FUNCTIONS OF THE NIGHT AUDIT MAIN PURPOSE: To verify the accuracy and completeness of guest and non-guest accounts.

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1 The NIGHT AUDIT - Hotels operate 24X7 so Front Office regularly review and verify the accounts. - Audit is a daily review of guest account transactions at Front Office against revenue center transactions. - Audit is performed to ensure accuracy, reliability & thoroughness of accounting system. - Audit of active non-guest accounts also. - Audit results in balanced guest & non-guest accounts, accurate account statements, credit monitoring and reports generation. Why is it called Night Audit? It is called Night Audit because it is performed at Night. In olden days, manual system was followed and nighttime was the most appropriate period for auditing due to very little business and movement. FUNCTIONS OF THE NIGHT AUDIT MAIN PURPOSE: To verify the accuracy and completeness of guest and non-guest accounts. SPECIFIC FUNCTIONS: κ Verifying posted entries to guest and non-guest accounts. κ Balancing all Front Office accounts. κ Resolving room status and rate discrepancies. κ Maintaining guest credit limits. κ Producing operational and managerial reports. The ROLE OF THE NIGHT AUDITOR ATTENTION needs to be paid to: 1. Accounting details, Procedural controls, Guest credit restrictions. 2. Nature of cash transactions. 3. Tracking room reservation and related statistics. 4. Daily summary of cash and credit activities at front desk. 5. Reporting results of operation to the management. ESTABLISHING AN END OF THE DAY Generally night shifts are from 11pm to 7am. End of the day is the closing time of the majority revenue outlets.

2 CROSS-REFERENCING -For internal control purposes, an accounting system should provide independent supporting documentation (e.g. a coffee shop guest check and a front office guest folio) to verify each transaction for cross-referencing. - Guest and non-guest accounts are compared with source documents from revenue centers to prove individual transaction entries and account totals. GUEST CREDIT MONITORING - establishing lines of credit or Credit limit depends upon many factors such as house limit, floor limit, guest s status & reputation etc.. -It determines the potential credit risk of guest. It is reflected through High Balance Report. AUDIT POSTING FORMULA Previous Balance + Debits - Credits = Net Outstanding Balance PB + DR - CR = NOB DAILY AND SUPPLEMENTAL TRANSCRIPTS - A Daily Transcript is a detailed report of all guest accounts that indicates each charge transaction affecting a guest account for the day - A Supplemental Transcript is a detailed report of all non-guest accounts that indicates each charge transaction that affected a non-guest account that day. - Used as the worksheets to detect posting errors. - Used in non and semi automated systems. - Consists of revenue center, transaction type and transaction total. OPERATING MODES FOR NIGHT AUDIT 1) Non Automated (manually) 2) Semi Automated (mechanically) 3) Automated (electronically) Non - Automated - Four common night audit forms are used: a. Daily & Supplemental Transcript (either VTL is directly used or it is copied on to format from Folios --columns are summarized or totaled) b. Guest and Non-Guest Folios c. Front Office Cash Sheets/ Cash Books d. Audit Recapitulation Sheet (A complete summary of Front Office accounting for the day).

3 Drawbacks: Not feasible for large hotels. Prone to errors due to volume of data. Tedious May prove costly. Semi - Automated - Accounting Posting Machines are the basis for mechanical auditing. It is most important development in the history of Front Office Accounting. - Posting machines are of two types: Electromechanical and Electronic. Functions of both the machines are same except that - Electromechanical machine can store limited no. of department totals. Electromechanical machine cannot retain total balances. Electromechanical machine cannot be combined with other equipment (at POS). On the other hand, electronic machines are as good as a PC, in terms of cost. In fact, they are the foundation for modern day PMS. Steps in machine posting 1. Locating the folio. 2. Take folio out of the bucket. 3. Place folio along with the check in the posting machine. 4. Enter previous closing balance. 5. Post the check amount with department code. 6. Machine balances the folio. 7. Folio is refiled in bucket. Simultaneously, the following occurs: 1. The voucher is imprinted with the same information as posted to the accounts folios (this acts as a verification that the voucher has been posted). 2. Identical information printed on an Internal Machine Paper Tape (known as Audit Trail). 3. Amount of each charge is added to or subtracted from the running departmental total. Forms/ Formats used in Auditing 1. FO Cash Report 2. D-Report (Night Auditor's Report/ D-Card): It mentions the total opening balance, debits, credits & net outstanding balances. Used for reconciliation with departmental summaries.

