BSBFIM601 - Manage Finances

1
BSBFIM601 Manage finances

TRAINING MANUAL
William Angliss Institute of TAFE
555 La Trobe Street
Melbourne 3000 Victoria
Telephone: (03) 9606 2111
Facsimile: (03) 9670 1330
Acknowledgements
Writer: Nicholas Hyland
© William Angliss Institute 2017. All text and images unless otherwise stated.
All rights reserved. This Training Manual was produced by William Angliss Institute to be
used as resource material for its enrolled students only; and as such they have the authority
to print out this material. Any further copying or communicating of this material in any format
or via any means may only be done so with the prior documented permission of William
Angliss Institute. William Angliss Institute does not have the authority to give permission for
third party materials that may be included in this resource.
Disclaimer
Every effort has been made sure that this manual is free from error or omissions. However,
you should conduct your own enquiries and seek professional advice before relying on any
fact, statement or matter contained in this book. William Angliss Institute is not responsible
for any injury, loss or damage as a result of material included or omitted from this course.
Information in this module is current at the time of publication. The time of publication is
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Table of contents
William Angliss Institute ........................................................................................................ 1
Unit descriptor ....................................................................................................................... 3
Assessment matrix ................................................................................................................ 5
Glossary................................................................................................................................ 7
Element 1: Plan for financial management .......................................................................... 11
Element 2: Establish budgets and allocate funds ................................................................ 35
Element 3: Implement budgets............................................................................................ 53
Element 4: Report on finances ............................................................................................ 83
Presentation of written work ................................................................................................ 97
Recommended reading ....................................................................................................... 99
Trainee evaluation sheet ................................................................................................... 101
Trainee self-assessment checklist..................................................................................... 103
© William Angliss Institute 2017

Training Manual
This page is left intentionally blank for double-sided printing.

Training Manual
William Angliss Institute
William Angliss Institute

William Angliss Institute was named after the late Sir William Angliss, MLC, whose generous
donations and personal efforts were instrumental in the foundation of the Institute, which
opened as the William Angliss Food Trades School in 1940.
The Institute provided training in pastry cooking, retail butchery and smallgoods, bread-
making and baking, as well as cookery and waiting. In the late 1960s the school expanded
into training for the hospitality industry, and in the late 1980s into the broader hospitality-
related courses.
Today, William Angliss Institute is a national and international provider of education and
training programs, consultancy services and human resource development solutions for the
hospitality, hospitality and foods industries.
The Institute is the largest single-purpose government educational institute of its kind in
Australia, offering short courses, apprenticeship, certificate, diploma, advanced diploma,
degree and graduate courses. William Angliss Institute’s portfolio of skill and career
development programs spans a diverse range of hospitality, hospitality and foods-related
disciplines. This includes generalist and specialist programs with options for delivery in the
workplace, on-campus and online.
Educational and industry expertise includes:
 Hospitality  Coffee making and barista training
 Retail travel  Patisserie
 Hospitality management / operations  Bakery

 Hotel management  Butchery and meat retailing
 Ecohospitality  Confectionery manufacturing
 Meeting and event management  Food science and technology
 Resort management  Business and retail management
 Professional cookery  Marketing and human resources
In addition to over 1000 international students enrolled at William Angliss Institute in

Melbourne and off-shore campuses, a comprehensive network of government, industry and
education partnerships provide students and Institute staff with a world of opportunities.
Recognition of Prior Learning (RPL)
If you’ve got previous qualifications or relevant work/life experience, you may be eligible for
exemptions in your course through our RPL process. For more information, check out our
RPL brochure available from the Information Centre.
For further information:
Phone: (03) 9606 2111

Fax: (03) 9670 0594
Web: www.angliss.edu.au

Training Manual 1
Introduction to trainee manual

2 Training Manual
Unit descriptor
Unit descriptor
This unit deals with the skills and knowledge required to manage finances in a range of
settings within the hospitality and tourism industry.
Element 1: Plan for financial management

Performance Criteria
1.1. Review and analyse previous financial data to establish areas which have generated
a profit or loss.
1.2. Undertake research to review reasons for previous profit and loss.
1.3. Review business plan to establish critical dates and initiatives that will require or
generate resources in next financial cycle.
1.4. Analyse cash flow trends.
1.5. Review statutory requirements for compliance and liabilities for tax.
1.6. Review existing software and its suitability for financial management.
Element 2: Establish budgets and allocate funds

2.1. Use previous financial data to determine allocations for resources.
2.2. Make informed estimates of new items for inclusion in budget.
2.3. Prepare budgets in accordance with organisational requirements and statutory
requirements.
Element 3: Implement budgets

3.1. Circulate budgets and ensure managers and supervisors are clear about budgets,
reporting requirements and financial delegations.
3.2. Manage risks by checking there are no opportunities for misappropriation of funds and
that systems are in place to properly record all financial transactions.
3.3. Review profit and loss statements, cash flows and ageing summaries.
3.4. Revise budgets, as required, to deal with contingencies.
3.5. Maintain audit trails to ensure accurate tracking and to identify discrepancies between
agreed and actual allocations.
3.6. Ensure compliance with due diligence.

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Unit descriptor
Element 4: Report on finances

4.1. Ensure structure and format of reports are clear and conform to organisational and
statutory requirements.
4.2. Identify and prioritise significant issues in statements, including comparative financial
performances for review and decision making.
4.3. Prepare recommendations to ensure financial viability of the organisation.
4.4. Evaluate the effectiveness of financial management processes.

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Assessment matrix
Assessment matrix
Showing mapping of Performance Criteria against Activities, Written Questions and
Oral Questions
The Assessment Matrix indicates three of the most common assessment activities your
Assessor may use to assess your understanding of the content of this manual and your
performance - Activities, Written Questions and Oral Questions. It also indicates where
you can find the subject content related to these assessment activities in the Trainee
Manual (i.e. under which element or performance criteria). As explained in the
Introduction, however, the assessors are free to choose which assessment activities are
most suitable to best capture evidence of competency as they deem appropriate for
individual students.
Activities Written Oral

Questions Questions
1.1 Review and analyse previous financial 1,2,3 1 1
data to establish areas which have
generated a profit or loss.
1.2 Undertake research to review reasons for 4 2 2

previous profit and loss.
1.3 Review business plan to establish critical 5 3 3

dates and initiatives that will require or
generate resources in next financial
cycle.
1.4 Analyse cash flow trends. 6 4 4
1.5 Review statutory requirements for 7,8 5 5

compliance and liabilities for tax.
1.6 Review existing software and its 9,10,11 6 6

suitability for financial management.

2.1 Use previous financial data to determine 12 7 7
allocations for resources.
2.2 Make informed estimates of new items 13 8 8

for inclusion in budget.
2.3 Prepare budgets in accordance with 13 9 9

organisational requirements and
statutory requirements.

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Assessment matrix
Activities Written Oral

Questions Questions
3.1 Circulate budgets and ensure managers 14 10 10
and supervisors are clear about budgets,
reporting requirements and financial
delegations.
3.2 Manage risks by checking there are no 15,16,17 11 11

opportunities for misappropriation of
funds and that systems are in place to
properly record all financial transactions.
3.3 Review profit and loss statements, cash 18 12 12

flows and ageing summaries.
3.4 Revise budgets, as required, to deal with 19 13 13

contingencies.
3.5 Maintain audit trails to ensure accurate 20,21,22 14 14

tracking and to identify discrepancies
between agreed and actual allocations.
3.6 Ensure compliance with due diligence. 23,24 15 15

4.1 Ensure structure and format of reports 25 16,17 16
are clear and conform to organisational
and statutory requirements.
4.2 Identify and prioritise significant issues in 26 18 17

statements, including comparative
financial performances for review and
decision making.
4.3 Prepare recommendations to ensure 26,27 19 18

financial viability of the organisation.
4.4 Evaluate the effectiveness of financial 28 20 19

management processes.

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Glossary
Glossary
Term Explanation
Assets = Liabilities + Equity

Accounting equation Assets = Liabilities + Equity + Revenue – Expenses –
Dividends/ Drawings
Accounting process or Process of recording and classifying financial
cycle transactions
An item of value that is owned by an organisation or
Assets
business
An estimate of income and/or expenditure over a
Budget
forthcoming period of time
Period of time that the budget plans for revenue and
Budgeting period
expenses. This is usually one year
Part of a company representing a specific business
Business unit
function
Any legal form of payment including but not limited to,
Cash notes and coins, cheques, credit card payments,
electronic transfers and vouchers
Cash flow Movement of money into or out of a company
Cost centre Segment of a business that incurs expenses only
Creditor One to whom a debt is owed
Debtor One who owes a debt
A portion of an asset’s cost assigned to expense for the

Depreciation current reporting period to recognise that the asset has
contributed to producing revenue
Dividends Profits distributed to shareholders of a company
The difference between assets and liabilities and

Equity represents what is left for the owners after liabilities are
repaid
Costs incurred in the normal course of operations to
Expenses
support the production of revenue
The area of accounting that provides information to
Financial accounting external users to assess the financial performance and
position of an organisation
Financing activities Activities of acquiring and repayment of capital or debts

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Glossary
Term Explanation
Analysis of financial statements. Also known as

Financial analysis
accounting analysis or analysis of finance.
Financial ratios Ratios used to analyse financial numbers
Financial report / statement Formal record and summary of financial transactions
Assets with an estimated useful life of more than one

Fixed assets
year. Also called non-current assets
Fixed costs Costs that do not fluctuate with sales activity
Generally Accepted Accounting Principles that govern

GAAP
the all accounting and financial reporting
The collection of accounts that capture all the financial
General ledger
activities of an organisation
Revenue from the sale of goods or services to
Income
customers. Also used to describe profit
A record of all initial financial transactions is kept in a
Journals
book or similar system called a journal
Labour Work, especially physical work
Liability A debt or obligation which is owed and must be settled
The area of accounting that provides information to

Management accounting
management for planning, control and decision-making
Operating activities Day-to-day business activities
Overheads Ongoing operating expenses
Profit Total revenue exceeds total expenses
Segment of a business that generates revenue and

Profit centre
incurs expenses
Ratios Comparison of 2 quantities, numbers or measurements
An estimated amount that could be obtained for a fixed

Residual value
asset
Total amount of earnings received by a business for
Revenue
providing goods and services for a certain time period
Revenue from the sale of goods or services to
Sales
customers
Sales budgets To forecast sales revenue

8 Training Manual
Glossary
Term Explanation
Also known as cash flow statement. It shows the flow

Statement of cash flow
of cash into and out of the company
Also known as income statement. It shows the
Statement of financial
revenues, expenses and profit/ loss of a company over
performance
a period of time
Statement of financial Also known as a balance sheet. It reports a company's
position assets, liabilities, and equity at a given point of time
A statement listing all the accounts in the general
Trial balance
ledger and their debit and credit balances
A guide for the creation and classification of the five
Uniform system of
account categories reported in financial statements
accounts
developed for the hospitality and hospitality industry

Training Manual 9
Glossary

10 Training Manual
Element 1:
Plan for financial management
1.1 Review and analyse previous financial data to
establish areas which have generated a profit or
loss
Introduction
All businesses, small or large, across all industries wish to be successful. In order to be
successful a good business should:
 Earn a satisfactory profit for its owners
 Use its short term and long term assets efficiently
 Be able to pay its short term debts on time
 Maintain adequate cash stocks to meet requirements
 Provide a return on investment to the owners both in
income and growth of the value of the investment.
To measure this success, all organisations record their financial activities and consolidate
this information in reports that convey their financial achievements over arbitrary time
periods of equal length.
Accounting is often referred to as the “language of business” as it is accounting principles
and terminology that provide the structure for the information system and reports that
summarise financial activities.
Owners, managers and employees involved in decision making must appreciate this
language so that reports on activity can be read, analysed and the information applied to
enable decision making.
The hospitality industry encompasses a wide range of activities and types of organisations.
Accounting information systems must be designed to reflect the needs not only of the
industry but also of individual establishments.
From a management perspective there is a need for you to identify the range of financial
information and reports required to effectively monitor business performance at a day-to-day
management level.

Training Manual 11
Who is responsible for managing financial records?

In the workplace, the function of maintaining financial
records may be:
 Allocated to the administration or accounts department
 Given to one nominated management-level member
 The sole province of the business owner-operator
 Integrated with other activities and systems.
Activity 1 - Identify persons responsible for

managing financial records
For a hospitality organisation you are required to identify the different roles that undertaken
financial transaction and management of finances.
For each role identify the types of financial activity or responsibility they undertake.
Role Financial activity or responsibility

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Activity 2 - Principles of accounting and financial

systems
You are required to undertake research and provide a summary

of the:
 Principles of accounting systems
 Principles of financial systems
In the boxes below, provide the answers to your research.
Principles of accounting systems
Principles of financial systems

Training Manual 13
Objectives of financial analysis

The major objectives of financial analysis are as follows:
Past Current Future

Evaluate past performance Assessment of current Prediction of future
position business position and
strategies
Past performance provides Current position of the Future viability of the
indicator of future company is assessed in business can be predicted.
performance. terms of the types of assets
and liabilities.
Trend of past sales, cost of Assessing and predicting Assessing and predicting
goods sold, operating the earning prospects and bankruptcy and probability
expenses, net profit, cash growth rates helps investors of business failure is key to
flows and return on to compare and make future of the business.
investment provide indicators investment decisions.
to creditors and investors on
the company’s future
performance to help make
them make decisions.
In addition to the above, financial analysis helps to assess the operational efficiency of the
management of the company by comparing the actual performance against:
 Budget
 Forecast
 Industry leaders
 Industry average.
Why review and analyse previous financial information?

