Income: Systems and Controls
by Edward O. Lutz and Peter Guither
"Better is one fore though than two after."
Erasmus
Arts organizations derive their income and funds from a variety of sources. The performing arts sell tickets for public performances; or receive a fixed sum or a sum dependent upon gross box office receipts from an exhibition hall operator. Museums, art galleries and other visual art enterprises may charge admission and/or rely on sales of items exhibited. Most performing arts will also receive some income from ancillary operations which often include sales of food and drink, programs and souvenirs. There may also be income from advertising in programs or on ticket envelopes. Loans or sale of stock to investors may provide funds.
Non-profit organizations often depend primarily on gifts. These may come from individual donations, government subsidies, foundation grants, or from a combination of these sources.
Film production companies obtain most of their revenue from film rentals. Television and Radio stations receive their predominant revenue from sale of time for network, national or regional spots and local advertisers. They may also rent station facilities, sell talent or recorded and transcribed materials, or barter time from advertisers in exchange for services or products.
It is important that a system be employed to insure that all income earned by the enterprise be received by it. Losses can arise from failure to know that an amount is receivable, from incorrect computation of the amount due, from uncollectibility of the sum due (usually financial insolvency of the payor), or from outright theft of the income after receipt.
Any system of income control should encompass a record which can produce the amount receivable. Every sale or lease or donor should be recorded where possible, together with as much accompanying information as is deemed appropriate to future needs. It would be unfortunate, for instance, to lose the correct name and correct address of a charitable donor, so that his gift was not properly acknowledged, and the chance of future contact lost.
The most common system utilized by those that sell unreserved tickets of admission, is to issue serially numbered tickets for each price scale. If the tickets must be issued in numerical order (motion picture theaters use a machine for the issuance of tickets that insures this feature), then a count of tickets sold between any two given time periods may be obtained simply by noting the starting and ending numbers. The starting number, of course, must be the next one after the ending number of the last count up. If income reports are made daily, and the last number used for $3.00 tickets yesterday was #123456, and the last number used today for this same price was 123999, then the box office is responsible for the sale of $1,629 at this price. (543 tickets sold, beginning with #123457 @ $3.00 each). The only exceptions would be for refunds made, voided tickets, exchanges etc., for which a house policy and separate system must be devised.
The most common embezzlement from theatres involves the collection of the admission fee from the patron without the issuance of a ticket to him or the reacquisition of the whole ticket so that it may be resold to another. The technique to combat this theft consists of employing a doorman who receives the ticket and then in some way mutilates it so that it may not be reissued. Usually the ticket is torn, one part is handed to the patron as a receipt, and the rest is deposited into a locked box. The key to this control lies in the involvement of two different employees in the ticket sale and admission procedure. Experienced auditors have learned that internal control is immeasurably improved when a potential thief must take another into their confidence in order to successfully carry out an intended embezzlement. The ticket cashier has perhaps a tenfold better chance to remaining honest, because the doorman will have to cooperate in any reselling of tickets or the entry into the auditorium of any patrons without a ticket. Most persons are reluctant to admit to another, that they would be dishonest; but a great number will steal if they feel that there is no way of getting caught and that no one else will ever know of their dishonesty.
In order to completely "control," i.e. determine the exact cash for which the box office is accountable, it is only necessary to provide pre-printed, serially numbered tickets for each and every price that tickets are sold for within each time period. This includes not only regularly established price scales, but all sorts of special prices for groups, senior citizens, children, two-fers, etc.
An independent check of the box office count of tickets sold is obtainable from a comparison of torn ticket stubs deposited in the ticket-taker's locked box. It is best that this comparison be made at least once a day, or at the end of each labor shift, by someone independent of the box office and ticket taker -- most usually the manager or assistant manager. It is also helpful to this count-up if each separate price is represented by a different color of tickets.
Similar control can also be obtained for the sale of such merchandise as souvenir programs. The simple expedient of numbering such fungible items with consecutive numbers can greatly facilitate the account of the items sold by a salesperson. If not serially numbered, then control can be best effected by counting out the number turned over for sale, and settling up with the salesman by requiring cash or returned, unused program books equaling, at retail price, the number of books originally turned over to the custody of the salesperson. For example, if 100 programs to be sold at $1.00 each are counted out and turned over for sale and the salesperson returns 49 unsold program books, then the salesperson is responsible for the remittance of $51 in cash from sales.
This "retail inventory method" of accountability is equally applicable to the sale of food and drink, whether sold through a concessionaire or through salespersons employed directly by the exhibitor. In this case, where a diverse group of items are sold from the same stand by the same salesperson, however, it is necessary to maintain separate accountability for each item on a periodic basis.
An entertainment center that sells reserved seats has a difficult problem in controlling, i.e., independently determining, the amount of cash that the box office must produce for the sale of tickets during any time period such as one day, or one week. Inasmuch as a large proportion of the tickets are probably sold in advance, the sale of tickets at the counter today bears no relationship to the number of patrons that attended today's performance(s). Many of those that attended today purchased their tickets many days ago; and many of the tickets sold at the box office today were for performances scheduled to take place after today. The box office statement for today's performance purportedly represents the seats sold for that particular performance, without regard to when they were sold. How then can the management ascertain whether the cash turned over as today's cash sales is the proper amount that is forthcoming? For if there is no independent way of determining this sum, then management can only rely on the honesty of its ticket sellers. We will deal with the methods of accomplishing this necessary control, after first determining how box office statements of reserved seat theatres are prepared.
