Under what conditions must an Expense Reduction Analysts franchisee pay for the cost of an audit?
Expense_Reduction_Analysts Franchise · 2025 FDDAnswer from 2025 FDD Document
| NAME OF FEE1 | AMOUNT OR FORMULA | DUE DATE | REMARKS |
|---|---|---|---|
| Our Cost of Audit | Our out-of-pocket expense | Upon invoice | You pay our cost of audit only if the audit showed that your Net Cumulative Receipts were understated by 2% or more, or if the audit was necessary because you did not submit required financial reports to us. |
Source: Item 6 — OTHER FEES (FDD pages 13–19)
What This Means (2025 FDD)
According to Expense Reduction Analysts' 2025 Franchise Disclosure Document, a franchisee is responsible for covering the cost of an audit under specific circumstances. Expense Reduction Analysts will invoice the franchisee for the out-of-pocket expenses incurred during an audit if either of two conditions are met. First, if the audit reveals that the franchisee understated their Net Cumulative Receipts by 2% or more, they will be responsible for the audit costs. Second, if the audit was deemed necessary because the franchisee failed to submit the required financial reports to Expense Reduction Analysts, the franchisee will also be required to pay for the audit.
This policy incentivizes Expense Reduction Analysts franchisees to maintain accurate financial records and submit them as required. Underreporting revenue not only affects the royalty payments due to Expense Reduction Analysts but can also trigger an audit at the franchisee's expense. Similarly, failing to provide necessary financial reports can lead to an audit, the cost of which the franchisee must bear.
Franchisors commonly reserve the right to audit franchisees' financial records to ensure compliance with the franchise agreement and accurate payment of royalties. However, it is less common for the franchisee to bear the cost of the audit unless discrepancies or non-compliance are found. Prospective Expense Reduction Analysts franchisees should be aware of these conditions and ensure they have systems in place to accurately track and report their Net Cumulative Receipts to avoid potential audit costs.