What specific concerns did KPMG have regarding John T. Hewitt's continued interactions with franchisees and area developers of Liberty Tax, Inc., the parent company of Zoomin Groomin?
Zoomin_Groomin Franchise · 2025 FDDAnswer from 2025 FDD Document
KPMG expressed to the Audit Committee and Company management its concern that the actions of former Chief Executive Officer John T. Hewitt, who remains the Chairman of the Board and controlling stockholder as the sole holder of the Company's outstanding Class B common stock, have created an inappropriate tone at the top which leads to ineffective entity level controls over the organization. Prior to the termination of Mr. Hewitt's employment as Chief Executive Officer of the Company on September 5, 2017, the Audit Committee oversaw an investigation of allegations of misconduct by Mr. Hewitt. In particular, KPMG noted that Mr. Hewitt took actions to replace two independent members of the Board around the time information relating to this investigation appeared in media reports. KPMG also noted that following the replacement by Mr. Hewitt of two Class B directors, the chair of the Audit Committee retired from the Board, the Company's Chief Financial Officer announced her intention to resign from the Company, and another independent member of the Board announced that he would not stand for reelection at the Company's next annual meeting. Further, KPMG was made aware that following his termination as Chief Executive Officer, Mr. Hewitt may have continued to interact with franchisees and area developers of the Company. Although Mr. Hewitt stated to KPMG during a meeting on November 9, 2017 that he would not reinsert himself into the management of the Company, in light of Mr. Hewitt's actions and his ability to control the Board as the sole holder of the Class B common stock, KPMG informed the Audit Committee and management that it has concerns regarding the Company's internal control over financial reporting as related to integrity and tone at the top and such matters should be evaluated as potential material weaknesses.
Specifically, KPMG informed the Audit Committee and management that Mr. Hewitt's past and continued involvement in the Company's business and operations, including his continued interactions with franchisees and area developers of the Company, has led it to no longer be able to rely on management's representations, and therefore has caused KPMG to be unwilling to be associated with the Company's consolidated financial statements. In notifying the Company of its resignation, KPMG advised the Audit Committee and management that it is not aware of any information that cause it to question the integrity of current management, but rather that the structural arrangement by which Mr. Hewitt controls the Company is the cause of KPMG's concerns. KPMG also noted that because certain information known to the Board regarding the reasons that the Board terminated Mr. Hewitt as Chief Executive Officer had not been disclosed to the current Chief Executive Officer and Chief Financial Officer, KPMG was uncertain as to whether it could continue to rely on management's representations.
Source: Item 4 — 01. Changes in Registrants Certifying Accountant. (FDD pages 66–67)
What This Means (2025 FDD)
According to Zoomin Groomin's 2025 Franchise Disclosure Document, KPMG, the independent registered public accounting firm of Liberty Tax, Inc., had specific concerns regarding John T. Hewitt's continued interactions with franchisees and area developers. KPMG was concerned that Mr. Hewitt's actions, including his continued involvement in the company's business and operations, led them to no longer rely on management's representations. This concern stemmed from Mr. Hewitt's past actions as Chief Executive Officer and his continued control over the Board as the sole holder of Class B common stock. KPMG believed that this structural arrangement caused them to be unwilling to be associated with the company's consolidated financial statements.
KPMG also noted that certain information known to the Board regarding the reasons for Mr. Hewitt's termination as Chief Executive Officer had not been disclosed to the current Chief Executive Officer and Chief Financial Officer. This lack of transparency made KPMG uncertain about whether it could continue to rely on management's representations. Despite Mr. Hewitt stating that he would not reinsert himself into the management of the company, KPMG remained concerned about the company's internal control over financial reporting, particularly regarding integrity and tone at the top, viewing these matters as potential material weaknesses.
For a prospective Zoomin Groomin franchisee, this situation highlights potential risks associated with the parent company's leadership and internal controls. The concerns raised by KPMG suggest a lack of transparency and potential conflicts of interest, which could impact the financial stability and operational integrity of the franchise system. Franchisees should carefully consider these factors and conduct thorough due diligence to assess the potential implications for their investment. It would be prudent to inquire with the franchisor about the current state of internal controls, the measures taken to address KPMG's concerns, and the safeguards in place to ensure transparency and accountability within the organization.