XYZ Hotel Limited Internal Control Framework
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.
Safeguarding of Assets.
Ensure the Hotel assets are protected.
Accounting information is accurate and reliable.
Ensure all transactions are recorded and accurately reported .
Ensure compliance with Tax and other regulatory authorities.
Why internal control ? â€˘ Business owners have limited time to monitor their investments, as such personnel are prone to perpetrate occupational fraud harmful to the business. â€˘ Hotels are most vulnerable to fraud due to its peculiar nature and the absence of effective internal controls. â€˘ By establishing controls the opportunity and motivation for fraud and theft, is reduced, and the company is better positioned to make a profit.
Control framework 1 Process
The Hotel transactions may not be recorded, thus revenue generated may be omitted and not recognized in the Management Account. Front desk may collude with house keeping to sell rooms, without recording the sale, thus pocketing the money. Other incomes may be hidden. Unauthorized expenses, inflated pricing, excessive operational cost.
All transactions in the Hotel should be recorded in the relevant books, with support documents. Management Account should be presented. 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. Use of requisition and payment vouchers. Approval and Budgetary control should be in place for expenditures.
Control framework 2 Process
Unauthorized, substandard and inflated prices on the goods purchased. 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.
Registered vendors to be used, all purchases in the Hotel should be approved and supported. 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. All cash sales should be registered in the daily cash register and deposited intact. Bank reconciliation should be done periodically.
Receiving and storage of goods
Cash and Bank
Revenue may not be recorded or deposited in a timely manner, money may be personally used before lodgment.
Control framework 3 Process
Dangerous individuals may Security gadgets such as gain access into the hotel, for scanners and CCTV should be a criminal intention. in place to monitor and deter criminal intention. There should be a periodic report on security status. Cash may be withdrawn All cash expenses in the Hotel from the front desk without should be centrally managed, adequate control, resulting and appropriate levels of in uncoordinated and approval should be in place reckless expenditure. before disbursement. The Hotel may incur Register with the tax authority penalty, fines and possible and ensure regular shut down by the revenue compliance with the statutory authority for failure to pay laws and regulation. tax.
Control framework 4 Risk
Recruitment and Personnel or service providers service with questionable and providers suspicious background may be engaged in the Hotel, constituting security risk to the organization. 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.
Sales and Marketing
Hotel rooms and services may remain unsold, limiting the ability to earn revenue.
Interview process and background screening should be conducted before engaging any personnel. Referees and confidentiality forms should be signed. 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 strategy should be in place to generate income. 11
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.
Way 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.