Interpretation and analysis of financial information is required to:
 Measure the success or otherwise of operations for the period in question
 Plan future action.
 Identifying income and expenditure trends
 Rationalising actual-to-budget variance analysis
 Rationalising period-to-period variance analysis
 Understanding historical data comparisons – this involves
evaluating how the business has performed compared to
previous performances. Commonly used comparisons are:
 Same week last year
 YTD last year

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 Specific ‘times’ of the year – such as ‘Christmas’, a nominated holiday period. This
general type of comparison is useful where there are movable holidays that don’t fall
on the same dates each year or a regular event.
 Ascertain accuracy of information collected
 Determine importance of information
 Meet legally imposed taxation and other business
requirements
 Demonstrate due diligence in the operation of the business
 Develop a growing resource to help evaluate the performance
of the business
 Compare actual business performance to budgeted/expected
figures
 Identify the strengths and opportunities of the business
 Identify problems in a timely manner
 Identify areas requiring improvement
 Create a reference base to assist in making decisions about the future direction and
operation of the business
 Identify its current financial position.
Reviewing previous financial information

Review the financial information provided may include:
 Reading the material
 Gaining a general appreciation of what the
information contains
 Comparing statistics to previous periods
 Identifying trends
 Determining if any trigger points/red flag situations
have arisen
 Clarifying queries.

Training Manual 15
Activity 3 - Identify sources of previous financial

information
For a hospitality organisation you are required to identify the different sources identifying
previous financial information.
For each source identify the types of financial information that can be obtained.
Source of financial information Types of financial information found

within the source

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1.2 Undertake research to review reasons for

previous profit and loss
Introduction
As a manager your duties in planning and managing financial management will involve
identifying and understanding reasons for previous profit or
losses.
It is at this stage that you need to check previous figures check
to see whether or not the KPI's and systems in place are being
achieved, whether or not it is working as intended to provide
you with the control capabilities and information to allow you to
make informed management decisions.
Researching income
Reviewing income components
In relation to monitoring income components, essential areas for review and research
include:
 Pricing strategies
 Demand for individual items
 Comparison against competitors revenues and prices
 Promotions - types and successes
 Cash and credit transactions
 Cash handling and security procedures
 Credit policies and procedures
 High and low volume spending periods
 Management of accounts receivable
 Level of overdue accounts.
All research activities associated with income is aimed at:
 To determine how to increase revenue
 To determine if prices can be increased or decreased to meet demand whilst
maintaining a competitive advantage
 To determine whether or not staff are implementing the system as intended
 To identify financial situations outside the acceptable limits set by the business
 To identify fraudulent practices/theft
 To determine whether or not the system can be improved
 To validate the system is providing the financial and management information
necessary to enable effective management decisions to be made.

Training Manual 17
Researching expenses
The review and research of expenses is a more complex issue than that of income because
there are potentially more things to be considered.
Reviewing expense components
In relation to reviewing expenses the two essential activities that must be undertaken are:
 Comparing actual costs against projections
 Reviewing payments made by the business for goods and services purchased.
All research activities associated with expenses is aimed:
 To determine whether or not staff are implementing
the system as intended
 To identify financial situations outside the acceptable
limits set by the business
 To identify fraudulent practices/theft
 To determine whether or not the system can be
improved
 To validate the system is providing the financial and management information
necessary to enable effective management decisions to be made.
Income and expenses research methods

The standard methods of undertaking these monitoring activities are:
 Personal observation of staff practice
 Discussions with staff to obtain their input and feedback
 Checking of documentation to ensure all paperwork is being completed as required.

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Activity 4 - Identify income and expenses questions
For a hospitality organisation you are required to prepare three

questions for BOTH income and expenses that you would like
answered in determining the reasons for previous profit and losses.
Identify how you can find the answer to the question.
INCOME RELATED QUESTIONS
Questions How you can find the answer to the

question.
EXPENSES RELATED QUESTIONS
Questions How you can find the answer to the

question.

Training Manual 19
1.3 Review business plan to establish critical dates

and initiatives that will require or generate
resources in next financial cycle
Introduction
When planning for the next financial year, it is important that the business plan of the
organisation is reviewed to ensure that what is planned is considered and reflective of any
financial projections.
Purpose of a business plan

A business plan is a written document that presents detailed information about the business,
its projected plans and projections for the future. The plan is based on an analysis of the
business’ current situation (if already existing), and forecasts of future trends within the
relevant industry and economy. It includes results from research into all aspects of the
business operation and is a logical and structured document, with each section of the plan
consistent with and linking to each other.
It has been proven that those business’ who have a written
business plan with strategies for its operation, have a greater
chance of success in today’s fast moving and changing
environment. Preparation of a business plan gives a sense
of ownership and involvement in the future of the business,
and ensures that the commercial directions planned have
been tested for their viability in the marketplace.
Contents of a Business Plan

On the following pages are a summary of the topics normally included in a business plan.
Later these topics will be explored in more detail.
Executive Summary
 Business Profile
 Your Products or Services
 The Market
 The Business Potential
 Mission, Goals and Objectives
 Strategies
 Business Structure
 Finance
 Conclusion.

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The Business Profile

 Business Name
 Business Location
 Business Activities
 Business Objectives
 Business History
 Ownership Structure
 Legal Requirements.
The Market Report
 Industry Profile
 Review of Existing Operation (if appropriate)
 Your Product Service
 Competition
 Environmental Information and Trends.
The Marketing Plan
 Market Segmentation
 Your Customers
 Target Markets
 Strengths, Weaknesses, Opportunities, Threats Analysis
 Key Issues
 Sales and Marketing Goals and Objectives
 Value Proposition (Competitive Advantages)
 Marketing Strategies
 Pricing
 Promotion
 Sales and Distribution.
Operational Plan
 Premises, Plant and Equipment
 Floor plan
 Production and purchasing
 List of Suppliers
 Stock levels
 Purchasing Policies and Controls
 Break-even Analysis.

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Finance Plan
 Current Financial Position
 Capital Requirements and Funding Proposal
 Financial Budgets
 Cash-flow Projection
 Projected Statement of Financial Performance (Profit
& Loss)
 Projected Statement of Financial Position (Balance
Sheet)
 Financial Ratios
 Financial Controls
 Business Insurances.
Risks Plan
 Risk Identification and Mitigation.
Structure and Management Plan
 Organisational Chart and Structure
 Key Personnel
 Labour Requirements and Skills
 Staffing Strategies
 Professional Advisers
 Staffing Controls.
Project Plan
 Action Plan
 Evaluation
 Implementation
Appendices

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Identify income and expense targets

In most operations you will be given targets to meet in terms of both income and
expenditure.
Income targets
Management will expect you to generate sufficient revenue to meet your target income
figures based on:
 Previous trading levels
 New business initiatives and advertising
undertaken
 The cash flow needs of the business
 General economic conditions
 Specific local conditions.
Expenses targets
Management will also expect you to only spend monies:
 Needed to maintain or grow the business
 With preferred suppliers
 When multiple quotations have been obtained for values over a given $ amount – for
example, you may be required to obtain two or three quotes for all purchases over
$5,000
 Within your scope of authority to spend – most employees have limits set on their
ability to spend money, order products or services and/or sign cheques on behalf of
the establishment
 In-keeping with ‘cost of goods sold’ limitations – that is, many businesses will require
you to spend only within set percentage parameters related to sales. For example,
you may be required to operate where cost of goods sold is 30% of revenue and so
your permission to spend is limited by the amount of money you earn. In this case,
you are only allowed to spend 30% of the income you produce, regardless of the
income level in real dollar terms.

Training Manual 23
Activity 5 - Review business plan and identify

targets
For a hospitality organisation you are required to review a

business plan and:
 Identify three income and three expense targets the
business may have for the upcoming year. These
targets must be in SMART format.
 For each target identify practical strategies to achieve
the targets.
Income targets Practical strategies to achieve the targets.
Expense targets Practical strategies to achieve the targets.

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1.4 Analyse cash flow trends

Introduction
An essential aspect of financial management is the ability to have cash to meet any
immediate obligations that it may have. It is no good having endless revenue generated
through credit sales if the actual money is not coming into the business.
Cash flow reports

Critical in the operation of any business, the cash flow report indicates the present financial
liquidity of the property.
Again, this report will compare ‘actual’ figures to ‘projected’ ones.
The purpose of this report is to present information on which management can decide action
to ensure the short term financial stability of the venue.
The cash flow statement reports the cash:
 Generated
 Used.
Free availability of cash is very important in order for any
companies to survive.
Statement of cash flows reports the company’s:
 Cash flow position
 Cash flow movement by activities.
If a profitable company is short of cash, it might not be able to survive and is at risk of
liquidating the company.

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26 Training Manual
Activity 6 - Identify importance of

cash flow
Why is cash flow important to a business?
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
What are acceptable levels of cash flow?
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
At what stage would you start being concerned about cash flow?
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
How can you increase your cash flow?
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
What are examples of cash flow trends?
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________

Training Manual 27
1.5 Review statutory requirements for compliance

and liabilities for tax
Introduction
Each country will have their own specific tax laws and
regulations. It is essential that management understand
any tax laws and compliance activities that apply to them.
As you encounter a need to comply with legal
requirements specific to your country you are advised to:
 Contact the relevant government authority or agency
for direction, advice and assistance
 Seek professional legal advice.
Understanding taxation requirements

A professional taxation planner or advisor must be used to explain your specific business
obligations, and provide individual advice on how to legally minimise tax.
You may be required to pay:
 Income tax
 Withholding tax
 Goods and Services tax.
Please note, other taxes also exist.
Severe penalties exist for under-payment or non-payment
of taxes.
Income tax
Every business regardless of its structure must pay income tax on its earnings.
The amount paid depends on the amount and type of expenses incurred in generating that
revenue, and the way the business is structured.
Withholding tax
If the business makes a payment to a ‘non-resident’ (employees, partners and foreign
agents) there is a need to withhold a nominated percentage of that money in the form of
Withholding tax, which is then to be forwarded to the appropriate authorities.
General questions to be answered include:
 What is withholding tax?
 What types of payment are subject to withholding tax?
 When must I pay withholding tax?
 How much withholding tax do I have to pay?
 How do I pay withholding tax?
 Where can I get help?

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GST
Goods and Services Tax (GST) is a tax that must be paid on goods and services purchased
from business registered for GST.
This means you have to charge GST to those who buy from you when you are registered for
GST.
Businesses register for the purposes of GST to ensure they meet their tax collection
obligations and so they may ‘claim back’ monies paid by them when purchasing goods and
services.
General questions to be answered include:
 What is GST?
 What goods and services are subject to GST?
 When do I pay or collect GST?
 Are there any GST schemes to help businesses?
 Where can I download GST guides?
 Where can I get help?
Activity 7 – Taxation legislation
You are required to identify the different types of taxation legislation that applies to your
country.
What types of taxation applies to a tourism business? What are the requirement for each
type of taxation?
TYPES OF TAXATION TO BE PAID TAXATION REQUIREMENTS

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Activity 8 – Australian tax legislation
You are required to:

 Identify and explain the purpose of three Australian legislation and conventions
relating to financial management
 Outline the requirements of the Australian Tax Office, including Goods and Services
Tax, Company Tax, Pay As You Go.
Australian legislation and conventions Purpose of summary of the legislation

and conventions
Requirements
Australian Tax Office
Goods and Services Tax
Company Tax
Pay As You Go

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1.6 Review existing software and its suitability for

financial management
Introduction
Where your establishment utilises a computerised financial records system, you will need to
become familiar with its operation.
In-house training is provided where you are unfamiliar with the system being used.
Even where you are familiar with the system you will still require some on-the-job training to
make you comfortable with the way the individual venue uses the system, the names for
files, working protocols etc.XFIN002A Maintain financial records
The basics
The basic accounting and bookkeeping concepts apply to computerised systems.
On-site training and supervision together with the relevant manuals and on-line help should
show you how to:
 Establish, open. close and modify individual accounts
 Establish, open, close and modify journals
 Make entries – debits and credits, dates, details etc.
 Calculate balances including totals and cumulative
totals
 Amend incorrect entries
 Include narrative descriptions where required
 Cross-reference entries to the appropriate account or folio
 Perform reconciliations
 Print required documents, accounts and reports.
You need to be able to use the computerised system to perform all the necessary functions,
transactions and reconciliations for the property, and not just the most common ones.
Computerised Accounting
In today’s business environment, the use of computerised bookkeeping and accounting has
become very widespread. It is essential however that financial managers and advisers have
a sound understanding of the principles underlying accounting and that is why you have
studied accounting units in your course.
There are a large number of accounting computer packages available, some specifically
written for certain industries. These customized packages include invoicing, end of
month/year reports, comparison with industry averages and variation analysis.
There are in addition packages, such as spreadsheet and database, that assist business to
develop information, as well as analyse and interpret their performance data. Spreadsheet
packages (e.g., Excel) assist in creating budgets, monitoring performance and investigating
variations. Database packages (Access) provide information about customers, suppliers and
potential markets.

