1. business and industrial

Volume 27, Number 5
October/November 2012
Why It's Difficult to
Define Rooms Revenue
10 Tips for Successful
Presentations
Running private clubs
like a business
Including Information
Protections in Contracts
The Newly Expanded
USFRC
Responsibly Managing
Employee Retirement Plans
Plus: Key Performance Indicators; Interview
with the USFRC 7th Edition committee chairs;
2012 HFTP Paragon Award Winner: Howard Field
T HE J O U R NA L O F H O S P ITA LITY FIN A NCIAL AND TECHNOL OGY PROF ESSIONAL S
®
C O N T E N TS
The journal of
hospitality FINANCIAL AND
TECHNOLOGY PROFESSIONALS
Volume 27, Number 5
OCTOBER/NOVEMBER • 2012
HFTP® and HITEC® are registered service
marks of Hospitality Financial and Technology Professionals. GUESTROOM 20X is a
service mark of Hospitality Financial and
Technology Professionals.
Submissions and Inquiries
Individuals interested in submitting an article
for publication should contact the editor.
The Bottomline is a peer review journal.
All materials submitted for publication are
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board or recognized experts in the field.
The Bottomline (ISSN 0279-1889), the journal of Hospitality Financial and Technology
Professionals, Inc., is published bimonthly
with two special editions by HFTP®. Copyright © by Hospitality Financial and Technology Professionals. All rights are reserved.
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F eatures
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Starting From the Top Line
Rooms Revenue: Why is it almost impossible to define Total Sales in the hotel industry?
By Howard Field
It’s the 21st Century: Do You Know Where Your Data Are?
With today's contracts and agreements, it is inherent to address information collection and
intellectual property issues By Ruth Walters, JD
Now Presenting …
Ten tips for a successful presentation
By Agnes DeFranco, Ed.D., CHAE and Steve D’Erasmo, CHTP
Private Clubs: To Be Or Not To Be — A Business?
What it means to run a private club like a business
By Philip Newman, CPA and Robert Salmore, CPA
The Newly Expanded USFRC
The soon-to-be released guide includes statements for CIRAs, schedule changes, and new
and updated appendices By Ray Schmidgall, Ph.D., CPA, CHAE
Behind the Revision
HFTP past presidents Leonard Bartello and Wendy Zurstadt, serving as chairs on the revision committee, talk about the process, and debates, that brought the USFRC 7th Edition
Who Me? A Fiduciary?
Responsibly managing employee retirement plans
By Ned McCrory, CPA and George L. Zoglio, CPA
D epartments
5
6
8
38
Between the Lines
A Look Back and a Look Ahead — This year has brought numerous accomplishments
for HFTP, and puts it in a position for more to come
Q&A From The HFTP Research Institute
Key Performance Indicators — Measuring progress toward financial goals
HFTP News & Notes
2012 HFTP Paragon Award Recipient: Howard Field
The Bottomline Resource Guide
The Bottomline
3
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2011–2012 HFTP OFFICERS
President
Lisa Funk, CHAE
The Dow Hotel Company
Seattle, Wash.
Vice President
Raman P. Rama, CHA, CHTP, CHAE
JHM Hotels
Greenville, SC
Treasurer
Jerry Trieber, CPA, CHAE, CFE, CFF
Crestline Hotels and Resorts
Fairfax, Va.
Secretary
Daniel Conti Jr., CHAE, CAM
The Ritz Carlton Golf Club & Spa, Jupiter
Jupiter, Fla.
Immediate Past President
Thomas G. Smith, CHAE
Westmoor Country Club
Brookfield, Wis.
2011–2012 EDITORIAL ADVISORY COUNCIL
Chair
Robert Salmore, CHAE, CPA
McGladrey & Pullen LLP
Council:
Stacy Antmann, CHAE
The Club At Boca Pointe
Bryce Bonet
Cornell University
John Burns, CHA
Hospitality Technology Consulting
Manuel Carrillo, Jr.
La Rinconada Country Club
Ab Echenberg, CHAE, CHTP
AME Consulting
Sal Galioto, CHAE
Hyatt Hotels Corporation
Julie Rueckert Hames, CHAE
Vesta Hospitality
Heung Michael Kwag, Ph. D., CHA
Boston University School of Hosp Admin
Tony Llanos
The Chancellor Hotel on Union Square
Charles Monroe, MBA, MHCIMA, CHAE
University of South Florida
Arlene Ramirez, MBA, CHE, CHAE
The Clubs At Carlton Woods
Franklin John P. Sikich, CPA, CHAE
Franklin John Patrick Sikich, CPA
Jerry Trieber, CPA, CHAE, CFE, CFF
Crestline Hotels & Resorts, Inc
Tanya Venegas, MBA, MHM
University of Houston
®
4
October/November 2012
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❘❙ Between the Lines ❙❚
A Letter from the HFTP President
A Look Back and
a Look Ahead
This year has brought numerous accomplishments
for HFTP, and puts it in a position for more to come
Lisa Funk, CHAE
I
don’t know about you, but at the end of a year, I always
like to take a moment to look back and reflect on my recent experiences. I am finding as I come to the end of my
year as your global president there is so much that HFTP
has accomplished and we should all feel very proud of the
progress we have made as a global leader in hospitality
finance and technology education and resources.
In this past year we celebrated two
major milestones — the 40th Anniversary of HITEC, the largest hospitality
technology conference in the world
and HFTP’s 60th anniversary. These
are milestones that few associations
achieve; and, rather than slowing
down, we are actually getting stronger
with age.
Our continued growth is no surprise
to me as more and more individuals
are coming to HFTP to meet their
educational needs. I had the opportunity to travel the globe this year
— Hong Kong, London, Switzerland
and Australia — to discuss our new
initiatives and to listen to professionals in other parts of the world about
what they want and need from HFTP.
From the most recent press clips
published in a variety of news outlets,
it is clear HFTP is needed around the
world. We have also heard from many
associations that want to work with
us to accomplish common goals. It is
through these partnerships that we will
be able to offer additional benefits to
our membership.
One of my favorite roles this past
year was to visit our chapters. There
is nothing I love more than meeting
with our members and discussing their
needs. We are a family and through
my travels, that was reiterated over
and over again. Although the dynamics differ from chapter to chapter,
overall their sense of hospitality is
vibrant. This is just one more reason
why HFTP is so successful.
I am so grateful to our Global
Board of Directors for listening to our
membership and moving forward with
many initiatives that are important
to them — from global expansion to
developing new resources, such as the
Global Hospitality Accounting System
Users Guide. It is clear that the directors on the Board have put forth many
hours to achieve the goals that were
outlined for them this year. They have
also set a firm foundation for those
who will come after.
We are blessed to have some of the
very best in our industry sitting on our
board of directors and I would like to
thank those whose terms are coming
to a conclusion this year: John Burns,
CHA; Scott Campbell and Calvester
Legister, CHAE. It is because of their
dedication, and of our other directors,
that we are able to exceed our expectations each and every year.
I have had the honor of serving
on the global board with Tom Smith,
CHAE over the last seven years. His
contribution to our association has
been immense and this year he will
complete his service on the Executive
Committee. I can’t thank him enough
for his mentorship and his friendship
throughout the years. His enthusiasm
and love of HFTP are infectious.
When I was installed as your
president last year I said, “I serve at
the pleasure of our members,” and I
want to thank all of you for allowing
me that opportunity. HFTP has had an
amazing year and I have had the honor
of seeing it from the front row. I look
forward to our continued success!
Lisa Funk, CHAE is the corporate controller for The Dow Hotel Company in Seattle, Wash.
The Bottomline
5
❘❙ Q&A from the
HFTP Research Institute ❙❚
Key
Performance
indicators
Measuring progress
toward financial goals
am looking for an article or research
Q Idocument
that gives a list of key performance indicators for food and beverage operations. Can you steer me in the right direction?
A
Key performance indicators (KPI), which can also be
referred to as key success indicators (KSI), help an
organization progress towards its overall goals. “Once an
organization has analyzed its mission, identified all its
stakeholders and defined its goals, it needs a way to
measure progress toward those goals” (Reh, 2012). When
established, KPIs help organizations and their employees
focus on the important aspects of the business, guiding
them towards success.
Larger organizations may have multiple levels of key
performance indicators in place. For example, at the corporate level there will be overall KPIs for the entire organization; but then each division, region, brand, department, etc.
should also have its own set of key performance indicators.
The following list provides characteristics of organizational
key performance indicators.
Staff and Employment
KPI Characteristics
Kitchen Management
•
•
•
•
•
•
Quantifiable measurements
Must be agreed upon before put into place
Reflect the critical success factors of the organization
Must reflect the organization’s goals
Long-term considerations
Limit the number of KPIs to maintain focus
Departmental Examples
The following are basic examples of KPIs for various departments. These provide a jumping off point for managers
to define measurements for their organizations.
6
October/November 2012
• Wage Cost Percentage: Wage costs as a percentage of
sales
• Total Labor Cost Percentage: Include items such as
salaries, wages, bonuses, taxes and benefits
• Total Labor Hours: How many hours worked per
department
• Sick Days Taken: Sometimes a measure of morale
• Staff Turnover: Divide the number of people employed
during a certain time period by the total number of
positions
• Average Length of Employment: Divide the total number
of weeks worked by the total number of staff
• Average Hourly Pay: Divide total payroll by the number
of hours worked by all staff
• Food Cost Percentage: Cost of food sales divided by
food revenue
• Food Costs per Cover: Food costs divided by total covers
• Kitchen Labor Percentage: Compare kitchen labor
against food sales
• Kitchen Labor Hours: Compare hours worked against
sales to measure productivity
• Stock Value: Food stock should be less than a week's use
• Kitchen Linen Costs: Cost of uniforms, aprons, teatowels, etc.
❘❙ Q&A from the
HFTP Research Institute ❙❚
Front of House and Restaurant Management
• Total Sales per Cover: Total sales divided by the number
of covers
• Number of Customers: Measure of popularity
• Table Turnover: Factors impacting table turnover include cooking time, seating, service and clearing
• Linen Costs: Cost of uniforms, aprons, table clothes,
napkins, etc.
• Front of House Labor Percentage: Hours worked divided by sales
• FOH Labor Hours: Hours worked compared to sales
• Revenue per Available Seat Hour (RevPASH): Number
of 'seat hours' divided by total revenue
Bar and Cellar Management
• Sales per Head: Indicates how beverage/wine specials
appeal to customers and how well staff is selling
• Gross Profit on Sales: Difference between what is sold
and how much it costs
• Stock Value: How much money is tied up in the cellar
• Stock Turnover: How fast is the cellar stock selling
• Carrying Cost of Stock: Take the current interest rate for
borrowing money, apply it to the stock value, and divide
by 52 to get a weekly figure
• Sales / Stocktake Discrepancies: Measure the difference
between what is used (from comparing two stocktakes)
and what has been sold
Sales and Marketing
• Number of Customers: Measure of popularity
• Sales per Head: Should be calculated for all areas
• Response Rates for Marketing Campaigns: How many
people responded and what effect did it have on profit
• Bookings: Current week, current month, and at peak
times (holidays)
• Sales Inquiry Conversion Rate: Number of inquiries that
turn into actual sales
Management of Finance and Administration
• Cash Position at Bank: How much cash is available after
reconciliation
• Total Accounts Due: How much money is owed
• Return on Investment: Percentage return on the amount
that has been invested
• Sales and Costs: Actuals versus budgeted figures
• Computer and Technology Efficiency: Measurements
such as computer system down-time, accuracy of the
POS system, etc.
These are just a few examples. If you need further
information or examples of KPIs please contact the HFTP
Research Institute. ■
KPIs: The Bad and Good
The following were provided in the article “Key
Performance Indicators (KPI)” written by F. John Reh.
Bad Example:
✗ Title of KPI: Increase Sales
✗ Defined: Change in Sales volume from month to month
✗ Measured: Total of Sales By Region for all region
✗ Target: Increase each month
Why is this a bad example of a KPI? This example is
vague and does not provide the detailed information
needed to execute the measurement properly.
