Under what circumstances will a Carls franchisee be required to reimburse CJR for the cost of an audit or inspection?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
If an inspection or audit discloses an understatement of Gross Sales, Franchisee shall pay CJR, within 10 days after receipt of the inspection or audit report, the deficiency in the royalty fees and advertising contributions plus interest (at the rate and on the terms provided in Section 7.F.) from the date originally due until the date of payment. If an inspection or audit is made necessary by Franchisee's failure to furnish reports or supporting records as required under this Agreement, or to furnish such reports, records or information on a timely basis, or if an understatement of Gross Sales for the period of any audit is determined by any audit or inspection to be greater than 2%, Franchisee also shall reimburse CJR for the reasonable cost of the audit or inspection including, without limitation, the charges of attorneys and independent accountants, and the travel expenses, room, board and compensation of CJR's employees or designees involved in the audit or inspection. The foregoing remedies shall be in addition to all other remedies and rights available to CJR under this Agreement or applicable law.
Source: Item 22 — CONTRACTS (FDD page 80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, a franchisee may be required to reimburse CJR for the cost of an audit or inspection under specific circumstances. If an audit reveals an understatement of Gross Sales, the franchisee is responsible for paying the deficiency in royalty fees and advertising contributions, along with interest. This interest is calculated from the original due date until the payment date, as detailed in Section 7.F of the agreement.
Furthermore, Carls will require the franchisee to cover the reasonable costs of the audit or inspection if the audit was initiated due to the franchisee's failure to provide necessary reports or supporting records on time. This reimbursement also applies if any audit or inspection determines that the understatement of Gross Sales exceeds 2% for the audited period. The costs that Carls may charge back to the franchisee include charges from attorneys and independent accountants, as well as travel expenses, room, board, and compensation for Carls's employees or designees involved in the audit or inspection.
These measures ensure that Carls franchisees adhere to reporting standards and accurately represent their financial performance. The financial burden of an audit can be significant, especially if discrepancies are found, so franchisees must maintain accurate records and comply with reporting requirements to avoid these costs. This is a fairly standard practice in franchising, as franchisors need to ensure brand consistency and accurate royalty payments across all locations.