UNIT 5 - NIGHT AUDIT

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 its 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.
FUNCTIONS OF THE AUDIT

Specifically, the audit is concerned with:

Verifying posted entries

Balancing accounts

Resolving room status discrepancies

Monitoring credit limitations

Producing operational reports

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 and prepares a summary of cash, cheques and credit card activities.
These data reflect the hotels financial performance for the day.
The night auditor summarises the results of operations for reporting to 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.
5.
6.
7.
8.
9.

Calculates the total revenue generated during the day.

Verifies and validates the cashiers posting of charges in guest folios.
Posts room charges in the guest folios.
Transfers unpaid guest accounts to city ledger.
Monitors the house limits of guests.
Prepares a high balance report of guest accounts nearing or crossing their
house limit.
10 Monitors current status of discounts, meal coupons promotional activities that
. and other
are
carried out at FO.
11 Tracks important operating statistics of the hotel
. for the dayroom occupancy %, ARR,
RevPAR, Yield, etc.
12
. Prepares reports for management analysis and action and future planning.

COMMON NIGHT AUDIT TERMS:

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 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 its 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 postings should be checked against the housekeepings report
on occupied rooms to ensure that rates have been posted for all the occupied
rooms.
Likewise, food and beverage postings are usually performed on the basis of
vouchers or guest checks received at the front desk.
The restaurants sales journal can be used to prove front desk postings.
The auditors review of a days postings lead to a reconciliation of front office
accounts against revenue center and other departmental records.

ACCOUNT INTEGRITY
Sound
internal
controls
techniques
help
ensure
the
completeness, and integrity of the accounting process.

accuracy,

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.
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 hotels house limit or another figure based on the guests
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.
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.
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 nonguest 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 hotels 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.

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- computerised mode
1.

Non- automated mode (Manual method):

Here four major forms are used in addition to vouchers produced by the hotels
revenue centre:
Cash sheets
Folios
Daily and supplemental
Audit recapitulation
transcripts
sheets

The night auditor prepares daily and supplemental transcripts by copying the days
activities from each account folio to the appropriate line on the transcript. The
transcript columns are summarised 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 days activity. See Format.
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 accounts 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
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
analysing 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 AUDIT PROCESS: ( Very Important)

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.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Complete outstanding postings

Reconcile room status discrepancies
Balance all departments
Verify room rates
Verify no-show reservations
Post room rates and tax
Prepare reports
Deposit cash
Back up the system
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 centre transactions have been
completed. He may also need to post previously unposted front office cash transactions.

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
a.
b.
c.
d.

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)
folio has a balance, possibilities are:
The guest may have departed but forgotten to check out
The guest may be a skipper
The front desk agent may not have closed the folio
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 rooms status.

3. Balance all departments:

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.

The postings to guest and non-guest accounts must equal the amounts charged
at the revenue centre for the front office accounting system to be considered in
balance. An out of balance condition indicates a need to investigate the
correctness and thoroughness of postings. However, a balance in account and
departmental totals does not necessarily mean that the proper accounts were
selected for posting. Posting the correct amount to an incorrect account would
still present an in- balance total.
Common errors in the night audit:

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.
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 rooms 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 noshow 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 report of operations summarises the days business and

provides insight into revenues, 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)

Managers 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.
(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 hotels bank accounts or transferred to hotels internal accounts receivable.
The credit card totals are added here because, in some circumstances, the credit card
voucher is 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
cashiers 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.

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 reportcontaining 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 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.
AUTOMATED SYSTEMS UPDATE- computerised mode:

System updates are run daily.

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.
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.

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.

The housekeepings room status report is rapidly updated and this is

automatically reconciled with the room status at reception. This results in a
Discrepancy Report that can be printed for further action.

In the case of guaranteed reservations no-shows, postings may be programmed to

flow automatically to a billing file.

Even a skipper room comes to light faster resulting in its resale without
further loss of revenue.
Audit balancing is maintained continuously.

As a charge purchase is entered at the POS, it is instantaneously posted to a guest

folio and a departmental control folio.
A control folio is an accounting document used internally to support all account
postings by departments.

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.

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.
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.
THE NIGHT AUDIT PROCEDURE IN COMPUTERISED ACCOUNTING
SYSTEMS- automated mode:
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 charge

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
days 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 days 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.