Rila Pres

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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)
  • Rila Pres

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

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