The Night Audit

Process of verifying and providing the accuracy and completeness of guest and non-
guest account with departmental activity reports.

Night Audit is actually the audit process of taking inventory of the day’ work,
in other words it is the activity of checking and confirming that whatever transaction
have been done during the day are correct and complete. Any mistakes made during
the day of transaction posting and the guest accounts such as rooms, food and
beverages, taxes, phones and other are corrected and each account is balanced.

Since the hotel business is a round-the-clock business, in hotels the auditing is

done during the night and hence it is called night auditing. In hotels operating on
computer i.e. fully automatic system, the audit and posting can be done without
disturbing the night auditing process and hence the work of auditing can be done
anytime.

This work is an automatic system is mainly creating and distribution of reports,

called as ‘Early Bird’ or ‘Flash’ information about previous day. Audit concerned
with
1. Verification of posting,
2. Balancing of accounts
3. Resolving room status discrepancies
4. Monitoring credit limitations
5. Producing operational reports

Night Auditor’s Job: The basic of night auditor is the responsibility of overall
operations of the hotel as per the policy and procedure laid down and closing and
balancing of the front office and accounts recoverable. An auditor can handle 200-250
rooms normally, while with a computer even a larger hotel may be managed by him.

Role of Night Auditor:

 Attention to accounting details

 Procedural control
 Credit Control
 Occupancy percentage
 Summary of cash, check, credit card
 Summarises the results of operations

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  Reports to the 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. Calculates the total revenue generated during the day.
5. Verifies and validates the cashier’s posting of charges in guest folios.
6. Posts room charges in the guest folios.
7. Transfers unpaid guest accounts to city ledger.
8. Monitors the house limits of guests.
9. Prepares a high balance report of guest accounts nearing or crossing their house
limit.
10. Monitors current status of discounts, meal coupons and other promotional
activities that are carried out at FO.
11. Tracks important operating statistics of the hotel for the day- room occupancy %,
ARR, Rev PAR, Yield, etc.
12. Prepares reports for management analysis and action and future planning

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.

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
it’s monetary value. The front office staff posts an entry to the appropriate folio based
on the documentation/vouchers received.

ACCOUNT INTEGRITY
Sound internal controls techniques help ensure the accuracy, completeness, and
integrity of the accounting process. This includes cash control techniques and other

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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.

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 hotel’s house limit or another figure based on the guest’s
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.

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 non-guest accounts.

OPERATING MODES for the Night Audit:

1. Non-automated mode- manual mode
2. Semi-Automated mode- using machines

1. Non- automated mode (Manual method):

Here four major forms are used in addition to vouchers produced by the hotel’s
revenue centre: Folios Cash sheets Daily and supplemental transcripts Audit
recapitulation sheets The night auditor prepares daily and supplemental
transcripts by copying the day’s 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 day’s 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:

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 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 account’s 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 auditor’s 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.

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 every day. 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. Complete outstanding postings
2. Reconcile room status discrepancies

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 3. Balance all departments
4. Verify room rates
5. Verify no-show reservations
6. Post room rates and tax
7. Prepare reports
8. Deposit cash
9. Back up the system
10. Distribute reports

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 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)
If the folio has a balance, possibilities are:

a. The guest may have departed but forgotten to check out

b. The guest may be a skipper
c. The front desk agent may not have closed the folio
d. 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 room’s status.

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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.
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 room’s 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.
5. Verify no-show reservations: - The night auditor may be responsible for clearing
the reservation rack and posting charges (retention charges) to no-show 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.

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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 day’s 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)
 Manager’s 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:
 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 hotel’s bank accounts or transferred to hotel’s 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
cashier’s report, will match the total bank deposit figure.

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 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 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
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.

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