Presentation on a rather difficult to understand topic initially, that is, cash control and credit control system, as applied in large and busy hotels. Includes, skipper and paid-in-advance guests.

1. Welcome to a
new learning
session!
Knowledge is Money.

2. Cash Control & Credit Control
Principles, Methods & Benefits

3. Cash and credit, are two modes of
settlement, at the departure stage of
the Guest Cycle.
Both involve an element of risk.

4. Control is a function of the management.
Manager has 5 functions;
Planning,
Organizing,
Staffing,
Leading, directing & motivating,
Evaluating & controlling.

5. Organization Control
• Clear organization chart.
• Clear responsibilities through “Job
Description” for each post.
• Constant supervision to prevent short- cuts.
• Physical & technological security measures.
• Clear cut procedures. Regular training.
• Continuous up dating of procedures.

6. Cash Control: Introduction
• Cash is a company's most liquid asset,
which means it can easily be used to acquire
other assets, buy services, or satisfy
obligations. For financial reporting
purposes, cash includes currency and coin on
hand, money orders and checks, made
payable to the company, and available
balances in checking and savings accounts.

7. Why Cash Control?
• To calculate the total amount of incoming
cash.
• To calculate the amount of outgoing cash.
• To estimate the amount of cash available for
business, at any particular point in time (cash
flow).
• To safeguard liquid assets.

8. Cash Control
• Define Fraud & Internal Control
• Principles of Internal Control
• Cash Receipts, or Incoming Cash
• Cash Disbursements, or Outgoing Cash
• Bank Reconciliation Statement
• Recording & Reporting of Cash
• Cash Management (safe storage & transfer)

9. Cash is most
vulnerable to fraud.

10. Fraud
• Dishonest act by an employee, that results in
personal benefit to the employee, at the cost
of the employer (company or organization).

11. Factors that Encourage Frauds
Opportunity
Rationalization
or Justification
Financial
Pressure

12. Internal Control: Legal Aspect
• All organizations must have an internal control
system, and regular independent external audit.
Government sends its own group of auditors, to
all organizations, for verification of accounting
records, and tax liability assessment.
• Not just employees, even the owners of “Limited
liability company” themselves could encourage
fraud, for personal benefits and later on, declare
themselves bankrupt. That is cheating the small
shareholders. E.g. Satyam Computers scam

14. Benefits of Internal Control
• Safeguard assets
• Accurate & reliable accounting records
• Increased efficiency
• Protection from legal trouble
• Boosts morale of honest employees

15. Elements of Internal Control
• Controlling work environment responsibly.
• Evaluation of risk factors.
• Apply control activities, including
technological control system.
• Establish secure Information &
communication system.
• Constant monitoring of the system.

16. Principles of Internal Control
A. Establish Responsibility: only one person will
perform an accounting task at a time. E.g. One
shift, one cashier.
B. Segregation of Duties: in an accounting process,
related steps must be performed by separate
employees. E.g. Cashier and night auditor must
be different.
C. Documentation: all financial documents must
be pre-numbered, responsibility assigned to one
person and that person becomes responsible for
every numbered document. E.g. One KOT book,
one waiter made responsible.

17. Every transaction must be
recorded.
Every step in a transaction
must be recorded by a different
person, on a separate
document.

19. Audit trail is established through cross-
referencing of documents. Cross reference
means entering the number of K O T on bill and
vice versa.

20. Physical Control Measures
• Safe Vaults
• Safety Deposit Locker
• Locked Stores
• Locked Inventory Cabinets
• Password-enabled access to computer
• Fingerprint scanner
• Iris Scanner
• CCTV
• Sensors (Clothing sensors (in shopping malls) are
placed on garments, using special prongs, that are
designed to avoid damaging the fabric. They are also
designed to be difficult to remove, without the proper
tool, or without damaging the garment.)

