By David Lund
After recently completing a policy manual for a client, I want to share what worked for this hotel company and what could work for you. I also want to clear the air on policy vs. procedure.
I know it is a big challenge to get a policy manual together for a hotel or hotel company. The big brands have resources to get the job done but the smaller brands and management companies do not have the same bandwidth. It is a project that always gets kicked down the calendar to another month or quarter. Check out another article I have written on why creating a hotel accounting policy manual is so challenging: http://hotelfinancialcoach.com/hospitality-financial-leadership-creating-hotel-financial-policies/
Confusing details that surround policies often get in the way of completing a policy manual. My client on this assignment was confused about some of those details at the start of our project. Making the task more difficult by piling on more information is a common mistake and, in this case, it is an error we want to avoid.
Quite often hotel financial executives and managers confuse accounting policy with procedures. I explained this to my client and it took a little time to get him on the same page as me. Once we broke through this barrier it was much smoother sailing. Policies and procedures are very different and mixing the two together is not a productive exercise. I think a little explanation is required here.
Policies are like the laws that form the fabric of your business. They are the dos and don’ts of your company. The policies are the black and white structure you want in place so people can clearly see the rules of the financial road. Understanding these rules completely is the first step to compliance. Making the rules simple, clear and understood is the key to creating the strong financial culture in your hotel and hotel company. You also want concise policies so you have the basis for an effective internal control review process. More on setting up and using an internal control review process is coming in a future article.
Below is a sample accounting policy that does not include any procedures. The policy is clear and concise. The policy reader knows what the expectation is.
Policy Only Example:
Policy Section – Cash Policy 3-1 Bank Reconciliation
To properly handle and control monthly bank reconciliations.
- All bank accounts are to be completely reconciled by the 15th calendar day of the following month.
- The standard reconciliation form spreadsheet is to be used.
- A paper copy of the reconciliation is to be produced each month.
- Review and approval in writing is to also be completed by the 15th of each month by the Director of Finance.
- All supporting documentation must be included with the reconciliation and/or the location clearly referenced on the reconciliation for all: bank statements, outstanding deposits, outstanding checks and all adjusting entries.
- The reconciliation must be complete and all relevant documents that support the reconciliation must be attached or easily found via reference, i.e., bank statements.
- The reconciliation is not to be completed by any employee that has bank account signing authority.
- The reconciliation is not to be completed by anyone who prepares the bank deposit.
- All outstanding checks are to be reversed once they are 180 days old
- All bank mail or email statements are to be opened first by the Director of Finance.
Standard bank reconciliation Excel sheet and template.
The bank reconciliation policy example above outlines only what needs to be done and not done.
When we mix the policy with a procedure we cloud the picture. Procedures are important but not as they relate to creating and maintaining the policy. In the above example, if we were to include the procedures we would have three problems:
- Procedures are prone to be local. Do I start with clearing my outstanding checks or deposits in transit or credit cards? Do I use an electronic system that the bank provides to clear the checks or do I do it manually in my system? How do I receive my chargebacks, online or in the mail? What about my deposits in transit, do I use a service that delays my deposits or do I deliver the funds directly to the bank?
- Procedures are prone to have a bias. Who has the best process to follow to do a bank reconciliation? I am willing to bet you if we get five hotel accountants in a room to discuss the best way to complete a bank reconciliation, we are going to have at least six different opinions.
- Procedures change rapidly. When technology procedures change quickly—depending on where you are located—these changes are not always available at the same time. If I incorporate procedures into my policy, I will have a consistency challenge. “Oh, we don’t do that part because our system is not on the latest version.” This is exactly what you want to avoid with your policy—any wiggle room.
All of these amount to make the policy vague and when it is not crystal clear it is much easier to sidestep the meat of the policy. You do not want procedures mixed in with your policies.
The best way to handle procedures is to have a checklist or an instruction guide as a separate document and not part of your policy. A great example of this for me was the manual we used to load data from our GL into the financial reporting engine. In our company we had a binder I would hall out and reference monthly to load the data into whatever category I was using. The procedures in the book changed often and—depending on what GL system we had—there were different instructions. The policy was a different matter. The policy was all GL data loaded into the system verified using the retained earnings in the current period. A print screen from both systems was required to be attached to the sign-off sheet, approved by the Controller monthly. Do not confuse policy with the procedure. You will make your manual much more effective and useful if you avoid this common mistake. Creating a policy manual will also be much simpler if you do not include procedures.
It is now time to get off my soapbox.
Back to my client and how I was able to help him create a custom policy manual. We had been working on financial statement design issues when he told me their company did not have a policy on recording hours worked in the general ledger. A bit more discussion revealed that his hotel company did not have a completed accounting policy manual. All they had were a bunch of memos. This is fairly common. I suggested I could help him create a custom policy manual for his hotels. “How?” he asked. I told him I had worked with other clients and had developed a standard set of hotel-specific accounting policies. More than 500 different policies in 30 different sections.
What I outlined was a way we could work together to create his own custom company manual. Every other week I sent him three sections of the manual via email—approximately 50 different policies. His job was to review those standard policies and think about how he wanted things changed or not for his business. We then convened a call and one-by-one we reviewed the policies and he told me what he wanted changed. We discussed these changes so we were both clear on what he wanted. I recorded the calls. I then listened to the recording and edited the standard policies with his changes. I then sent them back to him and now we were in action. He liked this because we were making progress in a way that allowed him to see and tailor each piece. Before you know it we had his company policy manual completed.
He liked the process because he only needed to spend an hour every other week on the phone with me. A little reading and some review on his part and he received a policy manual that was customized to his needs. I used Word and a standard template with his hotel company logo. These policies are now his policies. I also advised him throughout the process on what works or not and what to look out for on hotel accounting policy creation. He also asked for a few additional policies that I did not have. We created these new policies specifically for him. He also asked that some of my policies not be included because they were not relevant to his business. This was a custom job. We completed the project using only 10 calls.
If you don’t have a policy manual you now know two important things to help you get this project off the ground:
Don’t mix policy with procedure and you don’t have to do this alone!