United States

Risk management at private clubs and the power of the operational audit


The thrust of this month’s issue surrounds risk and risk management. One such risk about which private clubs are well aware but can struggle to manage is that of brand risk. Private clubs, like other businesses, need to ensure adherence to their brands, which often equates to compliance with operating standards (i.e., consistency). They must test and monitor compliance among employees with policies and procedures in order to create a consistently satisfied member experience. However, before holding employees accountable, private clubs must also ensure they understand expectations and continue to hear, understand and embrace any modifications in standards as they develop.

An operational audit is one tool that can be employed to mitigate the risk of slipping standards.

Much confusion exists in the private club industry as to what an operational audit is. For purposes of this discussion, operational audit will be defined as an examination of the operations of the business.

The objective of operational audit is to examine:

  1. Effectiveness: Doing the right things with the lowest waste of resources possible.
  2. Efficiency: Performing work in the least possible time.
  3. Economy: Striking the right balance between cost and benefits to run operations.

Strictly speaking, an audit of any kind can only occur when are documented assertions are made by management. In an operations audit, those assertions would be comprised of management’s documented standards of performance for all aspects of operations of the private club. They will range from how the phone is answered to the size of a pour at the bar. As this level of standard documentation is lacking at too many private clubs, club management should first ensure that all standards have been documented and communicated to team members.

Perhaps the most strikingly consistent theme witnessed by McGladrey professionals who perform these audits on behalf of club clients is the lack of oversight over standard compliance. One recently observed example involved bartenders and how a club controlled liquor cost. Setting aside the understanding that the typical pour at a private clubs is typically significantly larger than that at a commercial bar or dining venue open to the general public, a defined measurement should exist and be communicated to employees. The food and beverage manager at the club in question was ready to swear that all pours were measured using jiggers or bottle pourers. Meanwhile, after only one shift of anonymously observing bartenders pour freely all night long dissuaded the audit professionals who were able to conclude that what management thought was happening differed greatly from the reality of bar.

While an extensive list of examples—from fuel tanks not being metered or locked to finding storerooms unstaffed during a delivery—could be offered, the lesson is clear. Having a policy or standard documented is only useful if it is adhered to by those who operate under its guise. And how do private clubs measure adherence to these standards without a degree of auditing?