting from increased undergraduate enrolment resulting from this program is passed on to the appropriate college or department.
It is conclude that the auditor discusses his observations with those charged with governance, such as the audit committee of the company, before finalising the report. The auditor should be firm in his opinion, and exercise his independence at this level. This part of the audit is critical, and calls for resilience on the part of the auditor. An audit report, being a public document, should be drafted skilfully. The code of conduct prohibits an auditor from divulging any information received by him in the course of his professional assignment, unless legally required so to do. Therefore, the auditor shouldn't hesitate to take the help of a legal expert on whether to include certain comments in his report. And the auditor should keep proper record of an hotel at night.
the Book Name
Advanced auditing Sheth publisher
L. N. chopde Singavi , malkan