How do you know what’s really going on at your hotel? If you’re a management company, it is not only your curiosity that needs to be satisfied, but also your livelihood. Are the receipts matching up to sales? Are regulations being followed rigorously? Is there theft? What’s your general manager been up too?
Because the hotels a management company runs for other owners are in the hands of the onsite workers and mangers most of the time, corporate executives must keep an eye out on the happenings from a distance. But nothing gets to the bottom of things faster than a surprise audit of the operations and finances. You might be surprised at what you find.
John Johnson, chief financial officer of Strand Development Company in Myrtle Beach, S.C., and his team of auditors are sort of like a band of private detectives, keeping a watchful eye over the company’s properties. While it’s not quite like a TV detective show, the art of the audit does involve the element of surprise and catching people red-handed.
“The audit is really composed of three things that come together to make one audit,” Johnson says. “First there is a look at the operational policies and procedures. Part two is a loss prevention check. The final part is actually in sales and marketing.”
The first part looks at cash counts. It verifies revenues. It looks into accounts receivable to make sure things are being billed properly and that payments are being handled properly. It also involves a look at human resources to make sure I-9s have been filled and that they are in compliance.
Part two, looking at loss prevention, involves going around the hotel with the general manager to ensure all of the OSHA forms are filled out, door access is restricted to employees where needed, proper sign in and sign out for keys is documented, and all drills are performed.
The final part is designed to make certain that all information in sales and marketing is filled out.
At the end of the day, Johnson says, there are two key purposes for an audit: verification of policies and procedures and making sure there are no issues with cash. “As a management company, being that we’re not onsite every single day, it’s very important for us to make sure people are following procedures that we’ve established,” he says.
In addition, internal audits have become increasingly more important in the modern business world, according to Johnson. “It’s become more and more important for us to become compliance based,” he says. “There’s so much more liability now with the new E-Verify requirements that most of the states passed. There’s been quite a bit of activity in the hospitality industry as far as Department of Labor audits that we’ve been forced to step up our enforcement so that if we are hit with an audit we are subjected to penalties.”
With such an importance placed on audits, it seems likely just about every management company would produce regular audits, but that assumption would be wrong. “We found that it’s about 50-50,” Johnson says of the industry. “There are a number that do and a number that don’t. I think it’s probably more now than it was 10 years ago, though.”
Johnson’s team doesn’t only audit Strand properties, it sends out teams on a contract basis with other ownership groups. “They actually hire us to go out and do audits of policies and procedures,” he says.
Johnson says the audits are generally structured but sometimes unannounced. The first type, he says is a “claiming audit.” “It’s what we do when we take over a property or if we have a new general manager,” he says. “The purpose is to train them on all of those things that will be checked.” Those audits are announced, but then it’s two audits each year that are unannounced.
“Our regional managers don’t even know,” Johnson says. “The only people who know are me and the auditor.”
And that’s where the interesting things begin to happen. “We find the element of surprise is much more effective,” John says. “We find stuff all the time.”
He recalls busting a general manger for taking $700 out of petty cash without any requests. There was a general manager who routinely didn’t show up to work until noon. “Out of 150 or so audits a year, we find something about 10 to 20 percent of the time,” Johnson says.
Johnson says the audits by nature serve as a deterrent to misdeeds by property managers and workers. “There’s always that fear, especially when it comes to cash counts, that someone’s just going to show up and check it,” he says.