The following questions need to be answered and
incorporated to make this KPI more definitive.
 Does this measure increases in sales volume by
dollars or units? If by dollars, does it measure list
price or sales price?
 Are returns considered and if so do they appear as an
adjustment to the KPI for the month of the sale or are
they counted in the month the return happens?
 How do we make sure each sales office's volume
numbers are counted in one region, i.e. that none are
skipped or double counted?
 How much, by percentage or dollars or units, do we
want to increase sales volumes each month?(Note:
Some of these questions may be answered by
standard company procedures.)
Good Example:
✔ Title of KPI: Employee Turnover
✔ Defined: The total of the number of employees who
resign for whatever reason, plus the number of
employees terminated for performance reasons,
and that total divided by the number of employees
at the beginning of the year. Employees lost due to
Reductions in Force (RIF) will not be included in this
calculation.
✔ Measured: The HRIS contains records of each
employee. The separation section lists reason and
date of separation for each employee. Monthly, or
when requested by the SVP, the HRIS group will
query the database and provide Department Heads
with Turnover Reports. HRIS will post graphs of each
report on the Intranet.
✔ Target: Reduce Employee Turnover by 5% per year.
Resources:
• Profitable Hospitality.com. (2012). Key Performance
Indicators for Restaurants, Cafes, Catering, Clubs &
Hotels. Retrieved September 17, 2012 from www.profitablehospitality.com.
• Reh, F. John. (2012). Key Performance Indicators (KPI):
How an Organization Defines and Measures Progress
Toward Its Goals. Retrieved September 17, 2012 from
management.about.com.
The Bottomline
7
❘❙ HFTP News & Notes ❙❚
2012 HFTP Paragon Award
Howard Field
The hospitality sector specialist advisor was selected for
his expertise in and advocacy of the Uniform System of
Accounts for the Lodging Industry (USALI), as well as
other standardized accounting systems. Established in
1999, the prestigious award recognizes individuals who
have made a significant and lasting contribution to both
HFTP and the hospitality industry.
Based close to the city of St Albans, Hertfordshire in the
United Kingdom, Howard is the author of guides to the USALI 9th and 10th editions, as well as other finance-focused
reference books for the industry. His best known work is A
Practical Guide to the Uniform System of Accounts for the
Hospitality Industry. He is currently serving as lead consultant for the Global Hospitality Accounting System Users
Guide, which is being produced by HFTP.
"Howard Field has been in the forefront of setting and
developing accounting standards for the hospitality industry
not only in the U.K., but also internationally," says Fritz
Ternofsky. "His personal commitment, knowledge and integrity is asked for as far wide as Hong Kong and the U.S."
He has worked within the industry for over 45 years,
starting as a controller for the Royal Garden Hotel in
London. He advanced in his career, serving in top financial
positions for multiple hospitality companies, including
Commonwealth Holiday Inns of Canada and The Savoy
Group. In these positions, he experienced the challenge to
finding good finance professionals to hire. In response he
formed FM Recruitment, specialists in financial personnel
for the hospitality industry.
"I was probably one of his first placements, and benefitted at that time from his career advice first-hand," said
Jillian Malone, managing director for FM Recruitment.
"Howard epitomizes the best of the breed when it comes
to services to our sector — always thinking how he can
best be of service to others and mentoring the leaders of
tomorrow."
Howard is a founding member of the British Association of Hospitality Accountants (BAHA) — now HOSPA,
a professional association based in the U.K. for hospitality professionals in finance, revenue management and IT.
He continues to work with the association in a leadership
capacity and was instrumental in forming a formal relationship between it and HFTP, by which the organizations
8
October/November 2012
work together on industry resources and education. Along
the same lines, he has also helped HFTP forge a relationship with the Hotel Controllers & Accountants Association
(HCAA) of Hong Kong.
"One of Howard's endearing trademarks is his constant
willingness to help others, be it colleagues, organizations or students,"says Derek Wood, managing director of
Derek Wood Associates Ltd. and a director on the HFTP
Board. "He will always give up his time at a moment's
notice to give advice or the benefit of his vast expertise. I
can think of no one better qualified to receive this year's
Paragon Award." ■
HFTP Paragon Award Recipients
1999: Alice Banks, CHAE • Henry "Buddy" Weeks, CHAE
2000: Frank Santos, CHAE, CHA
2001: Katherine Cavanagh, CHAE
2002: Raymond Schmidgall, PH.D., CPA, CHAE
Frank Wolfe, CAE
2003: Len Bartello, CPA, CHAE, CHTP
2004: John Cahill, CHA, CHTP
2005: Wendy Zurstadt, CPA, CHAE, CHTP
2006: Richard Braa, CHAE
2007: Robert Patasnick, CPA
2008: George Glazer
2009: Stephen LeBruto, CPA, CHAE, Ed.D.
Agnes DeFranco, Ed.D., CHAE
2010: Stephen Doherty, CHAE, CHTP
2011: Frank Agnello, Jr., CMA, CHAE
❘❙ Industry Standards ❙❚
Starting from the Top Line
Why is it almost impossible to define Total Sales in the hotel industry?
By Howard Field
W
hen I took on the role of lead project
consultant for the HFTP Global Hotel
Accounting Users Guide project, I
thought this would give me the chance to address some of the many definition issues which
users of hotel management accounts come
across. Wouldn’t it be useful for there to be
some standard wording which could be understood by operators, owners and their advisors
— and for teachers and students?
No harm in having this as an idealistic
objective, so I set out to start with the top line,
with a definition of Total Sales — or Total
Revenue as it is called in the Uniform System
of Accounts for the Lodging Industry (USALI).
And more specifically in this article, revenue
under the Rooms category.
What follows shows just how challenging
the task of arriving at one definition, and why it
will continue to be. I have tried to explain why,
as well as to share some thoughts about how
current revenue management, accounting and
statistical practices often produce a high degree
of blindness, and how they could lead to even
better results.
Not everyone uses the term Sales or Revenue. Alternatives are Turnover and Income.
Sometimes the term Gross is used instead
of Total. Revenue or Income are often more
inclusive terms than Sales (see Wikepedia on
‘Revenue’ for a useful explanation about usage
of these terms, and the comparison between the
United Kingdom and the United States).
The fact that the USALI exists, and is so
widely used within the industry should make
the task easier. Not that easy, as I will explain
by starting with how the USALI defines Total
Revenue, and I will continue to use the word
Revenue for this article.
Howard Field is a hospitality sector specialist. His concentration is on standardized accounting systems, and has authored
guides to the USALI 9th and 10th editions, as well as other
financial guides for the industry. Howard is currently the lead
consultant for the Global Hospitality Accounting System Users
Guide, which is being produced by HFTP. He is also the recipient of the 2012 HFTP Paragon Award.
10
October/November 2012
A Look at Rooms Revenue
❘❙ Industry Standards ❙❚
Defining Total Revenue, Per the USALI
The USALI does not give a full definition of Total Revenue
— which is why it is difficult to draft the relevant clause in
leases, management or franchise agreements. The USALI’s
current edition is the 10th edition, which was published in
2006. This edition requires that its categories and allocations
are followed precisely in order for hotel accounts to be stated
as being in conformity with the Uniform System. So how it
arrives at Total Revenue in this edition is where I will focus.
For Total Revenue, the most important factor is to distinguish between revenue and expenses, then to address the
allocations between the revenue categories. To accomplish
the latter means understanding the elements from which
this is derived, and how allocations of revenue are made.
A technicality which can have an impact on revenue allocations relates to taxation. Rates of value added, sales and
other taxes may vary according to the revenue type. Taxation definitions for these purposes could materially affect a
hotel’s ability to follow the USALI standards.
The USALI breaks down a hotel’s business into four
main categories or departments. These are termed:
• Rooms
• Other Operated Departments
• Food and Beverage
• Rentals and Other Income
These are treated as the principal sources of the hotel’s
revenues, with detailed directions on what comprises the
revenues in each category. Adding together the Total Revenue lines in these categories produces the hotel’s overall
Total Revenue.
A shortcut to a definition where the Uniform System
applies might be ‘Total Revenue comprises revenues from
Rooms, Food & Beverage (food and beverage encompasses
meals and drinks and the hotel catering business), Other
Operated Departments, Rentals and Other Income, as stated
by the USALI.’
A Closer Look at Rooms Revenue
In this article, I will specifically examine and comment
on the Rooms revenue category. Sometimes hotels use
terms for Rooms such as Apartments, Accommodation or
Bedrooms. Rooms is described in the USALI as the hotel’s
primary source of revenue. Some hotel developments
incorporate so many other facilities, that Rooms may not
contribute the highest percentage of Total Revenue. (Note
that it is not the physical sale of a room which is being
referred to here, it is the revenue from the rental of the room
as accommodation.)
The Bottomline
11
❘❙ Industry Standards ❙❚
Issues with Rooms Revenue Package (or Inclusive) Revenues
In this situation, a formula related to ‘market value’ is mandated by the USALI.
This is used to allocate the balance of the revenue for the services directly
provided by the hotel, after first deducting any amount payable to third party
vendors (for items in the package provided by them). Practices in hotels often
vary from the USALI formula. The result is that revenue allocations across the
categories will not have been made in the same way by all hotels.
There is then the problem of whether services and use of facilities provided
by the hotel and incorporated in the rooms or package price should be
accounted for as revenue, or if they represent a recovery of a cost. If
revenue, then the question is should this be in the Rooms category, or one
of the other revenue categories. If a cost recovery, then how should it be
reflected in the other revenue or cost centers.
The USALI takes some six pages
to describe how the Total Rooms Revenue is derived and sub-categorized.
The basic factors covered include:
• Defining individual and small
groups as transient rooms revenue;
• Defining groups of 10 or more
rooms as group rooms revenue;
• Treating independently contracted
blocks of rooms let for periods
over 30 days as contract rooms
revenue; and
• Adding as other Rooms revenue,
such items as:
 Revenue from guaranteed payments for rooms reservations
where the guest did not arrive
or cancel within the required
period,
 Day use revenue from guest
rooms rented for purposes other
than overnight accommodation
or where catering is not provided (if catering is provided, then
the revenue is recorded in Food
& Beverage), and
 Fees for early and late departures, and charges for cribs and
rollaway beds.
Following this so far? This is
where it starts to become much more
complicated.
Issues With Rooms Revenue
There are several issues which arise
with Rooms revenue. Those highlighted by the USALI include:
12
October/November 2012
1. Package (or Inclusive) Revenues:
In this situation, a formula related
to ‘market value’ is mandated by the
USALI. This is used to allocate the
balance of the revenue for the services
directly provided by the hotel, after
first deducting any amount payable to
third party vendors (for items in the
package provided by them). Practices
in hotels often vary from the USALI
formula. The result is that revenue allocations across the categories will not
have been made in the same way by
all hotels, even if they state that their
management accounts and statistics
comply with the USALI.
There is then the problem of
whether services and use of facilities
provided by the hotel and incorporated in the rooms or package price
should be accounted for as revenue, or
if they represent a recovery of a cost.
If revenue, then the question is should
this be in the Rooms category, or one
of the other revenue categories? If a
cost recovery, then how do you reflect
this in the other revenue or cost centers? Such decisions will affect where
revenue and expense amounts are
shown in the accounts and the related
departmental operating statistics.
A current hot topic relates to Internet access. There is not yet an industry
standard for whether hotel guests are
charged for Internet access or if it
is an overhead expense. Prospective
guests who check whether Internet access is subject to a charge before mak-
ing their reservation may not select
the hotel, and hotels that do charge
for this access may not receive return
business from guests who object.
However, those hotels that treat the
Internet charges to their guests as revenue, will often argue that they make a
good recovery or return on investment
from charging for this service.
This situation will have to change.
Data indicates that the cost of providing the average level of Internet access
required by guests who actually use
it is less than US$2 per access. The
costs of providing other utilities
consumed by guests, such as water,
electricity and climate control, where
no specific charges apply, are materially greater than those for a guest’s
Internet access in a full service hotel.