Training Manual 31
Accounting software systems

Each organisation will use some form of accounting software to record financial information
and produce financial reports.
It is essential that information recorded in these software systems reflect actual transactions.
Examples of accounting software packages include, but certainly not unlimited to:
 FreshBooks
 QuickBooks Online
 Sage One
 ZohoBooks
 Xero
 AccountEdge
 Wave Accounting
 Less Accounting
 WorkingPoint
 Free Agent
 Yendo.
Activity 9 – Identify accounting software systems
You are required to identify four different types of accounting software systems that can be
implemented and used to manage financial information for a hospitality organisation.
NAME OF SOTWARE SYSTEM KEY FUNCTIONS
Financial data recording systems

32 Training Manual
In addition to accounting software packages, tourism

companies may use a range of sales and cost related
hardware and software that records transactions.
This can include:
 Cash registers
 Point of sale (POS) systems
 Electronic time-keeping for employee shifts that
records the number of hours worked.
Activity 10 – Identify sales/expense recording

systems
You are required to identify two different types of sales/cost recording system that can be
implemented and used in a hospitality organisation.
NAME OF SYSTEM PURPOSE (SALES/COST) INFORMATION RECORDED

Training Manual 33
Activity 11 - Effectiveness of existing financial

management systems
For a hospitality organisation you are required to:

 Identify the financial management systems they use to
record and analyse financial information. These systems
may include POS systems, software, meetings,
involvement of different people, external expertise etc
 Analyse the effectiveness of their system and identify
ways to improve their systems

34 Training Manual
Element 2: Establish budgets and

allocate funds
2.1 Use previous financial data to determine
allocations for resources
Introduction
One of the tools that assists owners and managers of a business to plan and monitor the
flow of money through their business is a good budgeting system. The product of this system
is a document called a budget.
Definition of a budget
Budgets are short-term plans of up to one year. They are
expressed in monetary terms and in terms of quantities such
as number of customers to be served per day, number of
tickets sold or the number of clients on a tour. The plan or
budget should help managers monitor the performance of the
business.
Plans for the longer term are not usually made into budgets because there are so many
unknown factors as the term grows longer that putting precise quantity or monetary values
on plans becomes difficult. Long-term plans are usually more about decisions to take on new
kinds of business and other such major changes in business direction.
For a small business such as a café, there is usually one budget showing the planned
revenue and expenses for the whole operation. Revenue is defined as money flowing into a
business such as sales. When money flows out of a business, this is called an expense.
For a larger business such as a hotel, budgets can be compiled a number of different ways.
Managers can find it useful to divide the business into segments or activity centres of two
types.
One type is called a Profit Centre. It is a part of a business that sells goods or services to
customers and incurs expenses. Part of the planning is about how to make it earn a profit.
The rooms area of a hotel, the dining room, conference centre, bars and gymnasium could
all be Profit Centres.
The other type of segment is called a Cost Centre. These are parts of a business that do not
sell anything but incur expenses. Planning focuses on managing expenses. Examples of
cost centres are Finance and Marketing departments.
Often budgets are created for each different department such as the restaurant and rooms
as well as for the hotel as a whole. Also in a larger business, there are budgets to assist in
managing specific expenses such as labour and rent as well as budgets to manage
revenues. These are neither department nor activity centre specific so provide an overview
of the planned activity for the entire business for the budgeting period.

Training Manual 35
Who develops budgets?

In a very small business, such as a one-owner business one of the many jobs the owner-
operator has is budgeting. There is no-one else around to pass the job to
In larger businesses budgeting may be done by a team of people. Budgeting is so important
that the person in charge of the entire business including the CEO or General Manager,
must be involved along with department managers.
If there is a professional accounting section, then the head of that area also should be
involved. Otherwise the external professional accountant should be called in for advice on
the budget.
For a small hotel the following may be the ones who take part and work together on budgets
for the whole business and for each part of it. They may come together as a budget
committee to assist each other to coordinate and communicate with the development for
each activity centres budget.
 Owner
 Hotel manager
 Accountant
 Departmental managers
 Outlet managers
 Executive Chefs
 Supervisors
Types of budgets
Operating a hospitality business will involve earning revenue from selling goods and services
to customers, buying goods to sell or to use in preparing finished products, buying labour
time, buying many other services from the landlord, electricity supplier, equipment supplier,
industry association, and so on
It will involve managing cash coming in, going out, and being banked. It will involve decisions
to spend money upgrading or replacing equipment and furniture, repainting, re-plumbing,
and rewiring the building or other major improvements to the facility.
It will also involve managing assets and borrowed money, profits and stock.
Each of these parts of the operation must be planned. This means that there are little
budgets for parts of the operation, and these little budgets are interconnected in a structure
that can be used to give the big Picture – an overview in a master budget for total profit and
loss of the organisation, not just for a department or activity centre.
Plans are needed for quantities and values of sales, quantities and values of purchases, and
so on.

36 Training Manual
Therefore budgets will include:

 Sales budgets – to forecast sales revenue
 Labour budgets – to forecast labour expenses
 Material budgets – to forecast purchases of goods for sale or for use in preparing
finished products
 Inventory budget – planning quantities to be held in stock, and the amount of money
invested in stock
 Overhead budgets – concerns other estimated operating expenses (e.g. rent, rates,
etc)
 Capital expenditure budgets – plans for long-term
assets to be purchased, replaced, upgraded
 Budgeted Financial Performance statement –
concerns estimated profit or loss. This brings
together several of the above budgets, for sales,
material, labour, overheads, inventory
 Cash budgets – concerns the estimated cash inflow, cash outflow and cash position
of a business.
 Budgeted statement of Financial Position – concerns estimated values of assets,
liabilities and owners equity at the end of a budget period.
Identify financial data required to allocate budget resources

Owners or managers look to information from within and outside the business to begin this
process.
Internal sources of data are information that originates from inside
the organisation and external sources originate from outside the
organisation.
This distinction is important to understand as internal sources of data
are always used as part of the regular budget process.
However, managers must seek out external sources of data and
then make a decision as to whether that information is relevant for
their future plans.
Internal sources of data

Examples of internal sources of data are:
 From management – new or altered management policies and procedures
 From management - declared commitments to any given areas
 From the accountant - performance data from previous periods
 From the marketing department – will the marketing effort change?
 From the restaurant manager/chef – will the product range or menu change?

Training Manual 37
 From the front office (derived demand) – will

the hotel’s occupancy change the demand
patterns of the hotel’s restaurant?
 From the restaurant manager – any planned
special promotions.
However, internal sources of information must also be
interpreted with care as the following advantages and
disadvantages highlight.
Advantages
 The information is on the premises and accessible under normal circumstances
 Department managers and other colleagues can assist in the collation and
interpretation of the information
Disadvantages
 Data reflects past rather than future activities, which is the focus of the budget.
External sources of data

External data sources must also be used carefully to ensure they are reliable and relevant
for the budget that is being prepared. Sometimes owners and managers find the time and
cost involved in accessing information far outweighs the benefits to the budget from that
data.
Examples of external data sources are:
 Commercially available customer research
 Statistics on economic performance
 Direct observation of competitors
 Conversations with suppliers of goods or services to the
business
 Business associations aligned with the local community

38 Training Manual
Allocating resources based on performance outcomes

The development of budgets and the appropriate resource allocation are directly related to
performance outcomes.
For example, the more money an establishment is prepared to spend on staff, the more staff
there will be working and the higher the level and standard of service should be.
By contrast where the staff roster has been cut back, you can expect delays in service and a
lowered standard of service.
Factors influencing what the allocated cost elements required to meet performance
outcomes will be influenced by:
 Management wishes – some establishments are operated by people who want to
offer outstanding service and are prepared to pay the necessary price to offer an very
high level of service. Some establishments have no service standard or a lesser
standard and are operated on the basis they employ the fewest staff possible
 Existing image and reputation of the business – where
the organisation has an established reputation for a
certain standard of service, it will have generated this
through advertising and previous service delivery. Most
establishments seek to maintain their current image and
reputation, unless they are under-going re-direction and
a shift in their marketplace location aiming to appeal to a
different market segment
 Customer expectations – these are strongly allied to ‘existing image and reputation of
the business’ and relate to service standards as well. For example, if the guest is
expecting 5-star service then it is not acceptable to provide 3-star service, facilities,
quality etc
 Competition – there is no doubt many establishments keep an eye on what the
competition are doing and seek to meet them in the marketplace. This has on-going
implications for budgets and service standards. A service or level of service that
didn’t exist 2 months ago can be mandatory today simply in order to remain
competitive and you may not have been able to raise selling prices to recover the
expense involved.

Training Manual 39
Activity 12 – Preparation of budgets
You are required to identify an outlet within a hospitality

organisation that you will be preparing a budget for.
It is important to note that the type of outlet selected (eg
restaurant) will be used for the following activities.
You are required to identify a range of considerations that goes
into preparing a budget for this outlet.
TYPES OF INFORMATION INTERNAL EXTERNAL SOURCES

BUDGETS CONTAINED IN EACH SOURCES OF OF INFORMATION
REQUIRED FOR TYPE OF BUDGET INFORMATION
THIS OUTLET

40 Training Manual
2.2 Make informed estimates of new items for

inclusion in budget
Introduction
In the case of most budgets, certainly all operational budgets there will be a need to estimate
what the anticipated sales and expense figures will be for the up-coming period.
This section identifies considerations when doing this.
Estimate sales for specific time period

This estimation, which is little more than an ‘educated guess’ serves two important functions:
 It sets the ‘projected’ figure for income for the period – this may be done on a simple
annual basis. That is, it will just identify a dollar figure for the entire year, or it may
follow a different format and identify sales by each month.
 The performance of the department will, in part,
be judged against this figure. It form the basis of
the expense budget, because many expense
items are calculated as a set percentage of
sales.
This fact puts many supervisors in a predicament. If they
want to have more money to spend they have to be able
to justify that extra money by reference to increased
sales.
Considerations when estimating sales

‘Sales’ are also known as ‘revenue’ or ‘income’.
Estimating sales is a difficult exercise and one about which there
is frequently much debate and little agreement.
Traditionally owners, management and shareholders want to see
increased sales and profit while the hands-on operators like to see
static, or reduced, income figures.
With this possible set of events firmly in mind, the following factors
should always be taken into consideration when attempting to
determine a realistic revenue figure for every department.

Training Manual 41
Competition
Most businesses operate in a competitive environment, and this environment is subject to
constant and often unpredictable change.
It is part of your job and that of others involved in the budget discussions to identify the state
of the competition.
This means being able to identify:
 Number of competitors and their market share
 New entrants poised to enter the market
 Existing competitors who are likely to leave the market
 Competitors who are changing their target markets – especially if the one they are
leaving is one you also target, or if the one they intend entering is one you are
currently targeting
 What the opposition is doing in terms of seeking business and what the realistic
impact of
 those actions will be on your business – this
includes current initiatives and any things you have
heard of through your network of industry contacts
 Action you propose taking to grow or maintain your
market share – which should be spelled out both in
the Strategic Plan and the Marketing Plan
 The image the competition has created in the
market place and the way in which they have positioned themselves within the
various markets they are involved in.
It is best to have a round table discussion about the competition to capture the thoughts of
all those present, and this discussion should be supplemented with hard data.
This can include copies of their advertisements, personal reports from staff who have visited
the opposition and experienced what they have on offer, samples of their products, relevant
photographs, and any statistics that may have been gathered.
It is a common practice for nominated management to visit all competitors shortly before
these budget meetings so information shared with others has currency and relevance.
Economy
Budget considerations regarding revenue must always take into account the state of the
economy.
In many cases, it is the state of the economy of another country that may have to be looked
at, especially where a substantial part of your business comes from overseas.
The nature of tourism and hospitality businesses are they predominantly rely on the amount
of ‘disposable income’ people have: the more disposable income they have, the more they
are likely to spend within the industry.

42 Training Manual
For these reasons attention must be given to various economic matters such as:
 The interest rate
 The unemployment rate
 Inflation
 The amount of money owed by members of your
demographically identified target markets
 The cost of other ‘essentials’ – such as petrol, food,
clothes etc.
The main idea in relation to this deliberation is not so much to identify specific figures or
percentages but to determine the general economic environment your guests are
experiencing, and to try to identify any trends which might be emerging.
As with competition, consideration of the economy can provide both opportunities for growth
as well as threats which may indicate the need for caution and reduction in sales figures.
History
Accounting has been described as an historic undertaking as it primarily provides historic
information about business performance.
There is no doubt an established business with a history of consistency is much better
placed to assess potential income than a business which has just opened up and has no
historic date to reflect on.
The benefit of historic information is it can, at the very least, provide a concrete basis for
discussing what did happen and what should have happened. It is this type of debate that
can be very illuminative in terms of identifying what might happen into the future.
The use of this historic data to assist in making future predictions is one of the many good
reasons accurate figures should be kept by all businesses in relation to their trading.
The budget deliberations should consider the following figures in relation to sales:
 Average spend per person
 Sales by target markets
 Method of payment – sales to other business who take 90 days to settle an account
is not as attractive as cash sales where money is received on-the-spot
 Degree to which sales resulted from special promotions – these special promotions
all cost some reduction in profit percentages as expressed as mark-up and it is
necessary to realise sales do not equate to profit.
The key point is there is no point raising $1,000,000 of sales if it has cost you
$1,200,000 to do so
 Troughs and peaks in terms of trade – by the hour, day of the week and/or month of
the year.
It is important to remember when considering historic data this information is severely
contextual. That is, the data is only relevant to the factors which applied at that time.
If, for example, there was no competition in the area last year but now there are six new
competitors, the historic data may be of little or no relevance.
The historic data is most useful when comparing like with like, and arguably this is unlikely to
totally be the case in most instances.

Training Manual 43
Industry trends
There are often times when the public creates a trend for a certain product or service.
You need to be aware of any trends that are rising, as well as those which are on the wane.
Your own internal data can provide some information in relation to this and most industry
groups/ associations also generate data to assist in these deliberations.
The key in relation to trends is to:
 Determine how you can benefit from trends – and what effect that will have on sales,
and what opportunities they may contain
 Determine how you can protect yourself against negative trends – and what effect
that will have on sales
 Determine whether those trends are emerging or established.
Sales targets
Sales targets can exist in two ways.
First, in some cases, as mentioned already, some budgets will set non-cash figures as
targets and where this is the case, this has to be factored into the consideration of sales in
terms of dollars.
If a KPI for a department is ‘the number of meals sold per week’, then the management of
that department may elect to engage in activities which will reduce selling prices in order to
attain the KPI.
This is an acceptable strategy providing the reduced
selling price does not mean an unacceptable level of
income or profit.
Where the price reduction unacceptably adversely
impacts revenue and unacceptably negatively affects
mark-up it may be necessary to revise the sales targets
or remove them as a KPI.
Second, sales targets may be dollar figures. For
example, the dining room may be required to generate $2,000,000 of sales.
The concern again is ‘sales’ are only one part of the equation. If the food cost to reach this
sales target is unacceptable then the sales target in dollar terms must also be re-considered
and perhaps revised downwards.

