Donut Cops Sniff Out Frauds in Fast Food Restaurants

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Donut Cops Track Franchise Fraud

The investigators have been trained in more than how to tell the difference between a Dunkin' donut and an imposter. They are often recruited from the ranks of federal law enforcement, like the IRS or Customs, people used to handling major investigations, Mershimer said.

Some are trained business analysts, or even former detectives, according to Ribacoff.

'You want people financially savvy," Mershimer said.

Dunkin' Donuts isn't alone in having a lab for its forensic work.

"Every single franchise food concept has a lab where they send their products in to make sure it's the right product," he said.

Mershimer, who now runs a restaurant security firm called H.S. Brands, employs 300,000 freelance mystery shoppers and 125 auditors and investigators. When brands ask for it, they are sent into convenience stores and restaurants around the world to make sure that products are being made according to brand specifications.

What Mershimer and the brands are trying to combat is franchisee fraud in which the owners of a local franchise are breaking their agreements with the national brand by not reporting accurate profits, not participating in certain special offers, or getting cheap ice cream mix from the wholesaler down the street.

Franchisees will go to any lengths to make extra cash without reporting it to the brand, Mershimer said. Store owners have been known to arrive on Friday nights at their stores with fresh cash registers, swapping them out with the branded register during busy weekends, and then telling the parent company they are closed on weekends.

"The majority of franchisees are hardworking business people that honestly report, but there are franchisees in any system -- Dunkin, Quiznos, Subway -- any quick service restaurant, with 90 percent payments are cash, by small operators, and there is an opportunity for that franchisee to not ring the sales into the register," he said.

Representatives from Dunkin' Brands, which owns Dunkin' Donuts and Baskin Robins, and Yum Brands, which owns KFC, Pizza Hut, and Taco Bell, did not respond to multiple requests for comment. Subway and Quiznos did not immediately respond to requests for comment.

For brands, franchise compliance and royalty assurance are chief legal issues. If a franchisee is caught using cheap doughnut mix from a wholesale store, shorting their cash register, or putting ketchup on their Big Macs, lawyers and threats of legal action are usually not far behind.

"Most franchisors aren't shy about taking franchisees (to court). Most disputes are settled well before that. The franchisee realizes, 'I really shouldn't be selling tacos at a donut stand,' or whatever."

Typically, brands first send franchisees a "notice to cure" the problem, and then lawyers send a more stern letter to fix the problem within 10 days, and finally a notice that the franchisee's contract will be terminated, Mershimer said.

"If you let noncompliance even one time, you're setting a precedent. It's that important that the Subway sign is the same in every place in the world," Mershimer said.

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