This suggests that the idea of charging
for Internet use should be seriously
reconsidered.
A case is often made that Internet
charges should apply where use is
greater than a standard level. Technical developments are likely to continue to reduce the cost of providing
Internet access, and, guests will expect
reliable, secure and adequate access to
be provided. Is this provision any different from allowing unlimited access
to TV, use of heating or air-conditioning, or taking hot showers?
Where there is a specific charge
for Internet access, under the USALI
this is allocated to Revenue in the
Telecommunications sub-category of
Other Operated Departments.
Note also the USALI’s approach
is that where an incidental service
is provided, such as part of a brand
standard, no revenue allocation is
made. This means that there will be
variances in the revenue and statistical
recording between hotels that make a
charge and those that have rates which
offer differential services between
classes of guest or room. Common examples of these are where breakfast is
inclusive in the standard room charge,
or where a facility such as access to
an executive lounge with free food
and beverage items is inclusive within
certain guest or room categories.
❘❙ Industry Standards ❙❚
Issues with Rooms Revenue Wholesaler Revenues
The ways in which hotel rooms and other services are being marketed,
using technology and various forms of intermediary, are blurring the lines
between wholesale and retail. This trend will continue, and in the meantime
the subject causes confusion and impacts how hotel revenues and the
related costs are managed. Added to which are issues such as sales, value
added and tourist taxes, and consumer price protection legislation.
As an accountant, I am coming to the view that what should be shown
in hotel operating accounts is the revenue based on charges before
accounting for discounts or commissions, with the values of wholesale
discounts and retail commissions being shown separately as deductions to
arrive at net revenue. If this direction were to be followed, achieved room
rates should be based on the net revenue, which in the end is the most
important measure.
2. Wholesaler Revenues:
The USALI identifies as wholesalers
intermediaries who contract for allocations of rooms that they then resell to
travel agents or to the open market,
often through the Internet as a dot-com
wholesaler or an Online Travel Agent
(OTA). These rooms are generally
blocks that have been significantly discounted, by typically 25–30 percent.
Here, the transaction is treated as one
between the hotel and the wholesaler.
The net rate received by the hotel from
the wholesaler, instead of the rate at
which the wholesaler resells the room,
governs the revenue to be included in
Rooms for these sales.
Where rooms are sold at rates
controlled by the hotel through retail
travel agents, or intermediaries acting
in a role which introduces customers
(such as for residential conventions
or functions) to the hotel, the transaction is treated as between the guest or
customer and the hotel. The rate paid
by the guest or customer is based on
the agreed retail rate for the room, and
this is the revenue amount included
in Rooms. Under the USALI a corresponding liability is recorded for
commission, payable to the agent or
intermediary that is allocated to commission expense in Rooms.
In the case of packages which
include the room and other services,
the agent or intermediary may receive
a commission on the whole package.
14
October/November 2012
The USALI indicates that commission is generally treated as a Rooms
expense, regardless of whether other
services are provided.
The ways in which hotel rooms
and other services are being marketed,
using technology and various forms of
intermediary, are blurring the lines between wholesale and retail. This trend
will continue, and in the meantime the
subject causes confusion and impacts
how hotel revenues and the related
costs are managed. Added to which
are issues such as sales, value added
and tourist taxes, and consumer price
protection legislation.
As an accountant, I am coming to
the view that what should be shown in
hotel operating accounts is the revenue
based on charges before accounting
for discounts or commissions, with
the values of wholesale discounts and
retail commissions being shown separately as deductions to arrive at net
revenue. If this direction were to be
followed, achieved room rates should
be based on the net revenue, which in
the end is the most important measure.
For franchise, management and
related agreements where fees and
other charges are based on revenues,
the case might also be made that
these costs should be deducted from
revenue, especially when they are
incurred through being attached to
a brand attached to the franchise or
management company.
3. Resort Fees and Surcharges:
These are described in the USALI as
fees and surcharges payable in addition to the room rate to allow the guest
to use facilities such as fitness, spa,
pool, transfers from airports, sport
and recreation facilities, and for local
phone calls or Internet access.
The USALI states that such charges
are recorded as revenue if the services
are normally supplied by departments
within the hotel (for example, if it has
its own spa), allocated based on the relative value of the components normally
supplied by the relevant departments. If
it is not possible to allocate the services
to a revenue producing department, the
amount is recorded as Other Rooms
Revenue in Rooms.
There must be a history about when
resort fees and surcharges were first
introduced by hotels. For some they
were added when the market made
it difficult to raise room rates, others
used them as a way of generating revenue for facilities that were costly to
provide. And for some, when market
demand was at a level where valuable
revenue could be raised from guests
making use of the facilities. These
charges are not universally applied,
and recent market comment suggests
that there are growing objections to
their level and justification.
As with other add-on charges or
inclusive services, variances occur
in practice for brand, market or other
factors. This means that accounting for
them as revenue or cost recoveries can
cause confusion in how the Resort Fee
and Surcharge revenue is allocated.
This is especially true when compared
with how the USALI treats Package
revenue elements, where interpretations of ‘market value’ and ‘relative
value of components normally supplied’ have to be considered.
4. Mixed-ownership Lodging Facilities:
The USALI describes these as relating
to hotels where condominiums have
been developed, creating ‘mixedownership’ entities. Examples are
timeshares, fractional or whole ownership. Whether they are operated as a
❘❙ Industry Standards ❙❚
hotel business, and revenues should be
treated as Rooms, will depend on the
facts and circumstances in each case.
The USALI gives some guidance
on this subject, but due to its complexity, and other legal factors which differ
internationally, will not be further
dealt with here.
5. Service Charge:
One common, and major, issue for
international hotels is the treatment of
service charges. The USALI is based
largely on U.S. standards, where
service charge does not generally
apply on Rooms. The subject is only
addressed in Food and Beverage,
where it is stated that service charges
automatically added to any food or
beverage sale must be recorded as
Other Revenue in Food & Beverage.
It follows that, if a service charge is
automatically added to a room charge,
this should logically be accounted
for as Other Revenue in Rooms. The
Total Revenue for Rooms and all the
relevant statistics would include this
revenue. This would be a deviation
from the current edition of the USALI,
and would need to be specifically provided for in a Total Revenue definition
to avoid disputes.
Service charge in the hospitality industry generally is a complex
subject, that needs to be discussed
separately, and will be the subject of
another article.
6. Other Material Issues:
As has already been illustrated,
department allocations and whether
an item is revenue or a cost recovery
is most important where specified
revenues are linked to commission,
franchise or management fees, rents
or other obligations. Regardless of
whether the USALI applies, I have to
ask whether focusing on the room unit
and revenue per available room are
the most meaningful ways to measure
yield and performance.
With so many sources of hotel business, and the range of rate
combinations offered to meet market
requirements, a standard tariff rate
Issues with Rooms Revenue Resort Fees and Surcharges
The USALI states that such charges are recorded as revenue if the services
are normally supplied by departments within the hotel, allocated based
on the relative value of the components normally supplied by the relevant
departments. But, these charges are not universally applied.
As with other add-on charges or inclusive services, variances occur in
practice for brand, market or other factors. This means that accounting
for them as revenue or cost recoveries can cause confusion in how the
Resort Fee and Surcharge revenue is allocated. This is especially true when
compared with how the USALI treats Package revenue elements, where
interpretations of ‘market value’ and ‘relative value of components normally
supplied’ have to be considered.
for a hotel room is almost irrelevant.
Hotel room rates are freely quoted in
the media, often without qualification
as to their nature and origin. There is
a significant difference between rates
which are derived from retail sources
related to prices quoted for marketing
purposes, and the net rates which are
derived from accounting records and
from actual revenues achieved.
Generally, revenues quoted for
retail businesses will be gross, which
can be inclusive of taxes (commonly
VAT is included in published retail
sales data). Hotel prices as quoted for
marketing and sales purposes do not
always include taxes, and therefore
they will not reflect the total amounts
payable for accommodation.
Statistics for rooms revenues drawn
from quoted tariffs, and retail sources
such as the Internet, will differ materially from those reported using USALI
definitions for average room rates and
total rooms revenues. The USALI statistics will always be net of taxes, and
after internal accounting allocations
have been made.
It has become common for hotel
revenue, room rates, performance,
yield management and other market
and operating statistics to be related
solely to rooms. Therefore the significance of non-rooms revenues and multiple occupancy has often been lost.
Hotels may have extensive facilities used by nonresidents. Hotels often
have major restaurant and bar operations which attract outside trade. The
same applies to meeting and banquet,
leisure and spa facilities. These sometimes generate more than 50 percent of
the hotels’ revenues.
As well as the number of guest
rooms, the capacity of a hotel can be
measured by the potential number of
guests who can be accommodated, and
the revenue can be assessed against
the number of sleepers or bed spaces
occupied. These alternatives are especially significant for hotels with tourist
or convention facilities.
Even more relevant to today’s hotel
industry structures, where the property
ownership is very often separated from
its operation, are measures related to
a hotel’s revenues as real estate. In
this context, concentration on Rooms
related statistics may be less relevant
than considering revenues per unit of
area of the hotel. In this way, owners can compare returns from their
investments in different classes of real
estate, such as retail, residential and
offices. ■
Editor's note: This article is the first
chapter from a longer paper. It is to be
followed up with more on the subject.
Further related issues to be covered
will include those arising from the
Global Hotel Accounting Users Guide
project, and from the author's long
career in the hotel industry.
The Bottomline
15
❘❙ Information Protection ❙❚
It’s the 21st century: do you
know where your data are?
With today's contracts and agreements, it is inherent to address
information collection and intellectual property issues
By Ruth Walters, JD
A
lot of ink has been spilled over
a lot of years about the everexpanding use of technology
in the hospitality industry, including
by the author of this article. In other
words, it seems the Internet, and
probably Facebook and smart phones,
are here to stay. This means standard
approaches to the most common
hospitality industry contracts must
also change to account for the rising
importance — virtual omnipresence
— of guest and employee information,
online content and other “intangible
property” in the daily operations of
hotels, restaurants, tour operators,
cruise lines and every other hospitality industry player one might care to
imagine. Brands, guest information,
photos, YouTube videos and mobile
apps are all valuable assets that owners want to protect, whether hoteliers,
Web developers or movie producers.
Contracting in the 21st century is
much like contracting in other centuries, with its own set of challenges and
outcomes to be analyzed, anticipated
and, in some cases, avoided.
Scenarios of Data Challenges
Moving from the theoretical to the
actual, below are some examples
hospitality industry actors in various positions have faced over the last
couple years:
SCENARIO 1. Hotel Fantastic, a
U.S. hotel, contracts with a tech-
nology supplier located in India that provides a cloud-based solution to allow
Hotel Fantastic’s general manager to communicate with, schedule, monitor and
otherwise manage hotel employees and contractors in real time. The information
flows among the devices the general manager has provided to all employees, and
everything is stored on the hotel’s servers, carefully managed by the crack IT
team. However, the supplier is permitted — by contract — to monitor traffic and
access the hotel’s servers to perform upgrades and maintenance. What types of
protections should appear in the contract with regard to all the personal information — both employee and guest — to which the supplier may have access from
time to time? What country's laws apply?
SCENARIO 2. An employee of the marketing department of Hotel Fantastic
starts tweeting under a user name that does not use the hotel’s brand, but that
clearly indicates who it is. The tweets are work-related and the employee has
thousands of followers. Hotel Fantastic’s director of marketing and promotions, is
Ruth Walters, JD is of counsel with Garvey Schubert Barer where she focuses on hospitality operations and general intellectual property and technology
transactions. She is a frequent speaker at HFTP educational conferences, including the 2012 HFTP Annual Convention.
16
October/November 2012
❘❙ Information Protection ❙❚
perfectly happy to allow the employee
to tweet because guests and potential
guests really love it. Except the employee is thinking about leaving. Who
owns the user name? Who owns the
tweeted content? Can Hotel Fantastic
prevent the ex-employee from blogging under the same user name?
