The internal controls of the procurement cycle in a Maltese five star hotel : a case study

Abstract

Purpose: The purpose of this dissertation is to identify and assess the existing internal control procedures of the Procurement Cycle of the Maltese five-star hotel upon which this case study is based, assess the strengths and weaknesses of such control procedures and compare the internal control procedures related to inventory purchases and capital purchases. Design: A series of semi-structured interviews with different Head of Departments within the fivestar hotel upon which this case study is based, together with physical observations of documents, were used to achieve the research objectives. Findings: The case hotel has a strong system of internal controls. In fact, the hotel has effective segregation of duties as well as strong security procedures. The use of specialised computer software called Material Control System ensures that every transaction is properly authorised from senior management depending on materiality levels and that users’ rights are limited according to their responsibilities. The internal control system however also has some weaknesses especially with regards to the monthly stock control procedure, the use of the manual requisition book and the lack of utilisation of the four eyes principle. The main differences in the internal control system between inventory and capital purchases lie in the authorisation flow process and the supplier selection process. Conclusion: This study concludes that even though the case hotel’s internal control system is relatively strong, there still is room for improvement. For this reason, the study suggests a number of recommendations that should be implemented by the case hotel to enhance the efficiency of its internal control system specific to the procurement cycle. Value: The researcher believes that the risk of human error and fraud are present in the stock control procedure, the receiving stage and in the use of the manual requisition book. Therefore, the recommendations proposed by this study aim at mitigating the aforementioned risks and as a result enhancing the efficiency of the internal control system of the hotel.