Paper Example on Hospitality Financial Management

Executive Summary

Managements of cash in any business is critical in the growth and sustainability of any business. Firms should create a department that should be given the responsibility of undertaking the various operations so that they can become answerable whenever there is any arising problem. Their activities should be monitored by an independent body with the aim of ensuring that they have not engaged in activities like the embezzlement of funds. Accountability is crucial in facilitating the security of the organization's funds and an audit of a business finances can be done after a given duration with the goal of making sure that no loopholes exists that can lead to the loss of funds. Computerization is a tool that can enable the management to realize their goal of controlling the use of their funds.

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Introduction

The aim of this report is to address the various issues that are arising in the hotel concerning the handling of cash and the various control measures that the entity requires to adopt. There will be a review of the benefits that can be raised from the process of computerization. The risks that can arise if the firm fails to ensure that the business processes are automated and the cash amount received is controlled in the right way will also be raised. It can be noted that in this business, there are instances that the general manager has been using his credit card to make wage payments which is not acceptable for the payments are supposed to be made from the firm's account. Additionally, the payment of the small expenses arising in the firm should not be made from the cash register. Another issue of concern is the reason why the general manager was using his funds to make payment yet the business seemed profitable. The board is planning on acquiring another hotel that seems to be making attractive monthly profits, but the matter of concern, in this case, is the fact that the workers in this hotel are loyal to the owner. There is the possibility of the books of accounts being window dressed to present a good financial image of the firm while in the real sense this is not the case. This report is made for the chairman of the board to enable him to determine if there exist ways or measures that can be undertaken to improve the business performance. Additionally, there will be a determination of the ways the firm can control its cash earnings, the importance of computerizing the bossiness activities and the possible risks that may arise if this does not happen.

Cash Handling and Control Measures

In this organization, it seems that the general manager has been given the responsibility of handling the funds earned by the hotel. The results posted make the business look profitable, but the issue of concern is why the officer is using his money to pay the workers with refunds only made at a later date. This is not what is supposed to be happening, and several measures can be adopted to facilitate the control of cash in this hotel to avoid the occurrence of similar issues in the future.

The segregation of duties. The organization needs to employ qualified accountants who will be given the responsibility of recording, authorizing the transaction, as well as, maintaining custody of any other related asset. These activities should be done by different employees for this will ensure that there are credibility and openness and there will be no single individual with complete control of the cash handling processes (Zhang 2017). It should not be the work of the general manager to make payments and record the transactions that are being done in the business for he lacks the financial background to undertake such activities.

Accountability. All the transactions in the business should be authorized before any payment is made and a financial department needs to be created, and the general manager should no longer make the wage payments using his funds. The hotel needs to be self-sustaining in that the earnings made should be the ones that are used in meeting the various expenses that are arising. However, it has been noted that the hotel has been returning the money used by the general manager at a later date. There is the possibility that the firm is involved in the process of giving goods on credit and the debtors are late in making their payment. The firm will thus need to improve on their ways of collecting the money from the debtors who are expected to make their payment before the due date to ensure that the hotel has adequate funds to make payment for its various expenses. By doing this, it means that the organization will have enough money to meet its various expenses when they arise and it will not have to rely on the general manager (Vanstraelen and Schelleman 2017). Another strategy that the hotel can use to manage its cash handling process is the reconciliation of the books of accounts. The firm does not seem to have any book of accounts that depicts the way it is earning money and how it is being used. The organization is not even aware of how much it is making for no recording is being made. It seems that no one who scrutinizes the payment being made and this might create loopholes that can lead to the organization losing a considerable amount of its earnings. All the bank accounts need to be reconciled on a monthly basis with the view of ensuring that all the transactions are recorded completely and accurately. By doing this, the hotel will manage to understand the cash that was deposited into the accounts and the amount that was used to make payments like the wages. This will eliminate the need to rely on the general manager to meet the wage bill. Efficient control of funds will enable the board and the managers to understand if they have the necessary funds to undertake the refurbishing process for it is not economical for the hotel to undertake such measures when it is struggling financially. The little amount of money that it has should be directed towards meeting the critical expenses like the salaries for these are the factors that lead to the continued running of the business facility (Acito, Hogan and Imdieke 2014). By doing this, the organization will avoid a case where the general manager is making payment of small expenses using the cash registers. There should be the introduction of petty cash that should be used in managing the small expenses in the hotel. After a given period, an audit should be done to determine if money has been used in the right way and whether there is any amount that has been lost.