SCENARIO 3. Hotel Fantastic’s
revenue manager identifies a hot new
online travel agent (OTA) and signs
a distribution agreement which gives
the OTA a virtually limitless ability to
to the hotel’s network. The e-mail
states that copyright infringement is a
violation of the ISP’s Acceptable Use
Policy — to which the hotel agreed
when it purchased the ISP’s voice and
data services, and that Hotel Fantastic must remedy the infringement or
risk suspension or cancellation of the
ISP’s service. Hotel Fantastic offers
its guests free Wi-Fi via a simple, universal log-in provided at check-in and,
like most other hospitality industry
businesses, does not have technology
Information and intellectual property issues arise in
matters as basic as a hotel management agreement or
as complex as a cloud provider’s
access and use license. As well as
in contexts that no one except
lawyers actually consider to
be agreements or have legal
implications, like guest and
employee privacy policies.
use Hotel Fantastic’s trademarks and
other intellectual property (images,
promotional copy, etc.) to publicize
the hotel. The revenue manager and
general manager are thrilled with the
reach and geographical scope of this
OTA. Bookings increase. Then, Hotel
Fantastic realizes the OTA is bidding
on and purchasing keywords from all
the major search engines that contain
its trademarks, and driving traffic
away from Hotel Fantastic’s home
site, actually decreasing the hotel’s
profit from the relationship. Is bidding
on keywords containing the hotel’s
trademarks trademark infringement?
Can Hotel Fantastic make the OTA
stop if it isn’t?
SCENARIO 4. Hotel Fantastic’s IT
manager receives an automatically
generated e-mail notice from its ISP
that an illegal BitTorrent download of
a popular movie has been traced back
18
October/November 2012
to track the Internet activity of guests
by room, MAC address of devices
or any other means. Hotel Fantastic
determines it was not an employee
who downloaded the movie, so it
must have been a guest. What actions
can or should Hotel Fantastic take to
preserve its relationship with the ISP?
What if Hotel Fantastic receives a
letter indicating that it will be sued by
the rights-holder unless it settles immediately for $5,000? What is Hotel
Fantastic’s potential liability? Can it
be avoided by contract?
SCENARIO 5. Hotel Fantastic, wanting to become ever more fantastic,
retains a third-party spa operator to
design, operate and service a luxury
spa on its property. The spa operates
almost entirely independently of the
hotel, including the operation of its
computer systems. The spa systems
interface with the hotel’s PMS, and
the spa also maintains separate client
databases and paper files, which are
stored both on property and off-site at
the spa operator’s third-party hosting services provider. The spa collects guests’ names, addresses, phone
numbers, e-mail addresses and a range
of health information about guests
receiving services. Hotel Fantastic
does not disclose to guests in its own
data collection policies that such
information will be shared with any
third-part providers. The spa’s systems
are breached and guest information,
including financial information, is
vulnerable. What are the hotel’s legal
obligations with regard to the breach?
Can the hotel demand the spa’s assistance if it gets sued? What about the
legal requirements to notify guests that
their data have been breached?
Where Data Protection is Needed
Even the most common practices of
many hospitality industry members
trigger a number of legal obligations,
concerns and questions that must be
addressed in any agreement negotiated
with any of the parties above. Information and intellectual property issues
arise in matters as basic as a hotel
management agreement or as complex
as a cloud provider’s access and use
license. As well as in contexts that no
one except lawyers actually consider to be agreements or have legal
implications, like guest and employee
privacy policies.
Foundational technology agreements — the very basic nuts and bolts
of Internet access and voice services for
a hotel — can create problems. For example, many ISPs require the ability to
monitor not only the amount of traffic
coming from an IP address, but the nature of that traffic, up to and including
reading e-mails, monitoring downloads
and keeping records of web sites visited. While ISPs may assure a hotel that
they will never actually do this, the fact
that they are permitted to by agreement
triggers legal obligations on behalf of
the hotel. It must, for example, inform
guests that their communications may
be monitored in any public-facing data
❘❙ Information Protection ❙❚
privacy policy, as well as those applicable to hotel employees.
Or take the standard hotel or restaurant management agreement. Who
owns the information sitting in the hotel’s databases? How can they use it?
If the owner decides to bring in a new
operator, can the old operator take that
data or is it left for the owner to share
with the new operator? May the owner
share data among any other properties
it owns under different management?
The basic group sales contract has
also undergone significant changes in
the last few years. Savvy groups —
and even the smallest are becoming
more sophisticated about their own
obligations to their group members
— now include robust and complex
confidentiality provisions in their
standard form agreements. Hotels are
required to keep confidential any and
all information about the group they
may encounter, including, for example,
the housekeeping staff who clear the
room afterwards and see group meeting agendas left, coffee-stained and
crumpled, on the table or the floor. Hotels must analyze carefully the amount
of risk they are willing to assume in
these situations, and keep a sharp
eye out for possible improper uses of
information collected from the group.
On the other hand, the hotel must
also protect its own ability to collect
information from group members
if such group members choose to
provide it directly to the hotel. Overreaching promises by an eager sales
director to a big group can severely
limit the hotel’s ability to retain group
attendee information and use it for
its own marketing purposes. Every
hotelier knows that customer lists
are valuable pieces of property, but
contracting in the 21st century complicates the precise nature of every
actor’s obligations regarding them.
Valet parking, night cleaning, staffing agency agreements, co-branded
promotional campaigns, management agreements, OTA distribution
agreements, mobile app development
agreements — both old and new relationships in the hospitality industry —
must take into account the prevalence
and liability associated with, at base,
the collection and flow of massive
amounts of information between and
among parties, states and countries. In
each situation, the contracting partners
must determine how to allocate the
liability associated with the collection,
storage, use and modification of such
information — whether guest health
data, digital TV channel content,
Pandora content playing in the lobby
or information collected via pay-on-
nal policies are also recommended. A
simple issue checklist for each agreement is also a good idea — what data
are being collected, stored and used,
how, by whom and where, what other
intellectual property (trademarks and
copyrighted materials, usually) are being created, licensed, distributed sold,
how and by whom. Once these basic
facts are identified, the legal concerns
are also identified and clarified. With
such attention, Hotel Fantastic might
have made different choices about its
With certain notable exceptions, the legal issues raised
by information collection and exchange, and the
wide-spread distribution and licensing of all forms of
intellectual property are not particularly complex.
It’s more a matter of paying attention
and making sure information collection
and intellectual property issues are
addressed in every agreement where
they are or may be at issue.
foot valet parking stations transmitted
wirelessly to the hotel or valet parking
company’s own databases.
Forming an Agreement
With certain notable exceptions, the
legal issues raised by information collection and exchange, and the widespread distribution and licensing of
all forms of intellectual property are
not particularly complex. It’s more a
matter of paying attention and making
sure information collection and intellectual property issues are addressed
in every agreement where they are or
may be at issue. Which, as suggested
above, is just about every one a standard hotel, restaurant, club or other
industry actor might enter into in the
normal course of its business.
Given the pervasive nature of these
bits and bytes in the 21st century,
clearly delineated and enforced inter-
employee agreements, presence or
absence of social media use policy,
guest data privacy policy disclosed on
its site, and an intellectual property license to the OTA. Then again, it might
not have.
A final word about contracting,
which cannot be said enough times:
contracts are there to protect the parties when things go wrong. The more
issues raised and addressed in an
agreement, the more smoothly things
may occur if and when a relationship ends, even under less than ideal
circumstances. There is a balance
to be struck between planning for a
depressing future and getting a few
words down about a product or service
the parties are thrilled to provide or
obtain. In the 21st century, the Information Age to the nth power, data and
intangibles in all their myriad forms
must be considered in that balance. ■
The Bottomline
19
❘❙ Professional Development ❙❚
Now Presenting …
10 Tips for a Successful Presentation
By Agnes DeFranco, Ed.D., CHAE and Steve D’Erasmo, CHTP
A
s financial and technology
professionals, we are often
asked to share our expertise in
our respective disciplines. Balancing
a statement, evaluating a property for
investment, or choosing the right property management system, no problem.
However, there are times that when we
have the most important information
to communicate, and we even have a
great PowerPoint or a new and sassy
presentation on Prezi, it seems that the
message is not getting across. What is
one to do? Public speaking, whether to
a group of five or to a group of 5,000,
can be nerve-racking. How can we be
sure that we are engaging the audience? There are many cues that we are
also sending out to the audience while
we are presenting that can add to our
message or distract our audience from
our message. How do we engage our
audience? Let’s look at our top 10 tips
to share.
Organize
As in any kind of preparation, the
most important step is to organize.
Proper organization and planning is
crucial to a successful presentation.
This includes your topic, your content,
the timing of the entire presentation,
and the opening moments to catch the
attention of your audience. Envision
your presentation from beginning to
end as if you are watching a movie.
Your presentation needs to have a
grasping beginning and a memorable
ending, with a flow that will capture
your audience’s interest throughout. Do not forget “why” you are making the
presentation. State the goal of the presentation so your audience will know why
they need to listen to your material.
Audience
Your presentation is for the audience, not for you. To make sure that your presentation is successful, you need you know your audience. Is your audience your
colleagues at work (from the same hotel or club) or are they affiliated professionals of the hospitality industry? If possible, have a list of the names and affiliations of the participants beforehand so you may even be able to tailor some of the
remarks to make the presentation more relevant to the audience. During the presentation, watch for the eyes, expressions, and body language of the participants.
Note their reaction to your comments. Watch! You may even want to ask them
for their expectations and address such concerns. It is also good to stop once in a
while to check for understanding. Listen! To make the presentation more interactive, depending on the topic, try to see if it is appropriate to employ activities that
would allow for meaningful participation.
Agnes DeFranco, Ed.D., CHAE is a professor and associate vice president of undergraduate studies at the Conrad N. Hilton College at the University of
Houston. She is also an HFTP Global Past President and recipient of the HFTP Paragon Award. Steve D’Erasmo, CHTP is director of hotel information
systems for Intercontinental Hotels Group
20
October/November 2012
❘❙ Professional Development ❙❚
Site / Environment
Setting the site and environment is of
utmost important. If you are presenting a major financial investment
decision to your board that will affect
and set the goals for your company in
the coming years, you want the site to
be very business-like. If you are doing
a training session for your executive
team or to the managers as to why or
how they need to read their financials
to make decisions and it is more of a
discussion setting, arrange the room
to be less formal. For topics like this,
there needs to be discussion and thus
setting the room which fosters that
type of peer information exchange
needs to be intentional. A few points
that can apply to any topic: Get to the
site early to check the room set up to
ensure there is adequate and appropriate seating. Check the equipment set
up. Turn them on and use them. As
participants are coming in, welcome
them, introduce yourself, and greet
them by name. Use that time to chat
with them and stress the objective of
the presentation. As you do this, you
are also helping yourself; by giving
yourself time to calm down. Depending on the size of the audience and
how familiar they are with each other,
you may want to do an ice-breaker or
warm-up exercise and have participants introduce themselves.
Style
When we are presenting, our style
is very important. Style is how we
deliver the message. First, keep calm
and de-stress before you start. Some
deep breathing and mental preparation
of going through the content, quizzing yourself of the flow and transition
points, all these help! Practice! Be
yourself. Remember one thing - there
is not a “perfect”. Each of us has our
own style. Some of us smile more
than others. Others use hand gestures
more than others. Whatever we do, do
the dry run, be prepared, be yourself.
Nothing is worse to try to force yourself into behaving in a way that you
are not. That will come out so easily
and may even be mistaken as disingenuous. Be passionate about the message
and the goal of the presentation.
Visual Materials
Part of your style is also how you use
or don’t use visual materials. According to OSHA, retention of strictly oral
presented information is only 10 percent and retention of strictly visually
presented information is 35 percent.
However, the synergy of using both
is not the sum of 45 percent but is as
high as 65 percent. Visual material has
a huge impact of how much material
of the presentation is retained. Visuals can be anything the participants
can see, from electronic images, to
slides, to actual objects and models, to
handouts. Regardless, remember two
cardinal rules for the use of visuals:
❘❙ Professional Development ❙❚
10 Presentation Tips
3. Environment
1. Organize
Proper organization and
planning is crucial to a
successful presentation.
