6.
CREDIT POLICY AND DOUBTFUL DEBTS
Ø Ensure
that the hotel has a documented credit policy.
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Ø Discuss
the procedures employed by the hotel to monitor credit risks (for both new
and existing debtors), these may include employing a Credit Controller,
requiring the completion of a credit application, supply of credit
references, factoring debts, using ratings and collection agencies and
holding regular minuted credit meetings. Are they reasonable?
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Ø Select
three recent applications and check that an adequate credit check has been
performed. Were any exceptions noted? Consider expanding scope if
exceptions were noted.
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Ø Analyze
the ageing and obtain explanations for fluctuations, in particular the
90-day+ category. Compare this to the last two quarterly accounts
receivable reports for trends.
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Ø Obtain
explanations for action being taken to collect the largest items over 90 days
old, vouch to supporting documentation.
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Ø Discuss
with Credit Manager and/or Financial Controller the reason for slow or
non-payment. Has the hotel taken reasonable steps to pursue the
debtor to receive payment?
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Ø For
three large accounts receivable balances, ensure that the supporting
documentation is consistent with the ageing in the accounts receivable
report.
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Ø Assess
the adequacy of the bad debt provision based on 3.4 above and any subsequent
receipts. Discuss the method of calculation and enquire whether
the reserve is reviewed monthly.
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Ø Review
the profit and loss and provision for doubtful debts account to determine the
level of bad debts written off during the year. Obtain documentation to
support the write-off of these debts, including the authorization form to
write-off uncollectible accounts. Review and determine whether
they reveal indications of credit weakness, lack of documentation or
communication, etc.
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7. INVENTORY CONTROL
The hotel will maintain an
inventory of beverages, operating equipment (linen, glassware, crockery,
cutlery, stationery, etc. - which are often held at par levels), food and
engineering supplies. Food stocks should not be significant due to its rapid
turnover and perish ability. Prior to starting this work you should identify
the different types of stock held and their relative value to focus testing
on more material balances.
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Meet with the Stock Controller and
discuss procedures followed to ensure all hotel inventories, including
operating equipment are adequately controlled. Determine if the
following controls are present and effectively working (or not applicable).
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2. Ensure that there is adequate security over keys for the
store-rooms. Also, review controls over access outside normal
working hours.
3. Is there adequate segregation of duties between the parties
responsible for maintaining hotel inventories and the responsibilities of
ordering, receiving and paying suppliers?
4. Are procedures in place to control the physical receipt and
issuance of goods? Are issues from stores controlled by an approved requisition
process, which includes the signature of the authorizer, receiver and issuer?
5. Does the hotel conduct regular stock takes to ascertain stock
holdings?
6. Where the hotel has a perpetual inventory system in place is an
adequate investigation made into discrepancies between book and physical
holdings? Are adjustments recorded in the hotel profit
& loss account to reflect book to physical differences?
7. Does a member of the finance staff attend each stock take to
monitor the accuracy of the count?
8. Check the hotel employs the following control techniques:
a. par (set stock levels) levels of bar stocks at each outlet;
b. outlets required to use stickers on spirit bottles and return
empty spirit bottles to obtain a replacement;
c. potential revenue analysis to monitor wastage/shrinkage; and
d. Random hydrometer tests that spirits are not watered down.
9. Based on the testing completed above,
are procedures operating effectively to control inventory held by the
hotel? (If not, ensure the cause is adequately documented in the
audit report.)
8. PAYROLL SUPERVISORY CONTROLS
Discuss with the
Financial Controller, Payroll and Human Resource Departments, the supervisory
controls employed by the hotel in the area of payroll. Common
analysis and controls employed by hotels include:
Ø Does
the hotel set, monitor and analyse performance to budgets, forecasts and
historical performance on a regular basis?
Ø Do
departmental managers play an active role in monitoring and controlling the
payroll costs of their respective departments?
Ø Based
on the testing completed above does the hotel employ adequate supervisory
procedures to monitor the reasonableness of hotel payroll costs? (If
not, ensure the cause is adequately documented in the audit report.)
