Donut Cops Sniff Out Frauds in Fast Food Restaurants

June 6, 2012— -- A cop walks into a donut shop.

Far from a fat-cop joke, that sentence could be the beginning of the end for a Dunkin' Donuts shop owner who tried to swap out DD-brand munchkins for a cheaper alternative.

"I used to be able to reach in and pull out a donut, and be able to smell and determine whether it was a Dunkin' Donut," Michael Mershimer, former head of loss prevention for Dunkin' Donuts and Quiznos, told ABCNews.com.

Dunkin' Donuts didn't just rely on Mershimer's nose. It has a lab in Canton, Mass., where Dunkin' investigates fraudulent pastries with the zeal of a forensics team. Donuts are weighed, measured, taken apart by experts in white lab coats. They are tasted, sniffed and mashed to see how they crumble.

Across America's thousands of franchise restaurants are more than 300,000 undercover food cops, pulling apart donuts, inspecting sub sandwiches, and checking burger patties for authenticity. The mystery shoppers are part of a loss prevention strategy that tries to ensure major brands - Quiznos, Baskin Robbins, Burger King - maintain consistency and don't lose money to crafty franchise owners.

Parent corporations are ever vigilant to protect their brands as well as their share of the dough. Mershimer once staked out a donut shop in Michigan through several nights, following its trucks to see where the genuine Dunkin' donuts were being delivered, to find the local franchisee was selling them to hotels and gas stations, and keeping the profits.

Dan Ribacoff is a private investigator who has staked out thousands of franchises for quality assurance, using tactics that ranged from a surveillance van equipped with night vision goggles for a steak house to Dumpster diving for a Rita's Ice shop.

"After they closed, we'd go in and jump into the Dumpsters and find non-Rita's syrup," Ribacoff said.

While working for Baskin Robbins ice cream, Mershimer "busted" a franchisee who bought tubs of cheaper ice cream and used a hot iron around the sides and bottom to make it easy to pour into Baskin Robbins tubs.

Sandwich companies like Quiznos are equally determined to protect its image, covertly buying sandwiches for inspection.

"We'll tear the whole sandwich apart. How much did the cheese weigh? How much did the meat weigh?" Mershimer said.

"It's all about controlling loss and making sure that franchisees are following brand standards. That's why you have Big Macs everywhere with no ketchup. It always has to have the special sauce," Mershimer said.

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.