Audit of Hotels | Role of Auditor

Hotel audit

In hotel business, usually the internal control procedure tends to be weak and ineffective. Therefore, the auditor should carefully evaluate the effectiveness of internal control system in the different areas, before deciding upon audit techniques and methods to be followed in those areas.

Receipts to verify in hotels audit

An auditor has to verify the following receipts and vouchers in a hotel audit. They are documents for cash sales and credit sales, stocks movement register,  payments to travel agents and laborers, records relating to hotel assets and miscellaneous expenses etc. The role of auditor in verifying these documents are given below.

Role of Auditor in Hotels audit

1. Verification of Cash sales

In hotels with no lodging facilities, almost the entire sale is on cash basis. Therefore, the internal check should be very efficient and ensure that all sales are accounted. An electronic billing machine or a series of numerically controlled manual bills may be used. Internal check shall ensure that daily sales report is prepared and reconciled with the total of the bill roll, or the numerically controlled bills.

The auditor may cross-verify the same with the cash records maintained by an independent person. The auditor may also test check the kitchen order tickets with the cash bills to ensure the efficiency in internal checking system.

2. Verification of Credit sales

The guest bills are the supporting documents for credit sales. The guest bills are prepared in the reception wing. The guest bills shall contain room rent, charges for room service, laundry and other services provided. The guest register may provide information such as the nature of rooms occupied by the guests, the number of days stayed and the number of persons occupied the room.

Internal check should include preparation of daily report on room occupied in the previous night with the number of persons in each room. This daily report may be prepared by an independent person such as house keeper, who has no control over the accounts department or reception wing.

The auditor may cross verify the guest bills with the guest register, and daily reports on room occupancy. Verification of cash book against the guest bills shall confirm collection of cash from the guests. If the rates charged are not as per the normal rates, the auditor may ensure that such bills are duly authorized. The auditor shall ensure that the tax charged in the guest bills are duly remitted to the concerned tax authorities by the management.

3. Verification of Stocks

The probability of pilferage of food items is very high due to their nature. Therefore, the stock movement records should be accurately maintained. The internal control procedures, right from the point of receiving the stock to the sales point, should be correctly maintained to avoid pilferage. Unauthorized entry should be prohibited in the areas where stock is kept. The receipt and issue should be made only under effective supervision.

The auditor may ensure his presence at the time of physical verification of stock. The auditor may also rely on the valuation carried out by the professional valuers if he believes that the procedure and methods of valuation of each item are appropriate to the nature of the items.

4. Verification of Payments to Travel Agents

In many hotels, the bookings for rooms, parties, hall etc., takes place through travel agencies and other similar agencies. The auditor shall ensure that the amount due is collected within the agreed period. While verifying the commission paid to the agents, it should be ensured that the commission is as per the agreement between the management and the agent.

5. Verification of Payment to Laborers

In hotel industry, the labor turnover is very high and thus the number of casual laborers employed is more. During festival seasons and in case of parties, laborers are employed even for a few hours. The records maintained relating to wage payments will be disorderly and inadequate. Due to this, probability of misappropriation of cash is very high. The auditor shall insist on maintenance of proper wage records and implementation of adequate controls in payment of wages.

6. Verification of Assets

Apart from the usual assets, such as land and building, furniture, plant and machinery, vehicles etc., in hotel industry, semi-fixed assets such as silver and cutlery, blankets, curtains are also to be recorded, controlled and accounted. The method of accounting for this type of special items is to be prescribed by the auditor and he should also ensure that the recommended method is duly complied by the management.

7. Verification of Miscellaneous items

In many hotels, a counter for exchanging the foreign currency into Indian Rupees is maintained. The auditor should ensure that all the requirements of statutes governing such conversions are duly complied. The auditor should also ensure that the occupancy-in-progress as on the date of balance sheet is appropriately valued and accounted. The auditor may also analyze the financial statements by calculating and comparing food cost, occupancy ratio and relevant ratios applicable exclusively to hotel industries.

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