9. EXECUTIVE
REMUNERATION AND EXPENSE CLAIMS.
Discuss with the
Financial Controller, Payroll and Human Resource Departments the policies and
procedures employed at the hotel to control executive payroll, expense claims
and employee loans. Controls should include:
Ø The level of
remuneration and benefits paid to the General Manager is authorized centrally
by XXXXXXXXXXX. Note that any other payments to the General Manager,
and expense claims, should be authorized by the Jakarta Head Office. Obtain
a copy of the General Manager’s contract and review the terms and
conditions. Has the contract been authorized by XXXXXXXXXXX? Note
that any other payments to the General Manager, and expense claims, should be
authorized by the Jakarta Head Office.
Ø The level of remuneration
and benefits paid to the executives (department heads) are approved by the
General Manager and the Human Resources Manager. Review the
personnel files of four executives (ensuring the Financial Controller is
selected for testing) and ensure their contract terms and conditions are
appropriately authorized. Were any exceptions noted?
10. ACCRUALS – AN
OVERVIEW
Advertising Accruals
POLICY
Proper recognition of period advertising
expense requires a clear understanding of your projected annual expenditures.
The annual budget is designed to reflect the annual media plan which supports
the year’s revenue plan. Monthly fluctuations created by the timing and billing
of costs for advertisement production, placement, etc., may result in a
meaningless estimation of
Period expenses in
comparison to the annual budget. Therefore, you should monitor closely the
actual and forecasted costs for placement of media advertisement, depicted on
your most recent media plan.
PROCEDURE
1. Advertising costs,
once billed, should be coded to the appropriate advertising expense
accounts. Accruals that may be required to fully recognize the hotel’s
annual, year-to-date advertising expense budget, should be recorded
as a one line entry to the “accrued advertising”
expense account in the advertising department of the financial statement. Any overspend
must be recognized in the P&L immediately.
2. All accrual entries
pertaining to advertising must be reversed the following
period and re-evaluated. At the year end the Financial Controller should check
with his/her VP of Finance to be certain all media expenses per the media plan
have been received.
3. The advertising
accrual should be very closely monitored to be certain that advertising
expenditures for the plan year will not exceed budget. The media
plan must be compared against all billings and discrepancies investigated. At
any time it is known that expenses for the entire year will exceed budget, that
excess must be recognized in the current month.
4. Billings that
are a major departure from the media plan must be investigated immediately and
resolved with the General Manager. The VP of Finance should also be informed.
Holiday & THR
Accruals
POLICY
Holiday pay and THR
payments represents a significant annual cost to the company. Holiday is
earned in relation to tenure; therefore, adequate record keeping must be
established both to validate the holiday liability and ensure employees are
paid only for earned and due holiday.
PROCEDURE
1. All employees of
XXXXXXXXXXX Hotels accumulate a holiday pay benefit, based on their tenure with
the company. It is our policy to expense each accounting period, a pro-rata
share of this estimated annual expense on a departmental basis through
recording accrued holiday pay expenses.
2. The Financial
Controller must establish a holiday pay approval process so that each employee
receives his or her properly earned holiday in accordance with company policy
and standards. The Financial Controller should be aware of Indonesian statutory
laws that regulate holiday pay. Before a holiday approval process is
established, the Financial Controller must consult with his/her VP of Finance,
XXXXXXXXXXX Corporate Office Jakarta and Head Office Human Resources. The
process must be approved in writing by the Financial Controller and VP of
Finance. Once it is approved, the information is communicated to the
appropriate departments.
3. The Financial
Controller is ultimately responsible for the accuracy of the holiday or THR
accrual/provision and ensuring that consistent methodology is utilized
throughout the year.
Data should be shared
frequently between Accounts and Human Resources to create a proper cross-check
of employee information.
4. Twice annually during
June and December, a complete analysis of the holiday
Accrual/provision is to
be completed by Accounts and signed-off by the Financial Controller.
Any Year-To-Date (Y-T-D)
adjustments required are to be recorded in the then-current period (not
allocated into future periods).
