FAQS

Q: Should I consider a royalty audit even if I believe royalties are accurately reported?

A: It is commonplace for the reporting and payment of royalties to be much less accurate than the franchisor believes.  Some of the causes of underreporting include intentional understatement of revenues, clerical errors, computer programming errors, the use of an improper royalty rate and omission of new items from the royalty calculation.

Q: Our relationships with our franchisees are very important to us.  How do we maintain that relationship while protecting our rights under the franchisee agreement?

A: In order to maintain the best possible franchisee/franchisor relationship we recommend that you notify all of your franchisees that there is an ongoing auditing program. Since your franchise agreement allows for the possibility of an audit, the goal is to assure that no franchisee believes that it is being singled out.  Periodic audits assure all franchisees that they are playing on a level playing field with others in the system, as everyone contributes fairly to the success of the system.

Q: How frequently should a royalty audit take place?

A: Every franchisee should be audited at least once every three to four years.  It is preferable that a new franchisee be audited within the first two years of a new franchise term to assure that royalties are being calculated, reported, and paid according to the terms of the franchise agreement at the outset of the franchise term.

Q: What is the cost of performing royalty audits?

A: Because we specialize in royalty compliance auditing, our rates are substantially lower than those of a CPA firm. Additionally, it is likely that your franchise agreement provides that your franchisee is responsible for the cost of the audit if more than nominal errors are uncovered. As a result, in the majority of the audits performed the franchisee pays for the cost of the audit.  More importantly, auditing of a small percentage of your franchisees every year has been demonstrated to increase the reported and collected royalties throughout the franchise system.  Royalty audits are not an expense, but rather a revenue generator.

Q: Why should we engage Royalty Recovery Group instead of our CPA firm to perform royalty audits?

A: Royalty Recovery Group focuses exclusively on providing royalty auditing services to uncover and prevent the underreporting of franchise royalties.  We have years of experience in both franchise auditing and in franchise management, while your CPA firm's expertise is in providing financial statement and tax services.  You can benefit from our specialized expertise while maintaining your relationship with your CPA firm.