Night auditing

NIGHT AUDITING

NIGHT AUDITING

In order to safeguard the interests of the hotel, a systematic examination of the financial transactions of guests is carried out by competent people at the end of every day.  This process is known as night audit.  It is an official examination of business and financial records to see that they are true and correct.  The daily audit is carried out in hotels during slack time, normally around midnight.  Night auditor checks and confirms that the financial tractions occurred during the day were correct and complete.  The mistakes, if any are corrected and the account is balanced.  The main purpose of night auditing is to keep a track of the total revenue generated during the day and to keep the guest accounts correct and up-to-date.  The night auditor also verifies the entries posted in non guest accounts, monitors guest credit limits, balances all accounts and sorts out any discrepancies in the room status. 

Duties of a Night Auditor:

1. Establishes the end of the day.
2. Ensures the accuracy of Front Office accounting records and balances them.
3. Reconciles all the financial transactions between hotel and its guests.
4. Calculates the total revenue during the day.
5. Verifies and validates the cashiers posting of charges in the guest accounts.
6. Posts the room charges in the guest folio.
7. Transfers the unpaid guest accounts to city ledger.
8. Monitors the house limit of guest.
9. Prepares a high balance report of guest accounts that are nearing or have crossed the house limit.
10. Monitors discounts, if any, given by front office employees.
11. Prepares reports for the management.

OPERATING MODES

Night audit procedure may be performed manually, semi automatically or automatically.

• Non Automated:        In a non automated system 4 forms are typically used to complete the audit process.  The system also uses transactional vouchers produced by the hotel’s POS and sent to the front desk for processing.  The 4 common night audit forms are

1.      Daily and supplemental transcripts

2.      Guest and non guest folios

3.      Front Office cash sheets

4.      Audit recapitulation sheets

A manual accounting routine simply isn’t feasible for a large hotel’s front office operations.  The night audit process involving non automated and semi automated process tend to be tedious and often involve more book keeping and paper shuffling than actual auditing.   Moreover, manual audit forms tend to be cumbersome and prone to errors because of volume of manual data entries and number of computations required.

• Semi automated:  One of the most important developments in the history of front office accounting has been the account posting machine.  Posting machines record guest charges on folios and simultaneously perform a number of other activities that simply the work of front office assistant and night auditors.  Due to the advent of computers, mechanical posting machines are no longer manufactured.  Electronic posting machines cost almost as much as personal computers, but are much more limited in functionality.  Therefore, they are replaced by computers with property management software. 

Forms produced in a semi automated audit system include a front office cash report and night audit summary report, sometimes called a D card.  The D card provides information that enables the night auditor to determine if the front office accounting system is in balance.  Essentially, the D card shows the opening balance for the day, provides a running record of all the debits and credits posted through the day, and produces a net outstanding balance.  If the D card ending balance does not match the total folio balance for the day, the system is assumed to be out of balance.  The night auditor must then review the revenue center and account postings to identify and correct the errors.

• Fully Automated:  Of the three operating modes, the fully automated audit process is by far the fastest and most efficient and reliable.  Fully automated systems can be interfaced with POS equipment, call accounting systems, and other revenue center devices for quick, accurate and automatic postings.  Computer based systems enable the night auditor to spend more time auditing transactions and analyzing activities and less time performing postings and book keeping entries.  Computer systems can also organize, compile, and print records faster than can be done manually.  In a night audit, a front office computer can process a large quantity of data, perform numerous computations and generate accurate account totals.  Computerized front office accounting systems also offer rapid access to information, thereby enabling front office management to more knowledgably manage operations.  Reports detailing revenue data, occupancy statistics, advance deposits, arrivals, no-shows, room status, and other operational information can be generated on request or as part of the regular system updates. 

THE NIGHT AUDIT PROCESS

The following steps are common to the sequence of a night audit:

1.         Complete outstanding postings:         One of the primary functions of the night audit is to ensure that all transactions affecting guest and non guest accounts are posted to appropriate folios before the end of the day.  It is important to accurately post an account for all transactions on the day they occur.  Charges posted with the wrong date will confuse guests and severely complicate cross referencing. 

Although the night auditor receives information on room revenue from the folio bucket, the night auditor should also check room rate postings on guest folios against the house keeping departments reports of occupied rooms.  This is often called a BUCKET CHECK.  The Bucket Check helps ensure that accurate rates have been posted for all occupied rooms and helps reduce the occupancy errors caused when front office assistants do not properly complete check in and check out procedures. 

