Hospitality Industry Managerial Accounting

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Hospitality Industry Managerial Accounting

• HRT 374
• Chapter 12
• Don St. Hilaire

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Chapter 12 Internal Control Competencies

• Explain the major objectives of an internal
  control system.
• Identify general characteristics of an effective
  system of internal control.
• Describe specific procedures that meet basic
  requirements for the internal control of
  accounting functions.

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Chapter 12 Internal Control Competencies

• Explain the use of flowcharting and internal
  control questionnaires in documenting and
  reviewing internal controls.
• Identify the key control duties of the owner or
  manager of a small hospitality operation.

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Ch. 12 Internal Control - Vulnerability to Theft

• Hospitality Industry Characteristics
• Many cash transactions
• Many jobs which require relatively low skills
• Many positions perceived as low social status
• Items of high value are commonly used
• Use commodities that employees need and must buy
  for home use.

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Ch. 12 Internal Control - AICPA - Four Major
Objectives

• 1. Safeguard assets.
• 2. Check accuracy and reliability of accounting
  data.
• Accounting Controls

• 3. Promote operational efficiency
• 4. Encourage adherence to prescribed managerial
  policies.
• Administrative Controls

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Ch. 12 Internal Control - Legal Requirements

• The Foreign Corrupt Practices Act (FPCA) 1977 -
  requires internal accounting controls by publicly
  held corporations
• Focus is on accounting controls
• Fines up to 10,000 for companies and personnel

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Ch. 12 Internal Control - General Characteristics

• Management leadership
• Organizational structure
• Sound practices
• Fixed Responsibilities
• Competent and trustworthy personnel
• Segregation of duties

• Authorization procedures
• Adequate records
• Procedure manuals
• Physical controls
• Budgets and internal reports
• Independent performance checks

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Ch. 12 Internal Control - Internal Audit

• Independent internal appraisal.
• Service to Management -Concerned with
  operational efficiency
• Measures and evaluates other controls.
• Focuses on accounting and administrative
  controls.
• Looks at Financial and Nonfinancial data
• see Exhibits 1-3 on pages 505-507

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Ch. 12 Internal Control - Basic Requirements

• Cash
• Accounts Receivable
• Accounts Payable
• Purchasing Receiving
• Payroll

• Inventories
• Fixed Assets
• Marketable Securities
• See pages 506-515

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Ch. 12 Internal Control - Implementation Review

• Top level management is responsible
• Regular reviews are necessary
• Changing business conditions and other
  circumstances may require the restructuring of
  internal control system
• Importance of Flowcharting and Internal control
  questionnaires

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Ch. 12 Internal Control - Flowcharting

• Indicates flow of documents through an
  organization
• Origin
• Processing
• Final Deposition of each document
• Segregation of duties
• Who is responsible for specific functions
• Overview of internal control system

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Ch. 12 Internal Control - Internal Control
Questionnaires

• Use a series of questions about controls in each
  accounting area to identify weaknesses.

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Ch. 12 Internal Control - Key Control Duties-
Small Operation

• Key person is owner/manager
• Cash receipts
• Cash Disbursements
• Sales
• Payroll

• Accounts Receivable
• Inventories
• Purchases
• General
• See pages 517-518

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Ch. 12 Internal Control- Other classifications

• Preventive controls - implemented before a
  problem occurs.
• Detective controls - designed to discover
  problems and monitor preventive controls
• Importance of a corporate code of ethics - see
  Exhibit 7 on page 519