What happens if a Dog Haus franchisee knowingly understates gross sales?
Dog_Haus Franchise · 2025 FDDAnswer from 2025 FDD Document
16.2.7 If an audit or investigation conducted by Franchisor discloses that Franchisee has knowingly maintained false books or records, or submitted false reports to Franchisor, or knowingly understated its Gross Sales or withheld the reporting of the same as provided in this Agreement.
12.4 Audits.
Franchisee shall prepare, and keep for not less than three (3) years following the end of each of its fiscal years, adequate books and records showing daily receipts in, at and from the Dog Haus Restaurants, applicable sales tax returns, if any, all pertinent original serially numbered sales slips and cash register records, and the other sales records as may be reasonably required by Franchisor, from time to time, to verify the Gross Sales reported by Franchisee to Franchisor, in a form suitable for an audit of Franchisee's records by an authorized
auditor or agent of Franchisor. Such information shall be broken down by categories of goods, foods and beverages sold, when possible. Franchisor, its agents or representatives may, at any reasonable time during normal working hours, audit or review Franchisee's books and records in accordance with generally accepted standards established by certified public accountants. If any audit or other investigation reveals an underreporting or under-recording error of three percent (3%) or more, then in addition to any other sums due, the expenses of the audit/inspection shall be borne and paid by Franchisee upon billing by Franchisor, which shall include, without limitation, Franchisor's travel, lodging and wage expenses and reasonable accounting and legal expenses, plus interest at the highest compound rate permitted by Applicable Law, but not to exceed the rate of eighteen percent (18%) per annum.
Source: Item 22 — CONTRACTS (FDD page 87)
What This Means (2025 FDD)
According to Dog Haus's 2025 Franchise Disclosure Document, if an audit or investigation reveals that a franchisee knowingly understated gross sales, Dog Haus has grounds for terminating the franchise agreement. Specifically, section 16.2.7 of Item 22 states that the franchise agreement can be terminated if a franchisee knowingly maintains false books or records, submits false reports, or withholds the reporting of gross sales. This provision gives Dog Haus a strong recourse if a franchisee is found to be intentionally misreporting financial information.
Dog Haus also has the right to audit a franchisee's records. According to section 12.4, franchisees must keep adequate books and records for at least three years, including daily receipts, sales tax returns, sales slips, and cash register records. Dog Haus, its agents, or representatives can audit these records at any reasonable time during normal working hours.
If an audit reveals an underreporting error of 3% or more, the franchisee is responsible for the expenses of the audit, including travel, lodging, wages, accounting, and legal expenses, plus interest. This financial penalty, in addition to the potential termination of the franchise agreement, serves as a deterrent against underreporting sales. Franchisees should maintain accurate records and report sales honestly to avoid these consequences.