4.

Night Audit

4.1 OBJECTIVES

 To understand the night audit and its 5 functions

 To understand the role of a night auditor

4.2 MEANING & FUNCTIONS

Since hotels operate 24 hours a day, seven days a week, it is important to review and
verify the accuracy and completeness of it’s accounting records. The audit is a daily review
of guest account & non guest account transactions recorded against the revenue center
transactions, information which helps guarantee accuracy in front office accounting. A
successful audit will result in balanced accounts, accurate statements, and appropriate
credit monitoring and timely reports to management. This audit is called Night Audit,
because hotels generally perform it during late evening or early morning as this is the
most convenient time for audit with minimal interruption.

Most Hotels have an accounting day or hotel day that defines the daily charging period of
the hotel. The night audit closes the books on accounting day and opens the books on
another.

FUNCTIONS OF THE AUDIT

Specifically, the audit is concerned with:

1. Verifying posted entries
2. Balancing accounts
3. Resolving room status discrepancies
4. Monitoring credit limitations
5. Producing operational reports

4.3 THE ROLE OF THE NIGHT AUDITOR

The role of night auditor requires attention to accounting detail, procedural controls, and
guest credit restrictions. The auditor should be aware of the nature of cash transactions
affecting the front office. The auditor tracks room revenues, occupancy percentages, and
other front office statistics. In addition the night auditor prepares a summary of cash,
cheques and credit card activities. These data reflect the hotel’s financial performance for
the day. The night auditor summarizes and reports the results of operations to the
management.

So, the functions of a night auditor will include:

1. Establishing the end of day.

2. Ensures accuracy of FO accounting records and balances them

3. Reconciles all financial transactions between hotel and guests.

4. Calculates the total revenue generated during the day.

5. Verifies and validates the cashier’s posting of charges in guest folios.

6. Posts room charges in the guest folios.

7. Transfers unpaid guest accounts to city ledger.

8. Monitors the house limits of guests.

9. Prepares a high balance report of guest accounts nearing or crossing their house limit.

10. Monitors current status of discounts, meal coupons and other promotional activities
that are carried out at FO.

11. Tracks important operating statistics of the hotel for the day- room occupancy %, ARR,
RevPAR, Yield, etc.

12. Prepares reports for management analysis and action and future planning.

1. ESTABLISHING THE END OF DAY: The night auditor generally works on the night
shift from 2300 hrs to 0700 hrs, compiling and balancing the transactions of the day.
An end of day is an arbitrary stopping point for the business day. Usually, the
closing time of the hotels revenue outlet determines the end of the day. The period
from the point of time that the audit begins until the audit is complete may be called
audit work time. Transactions affecting front office accounts received during the
 audit work time are not posted until the audit is complete and are considered to be
part of the next business day.

2. CROSS REFERENCING: Transactional documentation identifies the nature and

amount of a transaction and is the basis for data input to an accounting system. This
document normally consist of charge voucher & other support documents. In non-
automated and semi-automated operation, supporting documents produced by
different individuals serve as cross-reference sources. Although the auditor
receives information on room revenues from the room rack, room rate postings
should be checked against the housekeeping’s report on occupied rooms to ensure
that rates have been posted for all the occupied rooms, this is often called as Bucket
Check. The auditor’s review of a day’s postings reconciles front office accounts with
revenue center and other departmental records.

3. ACCOUNT INTEGRITY: Sound internal controls techniques help ensure the

accuracy, completeness, and integrity of the accounting process. This includes cash
control techniques and other internal control measures that include more than one
individual at different phases of the sale. Internal control suggests that different
people post, verify, and collect for sales transactions. For instance, a front desk
agent may perform the posting, an auditor, the verification and a cashier verifies the
settlement. The auditor proves account integrity by cross-referencing account
postings with departmental source documentation. The audit process is complete
when front office and department account totals have been proven correct. If the
audit process presents an out-of-balance position, the audit process is not
considered complete.

4. GUEST CREDIT MONITORING: Account integrity is also related to supervision of

guest and non-guest credit limitations. Credit limits are set depending on a variety
of factors, such as credit card company floor limits, the hotel’s house limit or
another figure based on the guest’s reputation as a good or poor credit risk.
The night auditor must be aware of these limits. High account balances must be
noted during the posting process. At the close of each front office business period,
an auditor is responsible for identifying to management which accounts have
reached or exceeded their credit limits for appropriate action.
5. AUDIT POSTING FORMULA: Steps followed in the audit are based on the basic
posting formula: Previous Balance + Debits – Credits = Net Outstanding
 Balance. The net outstanding balance of one transaction becomes the previous
balance for the next transaction.

