Under what conditions are Audit Expenses charged to a Gokhale Method franchisee?
Gokhale_Method Franchise · 2024 FDDAnswer from 2024 FDD Document
| TYPEOFFEE | AMOUNT | DUEDATE | REMARKS |
|---|---|---|---|
| AuditExpenses | Upondeliverytoyouofanaudit letterspecifyingunderstatement ofincomeorsalesof2percentor more | Seenote6. |
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, franchisees may incur audit expenses if they underreport revenue by a certain threshold. Specifically, if a Gokhale Method franchisee underreports revenue by more than 2%, they are responsible for covering the costs of the audit. These costs encompass fees for the auditors, their travel, meals, lodging, and any other expenses related to conducting the audit.
The FDD indicates that the exact cost of an audit can vary significantly. It 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. Consequently, the audit expenses could range from several hundred to several thousand dollars.
The table in Item 6 of the Gokhale Method FDD specifies that audit expenses are due upon delivery of an audit letter specifying understatement of income or sales of 2% or more. It is important for prospective franchisees to understand these conditions, as underreporting revenue, even unintentionally, could lead to substantial audit expenses in addition to other potential penalties or legal consequences.