2. Audience
Know your audience and
tailor your presentation
to make it relevant to
the participants.
(1) less is more in print, and (2) do
not over use technology. Practice the
use of your visuals. It will not be good
if your model falls apart or your chart
is drawn incorrectly.
Verbal Communication
We communicate with words and so
verbal communication is a big part
of our presentation. Verbal communication includes the words we use
and how we use them. The choice of
words, how efficient we use them,
use of colloquial expressions, sports
references, and inclusive language
are all part of verbal communication.
And yes, the use of distracting vocal
mannerisms such as constantly clearing your throat or use of non-word
distracters like Mmms, Ahs, Errs,
Likes, and You Knows are all part
of verbal communication. We need
to be aware of the proper use of the
positive elements and eliminate the
use of the negative ones. Our articulation, grammar and pronunciation are
similarly important. Since we do live
22
October/November 2012
Make sure the room
set-up fits the type
of presentation
you're giving.
5. Visuals
Carefully plan your visual
material, as its use has
a huge impact on how
much info is retained.
4. Style
Know your own style,
and be yourself.
in a global economy and the hospitality business is a global business, be
aware of our accents. Some of us talk
slower than others. We talk at a rate
of 125–150 words per minute, but the
human brain can process 300 words on
the average. Therefore, the rate, pitch
and inflection we use can wake the
brain or put it to sleep. Let’s wake the
brains and dazzle them with our vocal
varieties.
Non-verbal Communication.
While visual materials and their proper
use is a top 10 tip, our own non-verbal
communication also makes it to the
list. Non-verbal communication starts
with our own appearance. Our grooming standards are important as participants will focus on any distractions we
have, the way we style our hair, a torn
hem, clothes that do not fit quite well,
and for gentlemen, a messy tie knot.
Always empty your pockets so there
is no inadvertent jingling of coins or
keys. Non-verbal communication also
includes making the ever so important
6. Verbal
Communication
Be selective with the words
you use, and thoughtful
of the rate, pitch and
inflection of your speech.
eye contact. This does not mean your
eyes sweeping the room constantly.
This means making a point to “make”
that eye contact with every participant
by speaking to that one person for at
least five seconds before you move on
to the next person. Just as a good actor
will use the entire stage, non-verbal
communication also means moving
around the room to keep it fresh. Use
the entire room, but use the similar
rule as in eye contact. Do not aimlessly walk back and forth in the front of
the room. The better practice would be
walking to a certain spot, stop, making
eye-contact, drilling the point into the
audience, then moving to another part
of the room.
Humor
Humor, humor, humor. The world will
be quite dull without it, but too much
will also not be appropriate. We are
making a business presentation, we
are not doing a stand-up comic routine. Humor should be used to make
a point and emphasize a learning
❘❙ Professional Development ❙❚
7. Non-verbal
Communication
Be conscious of your
movements and
appearance: make
eye contact and walk
around the room.
Presentation Resources
9. Expect the
Unexpected
Be ready for glitches
by having multiple
back-up plans.
Give Your Speech, Change
the World: How To Move Your
Audience to Action by Nick Morgan
High Impact Presentations
Dale Carnegie Training
9 Quick Tips For Successful
Presentations From A Steve Jobs
Event from Forbes.com
8. Humor
Humor should be used to
make a point and emphasize
a learning concept, not to
replace it.
concept, not to replace it. If you want
to tell a joke on someone, always
tell it on yourself — and never use a
member of the audience as the object.
If you have the slightest concern,
don’t use it. What is humorous in one
situation or culture may not be the
same in another, and many things do
get lost in the translation.
The Unexpected, Expect Them
There is a kernel of truth in the phrase
“expect the unexpected.” What if
there is a power failure the morning
of the presentation at your house and
you are running late? What if there
is power or equipment failure in the
room that you are presenting? What
if you forget one of the 10 handouts,
and that is the most important one?
What if everything is perfect and you
started your presentation and there is
a disruptive participant? How would
you handle all the “what ifs”? Well,
start expecting them. Have two alarm
clocks and one on battery, in case you
lose electricity during the middle of
10. Don't Rush
the End
Your ending is a good
moment to reiterate
your point and thank
the audience.
the night. No handouts, no problem,
let people know that you will have the
entire presentation in their mailbox
before they get back to their respective
offices. Disruptive participant? If all
their questions and comments are leading the presentation off track, nicely
thank her or him for the questions and
that you promise you will answer them
at the end of the presentation. In other
words, have your plans B and C in
your hip pocket. Be positive, do not let
anything distract you.
The End
Often times, some presenters are so
thankful that time is up or that they
are in a hurry that they do not end
the presentation properly. The ending or conclusion is perhaps the most
important part. Seize the opportunity
to reiterate the goal of the presentation, the reason for your evaluation
or recommendation. Use this time to
remind the audience why they spend
their precious moments with you.
Invite any questions and answers par-
Presenting Effective Presentations
with Visual Aids at: www.osha.gov/
doc/outreachtraining/htmlfiles/
traintec.html
Tips on Making Presentations
at: www.kent.ac.uk/careers/
presentationskills.htm
Creating an Effective PowerPoint
Presentation at: mason.gmu.
edu/~montecin/powerpoint.html
ticipants’ concerns. And, do not forget
to thank them. A simple “Thank You,”
a sincere one, will show that you are
there for THEM, not for yourself.
No one will care about your message
until they know you care about the
message and THEM. Vitality is key.
Your attitude towards the subject matter impacts participants. This is also
the time for a few parting words that
you absolutely need the audience to
remember. Use the ending to make the
big splash.
All speakers are judged in some
measure on the sincerity, interest,
energy, enthusiasm and concern they
show for their subject matter and their
participants. You breathe life into
the presentation. You connect with
the participants. You make the message. Through the consistent use of
these Top 10 presentation skills, your
presentations will be dynamic and
memorable and you will be conveying
your message in a very forceful and
effective way. ■
The Bottomline
23
❘❙ Club Management ❙❚
Private Clubs:
To be or not to be — a business?
What it means to run a private club like a business
By Philip Newman, CPA and Robert Salmore, CPA
M
uch has been made throughout
the last few years of the need
for clubs to run like businesses. The question that emerges is what
this declaration actually means in real,
operational terms. After all, if clubs
have not operated like businesses for
more than one hundred years of the industry, then how have they operated?
Like charities?
While board members and commentators call for a more business
oriented mindset, the boardroom debates can lead to a tense atmosphere,
and yet questions about what operating like a business is and whether it is
applicable to the club environment are
often left unanswered.
Students in business schools worldwide learn early in their education
that businesses exist to create, market,
deliver and sell widgets (products
or services). The mission of a profit
driven enterprise is simple: to produce
as many or as much as the market
demands, at the quantity to satisfy that
demand and at the lowest possible
cost of production, in the effort to sell
at the highest price accepted by the
market. Perfecting this process will
inevitably lead to profits and a return
for the owners, or shareholders, of
the business. While many facets make
this business model more complex
in implementation, the basic tenet is
simple. Drive revenue up, drive cost
down and put the difference into the
pockets of shareholders, perhaps after setting aside some capital to reinvest in
order to improve the means of production (i.e. capital maintenance).
Can clubs apply this thought process? Possibly, but they must tread carefully.
Defining a Mission
Given that most private clubs are non-profit organizations, the economic model
is by definition rather different than the aforementioned business model. As
with all non-profits, clubs exist because a group of people came together with a
mission — to socialize, golf, play tennis, etc. Non-profit, thus club economics
begin with the determination of this mission aligned to the wishes of members.
Once that mission has been defined, costs can be outlined and a budget built to
accomplish this mission. This thought warrants emphasis. Budgets are built from
the bottom with costs, not from the top with revenue. Once the cost of achiev-
Philip Newman, CPA is partner, club and resort services, at McGladrey, LLP and has over 20 years experience in public accounting. Robert Salmore, CPA,
CHAE, is a general services director at McGladrey, LLP. He has over 30 years of experience in the hospitality industry. Both are frequent speakers at HFTP
educational events, including the 2012 HFTP Annual Convention.
24
October/November 2012
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❘❙ Club Management ❙❚
The business approach that requires the
elimination of unprofitable or inefficient
production lines can only be applied in the
private club world with much delicacy and after
consultation with a club’s primary stakeholders,
its members.
ing the mission (e.g. to have the best
golf course, tennis program or dining
facility in the area), members need to
decide the desired method of financing
— dues or user fees. The goal for nonprofit clubs cannot be to drive revenue
unless the club changes its mission
by adding more services or increasing
the quality of existing services. Those
changes would, in turn, increase costs,
which would then require more revenue from the members.
Another method to increase revenue at clubs exists that does not involve changing the amount or quality
of services — to increase the number
of people willing to pay for those
services. This can be the result of an
enlarged membership or the opening
of the doors to nonmembers (i.e. a
semi-private club). Notwithstanding
potential tax, legal and privacy issues
around nonmember use of the facilities, the primary concern to emerge
from the latter modification would be
the reaction of current members who
will wonder why they joined a private
club and paid an initiation fee and
monthly dues when a nonmember has
access to the same amenities.
While this is a precarious path
for clubs to consider, it is one that
has become an economic necessity
for many. Concepts, such as yield
management, have crept into the
club world. Borrowed largely from
the hotel and airline industries, yield
management addresses filling capacity by setting prices that will attract
increased market interest at any given
time. A number of clubs have worked
this into their golf management philosophy in an attempt to determine the
number of rounds courses can handle
26
October/November 2012
and what the general public will pay.
Companies, such as Boxgroove, have
emerged as facilitators in this market space and it has been common
practice for management companies at
public golf facilities for years. Nonetheless, private clubs must be prepared
to respond to the concerns of members
when nonmembers start to appear in
the locker room.
Cost Cutting
As witnessed recently, many forprofit businesses react to a tumultuous financial climate with drastic
price reductions intended to attract
increasingly scarce disposable income
dollars. While many companies will
not express much concern when customers who typically shop at low-end
outlets are suddenly able to frequent
and purchase from high-end retailers,
private clubs must consider long-term
effects of such occurrences. Clubs
have wrestled with the idea of lowering initiation fees, and even dues, in
recent years. Desperate to retain dues
dollars and members, many resorted
to removing financial barriers that
were historically a primary mechanism to protect the mission of the club
and preserving standards.
Lowering admittance standards,
and thus provoking members to question whether the club mission is still
the one into which they bought, is a
very real concern for clubs today. It
can certainly seem like a Catch-22
scenario. Decrease entrance barriers (economic or other) to maintain
revenue because of the resignation of
some long-term members and run the
risk of alienating many more members. Maintain standards at a level that
requires long-term members to pay
more individually to offset the rising
cost of exclusivity with a diminishing
member base and be prepared for the
onslaught of complaints. If ever there
was a time for open and honest economic communication with members,
now is the time.
Consider the expense side of our
private club income statement. Cash
optimization is a business practice
focused on efficiency (i.e. to obtain
the most value possible from every
dollar of expense). Many clubs have
replaced this concept with simple cost
cutting measures — too often without reflection on the mission of the
club and desires of the members. The
business approach that requires the
elimination of unprofitable or inefficient production lines can only be
applied in the private club world with
much delicacy and after consultation
with a club’s primary stakeholders, its
members.
While it may be inefficient to provide service at a poolside food and
beverage outlet, no amount of cost
accounting analysis will convince
members whose kids use the pool every day in the summer, that the need
for that amenity is anything less than
priceless. A club’s ability to implement corporate style cost-cutting or
‘rightsizing’ measures is subservient
to the needs and wants of the general
membership.
Depreciation
Depreciation is an expense that invites
much discussion in private club financial circles. For some, it is an irrelevant non-cash charge. Others routinely
preach the mantra of ‘funding depreciation’ as the foundation upon which
to build a good capital reserve policy.
Clubs routinely charge depreciation
‘below’ the line to avoid skewing operating results. Historically, the theory
has been that depreciation is in effect
‘funded’ by initiation fees or similar
capital charges. It was not covered by
routine sources of operating income.