The Box Office Performance Report (Exhibit 1) is the instrument used for calculating the income earned from public performances where "hard" i.e., reserved seat tickets are issued for admission to the auditorium. All seats in the hall must be individually numbered, and the numbers on the tickets must correspond to the seat numbers exactly. Tickets also usually contain the date, the Theatre's name, the price, and possibly, the title of the show being presented.
The starting point for the preparation of the Performance Report is always the capacity of the house, broken down into the capacity at each different price for this particular performance. This capacity must agree with the number of seats in the house and also with the ticket manifest sent with the tickets by the vendor from whom printed tickets were obtained. After the performance has commenced, the box office will inventory the number of unsold (deadwood) tickets remaining on hand at each price for that performance. The difference between the number printed for that performance and the number on hand, unsold, after the performance, will result in a computation of the number sold at each price for the performance. By multiplying the number sold at each price by that price, you get the total sales income at that price. By adding all the gross sales in dollars derived from sales of tickets at each price, the total gross income obtained from the performance will be produced. If one adds the total gross income from prior performances of this attraction to the gross income of this performance, the total gross receipts from sales of tickets to this attraction to date can be computed.
As in unreserved seat houses, a good check on the accuracy of the total sales, as reflected on the face of the box office statement, can be made by comparing the number sold at each price to the number of torn stubs turned over to management by the ticket-taker(s) for that particular performance. The number of stubs of each price must never exceed the number shown as sold on the statement. If it does, it indicates that someone attended this performance with a ticket for another performance, or that there is an error in the box office accounting. However, it is possible that the number of torn stubs may be less than the total shown as sold: some patrons who purchased tickets may not have attended the performance -- and some may have entered without getting their ticket torn. A large discrepancy between torn stubs collected and sales reflected on the box office statement should always be investigated. The most obvious check is to observe the house carefully. Another is to re-check the count of deadwood and also the computations on the face of the statement.
The difficulty with the above system is that many theatres have a variety of possible prices that may be paid for the same ticket. Discounts for students, groups, subscribers, etc. can cause a range of prices within each section and the form above would not, therefore, correctly reflect the actual value of the tickets sold. One solution involves the addition of an extra portion of the ticket called an "audit stub" which is usually perforated and is removed from the ticket at the time of the sale. The box office will, at all times, have each ticket represented either by a whole ticket or an audit stub. The audit stub will be marked by the ticket seller whenever anything other than full price is paid for the ticket (some box office will mark all ticket stubs whether discounted or not to insure that ticket sellers get into the habit of marking them). The marking may be anything consistent which is useful for the box office to identify various discounts. It may involve punching the ticket or stamping the back of the ticket. Two very important points must be considered, however. (1) The marking should be made on both the audit stub and the main portion of the ticket (particularly including the portion that is retained by the ticket taker). This helps the box office double-check the box office report. (2) The marking should not be in a complicated code -- it should be relatively easy to understand by the average patron. Where possible, the actual price paid should be marked. In this way, the patron becomes an additional source of control -- if a person pays $12.00 for a ticket and sees $8.00 stamped on the back, they are likely to ask why. This helps catch mistakes and foils box office theft from ticket sellers who might charge full price, mark the ticket discounted, and pocket the difference. Exhibit 2 shows a Box Office Performance Report using this system.
The Box Office Performance Report computes the amount earned by the presentation; it does not compute the amount due from the box office for tickets sold that same day. If only one event is presented, then the total cash turned over by the box office each day since tickets were first placed on sale must agree with the total ticket sale gross established by the Performance Report. However, most box offices are selling constantly for many different performance. How can the management compute, independently, the amount due from the box office today?
One solution again involves the use of the audit stub. This stub is torn off at the time the ticket is sold and paid for, and deposited into a locked box. At the end of each day, the value of the audit stubs is determined by the manager and compared with the amount of cash turned over by the box office staff. If a stated balance sum of cash is always maintained so that the box office will have sufficient opening cash for making change, then the amount deposited into the company's cash account received from the box office should be the same as the sales of that day at the box office windows and should match the total of the value of the audit stubs. See Daily Box Office Report (Exhibit 3). The flaw in this system lies in the fact that a dishonest ticket-seller, by failing to turn over all the audit stubs, can confiscate an equivalent amount of cash. The only time the shortage will be detected will arise if, and when total deposits are compared with Performance Reports, or when audit stubs are matched against torn stubs from ticket takers.
While additional systems of control may be added to a box office set-up (such as individual sales forms, cash registers, etc.), a box office with a complex hard-ticket, reserved-seat, multiple-performance, varied-price sales arrangement will always have the potential of being victimized by a dishonest ticket seller. Again, the possibility that two or more sellers will cooperate to beat the system is far, far less than with a system wherein a single seller can steal from the box office without anyone else's knowledge.
One of the primary rules in force in all good box offices is that no single ticket-seller is ever left alone with the money or the tickets available. At least two should always be present in order to reduce the possibility of theft.
Today, most professional box offices have completely computerized their box office system. Computerized systems have the capability of showing seat availability, computing the appropriate price, printing the ticket and generating the box office reports. Since the ticket doesn't exist until the computer registers a sale and prints the ticket with the actual sale price on it, it is much more difficult to steal. The ticket seller must produce the amount of money which the computer has registered as total sales for that time period. As with any system, there are certain drawbacks, however. A power-outage or computer crash can be disastrous, and systems must be put in place to authorize voided tickets from mistakes, exchanges, etc.
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