Is a Craters & Freighters franchisee required to cooperate with the franchisor in connection with inspections and audits?
Craters_Freighters Franchise · 2025 FDDAnswer from 2025 FDD Document
12. AUDITS AND INSPECTIONS.
- 12.1 Access to Business Records.
Franchisor, any Affiliate of Franchisor, or any designee of Franchisee has the right, at any time during reasonable business hours and without prior notice to Franchisee, to undertake or cause an audit or inspection of the Business Records, accounting records, sales and income tax records and returns, and other records of the Franchised Business and the books and records of any corporations or partnership which have any ownership interest in Franchisee.
Franchisee must fully cooperate with Franchisor, any Affiliate of Franchisor, and any designee of Franchisor who is carrying out any such audit or inspection.
- 12.2 Inspections at Premises.
To determine whether Franchisee and the Franchised Business are complying with this Agreement and, more specifically, all System Standards, Franchisor, any Affiliate of Franchisor, or any designee of Franchisee has the right at any reasonable time, and without prior notice to Franchisee, to: (1) inspect and photograph the Premises, and (2) interview personnel and customers of the Franchised Business.
Franchisee agrees to cooperate fully with Franchisor in connection with any such inspections and interviews, including but not limited to using any evaluation forms and surveys prescribed by Franchisor.
- 12.3 Understatement of Adjusted Gross Sales.
In the event any audit or inspection discloses an understatement of the Franchised Business's Adjusted Gross Sales, Franchisee must pay to Franchisor, within fifteen (15) days after receipt of the audit or inspection report, the Royalty Fee and Marketing Fund Contributions due on the amount of such understatement, plus interest at the rate of prime plus five percent (5%) as per the records of any mega national bank from the date originally due until the day of payment.
In addition, Franchisee must reimburse Franchisor for the cost of such any such audit or inspection, including, without limitation, any charges incurred by Franchisor relating to fees arising from attorneys, independent accountants, and the travel expenses, room and board, and compensation of Franchisor's employees in the event such audit or inspection is made necessary by any one or more of the following: (1) Franchisee's failure or refusal to furnish reports, supporting records, or any other information as herein required; (2) Franchisee's failure or refusal to furnish such records or other information as herein required; (3) Franchisee's failure or
refusal to furnish such information on a timely basis; (4) if, after receiving advance notice from Franchisor, Franchisee fails or refuses to have the books and records available for such audit or inspection; (5) Franchisee's failure or refusal to cooperate with any such audit or inspection; or (6) any understatement of Adjusted Gross Sales for the period of any audit or inspection is determined by any such audit or inspection to be greater than five percent (5%). The foregoing remedies will be in addition to any other remedies and rights Franchisor may have under this Agreement or applicable law.
Source: Item 22 — CONTRACTS (FDD pages 49–50)
What This Means (2025 FDD)
According to the 2025 Craters & Freighters Franchise Disclosure Document, franchisees are required to cooperate fully with the franchisor, its affiliates, and designees during audits and inspections. This cooperation extends to providing access to business records, accounting records, sales and income tax records, and other relevant documents.
Craters & Freighters, or its representatives, can conduct audits or inspections at any time during reasonable business hours without prior notice. These audits and inspections aim to ensure that the franchisee is complying with the franchise agreement and the System Standards. Franchisees must also allow inspections and photographs of the premises and facilitate interviews with personnel and customers.
If an audit or inspection reveals an understatement of Adjusted Gross Sales, the franchisee is responsible for paying the Royalty Fee and Marketing Fund Contributions due on the understated amount, along with interest calculated at the prime rate plus five percent from the original due date until the payment date. Furthermore, the franchisee may be required to reimburse Craters & Freighters for the costs associated with the audit or inspection if it was necessitated by the franchisee's failure to provide necessary reports, records, or cooperation. This includes charges for attorneys, independent accountants, and the franchisor's employees' travel expenses, room, board, and compensation.
This clause ensures Craters & Freighters has the ability to monitor and enforce compliance with its standards and financial obligations, while also placing a significant responsibility on the franchisee to maintain accurate records and cooperate fully with any audits or inspections. Failure to comply can result in financial penalties and other remedies available to Craters & Freighters under the franchise agreement or applicable law.