What happens if a Circle K audit determines that Gross Sales were understated by more than 2%?
Circle_K Franchise · 2025 FDDAnswer from 2025 FDD Document
If an audit by Franchisor determines that the actual Gross Sales were understated by Franchisee by more than two percent (2%), then Franchisee will immediately pay to Franchisor any identified deficiency in Royalty Fees, Promotional Fees, or other amounts owed to Franchisor hereunder (plus interest as provided in Section 5.6), and will reimburse Franchisor for all costs and expenses incurred by Franchisor in connection with the audit (including salaries of Franchisor's employees or designees, travel costs, room and board, and audit fees).
Source: Item 22 — CONTRACTS (FDD page 100)
What This Means (2025 FDD)
According to Circle K's 2025 Franchise Disclosure Document, if a Circle K audit reveals that a franchisee understated their actual Gross Sales by more than 2%, the franchisee faces specific financial repercussions. They must immediately pay Circle K the deficiency in Royalty Fees, Promotional Fees, or any other amounts owed under the agreement. This payment also includes interest, as specified in Section 5.6 of the agreement.
Furthermore, the franchisee is responsible for reimbursing Circle K for all expenses related to the audit. These costs encompass a range of items, including the salaries of Circle K's employees or designees involved in the audit, their travel costs, room and board, and the audit fees themselves. This means the franchisee could incur significant additional costs beyond the initial underpayment.
This provision underscores the importance of accurate financial reporting by Circle K franchisees. Understating Gross Sales, even unintentionally, can lead to substantial financial penalties and increased scrutiny from the franchisor. Franchisees should maintain meticulous records and ensure compliance with Circle K's reporting requirements to avoid these potential consequences.