THE NIGHT AUDIT

Front office records must be periodically reviewed for accuracy and completeness. This need is met through the NIGHT AUDIT. With computerised accounting it can be carried out at any time during the day. These properties choose to call the audit the Front office audit or System up date. Even though computerised properties can perform these functions at any time, they almost invariably follow the night time tradition since the no. of transactions are less during the late night or early morning hours.   Performing the night audit requires attention to accounting detail, procedural controls and the guest credit transactions.

Duties and responsibilities of a night auditor:

Ø The night auditor is an official of the hotel who verifies the correctness of the guest accounts, checks the entries of the day’s sales and verifies whether the cash collected during the day has been duly accounted for with the help of summaries and statements received from various departments during the night shift.

Ø The night auditor should also be familiar with the nature of cash transaction affecting the front office accounting system.

Ø The night auditor typically tracks room revenues, occupancy percentages and other operating statistics.

Ø In addition, the auditor prepares a daily summary of cash, check and credit card activities that occurred at the front desk. These data reflect the front office’s financial performance for the day.

Ø The night auditor summarizes and reports the results of the operations to the front office management. This accounting data can also be used by hotel’s accounting department for the generation of further statistical reports.

Ø The night auditor establishes guest and non guest account integrity by cross- referencing account posting with departmental source documentation.

The audit process is complete when the totals for guest, non-guest and departmental accounts are in balance. As long as the audit process presents an   out of balance position, the audit is considered incomplete. An out-of-balance position exists when the charges and credits posted to guest and non guest accounts throughout the day do not match the charges and the credits posted to the departmental revenue sources. An out-of-balance condition may require a thorough review of all account statements, vouchers, support documents and departmental source documentation.

Proper internal control techniques call for different front office staff to post, verify and collect for different sales transactions at the front desk. If a front desk agent was allowed to sell a guest room, post the charges, verify the postings and collect the cash for the room, no one else would be able to detect mistakes. Instead, duties should be split among the employees; a front desk agent may perform posting, a night auditor the verification and a cashier the settlement.

Supervising the credit limits of guests and non guests accounts helps to maintain the integrity of a front office accounting system. Establishing lines of credit or credit limits depends on a lot of factors, such as credit card company floor limits, the hotel’s house limit, and the guest’s status or reputation as a potential credit risk. High account balances should be noted as a part of the posting process. At the end of each day the auditor has to identify those guest and non guest accounts that have reached or exceeded the assigned credit limits. A report listing high balance accounts or a high balance report for the front office to take appropriate action.

Night audit functions can be performed manually, mechanically or electronically. Regardless of how the night audit is conducted, the basic accounting formula that applies is as follows :

Previous Balance    +    Debits    -    Credits    =    Net outstanding balance      

          PB        +       DR      -       CR       =             NOB

A daily transcript is made in manual and semi automated hotels as a detailed report of all guest accounts. The daily transcript indicates those guest accounts that had transactional activity on that particular day. A supplemental transcript is often used to record the day’s transactional activity for non-guest accounts. Daily and supplemental transcripts are simply worksheets designed to detect various types of posting errors. They can facilitate the night audit routine by identifying out-of balance figures. An out-of-balance condition among the non-guest accounts, for example, will help the night auditor to detect and correct errors without having to review all transactions occurring on that day.

The Night Audit Process :

A manual accounting module simply is not feasible for a large hotel’s front office operation. The duties of the night auditor working with a non-automated system are as follows:

1.  All pending vouchers, left unposted by the previous billing clerk are entered into   

     the guest account.

i.     Charges room rate to all guest accounts and accumulates room charges for the day are also posted in the guest account

ii.    Closes all guest accounts for the day in the Visitors Tabular Ledger as well as in the Guest Weekly bills

iii.   Prepares new sheets of Visitor Tabular Ledger for coming day and opens all guest accounts

iv.   Totals Debit and Credit sides of each V.T.L.

Checks the arithmetical accuracy of the total of each debit and credit item on the last sheet of the V.T.L. The formulas applied are:

·         Daily total vertical figures = daily total horizontal figures

·         Daily total + Balance B/F(Dr.) – Balance B/F(Cr.) = Grand total(Dr.) – Grand Total(Cr.)

