If a Gokhale Method franchisee underreports revenue by more than 2 percent, who pays for the audit?
Gokhale_Method Franchise · 2024 FDDAnswer from 2024 FDD Document
We have not audited any franchisees to date and do not know the cost that would be incurred by a franchisee who had under-reported revenue.
Under the franchise agreement, if a franchisee underreports revenue in an amount in excess of 2 percent, the franchisee must pay the costs of the audit, which include the fees of the auditors, travel, meals and lodging for them and any other costs incurred with obtaining and performing the audit.
Based upon our current knowledge of auditors' hourly rates, and depending upon the time required for the audit and whether travel to your place of business would be necessary, the audit cost could range from several hundred dollars to several thousand dollars.
Source: Item 6 — OTHER FEES (FDD pages 11–13)
What This Means (2024 FDD)
According to Gokhale Method's 2024 Franchise Disclosure Document, if a franchisee underreports revenue by more than 2 percent, the franchisee is responsible for covering the costs of the audit. These costs encompass the fees for the auditors, their travel expenses, meals, lodging, and any other expenses incurred during the audit process. The FDD specifies that Gokhale Method has not audited any franchisees to date.
The FDD indicates that the cost of an audit could range from several hundred to several thousand dollars. This range depends on factors such as the auditors' hourly rates, the time required to complete the audit, and whether travel to the franchisee's business location is necessary.
Prospective Gokhale Method franchisees should be aware of this potential financial burden if an audit reveals significant underreporting of revenue. It is crucial to maintain accurate records and reporting practices to avoid triggering an audit and incurring these expenses. Franchisees should clarify with Gokhale Method the specific procedures and criteria used to determine underreporting and conduct audits to ensure compliance and minimize risk.