What is the franchisee's obligation regarding cooperation with 1 800 Packouts during inspections and audits?
1_800_Packouts Franchise · 2025 FDDAnswer from 2025 FDD Document
To determine whether you are complying with this Agreement, we will have the right at any time during business hours, and upon reasonable notice to you, to (a) inspect your offices or any other facility or vehicles used by you and (b) inspect and audit, or cause to be inspected and audited, the Franchised Business and accounting records, sales and income tax returns, and other records of the Franchised Business and any Mitigation Business in which you have any interest or involvement in whatsoever. You must cooperate with our representatives and any independent accountants hired by us to conduct any such inspection or audit. If the audit or any other inspection should reveal that any payments to us have been underpaid, then you shall immediately pay to us the amount of the underpayment plus interest from the date such amount was due until paid at the rate of 18% per annum or the maximum rate permitted by law, whichever is less. If the inspection discloses an underpayment of 3% or more of the amount due for any period covered by the audit, you shall, in addition reimburse us for any and all costs and expenses connected with the inspection (including, without limitation, travel expenses and reasonable accounting and attorneys' fees). The foregoing remedies shall be in addition to any other remedies we may have.
Source: Item 23 — RECEIPT (FDD pages 67–238)
What This Means (2025 FDD)
According to 1 800 Packouts's 2025 Franchise Disclosure Document, franchisees must cooperate with 1 800 Packouts' representatives and any independent accountants hired by them to conduct inspections and audits. 1 800 Packouts has the right to inspect the franchisee's offices, facilities, and vehicles, as well as audit accounting records, sales and income tax returns, and other business records. These inspections and audits can occur at any time during business hours, provided that 1 800 Packouts gives reasonable notice.
If an audit reveals that payments to 1 800 Packouts have been underpaid, the franchisee must immediately pay the underpayment plus interest. The interest rate is 18% per annum or the maximum rate permitted by law, whichever is less, calculated from the date the amount was originally due until it is paid.
Furthermore, if the inspection uncovers an underpayment of 3% or more of the amount due for any period covered by the audit, the franchisee is responsible for reimbursing 1 800 Packouts for all costs and expenses associated with the inspection. This includes travel expenses, reasonable accounting fees, and attorneys' fees. These remedies are in addition to any other remedies that 1 800 Packouts may pursue.
This clause highlights the importance of maintaining accurate and transparent financial records. Franchisees should ensure they have robust accounting practices in place to avoid underpayments and potential penalties. The potential for covering audit costs and legal fees in case of significant underpayment serves as a strong incentive for franchisees to maintain compliance.