2.  Two transcripts of the guest accounts are prepared; one for the in-house  

     guests and the second for the departed guests

3. The total individual items showing the transcript are compared with the

     respective sale summaries of the departments

a)    The total room sales is compared with the room sales shown by the V.T.L., room count sheet and the night receptionists room sales report

b)   The total food sale is compared with the restaurant sale summary, cash book summary and V.T.L. food column

c)    The total of the bar sale is compared with the bar allocation sheet of control dept. and cashiers bar sale summary and V.T.L. bar column.

d)   The total of telephone column is compared with the telephone summary and V.T.L. telephone column.

e)    The total of other departments is compared with the sales journals of these departments and respective columns of the V.T.L.

f)    The balance b/f is compared with the balance c/f  for the previous day

g)    The total of cash receipts is compared with the front office cash sheet

h)   The allowance vouchers are not listed in the front office so the night auditor prepares a consolidated statement of allowances. The total of these is compared with the allowance column of the transcript.

Sends the departmental summaries, transcript sheet, V.T.L., etc. to the income auditor.

            In some hotels semi-automated accounting system is used with the help of N.C.R. machines. The duties performed by the night auditor are as follows:

1.  Takes the readings for all departments with the help of accumulating key

2.  The night auditor prepares a trial balance with the help of N.C.R. machine.

3.  It is also the responsibility of the night auditor to remove bills of those guests who have completed their seventh day in the hotel and reopen new bills for them for the new week

4.  Sends all department summaries, transcript sheet, machine balance and audit roll tape is sent to the income auditor.

            The night audit focuses on two aspects, The discovery and correction of front office guest accounting errors and management reports. Guest and non guest accounts are compared with the source documents from the revenue centers to provide individual transactional entries and account totals. Discrepancies found during a night audit should be corrected so that the front office accounting system is in balance. For  management reporting, the night audit provides important operating information, such as average rate, occupancy percentage, usage of package plans and other marketing programs and the no. of group rooms and complimentary or no-charge rooms occupied.

            The degree of scrutiny required during the night audit process depends firstly on the frequency of errors which relates to the quality of the front office work and secondly the volume of the transactions to be reviewed which relates to the size and complexity of the hotel operations.

The following steps are common to the sequence of a night audit :

1) Complete outstanding postings

            One of the primary functions of the night audit is to ensure that all transactions affecting guest and non guest accounts are posted to appropriate folios before the end of the day. Charges posted to wrong date will confuse guests and severely complicate cross-referencing. Posting errors can also lead to discrepancies and delays at check-out.

            Though the transactions have to be posted to the proper account as soon as they are received, the night auditor must confirm that all the transactions received by the front office for posting are been posted, before starting with the audit routine.  Incomplete posting will result in errors in account balancing and complicate summary reporting. In addition to completing posting functions, the night auditor verifies that all vouchers for revenue center transactions are posted. If the hotel does not have interfaced computerised telephone call accounting system, outstanding telephone charges may require manual posting. In case of a point of sale or call accounting system interfaced with the front office accounting system, the previously posted totals should be verified to ensure that all outlet charges have been posted. This can be done by generating printed posting reports from the interfaced  system and comparing them with the total reported by the front office account system. If the figures are identical, the systems are in balance. If they do not tally the auditor begins to compare transactions between the two systems to identify the transactions that have been omitted or improperly posted.

2) Reconcile Room Status Discrepancies

Room status discrepancies must be resolved in a timely manner since imbalances can lead to lost business and cause confusion in the front office. Errors in room status can lead to lost and uncollectible room revenues and omissions in postings. The front office must maintain current and accurate room status information to effectively determine the number and types of rooms available for sale. For example, if a guest checks out but the front desk agent fails to properly complete the check-out procedure, the guest's room may appear occupied when it is really vacant. This error in procedure could prevent the room from being rented until the error is discovered and corrected.

In manual and semi-automated hotels, before the end of the day, the night auditor reconciles discrepancies between the daily housekeeper's report and the front office room status system (the room rack and guest folios in manual and semi-automated hotels). To minimize errors, housekeeping departments typically require staff to record the perceived status of all rooms serviced. The auditor must review front office and housekeeping department reports to reconcile and finalize the occupancy status of all rooms for a given night. In fully automated hotels, the night auditor compares the daily housekeeper's report with the room status report of the system and the bucket where the registration cards for in-house guests are kept.

If the housekeeping report indicates that a room is vacant, but the front office believes it is occupied, the auditor should search for an active room folio and registration card. If the folio exists and has a current outstanding balance, there are several possibilities:

·                     A guest may have departed but forgotten to check out.

·                     A guest may be a skipper who left with no intention of checking out.

·                     A front desk agent or cashier may not have properly closed the folio at check-out.

