We were retained by the franchisor of a chain of fast food restaurants to perform royalty audits for a select number of franchisees. We were asked to verify that the revenues reported by the franchisees (and on which royalties paid to the franchisor were based) were complete and accurate.
As part of our mandate, we performed mystery shopping, whereby staff would visit the franchisee locations, and order food. We would then request copies of the cash register receipts to confirm that those orders had been recorded in the cash register as a sale. We also observed the number of customers who purchased food during certain times of the day, and reconciled these to the number of sales recorded in the cash register.
We were able to identify thousands of dollars in sales that had not been recorded by the franchisees, which would have resulted in an underpayment of royalties.