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Dunkin' franchise group seeks oversight of ad fund
September 4, 2008
BELLINGHAM, Mass. — The DD Independent Franchise Owners (DDIFO), which represents the largest association of Dunkin' Donuts franchise owners in the United States, has announced it is calling for the institution of greater controls over the franchisee ad fund, including direct franchisee oversight and regular audits by an independent CPA, made available to all franchisees.
The request comes in response to the news that a former executive with Dunkin' Brands has been indicted by the U.S. Attorney's office on charges of mail fraud in connection with an alleged kickback scheme involving ad fund dollars.
"Dunkin' Brands acts as ad fund fiduciary on behalf of its franchisees, which hold the integrity of their ad fund as near-sacrosanct," said DDIFO president Mark Dubinsky said. "That such an alleged breach occurred is totally unacceptable. The DDIFO feels that appropriate controls of the ad fund, including direct franchisee oversight and CPA audit, must be instituted immediately."
The U.S. Attorney's case, filed on Aug. 31, 2008, alleges Carolyn Kravetz, the former communications director for Dunkin' Brands, steered $400,000 in business to Boris Levitin, owner of Luminore, a graphic design company, in exchange for a 50 percent kickback. The funds Dunkin' Brands paid to Luminore came from the ad fund, which is financed by contributions from all Dunkin' Donuts franchisees.
As a result, Kevin McCarthy, chairman of the board of directors for DDIFO said the group also is calling for an elimination of the "obey all laws" clause from the franchise agreement "as an unworkable standard of perfection, particularly as it is being used by Dunkin' Brands to justify franchise terminations."
McCarthy said this case highlights the fact that no entity can realistically be expected to always "obey all laws" even though that language is currently used by Dunkin' Brands as justification for the termination of Dunkin' Brands' franchise agreements.
"If nothing else, this federal case shows that not even Dunkin' Brands can comply with its own ‘obey all laws' clause. It is unconscionable to terminate franchisees for failing to do what even the franchisor can't do," McCarthy said.
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