5. If the payroll system
in place ensures the holiday pay or THR accrual/provision is calculated
automatically based on the data input for each employee then the Financial
Controller must still ensure a report can be provided from the system to
support the closing holiday debtor/creditor.
Expense Accruals
POLICY
It is XXXXXXXXXXX’s
policy that all expense accruals are based on actual purchase orders,
Recurring monthly
expenses and meter readings, thereby ensuring that all monthly costs are in the
correct period.
All expense accruals
should be made via a reversing journal entry, with any prior month under/over
accruals being recognized in the current period.
PROCEDURE
1. Payroll Accruals
Payroll may represent
the most significant operational expense item that may be accrued each month.
The payroll accrual must be accurate in order to properly evaluate period labor
expenses. Accordingly, the following specific guidelines are to be followed
when computing this accrual:
a. By utilizing the
approved “Time & Attendance System” generated data for hours/payroll cost,
the reversing accrual should be recorded on a departmental
basis so that all regular and overtime payroll costs are accurately accrued.*
b. Direct benefit costs
such as employer related taxes should be accrued along with wages. The journal
entry should clearly indicate the method of determining taxes and other
directly related costs.
c. The accrual should
only cover the work periods from the ending date of the prior pay period
continuing on to the end of the accounting period.
d. The accrual method
must also apply to wages and benefits “Paid Out” from XXXXXXXXXXX Head Office
and invoiced monthly to the property.
e. Payroll hours should
also be accrued to reflect the true productivity for each department and the
number of full-time equivalents.
* At locations without a
Time & Attendance System, the accrual should be based on reported hours and
costing data supplied by Department Heads, as reviewed by the Payroll Clerk in
comparison to time cards or time sheet data.
Other Accruals
1. Energy Accruals
Energy represents a
significant cost to the hotel, thus accruals for this area require close
scrutiny and review by the Financial Controller. By far, the most reliable
basis for such accruals is achieved through independent meter readings at
period end, coupled with an accurate report by engineering of usage costs
(kilowatts x base rate, variable costs for peak demand, etc.).
2. Guest and
Administrative Communication Accruals
Guest communications
costs should be accrued monthly based on your budgeted (or expected based on
call accounting) percentage costs of sales to the respective period
communication revenues.
Accruals for
administrative telephone calls may be established typically via your call
accounting system, or in lieu of this, by historical average costs for direct
phone lines, or by reference to manual telephone logs.
3. Accruals for
Month-end Deliveries
Goods may be received at
the hotel prior to month end, and have no accompanying invoice.
Accruals must be
supported by written documentations. In such cases, use item costing data
directly from the purchase order to record your accrual, including a provision
for freight etc.
No inventory accruals
should be recorded for goods not yet received at the hotel, even though they were “ordered” or “budgeted” or
“forecasted” to be expended during the current period.
4. Taxes, Insurance,
Leases, etc.
For service type
contractual payments (leases, maintenance contracts, etc), or other similar
recurring obligations, accrual of such expenses in lieu of the monthly invoice
is proper and required. Likewise, accruals for taxes and insurance may be
necessary when such costs are billed annually, yet in arrears of the current period.
5. Staff Outings
Staff outing should be
held once a year.
This is usually done
over two days so that all staff have a chance to take part.
The amount allotted to
these events should be judged on a case by case basis, however the
amount should be accrued throughout the year.
In general we recommend
having one night in the hotel ballroom, with a buffet, live band and prizes
donated by suppliers.
6. Miscellaneous
Expenses that are known
to have been incurred in the month, or the accrual is supported adequately
either through systems reports or otherwise and is an expense for the month,
must be accrued. Examples of these are: Travel Agent Commissions, Group Commissions,
Monthly Linen Invoice, Book Out Costs, Central Reservations Charge, Travel
Expenses, Bank Charges, Credit Card Commissions, etc.
11. OVERVIEW OF FIXED
ASSETS
Expenditures must meet
the criteria below in order to be capitalized or expensed.