Benefits of Computerization

In this hotel, the management has not computerized the business, and the issue makes it hard to track the various activities and the operations are done. Additionally, the lack of computerization means that the firm is relying on recording its activities, earnings, and expenses on books that can be lost or damaged by water or fire. If this happens, the firm will lose crucial details that are critical to the management of the facility. The hotel stands to enjoy many benefits from the computerizing its activities some of which include minimization of fraudulent activities, accuracy, and tracking of information among other activities.

In this hotel, the general manager has taken the role of making the various payments, and it seems that no recording is being kept concerning the business expenses and the amount paid (Buiten, Snijkers, Saraiva, Erikson, Erikson and Born 2018). This means that the manager can take advantage of the weak system to engage in fraudulent activities. There is the possibility that the manager may make these wage payments and later claim more money than what was paid leading to the business losing funds. This might help explain why the financial position of the hotel seems to be healthy, but this is not the case since it cannot even manage to make payment of its recurring expenses like salaries when they fall due (Sharma 2016). This is a sign of a firm that is experiencing financial problems, and the necessary actions need to be undertaken to ensure that the problem is rectified. Another benefit of having the computer systems in the hotel premises is to ensure that there is accuracy in the details that are recorded for future reference. In an example, after the manager makes the payments, it must be stipulated the amount of funds paid, when it was paid and to whom. It must also be determined of the recipients received the right figure they were owed by the businesses. These accurate details will make sure that the business is operating on realistic figures and not overinflated ones that can lead to the collapsing of the entity (Popescu 2016). Tracking of information is crucial for it is the measures that enable any party that may be interested in the business activities to understand the current position of the firm. This may be stipulated in the case of the hotel that the business wants to acquire. It is a risky affair to buy this premises considering that the workers are loyal to the owner. They may lack the desired information to facilitate the takeover, and at the same time, if they have the details, they may not be accurate. There is the possibility that they have engaged in the process of window dressing to paint the picture that makes a business appear like it is performing well financially to facilitate the takeover.

Key Risks

Based on the information given in the case study, various key risks are likely to arise and lead to the hotel losing a lot of funds. One if the occurrence of fraudulent activities where the manager may end claiming more funds that he used in making the salary payment. Additionally, the lack of records may lead to some of the workers receiving double salaries, and this will be a loss to the business. The use of the cash register to make the small payments may lead to these expenses failing to be recorded and accounted for at the end of the accounting period meaning the hotel will not have information to determine its performance. The management will not be able to understand whether the business made profits or loses. The refurbishing activities may lead to the firm being unable to meet its short-term obligations that are maturing considering that in the present period, meeting them has become a difficult task to implement (Angowski, Jarosz-Angowska and Lipowski 2015). If this happens, the likely outcome is the closure of the business. The desire of any business is to expand and experience growth like in the case of this hotel that wants to purchase another business. However, there is a risk that the target hotel is not worth what it seems and this means that its value may be overrated and if the hotel makes purchases based on the information currently in place, it will end up making losses.

Conclusion

To sum up, businesses are supposed to keep records of their activities, ensure that they maintain a record of the cash used to meet the various expenses. Additionally, computerization is crucial to make sure that there exist consistency and documentation of the various activities that are being run in the facility. Maintaining healthy financial records is critical in organizations that are planning to undertake any expansion process for this provides the details on whether the firm is capable of implementing the activity and whether it has adequate funds to oversee the whole process.

References

Acito, A.A., Hogan, C.E. and Imdieke, A.J., 2014, May. Auditing Standard No. 2 versus Auditing Standard No. 5: Implications for integrated audits and financial reporting quality. In International Symposi...