Auditing in the hotel industry is crucial for ensuring compliance with various laws, maximizing revenue, and maintaining operational efficiency. This comprehensive guide explores the key areas of auditing, including applicable laws, revenue generation, expenses, and miscellaneous compliance points. By understanding these elements, hotel auditors can provide valuable insights to help hotels operate smoothly and profitably.
1. Applicable Laws
a. Goods and Service Tax
b. Food safety & Standard Act, 2006. Prevention of Food Adulteration Rules, 2010
c. Contract Labour (Regulation and Abolition) Act
d. Shops and Establishment Act and the Catering Establishments Act
e. State Excise Act ( On liquor )
f. The Companies Act, 2013 ( If the Hotel is a Company registered under the Companies Act, 2013)
g. The Income Tax Act, 1961 (irrespective of whatever the status of that hotel)
h. Other Acts in force as far as applicable case to case basis.
2. AREAS OF REVENUE GENERATION
A. Revenue from Food & Beverages (Restaurants)
Under the Hotel Area, there are two type of customers, one is to the resident customer who has availed room facility and the second is to walk-in customers i.e. just for dining/cafeteria.
An Auditor should verify that the sale to both of the customers whether the sale to resident customer is recorded in the combined bill and a cash/online payment receipt is issued in case of sale to walk-in customers.
GST should be charged on the bill as per applicable rates to the restaurants. An Auditor should examine that all collected GST have been deposited with government within time or not.
The taxes levied on liquor and serving of liquor should also be verified.
All generated bill should be accounted for in the main bill of the resident customer.
Also, Live KOT* (Kitchen Order Ticket) may also be checked to check the order received with amount received and order prepared with inventory, it will ensure the exact sale of the product as shown in sales.
(*KOT is prepared by food service personnel to intimate the food order of the guest to the kitchen)
B. Revenue from Room Rent
Main revenue generation points in hotel industry is room rent. The billing is done through accounting software (most of the hotels are using PMS/ Relia Bills software which is very popular in hotel industries).
Discounts may be offered to customers; this depends on various factors like season, holidays and other things. Special discount is also offered to groups of students, foreigners, colleges, agents, delegates, corporate customers, VIP customers, etc.
In this Era, Many hotels also has faculties to let the customers book hotel rooms through many trending E- Commerce Platforms. For example, Agoda, Goibibo, Make My Trip, Trivago and etc. For such business modules, The Auditor shall check the online portal alloted by such third e-commerce parties to the hotel, for verifying the revenue from the portal and booking in advances.
C. Food & Beverages Revenue from Minibar/Bar
First of all, The Auditor should check whether the hotel is licentiate for such minibar or not by checking the license and renewals date and other compliances for such Minibar.
It may be possible that the Hotel is serving such liquors without any license just to please and attract more customers. As this may attack the Hotel with penalties and fines, by which other areas will come under eye.
The Auditor should verify the daily report of consumptions and stock of these items and should match with the billing to guest.
D. Revenue from Business Centres
An Auditor should c examine the business centre services as these services are manually tracked to billing and if manual tracking through appointment register is missed, billing will be omitted.
Many luxury and semi luxury hotels are into these business centres* practice.
(*A business center is a room in a hotel with facilities such as computers and a fax machine.The hotel’s business center offers a wide range of services for the corporate traveler )
E. Arcade Revenue
Hotels provide shopping space at a fixed monthly rent at lobby of hotel or any other public area.
These monthly rents should be evenly verified and also the agreement for such rentals shoud be cross verified with the rentals received and name of the tenant.
F. Revenue from Laundry
Laundry service is provided to employees of hotel and resident guests. The Auditor should get the rate list to verify the rates and the billing should be verified with the housekeeping record.
G. Revenue from Sale of Scrap and Disposal of Empties
Scrap and empties can be sold on the basis of contract price or on the basis of onetime evaluation at the time of sale or whether empties are to be refilled or returned to the supplier. Like , Some Beverages Companies has practices to take empty cans return or get them refilled.
H. Revenue from Banquets
Generally, rate offered is a composite rate for food and beverages and rent of hall. Composite rate is based on per person.
Let me take you to the best example,
If actual price (means per person) is less than the contracted rate, billing is absolutely done on minimum guaranteed covers. Like, if banquet rent including Food &Beverages is Rs. 2,00,000/- for 100 persons i.e. the per person rate is Rs. 2,000/- &
If the actual number of persons is 90, then the hotel will charge Rs. 2,00,000/- at the minimum guaranteed rate.
If the actual number of persons is 120, then the hotel will charge Rs. 2,00,000 + 2,000 x 20 = 2,40,000/-.
3. EXPENSES
A. Salary to Employees
An Auditor should verify the appointment letter, policy of increment, time record, salary register, cash book and bank book to verify the salary payments of employees.
To check the exact appointment, the Auditor can check real time existence of the employees and workers.
Whether the appointment and minimum wages to contractual labour are as per Contract Labour (Regulation and Abolition) Act or not.
B. Purchase of Inventories and other required items.
One should verify all purchases through requisition slip, quotations, purchase order, inward register, quality control verification record and stock ledger.
Whether the supplier is verified, amount paid for such expenses are cash paid or through cheques with respect to the payment of cash as per Income Tax Act, 1961.
An Auditor should apply all other precautions and experience to audit the expenses as he does in any other industries.
Also, The Inventory book should be verified to check the opening stock, additions , deletions of expiry products and its disposal and the closing inventory. This is a real challenge for an Auditor to verify all these very carefully.
4. Miscellaneous Points
While Auditing Hotels, The Auditor shall ensure whether proper GST ITC has been availed for purchases made and GST paid for the sales and other revenue generation areas.
There should be proper set off of the GST, on time payment of taxes, compliance of the notices . All this will enable the entity to have a good image in the Industry and also with complying governments.
Also, Income Tax goes hand in hand, all the areas like cash payments/ receipts, advances, allowed and disallowed Expenses should be as per enlighted in Sections.
Therefore, All the areas of the Industry should be checked and verified , Also the Acts, Regulation in force and as applicable should be checked.
Additionally, the following Respective documents and licenses can be checked to stay in the Industry with fair and orderly manner.
A. Copy of the Occupancy certificate (Issued by Municipality or concerned panchayat)
B. Health NOC (Issued by Health Department)
C. NOC from Electricity Department
D. NOC from Fire Department
E. FSSAI License
F. Bar License (if required)
G. Music License (if required)
H. Lift Clearance License
I. GST Registration
J. ESI Registration
So, that the Business of the Hotel should not get any barriers due to small negligence.
Conclusion: Effective auditing in the hotel industry requires a thorough understanding of applicable laws, revenue streams, and expense management. By focusing on these areas, auditors can help hotels maintain compliance, optimize revenue, and ensure operational efficiency. Adhering to regulatory requirements and implementing robust auditing practices will enhance the hotel’s reputation and business sustainability.
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