Tips and techniques to tackle this essential task.
by DAVID LUND
After recently completing a policy manual for a client, here’s what worked for this hotel company and what could work for you. In addition, we’ll discuss policy vs. procedure.
It’s a big challenge to get a policy manual together for a hotel or hotel company. The big brands have resources to get the job done but the smaller brands and management companies do not have the same bandwidth. It is a project that always gets kicked down the calendar to another month or quarter.
Confusing details that surround policies often get in the way of completing a policy manual. Clients can get confused about some of those details at the start of our project. Making the task more difficult by piling on more information is a common mistake, and it is an error we want to avoid.
Quite often hotel financial executives and managers confuse accounting policy with procedures. It may take time to really comprehend this, but once you break through this barrier it is much smoother sailing. Policies and procedures are very different and mixing the two together is not a productive exercise.
To clarify, policies are like the laws that form the fabric of your business. They are the dos and don’ts of your company. The policies are the black and white structure you want in place so people can clearly see the rules of the financial road. Understanding these rules completely is the first step to compliance. Making the rules simple, clear and understood is the key to creating the strong financial culture in your hotel and hotel company. You also want concise policies so you have the basis for an effective internal control review process.
Below is a sample accounting policy that does not include any procedures. The policy is clear and concise. The policy reader knows what the expectation is.
POLICY-ONLY EXAMPLE
Policy Section –
Cash Policy 3-1 Bank Reconciliation
PURPOSE
To properly handle and control monthly bank reconciliations.
POLICY
All bank accounts are to be completely reconciled by the 15th calendar day of the following month.
The standard reconciliation form spreadsheet is to be used.
A paper copy of the reconciliation is to be produced each month.
Review and approval in writing is to also be completed by the 15th of each month by the director of finance.
All supporting documentation must be included with the reconciliation and/or the location clearly referenced on the reconciliation for all: bank statements, outstanding deposits, outstanding checks and all adjusting entries.
The reconciliation must be complete, and all relevant documents that support the reconciliation must be attached or easily found via reference, i.e., bank statements.
The reconciliation is not to be completed by any employee that has bank account signing authority.
The reconciliation is not to be completed by anyone who prepares the bank deposit.
All outstanding checks are to be reversed once they are 180 days old
All bank mail or email statements are to be opened first by the director of finance.
FORMS – Standard Bank Reconciliation Excel sheet and template
The bank reconciliation policy example above outlines only what needs to be done and not done.
When we mix the policy with a procedure we cloud the picture. Procedures are important but not as they relate to creating and maintaining policy. In the above example, if we were to include the procedures we would have three problems:
- Procedures are prone to be local. Do I start with clearing my outstanding checks or deposits in transit or credit cards? Do I use an electronic system that the bank provides to clear the checks or do I do it manually in my system? How do I receive my chargebacks, online or in the mail? What about my deposits in transit, do I use a service that delays my deposits or do I deliver the funds directly to the bank?
- Procedures are prone to have a bias. Who has the best process to follow to do a bank reconciliation? There is not always agreement – if we get five hotel accountants in a room to discuss the best way to complete a bank reconciliation, we are going to have at least six different opinions.
- Procedures change rapidly. When technology procedures change quickly – depending on where you are located – these changes are not always available at the same time. If you incorporate procedures into your policy, you will have a consistency challenge. “Oh, we don’t do that part because our system is not on the latest version.” This is exactly what you want to avoid with your policy – any wiggle room.
All of these amount to make the policy vague, and when it is not crystal clear it is much easier to side step the meat of the policy. You do not want procedures mixed in with your policies.
The best way to handle procedures is to have a checklist or an instruction guide as a separate document and not part of your policy. A great example of this is a manual we used to load data from our general ledger (GL) into the financial reporting engine. In our company, we had a binder referenced monthly to load the data into whatever category being used. The procedures in the book changed often and, depending on what GL system we had, there were different instructions. The policy was a different matter. The policy was all GL data loaded into the system verified using the retained earnings in the current period. A print screen from both systems was required to be attached to the sign-off sheet, approved by the controller monthly. Do not confuse policy with procedure. You will make your manual much more effective and useful if you avoid this common mistake. Creating a policy manual will also be much simpler if you do not include procedures.
Getting back to the client for whom we created a custom policy manual. We had been working on financial statement design issues when he indicated their company did not have a policy on recoding hours worked in the general ledger. A bit more discussion revealed that his hotel company did not have a completed accounting policy manual. All they had were a bunch of memos. This is fairly common. In order to create a custom policy manual for his hotels, we needed to develop a standard set of hotel-specific accounting policies. More than 500 different policies in 30 different sections.
We outlined a way to work together to create his own custom company manual. Every other week we worked on three sections of the manual via email – approximately 50 different policies. His job was to review those standard policies and think about how he wanted things changed or not for his business. We then convened a call, and one by one we reviewed the policies and agreed on what needed to be changed. We discussed these changes so we were both clear on what he wanted. The calls were recorded and used to edit the standard policies with his changes. They were then returned to the client, and we were successful because we were making progress in a way that allowed him to see and tailor each piece. Before long, we had his company policy manual completed.
He liked the process because he only worked a few hours each week: a little reading and some review on his part and he received a policy manual that was customized to his needs.
If you don’t have a policy manual, you now know two important things to help you get this project off the ground: Don’t mix policy with procedure, and you don’t have to do this alone.
David Lund, CHAE, “The Financial Hotel Coach,” is an international hospitality financial leadership expert who has held positions as a regional financial controller, corporate director and hotel manager with an international brand for 30 years. He authored an award-winning workshop and two books on hospitality financial leadership, coaches hospitality executives and delivers his financial leadership training worldwide. To learn more, visit www.hotelcoachdavid.com.
