internal control presentation for a hotel organization
DESCRIPTION
The presentation is on the Internal control of the financial and operational system in a mid size hotel. It touched on risks and controls within the accounting, revenue, expenditure, purchases, receiving, storage, security, procurement, maintenance, disbursement, cash, bank, regulatory and sales or marketing cycle.It is intended for professional consultants who wish to make a case on internal control for owners of hotel businesses.The author is concerned about the gap in the agency relationship, as the owners rely on the information presented by management which may lack integrity as the basis for decision making. The key message in the presentation is that effective internal control is needed to deter the potential of fraud and other irregularities within an organization.TRANSCRIPT
XYZ Hotel LimitedXYZ Hotel Limited
Internal Control Framework
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What is internal control ?What is internal control ?It is a process put in place by management to ensure:
1. Business objectives are achieved.
Ensure significant return or profit on the investment.
2. Safeguarding of Assets. Ensure the Hotel assets are protected.
3. Accounting information is accurate and reliable.
Ensure all transactions are recorded and accurately reported .
4. Regulatory compliance. Ensure compliance with Tax and other regulatory authorities.
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Why internal control ?Why internal control ?• Business owners have limited time to monitor their
investments, as such personnel are prone to perpetrate occupational fraud harmful to the business.
• Hotels are most vulnerable to fraud due to its peculiar nature and the absence of effective internal controls.
• By establishing controls the opportunity and motivation for fraud and theft, is reduced, and the company is better positioned to make a profit.
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Control focus Control focus
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Revenue CenterRevenue Center
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Expense CenterExpense Center
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Cost CenterCost Center
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Control framework 1Control framework 1Process Risk Control
Accounting The Hotel transactions may not be recorded, thus revenue generated may be omitted and not recognized in the Management Account.
All transactions in the Hotel should be recorded in the relevant books, with support documents. Management Account should be presented.
Revenue Front desk may collude with house keeping to sell rooms, without recording the sale, thus pocketing the money. Other incomes may be hidden.
Room sales should be recorded once a guest books in. Daily monitoring of the status of rooms, and reconciling other income with the cashier report.
Expenses Unauthorized expenses, inflated pricing, excessive operational cost.
Use of requisition and payment vouchers. Approval and Budgetary control should be in place for expenditures.
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Control framework 2Control framework 2Process Risk Control
Purchases Unauthorized, substandard and inflated prices on the goods purchased.
Registered vendors to be used, all purchases in the Hotel should be approved and supported.
Receiving and storage of goods
Illegal or private goods may be smuggled in and sold in the Hotel, without the attention of management. Items may be stolen from the store.
All goods coming into the Hotel should be jointly inspected and witness by the security office. Store should be secured, physical count of all items should be regularly conducted.
Cash and Bank Revenue may not be recorded or deposited in a timely manner, money may be personally used before lodgment.
All cash sales should be registered in the daily cash register and deposited intact. Bank reconciliation should be done periodically. 9
Control framework 3Control framework 3Process Risk Control
Security Dangerous individuals may gain access into the hotel, for a criminal intention.
Security gadgets such as scanners and CCTV should be in place to monitor and deter criminal intention. There should be a periodic report on security status.
Cash disbursement
Cash may be withdrawn from the front desk without adequate control, resulting in uncoordinated and reckless expenditure.
All cash expenses in the Hotel should be centrally managed, and appropriate levels of approval should be in place before disbursement.
Regulatory compliance
The Hotel may incur penalty, fines and possible shut down by the revenue authority for failure to pay tax.
Register with the tax authority and ensure regular compliance with the statutory laws and regulation.
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Control framework 4Control framework 4Process Risk Control
Recruitment and service providers
Personnel or service providers with questionable and suspicious background may be engaged in the Hotel, constituting security risk to the organization.
Interview process and background screening should be conducted before engaging any personnel. Referees and confidentiality forms should be signed.
Repairs and maintenance
Physical wear and tear and destruction of the Hotel infrastructure, makes it inhabitable for guests. Excessive cost of repair and inflated job quotation.
Work order permit should be used and approved before any repair work. Experienced contractors should be engaged. All related document supporting the work done should be filed.
Sales and Marketing
Hotel rooms and services may remain unsold, limiting the ability to earn revenue.
Sales and marketing strategy should be in place to generate income.
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Conclusion Conclusion • Millions of Naira are lost every day in all business
environments due to the absence of control which leads to the potential for fraud. Fraud can be committed by a trusted individual, a member of staff and/or external parties.
• But fraud doesn’t happen in a vacuum, fraud occurs because of the opportunity created and the perception that it can not be detected.
• Effective internal control should limit the opportunity for fraud, prevent its occurrence and detect, if it does occur.
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Way ForwardWay Forward
Management should work with a team of qualified and independent firm of Chartered Accountants, to periodically
review the hotel operations, report on control lapses, exposure to risk, as well as make a recommendation to reinforce, improve and add value to the hotel operation.
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Thank you.Thank you.
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