GENERAL MANAGER MANUAL ( PART I FINANCE continue)

6. CREDIT POLICY AND DOUBTFUL DEBTS Ø  Ensure that the hotel has a documented credit policy.

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?

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.

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.

Ø  Obtain explanations for action being taken to collect the largest items over 90 days old, vouch to supporting documentation.

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?

Ø  For three large accounts receivable balances, ensure that the supporting documentation is consistent with the ageing in the accounts receivable report.

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.

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.

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.

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). Confirm that stocks are stored in a logical and orderly manner.

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.

GENERAL MANAGER MANUAL ( PART I FINANCE)

FINANCE

Part 1 - General Managers Basic Audit of the Accounting Department The main objective of the GM’s basic accounting department audit is to identify that controls are in place and operating both effectively and consistently in order to ensure that: management is effectively monitoring the performance and financial position of the hotel and is being supplied with reliable information on a timely basis;

1.  GENERAL LEDGER MAINTENANCE

1.1  Review recent copies of the monthly reporting to Head Office and ensure that it is submitted on a timely basis.

1.2  For a recent period-end review the nature and content of significant balance sheet accounts with the Financial Controller.  Pay particular attention to other debtors, other creditors, accrual and provision accounts (i.e. accounts that accept manual journals that may be used to disguise problems with the profit & loss account).  Were any problems noted?  Was the Financial Controller able to explain all balances?  You should report any unusual balances including excessive accrual reserve or un-collectable amounts.

1.3  Inspect ledger reconciliations for major balance sheet accounts and ensure that reconciliations are being completed on a timely basis.  These should include a reconciliation from the nominal ledger to the following:

·         Guest ledger control; ·         City/sales ledger control; ·         Purchase ledger; ·         Cash accounts (see also treasury work); ·         Analysis of all sundry debtors and creditors; ·         Fixed asset sub-ledger; and ·         Inventory listings. Were any problems noted?

2. TIMELINESS AND QUALITY OF MANAGEMENT REPORTING The management accounts should include comparisons to budgets, forecasts and prior year results.  The accounts should also include key performance indicators such as average room rate, yield on rooms, occupancy %, payroll %, headcount, food & beverage cost of sale %, etc.

Ø  Obtain a copy of the most recent management accounts prepared by the hotel.  Are management accounts complete, prepared with prominent key performance indicators, comparatives, adequate detail and on a timely basis?

3. CHECKING THE GENERAL CASHIER PROCEDURES You should identify that controls are in place and operating both effectively and consistently to ensure: a.   cash takings received by the hotel are physically safeguarded; b.   cash takings received by the hotel are completely and accurately processed; c.   recorded cash on hand and in banks exists, and is properly recorded and disclosed; d.   cash accounts are reconciled monthly to the general ledger and any discrepancy is investigated on a timely basis; and e.   cash maintained at the property is at an optimal level.

GENERAL CASHIER PROCEDURES The General Cashier is essentially the banker to the hotel.  The duties of the General Cashier include: ·           collecting and recording cash takings on a daily basis; ·           preparing hotel banking; and ·           Holding and distributing floats for individual cashiers. Meet with the General Cashier and discuss the control procedures in the general cashiering function.  Determine if the following controls are present and effectively working (or not applicable). 1.    Is the General Cashier’s office physically secure and is access is restricted to only the General Cashier?

2.    Is a key register used to monitor the issuance and return of floats, cellar and bar keys, etc.?

3.    The General Cashier will have a fixed float with the hotel.  Is the size of the General Cashier float recorded in writing and signed by both the General Cashier and the Financial Controller?

4.    Does a member of the accounts department verify the General Cashier float at least once a month by physical counting?

5.    When cashiers lodge their cash takings into the drop safe, is this witnessed and recorded in a logbook? Ensure that when the General Cashier collects the takings from the drop safe, the entries are recorded as collected in the logbook.

6.    Discuss with the General Cashier the completion of the General Cashier’s summary or equivalent used by the hotel (the General Cashier’s summary will record cash takings by outlet, deductions for petty cash or paid outs to give the net banking for the day).  Ensure this document is prepared independently by the General Cashier based upon the physical cash receipts, petty cash vouchers, paid out slips etc. The summary should be reconciled by the revenue audit function to the FOS and Revenue journal.  Were any problems noted in the steps followed by the General Cashier to complete the General Cashier’s summary?

7.    Does the General Cashier maintain a record of over/shorts takings presented by the cashiers?  Are these investigated and actioned promptly?

8.    Are end of day data transfer slips (credit card machine daily reports) retained and reconciled to credit and debit card sales per FOS?

9.    Does the hotel ensure deposits to the bank are made on a timely basis (usually daily) to prevent excess quantities of cash being held at the hotel?

