Need of Internal check on Purchases & Sales in Hotel Industry - All you want to know!!!

The hotel industry is a broad category of fields within the service industry that includes lodging, food and drink service, event planning, theme parks, transportation, cruise line, traveling, airline and additional fields within the tourism industry.

The hotel industry as we know it today really got its start at the beginning of the 15th century when French law required that hotel managers keep a register. English law quickly followed suit, and more than 500 inns began to crop up in the two countries.

In a hotel, sales occur in many ways or revenue is generating from different departments. Rooms are the major revenue centre and food and beverages comes second. These departments have different kinds of risks as well

• Most common risks associated with hotel industries are Granting Discount - it seems common, but if front office collude with the customer and make huge discounts, it may affect the revenue of the hotel. To control this risk, prior Approval by Management should be made, to grant discount which exceeds certain limits, Permitting occupancy of a room beyond the normal hours. We know these are given to the executives and management representatives of a hotel, these may not create any revenue. Granting Allowances & Complimentary Room allowance given to customers due to the complaints filed by them this is also a cost. Management should ensure that there is no room for such allowance and Approve Appropriately, if any.
• There are certain other covered risk related with rooms like risks in food and beverages department, Restaurant and Bar – these may be the main attraction of a hotel. Since guests and non-guests are allowed here. For guests bills can be combined with room bill but for non-guests it will be a loss if they skip without paying. Employees in this department have the chance to make money by making some arrangements with the customers.
• Management should make:
  • Rotation of duty of stewards and cashier
  • Copy of the Kitchen Order Ticket (KOT) match with F&B ledger  
•  , Banqueting has a bulk order for food and beverages Management should make sure that:
  • Collection of advances for such banqueting,
  • Rates and granting discount has been done with proper approval of management, Plate Counting and vouching has been done appropriately.

These are the main risks in relation with sales in a hotel industry and there are few measures to check these risks.

Purchases always has an important role in the final revenue generation of a hotel.

If it is not properly maintained or controlled there is higher chance of revenue leakage.

Now lets go through certain important cases where there is a chance of revenue leakage and hence there is a need of internal control.

• Annual Rate Contracts – In order to reduce the cost of purchase and for the timely availability of perishable goods, certain hotel managements will be making certain arrangements with supplier. These arrangements are known as annual rate contracts.

If employees in purchase department collude with the supplier there is chance of revenue leakage.

To ensure there is no collusion and there is no such revenue leakage, Management

• • Should make necessary arrangements to do Formal documentation.
  • Make sure that contract is awarded to lowest quotation.
  • A list of approved supplier should be maintained.

         Purchase Order should be numbered

• Formalised indenting (requisition) System – this system is nothing but the normal purchase requisition system.

In most of the hotel, main chef will make requisition to stores department, where they make requisition to purchase department and then the purchase really happens.

You may think, this itself a very good control system and how they will lead to revenue leakage!

Problems comes when the authority to make requisition comes, if management made no proper instructions towards the authority there is chance of more requisitions from different people and not purchasing the necessary goods.

To avoid these circumstances:

• • Management should give clear instructions on the authority for indenting (requisition)
    • i.e. who can make a request,
    • to whom such request is to be made.
  • There should be Proper control over serial number of indents.
• Monitoring Stock – Every business which have a stock is viable to risk and therefor revenue leakage.

It is due to the storing, viability to pilferage, inappropriate ordering and many similar reasons.

• • To avoid such risk and leakage, management should have a sound knowledge on
    • Re-order level,
    • Re - Order Quantity,
    • Maximum and minimum stock
  • Stock records should be maintained on regular basis. It should be checked frequently.

• Receipt of materials – last, but not the least, risk point on purchase is the receipt of materials.

There is chance of pilferage, under receipt of goods and so on. 

• • To eliminate such loses, Proper inspection at the time of receipt should be done.
  • Proper control on number of preparation of Goods Received Note and serial number should be done

These are the main risks in relation with sales in a hotel industry and there are few measures to check these risks. To know more on the internal check, its measures and application in real life subscribe to our Whats App Group.

Also check this course
Accounting for Hotel Industry - A Complete Guide