Two items need to be addressed
when considering this approach:
❘❙ Club Management ❙❚
1. In the commercial business world,
depreciation is an expense, an operating expense; and
2. The inflow of initiation fees from
new members has all but disappeared for many clubs. Arguably
then, clubs need to consider funding all or some portion of depreciation from operations.
Too many clubs appear satisfied
with breaking even for the year before
depreciation, while not noticing that
members’ equity on the balance sheet
has declined from one year to the next
because depreciation has exceeded
inflows from capital dollars.
When pondering why clubs might
fund depreciation, many come to the
conclusion that it is to have money
in the bank when the time comes to
replace or expand facilities. However,
this thought process is flawed. Depreciation is the allocation of the historical cost of an asset over the period
of its useful life. Inflation guarantees
that the typical replacement cost of an
asset is significantly greater than its
historical cost. Therefore, a club that
is building its reserve for future capital
needs on the basis of historical cost,
will have a shortfall when the day
actually comes to replace the asset.
Long Range Planning
Best business practices dictate that
funding for capital reserves is based
on estimated future costs of replacement — not the cost to purchase the
asset years earlier. A component of
running a club like a business in this
context is appropriate capital amenity maintenance, which starts with
a professional opinion of needs and
timelines. Clubs are advised to consider independent reserve studies by
specialists as part of their long range
planning.
Meanwhile, capital reserve experts
are not the only type of consultant
available to clubs. For-profit business
long ago adopted the practice of retaining consultants with both positive
and negative consequences. (Regard-
ing the latter, the cult classic comedy
Office Space should be mandatory
viewing for all executives.) Nearly
every facet of club operations can be
served by a marketplace of experts:
marketing and sales, member relationship management, executive recruiting, construction project management,
operational effectiveness, strategic
communications, strategic planning,
board governance. The list of skilled
resources upon which club management can call continues — if boards of
directors sanction the cost.
While every discretionary spending
decision has some element of costbenefit analysis, boards of directors
often adopt a rather simplistic approach to what is required to enhance
business management competencies at
their clubs. Board members may need
to be oriented in the intricacies associated with the multi-faceted operation
their club represents if they are to be
expected to appreciate the benefits of
using consultants as often as they do
in corporate business dealings.
The Bottomline
27
❘❙ Club Management ❙❚
At a minimum, the governance structure
should be reviewed for relevance
and effectiveness as thoroughly as club
operating performance.
Decision-makers
Increased demands for timely, relevant
information to support more rapid decision making have migrated into the
private club world. As software companies strive to keep pace with the demand for information, shorter decision
cycles should dictate more autonomy
for management, while being wary of
information overload and the subsequent phenomenon known as analysis
paralysis. While careful consideration
of information is required prior to a
significant business decision, clubs
are not yet prepared for the extreme
manner of data mining associated with
such industries as baseball as depicted
in the film Moneyball.
Another question that must be
addressed in the quest for more rapid
decision making is whether club
boards and committees are ready to
remove themselves from the decision
tree. Taken to the extreme, some club
commentators are asking whether
there is even a place for committees in
the modern, professionally operated
private club.
Consider how the club committee
structure compares to the business
world. Management by committee
led to many problems at corporations,
such as General Motors. If attention
is turned to another powerhouse of
the U.S. economy, General Electric
(GE), one can observe a governance
structure that calls for a board of
13–17 members and only five standing committees, of which only the
audit committee appears to meet on a
monthly basis.
If members of clubs feel strongly
about operating like a business,
consider why clubs would maintain
the same governance structure as days
gone by when they were reportedly
28
October/November 2012
not running like a business. Logic
would dictate that trust in professional
staff is demonstrated through empowerment with legitimate authority
from the board. While some board
members will inevitably question
the financial costs associated with a
committee structure, question whether
the staff time preparing for and attending monthly committee meetings
has ever been subjected to the same
level of cost-benefit analysis applied
to various areas of operations. At a
minimum, the governance structure
should be reviewed for relevance and
effectiveness as thoroughly as club
operating performance.
Strategic Management
Successful businesses not only need
sound strategic planning and formulation, but also sound strategy execution. However, in most organizations,
including clubs, a strategic management process is absent. While generally accepted tools are used to manage
finances, members, processes and
employees, rarely is one applied to the
management of strategy. The Balanced Scorecard is an approach that
strategically focused organizations can
use to fill this void.
The Balanced Scorecard calls for a
mix of past, present and future measures. It incorporates a broad range
of metrics into an integrated system
while ultimately focusing on a few
key strategic goals. Organizations,
such as Mobil, Wendy’s and Hilton
Hotels, have instituted a Balanced
Scorecard approach and achieved
breakthrough results. The scorecard
methodology allows these businesses
to be strategically focused by placing
strategy at the center of the management process to reflect a natural
cause and effect logic in business
performance.
The Balanced Scorecard looks
at performance through four lenses.
Each is essential to achieve organizational goals.
• Learning and growth: To achieve
our goals, how must we learn, communicate and grow?
• Internal: To satisfy our members,
in which business process must we
excel?
• Member: To achieve our vision,
what member needs must we
serve?
• Financial: To satisfy our members
and other stakeholder (e.g. lenders), what financial objectives must
we accomplish?
For each of the four categories of
the scorecard, the organization must
identify possible performance measures. Club management must measure
how effectively and efficiently a process or service satisfies the member.
Measures should allow clubs to identify improvement opportunities and
to make decisions based on facts and
data. Ideally, properly set measures
should help: translate member expectations into goals for staff, evaluate the
quality of processes, track improvements, focus efforts on members and
support organizational strategies.
Too often private clubs possess two
separate and distinct documents in
their strategic plans and annual budgets. Rarely are these two critical tools
linked together and yet one cannot be
legitimate or useful without the other.
Clubs often evaluate department heads
and employees purely on an ability to
achieve a budget which they played
little part in setting. If the strategic
plan can be defined through the critical success factors, and the ability to
deliver those factors can be measured
through key performance indicators,
then maybe, just maybe, strategic
plans can be cascaded to the employee
level so that club professionals are
empowered to deliver exactly what
members say they want — for clubs to
run like businesses. ■
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❘❙ Industry Standards ❙❚
The Newly Expanded USFRC
The soon-to-be released guide includes statements for CIRAs,
schedule changes, and new and updated appendices
By Ray Schmidgall, Ph.D., CPA, CHAE
T
he 7th edition of the Uniform
System of Financial Reporting
for Clubs (USFRC) will soon
be released by the Club Managers
Association of America (CMAA) and
HFTP. This new edition results from
a revision process involving nearly 30
club industry professionals and over
18 months of hard work. It provides
guidance for additional types of clubs
than in the past and greater guidance
than prior additions. The 7th edition
is over 70 pages longer than the prior
edition.
This new edition includes sections
covering basic financial statements for
both country and city clubs as in the
past, and for the first time statements
for Common Interest Realty Associations (CIRA) clubs. The basic financial
statements include the Statement of Financial Position, Statement of Activities and the Statement of Cash Flows.
The Statement of Activities for internal
use also includes 26 departmental schedules. Nine of these schedules are new or
have major changes. Updated and new appendices are included. The new appendices cover common interest realty associations and accounting best practices.
Members of the revision committee included representatives from both
CMAA and HFTP. Ian D. N. Fetigan, CCM, CAM chaired the club managers subcommittee, Wendy Zurstadt, CPA, CHAE, CAM chaired the controllers
subcommittee, while Leonard Bartello, CPA, CHAE, CHTP, CAM chaired the
consultants subcommittee. These three professionals served as chairs of the same
subcommittees during the prior revision. Twenty-three additional professionals
served as members of these three subcommittees. All these club industry professionals are to be commended for their labor of love in producing the 7th edition.
Basic Financial Statements
The basic financial statements have been modified to reflect both the changing nature of the club industry and technological advances. In the Statement of
Activities for Country Clubs (external), the changes under the Revenue caption
on this exhibit from the prior edition include:
• Social events replaces entertainment
• Racquet shop has been added
• Marina has been added
• Fitness/spa has been added
• Telecommunications has been deleted
• Special purpose funds has been added
• Investment income has been added
Ray Schmidgall, Ph.D., CPA, CHAE is the Hilton Hotels Professor at The School of Hospitality Business at Michigan State University. He is the general editor
of the 7th edition of the Uniform System of Financial Reporting and author of several hospitality accounting and finance textbooks. Schmidgall is a recipient
of the HFTP Paragon Award.
30
October/November 2012
❘❙ Industry Standards ❙❚
The changes under Operating
Expenses include:
• Social events replaces entertainment
• Racquet shop has been added
• Marina has been added
• Fitness/spa has been added
• Telecommunications has been
deleted
• Special purpose funds has been
added
• Marketing and membership has
been added
• Information technology has been
added
A few expenses and other items
near the bottom of the Statement of
Activities have been modified as well.
The balance of special purpose funds
at the end of the year were shown on
the Statement of Financial Position in
the 6th revised edition. A new schedule is provided for these activities and
they are reported on the Statement of
Activities according to the 7th edition.
CIRA Clubs
Many more CIRA clubs have been established since the 6th revised edition.
Therefore, the 7th edition includes the
Balance Sheet, the Statement of Revenues and Expenses, the Statement of
Cash Flows and the departmental form
of the Statement of Revenues and
Expense for CIRA clubs. An appendix
devoted to explaining the types of
clubs provides understanding of different types of clubs. A schedule for
reporting Common Area Maintenance
unique to CIRA clubs is also included.
Departmental Schedules
Several department schedules have
been added while titles of some have
been revised to reflect current usage.
A total of 26 schedules are included in
this new publication and the line items
of each schedule are clearly defined.
New schedules include marina,
special purpose funds, information
technology, marketing and membership, security, and common area maintenance. Departmental schedule titles
that have been changed to reflect more
current usage include social events
7th Edition Available December 2012
The new edition will be available for
purchase on CMAA’s marketplace
site at www.cmaa.org/marketplace.
HFTP members are eligible for a
discount on their purchase.
replacing entertainment, fitness/spa replacing health and fitness, and housekeeping replacing house laundry. All
schedules include additional line items
that clubs will find useful for reporting their operating results. As in the
past, no club should blindly follow the
prescribed schedules but modify them
to meet their informational needs.
Appendices
The appendices to the uniform system
provide additional information and
guidance to club executives. The fifth
edition of the USFRC had five appendices covering 43 pages. The expense
dictionary and Illustrated Statements
and Schedules with Working Trial
Balance was added to the sixth edition
and other appendices were expanded
so that 100 pages were devoted to
appendices. The expansion continues
with the 7th edition of the USFRC
as two additional appendices have
been included. An appendix explaining CIRAs is new to this edition as
well as Accounting Best Practices.
Other appendices have been updated.
The sample chart of accounts uses a
four digit numbering system. Additional ratios are provided in the
ratio analysis and statistics appendix.
The club taxation appendix has been
updated by the foremost club industry
tax experts. The expense dictionary
includes many additional terms. The
revised reporting system is extensively
illustrated providing users with greater
guidance.
Accounting Best Practices
A dozen major topics are covered in
this appendix to the 7th edition. The
best practices range from safeguarding
cash to labor considerations. Sixteen
suggestions are provided for the food
and beverage department, purchasing
and receiving, and mitigating fraud.
Three suggestions provided under
the food and beverage department
category follows:
1. Menu abstracts are a listing of all
items sold on a menu and include the
number of items sold during a specific
period of time. This tool is used to determine the popularity of an item and
whether specific items should remain
on revised menus or eliminated.
2. Recipe cards are an important
tool in identifying proper ingredients
and amounts for each menu/bar item,
the cost of each item and the preparation instructions. A copy of all recipe
cards should be maintained in the accounting office while the originals are
kept in the chef’s and bar manager’s
office.
3. Rebate programs are typically
available to the food and beverage
industry and should be sought out to
save the hundreds of dollars a month
available. These should be watched
closely to ensure the rebate is issued
to the club and not the purchaser.
