Overhead Audit Checklist and Top 10 Overhead Leakages in Hotels

In today’s competitive hospitality environment, profitability depends more on cost control than revenue growth. While room rates and occupancy fluctuate, overheads remain constant—silently eroding margins if not audited regularly. A structured overhead audit helps hotels identify leakages, improve cash flow, and protect GOP.

This guide covers a complete hotel overhead audit checklist and the top 10 overhead leakages commonly found in hotels.

What Is a Hotel Overhead Audit?

A hotel overhead audit is a systematic review of all fixed and indirect expenses to ensure:

• Costs are justified and budgeted

• Spending aligns with revenue levels

• Leakages, duplication, and inefficiencies are eliminated

Best practice: Conduct a monthly internal audit and a quarterly independent audit.

Hotel Overhead Audit Checklist (Department-wise)

1. Administration & Payroll Audit

✔ Staff strength vs occupancy ratio

✔ Salary benchmarking vs market

✔ Duplicate roles (corporate + property)

✔ Overtime, incentives & allowances

✔ Contractual vs permanent staff mix

Red Flag: Payroll exceeding 22–28% of revenue (category-dependent)

2. Utilities & Energy Audit

✔ Electricity consumption per occupied room

✔ DG fuel usage & pilferage controls

✔ Water usage & leakage checks

✔ Solar & energy-saving systems ROI

✔ Metering for kitchen, laundry, HVAC

Red Flag: No sub-metering or energy MIS

3. Maintenance & Engineering Audit

✔ AMC scope vs actual usage

✔ Breakdown vs preventive maintenance

✔ Vendor dependency & rate benchmarking

✔ Spare parts inventory control

✔ Capital repairs wrongly expensed

Red Flag: Multiple AMCs with low utilization

4. Sales, Marketing & Distribution Audit

✔ OTA commission % vs industry average

✔ Brand & franchise fee ROI

✔ Marketing spend vs conversion

✔ Corporate contract profitability

✔ Channel manager configuration

Red Flag: OTA dependency above 60%

5. Procurement & Vendor Audit

✔ Rate contracts validity

✔ Single-vendor dependency

✔ Price comparison & negotiations

✔ Credit period compliance

✔ Kickbacks & conflict-of-interest risks

Red Flag: No competitive quotations

6. IT, Software & Subscriptions Audit

✔ PMS, POS & accounting overlap

✔ Unused software licenses

✔ Multiple internet connections

✔ AMC renewals without usage review

Red Flag: Auto-renewals without approval

7. Insurance & Statutory Audit

✔ Insurance coverage vs asset value

✔ Duplicate or over-insurance

✔ License renewal penalties

✔ Compliance costs benchmarking

Red Flag: Paying penalties for late renewals

8. Corporate & Head Office Cost Audit

✔ Corporate charge-back logic

✔ Shared services allocation

✔ Travel & meeting expenses

✔ Reporting & audit fees

Red Flag: Corporate costs not linked to performance

9. Security, Housekeeping & Outsourced Services

✔ Contract terms & manpower numbers

✔ Attendance & billing verification

✔ SLA compliance

✔ Rate escalation clauses

Red Flag: Invoicing without attendance proof

10. Budgeting & MIS Audit

✔ Budget vs actual tracking

✔ Monthly variance explanations

✔ Approval hierarchy

✔ Cost per available room (CPAR)

Red Flag: No monthly overhead review meeting

Top 10 Hotel Overhead Leakages

1. Excess Manpower

Overstaffing during low occupancy or off-season periods.

2. Energy Waste

Unmonitored electricity, HVAC misuse, and water leakages.

3. High OTA Commissions

Lack of direct booking strategy increases distribution cost.

4. Unnecessary AMCs

Paying for full-year contracts with minimal equipment usage.

5. Duplicate Corporate Costs

Same roles at property and corporate levels.

6. Vendor Overpricing

Long-term vendors without rate renegotiation.

7. Subscription & Software Bloat

Paying for unused tools, licenses, and platforms.

8. Poor Preventive Maintenance

Breakdown repairs costing more than scheduled maintenance.

9. Insurance Overcoverage

Paying higher premiums than asset risk requires.

10. Lack of Ownership Review

Absence of owner or GM-level cost accountability.

Overhead Control KPIs to Monitor

KPI	Benchmark
Overhead % of Revenue	18–25%
Payroll %	22–28%
Electricity per Occupied Room	Track monthly
OTA Contribution	<50%
CPAR	Reduce YoY

Best Practices for Sustainable Overhead Control

• Zero-based budgeting

• Monthly overhead audit meetings

• Department-wise accountability

• Independent cost audits

• SOP-based approvals

Hotels don’t fail due to low revenue alone—they fail due to uncontrolled overheads. A strong overhead audit system ensures profit protection, better cash flow, and higher asset value.

Revenue is vanity. Profit is sanity. Cash flow is reality.