Internal Audit in Hospitality Industry UAE

Key Risks in Hospitality Industry

The amount of risks that hospitality businesses must cope with is mounting. Hotels must contend with a number of potentially detrimental risks in this industry, especially as they manage an inflow of both tourist and business guests.

1. General Internal Controls
   Internal control risks have an effect on the overall performance and efficiency of internal controls and, consequently, on the company’s ability to fulfil its goals. Certain risks that need to be addressed are the absence of properly specified qualification standards with flaws in the division of responsibilities; insufficient standard operating procedures in different departments also have a big impact. A risk analysis that is sufficiently thorough and completed on a regular basis should influence internal control systems.
2. Revenue Recognition
   One of an entity’s most important components is its revenue recognition criteria. It is an important performance indicator in the hospitality industry, and it is regularly evaluated by many stakeholders. Internal controls that are weaker, such as income from business centres, hotel rates, restaurants, barter arrangements, deviations from the discount approval process, and complementary processes, all add risk to revenue recognition.
3. F&B Pricing
   The Food & Beverage (F&B) sector is the largest in the hospitality industry, and it consists of facilities that offer food, snacks, and drinks for immediate consumption, either on or off the premises. If you’re not cautious with F&B price concerns including food costs deviations, events & promotions, and recipe quantity correctness, your firm might be affected badly.
4. Inventory procedures
   In the hospitality industry, inventory control is critical for maintaining accurate accounting records and eliminating fraud. Proper inventory management processes aid in the production of accurate data and allow businesses to order the appropriate amount of inventory. While the primary goal of managing inventory is to reduce loss, hospitality businesses are also expected to maintain compliance.
5. Fixed Asset
   The risk component of fixed assets is compounded by the lack of fixed asset registries, as well as insufficient asset movement regulations and gaps in asset warranty tracking. Any business must keep a record of fixed assets throughout their existence. A company with a high number of fixed assets must identify, monitor, record, and reconcile its assets, which is critical for asset management.
6. Finance
   Improper tracking of cash management and control practices, absence of an evaluation of daily purchases/validation of vendor comparative prices, slowdowns or factual errors in bank reconciliation statements, delays in books of accounts finalization, and insufficiency of backup documentation and many more are all finance-related issues that need to be addressed.
7. HR / Payroll
   Managing HR/payroll activities in any company is a difficult process that necessitates a significant commitment of time and money. Companies can get into difficulties if they are not managed by qualified experts because of hazards including poor controls in employee management, inappropriate practices for employee entitlements, and gaps in recruiting processes and procedures for promotions and salary calculation.
8. IT Systems
   The hospitality industry is becoming more vulnerable to cyber-attacks because it handles a lot of personal and financial information. The Internal Auditor’s role is to offer assurance and verify that proper controls are in place to manage major risks such as inadequacy of IT systems, poor access controls, and loopholes in workflows, procedures and controls relevant to systems such as
   • POS & PMS systems
   • Finance and Accounting systems
   • Payroll
   • Central Reservation systems
9. Procurement​
   Strategic procurement is an important aspect of the hospitality sector for any organisation that wants to stay profitable. A well-developed procurement process immediately converts into enhanced company performance by focusing on eliminating risks such as a lack of control over price comparisons and purchase lead times, loopholes in purchase order processing, vendor selection, periodic monitoring, and agreements with third parties.

Internal Audit in Hotel Industry: Conclusion

Implementing the correct actions to reduce the possible occurrence of these risks is a necessary part of a successful risk management approach in UAE. Risk mitigation is the first element in securing a profitable business, and risk assessments must be performed on a regular basis to prevent dangers that may arise.

The audit team will have to understand about the business through managerial inquiries, analysis tools, monitoring, and examination as part of the risk and performance assessment procedures.

The audit functions are evolving and are on the verge of digital change, and many businesses will have to adjust to the new environment faster than other sectors. More analysis may be used to facilitate remote auditing, resulting in a better and more productive audit with enhanced customer satisfaction.

HLB HAMT’s team has extensive experience in dealing with the hospitality sector and has worked across multiple types of hotels, F&B outlets, and other sectors that are closely related to the hospitality industry. We understand industry practices, the IT environment, control requirements, and efficiency aspects, as well as the need to maintain a balance between controls and guest experience.