Disputes in regard to royalties and fees can arise in any situation in which one party owes payments to another party based on a pre-determined agreement or formula. These disputes inherently involve financial results, accounting records, calculations and in some cases fraud. As a result, forensic accountants are often retained to ensure proper compliance with the applicable agreements and to substantiate or refute disputable claims of incorrect royalty calculations or payments.
Royalty disputes will often involve the following parties:
- Franchisees and franchisors
- Licensees and licensors
- Authors and publishers
Mr. Harvey recently retired and decided to put his savings into ‘ABC Burgers’, a popular fast food franchise with over 150 locations across the country. Mr. Harvey paid $100,000 for the franchise which was operational within 2 months of purchase.
Almost immediately, Mr. Harvey noticed some irregularities. Although he purchased his ingredients directly from the franchisor as per the franchise agreement, different companies were responsible for delivering the meat, buns and potatoes. Also, he observed that the quality of the product varied from week to week. After some investigation Mr. Harvey discovered that the franchisor was purchasing lower quality products and passing them off as organically-made, with 100% beef and no pesticides.
Mr. Harvey spoke with the other franchisees to share his findings. As it turns out, each franchisee had their own misgivings and questionable experiences about their dealings with the franchisor. There were also several pending litigations that had yet to be resolved between franchises and the franchisor.
After much thought and discussion, the franchisees decided to retain a forensic accountant to conduct a thorough investigation into the franchisor and the legality of his questionable practices. The forensic accountant produced an investigative report and testified in court to share their findings.
Relevant Evidence:
- Contracts
- Financials
- Electronic evidence
- Interviews