Here's How COVID-19 Has Altered USALI Financial Reporting

Occupancy decimation isn’t the only curveball COVID-19 has thrown at hoteliers. Turns out, accounting procedures have been hard to figure out as well.

Enter the Financial Management Committee of the American Hotel & Lodging Association (AHLA), which is tasked with responding to inquiries regarding operational reporting under the Uniform System of Accounts for the Lodging Industry (USALI). They have now put forth guidelines concerning the reporting of alternative revenue sources and recording expenses rarely seen before in the lodging industry. 

In this blog, we will provide an overview of the reporting of COVID-19-related revenues, payroll costs and expenses.

To view the complete guidelines on the Hospitality Financial and Technology Professionals (HFTP) website, select Frequently Asked Questions at this link and select 2020 USALI FAQ for Covid-19 Scenarios.

Recording Rooms Revenue from Contracting Agencies

The pandemic has induced many hotel operators to seek out alternative sources of revenue, including contracting hotel rooms to local government and healthcare organizations. There are three different reporting scenarios a hotel operator will face in this situation:

Scenario 1: Hotel sells a portion of rooms to the contracting agency

In this instance, a portion of available hotel rooms are rented to a government or healthcare agency, and the rest of the hotel is operated as normal. Hotel employees remain on staff to service both the contracted rooms and rooms that are sold to transient or group guests on property.

• Rooms rented to the contracting agency should be reported as Contract Rooms Revenue.
• Because the hotel is being operated as normal and serviced by hotel employees, available and occupied rooms and departmental expenses are reported as directed by the USALI.

Scenario 2: The majority of hotel rooms are rented by contracting agency 

In this instance, the hotel has rented most of the rooms to the contracting agency and the remaining room inventory is not rented to other guests. The hotel is providing minimal services, such as laundry and food and beverage, with most hotel employees either furloughed or laid off.

• Income from room rental should be recorded as Miscellaneous Income – Rent
• Available and occupied rooms should be reported as zero.
• Expenses related to services provided by the hotel should be reported in the appropriate departments. For example, housekeeping or laundry services should be recorded on the Rooms Schedule and food and beverage revenue recorded on the Food & Beverage Schedule.
  

Scenario 3: Entire hotel rented by contracting agency and no hotel services offered

In this instance, the contracting agency rents out the entire hotel and the hotel does not provide any services to guests. The contracting agency utilizes its own employees to provide services to guests, such as housekeeping and food and beverage.

• In this case, revenue should be reported as Non-Operating Income – Rental.
• Available and occupied rooms reported as zero.
• Minimal hotel staff, such as the general manager, may remain on active payroll and should be recorded in the appropriate department.

Reporting Payroll Costs

Deserted hotels forced hoteliers to mitigate bottom-line deterioration by either furloughing or laying off employees. Some countries are providing wage subsidy programs, such as the Paycheck Protection Program (PPP) in the United States, to encourage employers to retain employees.  

The Financial Management Committee has provided specific guidelines for USALI reporting regarding recording salaries and wages dependent upon whether they are working or being paid while on leave. First, if employees are working, whether your property has received a wage subsidy or not, salaries and wages should be recorded in the department where the employee is working. Second, if an employee is being paid, but is not working, then the salaries & wages should be reported as Supplemental Pay – Other.

For employees who receive benefits, when employees are furloughed, expenses should be recorded in the month the decision is made. For example, if a hotel decided to furlough employees in May, June and July 2020, then all the healthcare expenses should be recorded in the month the decision was made.

COVID-19-Related Expenses

Hotel expenses are liable to increase in the short term in certain areas, such as cleaning supplies, uniforms and guest supplies. The AHLA and hotel brands have published guidelines that include increased cleaning of public spaces, requirements for all employees to wear masks and providing guests with personal protection equipment (PPE). Hotel operators are now grappling with the decision on the best place to record these increased costs.

Regarding increased cleaning costs, these are straightforward and should be recorded as cleaning supplies in the appropriate department. Some questions have arisen regarding the installation of Plexiglas dividers and other more permanent measures at the front desk and other locations of interaction. These expenses would also be departmentalized unless they qualify to be considered capital expenses.

Many hotels are offering guests PPE when they arrive at the hotel. PPE may include items such as masks, hand sanitizer and gloves. These items should be recorded as guest supplies in the appropriate department. PPE used by employees should be recorded as a uniform expense in each department.

The USALI 11th edition indicates that additional accounts cannot be created in each department, but subaccounts can be. Therefore, hotel operators can create a subaccount referencing COVID-19 under guest supplies or cleaning supplies, which rolls up into the account structure provided in the current edition of the USALI.

Tough Decisions

For anyone that has run a marathon, there is the moment when you find your pace and have the mindset to power forward, step by step, to the finish line. Hoteliers have jumped the major hurdle and made difficult decisions to eliminate costs and blunt the impact on profitability. Now is the time to settle into your stride, fine-tune your steps and power through the finish line. 

COVID-19 threw hoteliers a wicked curveball, but smart hoteliers have adapted, are staying patient and are waiting for their pitch. When they get it, the comeback will begin.