CRITERIA
1. Fixed Asset
An asset is classified
as a Fixed Asset and can be capitalized if it meets the following
criteria:
1. Have an anticipated useful life of one year or more.
2. Exceed us100 per item total cost (including
shipping and duties) or have an aggregate total cost of us1,000 or
more.
3. Be for the purchase of a tangible item and not for the repairing
of an existing item, unless included as a portion of a major renovation
project.
In summary: Tangible,
life of over one year, over us100
2. Replacement of
Component Parts
If an estimated job or
the total invoice cost (including parts and labor) of a particular item or
series of items acquired with respect to one particular job or the replacement
of the following major building components is under us100 or us1,000 in
aggregate, then the expenditure is considered an expense item.
In summary: Replacement
Component Parts are normally expensed to P&L.
Exceptions, which are normally capitalized, are as follows:
Ø Heating Equipment -
pumps, boilers, heat exchangers, thermostats, pressure gauges, alarm devices
and piping.
Ø Plumbing Equipment -
pipes, meters, sprinklers, piping and fire alarm system.
Ø Air Conditioning
Equipment – compressors, condensers, motors, cooling towers,
evaporating coolers, piping.
Ø Fire Prevention
Equipment, major fire system sprinklers, smoke detectors and alarm systems.
Ø Lift Components
3. Improvements
If the estimated job or
total invoice cost is us100 or above for a single project or us1,000 in
aggregate and the expenditures will enhance the value of and extend the useful
life of the asset that was previously capitalized by more than one year, then
the additional expenditure may be capitalized.
Wall paper vinyl,
re-upholstery of furniture, re-plastering, replacement of chain locks, key
locks, keys, locks, lock sets, locks and lock sets installed in new doors, or
offering
substantial security
improvements should be capitalized if the expenditure is over us100.
In Summary: Items over us100 can
be capitalized
4. Repairs and
Maintenance
The following
replacement expenditures are considered maintenance, should not be
capitalized and are not
subject to the aggregate invoice cost guideline of us1,000:
Repainting of buildings,
pools, park areas, refinishing of furniture, glass replacement,
maintenance service
contracts such as grounds and landscaping, television, elevator,
swimming pool, etc.
Replacing of silverware
or banquet service items is customarily an expense to Food &
Beverage silver or
utensils.
Patching of car parks,
roof repairs, waterproofing, section replacement of neon signs,
caulking and sealing,
chrome fittings such as taps, towel rails etc., toilet and toilet seats,
stolen or damaged televisions,
small parts for equipment, landscaping, plants, clocks, clock radios, or
similar small items.
In summary: Expense to P&L
The following exceptions to
the above are:
Ø Repairing of car parks,
including resealing and resurfacing, can be capitalized if the expenditure
includes resurfacing of the entire car park and it is not just a patch and
repair project.
Ø Major roof repair,
including resealing and resurfacing, can be capitalized if the expenditure
includes the entire roof and it is not just a patch and repair project.
Ø Landscaping may be
capitalized if it is new or replacing existing interior or exterior landscaping
which exceeds the us1,000 aggregate purchase and is not
seasonal landscaping, such as seasonal flowers, and has a useful life of
greater than one year.
Ø Expenditures for
exterior and interior painting including caulking and sealing of the building,
wallpaper, refinishing furniture, plastering or reupholstering may be
capitalized if;
1. these expenditures are a part of a major refurbishment project or
2. the cost of these expenditures exceeds us100 per
item or us1,000 in aggregate and enhances the value of and
extends the useful life of the asset by more than one year.
5. Development
The following costs may
be capitalized for new hotel construction or conversion of an existing hotel to
the XXXXXXXXXXX brand.
a. Pre-opening Costs
Pre-opening costs
include salaries, supplies, inventory, training, sales and marketing,
Pre-opening office
costs, etc. to open a new hotel or to convert an existing hotel to the
XXXXXXXXXXX brand.
b. Land
Purchase of land, lease
costs, landscaping costs.
c. Developer’s Fees
XXXXXXXXXXX development
fees and expenses and external development fees and
Expenses.
d. Financing Costs
Financing fees, lenders
fees, loan fees, interest, lender inspection fees.
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