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The night audit is a daily review of guest accounts and non-guest accounts having activity, against
revenue centre transaction information which helps guarantee accuracy in front office accounting. A
successful audit will result in balanced accounts, accurate statements, appropriate credit monitoring
and timely reports to management.
Since hotels operate 24 hours a day, seven days a week, it is important to review an verify the accuracy and
completeness of it’s accounting records. Whatever the mode of audit the audit routine would remain
relatively unchanged.
The audit is called a night audit because hotels generally perform it at night.
✓ 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 and
prepares a summary of cash, cheques and credit card activities. These data reflect the hotel’s
financial performance for the day.
✓ The night auditor summarises the results of operations for reporting to management.
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 so that the audit can
be considered complete through that time. This time is usually the hours at which the least number of
transactions would occur and which frequently occurs in the night shift.
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.
CROSS REFERENCING
• Transactional documentation identifies the nature and amount of a transaction and is the basis for data
input to an accounting system.
• For each transaction, the original revenue centre records/documents the transaction type (cash,
charge or paid-out) and it’s monetary value.
• The front office staff posts an entry to the appropriate folio based on the documentation/vouchers
received.
• 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
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.
• 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.
Steps followed in the audit are based on the basic posting formula:
The net outstanding balance of one transaction becomes the previous balance for the next transaction.
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.
Here four major forms are used in addition to vouchers produced by the hotel’s revenue centre:
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 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.
❖ These can be interfaced with POS equipment, call accounting systems and other revenue centre devices
for quick and accurate automatic postings directly to electronic account folio.
❖ Computerised 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.
❖ Computerised 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.
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.
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 centre transactions have been completed.
He may also need to post previously unposted front office cash transactions.
✓ 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)
✓ The night auditor balances all departments using source documents (vouchers made at the POS).
Vouchers received at the front desk and other source documents are totalled and compared to revenue
centre summaries.
✓ This step includes preparing the daily and supplemental transcripts and finalising the daily transcript
recapitulation sheet.
➢ Total restaurant sales figure comprises all sales incurred at restaurants or food outlets in the
hotel that is compared against the daily sales report of each restaurant.
➢ Room service sales are mentioned similarly but separately from restaurant sales.
➢ Banquet sales figures are again mentioned separately and will be checked against the daily
function sheets to ensure that all scheduled functions have been billed.
➢ Sales figures for alcoholic beverages from various POS may be reported separately.
▪ Total the balances on all the individual ledger cards and compare this to the total in the closing
balances column of the daily transcript.
▪ Compare the column total for the opening balances column with the column total for the previous
day’s closing balances column.
▪ Compare the totals of the departmental charges columns with the total of the adding machine tapes,
cashiers’ tapes, or sales journals, or D report sent by each department with the sales vouchers.
▪ Compare the total of the cash advances, or paid outs, column with the front desk cash sheet totals.
▪ Compare the cash receipt columns with the corresponding column totals on the cash sheet.
▪ Verify that the allowances column and discount column totals agree with the totals of the allowance
and discount vouchers.
▪ Verify that the total of all the charge columns agrees with the total of the total charges column.
▪ Prove the posting formula on the transcript by subtracting the totals of all the credit columns from the
total of the total charges column to obtain the total of the ending balances column.
▪ If the night audit has been performed correctly, the last two totals will equal each other. Matching
totals indicate that all vouchers have been charged and that all credits have been credited to
someone’s ledger folio.
a. Pick-up error- if previous folio balances are entered incorrectly, the ending balance will also be
incorrect. To trace this error it will be necessary to review all previous and ending balances on every
folio.
b. Transposition error- these are easiest to identify. It occurs when numbers are reversed, e.g. entering
523 instead of 532. Subtracting the lower number from the higher number can identify this. If the
result is a whole number, the problem is more likely a transposition error.
c. Missing folios- an account could be out of balance because a folio has been filed incorrectly.
d. Transfer of charge to a wrong account (say restaurant to laundry or bar) or to a wrong room
number.
✓ 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.
Post room rate and tax: The posting of room rates and tax to all guest folios is typically done
at the end of day.
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 report of operations summarises the day’s business and provides insight intorevenues,
receivables, operating statistics and cash transactions related to the front office.(Format)
➢ The High Balance Report identifies guests who are approaching an account credit limit. (Format)
➢ Manager’s report, also called an Early Bird Report (because it is the first thing the GM gets
tosee 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. (Format)
➢ 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. (Format)
8. Deposit cash: Since account and departmental balancing often involves cash transactions, cash
depositing may depend on a successful audit.
➢ If front office cash receipts have not yet been deposited, the auditor compares the postings of cash
payments and paid outs with actual cash in hand.
➢ The cash, credit card vouchers, and charges received during the business day from cash, charges, and
accounts receivable transactions must be deposited in the hotel’s bank accounts or transferred to
hotel’s internal accounts receivable.
➢ The credit card totals are added here because, in some circumstances, the credit card voucheris
considered cash at the time of deposit.
➢ The night auditor will provide a summary of the components of the bank deposit.
➢ The cash and various credit card totals that have been deposited must match the total cash sales plus
the cash received and applied to outstanding accounts receivable minus total paid outs.
➢ The total cash and credit card payments received, which are reported on the cashier’s report, will
match the total bank deposit figure.
9. Back up the system: This step applies only to computerised 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.
10. Distribute reports: The night auditor must take care to 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.
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.
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.
A computerised auditing system can be customised to the need of the hotel and can follow the general pattern
below:
1. Print a D-sheet from the computer- for departmental details of charged purchases ( not paid by cash) of
the day.
2. Verify cashiers’ work.
3. Instruct the computer to post room charges and taxes to each guest folio.
4. Perform one or more of the following steps:
✓ Verify that the housekeepers’ reports and room reports were properly reconciled to each other and to
the computerised room rack.
✓ Verify that purchases and advances have been posted to the correct room number.
✓ Verify transfers from one folio to another. It is easy for charges to “disappear” on a computer system
as a result of such transfers.
✓ Verify that all credit card vouchers are on hand and reconciled to the day’s credit card sales.
✓ The night auditor might then instruct the computer to perform all the chores involved with closing out
the current day and to begin a new day with the next day’s date.
The complexity of the computerised system requires better-trained personnel to input the data correctly and
also to interpret it correctly. The printouts of reports can be difficult to interpret, leading to oversights and
errors due to “hidden” information or “missing” information.
1. Account ageing- a method of tracking past due accounts according to the date the charges originated.
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 organised 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 summarises 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.
12. D- card- used in semi-automated systems contains the totals row of the daily transcript, but is oriented
vertically in column format rather than as a row
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.
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-
computerised night audit routine and more. Daily system updates enable file reorganisation, 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.
Assignment:
Q4. What do you understand by ‘cross referencing‘in the night audit? How is it carried out?
Q7. What is the importance of the step of night audit of “resolving room status discrepancies”?
Q8. How would you “balance the departments” during a night audit?
Q9. Why does the night auditor need to verify no-show reservations?
Q10. What are the possible types of errors that can occur in accounts during the day/night?
Q11. What is the importance of the step regarding room rate postings made in folios? Why are room rate
postings done in the night audit?
Q13. What is the “Room Rate Variance Report? Who prepares it and why?
Q14. What is a system update and its importance to the smooth running of hotel operations?
Q15. How has computerisation improved assisted the functioning of a smooth night audit?
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