Under what circumstances must a Del Taco franchisee pay the costs of an audit?
Del_Taco Franchise · 2025 FDDAnswer from 2025 FDD Document
| Type of Fee 1 | Amount | Due Date | Remarks |
|---|---|---|---|
| Audit Fees and Expenses | Will not exceed our actual out-of-pocket costs (currently about $1,000 to $2,000) | As incurred | You must pay all amounts shown as due. If you understated net sales by 1% or more, you also must pay all costs of the audit. |
Source: Item 6 — OTHER FEES (FDD pages 18–21)
What This Means (2025 FDD)
According to Del Taco's 2025 Franchise Disclosure Document, a franchisee is responsible for covering the costs of an audit under specific conditions. Generally, Del Taco will bear the initial expenses, which are estimated to range from $1,000 to $2,000, representing their actual out-of-pocket costs. However, if an audit reveals that the franchisee has understated their net sales by 1% or more, the franchisee becomes liable for all the expenses associated with the audit.
This provision serves as an incentive for Del Taco franchisees to accurately report their net sales. Underreporting sales not only affects the royalty payments due to Del Taco but also distorts the overall financial picture of the franchise system. By holding franchisees accountable for audit costs when significant underreporting is discovered, Del Taco aims to ensure transparency and accuracy in financial reporting across all franchise locations.
For a prospective Del Taco franchisee, this highlights the importance of maintaining meticulous and accurate financial records. Implementing robust accounting practices and regularly reviewing sales data can help prevent unintentional errors that could trigger an audit. Understanding this policy and its potential financial implications is crucial for franchisees to manage their business responsibly and avoid unexpected expenses.
It's worth noting that the FDD specifies that the audit costs will not exceed Del Taco's actual out-of-pocket expenses, providing some level of cost certainty. However, the exact amount can vary depending on the scope and complexity of the audit. Franchisees should clarify with Del Taco the specific procedures and criteria used for conducting audits to fully understand their obligations and potential liabilities.