Internal Controls and the Important Roles They Play in Eradicating Fraud

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Written by: Artak Gevorgian, CHAE, MBA — Official HFTP® 2018 Guest Blogger

Although I have been preoccupied with getting in the education sessions purely related to hospitality finance, technologies and hotel pre-opening, I made sure to participate in Fun with Fraud and Enchanting Employee Embezzlement in Clubs and Hotels presented by  Jerry Trieber, CPA, CHAE, CFE, CFF, CGMA, HFTP Global past president and director of audit services/support at HEI Hotels and Resorts.

The topic of fraud is hot in today’s hospitality industry. It is also linked directly to internal controls and compliance — both in function and responsibility for evaluating the control environment, improving operational effectiveness and monitoring the key contractual milestones of hotels.

Examples brought forth during this session were vivid and refreshing to the mind. My attention was taken completely away from those IT, finance and pre-opening related topics I had been focusing on. This session brought me back to the fundamentals of our jobs as directors of finance and controllers. Our main goal is to assist hotels in creating a strong controls environment that minimizes the risk of fraud, financial irregularities and any other potential misconduct — while safeguarding company assets and ultimately improving financial results.

In order to perform our jobs successfully, here are some tasks that I believe we must duly perform as prescribed to internal controls:

  • Conduct internal risk assessments and reviews;
  • Balance sheet reviews up to each single line, reconciled in the proper manner;
  • Perform a thorough weekly review of the property’s aging;
  • Document full reviews of any exceptional item(s) on P&L, cash flow and/or balance sheet;
  • Perform self-control audits;
  • Act as the point of contact on global compliance initiatives and practices in conjunction with internal audit departments, if applicable;
  • Conduct fraud investigations and establish liaisons with internal audit departments on fraud issues, if applicable.

Each of us, as controller or director of finance, must ensure the effective performance of hotel internal controls such as cash handling, procurement, expense reports, balance sheet, accounts receivable, loyalty programs, food and beverage (F&B), and other revenue-related discounts and voids. We must also ensure contract compliance, credit card processing, travel agency and other commissions practices, barter agreements, sealed bid and vendor selection processes, manual general ledger journal entries and segregation of duties among functions of job performers.

The aggregated objectives of internal controls should be the following:

  • Asset safeguarding,
  • Accuracy and reliability of accounting data,
  • Operational efficiency promotion, and
  • Adherence to prescribed managerial policies.

These aforementioned objectives may seem to conflict and can be divided into administrative (operational efficiency and adherence to managerial policies) and accounting controls (safeguarding assets and reliability of accounting data).

The purpose of internal controls in hotels is to increase the actual and (just as importantly) the “perceived” likelihood that fraud or theft against the company by an employee or an outsider will be discovered.

Take advantage of as much of the education being offered at the HFTP 2018 Annual Convention as possible, including topics that might not be on your radar — you never know what kind of valuable lessons and new insights you could walk away with when you leave Louisville.

Artak Gevorgian is director of finance at the W Hotel Muscat in Oman, Middle East and an official guest blogger for the HFTP 2018 Annual Convention, taking place October 24-26, 2018 at the Omni Louisville Hotel in Louisville, Kentucky USA. Check back on HFTP Connect for more of Artak’s experiences at Annual Convention this year.

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