Goal:  Allow guests to see transactions as they are rung to prevent internal theft

The key to proper placement of a point of sale terminal is visibility.  You want to set up your terminal so that customers can see every transaction as it is rung up.  Many POS systems do a great job of displaying the transaction total in large numbers on the screen or display ‘no sale’ when the cashier hits the no sale key.  It makes it very easy to have a manager or supervisor monitor the transactions from accross the restaurant.  If your terminal is in a position below a counter, add a display arm or ‘goose neck’ to your POS.

We have seen a dramatic increase in internal theft while in the field and expect to see a continued increase in 2009, especially in employees who rely on tips for a large part of their salary.  Many hotels have been forced to dramatically reduce the number of hours as occupancy declines and many of the hotel restaurants have slowed down.  Many employees are now really struggling to make what they made in the past and most cannot afford to take a pay cut and still pay their monthly expenses.    

What can you do to make sure your employees don’t turn to theft to make up their lost tips?   

First, have a good long term forecast and reduce your staff accordingly.  Many hotels make the mistake of forecasting their labor week to week instead of quarter to quarter.  If you do a quarterly forecast, you can make better decisions.  Unfortunately, many hotels will be laying off employees over the next year.  If you evaluate your staff now based on forecasts, you can consider laying off a few employees now rather than just reducing everyone’s hours until moral really suffers.  Be upfront and honest with your associates and how the decreased business will impact their jobs.  For many employees, this is the first recession in their working lives. 

Second, make sure you are reviewing your internal controls.  One of the most important tools to have now is a system to track all employee’s sales and tips by day.  Be sure to compare each employees’ percentage of cash sales to other employees’ percentage and investigate any inconsistencies.  

Finally, continue to do what you have been doing in more successful times to keep theft out.  Many hotels are tempted to spend less hours reviewing internal controls or reducing mystery shopping to save money.  Don’t be short sighted.  Think long term.

Why is conducting a random bank audit so important?  If you have an employee who is stealing cash during their shift, they need a place to store the cash they are going to steal.  They typically store the cash in the drawer and then pocket it at the end of their shift when they are closing out their paperwork.  This often applies to guest service agents, bartenders, gift shop cashiers, and coffee shop baristas.  A good program of random bank audits can be one of the most important tools to help you keep theft out. 

Here is how to get started:

First, in order to perform random bank audits, all employees must be using hotel issued banks.  It does not matter if the banks are individually assigned banks or if they are rotating banks, as long as they are hotel issued.  Many hotels require their bartenders to bring their own change bank from home.  If you do this, you cannot audit it.  Give all employees a small hotel issued bank.

Next, make sure that only hotel sales are placed into the cash banks.  Do not allow employees to place tips into the cash bank.  Give them a separate tip jar if they are in a tipped position.  Place that tip jar at least 5 feet away from the cash register so the employee cannot easily mix funds between the bank and the tip jar.

Make sure that your hotel has a written over/short policy in place and every employee who handles cash has signed it.  If you need to document employees for being over or short, you will want a written policy first.  Remember, being over is just as bad as being short and document accordingly.

Finally, assign someone to be responsible for auditing the banks and create a schedule to ensure all banks are audited.  We recommend that every bank is audited once per week.  Create a schedule that lists all of the banks on the one side and then the weeks of the month on the other.  Have the bank auditor log the over/short amount for each bank during every audit. 

How to audit a bank:

Approach a cashier during their shift.  Do not wait until their shift is finished.  Bring the cashier a replacement bank so they can continue working while their bank is audited.  Have them print their shift report.  Take the shift report and bank to the bank office.  Prepare the cashier’s drop according to their shift report and then count the bank.  Address any over or short issues according to your cash over/short policy.

Here are some suggestions to protect your money:

1. Make sure every credit card presented at the front desk is swiped. Have accounting periodically run reports from the PMS and audit to make sure that all cards are swiped. Conduct further training with the front desk on the importance of swiping every card. Swiping the cards will also save you money on your transaction fees. We will get to third party credit card authorization forms in a section below.
2. Set a credit limit for in house guests of one to two thousand dollars. Post a payment every time their account gets to that level and deliver a copy of the folio to their room. Then make sure that a new authorization is taken after each payment is posted.
3. Monitor guests for unusual purchasing. Guests staying on stolen credit cards are usually the guest who go wild with room service, in-room movies, telephone, etc.
4. Make sure the front desk gets a current address and phone number from every guest, especially walk in guests. This is one area that is most neglected, especially when the front desk is busy. Also, in many counties in the US, it is the law.

What to do when a credit card is not present:

1. Have a strict policy on the use of third party credit card authorization forms. Have all requests processed through the accounting department rather than the front desk.
2. Make sure that your authorization form requires the cardholder to fill in their name, credit card billing address, and signature.
3. Require the cardholder to fax over a copy of the card and their photo ID if possible. However, many hotel chains no longer allow this. If you cannot do this, use step 4 below.
4. Use an ‘Address Verification System’ to verify every authorization form received. Most major credit card processors such as Chase have an automated system available and it takes just a minute or two. Do not accept a credit card if you can not verify the billing address.
5. Require a payment in advance or a deposit when using a credit card authorization form. This is especially important if you accept an authorization form for large amounts like a group block, meeting room, or catering function.

As privacy policies continue to become more strict, it will be difficult to prevent chargebacks unless you stay on top of the tools you have on your side. Of course, we will continue to keep you updated in any way we can.

There are some simple controls that every hotel should have, yet many hotels fail in these areas when internal audit comes around. Here are some highlights:

1. Make sure that the General Cashier does not perform any accounts payable or accounts receivable functions. This is especially tough in small hotels that may only have one employee in their accounting office. In a small hotel, we recommend having the Sales Admin or Front Desk Manager be the General Cashier… anyone who does not do A/P or A/R. If a General Cashier has access to A/P or A/R, it makes it incredibly easy to steal cash.

2. Require the General Cashier to take a vacation each year and have their job functions assumed by another associate. Quite often, a cashier will not want someone else to handle their job duties or to take a vacation at all. This is often a red flag that the cashier is committing fraud and afraid of someone looking closely at his/her work.

3. Make sure that every bank in the hotel (including the main safe) is audited on a surprise basis at least once per month. This one is the most basic of basic controls yet many hotels do not do this. They typically find out of a cash shortage when an employee with a bank is terminated. This is especially important when it comes to the main safe. If it is not audited frequently on a surprise basis, it makes it so much easier for the cashier to steal or borrow money.

4. The drop safe should require two people to open. We like the drop safes that need a key and a combination. The combination should be kept by the General Cashier and the key should be kept by a separate person.

5. All deposits should be removed with a witness present and immediately logged. The deposits should be logged with a witnessed in case an envelope is missing.

6. Bank deposits should be made every day via armored car service. Do not allow your General Cashier to skip days and keep cash on hand. This makes it easier to commit fraud. Also, make sure that your deposit is picked up by armored car and not taken to the bank by the General Cashier.

7. Accounts Payable or Accounts Receivable employees should never handle cash or checks. Do not allow the A/P employee to receive checks in the mail. The checks should be received and logged by someone other than the General Cashier or A/R employee. We prefer an Administrative Assistant to handle this or have the checks sent directly to your bank lock box. Also, the A/P or A/R employee should not handle cash, including petty cash.

Again, these are just the basics of control. There is more information available in the HFTP Study Guide for the CHAE Exam. More information is available at http://www.hftp.org/ or your local HFTP Chapter.

If you would like an Internal Audit performed by Five Diamond Hospitality, please call or email us by clicking on contact us.