By David Lund
In the business world protecting your assets is a critical strategy. Without it, you are open to “things” happening that can cost you a fortune. I was trained with the concept of separation of duties as a foundation so in some respects I take it that everyone else has the same perspective.
Recently I worked with a client that showed me just how far things can go awry when you put your trust in someone and you fail to have the proper separation and oversight.
Now I know you’re thinking two or three things right now: “David is very distrusting, and he has no idea who I have looking after my affairs and besides that, we’re so small that I have no choice and I don’t know what to do. I must trust my manager.”
Nothing could be further from reality. In this piece, I am going to hi-lite a couple of the critical items that require a separation and how to create that even in the smallest operation.
“Who guards the guards?” – Plato
With a system comes the ability to control, with controls we can monitor the results. When there are no controls that means there is no system. When there is no system anything can happen.
In the hotel business, we have a great system to follow. That system has natural control points. That’s where we need to create the separation so we can monitor the results. The only obvious exception to this— that you do all the bookkeeping/accounting work yourself. For most of you, that’s not reality, you need others to work for you.
Revenue and Settlements
This is the area where you are most vulnerable. You must have a solid system to ensure the daily balancing from your property management system is in sync with the daily cash and credit card deposits and don’t forget the balancing and verification of the taxes payable and the guest ledger. Depending on the operation, you may also have to ensure the advance deposits and the accounts receivable ledgers also tie back to the general ledger.
I know lots of you are browning out on me here, but the number one practice is to ensure you have a separate individual complete each task and you ensure they are in balance. If you give the responsibility to complete both of these separate functions to the same person you are leaving yourself wide open for fraud.
It’s very easy to manipulate the control totals and pocket cash and even process credits to other credit cards not to mention directing cash to bank accounts other than yours. There are many ways to cook your accounts and books. You must have a way to ensure what’s being transacted in your hotel by way of the end of day finds its way correctly and intact to your banks and it gets properly recorded and balanced in your income/general ledger. One person, unless it’s you, should never be given these two assignments together. Full stop.
Purchasing and Accounts Payable
The second most important area where things can be manipulated is in the purchasing and accounts payable arena. You want to have a system set up in your hotel where the request/approval/receiving/paying functions are separate and, by that, I mean separate people.
I once worked in a hotel where the maintenance manager would order items like HVAC filters. He would create a PO, get it approved, submit the receiving information and payments were made for the filters. In reality, he was receiving personal items not filters and because he had control of the receiving function, he was able to do this for a long period of time. Only a coincidence and loose lips sunk his ship. Don’t let something like this happen to you.
In your hotel have the department managers use purchase orders. See my blog on the three-way match for detailed instructions. (insert link) Have these PO’s approved by the GM. Have the goods ordered and ensure the receiving is independent of the person who ordered/requested the goods. In a small operation, for example, have maintenance receive all supplies for the hotel except for their supplies. Have housekeeping or the front desk receive these items. You probably think you are too small for this. Think again.
More to come on the separation of duties in future posts. In the meantime, if you want help with your hotel internal controls give me a call. I can help you design something for your operation to help protect your assets.