2.         Reconcile Room Status Discrepancies:           Room Status Discrepancies must be resolved in a timely manner since imbalances can lead to lost business and cause confusion in the front office.  Errors can lead to lost and uncollectible room revenues and omissions in postings.  The auditor must review front office and house keeping department reports to reconcile and finalize the occupancy status of all rooms for  a given night.   For example, if the HK report indicates that a room is vacant but the front office believes it is occupied, the auditor should search for an active room folio.  If the folio exists and has a current outstanding balance, there are several possibilities. 

• A guest may have departed but forgotten to check out
• A guest may be a skipper
• A cashier may not have properly closed the folio at check out.

Night auditor must sort out the discrepancy and the room status should be corrected to show that the room is vacant. 

3.         Balance all departments:         The night audit process can become quite complicated when errors are discovered.  The night auditor seeks to balance all front office accounts against departmental transaction information.  Vouchers received at the front desk are totaled and compared with POS revenue summaries. 

When the front office accounting system is out of balance, the correctness of account postings must be investigated and individual postings reviewed, until the front office accounting error is corrected.  The process used to balance the revenue center departments is called the trial balance.  

4.         Verify Room Rates:    If a room is sold at a rate other than the rack rate, the night auditor should consider several factors like the type of discount given, authorization for the discount, source of reservation, documentation for discounting etc. 

5.    Verify No Show Reservations:  The night auditor is also responsible for clearing the reservation racks and posting retention charges to guaranteed no show reservations.  He must be careful to note that the reservation is not duplicate and should ascertain that no cancellation is received for the same.

6.         Post Room Rates and Taxes:  Posting room rates and taxes to all guest folios usually takes place at the end of day.  Once room rates and taxes are posted, a report may be generated for front office management review.  The ability to electronically post room rates is a major advantage of an automated front office system.  Once the night auditor has verified the room rates to be posted, the computer can auto post numerous room rate and room tax charges to the appropriate electronic folios in a matter of minutes. 

7.   Prepare Reports:  The night auditor typically prepares reports that indicate the status of front office activities and operations.  Among those prepared for management reviews are the final department detail and summary reports, the daily operations report, the high balance report, and other reports specific to the property. 

8.      Verification of Cash:     The night auditor compares the postings of cash payments and paid outs with actual cash on hand.  He reports any overages, shortages, or due back balances. 

9.     System Back Up:            Since a computer system eliminates the need for a room rack, reservation cards, and a variety of other traditional front office forms and devices, front office accounting depends on the continuous functioning of the computer system.  A system back up in the night audit routine is unique to computerize front office systems.  Back up reports must be run so that front office can continue to run smoothly.

In a semi operated operation, the totals in the posting machine must be brought to a zero balance.  The night auditor controls this function, so that the possibility of fraud is minimized.   As each account is reduced to zero, a separate account sometimes called a

Z card is used to verify the zero balance.  A ‘Z card’ is usually submitted with the night audit work to show that all accounts have been properly reset.

10.  Distribute Reports:  Due to the sensitive and confidential nature of front office information, the night auditor must promptly deliver appropriate reports to authorized individuals.  The distribution of night audit reports is the final step in the night audit routine.  Informed managerial decisions can be made if all night audit reports are completed accurately and delivered on time.

VERIFYING THE NIGHT AUDIT

Numerous types of postings, mathematical and clerical errors can be identified through an effective night audit.   Among the most typical errors are those involving previous balance pickup, transpositions and misplaced folios.

Pickup Errors:   In manual and semi automated front office systems, front desk agents must access the previous balance of an account folio, post the debits and credits and calculate a new current balance.  If the previous balance is entered (picked up) incorrectly, the resulting ending balance will be incorrect.  This can happen whenever a posting is made to a folio, not just during the night audit.  Pickup errors are frequently the most time consuming errors to locate and correct; it is often necessary to review all previous and ending balances on every folio in order to identify the error.

Transposition Errors:   A transposition error is one of the easiest to identify.  This type of error occurs when numbers related to a transaction are reversed—for example, entering Rs 523 into a posting machine rather then the actual previous balance of Rs 532

Missing Folios:  Many times, a manual and semi-automated front office system is out of balance because a folio has been filed incorrectly or has been removed from the folio bucket.