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Franchise audit presentation

Franchise audit presentation

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  • 6207 RETAIL STORES includes 580 franchises Lenscrafters Pearle Vision Sunglass Hut Ilori Sunglass Icon The Optical Shops of Aspen Oliver Peoples Oakley Stores and Vaults OPSM Laubman & Pank Budget Eyewear Bright Eyes China (83 store unnamed chain)
  • NORTH AMERICA 4836 stores ( LC – 951 stores )(Pearle–875 470 corporate and 405 franchises) ( Sears – 881 )(Target – 304)( Hut 1574 )(Oakley – 83)( Optical Aspen 20 )(Sunglass Icon–143)( Oliver Peoples–5 ) WORLD 1371 stores (Asian Pacific–793 + 124 franchises)(China 247)(Europe 97 + 5 Franchises)(Africa ME – 28 franchises)(S Africa 70)(Central and South Am 1 + 6 franchises)

Transcript

  • 1. FINDING FRANCHISE FRAUD Developing a Best Practice Review Michael Kotyk, CFE Director Audit and Compliance Alan Greggo, CFE, CPP AVP Loss Prevention
  • 2. Luxottica – Luxottica Group
    • 130 Companies: North,South and Central America, Australia, New Zealand, China, Hong Kong, Europe, Africa, South Africa and the Middle East.
    • World’s leading Designer, Manufacturer and Distributor of premium and luxury prescription eyeglass frames and sunglasses.
    • Global leader in eyewear with nearly 6,300 optical and sun retail stores. Over 49,000 associates.
  • 3. Who We Are
  • 4. You Know Our Retail Stores - BRANDS
  • 5. You Know Our Product Brands
  • 6. You Know Our Licensed Brands
  • 7. PEARLE VISION
    • 2004 acquired Pearle Vision
    • 483 Corporate Stores and 409 Franchises
    • Franchises 40 states, Puerto Rico & Caribbean
    • Royalties/Advertising Fees based on sales
    • Reported Sales Monthly
    • No verification process in place
  • 8. Developing the Program
    • No Field Audit Department
    • Loss Prevention Department conducts operational compliance audits
    • LP challenged to audit between 8%-10% of the Pearle Franchisees
    • Main focus – financial reporting accuracy
  • 9. Audit vs Best Practice Review
    • Learning opportunity vs fact finding
    • Improve profitability
    • Offered as self-help tool
    • Support Franchise
    • WIN-WIN Situation
    • Increase sales/profit-increase royalty
  • 10. Audit vs Best Practice Review
    • Enrich Business Relationship
    • Identify financial control issues
    • Improve efficiency
    • Identify Risk Management issues
    • Teach Loss Prevention techniques
  • 11. First Steps
    • Franchise Manual and related documents reviewed
    • 2005 - A small group of seasoned LP personnel traveled to some of the best operational and most profitable stores to study their systems and procedures.
    • Field Operations consulted
    • Meet with the Associate Relations Department
    • Met with the Corporate Franchise Department
  • 12. Next Steps
    • We developed a series of questions that centered around the following areas:
      • Operations
      • Efficiency
      • Signage
      • Displays
      • Safety
      • Product
      • Quality of Manufacturing
      • Sales Reporting
  • 13. KEY FOCUS AREAS
    • SALES REPORTING PROCEDURES
    • SALES ACCURACY
    • AUDIT TO THE AGREEMENT
    • PROTECT THE BRAND
  • 14. FINAL STEPS
    • DEVELOPED A SERIES OF YES- NO QUESTIONS
    • - Physical Security
    • - Third Party (Insurance processing)
    • - Inventory Controls
    • - General Operations
    • - Deposit Controls
    • - End of Day Procedures
    • - Cash Management
    • - Records Administration
    • - Financial Reporting
  • 15. Questions Reviewed by Legal Department
    • REVIEWED/ APPROVED BY THE LEGAL DEPARTMENT
      • ENSURE REVIEWING AREAS WITHIN LEGAL RIGHTS AS PER THE AGREEMENT
      • ENSURE WE WERE NOT ACCEPTING RESPONSIBILITY BY CONDUCTING INSPECTIONS IN AREAS SUCH AS SAFETY AND OR CHEMICAL AND HAZADOUS MATERIAL CONTROLS
      • ENSURE WE WERE NOT JEPORDIZING STATE REGULATORY CONTROLS AS THEY PERTAIN TO THE OPERATIONS OF A DOCTOR’S BUSINESS.
  • 16. Program Introduced to Franchise Community
    • Letter to all franchisee’s
    • Article in the Franchise Monthly Newsletter
    • Booth at the Annual Franchise Convention
    • First group of Franchise Best Practice Reviews scheduled - 30 day advance notice
    • First reviews conducted in 2005