4 Fully Automated - There is complete computer interfacing. The computer in a fraction of time performs all Audit Functions (Guest Ledger & Non Guest Ledger compared with daily departmental reports to locate errors). - Computer guides the auditor/ user through the stages in auditing. It asks for certain data inputs before beginning with the audit process. - Computer performs all the vertical checks. It Organizes, Compiles & Prints the records. System Updates are run at the end of the day. NIGHT AUDIT PROCESS - Focus is on Two Areas: 1. Discovery and Correction of accounting errors. 2. Creation of accounting and management reports. - The degree of audit scrutiny depends on: 1. Frequency of errors relates the quality of Front Office work. 2. No. of Transactions to be reviewed- correlates with the size and complexity of the hotel. Steps - 1. Complete outstanding postings. 2. Reconcile room status discrepancies. 3. Verify Room Rates. 4. Balance all departmental accounts. 5. Verify No-Show reservations. 6. Post Room Rates & Taxes. 7. Prepare required Reports. 8. Prepare Cash receipts for deposit. 9. Clear or Back up the system. 10. Distribute Reports. Complete outstanding postings - Ensuring proper posting of all transactions affecting non-guest and guest accounts. - Transactions are supposed to be posted to accounts as they are received. Night Auditor has to ensure that all vouchers are posted. - Further he has to verify (even in computerized system) the postings. This he does by matching reports from interfaces with reports from Front Office system in a computerized environment. Reconcile Room Status Discrepancies - Discrepancies cause loss of revenue, omissions and confusion. - First housekeeper's report is reconciled with room rack. - Then, room rack is tallied with folios. - The evening shift does this work to save time and resolve guest problems.

5 Verify Room Rates - Verify discounts/ complimentary etc. - If rate charged are less than Rack Rates, then: a) Are the rates discounted? Is the Discount correct? b) Are there two guests on sharing basis? Is there a second folio? c) Is the complimentary room correctly authorized? Balance all Departments - First balance all departments and then look for individual errors (within an out of balance department). - Revenue center provides source documents and Front Office Accounts provides department transaction information. - If error is found, a detailed audit needs to be done. Verify No-Show reasons - Checking Reservation Racks for pending arrivals. - Filing and posting No-show charges. One has to be careful in this case. There may be a regular guest / corporate etc. A cancellation might not have been recorded. Post Room Rates and Taxes - After verifying post Room Rates and Taxes. Prepare Reports - The following are some of the reports prepared by the auditor - a) Operations Reports b) Sales summary c) High Balance Reports d) Detailed department reports and summary (for accounts department) Deposit Cash - Sales summary and cash deposits of points of sale are tallied. - Checkouts tallied with cash receipts. - Cash is counted and tallied with cash sheet/ cash book and sealed in an envelope for deposit in accounts department. Clear I Back Up System - Clear up the total figures for the day and open fresh accounts for next day. a) Manual: Closing Balance of VTL is entered as Opening Balance for the next day's VTL sheet. b) Semi-Automated: Totals in machine are zeroed. A "Z- Card" is used to verify zero balances in the machine. It is submitted with Night Audit work. c) Automated: System backs up the reports on various media e.g. paper, DAT etc. Backup is Daily/ Weekly. Distribute Reports - Reports are selectively distributed because of their sensitive nature.

6 VERIFYING THE NIGHT AUDIT - Many types of posting, mathematical, and clerical errors can be identified in night audit. - Some of the errors are Pickup Errors - In manual/ semi-automated systems, previous balance is entered (picked up) incorrectly. - Can happen whenever a posting is made to a folio. - Difficulty to identify. Transposition Errors - The numbers related to transaction are reversed. (eg. Rs. 645 to Rs. 654 ) - Easiest to identify. Missing Folios - In non or semi-automated systems, - Folio has been filed incorrectly or removed from the folio bucket. - May be because closing A folio and not closing B folio. - When a folio is missing, the night audit will not balance. - In automated, folios are stored electronically, no issue of missing folios. ***************