6. DAILY AND SUPPLEMENTAL TRANSCRIPTS (for manual systems) A daily

transcript is a detailed report of all guest accounts that indicates each charge
transaction that affected a guest account that day. This is segmented by revenue
centre, type of transaction and overall total. A supplemental transcript is used to
accomplish the same analysis for non-guest accounts. The daily and supplemental
transcripts are the basis for a consolidated report of accounting data against which
departmental totals are matched. The total of charged purchases reported by the
hotel’s coffee shop should equal the amount of coffee shop charge purchases posted
to guest and non-guest folios. These transcripts are worksheets designed to detect
posting errors. They facilitate the full audit routine by identifying out-of-balance
figures in advance of a detailed review.

4.4 OPERATING MODES for the Night Audit:

Night audit may be conducted manually, mechanically, or electronically in 3 ways:

1. Non-automated mode- manual mode

2. Semi-Automated mode- using machines

3. Fully Automated mode- computerized mode

1. Non- automated mode (Manual method): Here four major forms are used in addition
to vouchers produced by the hotel’s revenue center: Folios Cash sheets; Daily and
supplemental transcripts; Audit recapitulation sheets. The night auditor prepares daily
and supplemental transcripts by copying the day’s activities from each account folio to the
appropriate line on the transcript. The transcript columns are summarized to determine
the total charges for the day. Information from the transcripts and cash sheets is
transferred to the recapitulation sheets to provide a summary of the day’s activity. Manual
and semi-automated audit routines are tedious with the forms being cumbersome and
chances of making errors while copying and computing are high.

2. Semi-automated mode: Posting machines record guest charges on folios and

simultaneously perform a number of other activities that simplify the work of the front
desk agent and the auditor. Posting machines may be either electro-mechanical or
electronic. In general, front desk agents post charges to account folios based on vouchers
received from the POS. Physical posting to folios involves locating the folio, removing it
from the folio bucket, entering the account’s previous balance into the posting machine,
posting the charge, balancing the folio and re-filing it in the folio bucket. If an incorrect
previous balance is entered in the process of the posting, it will cause the folio to be in
error and the audit to be out of balance. As an account folio is posted, several other actions
take place as well: The voucher used to initiate the posting is imprinted with the same
information posted to the guest folio, providing machine printed verification that the
voucher has been posted. The same information is printed onto a paper tape to provide
the machine with an audit trail and to serve as a journal record. An audit trail is an
organized flow of source documents detailing each event in the processing of a
transaction. The amount of the posted charge is added to the running total for the
department originating the posting; departmental totals are helpful in end-of-shift and
end-of-day reporting. Forms used in a semi-automated system include cash reports-
equivalent to the front office cash sheets of the non-automated audit- and an auditors
report, sometimes referred to as a D card or D report that is a listing of total charges
posted to the guest accounts by all departments.

3. Fully automated mode: This is by far the simplest to perform. These can be interfaced
with POS equipment, call accounting systems and other revenue center devices for quick
and accurate automatic postings directly to electronic account folio. Computerized
systems enable the auditor to spend more time auditing transactions and analyzing front
office activities. The guest ledger audit is compared with the final daily report for
balancing. The previous balance for each account is retained with the system. The
computer conducts various checks to ensure that postings are correct. The computer
keeps track of each posting by time; shift, employee, folio number, and department so it
maintains a detailed audit trail for all accounting activity. Computer systems can also
organize, compile, and print records faster than can be done manually. The computer can
process a large amount of data, perform several computations, and generate accurate
account totals. A fully automated audit routine may also be called a system update.
System updates are run daily to allow for report production, system file reorganization,
and system maintenance and to establish an end of day. Computerized systems also offer
instant access to information, allowing management to keep a constant check on
operations. Reports detailing revenue data, occupancy status, and other operational
information can be easily generated on request.
4.5 THE AUDIT PROCESS:

The discovery and correction of errors in posting charges to establish accurate records is
what the audit process is about. Discrepancies found during an audit must be corrected.
Due to the transient/temporary nature of hotel business, an audit is conducted everyday.
Large complex hotels require closer account scrutiny due to the volume of transactions
posted.

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

1. Complete outstanding postings

2. Reconcile room status discrepancies

3. Balance all departments

4. Verify room rates

5. Verify no-show reservations

6. Post room rates and tax

7. Prepare reports

8. Deposit cash

9. Back up the system

10. Distribute reports

Some of these steps may be condensed or combined in an automated process. The audit
procedures are discussed in detail below:

1. Complete outstanding postings: This is the first step of an audit. Although most front
offices attempt to post transactions to the proper accounts as they are communicated, a
night auditor must confirm that all transactions have been posted prior to starting the
audit. Incomplete posting will lead to errors in account balancing and summary reporting.
The auditor verifies that all voucher postings for revenue center transactions have been
completed.