44 Training Manual
Seasonality
It is important to take into account seasonality factors when estimating sales.
Some businesses are hugely impacted by seasonality, while others experience almost no
affect from seasonal influence.
You can see here historic figures will be useful in predicting future seasonal influences.
When looking at seasonal sales it is also worth looking ‘behind’ those sales to be aware of
the cost of those sales. Many seasonal sales come at a cost including advertising,
commissions, wage loadings, special service standards, credit card payments, bulk
discounted sales to tour operators.
The levying of seasonal loadings helps to accommodate these expenses.
Also be aware in some cases, seasonality can cause an income downturn due to reduced
patronage whether this be caused by factors such as weather or holidays.
Whatever sales figures are finally arrived at they must be able to be supported. That is
justified and defended where necessary, by reference to
either data or logical reasoning.
Sales figures are essentially guesses but they must be
intelligent, and they must be able to withstand critical
analysis by others.
If a sales figure being proposed cannot be explained
and rationalised, it must be re-considered

Training Manual 45
Determine costs
It is important to identify all the cost that need to be budgeted. There are standard expense
elements to most businesses but there can be additional cost elements unique to individual
operations.
Reviewing previous budgets
The most common first approach to determining how funds will be spent is to take a look at
the previous budgets and see how funds were allocated to them, and how effective such
allocation was.
Given there can always be one-off events which throw a budget, the intention of reviewing
previous budgets is to learn lessons from them.
In essence you are trying to determine whether or not your previous allocations were
reasonable and responsible, and to identify the basis on which those decisions were made
with a view to using the same rationale for allocating money to the current budgets.
The one-off events should be factored out of the reality as far as is possible in order to
determine the validity of the original thinking.
Where there were no one-off events, the analysis of
previous budget allocations is relatively easy. The
main focus should be to assess the sufficiency of the
funds allocated – were enough funds allocated, or
were insufficient funds allocated?
You want to avoid allocating ‘too much’ money to a
budget because this means money cannot be
allocated/used elsewhere.
By the same token you do not want to allocate insufficient funds because this may adversely
affect the operation of the business, the service it delivers and the standards it wants to
maintain.
When reviewing the previous allocations, the current situation must also be factored in. For
example, if the previous allocation of funds for ‘cost of goods sold’ was accurate but in the
past month there has been an increase in materials cost of 20% and no corresponding
increase in selling prices, then the previous ‘formula’ used for calculating funds for materials
will be totally inappropriate.

46 Training Manual
Estimating costs
This can be a lengthy exercise and is something those involved in making input to the
budget deliberations are usually asked to research in advance of the budget meetings, so
they can come to these meetings armed with the necessary knowledge and figures.
In brief, every ‘substantial’ expense item must be looked at and this can include, for
example:
 Contract labour
 Compensation
 Products
 Rent
 Advertising
 Insurance
 Office expenses
 Maintenance
 Capital expenditures.
It is important to know the quantities of these items needed in, say, the next 12 months
before such research begin.
Suppliers of materials are often prepared to negotiate prices but in return they are usually
looking for on-going business from you: it is a balancing act in many ways.
Suppliers may allow you not to pay for goods bought from them for six months but may want
to sell to you at premium prices and seek to lock you into a buying contract for, say, two
years. In effect, the supplier is providing you with ‘free’ credit but it is not 100% free of some
cost.
Performance outcomes and its impact on expenses
You should also identify the performance outcomes you are expected to meet as they will
impact on expenses.
Performance outcomes, also known as KPIs – Key Performance Indicators, can vary
between establishments both in terms of their type and in terms of the standards
performance required.
Your KPIs should be clearly stated at the start of any budget period.
In essence, your personal performance is usually judged against how well you meet these
performance outcomes. Performance outcomes are also known as performance targets and
can relate to income, expenses and service standards.

Training Manual 47
Common performance outcomes include:

 Cost of goods sold – the requirement is cost is at or below a set percentage of
revenue
 Labour cost percentage – you will be required to ensure your staff roster meets the
labour budget meaning you will only be allowed to spend a set percentage of
revenue on labour
 Service standards – this can be stated in terms of how long customers wait to be
served, turn-around times for rooms to become available after use and delays
between orders being given by customers and satisfied by staff
 Revenue – some businesses will set revenue targets and expect you to hit these
targets regardless of the business, or other, conditions
 Percentage mark-up targets – this is a target that asks you to achieve a nominated
return on all items purchased. This mark-up target is what you are expected to show
after all ‘incidentals’ such as theft, waste, spillage, gratuities have been taken into
account.

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2.3 Prepare budgets in accordance with

organisational requirements and statutory
requirements
Introduction
Now that you have identified all the relevant influences on a budget it is now time to prepare
the budget itself.
In this section we will explore the different approaches that may influence and need to be
considered when preparing a budget.
The budget manual

A budget manual is developed by every business, large or small. It
refers to the enterprise policy to explain the design of the budget
process. It details, usually by timeline, the different deadlines that
need to be met so that the final budget is agreed and implemented
on time. There are often templates and forms that are used each
year for efficiency and consistency across the organisation.
The manual directs managers on how to source relevant data so
that this information is collected and analysed each and every
budget period. Sometimes these notes direct the committee to
external sources of data and sometimes it is a reminder to discuss
with other stakeholders. Usually there is some kind of checklist to
ensure that at least all relevant internal data has been sourced.
The budget manual also contains notes that the budget committee has made from year to
year detailing how particular items of the budget were calculated. For example, the cost of
supplies involved discussions with purchasing personnel and meetings with suppliers to
agree set prices and quantities.
One of the more pertinent pieces of information in the budget manual is the explanation of
the methodology the business uses to prepare the budget. This could be incremental
budgeting, zero based budgeting, rolling budgeting or flexible budgeting.

Training Manual 49
Which budgeting approach to use

Incremental Budgeting
One of the first sources of information that is gathered to draft budgets is actual income and
expenditure from the previous budget period. Modifying previous actual figures as the basis
of your budget preparation for the coming period is called Incremental Budgeting.
However, incremental Budgeting does not properly review weaknesses that may exist with
the current approach. For example, by adding a percentage to an expense such as labour to
cover an expected increase does not adequately review the way labour is used and what
resources should be properly allocated to staffing.
Zero Based Budgeting
If you wish to ask department and activity centre managers to justify all revenues and
expenses for the budgeting period then the zero based budgeting approach is best used.
Analysis based on current and future information rather than past performance is used.
Rolling Budgets
As one month finishes another month is added to the budget. Here you update the budget
when a period is completed but incorporate recent information for the new budgeted
forecast. For example a cash budget for three months for January to March, would become
February to April. Rolling budgets are often used by smaller business and are very useful
within the hospitality and hospitality industry as unexpected events such as natural disasters
can significantly affect planned activity.
Flexible Budgeting
Budgets for comparison and control of revenue and expenses provide better information
when they are designed for the same level of business activity. If the budget is based on
1000 meals and you only have 600 meals due to local construction works limiting access to
the restaurant’s premises, then a useful comparison is not
possible. What you would have to do is compare flexible
budgets' revenues and expenses for 600 meals with the
actual results for 600 meals so that you could better
analyse the budgeted results. This approach is most
suited to the hospitality and hospitality industries as a
method of comparing actual and budgeted results rather
than drafting the budget in the first instance.
A question for the budget committee will be what budget approach the enterprise will use for
the current budget period. Should there be a change at all? The budget committee can
discuss alternative budgeting approaches and make recommendations. Such
recommendations should be clear and concise and could follow a standard report format:
1. Define the problem
2. Gather relevant and supporting information
3. Explore alternative choices
4. Present recommendations as to preferred outcome.
When the budget approach has been decided, the budget committee will take responsibility
for the preparation of budgets. Whilst the committee members involved would include the
accountant and senior manager, the main drivers of the budget development will be the
activity centre managers.

50 Training Manual
Activity 13 – Identify budget revenue and expenses
For the outlet within a hospitality organisation that you selected in Activity 12, you are
required to identify, for a one month period:
 Revenue items and amounts
 Expense items and amounts
EXPECTED REVENUE
REVENUE ITEMS EXPLANATION / BREAKDOWN AMOUNT
TOTAL REVENUE (FOR ONE MONTH PERIOD)

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EXPECTED EXPENSES
EXPENSE ITEMS EXPLANATION / BREAKDOWN AMOUNT
TOTAL EXPENSES (FOR ONE MONTH PERIOD)

52 Training Manual

3.1 Circulate budgets and ensure managers and
supervisors are clear about budgets, reporting
requirements and financial delegations
Introduction
A key feature of the bottom up approach to budgeting is the attitude it promotes throughout
the organisation. Including staff in each activity centre in the budget process encourages
commitment to the achievement of the budget. It indicates to staff that their thoughts and
opinions are valued and considered. Assisting with the preparation of the draft budget has
been discussed so our focus is on the review of the draft budget before the budget
committee approves the final budget.
Consultation
The committee members are responsible for acting as the broadcasters of information to
their own activity centres. In each centre, staff members lower in the organisational hierarchy
are informed of the budget and its requirements. It is wise to remember that discussion and
agreement are preferable to simply giving out the draft budget. Cooperation is fundamental
to successfully managing the budget.
Communication
Activity centre managers have a wide range of options available to them to communicate the
draft budget. They must balance the need for appropriate consultation with budget
deadlines. Some of the communication methods are:
 Staff meetings. Sometimes it is best to conduct
meetings with senior staff and then junior staff
depending on the size of the organisation. Managers
circulate the draft budget prior to the meeting
 E-mails. Managers may choose to circulate the budget
electronically and encourage staff to send questions
the same way. Issues and questions may be resolved
individually or in the staff meeting environment
 Newsletters. If time constraints are restricting the budget process, managers may decide
to prepare a newsletter detailing the organisation’s objectives and the draft budget that
will help to meet those objectives. This is a particularly effective tool for the hospitality
industry as access to email can be limited and staff commonly work shifts
 Informal discussions. Activity centre managers must make themselves available to
discuss the draft budget in an informal setting.

Training Manual 53
Activity 14 – Communicate budgets
For the outlet within a hospitality organisation that you selected in Activity 12, you are
required to identify:
How you would communicate budgets
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Method of communicating budgets
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Timing of communicating budgets
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Key points to be communicated
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Persons who need to receive budget information
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________

54 Training Manual
3.2 Manage risks by checking there are no

opportunities for misappropriation of funds and
that systems are in place to properly record all
financial transactions
Introduction
One of the most important functions of management is to efficiently use and protect the
assets of the business. In a smaller business, such as an independent tourism operator, the
owner is usually always present and performs this function themselves. In larger
establishments, this becomes impractical and the owner must rely on others to help manage
and control operations. The system designed to help managers is an internal control system.
Internal control systems

The Internal control system can be defined as a system of procedures and forms established
in a business to safeguard its assets and ensure the reliability of accounting information. It
consists of all the measures used by a business to:
Safeguard its assets
 This objective focuses on the protection of assets from
theft and inefficiencies. For example, cash is kept in
secure storage. Fixed assets should be maintained so
that they are in good working order.
Promote efficient operations
 Efficiency is maximised by ensuring that policies from
staff recruitment through to technology to support
business functions are reviewed and new efficient
methods adopted as appropriate.
Maintain accurate and reliable accounting records
 Financial data must be carefully recorded and processed so that the reports produced by
the system are relied upon for accuracy and completeness to assist external and internal
users of reports monitor and evaluate business performance.
Encourage and promote compliance with business policies and government
regulations
 This objective is an important characteristic of an internal control system and is
monitored by regular internal and external reviews. These reviews are called audits and
assess the extent to which internal control procedures are followed. In doing so, they
also provide an independent verification of the financial records.
Management responsibilities
 It is the responsibility of management to ensure that the
internal control system meets any legal requirements set
down by government bodies. These may cover
requirements for the preparation of financial statements
or require owners to give an opinion in the annual report.
The need for controls

Training Manual 55
 Because the flow of information in a business is constant, different departments of

different people will need to access the same information. Controls must be in place to
ensure that the information remains secure and accurate.
Structure of the internal control system

An internal control system includes the control environment, the information system and
internal control policies and procedures. It is important to highlight that this relates to the
entire organisation. The system can be classified into two main types being administrative
controls and accounting controls.
Administrative controls
These are systems and procedures that are established to encourage and promote
adherence to policies and provide efficiencies in operation. One of the foundations of an
effective internal control system that falls under this category is an organisation chart. This
shows the structure of a business and establishes levels of authority, responsibility and lines
of communication. Generally, the larger the tourism establishment, the more complex the
organisation chart.
Examples of other administrative controls are:
 Written procedures for recruitment and hiring staff
 A system of authorisation and responsibility
 General operational policy and procedure guidelines
 Manuals identifying sales and purchases procedures
 Details of performance reports from employees.
Accounting controls
Accounting or financial controls refer to procedures put in place to meet the following
objectives and are the focus of this unit of study. It is necessary in an effective internal
control system that accounting controls are designed to provide reasonable assurance that
these objectives are met.
Objective Description
Financial records are complete All transactions are recorded and any omissions are
prevented
Financial records are valid All recorded transactions are “real” and properly
authorised
Financial records are accurate Transactions are properly valued, errors are minimised
and records are classified correctly and kept in a timely
manner
Adequate safeguards Ensure that all assets are properly safeguarded against
loss, theft and are maintained appropriately
Accountability Ensure all staff are assigned clear responsibility through
clearly defined job descriptions and duties

56 Training Manual
Principles of internal control systems

To ensure adequate levels of administrative and financial controls and therefore an effective
internal control system, there are some basic principles that to consider. The actual control
measures implemented are affected by the size and nature of the business and
management’s view on the combination of controls that are most appropriate.
Following are some of the more important principles and is followed by the application of
these principles to establishments in the hospitality and tourism industries.
Establish clear lines of responsibility and supervision
In some capacity in all organisations, individuals carry out business transactions, record the
transactions and manage the assets resulting from activities and events. An important
aspect of an effective internal control system is to employ or hire competent, trustworthy
people. This begins with good procedures for screening and selecting appropriate people.
Responsibilities of the position should match the ability and authority of the person
employed. For example, when hiring managers, people with appropriate management skills
should be selected and employed.
It is also necessary for employees to have a clear understanding of the responsibilities of
their role. This begins with the organisation chart. It then extends to specific tasks or duties
such as receiving food supplies, counting cash at the end of a shift or accepting payment for
an accommodation bill.
Responsibilities should be assigned so that there are no overlapping or undefined tasks.
Imagine a cash register where two members of staff are responsible for the cash contents. If
there are problems, it is difficult to determine the error and therefore take corrective action.
The internal control system is better when a task is restricted to one employee at one time.
Policies and procedures for training also support employees to understand and perform the
responsibilities of their role appropriately. This covers training when staff are first employed,
both in organisational policies and in specific tasks as well continuing development of skills
and evaluation. Training can be occur within or external to the establishment.
Part of the internal control system is also management supervision. Management must
continually observe operations as no internal control system can always safeguard against
the likelihood of theft, fraud or ineffective operational practices.
Responsibilities and duties should also be rotated amongst employees, wherever possible
and for appropriate periods. This gives employees the opportunity to be familiar with the
entire system and gain a better understanding of the relationships between inputs,
processing and outputs. It also encourages employees to carry out tasks according to
policies and procedures since they know someone else will soon be taking over and possibly
reviewing their activities.
Separate or divide the responsibility for related transactions
To minimise the possibility of errors, theft or fraud,
responsibility for related transactions should be separate so
as the work of one employee is verified or acts as a check
on the work of another. This is not two employees carrying
out the same task but two different employees carrying out
two different control functions. This ensures that no single
person has too much control over the assets of the
business.