Expanded in Scope
The 7th edition of the USFRC is
expanded in its scope by providing recommended statements for
CIRA clubs and more departmental
schedules for all clubs. New Appendices have been added covering a
discussion on types of clubs and on
accounting best practices. The chart
of accounts, illustrated statements
and the expense dictionary have been
expanded. Clearly the new edition
provides financial statements that
enable clubs to provide more detailed
financial information to all users. ■
The Bottomline
31
❘❙ Industry Standards ❙❚
behind the revision
HFTP past presidents Leonard Bartello and Wendy Zurstadt,
serving as chairs on the revision committee, talk about the
process, and debates, that brought the USFRC 7th Edition
I
n existence for 80 years, one might think there isn't much
more to add to the Uniform System of Financial Reporting for Clubs (USFRC). But, as the industry changes so
do financial reporting models. The last edition was released
in 2003, and the revision committee found that there was a
lot to change for this new version, including making it more
inclusive of different club types.
A committee of close to 30 club professionals from
CMAA and HFTP worked on the update. Leading the
charge were Wendy Zurstadt, CPA, CHAE, CAM, representing club controllers; Leonard Bartello, CHAE, CHTP,
CPA, CAM, representing club consultants; and Ian Fetigan,
CCM, CAM, representing club managers. In addition Ray
Schmidgall, Ph.D., CPA, CHAE, was the general editor.
We asked the two HFTP past presidents, Bartello (LB)
and Zurstadt (WZ) for some insight on the revision process.
still provide a uniform or standardized basis for financial
reporting. We wanted to make it as all-encompassing as
possible while still maintaining the ease of use.
Why would someone want the revised version?
What are some items in this version that users should
be aware of?
LB: The "P" in HFTP stands for professional. Being
professional implies commitment to maintenance of expert
and specialized knowledge in hospitality finance and technology. Since 1932, the uniform system has been the single
most important tool for club accounting managers. That
is to say, the results of 80 years of evolution can be found
in one single published source. The 7th Revised Edition
makes all others obsolete (albeit collectors items).
WZ: The revised version includes residential club communities. The prior editions were targeted for the 501C7
type club, or the traditional non-residential clubs. We added
schedules to encompass many different types of clubs.
What were some things that came up as the process
was coming along?
LB: Accounting truly is an art with much room for
individual interpretation. Some items addressed took on a
life of their own while stimulating healthy debate. In the
end, most were resolved unanimously while a few ended in
respectful disagreement.
WZ: During the process we often had the “oh my gosh”
moments; as well as “how did we miss that in the last edition” and “how do we make this better.” A lot has changed
in 10 years, when we worked on the last edition, and we
marveled how these changes affected this edition.
LB: Two significant hot topics are:
A change in accounting for special purpose funds was
missed in the 5th and 6th editions. Some history: back in
1993 the Financial Accounting Standards Board [FASB]
issued statement 117 [FAS 117] on Financial Statements of
What were the primary goals for the committee when
it started on the revision?
LB: Our goals were to correct errors that were undetected
when the Sixth Edition was released (an issue that we
might not face with the 7th edition if an electronic version
is released, allowing for real time corrections). In addition
we made changes in line with new accounting pronouncements and modern trends and terminology. Also we wanted
to enhance the book’s usefulness with additional topics.
WZ: The 6th edition was focused on being more relevant
and user friendly. It was written to help the professional
staff of a club, as well as those governing the club. This
edition brings to light the many different types of clubs, yet
32
October/November 2012
The results of hard work (L to R): Leonard Bartello, Ray Schmidgall, Wendy
Zurstadt and Ian Fetigan display a copy of the USFRC, 6th Edition.
❘❙ Industry Standards ❙❚
Not-For-Profit Organizations. It made
numerous revolutionary changes to the
way most private clubs report financial
information. A basic requirement of
FAS 117 is that all changes in an organization's net assets must be reported
in the statement of activities.
Flying under the radar of most club
accountants, special purpose funds
that account for activities such as:
donations to the staff holiday fund
and related expense, dues for various
clubs within a club like the men's and
women's 18 and 9 hole clubs and related expenses, and the popular hole in
one fund have been washed through a
liability account in the statement of financial position. This practice violates
FAS 117. The 7th edition illustrates a
new department for special purpose
funds. Users of the club financial
statements will be able to track the
revenue and expenses of each fund and
will have a more enhanced view of accountability and comparability.
Also, inspired by the great recession of 2007, membership drive
incentives have taken on a life of their
own. Clubs have found endless ways
to entice membership retention and
replenishment. We find these incentives often come with long lasting
and significant financial impact. They
seem to be implemented with little or
no involvement with accounting professionals. This edition includes both
short and long term liabilities for these
incentive programs which emphasizes
the need to account for the added
expense they create.
WZ: Also, there will be some
“unfamiliar” schedules, i.e. Common
Area Maintenance & Security that
may only pertain to bundled/residential communities. The users need to
understand that this reference book is
a recommended guideline for a variety
of clubs and they need to identify
which reports fit their club. And most
importantly, what reports they could
be using that will enhance their existing financial statements.
What are the benefits to being part
of a committee such as this one?
LB: My entire 30 plus year career
in hospitality accounting has thrived
with voluntary involvement within
HFTP, its functions and committees.
HFTP provides the pot and ingredients to make the soup that nourishes
the growing hospitality professional.
It provides a network of great friends
and colleagues that does not exist
anywhere else. To sum up, I gained
much more from my involvement on
this committee of 12 than I contributed
as an individual.
WZ: I agree with Len on this. While
I know the countless hours he contributed, it never fails to amaze me how
we walk away, as chairs, feeling like
we learned more in the process. The
interaction, the sharing of knowledge,
the pro and con debates! It is so educational, informative and balances the
workload really well.
Any last comments?
LB: I am honored to be part of the
group of professionals entrusted with
updating the USFRC 7th Revised Edition. To experience how fierce competitors in business can put aside individual
gain and spend many valuable personal
hours to research, discuss, debate and
concur was amazing. These individuals
are to be commended for their superior
dedication to the hospitality club industry and the art of accounting.
WZ: The fact that CMAA and HFTP
gave Len, Ian and me the opportunity
to come back as chairs for this revision, really touched me. We worked
so well 10 years ago and it is still the
same labor of love today that it was
then. Ray Schmidgall kept us organized, on task and on target. I think the
picture shown here says it all! ■
THANK YOU! HFTP Members on the Revision Committee
Frank Agnello, Jr., CMA, CHAE
Director of Finance
The Wyndgate Country Club
David Manglos, CPA, CHAE
Chief Financial Officer
Austin Country Club
Gavin Arsenault, CCM
General Manager
Rock Barn Golf & Spa
Philip Newman, CPA
Partner
McGladrey, LLP
Leonard Bartello, CHAE, CHTP, CPA, LCAM
Owner
Forty Years Consulting
Mick Nissen, CHAE, CHTP
Controller
Sharon Heights Golf and Country Club
Jay DiPietro, CMA, CCM
President/General Manager
Boca West Country Club
Richard O'Leary, CPA
Director
PKF Certified Public Accountants
James Hankowski, CPA
Partner
Condon O’Meara McGinty & Donnelly, LLP
Benjamin Peck, CCM, CHAE
Chief Financial Officer
Sawgrass Country Club
Paul Koojoolian, CCM, CHAE
Controller
St. Francis Yacht Club
Kevin Reilly, JD, CPA
Partner
Witt Mares, PLC
Note: This list includes HFTP participants only, and is not the full committee.
Raymond Schmidgall, Ph.D., CPA,
CHAE
Professor
Michigan State University
Jerilyn Schnitzel, CHAE, CHTP, CAM
Owner
Schnitzel Hospitality Consulting
Thomas Smith, CHAE
Chief Financial Officer
Westmoor Country Club
Mitchell Stump, CPA
President and Owner
Club Tax Network, Inc.
Tammy Tassitano, CPA
Partner
McGladrey, LLP
Wendy Zurstadt, CPA, CHAE, CAM
Chief Financial Officer
Polo Club of Boca Raton
The Bottomline
33
❘❙ Financial Management ❙❚
Who Me? A Fiduciary?
Responsibly managing employee retirement plans
I
f you are reading this, you probably have a hunch you might be.
Many employers choose to offer their employees a retirement plan,
typically a 401(k) plan. The employer (now the “plan sponsor”) provides
this valuable fringe benefit to:
• Provide a comprehensive and competitive
compensation package;
• Allow the employees (now “plan participants”) to save
money for retirement on a tax-deferred basis; and
• Promote employee recruitment and retention.
Along with the benefits derived from offering these
plans, comes an ever-growing, sometimes unbeknownst,
level of fiduciary responsibility assumed by the plan sponsor. The proliferation of the 401(k) plan (and its cousin, the
403(b) plan) has significantly increased the total amount
By Ned McCrory, CPA and
George L. Zoglio, CPA
of assets invested in such U.S. plans. An estimate by the
U.S. Department of Labor (DOL) indicates that there are
currently three trillion dollars invested in 401(k) plans.
Accompanying this increase is the increased risk for errors,
mismanagement, fraud or irregularities that can result in
financial loss. Throw in the fact that there is quite often a
general lack of understanding by plan participants as to the
inner workings of the plan, and it’s easy to see why both
the DOL and the IRS have made oversight and scrutiny of
401(k) plans a top priority.
Ned McCrory, CPA is principal at Batchelor
Frechette McCrory Michael & Company, in charge
of the firm's Private Club Practice Group.
George L. Zoglio, CPA is an audit manager
with Batchelor Frechette McCrory Michael & Company. Both are frequent
speakers at HFTP educational events,
including the 2012 Annual Convention.
34
October/November 2012
❘❙ Financial Management ❙❚
Who is a Fiduciary?
The Employee Retirement Income
Security Act of 1974, known as
ERISA, requires the plan to have at
least one named fiduciary. However,
the actual fiduciaries under a plan can
be, and generally are, more than the
one named. When determining who is
a fiduciary, ERISA considers the functions performed on behalf of the plan.
Therefore, ERISA would consider a
fiduciary anyone who performs the
following functions:
• Exercises any discretionary authority or control over the management
of the plan;
• Exercises any authority or control
over the management or disposition
of the plan’s assets;
• Renders investment advice with
respect to plan investments for a
fee; and
• Exercises any discretionary authority or responsibility in the administration of the plan.
Under ERISA guidelines, fiduciaries would include named trustees,
custodians of plan assets (i.e. banks,
insurance companies), record keepers
of participant balances and investment advisors. Fiduciaries may also
include employer personnel performing plan administrative and accounting
functions, plan committees and the
plan sponsor’s Board of Directors.
All of these groups generally provide
services and/or oversight for a plan.
What are the Responsibilities of
Plan Fiduciaries?
You have discovered you are a plan
fiduciary; what are your responsibilities? Just as with other types of
fiduciary arrangements, a plan fiduciary’s primary responsibility is the
duty to “act in a prudent manner.” For
a 401(k) plan, this specifically means
acting solely in the best interest of the
plan participants and their beneficiaries. These acts would include:
• Ensuring that plan provisions,
including applicable laws and regulations, are followed;
DOL and IRS “Top Ten” Plan Compliance Issues
Based upon recent examinations of employee benefit plans, the DOL
and IRS have identified the 10 most common compliance errors made
by plan sponsors:
1. Failure to sign the plan document and plan amendments.
2. Failure of the plan sponsor to follow the terms of the plan, whether
or not the failure resulted in a better or worse outcome for the
participant.
3. Failure to follow the definition of compensation as described in the
plan document. Common inconsistencies include the treatment
of commissions and bonuses, certain taxable fringe benefits, and
other miscellaneous compensation such as moving allowances.
4. Failure to adjust employer matching contributions when a
participant changes the amount of their elective deferral.
5. Failure in determining whether the plan is considered “top
heavy.” Such errors include failure to identify highly compensated
employees and errors in reporting eligible compensation to be
used in the computation.
6. Failure to deposit participant deferrals and loan repayments on a
timely basis.