10. Is there adequate security for depositing cash at the bank (e.g. collection by a security firm)?

11. Does an individual other than the General Cashier monitor deposits to the bank account to ensure cash takings recorded on the General Cashier’s summary are actually banked?

12. Does an individual independent of the general cashiering and accounts receivable function receive and open all mail from debtors and record cheque receipts into a logbook?

4. PETTY CASH The General Cashier commonly acts as the Petty Cashier for the hotel.  Petty cash should only be used for small incidental items.  It should be recognized that often petty cash is used as a means to circumvent the controls in place in the expenditure cycle with respect to authorization of expenditure.

Discuss with the Financial Controller and General Cashier the controls used with respect to petty cash.  Common controls include: ·         vouchers stamped as paid; ·         requirement that all vouchers are authorized by the Financial Controller or other department head (the General Cashier should not be allowed to approve petty cash transactions);

·         a set maximum value of individual petty cash transactions; and ·         Requirement to lodge original documentation to substantiate the claim. ·         Are control procedures adequate?

5. CITY/SALES LEDGER MAINTENANCE OBJECTIVES To identify that controls are in place and operating both effectively and consistently to ensure: a.   receivables are valid claims and properly supported; b.   receivables are reconciled on a daily and monthly basis (as appropriate); c.   credit has been granted in accordance with a formally approved credit policy and prudent business practices and the collection of receivables is reasonable and forthcoming; and d.   a reserve for doubtful accounts has been established and the reserve is reasonable.

BACKGROUND The debtors balance of a hotel is split into two different subsidiary ledgers: Guest ledger - contains all the charges accumulated by guests that are currently staying in house and have not checked out.  This ledger is normally maintained on the FOS; and city/sales ledger - captures all charges accumulated by guests who have checked out and are to settle their account by a debtor account, advance deposits paid by guests (may appear on guest ledger) and amounts owed by credit card companies.  This ledger is usually maintained on the ‘back office system’.

Ø  GUEST LEDGER MAINTENANCE Check there are controls over the validity of charges recorded onto the guest ledger, movement of charges out of the guest ledger to the city/sales ledger and monitoring of the individual charges accumulated in the ledger to ascertain if a credit exposure exists.

For the latest month-end, obtain the Guest Ledger Control Account Reconciliation. A permanent folio does not represent a guest room; rather it represents an account opened on the guest ledger to collate rebates, adjustments, management folios, etc.  The entries recorded in a permanent folio are likely to result in revenue being adjusted out of the profit and loss account or an expense being recognised.  Hence it is important that permanent folios are monitored and cleared on a timely basis.

1.1    Identify all permanent folios used by the hotel (from review of the guest ledger) and ensure sufficient controls exist for reviewing and clearing the revenue or expenses associated with the folios on a timely basis.

1.2    For master folios maintained for groups ensure these are being posted on a timely basis to the city ledger following the departure of a group (the slow posting of groups is a common means of ensuring a favourable debtors ageing profile).  Note that outstanding balances on the paymaster could indicate breach of credit policy. Were any exceptions noted?

1.3    Ensure that the guest ledger is reviewed for excessive balances, credit limits, outstanding balances of departed guests, etc. by credit control staff on a regular basis.

Ø  CITY/SALES LEDGER MAINTENANCE The following items represent the common postings made to the city/sales ledger: ·        Guests who have checked out and will settle the balance owing to the hotel by debtor account; ·        balances owing by credit card companies (e.g. American Express, Diners Club, JCB); ·        advance deposits received from guests ahead of their stay in the hotel (may be posted to the guest ledger); ·        banquet and conference customers who will settle the balance they owe the hotel by a debtor account; and ·        Cash collections from debtors.

2.1  Obtain the latest month-end aged city/sales ledger report. Review the city/sales ledger to the general ledger control reconciliation at month-end.  Ensure all reconciling items are current and bona fide. 2.2  Review material unidentified remittances and check that action is being taken to follow them up and allocate them.  Review other credit balances and check that these are deposits for future events/prepayments.

Debtor Postings

2.3  For two days posting into the city ledger agree the posting to the city ledger to that tested in the income audit (FOS).  Were any exceptions noted? 2.4  Discuss the procedures used by the hotel to ensure invoices are raised and posted to debtors on a timely basis.  Are procedures adequate to ensure an accurate invoice is raised and mailed to each debtor on a timely basis?

Posting of cash receipts In the treasury cycle work programme work was performed to ensure the segregation of duties exists between handling cheques received from debtors and the responsibility for applying those cash receipts against individual debtors in the city ledger.  The treasury work programme should be referred to prior to completing this section.

2.5  Discuss the procedures employed in applying payments against the debtor’s ledger.  Controls include: -  using the remittance advice to apply the receipt to specific invoices and not to the oldest invoice outstanding; - using the cheque log as the basis of input; and -   using batch controls to ensure receipts applied to the city ledger agree to the cheque log. Are procedures adequate? CONTINUE ----------