Training Manual 57
One common example in a tourism establishment that illustrates this point is the
responsibility for ordering goods, receiving goods and paying for the goods received. This
responsibility sits in the purchasing area. Separating these tasks to individual employees
minimises the opportunity for any one employee to order and receive goods for their own
use but authorise the business to make payment.
Separate record keeping and control of assets
One of the more important principles of internal control is to separate the functions of
recording information about assets and the actual control of the assets. For example, when a
cashier is responsible for a sales register and therefore cash sales in the department for
their shift, they should not be responsible for entering the transactions in the cash receipts
journals in the accounting system. This minimises theft and contributes to ensuring that
financial records are valid, accurate and complete.
Prepare written procedures
Once procedures have been established in all areas of an organisation and for each job or
role where control is needed, these procedures should be documented. This is particularly
important in the hospitality industry where employee turnover is high. Employees should
always be able to access these documents so that they know what the policies and
procedures are.
It is very difficult to establish a set of procedures that will fit
every possible situation in the hospitality and tourism
industry because there is such a wide variety of types,
sizes and styles of establishments. Even in two
establishments that appear similar, management policy,
the type of customer or other reasons means the
procedures for any particular control area differs.
Documentation procedures
Documents provide the basis for determining activities and events that have occurred
throughout an organisation. Tickets for tours must be numbered. These documents and
others that are similar should be pre-numbered whenever possible. In this way, individual
documents can be tracked and prevents the same document form being used more than
once. When pre-numbered documents are used, the employee receiving the document
should sign it to acknowledge responsibility and
accountability.
Forms and reports also form part of the documentation of in
an organisation. They are often used to provide management
with information about different aspects of the business so
that performance can be reviewed, evaluated and revised
when necessary. Usually the accounting department or
personnel are responsible for designing forms and reports in
consultation with appropriate management.
The accounting department or person is also responsible for
designing, ordering, storing and issuing all pre-numbered and
other documents. This is to ensure that documents are used appropriately. The sequence of
all numbered documents is checked regularly to ensure none are missing.

58 Training Manual
Activity 15 – Identify procedures used in a financial

system
You are required to identify three procedures that exist or you would implement as part of a
financial system for a hospitality organisation.
TYPE OF PROCEDURE EXPLANATION
Set standards and evaluate results

Another important principle for an effective internal control
system is to have a reporting system that indicates whether
all aspects of the business are operating properly. As part
of the written guidelines given to employees about how to
perform specific tasks in their role, standards of
performance should also be established.
A common standard of performance in the tourism industry
relating to revenue is sales and regarding costs is gross
and net cost percentages.
By setting a standard, manager’s performance and the performance of the establishment are
evaluated against that standard.

Training Manual 59
Activity 16 – Identify standards used in a financial

system
You are required to identify categories and examples of standards within these categories
that exist or you would implement as part of a financial system for a hospitality organisation.
Some examples have been added to guide your responses.
CATEGORY OF STANDARD EXAMPLES OF STANDARDS
Revenue Food Sales

Room Sales
Expenses
Productivity
Maintain adequate insurance

Insurance is a guarantee that is purchased to provide monetary compensation for loss,
damage or theft of an organisation's assets. If assets are fully insured, they can be
recovered or replaced and continue to contribute to the profit making capabilities of the
business. Insurance can also cover a loss of profits if there is a delay in replacing assets.

60 Training Manual
Implementing internal controls

With the principles and objectives of internal controls in mind as well as the particular
challenges for businesses in the hospitality and tourism industry, processes should be
developed for both the financial and administrative functions of the business that satisfy
internal control requirements.
Administrative controls refer to the organisational structure, authorisation, performance
standards and employee policies and procedures. It is beyond the scope of this unit of study
for you to explore each of these in detail.
Activity 17 – Identify control methods
You are required to identify methods, policies or procedures that can used to control the
following financial activities.
FINANCIAL ACTIVITY METHODS, POLICIES OR PROCEDURES TO

CONTROL
Control of cash
Control of cash receipts
Control of cash payments
Control of petty cash payments
Control of cash budgets
Control of accounts receivable
Control of credit policies
Control of purchases
Control of payroll
Control of inventory
Control of fixed assets

Training Manual 61
3.3 Review profit and loss statements, cash flows

and ageing summaries
One of the most important features of a financial system that needs to be established is
methods you will use to accurately assess the performance of a tourism operation based on
the financial data compiled in the financial system.
Interpretation of financial information is required to measure the
success or otherwise of trade for the period in question and to plan
future action.
Monitoring financial performance

Financial analysis is also referred to as:
 Financial statement analysis
 Accounting analysis
 Analysis of finance.
It refers to an assessment of a company’s, business unit’s or project’s viability, stability and
profitability.
Financial analysis is usually performed by professionals who prepare reports using ratios
calculated using the information extracted from financial statements and other reports.
Categories for monitoring financial performance

Financial performance exists at different levels of the organisation. This page is mostly
concerned with measuring the financial performance of the organisation as a whole, and of
measuring the performance of key projects.
Traditionally, financial performance measures are split into the following categories:
 Profitability
 Liquidity / working capital
 Gearing
 Investor ratios.
Steps to monitor financial performance

To monitor actual and planned financial results for a given time period, department manager,
general managers and owners depending on the size of the organisation will be provided
with appropriate reports from the financial system that summarise both the actual and
planned financial information.

62 Training Manual
The steps commonly associated with financial analysis include:

 Select financial analysis method
 Conduct financial analysis
 Identify significant variances
 Determine the cause of significant variances
 Take corrective action as required.
Methods to monitor financial performance

The methods chosen for monitoring financial performance are generally built into the
planning process. It is a good idea when planning to keep in mind the reporting on the
success or otherwise of goals. It is frustrating to set a goal but not be able to say whether or
not it has been achieved.
There are many tools or methods available to monitor financial performance including, but
not limited to:
 Financial analysis methods:
 Horizontal
 Vertical
 Ratios
 Key performance indicators
 Customer feedback
 Compliance reports
 Employee feedback
 Using a pretend customer
 Walking about the premises and observing what takes place
 Use of checklists
 Brainstorming sessions
 Observation
 Surveys
 Checklists
 Flowcharts
 Benchmarking.

Training Manual 63
Activity 18 – Identify methods to monitor

financial performance
Identify various financial activities that need to be monitored.

For each activity list the method that you will use to monitor its
financial performance.
FINANCIAL ACTIVITY METHOD OF MONITORING FINANCIAL

PERFORMANCE

64 Training Manual
3.4 Revise budgets, as required, to deal with

contingencies
Introduction
Some business owners see budget preparation as something you do for a week or so, then
it is over and you do not need to work on it any more. Budgets contain targets to be
achieved, such as sales dollars or wage costs. As events arise from day to day, the budget
figures may need to be adjusted here and there to adapt to things that have not turned out
exactly as expected. Managers need reports every so often (such as monthly) to let them
know whether short-term budget targets are being achieved. These reports will show
whether revenues and costs are exactly as planned or how far out the plans were from being
achieved. These differences are called ‘Variances’. Thinking about them, and what they
mean for the business may lead managers to make changes to budgets and targets.
Regular review
Most managers review budgets against actuals at intervals of about 30 days. This is usually
seen as a way of keeping in close touch with what is happening in the business and fixing
anything that is going wrong before it becomes a really big
problem. It could be done once a week or 52 times a year.
Some businesses do this, but it obviously takes up a lot
more time to prepare the reports and to study them, to look
for things that need fixing and decide what to do about
them. Therefore, this examination of business
performance is always a compromise between doing it
very often and never having much time for doing anything
else, and doing it at long intervals and finding that problems have developed in the
meantime.
Variance analysis
To gauge the success of the business the manager needs to measure the budget outcomes
against the actual outcomes at regular intervals. The determination of variances between
actual and budget can be expressed in different ways:
 Monetary units
 Percentages
 Units.
The items to which the variation applies will indicate whether it is a positive result or a
negative result. A simple rule for evaluating variances is to think about the effect of the
variance on business profit.

Training Manual 65
Evaluations can be summarised into a simple table:
Items Actual over budget Actual under budget
Sales and Profit Improve profit Favourable Reduce profit Unfavourable
Expenses Reduce profit Unfavourable Improve profit Favourable
So in general terms:
 An increase in actual costs so to be more than budgeted costs is unfavourable
 A decrease in actual costs so to be less than budgeted costs is favourable
 An increase in actual revenue so to be more than budgeted revenue is favourable
 A decrease in actual revenue so to be less than budgeted revenue is unfavourable.
Example:
Variance
Line item Budget Actual Variance % ** Favourable/Unfavourable
Amount
Sales 10,000 11,000 1,000 10% Favourable
Wages 3,000 3,600 600 20% Unfavourable
Net Profit 500 600 100 20% Favourable
** - Variance Amount divided by budget $ multiplied by 100
Horizontal analysis
Two main types of variance analysis are performed to measure the difference between
budgeted and actual outcomes. Horizontal analysis is where actual and budgeted numbers
for each line item in financial reports are compared. These line items show the source of
income and on what expenses money is spent.
For each line item, a budget figure is matched with the actual result for the period and a
difference or a variance is calculated by subtracting the budgeted number from the actual
result. The variance is then divided by the budget figure to give a percentage, showing how
far the achieved result is from what was planned.
For example:
Line item Budget Actual Variance Variance % ** Favourable/Unfavourable
Food Sales 34,500 36,100 1,600 4.6% Favourable
Food Costs 9,350 9,700 350 3.7% Unfavourable
** - Note that standard business practice internationally is to show percentages in business reports to
one or two decimal places.
The sales variance is positive so the business sold more than planned. This increased profit
so you can record a Favourable variance.

66 Training Manual
Actual spending on food was more than planned. This reduced the business profit so an
unfavourable variance is recorded.
A full report on variances can show whether there are any serious problems between actual
and budgeted results and where any problems are located. The methods used by
businesses to deal with these problems is discussed further on in this manual
Vertical analysis
The other type of variance analysis is called vertical analysis. The sales budget is the first
budget to be prepared in the budget process. Owners and managers often budget expenses
as a percentage of sales. So these percentages can also be used to compare budget and
actual results.
Vertical analysis calculates each line item in the budget as a percentage of budget sales and
in a separate calculation, actual performance reports are used to compute the percentage of
each line to actual sales for the period.
For example:
Line item Budget Variance % Actual Variance %
Sales 34,500 100% 36,100 100%
Food Costs 9,350 27.1% 9,700 26.9%
Wages 3,000 8.7% 3,600 9.97%
When the budget was prepared, managers estimated that 27.1% of every sale would be
spent on food costs and 8.7% on wages, however, actual results show that only 26.9% of
sales was used to pay for food costs but 9.97% of sales contributed to wages. One of the
key roles of vertical analysis is to help managers to determine how well costs are being
controlled.
Accurate calculations
Management rely on the calculations that compare actual and
budget figures whether it is through horizontal or vertical
analysis. The results of these calculations can prompt
managers to take action and alter planned activity levels. It is
important firstly that calculations such as subtraction or
multiplication are performed accurately. However, it is mainly
about making sure that good information goes into the
calculations, for example, that your idea of how much busier
Friday is compared to Tuesday is realistic or that your idea of
what percentage of sales might be spent on buying food is
achievable.

Training Manual 67
Analyse changes in the internal and external environment and

make necessary adjustments.
As significant deviations or variances are investigated, managers must also be aware that
even small variances, favourable or unfavourable may indicate a changing pattern or new
trend. The cause of these trends may result from changes either inside (internal) or outside
(external) to the organisation. Understanding this will enable revising and re-forecasting of
current budget projections with more confidence.
Examples of changes to the internal environment may be due to:
 Successful innovative upselling. This will result in further expectation of higher sales
 Loss of key personnel. This will result in an expectation of declining sales.
Examples of changes to the external environment may be due to:
 Deteriorating sales expected due to an economic recession
 Competitor leaves the market - less competition. Sales
are expected to increase
 Changing laws
 Fashion changes. Sales can be expected to decline
 Problems due to natural disasters. Sales expected to
decline and costs rise.
Types of factors and issues
Some examples of internal issues are:
 Unexpected organizational and management restructures
 Decrease in the quality of management or employees
 Unexpected human resource requirements
 Change of organisational objectives.
Some examples of external issues are:
 Political and legal events
 Competitors entering or leaving the market
 Growth or decline in economic conditions
 Change in social trends or fashion
 Natural events – weather, bush fires, drought
 Possible cancellation or change of dates of planned special events or unexpected
lack of venue availability
 Significant price movements for certain supplies or items.