2. Reconcile room status discrepancies: Room status discrepancies must be resolved in

a timely manner. Such errors can lead to lost revenue and omissions in postings. The front
office must keep room status current and accurate to monitor the number of rooms
available for sale. The night auditor is responsible for ensuring that discrepancies
between the daily housekeeping report and the front office room status are reconciled
before the end of the day. If the front office believes a guestroom is occupied, but it is
reported as vacant on the housekeeping report, the auditor should look for an active folio
(folio with a balance outstanding) If the folio has a balance, possibilities are: a. The guest
may have departed but forgotten to check out b. The guest may be a skipper c. The front desk
agent may not have closed the folio at check out. After verifying that the guest has in fact
departed, the auditor should process the check out and set the folio aside for management
review and follow-up. If the folio has been settled, the front office room status system
should be updated to show that the room is vacant. In a computerised system, the check
out process automatically changes the room’s status.

3. Balance all departments: The night audit process can become quite complicated when
errors are discovered. It is considered more efficient to balance all departments first and
then look for individual posting errors within an out of balance department. The NA
typically balances all departments using sources documents that originated in the revenue
center. Voucher received are totaled and compared with revenue center summaries.

4. Verify room rates: The night auditor is required to complete Room Revenue and
Room Count Report. Room Rate Variance Report that shows the rack rate for each room
and the actual rate at which the room was sold, providing an opportunity to analyse room
revenues. If a room’s rack rate and actual rates differ, there may be certain possibilities.
One, if a member of a group or corporate rate guest occupied the room, is the discounted
rate correct? Second, if there is only one guest in the room and the actual rate is
approximately half the rack rate, is the guest part of a shared reservation and if so, did the
other guest register? A Room Rate Variance Report is prepared by the night auditor to
keep track of such variances between the room rate to be charged and the actual room
rate charged to his folio. This helps monitor and control the rate discounting tendency of
the FO staff which in turn keeps a check on fall of room revenue, ARR, RevPAR and Yield
statistics.

5. Verify no-show reservations: The night auditor may be responsible for clearing the
reservation rack and posting charges (retention charges) to no-show accounts after
confirming that the reservation was guaranteed and the guest never arrived. A hotel
should take care to record cancellations properly to avoid charging a guest for no-show
charges when not applicable.

6. Post room rate and tax: The posting of room rates and tax to all guest folios is typically
done at the end of day. Direct posting of these to the electronic room folios in a
computerised system is one of the greatest advantages of a PMS. After such posting, a
Room Rate and Tax Report may be made for the management.

7. Prepare reports: The auditor is responsible for preparation of reports indicating the
status of front office activities. Department detail and summary reports are produced and
filed with the source documents for the accounting division. The daily operations report
summarizes the day’s business and provides insight into revenues, receivables, operating
statistics and cash transactions related to the front office. The High Balance Report
identifies guests who are approaching an account credit limit. Manager’s report, also
called an Early Bird Report (because it is the first thing the GM gets to see on his table
before the morning meeting is a listing of occupancy statistics from the previous day, such
as occupancy percentage; yield percentage, average daily rate, and number of guests. Such
data is necessary for monitoring the operation of a business. Departmental Daily Sales
Reports that indicate, in one report, the total sales of every department and in many
hotels, will also contain details of accounts receivables, bank deposits, cashiers report and
room statistics, and so on.

8. Deposit cash: The night auditor auditor prepares a cash deposit voucher as a part of
the night audit process. The auditor compares the postings of cash payment and paid outs
(net cash receipts) with actual cash on hand. A copy of front office cashier report may be
included in cash deposit envelope to support any overage, shortage or due back balances.
9. Back up the system: This step applies only to computerized front office systems. Since
such a system does away with the need for a room rack, reservation cards, etc., it becomes
very dependent on the proper functioning of the computer systems. Back up reports must
be run in a timely manner to enable smooth operation in the event of a systems failure.
End of day reports are developed and printed by the computer which include guest lists,
room status report, guest ledger report- showing the ending account balances of all
registered guests, activity report- containing expected arrival and departure information
for the next several days. Computer output should also be recorded onto disks. A system
back up is made after each audit and stored in a safe place for reference.

10. Distribute reports: The NA deliver appropriate reports in a meaningful format and a
timely manner. If all of the reports are completed accurately and delivered in a timely
manner, more informed operational decisions could be made.