After verifying that the guest has left the hotel, the night auditor should process the check-out and set the folio aside for front office management review and follow-up. If the folio has been settled, the front office room status system  should be corrected to show that the room is vacant. The night auditor should verify the guest folio against the housekeeping and the room status reports to ensure that all three are consistent and in balance. In a computerized system, the check-out process is normally linked to a rooms management function that automatically monitors and updates the room's status. Few, if any, room status discrepancies should occur in a computerized front office system, but the night audit process is still necessary to ensure accuracy.

 

3) Balance All Departments

The night audit process can become quite complicated when errors are discovered. It is generally considered more efficient to balance all departments first and then look for individual posting errors within an out-of-balance department.

The night auditor typically balances all revenue center departments using source documents that originated in the revenue center. The night auditor seeks to balance all front office accounts against departmental transaction information. Vouchers received at the front desk and other documents are totaled and compared with revenue center summaries. Even fully automated front office accounting systems rely upon source documents to help resolve discrepancies as they arise.

When the front office accounting system is out of balance, the correctness and thoroughness of account postings must be investigated. A detailed department audit (by shift or by cashier) may be conducted and individual postings reviewed until the front office accounting error is corrected.

The process used to balance the revenue center departments is often called the trial balance. The night auditor completes the trial balance before verifying the final system balance and creating final night audit reports. The trial balance usually uncovers any corrections or adjustments that need to be made during the night audit process. Night auditors often perform the trial balance before posting room and tax charges. Doing so can simplify the final night audit procedure. If the trial balance was correct and the final balance is wrong, the auditor can deduce that the error must relate to the room and tax posting.

It is important to note that a mathematical balance in guest and non-guest accounts against 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 imbalance total. This type of error usually goes unnoticed until a guest has a problem with the validity of an entry on his or her statement.

Exhibit presents a sample sequence of night audit procedures useful in departmental balancing.

4) Verify Room Rates

The night auditor may need to complete room revenue and count report such as the one shown in Exhibit. This report provides a means for analyzing room revenues since it shows the rack rate (price) for each room and the actual rate at which the room was sold. If a room's rack and actual rates do not match, the night auditor should consider several factors.

·                     If the room is occupied by a member of a group or by a corporate-rate     customer, is the discounted rate correct.

·                     If there is only one guest in a room and the actual rate is      approximately half the rack rate, is the guest part of a shared           reservation? If he or she is, did the second guest register.

·                     If the room is complimentary, is there appropriate supporting back-up  for the rate (for example, a complimentary room authorization form)

The proper use of room revenue and count information can form a solid basis for room revenue analysis. The night auditor may be required to produce a copy of this report for review by front office management. Some hotels today measure room revenue potential against actual room revenue.

The actual room revenue posted is compared with the rack rate of the rooms occupied for the night. The comparison may be shown as a percentage. The night auditor may be responsible for calculating this number and reporting it as part of the night audit or it may be done automatically by the front office computer system.

5) Verify No-Show Reservations

The night auditor may also be responsible for clearing the reservation rack or filing and posting charges to no-show accounts. In posting no-show charges, the night auditor must be careful to verify that the reservation was guaranteed and the guest never registered with the hotel. Sometimes duplicate reservations may be made for a guest or the guest's name may be misspelled and another record accidentally created by the front office staff. If these are not identified by front office or reservation staff, the guest may actually arrive but appear to be a no-show under the second reservation.

No show billings must be handled with extreme care. A front desk agent who does not record cancellations properly may cause clients to be billed incorrectly. Incorrect billing may lead the credit card company to re-evaluate its legal agreements and relationship with the hotel. Incorrect billing may also cause the hotel to lose the guest's future business and (if applicable) the business of the travel agency that guaranteed the reservation. All front office staff must adhere to established no-show procedures when handling reservation cancellations or modifications.

6) Post Room Rates and Taxes

Posting room rates and room taxes to all guest folios typically takes place at the end of day. Once room rates and taxes are posted, a room rate and tax report may be generated for front office management review. The ability to electronically post room rates and room taxes on demand is surely one of the most frequently cited advantages of an automated front office system over manual and semi-automated systems. Once the night auditor has verified the room rates to be posted, the computer can auto-post numerous room rate and room tax charges to the appropriate electronic folios in a matter of minutes. With manual or semi-automated systems, the procedure required to post room rate and room tax can be very tedious and time consuming. In addition, automatic charge postings are accurate, with no chance for pickup, tax calculation, or posting errors. This feature can be especially important to hotels located in municipalities that have bed or occupancy taxes in addition to a sales-tax. Some automated hotels may pre-set their computer systems to post daily recurring charges, such as valet parking or gratuities. Auto-posting these charges can save night audit time and improve accuracy.