68 Training Manual
Activity 19 – Identify causes of budget changes
For the outlet within a hospitality organisation that you selected in Activity 9, you are required
to identify:
 Situations that may need budgets need to be changed
 Causes of these situations
 Examples of changes that would need to be made to budgets
Situations that may need Causes of these situations Examples of changes that
budgets need to be would need to be made to
changed budgets

Training Manual 69
3.5 Maintain audit trails to ensure accurate tracking

and to identify discrepancies between agreed
and actual allocations
Introduction
Auditing is a control procedure which is undertaken on a
regular basis to ensure accuracy of financial transactions and
accounts.
The transactions and records you deal with may relate to
revenue streams with a hospitality organisation, various
expenses to sustain operations, foreign currency activities
and all types of payment received or processed by the
organisation in a specified period.
The audit process also identifies and rectifies discrepancies
which may relate to incorrect posting, errors in accounts,
computer errors and errors in source documentation. This work will impact on a number of
financial systems including reports, statements, debtors control and banking procedures to
name but a few.
The activities associated with an audit also relates to the preparation of reports which may
relate to occupancy, sales performance, break up by department, commission earnings,
supplier activity, sales returns, commercial account activity and foreign currency activities.
Purpose of 'auditing'
In summary the purpose of an audit is to:
 Make sure all accounts are accurate
 Make sure departmental charges are accurate
 Provide information on the financial activity of each department
 Provide statistics on the financial activity of the establishment
 Provide statistics on the financial activity of customers
 Allow management to assess performance in relation to operational goals.
As a result of an audit process, the management of an establishment can monitor the activity
of departments on a regular basis and not have to wait until the end of a financial period.
This allows a quick response to potential problems or losses and provides accurate
information on which to base business decisions.

70 Training Manual
Internal audits
The purpose for internal audits is to continually review and study the internal control system
of an organisation. Sometimes, there is an internal audit department depending on the size
of the business and in other circumstances; the owner or most senior manager is assigned
this responsibility as part of their role.
During the year, various record keeping systems and administrative processes are reviewed
to ensure that operations are conducted effectively and documented procedures are being
followed. If a procedure, form or report is not used for its intended purpose or is not needed
anymore then the internal audit should address this and
recommend a change. One of the reasons why this is
important is that employees may begin to adjust
procedures for fraudulent purposes and if this is not
noticed, they will know the internal control system is not
working and continue this practice.
An audit trail exists in every good internal control system
that documents each transaction from the time it was
initiated through to final recording in the accounting
system. Internal auditors follow and verify this audit trail to ensure it is maintained
Activity 20 - Identify importance of internal audits
You are required to identify the purpose and importance of having internal audit mechanisms
as part of a financial system.
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Conducting internal audits

An internal audit provides a review of the operating and accounting controls within an
establishment to ensure that internal control procedures are being followed and assets are
adequately safeguarded.
This assists managers to monitor the financial system by verifying that forms, records and
reports are reliable or may reveal that improvements to tasks or procedures should be made.
In smaller hospitality organisations, internal audits are the responsibility of the general
manager. In larger establishments, accounting personnel conduct internal audits. Sometimes
larger organisations will have an internal audit department, generally based in one location,
which travel to all owned establishments and conduct the internal audit.
The size and scope of the business and the internal control measures usually determines
the frequency in which internal audits are conducted, with at least once a year being the
minimum policy. For example, in smaller organisations, the owner is often present and
carries out many of the financial activities.

Training Manual 71
Very few internal controls are probably required and therefore an internal audit to monitor
them would be infrequent. However, in larger establishments that feature multiple services
such as a resort, operations are organised into departments and internal controls are
extensive. Internal audits would be frequent and perhaps scheduled to rotate through the
functional areas twice or three times per year. Each workplace will detail their own internal
audit policy that you would be expected to know.
The process of an internal audit can be broken down into five key steps that are applicable
for all organisations. These are discussed briefly below.
Management meeting
Management and internal auditor personnel meet to confirm the scope, timelines and other
requirements for the audit. Any particular area of operations or procedures within any area of
operations that may be of concern to management for any reason are discussed and
included in the tasks for the audit. Any changes to the operation of the financial system such
as a change to procedures within the cash sub-system are also highlighted in this meeting.
Identify internal controls
As part of planning the internal audit, audit personnel refer to the policy and procedures
manual that details all the internal control measures management have implemented. Any
changes since the last internal audit will be documented as part of this manual. The systems
and procedures that are to be evaluated are reviewed, discussed and the audit plan
finalised.
For example these areas may be subject to audit each time an internal audit is conducted
due to the frequency of transactions:
 Daily sales, allowances, cash and credit transactions, including
pricing and commissions
 Purchasing, ordering and receiving goods and services
 Payroll and labour costs.
 Compliance with external regulations
 Computer system controls
 Controls over fixed asset expenditure.
Evaluate internal controls
Once the audit plan is established and agreed, auditors can begin the task of evaluating the
internal controls. An audit trail exists in every internal control system that documents each
transaction through the stages or phases of the financial system - input, processing and
output.
Internal auditors follow the trail, checking that procedures are followed and forms, reports or
other documents are used as intended. It is important to note that internal auditors test a
sample of transactions to evaluate the internal control procedure. This will usually represent
a proportion of the total transactions that management believe will verify that the system is
reliable.

72 Training Manual
Assess outcomes
If the auditors find that a procedure is not followed or documents are not used as detailed in
the procedures manual, a record of the transaction and the details are noted. This requires
internal auditors to assess the impact on internal controls of the deviation and note this for
management. It might appear to employees from one department that a particular task can
be carried out differently but may not realise that this has a detrimental impact on another
part of the system. Internal auditors would be expected to note an example such as this.
When a significant deviation from procedures is found, internal
auditors may expand the number of transactions reviewed to
check if the incident is isolated or indicative of a potential
internal control issue. This occurs if it is thought that the
deviation threatens the reliability of accounting information or
the safeguarding of assets.
Final evaluation
At the completion of the internal audit, an audit report is prepared for management. This
outlines the strengths, weaknesses, actions and follows up procedures from the internal
audit. This is an important document for managers as it serves to provide evidence that they
are fulfilling the responsibility of ensuring the reliability of financial i nformation.
Any actions that recommend changes to internal controls are discussed carefully between
managers and auditors. As appropriate, input from those employees who perform the tasks
is also sought. When changes are agreed, the policy and procedure manual is adjusted to
reflect the new procedure, any forms or reports altered and the internal audit report updated.
Activity 21- Identify internal audit requirements
You are required to identify the different aspects of a financial system that you would wish to
audit as for a hospitality organisation.
ASPECT TO BE AUDITED KEY OBJECTIVE OF WHO IS TO AUDIT THIS

AUDITING ASPECT ASPECT?

Training Manual 73
Investigate and take appropriate action to handle discrepancies

Identifying deviations or variances is about calculating differences between the budget and
the actual results for the budget period. Variances may be large or small in both monetary
and percentage terms. Some may be so small they should not be seen as a problem and
others require investigation.
The key concept is to review and analyse what’s actually happening against some
benchmark.
Quite simply this includes:
 Comparing actual performance against key performance
indicators
 Comparing actual performance against benchmark
indicators, which can include industry indicators or
performance levels of other branches.
Management by exception
Organisations have policies that managers can follow detailing the size of the variance that
is acceptable and variances that should be investigated further. This is called a tolerance
limit. Tolerance limits are generally expressed as percentages.
Management by exception is an approach whereby only variances that are above the
tolerance limit are investigated. Therefore, if there are 50 cost items and only three of them
show variances above the tolerance limit, only those three are investigated by managers.
Some organisations create a checklist, which managers can use as a guide to assist with the
decision to investigate variances and to guide them as to the management of such
variances.
An extract of a checklist follows:
Question Response
Are financial performance reports prepared accurately?
How frequently are financial reports prepared?
Are costs expressed as a percentage of sales?
Are you able to compare data with previous periods?
Can you track trends or patterns over a period of time?
Are revenue increases from price change or sales volume increase?
Is the food cost % acceptable?
Is the labour cost % acceptable?
Are average sales acceptable?
Is profit acceptable?
Are there any new financial commitments?

74 Training Manual
Management of deviations
A variance may indicate a problem with sales or in
managing costs. It may indicate that the budget team just
got it wrong, perhaps misreading the market or failing to
anticipate cost increases. Managers must decide how to
solve any problems above the tolerance limits that are
exposed by the variance report.
Budget managers have two possible approaches to solving
such problems:
 If there are changes in the internal or external business
environment that are not controllable by the
organisation then managers must adjust the budget to reflect the new environment. For
example if the price of supplies increases due to a natural disaster, the budget changes
to reflect this
 If the variance is within the control of the business, managers must identify the possible
causes of the variance and take action to manage the deviations.
The following examples are provided as areas to investigate to rectify certain types of
variances:
 Variances in wages cost may prompt managers to review:
 Mix of casual and full time staff
 Specific training to assist staff perform tasks more efficiently
 Multi-skilling. This is where staff perform duties across a number of different
departments or areas of the business. For example, a tour guide processes tickets
when they are not conducting tours
 Staff morale or motivation. Lack of harmony and teamwork among staff and lack of
commitment to the organization by staff could be an issue
 Possible causes and remedies for problems with sales revenue:
 Was the sales forecast in the budget too optimistic?
 Poor controls around sales. Are all items being charged to customers and at the
correct value and quantity or are items being carelessly or deliberately omitted from
or under-charged to customers’ accounts?
 Have competitors entered the market and you have lost
sales?
 Has there been a bad review in the media?
 Are there unfavourable reviews spreading among existing
and potential customers?
 Has a marketing campaign been ineffective?
 Are the product or product mix and the image stale and out
of favour? Conduct a review and some market research to
provide products and an ambience that customers prefer.
The business has not changed to meet evolving consumer
trends.
It is important to note that these are just two examples of variances that management may
need to investigate. Management must act upon any significant deviations as soon as
possible so that control over revenue and expenses is maintained.

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Activities associated with resolving discrepancies

Resolve discrepancies will include:
 Understand common causes of discrepancies
 Seeking input from others in relation to information required to determine the issue
 Investigating source documents
 Undertaking investigations
 Making appropriate corrections to relevant accounts
 Ensuring the integrity of the system.
Possible actions to resolve discrepancies

You may be required to:
 Re-visit various source documents and verify their content, figures
and calculations
 Double-check calculations
 Seek out additional information, data and documents
 Check figures with suppliers, clients and revenue centres
 Undertake a physical stock take
 Check and re-price stock-on-hand

76 Training Manual
Activity 22 - Identify and resolve

common discrepancies
You are required to identify the different common

discrepancies between actual and budgeted revenues of
expenses, providing reasoning for the discrepancy and ways
you would resolve the discrepancy.
Common discrepancies Reasoning for the Ways you would resolve

between actual and discrepancy the discrepancy
budgeted revenues of
expenses

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3.6 Ensure compliance with due diligence

Introduction
It is important that any financial system meets necessary compliance requirements. These
may be internally or externally driven. Therefore is vital that systems comply with relevant
management requirements and host country regulations.
Whilst every organisation is different, compliance requirements include, but not limited to:
 Organisational policies and procedures
 Authority levels
 Classification systems
 Cost centre definitions
 New expenditure accounts
 Reinsurance returns
 Audit trails.
Activity 23 - Identify importance of compliance
In your own terms, what does it mean to be compliant?
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Why is it important to be compliant with all necessary regulations?
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
What are methods you can use to ensure you are compliant with all necessary regulations?
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Strategies to ensure accounting policies and procedures are being

followed
78 Training Manual
The following procedures can be applied to help ensure compliance with accounting policies
and procedures:
 Involve accounting staff in the initial development of the policies and procedures – so
they become familiar with them from the outset and have a better understanding of why
they have been developed and why they are required
 Explain and disseminate the policies and procedures once they have been developed
and approved – this can occur in meetings convened specially for the purpose where
copies of the documents are distributed and then carefully and fully explained
 Any procedures requiring it should also be accompanied by appropriate demonstration,
including an introduction to accounting software
 Where the policy or procedure requires the completion of paperwork, this too should be
shown and its completion explained
 Make a full copy of all accounting policies and procedures available for ready-reference
by staff – this is usually achieved by preparing several ‘Policy manuals’ and ‘Procedures
manuals’ and making them available in the staff room as well as in departments or the
offices of department heads
 Regularly used policies or procedures should be
included in a dedicated distribution to all
accounting staff when employed
 Include ‘policies and procedures’ as part of your
standard in-house accounting training – this will
ensure every staff member becomes aware of the
requirements, how to comply and what is required
from an operational perspective
 Provide every new accounting staff member with a copy of the policies and procedures
applicable to their work role as part of their Induction – this will ensure they have
immediate access to, and basic knowledge about their requirements. This basic
knowledge will, of course, be supplemented by the required in-house training
 Develop checklists for posting at work stations – where standard procedures are
required for certain tasks it is a good idea to develop a series of short-form procedures
(known as checklists) to be posted at the relevant work stations so operational staff have
constant access to the basic requirements of every job to which a standard procedure
applies
 Consistent mention of the need to adhere to policies and procedures by supervisors. The
need to implement all policies and procedures as set down by the business should be a
constant topic at every staff meeting and several briefings
 The supervisor may elect to raise this topic by mentioning an infraction which has been
noted, praising a staff member for an instance of compliance noticed, or by presenting a
quick one minute review of a nominated policy or procedure
 Personal observation of staff practices – to identify specific instances of compliance, to
note variations and to identify areas where policies and procedures seem to be
ineffective.