21. Physical Control Measures-2
• Cash Counting machine
• Fake Note Detector
• Time Office Punching machine
• Alarms (for break-ins or alert)

23. Under the table, hold-up, panic
alarm, to alert police.

24. Safety Vaults

25. Locked
Cabinets

26. Locked
Stores

27. Bio-metric
or
fingerprint
scanner

28. Iris or retina
scanner

29. Currency
counting
machine

30. Safety
Measures

33. Independent Internal Verification
• Night Auditor fulfills this responsibility of
verifying all financial records in a hotel.
However, night auditor should only point out
the mistakes, not do the corrections.
(segregation of responsibilities principle.)

34. Human Resource: Internal Control
• All employees with access to large amount of
cash or valuables, must sign a bond (legal
agreement) with the hotel.
• Employee shift time, work area must be
rotated regularly.
• Compulsory weekly off-days, and annual
vacations, for staff handling financial work.
• Compulsory police verification before hiring
staff for sensitive positions.

36. Causes of Frauds
• Mis-use of position & authority.
• Non-separation of important duties.
• Collusion between two responsible
employees.
• Exploiting loopholes in the system by
experienced staff.
• Mis-use of access to privileged information.
• Unsupervised employees.
• Unclear organizational hierarchy, where two
employees report to each other. No boss!

37. Hierarchy Hotchpotch!

38. Limitations of Internal Control System
• Cost of control can not exceed the benefit of
control.
• Human beings always make errors,
unknowingly.
• Size of business could also make control
difficult. Small companies are more
susceptible to fraud.

39. Cash Receipt (Incoming) Control
• Only one person at a cash counter.
• Lock cash drawers. Use cash voucher for every cash
receipt.
• Separate employee at each duties. (Receive, record,
hold, deposit, bank reconciliation statement)
• Document integrity in audit trail. (attach different
records from different positions and departments,
then reconcile (match) them. (Cross reference)
• Archive (safely store) all financial records, for future
claims and disputes.
• Deposit all incoming cash to Head Cashier office.
• Don’t keep large sums in cash drawer for long time.

40. Cash Receipt (Incoming) Control
• Match the cashier’s summary with cashbook
for omission and commission errors.
• Rotate the driver & security guard of cash van.
• Bank is safer than hotel for storing cash.

42. Cash Disbursement (Outgoing) Control
• Never take money from incoming cash drawer.
Keep the two trails separate.
• Withdraw from bank and then pay petty cash
amounts.
• Use VPO for all payments made on behalf of a
guest.
• Pay through a/c payee cheques, for larger
amounts. Fill the cheque summary of cheque
book.
• Obtain payee’s signature on payment voucher.
• Match the cash book and cheque book entries,
with bank passbook statement.

43. Bank statement shows both deposits and withdrawal.

45. Reconcile means to sort
out the differences.
Literally here!

46. Reconciliation Statement

47. Credit Control

48. Why sell on credit?
• Hotel rooms are perishable. If not sold today, the
revenue is lost for ever. To balance this risk,
hotels accept booking, for rooms and banquets,
without asking for upfront payment.
• New hotels have to offer liberal credit to attract
first time guests.
• In high competition situation, hotels may offer
credit to please the guest.
• During off season, the hotels are under extra
pressure to arrange working capital.

49. Credit Purchase (Charge Privilege)
• Credit: A facility given by a hotel to a guest
(resident & non-resident) to buy goods and
services many times, on a charge account, and
pay once in a lump sum, later.
• Resident guests pay at departure.
• Some resident guests settle through credit
mode and hotel receives payment after check-
out. (Credit card, BTC, TA Voucher, MAO, PSO)
• Non-resident guests pay once in 30 days.

50. Why charge (Credit) purchase is
allowed by hotels.
• Convenience of guests
• Reduce workload of processing payments for a
large number of transactions
• Market growth
• Recognition for regular customers

51. Why Credit Control?
• To balance credit facility and working capital
need of the hotel.
• Hotel guest bills, on charge purchases can, quickly
reach up to lacs of rupees. Any negligence, or
delay, and the hotel will lose revenue that would
be difficult to recover. (Skippers & Walk-Out)
• Guests also tend to challenge entries in their bill,
after checking out of the hotel, and that is
embarrassing and damaging to goodwill of hotel.
• After check-out guests are difficult to handle.
• Charge privilege is only for genuine guests,
approved by Credit Control manager.

