What happens if a Fat Shack franchisee understates gross sales by 2% or more during an audit?
Fat_Shack Franchise · 2025 FDDAnswer from 2025 FDD Document
If any inspection or audit discloses a deficiency in amounts of payments owed to FSI pursuant to this Agreement then such amounts will become immediately payable to FSI by Franchisee, with interest and late fees due in accordance with Section 5.4 hereof, except for Acts of Deception which shall be governed by the provisions of Section 16.5 hereof. In addition, if it is found by any inspection or audit that the Gross Sales of its FAT SHACK Restaurant have been understated by 2 percent or more during the period audited, Franchisee must pay all reasonable costs and expenses FSI incurred in connection with the inspection or audit, including the costs and fees of any independent accountant and the travel and living expenses and compensation of any of FSI's employees or agents conducting such inspection or audit.
Source: Item 23 — Receipts (FDD pages 53–223)
What This Means (2025 FDD)
According to Fat Shack's 2025 Franchise Disclosure Document, if an audit reveals that a franchisee has understated their Gross Sales by 2% or more, the franchisee is responsible for covering all reasonable costs and expenses that Fat Shack incurred during the audit. These expenses include fees for any independent accountants involved, as well as travel, living, and compensation costs for Fat Shack's employees or agents who conducted the audit.
Fat Shack conducts audits and inspections of a franchisee's documents, which may also occur after the termination or expiration of the Franchise Agreement. The documents include ledgers, bank statements, copies of checks, contracts, and any other documents requested by Fat Shack. Franchisees must certify that all documents provided are true, complete, and correct.
Additionally, if a franchisee intentionally underreports Gross Sales to Fat Shack during any reporting period, it is considered an "Act of Deception," which constitutes a default of the Franchise Agreement. This could lead to further penalties or termination of the agreement, as determined by Fat Shack.