Yes, there is prostitution there, but it certainly isn't blatant. If you are observant, you might notice the following:
Male guest leaves hotel solo in the evening.
Sometime (15 minutes to several hours) later, male guest returns accompanied by young lady. They go to male guest's room.
Sometime (15 minutes to next morning) later, young lady leaves hotel solo. (If male guest is a gentleman, he escorts young lady to the gate and arranges a motorbike taxi for her.)
You won't see much of anything in the public areas of the hotel, as management keeps a close rein on that sort of thing.
If the sight of people coming to and leaving the hotel is scandalous to your friends then they should stay away.
If they are the least bit sophisticated or worldly, it is considered one of the best non-AI places to stay in BC, with pool, restaurant, etc. etc.