Characteristics of Internal Control

Table of Contents

Characteristics of Internal Control

1. Experienced, Qualified and Trustworthy Personnel

The personnel should be well qualified, experienced and trustworthy and this helps in providing better services
than competitors. This also ensures in having a better internal control on
pilferages.

2. Division of Duty

The duties are segregated to improve the efficiency, quality and for controlling the pilferage.

3. Leadership

Board of Directors, General Manager and other managers and supervisors must lead the person by communicating the policies of the hotel to one and all and encourage the person to have the best output and control.

4. Organisational Structure

The chain of hotels or hotel as the case may be must have a clear organisational structure and the personnel must know from whom to take orders and whom to report.

5. Sound Practice

These are policy measures generally set up and implemented by the board of directors and other senior executives in order to create an environment which facilitates internal control.

6. Authorise Personnel

The management must authorise clearly the personnel for taking the certain decision. For example a person should be authorised to extend the discount, cancel a bill, extend complimentary food/room, etc.

7. Records

The records must be maintained to ensure internal control. The records like guest registration cards, bills, K.O.T’s, control sheets, etc. Are not only maintained, checked, verified but are also stored for future references.

8. Manual Procedures

Each job should be reduced to writing. Log books must be maintained in each department. The manual procedures should list the details of each position including how and when to perform each task.

9. Control

Control includes security services and measures for protecting assets, stores, guest’s valuables, etc. The security services, as far as possible, must be hired from professionals.

10. Budget

The Budgets like short-term, long-term, specific budgets, etc. Must be made for sale, cost, production etc. The budgets must be achievable but not achievable so easily. The goals of the hotel must be clearly mentioned and the goals must be made not only for sale, cost etc. but must also be made for controlling pilferages.

11. Reports

For each job reports, must be made and circulated among the executives of the hotel for information and control.

12. Independent Checks

The personnel responsible for performing the jobs should not be asked for the internal checks but internal checks must be performed by different personnel either from the permanent personnel employed in the hotel or sometimes maybe hired from outside.

Major Types of Frauds

The internal control system is not only designed to prevent and detect fraud, but also to prevent and detect an error which is usually more common than fraud. Though it is very difficult to list down all kinds of fraud, in fact, every moment somewhere in the world, a new type of fraud takes place. Some of the common frauds are:

Failure to make K.O.T.
Failure to make Check.
Failure to record sales in Sales Summary Sheet.
Under recording to sale
Picking up of food without proper check
Collecting payment from guest without check
Charging incorrect room rent
Selling room without registration
Payment of bill twice
Receiving a bill without goods
Receiving bills twice for one supply
Receiving goods and bill without any purchase order
Allowance or discount allowed without proper authorization
Ghost payrolls
Full payment made for substandard goods received
Stealing hotels inventory and assets

Cash Control

A hotel may make a couple of lakhs of Rupees cash sale in a day. A cashier may be tempted to run away with the cash. To have an effective control of cash the hotel’s management usually do not appoint a cashier unless and until they are very sure about his credentials and they take a minimum of two references. Usually, cashiers are rotated very regularly from one outlet to the other and head cashier keeps a watch on them. All the cash collected by the cashier is deposited to the front office cashier along with sales summary sheet.

The imprest amount given to cashier is checked quite regularly, head cashier accountant/control department. The cashiers are not allowed to keep imprest money with them but is also deposited/kept at the hotel or handed over to the cashier of next shift. All the chequebooks are numbered and in case of any cuttings, the checks must be countersigned by the manager. The front office cashier is required to prepare a cash book. All the cash received must be banked. Except for front office cashier, who may be required to make petty cash payments on behalf of resident guests against visitor paid out, no other cashier is authorised to pay from the cash sales.

Cash Receipt & Payment/Disbursement

It is very important to control the cash receipts and cash payments/disbursements. No doubt in hotel industry it is becoming more and more common to settle the bills through vouchers/credit facilities extended to regular customers and through credit or debit cards but still a good number of guests settle their bills in cash. Moreover, the cash is received throughout the day and night and at various cash counters spread in different parts of the hotel.

Cash Receipt

Cash receipts must be controlled from the point of sale till is banked. The following steps are followed for its control

Checks must be prepared for each cash receipt and a proper receipt must be handed over to the guest.
The checks must be numbered and tearing, cutting or cancelling of the check must be signed by an authorised manager.
All checks must be entered on the Sales Summary Sheet.
The total cash received must be deposited in the bank immediately after the shift is over or instantly when there is cash more than the recommended cash in the cash chest. The cash should be deposited by each cashier himself or it should be deposited by the Front Office Cashier. But the Front Office Cashier must issue a receipt to each cashier on receiving the cash from them. The cash so received by Front Office Cashier must be shown in the Cash Book.
Each cashier should be given a float/imprest for paying the balance to guests or for en-cashing foreign currencies (Only Front Office Cashier is authorised to accept foreign currency from guests). The float so handed over to the cashiers must be checked both at the end of the shift and during the shift (surprise check). The cashier should not be allowed to keep the float with them after the shift is over and the float should be deposited with the Front Office Cashier or should be handed over to the next shift’s cashier (in case of room service or coffee shop)
The allowances/discounts/complementary should be only extended and signed by the authorised personnel.
The unused checks must be kept under lock and key and the serial numbered checks are issued to the cashiers against their signatures.

Cash Payment/Disbursement

This includes control over purchases, expenses and salary payments. As far as possible the cash payments should not be encouraged. All payments must be made by cheques. As far as possible the hotel must avoid making cash payments, however, petty payments may be made, in cash by a petty cashier. The cheque must be kept under lock and key and cheque payments must be made after verifying bills, supply order, purchase order, invoice, store keeper’s report, and etc. Salary should be disbursed by making direct payments to the employees’ account opened in the hotel’s bank. Before making the salary payments the attendance from the department and time office must be taken into account. For larger amount cheques, if possible, two authorised persons must sign the cheque. The cash book must be kept ready up to the moment and must be signed daily by an authorised person. The bank reconciliation statement must be prepared on a weekly or fortnightly basis.

Characteristics of Internal Control