What financial threshold of understated Net Sales triggers a reimbursement of audit expenses to Carvel?
Carvel Franchise · 2025 FDDAnswer from 2025 FDD Document
| Type of Fee1, 4 | Amount | Date Due | Remarks |
|---|---|---|---|
| you an extension to any of these deadlines. We may terminate the Franchise Agreement if you fail to open by the Opening Deadline or if you fail to cure a default of the Site Approval or Construction Start Deadlines. | |||
| Repeated Inspection Fee | $500 Non compliance Fee, plus any costs we are charged by third-party inspectors or otherwise incur. | On invoice | If we or our representative inspect you as a result of your repeated or continuing failure to comply with any provision of the Franchise Agreement, you must pay us the cost of the inspection, including the travel and living expenses of our representatives. |
| Audit | Cost of audit. |
Source: Item 6 — OTHER FEES (FDD pages 31–42)
What This Means (2025 FDD)
According to Carvel's 2025 Franchise Disclosure Document, if an audit reveals that a franchisee has understated Net Sales by 2% or more, the franchisee is responsible for reimbursing Carvel for all reasonable expenses associated with the audit. These expenses may include accounting and attorneys' fees. Carvel estimates that typical audit costs range from $1,000 to $4,000.
This policy is fairly standard in franchising, as franchisors need to ensure accurate reporting of sales for royalty calculations and brand consistency. The 2% threshold provides a specific benchmark, protecting franchisees from incurring audit costs for minor discrepancies. However, franchisees should maintain meticulous records to avoid any potential underreporting of Net Sales.
It's important for prospective Carvel franchisees to understand that the audit can be triggered at Carvel's discretion. Franchisees should ensure they have robust accounting practices in place and regularly review their sales data to minimize the risk of underreporting. Furthermore, franchisees should clarify with Carvel what specific documentation and procedures are required to accurately report Net Sales and what triggers an audit.