Under what condition are Audit Expenses payable to City Publications?
City_Publications Franchise · 2025 FDDAnswer from 2025 FDD Document
| Type of Fee | Amount | Due Date | Remarks |
|---|---|---|---|
| Audit Expenses | Cost of audit plus interest on underpayment | As invoiced | Audit costs payable only if the audit shows an understatement in amounts due of at least 3%. (Section 12.D) |
Source: Item 6 — OTHER FEES (FDD pages 10–13)
What This Means (2025 FDD)
According to City Publications' 2025 Franchise Disclosure Document, franchisees are responsible for audit expenses only if an audit reveals an understatement of at least 3% in the amounts owed to City Publications. These audit expenses, along with interest on the underpaid amount, are invoiced to the franchisee.
This condition is important for prospective franchisees to understand because it means they could incur significant additional costs if their financial reporting is inaccurate. Franchisees should ensure they maintain accurate records and diligently calculate all royalties and fees owed to City Publications to avoid triggering an audit and the associated expenses. The 3% threshold suggests that minor discrepancies may be tolerated, but substantial underreporting will result in penalties.
In the franchise industry, it is common for franchisors to reserve the right to audit franchisee records to ensure compliance with royalty and fee obligations. However, it is less common for franchisees to be responsible for audit costs unless a significant discrepancy is found. Franchisees should clarify with City Publications what specific accounting practices and documentation are expected to minimize the risk of an audit and potential expenses.