Under what conditions will a Churchs Chicken franchisee be required to pay for an audit?

According to Churchs Chicken's 2025 Franchise Disclosure Document, a franchisee will be responsible for covering the cost of an audit under specific circumstances. If Churchs Chicken audits a franchisee and discovers that the franchisee has understated Gross Sales by 2% or more, the franchisee is obligated to reimburse Churchs Chicken for the full cost of the audit, including any travel expenses incurred if the audit requires an on-site visit. This reimbursement is due upon demand.

It's important to note that the FDD also mentions that estimating potential audit costs is difficult due to the many factors that can influence them. These factors include the amount of understatement, the length of time the fees were understated, whether the understatement was intentional, the location of the franchisee's offices and restaurants, the condition of the franchisee's books and records, the number of restaurants at issue, and the franchisee's cooperation with the auditor. The FDD estimates that audit costs could range from $1,000 to $5,000 for one restaurant.

This provision incentivizes Churchs Chicken franchisees to maintain accurate records and report Gross Sales correctly. Underreporting sales not only affects royalty payments but can also lead to additional expenses in the form of audit costs. Prospective franchisees should ensure they have robust accounting practices in place to avoid discrepancies and potential audit triggers. Franchisees should also be aware that the audit costs can vary widely based on the complexity and scope of the audit, as well as the level of cooperation provided during the process.