Under what conditions are Costs of Inspection and Audit payable by a Fat Shack franchisee?
Fat_Shack Franchise · 2025 FDDAnswer from 2025 FDD Document
| Type of Fee | Amount | Due Date | Remarks |
|---|---|---|---|
| Costs of Inspection and Audit1 | Cost of audit, underpayment amount, late payment charges and interest. Varies according to your location | 15 days after receipt of our notice to you of any underpayment | These costs are payable only if you understate your Gross Sales by more than 2%, do not submit reports to us or do not cooperate in performance of inspection and audit. |
| If you commit an Act of Deception (as defined in Section 16.5 of the Franchise Agreement), minimum of $10,000 | Payable in advance | If you commit an Act of Deception, you must pay us $10,000 immediately upon notice from us to cover the cost of the audit. Any amounts unpaid, unreported or underreported must also be paid in full. |
Source: Item 6 — Other Fees (FDD pages 15–18)
What This Means (2025 FDD)
According to Fat Shack's 2025 Franchise Disclosure Document, franchisees may incur costs for inspections and audits under specific circumstances. These costs, which include the cost of the audit itself, any underpayment amount, late payment charges, and interest, become payable if a franchisee understates their Gross Sales by more than 2%, fails to submit required reports, or does not cooperate during an inspection or audit. Payment is due 15 days after the franchisee receives notice of the underpayment from Fat Shack.
Additionally, if a franchisee commits an Act of Deception as defined in Section 16.5 of the Franchise Agreement, they must immediately pay Fat Shack $10,000 upon notice to cover the cost of the audit. Any amounts that were unpaid, unreported, or underreported must also be paid in full at that time.
These stipulations highlight the importance of accurate financial reporting and compliance with Fat Shack's operational standards. Franchisees should ensure meticulous record-keeping and transparency to avoid triggering these potentially significant costs. The Act of Deception clause underscores the need for ethical business practices, as any deliberate misrepresentation can lead to immediate and substantial financial penalties.