In the fast-paced world of hospitality, where operations run 24 hours a day, 365 days a year, ensuring that everything functions smoothly can seem like an insurmountable task. Who can possibly monitor every transaction, oversee every activity, and guarantee the security and efficiency of operations at all hours? The answer lies in robust internal controls. While no individual can be expected to oversee every aspect of the business around the clock, effective internal controls provide a framework that enables hospitality companies to operate seamlessly and efficiently, regardless of time or staffing limitations. By implementing controls, organizations can streamline operations, reduce risk, and maintain consistency, all while ensuring accountability and compliance throughout the year with minimal ongoing effort. In this article, we will review the value and importance of internal controls and audits for businesses in the hospitality industry.
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Internal controls are processes and procedures designed to ensure an organization operates at its highest potential, helping it achieve its goals. For hospitality businesses like hotels and restaurants, effective internal controls contribute to increased guest satisfaction, higher revenue, and reduced risk and liability. By establishing and implementing controls, organizations add significant value and efficiency to their daily operations and interactions, ultimately enhancing overall performance and success.
When internal controls are properly designed and functioning effectively, they help foster:
- Consistency: Internal controls encourage consistency in everyday processes and procedures across different outlets and locations. Recipe cards are a great example of an internal control in the restaurant industry that provides consistency. Your customers love your restaurant and come back because they know they will get the same great quality every time, even when your restaurant may experience high turnover. Recipe cards also help maintain consistent cost when portion sizes are clearly documented and utilized for each recipe.
- Better quality of service: Guest service is at the forefront of the hospitality industry. Internal controls set standards to ensure that quality customer services are consistently delivered every day and by everyone. For years, the Ritz Carlton has been known for their service excellence. This is because they have created and embraced the importance of service values. They have twelve one-sentence service values that set the expectation and empower employees to take pride in their work, responsibilities, and roles. In fact, a Customer Service Expectations survey completed by Glady revealed that 68% of customers will spend extra for a positive customer service experience. The quality of service directly impacts revenue, as customers are likely to pay more for great service.
- Accountability: Internal controls clarify the responsibility and expectations of the employees and owners. This allows a hotel or restaurant to operate with confidence that they are in compliance with not only their internal controls, but external requirements and regulations, which reduces the overall risk of liability, errors, fraud, or fines. Consider the use of a self-audit checklist to ensure that your kitchen meets the requirements of an external audit performed by the department of health. This will help ensure that you are always ready for an external audit and can avoid any potential monetary cost, such as fines, because your team is completing a self-audit checklist that meets the required regulations of the department of health.
- Training and guidance: Did you know that a new position in hospitality becomes available every 2.5 seconds? Being in an industry with such high turnover can make it nearly impossible to train and retrain when new positions are being consistently filled or replaced. But when internal controls are in place and well documented, they can be read and followed by anyone, providing guidance to current and new employees to fulfill their daily responsibilities.
When internal controls are properly designed and function effectively, they work continuously with support by regular internal audits to ensure ongoing reliability and efficiency.
Why Internal Audits are Crucial for Hospitality Businesses
As described by the Institute of Internal Auditors, internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. Even if not legally required, internal audits play a crucial role in providing confidence that the internal controls designed and implemented within a hospitality operation are functioning effectively. They ensure that the effort put into developing and establishing internal controls is delivering the desired results. Internal audits bring peace of mind to owners, operators, and decision-makers by assuring them that both operational and financial goals are being met.
The hospitality industry has faced significant challenges and changes over the years, including recessions, pandemics, artificial intelligence implementations, and high employee turnover. Therefore, internal controls must be viewed as dynamic, evolving elements of an organization, not as static policies that can be set and forgotten. If controls are initially implemented by management and there is no follow-up or verification, their value is diminished. That is why internal audits are crucial — they verify there is management oversight and follow-up over these controls.
Internal audits should be seen as interactive and positive experiences, contributing to the success and continuously changing landscape of the hospitality industry. Internal audits should not be viewed as just another task, but rather as a necessity to keep pace with these challenges and changes. They can uncover trends and patterns in daily operations, helping to resolve issues promptly or identify opportunities for additional training or changes.
Having proper internal controls and audits are key to unlocking your organization’s full potential, driving it towards its goals, and ultimately enhancing guest satisfaction, boosting revenue, and minimizing risk and liability. To explore how internal controls and internal audits can benefit your business, reach out to Citrin Cooperman’s Restaurants and Hospitality Industry Practice today and take the first step toward strengthening your operations.
“Citrin Cooperman” is the brand name under which Citrin Cooperman Advisors LLC and Citrin Cooperman & Company, LLP, independently owned entities, provide professional services in an alternative practice structure in accordance with applicable professional standards.
Lynnette Martinez is a manager in Citrin Cooperman’s Risk Advisory and Compliance Practice. She provides compliance-related internal control services and outsourced internal audit services to companies in a variety of industries, including restaurant and hospitality. Lynnette can be reached at lmartinez@citrincooperman.com.
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