7. Failure to include all eligible employees in the annual census
8. Failure in implementing the annual IRS maximum amount of
participant deferrals. The maximum deferral to a 401(k) plan for
2012 is $17,000; $22,500 for an individual 50 years of age or older.
9. Failure to follow the plan provisions for participant loans including
repayment period.
10. Failure to follow the plan provisions for hardship withdrawals.
• Diversifying plan investments
(many plans allow participants to
make their own investment selections, referred to as “self-directed”
investment plans);
• Paying only “reasonable” plan
expenses; and
• Ensuring that the plan does not
participate in any “prohibited
transactions.”
Ensuring that plan provisions are
followed as documented in the plan is
of paramount importance. Remember
that contributions (both employee and
employer) and related investment earnings are tax-deferred. Failure to follow
the provisions of the plan document
can result in penalties. Egregious,
continual and uncorrected errors and
related plan failures may result in the
IRS revoking the plan’s tax-exempt
status, subjecting all participant account balances to immediate taxation.
Fiduciaries should offer enough
investment alternatives to minimize
the risk of large losses. To achieve
this objective, the plan should offer
a broad range of prudently selected
investments so that participants can
customize their own personal “portfolios” based upon their own risk tolerance and investment objectives.
What are “reasonable” plan
expenses? There are no hard and fast
guidelines. The onus is on plan sponsors to ensure they have performed
some sort of due diligence to ensure
costs are not more than what “a prudent buyer” would pay.
The Bottomline
35
❘❙ Financial Management ❙❚
Recent Regulatory Updates
Participants are becoming increasingly responsible for their own investment decisions. Results of a survey
conducted by the DOL indicated
that many participants either did not
have access to, or understand, critical
information when making investment
selections. Such information includes
the nature of the investments, the actual rate of return and fees charged by
the Third Party Administrator (TPA).
In an effort to increase participant
education and plan transparency, the
DOL issued regulations requiring new
disclosures from TPA to plan sponsors
and plan sponsors to plan participants.
The new disclosures from TPA
to plan sponsors (also referred to as
• Standardized methodologies when
calculating and disclosing expense
and return information.
The first quarterly statements to
include such information must be
issued to participants by November
14, 2012. Failure to provide any disclosures under these new regulations
would be considered a breach of fiduciary responsibility and may render
fees paid to that CSP a “prohibited
transaction.”
Common Compliance Errors
As part of their shared monitoring and
oversight responsibilities, the DOL
and IRS have published a list of top
10 compliance issues identified dur-
In an effort to increase participant education and plan
transparency, the DOL issued regulations requiring
new disclosures from third party administrators to
plan sponsors, and plan sponsors to plan participants.
Section 408(b)(2) disclosures) were
effective as of July 1, 2012, and
required “covered service providers”
(CSP) to disclose to plan sponsors
CSP services, compensation charged
(both direct and indirect) and potential
conflicts of interest. CSP include not
only the custodian and record keeper,
but also accountants and lawyers
who provide services to a plan. The
CSP services must be included in a
written (and signed) contract if the
annual compensation paid to the CSP
is $1,000 or more per year.
The new disclosures from plan
sponsor to plan participants (also referred to as Section 404c disclosures)
are effective for plan years beginning
on or after November 1, 2011, and
require plan sponsors to provide the
following to plan participants:
• Quarterly statements of plan fees
and expenses deducted from their
accounts;
• Core information about the investments available under the plan; and
36
October/November 2012
ing plan examinations. Plan sponsors
should be aware of these compliance
issues as “hot areas.” A couple of them
are discussed below (refer to the sidebar on page 35 for a complete list).
Failure to deposit participant
deferrals and loan repayments on
a timely basis. For plans with 100
or more participants, DOL Section
2510.3–102 requires that plan sponsors deposit participant deferrals
(including participant loan repayments) “as of the earliest date such
contributions can be segregated from
employer assets, but in no event later
than the 15th business day of the
month following the month in which
the participant contribution amounts
are received by the employer…”
At first glance, it would appear that
plan sponsors do not have to deposit
such amounts until the 15th business
day of the following month. However,
the DOL has stated in communication that the 15th is not a safe harbor.
If an employer can administratively
segregate the participant contributions
from its general assets earlier, then the
earlier time frame is “the deadline.” In
determining such a deadline, consider the statutory deadline to deposit
Federal withholding and payroll taxes.
Since most companies determine and
deposit these payroll taxes within
three business days from the date the
payroll is paid, then a plan sponsor
would be hard pressed to assert in the
event of a DOL/IRS audit that they
could not determine and deposit participant contributions and loan repayments within the same three business
day time frame, since the source of the
information is most likely the same
payroll reports.
For plans with fewer than 100
participants, the DOL has established
a “safe harbor” for deposits of seven
business days after the payroll has
been paid. It is important to remember
when counting the number of participants in a plan; all eligible employees
(as defined in the plan document) are
included, whether or not the eligible
employee actually elects to defer
contributions.
Failure to follow the plan provisions
for hardship withdrawals. Many plans
include a “hardship withdrawal” provision. Under certain specific circumstances, the hardship provision allows
a participant to receive a distribution
from his or her account balance while
still employed with the company. The
provision provides the participant
comfort in knowing he or she can
access their funds in the event of an
unforeseen emergency. The specific
provisions for hardship as defined under the plan may include distributions
for the payment of:
• Substantial medical expenses;
• Rent or mortgage payments to
avoid eviction or foreclosure;
• Higher education expenses.
Recent economic conditions have
increased the occurrence of these
distributions. While many TPA offer the sponsor and participant the
convenience of applying for such a
distribution online, it is ultimately
❘❙ Financial Management ❙❚
the plan sponsor’s responsibility to
approve the withdrawal. In approving
a hardship withdrawal, the plan sponsor must retain clear and objective
documentation to support the hardship circumstances. While this can
be a sensitive task given the circumstances, failure to do so may result
in the distribution being considered a
“prohibited transaction.”
Tough Times = Terrible Temptations
Just as you need to implement sound
internal controls in your organization to minimize the risk of errors or
irregularities, a plan sponsor must do
the same for its 401(k) plan. Think a
fraud can’t happen? Consider these
actual fraud examples, courtesy of the
AICPA Employee Benefit Plan Audit
Quality Center:
Example 1. A human resources
manager requested distributions for
terminated employees that had been
gone from the company. The manager
was successful in three cases for over
$10,000. The fraud was discovered
when a bank finally refused to authorize the deposit due to the discrepancy
between the depositor name and the
account holder’s.
Example 2. A plan administrator
redirected plan forfeitures to pay personal credit card balances.
Example 3. A human resources
employee processed fraudulent loans
against participant accounts. To conceal the fraud, she manually prepared
annual participant statements to hide
the loans. She was successful because
the TPA sent the participant statements
directly to the plan sponsor for mailing
as opposed to mailing them directly to
participants.
Just as segregation of duties can
minimize errors and irregularities in
your organization, it can do the same
for your 401(k) plan. Duties should be
segregated such that the activities for
initiating plan transactions (i.e. participant loans, distributions, calculating employer matching contributions)
are segregated from those employees
responsible for recording, approving
and monitoring such transactions.
Best Practices for Plan Sponsors
Now that you know you are a fiduciary
and are aware of the many land mines
that await, what can you do to prove
that you are executing your fiduciary
responsibilities? Here are a few suggested “best practices” to consider.
Identify all plan fiduciaries. Ensure
that they are all aware of their shared
responsibilities including the latest
regulatory requirements. Consider periodic consultation with a legal expert
in ERISA.
Establish an investment committee.
Consider establishing a committee to
periodically review investments for returns and fees, and benchmark against
other investments. Include an outside
investment advisor to provide objec-
termination, eligible compensation,
participant elections and loan, and
distribution approvals.
Monitor the plan’s employee dishonesty bond coverage. A plan is required to maintain fidelity bond coverage in the event of a misappropriation
of the plan’s assets. ERISA requires
that the plan be the named insured, the
coverage be at least 10 percent of plan
assets (generally subject to a maximum of $500,000) and that there be no
deductible. Ensure that the coverage
never lapses and the amount of coverage changes, if necessary, when plan
assets increase.
Adopting and documenting these
practices can minimize a fiduciary’s
liability in the event of an error.
Just as segregation of duties can minimize
errors and irregularities in your organization,
it can do the same for your 401(k) plan.
tive advice. Also consider including a
number of participants on the committee who are not accounting, finance or
management related (i.e. dining and
housekeeping staff). This not only
results in a knowledgeable labor force,
but also increases plan participation
amongst those employee groups. Document the minutes from the meetings.
Monitor your service providers.
There is a great danger in adopting a
“set it and forget it” attitude in employing TPA. Periodically monitor the
fees charged and evaluate the level of
service and responsiveness. Many TPA
also have an annual audit performed
by a CPA firm referred to as an “SSAE
No. 16” report. This audit report
evaluates the effectiveness of the
numerous automated transactions and
controls implemented by the TPA. Get
a copy of the report and read it.
Evaluate your plan’s internal controls. Continually monitor and evaluate the ability of your data collection
systems to gather and report critical
information such as dates of hire and
What If an Error Does Occur?
Despite your best efforts, occasionally errors or mistakes will occur. If
this happens, no need to panic; the
DOL has a program for plan sponsors
to correct self-identified errors. The
Voluntary Fiduciary Correction Program (VFCP) affords plan sponsors
the opportunity to identify and correct
certain transactions such as improper
loans and delinquent contributions.
Plan sponsors can submit an application under the VFCP to have the error
corrected, and if applicable, must repay any lost earnings or other financial
shortfall caused by the error.
Yes… YOU are a fiduciary
Offering a 401(k) plan demonstrates
your desire to remain competitive and
make an investment in your employees. However, failing to understand
and properly execute your fiduciary
responsibilities can make that investment far costlier than anticipated. ■
The Bottomline
37
The Bottomline Resource Guide
ClubPay
www.clubpayroll.com
ClubPay offers best in
class solutions for payroll outsourcing, integrated HR
management, time and attendance, biometric time
clocks, compliance tools and online applicant tracking.
All solutions seamlessly communicate with each other
and are customized to meet the unique requirements of
the club industry. ClubPay solutions are flexible and can
scale to meet the needs of any size club, from 25 to over
1,000 employees.
MITEL
www.mitel.com
Good communication is at the heart of every successful
hotel. Mitel hospitality customers enjoy scalable, reliable
communications, optimized to meet the needs of their
industry. Mitel has a dedicated hospitality team working
with hotel owners, management companies, industry
associations and consultants.
Northstar Club Management Software
www.globalnorthstar.com
Comcast
business.comcast.com
Comcast Business Class
serves the hospitality industry with highly reliable and
economical, data, video and voice solutions that scale to
meet guest, employee and back-office operational needs.
With Comcast’s integrated communications solutions,
you can equip your staff with the tools needed to work
more efficiently, deliver better service and increase
guest loyalty.
Data Plus
www.dphs.com
Data Plus provides
Enterprise Level software for the Hospitality Industry.
Within the three categories of Accounting, Human
Resources and Procurement, Data Plus provides
applications that will transform the way you do business.
The only completely integrated back office suite, Data
Plus is now available online with SAS70 compliant
backup. Visit dphs.com for more information.
Northstar is a
leading provider
of integrated
club management software. The Northstar solution is
unique in its browser-based design, extending seamlessly
from a club’s back office to servicing members using
touch screens, smartphone applications, and web-based
member portals. Built cloud-ready, the Northstar system
is the New Standard In Club Software.
Windstream
www.windstream.com
Windstream
Communications provides
high-speed broadband Internet, phone service and Digital
TV packages to residential customers as well as products
and services for small, medium and large businesses, and
government agencies.
Jonas Club Management
www.jonasclub.com
Whether your club is small,
large, public or fully private,
Jonas Club Management has the right software solution
to fit your needs. Worldwide over 2,100 clubs in more
than 15 countries, with memberships ranging from 100
to 20,000, utilize the Jonas Club Management solution
to build and enrich member relationships, increase
revenues, and decrease costs.
38
October/November 2012
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