  • 17. Review Selection Steps
    • Prior to sales year – During the 4 th Quarter of any year all departments (Finance, Legal, Operations) will submit a list of potential review locations.
    • Audit and Compliance Department will use the list to schedule upcoming reviews.
    • Through out the year location additions and deletions will be made based on corporate needs or franchisee requests.
  • 18. Best Practice Review Selection Process
    • FINANCIAL –
    • Late Payments 2 months in a row
    • Late Payments 3 times in a year
    • Over drafts/non payment
    • Sales of corporate stores in the area
    • Sales trends
    • LEGAL –
    • Agreement disputes
    • Over-payments
    • Investigative reasons
  • 19. Best Practice Review Selection Process
    • OPERATIONS –
    • Improve results
    • Increase efficiency
    • Sales support
    • LOGISTICAL –
    • Travel restrictions
    • Budget requirements
  • 20. PEARLE VISION STORE
    • PEARLE VISION STORE IS MADE UP OF THE FOLLOWING:
      • RETAIL SALES FLOOR
      • LAB – WHERE EYEWEAR IS MANUFACTURED OR ASSEMBLED
      • DOCTOR OFFICE – WHERE EYE EXAMS ARE CONDUCTED
  • 21. The Franchise Best Practice Review
    • Review Team – two Audit and Compliance personnel (one certified optician)
    • Review requires two full business days
    • Two years of sales data are analyzed
    • Approximately 90 different aspects of the business are reviewed
  • 22. FRAUD
    • Employee of the Franchisee is committing fraud against the franchisee.
      • Reported Income
      • Un-reported Income
    • Franchisee is committing fraud against the franchisor.
  • 23. Fraud Review
    • Refunds
    • Voids
    • Petty Cash
    • Write offs
    • Credit Memo’s
    • Cash Sales
    • Credit Card Transactions
    • No sales
    • Discounts
  • 24. Fraud Review - continued
    • Under-ringing
    • Swap checks for cash
    • Skimming
    • Cash Theft
    • Unrecorded Sales
    • Register Shortages
    • Register Overages
    • Altered Documents
  • 25. Fraud Review - continued
    • Missing Documents
    • Duplicate Billings
    • False Customer Data
    • Inventory shortages
    • Returns to Manufacturers
    • Special Orders
    • Shipments to non store locations
  • 26. Fraud Prevention Tips
    • Numbered Receipts
    • Proper Posting of Insurance
    • Mail Control
    • Balancing Monthly Bank Statements
    • Proper Balancing of Credit Card Transactions
    • Monitor all Exception Transactions
    • Verify Refunds (Customer Service Call)
    • Monitor Bank Deposits (Timeliness and Accuracy)
    • “ Small Business Fraud Prevention Manual” by ACFE
  • 27. Other Initiatives
    • Mystery Shop Program
      • Evaluate Customer Service
      • Gauge Selling Methods
      • Fine Tune Training Programs
      • Ensure Loss Prevention Procedures followed
      • Verify receipt information
      • Verify register quantity
      • Product Quality
  • 28. Other Initiatives (continued)
    • CCTV Usage
    • Employment Applications
    • I-9 Employment Eligibility Verification
    • HIPAA (Health Insurance Portability and Accountability Act)
    • Medicare Compliance
    • Medicaid Compliance
  • 29. General Information
    • Over 1500 Franchise companies in the US
    • FTC (Federal Trade Commission) regulates disclosures not ongoing issues
    • IFA (Internal Franchise Assoc) reports that
      • 18% Fast Food
      • 11% Retail
      • Travel and Lodging
    • Major emphasis should be to protect “THE BRAND”
  • 30. General Information
    • Food Sources (HACCP – Hazard Analysis and Critical Control Points)
    • Food Quality – substitutions of product, mix soda
    • Food Preparation – safety handling, waste, hygiene
    • Food Presentation – weight, portions
  • 31. Failure to Protect the Brand
    • Loss of Revenue (Royalties and Fees)
    • Spinach Recall (e-coli) – growers lost 177 million
    • Peanut Butter Recall 2007 – months to recover
    • Pet Food Recall
    • Meat Plant Closures after 67 years
    • Salmonellosis – Tomatoes and or chili peppers????
    • CHI-CHI Restaurant closed – Hepatitis Outbreak
  • 32. QUESTIONS
    • Thank You For Your Time and Interest
    • Contact Information
      • Alan Greggo, AVP Loss Prevention 513-765-6289
      • Mike Kotyk, Dir. Audit & Compliance 330-652-3870