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Monitoring compliance with accounting policies and procedures

It is important for all accounting managers to monitor that their staff are complying with
accounting policies and procedures.
Some methods to monitor this compliance are identified below.
Observing current practice
This requires managers knowing what the policies and procedures are. Therefore it is
essential that they read and understand them first before any observations take place.
Armed with this knowledge and with copies of the policies and procedures, they can then
observe what is happening in the workplace and compare it to the existing official protocols.
When observing current workplace practice, managers must:
 Take notes – to record observation in detail and to use as a reference
 Record actual details – times and dates, processed, name of accounting documents
being used, financial transaction or activity being performed
 Observe at different times – for example, observation should cover:
 Busy times and slow times
 Different financial transactions
 Different accounting tasks
 Different financial reports and documents.
Discussions with staff and other stakeholders
This is a vital aspect of monitoring compliance and to get
feedback on why activities happened a certain way or to get
feedback for future improvements.
The process of involving staff and stakeholders will be
discussed in the next section.
Dealing with variations to accounting policies and procedures

In this context a variation is an instance where staff have failed to comply with the
requirements of the accounting policy or procedure for the activity they were engaged in.
The variation may be deliberate or accidental; it may be a failure to follow guidelines, a
failure to complete a necessary document, or a failure to implement a stated activity or
process.
Anything not aligning with the stated policy or procedure is a variation.
At the same time staff are informed about the need to comply with policies and procedures
they should also be made aware of the potential consequences of variations. It is not
acceptable to have a structure on place for dealing with variations and not inform staff about
this.
Every time a variation is noticed it must be dealt with. No identified variation should ever be
allowed to go un-addressed. If staff notice you have noted a variation and then failed to act
on your observation you will be sending them a message failure to comply is acceptable.
And it is not.

80 Training Manual
Supervisors and managers should have the discretionary power for dealing with variations
and are expected to use good judgement and common sense about how they respond to
each variation observed.
They will therefore be expected to take into account issues such as:
 The level of trade at the time
 The experience of the worker
 Their intention – was their non-compliance deliberate or not?
 The situation and the context that applied at the time
 Did they know about the policy/procedure?
Dealing with variations
The possible ways to address variations can include:
 Verbally mentioning the issue and advising as to how compliance
may be achieved in the future
 Providing coaching or training on-the-spot as required to bring the
staff member up to speed
 Providing a copy of the policy/procedure which was at the centre
of the variation and explaining it in detail
 A formal verbal warning about the non-compliance
 A written warning or dismissal.
Activity 24 – Identify accounting variations and

actions
You are to required to identify two examples of variations to accounting policies and
procedures that may take place, including causes, method of identifying the variance and
possible actions you could take to rectify the variance.
TYPE OF VARIATION CAUSE OF METHOD OF ACTION TO

VARIATION IDENTIFYING RESOLVE
VARIATION VARIATION

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82 Training Manual

4.1 Ensure structure and format of reports are clear
and conform to organisational and statutory
requirements
Introduction
Reports communicate information in a presentable form.
Reports can cover a wide range of topics. It is usually focus on transmitting information with
a clear purpose, to targeted audience.
Qualities of good reports

Good reports have the following qualities:
 accurate
 objective
 complete
 well-written
 clearly structured and
 attracts reader's attention and
 meet expectations of readers.
Structure of reports
Reports are structured to
 reflect the information finding process and
 the writing up of the findings
It is usually structured with the following sections:
a) summary of the contents
b) introduction or background
c) methods
d) results
e) discussion
f) conclusion or recommendations.

Training Manual 83
The scope and style of reports varies depending on factors like

a) intended audience,
b) purpose and
c) the type of information to be communicated
For example, financial reports communicate financial information, so the degree of finance
technicality in the report will depend on the reader's level of technical skills and
understanding.
The scope and style and extent of research in the report are also dependent on the size and
resources of the company. Company with financial resources might hire professionals to do
extensive research and reporting.
The intended audience of report will affect the content of the report:
a) More confidential and detailed information is present for internal use reports
b) Structure and content are usually dictated by authorised agencies for external report.
The inclusion of recommendations is a very valued section of the report as the informed
recommendations are useful for decision making.
Explaining performance related information

There are many pieces of information that may be presented including, but not limited to:
 Explaining if your business plan strategy and effort work
 Identifying the reasons why they work or not work
 Significant variations and the factors associated with
the changes
 Unusual results and determine their causes
 Patterns and trends in consumer behaviours, and the
factors that resulted in those behaviours
 Strengths and marketing opportunities
 Weaknesses and potential areas of improvement
 Impact / implications of the results and conclusions on performance.
Steps in financial report writing

Establish the objectives and audience of the report
Instructions to prepare report might be given by supervisors or managers verbally. However,
if it is a routine report, “instructions” might be in the form of policies and procedures. It is
very important to understand the purpose of the report before preparing it. The audience of
the report sets the level of technicality of the report. If the report is prepared for readers who
are not technically familiar with the topic of the report, explanations and definitions of
technical terms will have to be elaborated and included.
Write an outline
An outline is an idea web or concept map. The structure of the report can be a very good
guide to write an outline. For each section of the report, write down two or three broad
points. If there is sample of similar reports, the step to write an outline can be skipped.
Do the research

84 Training Manual
The extent of research required for your report depends on the scope of the report. If the
scope is limited to the company, research is easy as information can be obtained internally
within the company. However, if research requires a wider scope, extra effort is required to
source information from competitors or industry statistics. If competitors or industry
information is not easily available, research will be
difficult.
Start writing
Once you have the outline and information, start writing
the report. In the case of financial analysis report,
calculations are done at this stage and included in the
report. It is important to ensure the writing represents
honest presentation of the research.
Proofread report
When the report has been completed, print out a draft. Read the report over carefully,
marking any corrections for ease of corrections later. In the case of calculations, it is
important to check and ensure the numbers are extracted and calculations are done
correctly. In sections where it requires judgement, opinions and recommendations, it is
important to present them objectively.
Print report
After all the corrections have been made in the report, it is advisable to read the report all
over again before finalising it. Depending on the instructions given, determine how and who
the report should be distributed.
Financial analysis report
Financial analysis report contains analysis of financial statements. The scope and extent of
the report differs greatly depending on the
a) Intended audience
b) Resources of the company
Comprehensive financial analysis reports should elaborate on the strengths and
weaknesses of a company. Accurate and honest communication of the company’s strengths
and weaknesses enhances credibility of the report and gives confidence to the readers of
the report.
Writing a financial analysis report
The steps to writing a report and financial analysis report do not differ much. Below detailed
the steps in each section of the financial analysis report:
Executive summary
Summarise important findings from the financial analysis in the executive summary to give a
big picture of the report. As analysis will be outdated with the fast development of business,
it is very important to state the time period the analysis was carried out.
Introduction
Introduce the report with emphasis on the objectives of the report. Usually readers of such
reports should have some basic financial knowledge, it is good to define financial terms
necessary for understanding those objectives. If necessary, a glossary can be included in
the report to ease the readers in understanding technical terms used in the report.
Resources

Training Manual 85
Provide a general description of the analysed data and indicate the source of data. Some
examples of resource include balance sheets, profit and loss statements, and statistics on
operating costs, inventory and ratios. It is important to indicate the sources of the data for
references.
Methodology
Mention of method of data collection in the report helps to increase the credibility of the
analysis and report. Sometimes, comparatives are extracted from different sources like
government agencies or published websites. It is necessary to quote the sources in the
report so that readers can be established the reliability of the data presented. If the source
cannot be referenced or verified, readers might have to discount the reliability of the report
upon reading.
Detailed Analysis
Comprehensive analysis and observation about the investment returns, balance sheets,
profit and loss statement and ratios can be made in this section. It made good reporting to
comment on each of analysis in addition to the numbers, graphs, tables and ratios.
Recommendation
Based on the analysis reported, a recommendation section can
be included to add value to the reporting. It will boost
confidence and add interest to readers if the report provides
detailed action plans. With the detailed action plans included, it
gives the readers an impression that the company is proactive
and has taken serious view and actions on the analysis.
However, depending on the audience of the reports, it might be
competitively disadvantage for the company to include such
detailed action plans.
Conclusion
Summarise the report and end it with an appendix. It may provide information on the
problems resolution while performing the analysis. Sometimes, the report can include
statements projecting future performance on the basis of past years’ performance.
Factors to consider for a good financial analysis report

In order to write a high-quality financial analysis report the following factors are to be
considered:
Clearly understood
Report must be written in clearly understood language. At times, it might be necessary to
include definitions and glossary to assist understanding by the readers.
Understand the needs of the readers
There is no point writing a report that does not meet the needs and purposes of the readers.
The report has to be relevant. Internal and external users have different focus and needs. If
the report is meant to be relevant to a numerous users, make sure the report addresses all
the users’ needs.

86 Training Manual
Clear framework and analysis

There must be a clear framework and reporting structure. For routine report, it is important to
set procedures for preparer of the report to follow the standard framework. Not structuring
the information and loading them all in a section will not allow readers to follow the thought
process of the preparer of the report. It will draw away the interest of the readers and might
create confusion.
Integration of financial analysis with operations
Reports must be closely integrated with the company's operations. Biased and subjective
analysis will occur if there is no deep understanding of operation. If the report is prepared
academically, it may not be of great use and it may be misleading. Misleading reports might
cost readers if it is used for important decision making. Recommendation or action plans in
the report should be operational effective to maximise the benefits of such analysis report.
Timeliness
As business develop at a fast pace, the financial analysis report needs to be as current as
possible. There is no point to take a long time to prepare a very good report and upon
completion, the report is outdated and of no value to the users. The report should be
reported in frequency that is useful to the users of the report. It should enable decision
making to be undertaken if the timing of such decision is crucial. Cost of preparing such
report will also affect the frequency of such report preparation.
Accuracy
As the financial analysis report involves many computations, it is important that the numbers
are extracted correctly and calculations are done accurately. Hence, it is important that the
calculations are counter checked before distribution

Training Manual 87
Activity 25 - Identify importance of reporting
What is a financial analysis report?
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
What are the sections of a financial analysis report?
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
Why is there a need to provide the methodologies in the financial reports?
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
What would add value to a financial analysis report?
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
What are the factors to consider for a good financial report?
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
Identify sources of data for your financial analysis report if you are asked to write one on
hotel business.
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________

88 Training Manual
4.2 Identify and prioritise significant issues in

statements, including comparative financial
performances for review and decision making
Introduction
It is important that any key issues that arise during the financial review and reporting process
are brought to the attention of management in a timely manner.
In this section we will explore some common issues that need to be addressed.
In the next section we will look at recommendations that can be made and considerations
when making recommendations.
Addressing management concerns

The basic questions management are likely to ask you when addressing issues may relate
to both income and expenses and can include:
 How to improve performance and efficiency in one or more areas
 How to reduce time spent on, or costs incurred in, the production/delivery of a
nominated product or service.
Sometimes ‘the answer’ to the questions being asked can be found within one large
recommendation or change proposal but more frequently effective change comes about as
the result of altering a number of smaller things which all combine to produce the changes
required including savings, extra revenue or better outcomes.
As a general statement, all of the matters raised previously in these notes need to be re-
visited and changes made where your investigation shows standard procedures are not
being fully adhered to.
It is possible your lack of performance is not being caused by a poor system but simply
because of a lack of full implementation of those systems.
Given many staff who work in the industry are casual employees and thus may not know, or
care, about what they are doing, this is always a very real possibility.
Key issues to address
There are a number of key issues that should be addressed, including possible
recommendations, including but not limited to:
 Areas of low performance
 Over spending
 Inefficiency
 Theft
 Fraud
 Embezzlement
 Error.

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4.3 Prepare recommendations to ensure financial

viability of the organisation
Introduction
Where performance outcomes are below expectations or as part of an annual review, there
can be a need for you to be involved in making recommendations about how the business
can better contribute to the profitability of the organisation.
This is a legitimate thing for management to ask you to do as you are regarded as being the
one with perhaps the best working knowledge of what is happening in the area.
Management will have a belief no-one else is better placed than you to understand the
operational requirements of a department and to also know what will work in terms of staff
and customer acceptance.
Reasons for recommendations

These recommendations will usually be on the basis of:
 Unsatisfactory performance – basically, expenses being too high and/or income being
too low
 A business opportunity – such as the opportunity to
capitalise on some significant occurrence, new idea or
emerging trend
 Customer requests or feedback – demanding the
introduction, elimination or modification of some service or
facility
 Significant alteration to the premises or operational
systems – this may be caused by some accident,
emergency or an unanticipated event that has caused
major disruptions to the normal way of trading.
Critical points about making recommendations

Your contributions to this process must be:
 Made only when you are in full possession of all the relevant facts
 Able to be seen as ‘part of the solution and not part of the problem’
 Practical and able to be readily implemented
 Able to demonstrate the required changes will occur of your suggestions are followed
 Fully-costed
 Talked through with management – before its final presentation to them as a definite
proposal for change.