52. Credit Control Team
• Chief Accountant
• Hotel Financial Controller
• Credit manager
• Secretary
• Credit Assistants

53. Role of Credit Control Department
• Make a credit policy draft.
• Investigate the financial standing of the guest.
• Set a credit limit for every account, depending
upon type of reservation and mode of payment.
• Monitor credit accounts constantly for unusual
accumulation of credit.
• Get full payment, on time.
• Try to recover payment, in case of any delay.

54. Who is allowed credit privilege?
• Guest with guaranteed reservation.
• Bill to company Executives
• Guests paying through credit and charge card
Non- guaranteed guests, scanty baggage and guests
paying through cash mode, are never allowed
credit. Instead, they are asked for pre-payment.

55. Objectives of Credit Control Measures
• Prevent skippers and walk- outs
• Prevent delay in settlement of account
• Prevent guest dissatisfaction. Convey which
credit cards and foreign currencies are not
accepted, at check- in, not at check-out.
Inform guest before they exceed their credit
card floor limit.

56. When does Credit control fail?
• When guests and staff, are not given clear
instructions.
• When staff do not communicate on time, and
enough.
• Failure to follow procedures, to save time or
to please the guest, like not checking the black
list of past skippers & walk-outs, the credit
card authorization from bank, proof of guest
identity, taking a picture etc.

57. Methods of Credit Control
• Establish House Limit at check-in, for each a/c. PMS
makes this quite simple.
• High balance report to identify risky a/c, daily.
(Night Audit Report)
• Ask for part payment to guests near or over house
limit. Put on “No Post Status” in PMS, till they pay.
• In serious matters, hotel may try ‘Lock Out’
(double lock the room, with luggage inside).
• Upon payment, release “No Post Status”.
• Guest identity verification at POS before allowing
credit. All vouchers must be signed by guest.
• Onus to prove genuineness of BTCTA
VoucherCredit cardMAOPSO lies with bona-fide
guest.

58. Methods of Credit Control-2
• Keep scanty baggage & walk-in guests on APC (all
payments in cash) basis. Bell boy to report light or
low quality baggage.
• Mark on GRC as “scanty baggage”. Inform all outlets.
• Check credit card for expiry, floor limit and
ownership. Obtain bank authorization and guest
signature.
• Do not accept third party credit cards.
• Follow “luggage pass system” at departure.
• Ask for recent charges at departure, to prevent any
late charges.
• After departure, shift all unsettled accounts to city
leger, handled by Accounts department.
• Follow SOP, every time.

59. Scanty
baggage
guests may
only carry
a handbag
or low
quality
bags.
Some may
stuff their
bag with
useless
things.

60. To fool the hotel staff, skippers may leave
a few less expensive items, or toothbrush,
bathroom slippers etc., lying in the
bathroom, or room closet.

61. Methods of Credit Control- 3
• Train room maids to report walk-outs, to avoid
sleeper room situation. Skippers leave a few items
to fool the hotel that they are still staying.
• Room service & Banquets to report unusually large
quantities of F&B orders.
• Skippers tip very generously (too big an amount),
and recipient employee must report to Controller.
• Ask for weekly settlement from all long- stay guests.
• Communicate the hotel credit policy at reservation,
check-in and display in the hotel rooms.

63. A very large order could be a sign of a possible skipper.

64. When default happens?
• Up to 30 days, hotel can wait. (current)
• After 30 days, make a telephone call. (due for
payment)
• After 45 days, write a letter, demanding
immediate payment. (overdue)
• After 60 days, write a strongly worded letter,
possibly threatening with legal action.
(delinquent)
• After 90 days, proceed with legal action.
• The account may have to be marked as “Bad
Debt” , after 90 days.

65. Risk can never be eliminated.
But, it can definitely be reduced.
It is better to be safe, than, to be
sorry!

66. Compilation & Presentation
Praveen Jha
Senior Faculty
IHM Hajipur
Vaishali, Bihar