7) Prepare Reports

The night auditor typically prepares reports that indicate the status of front office activities and operations. Among those prepared for management review are the final department detail and summary reports, the daily operations report, the high balance report, and other reports specific to the property.

Final department detail and summary reports are produced and filed along with their source documents for accounting division review. These reports help prove that all transactions were properly posted and accounted for.

The daily operations report summarizes the day's business and provides insight into revenues, receivables, operating statistics, and cash transactions related to the front office. This report is typically considered the most important outcome of the front office audit.

The high balance report, as shown in Exhibit, identifies guests whose charges are approaching an account credit limit designated by the hotel (the house limit).

In a computerized front office system, the computer may be programmed to produce many management reports on demand. For example, the high balance report may be produced at any time during the day as a continuing check on guest transactions and account balances.

In addition, other reports are usually created at this time by the night audit. A report showing each group in the hotel, the number of rooms occupied by each group, the number of guests for each group, and the revenue generated by each group is common. This report helps the hotel sales department with the group history. The same type of report may be generated for guests on package plans or guests staying in the hotel due to a special promotion or advertising program. Other reports may list guests who stay frequently and guests who are  VIPs. In automated hotels, this type of marketing information can be automatically tracked, sorted, and reported.

8) Deposit Cash

The night auditor prepares a cash deposit voucher as part of the night audit process. The night auditor compares the postings of cash payments and paid-outs (net cash receipts) with actual cash on hand. A copy of the front office cashier’s report may be included in the cash deposit envelope to support any overage, shortage, or due back balances. Since account and departmental balancing often involve cash transactions, accurate cash depositing may depend on an effective audit process.

9) Clear or Back Up the System

In manual and semi-automated front office operations, totals must be cleared from the system after the night audit is complete. Manual systems are cleared by simply moving the closing balance from the night audit report to the opening balance of the next day's report. In semi-automated operations, the totals in the posting machine must be brought t a zero balance. The night auditor controls this function so that the possibility of fraud is minimized. As each account is reduced to zero, a separate card (sometimes called a Z card) is used to verify the zero balance. A Z card is usually submitted with the night audit work to show that all accounts have been properly reset. In semi-automated systems, typically only the ending balance is maintained in the posting machine.

Since a computer system eliminates the need for a room rack, reservation cards, and a variety of other traditional front office forms and devices, front office accounting depends on the continuous functioning of the computer system. A system back-up in the night audit routine is unique to computerized front office systems. Back-up reports must be run and various media duplicated in a timely manner so that the front office can continue to run smoothly.

End-of-day reports can be developed and automatically generated by a front office computer system. Normally, at least two guests lists are printed for back-up and emergency use: one for the front desk and one for the switchboard.

A printed room status report enables front desk agents to identify vacant and ready rooms should the computer become inoperable. A guest ledger report can be generated which contains the opening and closing account balances for all registered guests. A front office activity report can also be generated. Such a report contains expected arrival, stayover, and departure information for several days.

In some front office systems, the next day's registration cards are pre-printed as part of the front office activity report. Due to requirements of the Americans with Disabilities Act, hotels must also keep track of guests with disabilities. One reason for this is to ensure that all disabled guests are accounted for in case of an emergency. This report is usually produced at this time and distributed to the various departments needing this information.

Computer-generated front office information should also be copied (backed up) onto magnetic tape or magnetic disk, depending on the system configuration. A system back-up should be conducted after each night audit and stored in a safe place. Many computer systems have two types of system back-up. A daily back-up simply creates a copy of front office electronic files on magnetic tape or magnetic disk. The second type system back-up is performed once or twice a week. This back-up not only copies daily information, but eliminates account and transaction information deed to no longer be of value. For example, accounts that have been checked out for over three days and have had no activity during that time can be deleted from active computer memory. Following this procedure will reduce the overall amount of computer storage required for back-up. If any account must be researched in the future, it can be found on previously printed reports or the weekly back-up.

10) Distribute reports

Due to the sensitive and confidential nature of front office information, the night auditor must promptly deliver appropriate reports to authorized individuals. The distribution of night audit reports is the final step in the night audit routine, and is important to efficient front office operations. Informed managerial decisions can be made if all night audit reports are completed accurately and delivered on time.

By Chef NK