90 Training Manual
Possible expense-related suggestions

Remember your actual suggestions must always reflect the precise nature of the problem
being discussed.
This said, it is possible you may consider addressing the following:
 Ensuring stock is used before it reaches its use-by date
 Identifying and returning unusable stock for refund, credit or exchange
 Culling slow moving lines
 Staff re-training in proper ordering protocols
including comparative shopping techniques, and
waste-free product production
 Improving stock rotation to reduce the incidence of
wasted stock
 Re-negotiating with suppliers to obtain better purchase prices, better deals, better
terms of trade
 Closer monitoring of existing procedures to ensure on higher levels of compliance
from staff, suppliers and customers.
Possible income-related suggestions

 Extra promotion or advertising to increase interest and attract patronage
 Change of direction in terms of the target markets being sought
 Increased trading hours
 Changing the style of service provided
 Enhancing the service levels or product-services range provided
 Following up of overdue accounts to encourage their payment
 Imposing tighter credit limits on customers – restricting access to credit therefore
requiring them to pay using cash, lowering in-house credit limits, reducing terms of
credit so accounts have to be paid sooner
 Training staff – to ensure they charge for every item
or service that may be legitimately charged for, and to
improve their add-on and up-selling skills
 Reducing or eliminating discounts, packages or
special deals being offered.
Remember any change will nearly always have some sort of
reaction so it is important to consider all recommendations ‘on balance’ factoring in what the
possible negative reactions might be.
For example, restricting credit limits may mean guests elect to spend their money with a
competitor who offers more liberal credit. It is the anticipated overall result that must be kept
in mind when any final decisions are taken.
Statistics should be included to support recommendations, and projections may be used to
indicate the situation if nothing is done, compared to the situation where the
recommendation is implemented.

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Inclusions in a recommendation
The more important the cause and the possible effect, the more formal the recommendation
process is likely to be.
In general terms, the more costly the recommendation the greater the need for a more
formal style of recommendation such as providing a proposal that:
 Detail the problem that is at the root of the recommendation
 Highlights any legal compliance requirements that may be included
 Describes the negative impacts of the above situation – which may include, for example,
the need to lay off staff, the need to increase prices, the eventual result if the current
situation is allowed to continue for 12 months
 Identifies specific revised targets – which should
reflect the initial targets set by the business and
operational plans that are facing difficulty such as
income, expenditure, percentages, items sold, etc.
 Sets revised flags to warn of unacceptable
deviations to the revised targets – this will help
identify revised circumstances when actual
performance has deviated unacceptably from
revised budgeted figures
 Presents options for rectifying the position – it is always useful to present more than one
possible solution wherever possible
 Sets out implementation costs for each recommendation or option – this should include
training, ‘change over’ costs where staff, etc. are operating at less than optimum during a
transitional phase and have to be allowed time to get up to speed
 Identifies the benefits of each recommendation or proposal – which can include savings,
extra earnings, maintenance of service standards, reducing staff turnover, meeting
compliance requirements, increased safety, raised profile of the business
 Supplies a formal cost-benefit analysis
 Gives realistic timelines for introduction and implementation.
Activity 26 - Reporting on business performance

Briefly explain how you intend on a regular basis to advise your stakeholders
(internal and external) of the business’ performance.
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________

92 Training Manual
Activity 27 - Identify financial issues and provide

recommendations for improvement
You are required to identify three possible financial issues that may
arise and provide recommendations for improvement.
ISSUE CAUSE OF ISSUE RECOMMENDATIONS FOR

IMPROVEMENT

Training Manual 93
4.4 Evaluate the effectiveness of financial

management processes
Introduction
It is important that the financial systems in place are effective and accurate in recording and
managing financial performance of an organisation.
In this section we will focus on the importance of monitoring and evaluating the entire
financial system itself.
Responsibilities in managing financial management processes

Part of the responsibilities of managers and owners in maintaining financial systems is to
ensure that:
 Transactions are processed in accordance with
management policies
 Transactions are recorded in a manner that reflects
appropriate accounting policies
 Financial reports can be prepared based on
appropriately recorded transactions.
 Access to assets is appropriately authorised
 Recorded assets are compared to existing assets at regular intervals and the values
monitored.
Importance of monitoring financial management processes

To meet that responsibility, it is essential that the financial system be constantly monitored to
ensure that best practices are maintained, procedures are adapted to reflect changes and
corrective action is taken where necessary.
This includes:
 All the internal control measures used by a business to safeguard its assets and ensure
the reliability of accounting information
 The inputs to the system – the transactions summarising the activities and events that
have occurred
 Processing transactions that result in appropriate categories for classification to meet
reporting requirements
 The outputs of the system – the financial reports required to meet internal and external
requirements.
Generally, organisations will agree on particular cyclical periods to conduct formal monitoring
such as monthly, quarterly, bi-annually and annually. This is usually directed towards the
internal control system and the outputs of the financial system and depends on the size and
scope of the business. These two aspects are discussed in this section.
There are also procedures that management implement as part of day-to-day operations that
enable constant supervision and review of financial data when it is entered and processed
into the financial system.

94 Training Manual
Stakeholders involved in managing financial management

processes
Financial or accounting systems transform data from activities and events that have
occurred in an organisation into financial information that can be relied upon internally by
managers and owners to evaluate operational performance and make decisions.
Also external parties such as government departments or financial institutions or any other
parties interested in the profitability, strategy or operations of the business can rely on the
financial information the system provides.
Therefore it is important to involve all relevant stakeholders in the monitoring and evaluation
process.
Activity 28 -
Identify stakeholders
You are required to identify the stakeholders you would involve

in monitoring the financial system for a hospitality organisation.
These stakeholders may be internal or external to the company.
You are required to identify what expertise or information you seek from each stakeholder as
part of the monitoring process.
INTERNAL / EXTERNAL STAKEHOLDER EXPERTISE / INFORMATION SOUGHT

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96 Training Manual
Presentation of written work

1. Introduction
It is important for students to present carefully prepared written work. Written presentation
in industry must be professional in appearance and accurate in content. If students
develop good writing skills whilst studying, they are able to easily transfer those skills to
the workplace.
2. Style
Students should write in a style that is simple and concise. Short sentences and
paragraphs are easier to read and understand. It helps to write a plan and at least one
draft of the written work so that the final product will be well organised. The points
presented will then follow a logical sequence and be relevant. Students should frequently
refer to the question asked, to keep ‘on track’. Teachers recognise and are critical of work
that does not answer the question, or is ‘padded’ with irrelevant material. In summary,
remember to:
 Plan ahead
 Be clear and concise
 Answer the question
 Proofread the final draft.
3. Presenting Written Work

Types of written work
Students may be asked to write:
 Short and long reports
 Essays
 Records of interviews
 Questionnaires
 Business letters
 Resumes.
Format
All written work should be presented on A4 paper, single-sided with a left-hand margin. If
work is word-processed, one-and-a-half or double spacing should be used. Handwritten
work must be legible and should also be well spaced to allow for ease of reading. New
paragraphs should not be indented but should be separated by a space. Pages must be
numbered. If headings are also to be numbered, students should use a logical and
sequential system of numbering.

Training Manual 97
Cover Sheet
All written work should be submitted with a cover sheet stapled to the front that contains:
 The student’s name and student number
 The name of the class/unit
 The due date of the work
 The title of the work
 The teacher’s name
 A signed declaration that the work does not involve plagiarism.
Keeping a Copy
Students must keep a copy of the written work in case it is lost. This rarely happens but it
can be disastrous if a copy has not been kept.
Inclusive language
This means language that includes every section of the population. For instance, if a
student were to write ‘A nurse is responsible for the patients in her care at all times’ it
would be implying that all nurses are female and would be excluding male nurses.
Examples of appropriate language are shown on the right:
Mankind Humankind
Barman/maid Bar attendant
Host/hostess Host
Waiter/waitress Waiter or waiting staff

98 Training Manual
Recommended reading
Recommended reading
Alfredson, Keith & Ernst & Young; 2009 (2nd edition); Applying international financial
reporting standards; John Wiley & Sons
Andrew, William P & Schmidgall, Raymond S; 2007 (1st edition); Financial management for
the hospitality industry; Pearson Prentice Hall
Chatfield, Robert E & Dalbor, Michael C; 2009 (1st edition); Hospitality financial
management; Pearson Prentice Hall
Cornett, Marcia Millon & Adair, Troy A; 2015 (3rd edition); Finance: applications & theory;
New York McGraw-Hill Education
DeFranco, Agnes L & Lattin, Thomas W; 2007 (1st edition); Hospitality financial
management; John Wiley & Sons
Futura Training 2008; (1st edition); Manager's guide to hospitality financial management;
Futura Training
Guilding, Chris; 2013 (1st edition); Accounting essentials for hospitality managers; Abingdon,
Oxon Routledge
Jagels, Martin & Ralston, Catherine E & Ebooks Corporation; 2007 (9th edition); Hospitality
management accounting; John Wiley & Sons
Jiambalvo, James; 2013 (5th edition); Managerial accounting; Hoboken
Manage Finances within a Budget, William Angliss Institute of TAFE – 2003
Prepare and Monitor Budgets, William Angliss Institute of TAFE – 2003
Price, John Ellis & Haddock, M. David; 2015 (14th edition); College accounting; New York
McGraw-Hill Education
Rayman, R. A; 2006 (1st edition); Accounting standards: true or false? Routledge
Waybright, Jeffrey & Kemp, Robert S; 2015 (3rd edition); Financial accounting; Boston
Pearson

Training Manual 99
Recommended reading

100 Training Manual
Trainee evaluation sheet

The following statements are about the competency you have just completed.
Don’t Do Not Does

Please tick the appropriate box Agree Know Agree Not
Apply
There was too much in this competency to

cover without rushing.
Most of the competency seemed relevant to me.
The competency was at the right level for me.
I got enough help from my trainer.
The amount of activities was sufficient.
The competency allowed me to use my own

initiative.
My training was well-organised.
My trainer had time to answer my questions.
I understood how I was going to be assessed.
I was given enough time to practice.
My trainer feedback was useful.
Enough equipment was available and it worked

well.
The activities were too hard for me.

Training Manual 101
The best things about this unit were:
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
The worst things about this unit were:
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
The things you should change in this unit are:
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________

102 Training Manual
Trainee self-assessment checklist

As an indicator to your Trainer/Assessor of your readiness for assessment in this unit
please complete the following and hand to your Trainer/Assessor.
Yes No*
1.1 Review and analyse previous financial data to establish areas
which have generated a profit or loss.
1.2 Undertake research to review reasons for previous profit and

loss.
1.3 Review business plan to establish critical dates and initiatives

that will require or generate resources in next financial cycle.
1.4 Analyse cash flow trends.
1.5 Review statutory requirements for compliance and liabilities for

tax.
1.6 Review existing software and its suitability for financial

management.

2.1 Use previous financial data to determine allocations for
resources.
2.2 Make informed estimates of new items for inclusion in budget.
2.3 Prepare budgets in accordance with organisational requirements

and statutory requirements.

Training Manual 103
Yes No*
3.1 Circulate budgets and ensure managers and supervisors are
clear about budgets, reporting requirements and financial
delegations.
3.2 Manage risks by checking there are no opportunities for

misappropriation of funds and that systems are in place to
properly record all financial transactions.
3.3 Review profit and loss statements, cash flows and ageing
summaries.
3.4 Revise budgets, as required, to deal with contingencies.
3.5 Maintain audit trails to ensure accurate tracking and to identify

discrepancies between agreed and actual allocations.
3.6 Ensure compliance with due diligence.

4.1 Ensure structure and format of reports are clear and conform to
organisational and statutory requirements.
4.2 Identify and prioritise significant issues in statements, including

comparative financial performances for review and decision
making.
4.3 Prepare recommendations to ensure financial viability of the

organisation.
4.4 Evaluate the effectiveness of financial management processes.

104 Training Manual
Statement by Trainee:
I believe I am ready to be assessed on the following as indicated above:
Signed: _____________________________ Date: ____________
Note:
For all boxes where a No* is ticked, please provide details of the extra steps or work you
need to do to become ready for assessment.

Training Manual 105
SITXHRM001A Coach others in job skills

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BSBFIM601 Manage finances

© William Angliss Institute 2017

© William Angliss Institute 2017

William Angliss Institute

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 Hospitality management / operations  Bakery

 Ecohospitality  Confectionery manufacturing

 Meeting and event management  Food science and technology

 Resort management  Business and retail management

 Professional cookery  Marketing and human resources

In addition to over 1000 international students enrolled at William Angliss Institute in

Phone: (03) 9606 2111

© William Angliss Institute 2017

This page is left intentionally blank for double-sided printing.

© William Angliss Institute 2017

Element 1: Plan for financial management

Element 2: Establish budgets and allocate funds

Element 3: Implement budgets

© William Angliss Institute 2017

Element 4: Report on finances

© William Angliss Institute 2017

Activities Written Oral

1.2 Undertake research to review reasons for 4 2 2

1.3 Review business plan to establish critical 5 3 3

1.4 Analyse cash flow trends. 6 4 4

1.5 Review statutory requirements for 7,8 5 5

1.6 Review existing software and its 9,10,11 6 6

Element 2: Establish budgets and allocate funds

2.2 Make informed estimates of new items 13 8 8

2.3 Prepare budgets in accordance with 13 9 9

© William Angliss Institute 2017

Activities Written Oral

3.2 Manage risks by checking there are no 15,16,17 11 11

3.3 Review profit and loss statements, cash 18 12 12

3.4 Revise budgets, as required, to deal with 19 13 13

3.5 Maintain audit trails to ensure accurate 20,21,22 14 14

3.6 Ensure compliance with due diligence. 23,24 15 15

Element 4: Report on finances

4.2 Identify and prioritise significant issues in 26 18 17

4.3 Prepare recommendations to ensure 26,27 19 18

4.4 Evaluate the effectiveness of financial 28 20 19

© William Angliss Institute 2017

Assets = Liabilities + Equity

Cash flow Movement of money into or out of a company

Cost centre Segment of a business that incurs expenses only

Creditor One to whom a debt is owed

Debtor One who owes a debt

A portion of an asset’s cost assigned to expense for the

Dividends Profits distributed to shareholders of a company

The difference between assets and liabilities and

Financing activities Activities of acquiring and repayment of capital or debts

© William Angliss Institute 2017

Analysis of financial statements. Also known as

Financial ratios Ratios used to analyse financial numbers

Financial report / statement Formal record and summary of financial transactions

Assets with an estimated useful life of more than one