4.6 AUTOMATED SYSTEMS UPDATE-

Computerized mode:

1. System updates are run daily.

2. Since computer systems perform continuous audits on transactional postings as
they occur, there may be little need for the night auditor to actually post account
entries.
3. A front office accounting system may interface with the POS devices for automatic
postings from call accounting systems, in-room movies and bars, and the like.
4. In the case of guaranteed reservations no-shows, postings may be programmed to
flow automatically to a billing file.
5. Room status discrepancies are unusual in a fully automated system, since the room
rack is eliminated, and registration and check out functions are internally
connected to room status functions.
6. Audit balancing is maintained continuously.
7. As a charge purchase is entered at the POS, it is instantaneously posted to a guest
folio and a departmental control folio.
8. A control folio is an accounting document used internally to support all account
postings by departments.
9. To balance the departments, the computer tests all control folios against the non-
control folio entries. An imbalance is just as likely to identify a problem in
automatic posting techniques as a shortcoming in accounting procedures.
 10. End- of-day reports are developed and printed by the computer which
includes guest lists, room status report, guest ledger report- showing the ending
account balances of all registered guests, activity report- containing expected
arrival and departure information for the next several days.
11. Computer output should also be recorded onto disks.

A system back up is made after each audit and stored in a safe place.

Daily back-up = copying of all information on disks, magnetic tape and storing them.

Systems back-up = eliminating account and other transaction information which is no

longer of value, e.g. expired guest folios at least 3 days old are deleted from active storage
files and are archived or stored as tapes, etc.

Computer systems can be programmed to produce a variety of reports of various length

and content. Reservation confirmations, Revenue Centre Summaries, Expected
Arrival and Departure Lists, Folios for guests expected to depart, a Daily Report of
Operations, Room Status Reports, and invoices for non-guest accounts are common
products of an automated system. In such a system there is not only less labour
involved, but also less chances for errors- the transcription types, and also because the
computer blocks certain types of errors, like posting charges to a vacant room, etc.
However, some verification is still required; for example, cashiers can post a charge to
another occupied room by mistake.

KEY TERMS:

1. Account ageing- a method of tracking past due accounts according to the date the
charges originated.

2. Account receivable- an amount owed to the hotel.

3. Account payable- an amount owed by the hotel (for purchases made, etc.)

4. Auditing- the process of verifying front office accounting records for accuracy and
completeness.

5. Audit trail- an organized flow of source documents detailing each step in the
processing of a transaction.
6. City account or non-guest account- an account created to track the financial
transactions of a local business with charge privileges or a former guest whose account
was not satisfactorily settled at check out.

7. City ledger- is a collection of folios of unregistered hotel guests who maintain accounts
with the hotel.

8. Control folio- an accounting document used internally by a front office computer to

support all account postings by a department during a system update routine.

9. Daily Operations Report- prepared by the Night Auditor, which summarizes the
hotel’s financial activities during a 24-hour period and provides insight into revenues,
receivables, operating statistics and cash transactions related to the front office. Also
called the “early bird report”.

10. Daily transcript- a detailed report of all guest accounts that indicates each charge
transaction (credit transaction) that affected a guest account that day. It is used to detect
posting errors.

11. D-report- a listing of totals of the amount of charges or credit sales, posted to the
guest accounts by different departments.

13. Front office cash sheet- a form completed by FO cashiers, which lists each
disbursement or receipt of cash during a shift. It is used to reconcile cash on hand with the
transactions that occurred during the shift.

14. Guest account- a record of financial transactions that occur between a guest and the
hotel.

15. Guest ledger- set of accounts for all guests currently registered in the hotel. Also
called Transient ledger or Rooms ledger.

16. High Balance Report/ High Risk Accounts Report/ Credit Limit Exceeded Report-
a report prepared during the night audit to monitor guest accounts with high outstanding
balances to avoid extension of credit without proper precautions.

17. Room Revenue and Count Report/ Room Rate Variance report- that shows the
rack rate for each room and the actual rate at which the room was sold, providing an
opportunity to analyse room revenue and efficiency of the front office.
18. Supplemental transcript- a detailed report of all non-guest accounts that indicates
each charge transaction that affected a non-guest account that day.

19. System update- a fully automated audit routine that accomplishes many of the same
functions as a non-computerized night audit routine and more. Daily system updates
enable file reorganization, system maintenance and report production and provide an
end-of-day time frame.

20. Zero out- to settle, in full, the balance of an account folio as the guest checks out.

21. Daily back-up - copying of all information on disks, magnetic tape and storing them
per say.

22. Systems back-up - eliminating account and other transaction information which is no
longer of value, e.g. expired guest folios at least 3 days old are deleted from active storage
files and are archived or stored as tapes, etc.