Who bears the cost of an audit conducted by Fat Shack?
Fat_Shack Franchise · 2025 FDDAnswer from 2025 FDD Document
FSI's choosing. FSI shall provide written notice to Franchisee of its election to conduct an audit of Franchisee's books and records pursuant to this section and upon receipt of such written notice, Franchisee shall immediately pay to FSI $10,000.00 (the "Audit Fee"), which Audit Fee shall be utilized by FSI to offset the cost and expenses incurred by FSI or its designated representatives in conducting such audit. If the final costs and expenses
of the audit are less than the Audit Fee, FSI shall either, in its sole discretion, refund the excess portion of the Audit Fee to Franchisee or offset such excess portion of the Audit Fee against other amounts determined to be due to FSI. If the actual cost of the audit exceeds the Audit Fee, Franchisee shall pay FSI the excess amount within 10 days of written notice of the deficiency and demand for payment. Failure on the part of Franchisee to pay the excess amount shall be deemed a continuing default of Franchisee under this Agreement.
17. TRANSFER
17.1. Transfer by Franchisee
Franchisee agrees that the rights and duties created by this Agreement are personal to Franchisee (or its shareholders, partners, members, or owners, if Franchisee is a corporation, partnership, limited liability company or other entity) and that FSI has entered into this Agreement in reliance upon FSI's perceptions of the individual or collective character, skill, aptitude, attitude, business ability, and financial capacity of Franchisee (or its shareholders, partners, members, or owners).
Source: Item 23 — Receipts (FDD pages 53–223)
What This Means (2025 FDD)
According to Fat Shack's 2025 Franchise Disclosure Document, the franchisee typically bears the cost of audits. Prior to the audit, Fat Shack requires the franchisee to pay a $10,000 Audit Fee, which Fat Shack uses to offset the costs and expenses of the audit. If the audit costs less than $10,000, Fat Shack may refund the excess or offset it against other amounts owed by the franchisee. However, if the audit costs exceed $10,000, the franchisee must pay the excess within 10 days of receiving notice. Failure to pay this excess amount constitutes a default under the agreement.
However, there is an exception: Fat Shack will bear the cost of the audit unless the audit reveals that the franchisee has understated their Gross Sales by 2% or more during the audited period. In this case, the franchisee is responsible for all reasonable costs and expenses Fat Shack incurred, including fees for independent accountants, travel, living expenses, and compensation for Fat Shack employees or agents involved in the audit.
This arrangement means that franchisees must maintain accurate financial records. Underreporting sales figures can lead to significant financial penalties beyond the initial underpayment. The initial $10,000 audit fee provides some protection against minor discrepancies, but substantial errors can result in the franchisee covering the full cost of the audit. This incentivizes accurate reporting and compliance with Fat Shack's financial protocols.