What costs must a Spray Net franchisee reimburse if an audit reveals underreporting?
Spray_Net Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisor and its designated agents shall have the right to examine and audit Franchisee's records, accounts, books, computer files and data, including the any proprietary software used in connection with the System, at all reasonable times to ensure that Franchisee is complying with the terms of this Agreement.
If such audit discloses that Franchisee has underreported the Gross Sales of the Franchised Business (or any amount due to Franchisor) in any given reporting period (weekly, monthly or otherwise), then Franchisee must: (i) reimburse Franchisor any costs/expenses incurred in connection with conducting the inspection and audit; and (ii) immediately pay any amount due and owing Franchisor as a result of Franchisee's underreporting, along with any accrued interest on said amounts.
Source: Item 23 — RECEIPTS (FDD pages 75–219)
What This Means (2025 FDD)
According to Spray Net's 2025 Franchise Disclosure Document, if an audit reveals that a franchisee has underreported gross sales or any amount due to Spray Net, the franchisee must reimburse Spray Net for the costs and expenses incurred during the inspection and audit. Additionally, the franchisee must immediately pay the underreported amount, along with any accrued interest on those amounts.
This means that if Spray Net suspects a franchisee is not accurately reporting their sales figures, they have the right to conduct a thorough examination of the franchisee's financial records. Should this audit confirm underreporting, the franchisee becomes responsible for covering the expenses Spray Net incurred to perform the audit itself. This could include fees for auditors, travel costs, and other related expenses.
Furthermore, the franchisee is obligated to promptly rectify the underreporting by paying the outstanding balance to Spray Net. This payment includes not only the initially underreported amount but also any interest that has accumulated on that amount over time. This provision incentivizes accurate reporting and ensures that Spray Net receives all revenue to which it is entitled under the franchise agreement.
For a prospective Spray Net franchisee, this highlights the importance of maintaining accurate and transparent financial records. It also underscores the potential financial consequences of underreporting sales, which can include not only the repayment of the underreported amount and interest but also the cost of the audit itself. Franchisees should ensure they have systems in place to accurately track and report all sales to avoid these penalties.