Making the case for solid internal controls and greater compliance

In the hotel business, operational complexity and high transaction volumes create fertile ground for financial missteps. From front desk transactions and night audits to food and beverage operations and procurement, the potential for error or misconduct is significant. Solid internal controls and a culture of compliance are not just best practices—they are essential components of sound financial leadership.

Yet many hotels operate without a comprehensive accounting policy manual or structured internal control review process. The reasons vary: time pressures, unclear responsibilities, or the belief that existing procedures are sufficient. But the costs of these gaps can be high, ranging from lost revenue and compliance breaches to reputational damage.

Why Internal Controls Matter

Internal controls are the safeguards that protect a hotel’s financial assets and ensure operational integrity. They include everything from segregation of duties and bank reconciliations to inventory controls and PCI compliance.

Consider this: if the same employee who prepares the bank deposit also has signing authority and performs the reconciliation, the opportunity for misappropriation is wide open. A basic segregation of duties policy would require that these roles be assigned to separate individuals.

Or take inventory control in a busy hotel kitchen. Without policies to govern ordering, receiving, and periodic counts, food costs can spiral due to waste, theft, or poor purchasing decisions. A monthly inventory review policy that compares theoretical usage with actual results helps catch problems early.

Common Gaps in Policy and Compliance

Many hotels lack a formal policy manual altogether. Others mix policies with detailed procedures, confusing the "what" with the "how." A well-written policy should be concise and focused: define what must be done, by whom, and by when.

For example, a strong bank reconciliation policy might state:

• All bank accounts must be reconciled by the 20th of the following month.
• The controller must review and approve the reconciliation in writing by the 25th.
• Supporting documentation must be included or referenced.
• Outstanding checks must be reversed after 180 days.
• Reconciliations should not be performed by anyone with check-signing authority.

Another example is the policy for PCI compliance:

• All credit card terminals must be inspected weekly for signs of tampering.
• Staff must receive annual PCI compliance training.
• Any suspected breach must be reported immediately to the general manager and controller.

These are simple, effective steps that reduce risk.

Building a Culture of Accountability

Strong internal controls are not just about rules; they build accountability. By creating a comprehensive policy manual organized by topic—such as cash handling, accounts receivable, payroll, and inventory—hotels can provide clear guidance to staff at all levels.

But documentation alone is not enough. Regular compliance reviews, such as a 12-month rotating internal control review program, ensure that policies are being followed. Reviewing 10% of your policies each month allows you to catch non-compliance and correct it before it becomes a pattern.

This practice turns policy from a static document into a living part of hotel operations.

Overcoming Common Barriers

So why don’t more hotels implement these controls?

First, there is often a lack of time. Hotel leaders are busy and may push policy development to the back burner. Second, too many opinions can stall progress. Involving too many stakeholders can lead to debates about how to do things rather than focusing on what needs to be done.

The solution is to keep policies simple and to separate them from procedures. Policies say what must be done. Procedures describe how it’s done. Keep these distinct and you’ll avoid unnecessary complexity.

Moving Forward

Whether your hotel is independent or part of a larger brand, solid internal controls are achievable. Begin by creating an inventory of key financial areas, then develop clear, concise policies for each. Assign responsibility for drafting and maintaining policies and create a routine review process.

The payoff is not just greater compliance, but stronger financial performance, lower risk, and a culture where staff understand their roles and responsibilities.

Internal controls aren’t bureaucracy—they’re the backbone of financial leadership.

Hotel Accounting Policy Manual & Internal Control Review Program: By adopting this structured approach, hotels and clubs can:

• Ensure financial clarity and consistency
• Avoid common policy mistakes
• Strengthen internal controls and compliance
• Save time by implementing a ready-to-use solution

Want to learn more?

Visit The Hotel Financial Coach – Products Page to receive more information absolutely free! Click here - Policy & ICR Manual FAQ - https://lnkd.in/ggZryrar

David Lund – The Hotel Financial Coach

Contact David at (415) 696-9593
Email: david@hotelfinancialcoach.com

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