Franchisors must prove they have wage fraud under control

A series of government investigations and penalties surrounding systemic wage fraud within the Australian franchise sectors has put the onus on franchisors to prove they have wage fraud under control, or else suffer the wrath of investors, shareholders and the regulator.

The situation has become so bad that Australia’s largest petrol retailer Caltex is getting out of the franchise game altogether.  Transitioning 810 franchised outlets to an in-house managed model.

Unlike Caltex, cashing in your chips and walking away is not an option for the majority of Australia’s franchisors.  Companies like 7-eleven, Domino’s and RFG, which recently reported an $88 million loss for six months, suspended dividends and flagged it will close up to 200 stores, have built their businesses on a highly scalable franchise models. These companies have little option other than to fix the problem.

In order to restore their battered reputations franchisors in general are going to have to implement more effective risk controls around their wage and entitlement systems.

Transitioning their franchisees onto a common computer-based wages systems is one solution.  But is this enough?  Given the industry’s poor compliance track-record and the susceptibility of computer-based wages systems to fraudulent data entry, the answer is a definite no.

There’s little doubt in the future franchisors are going to have to prove they have wage fraud under control – not just say they have.

With penalties of up to $540,000 per offence, and $100,800 for individuals, franchisors can’t affords to wait for the regulator to tell them they have a major wage fraud problem.  They need to be proactive and nip a problem in the bud before it has a chance to escalate into something much bigger.

Conducting regular audits is a very effective way franchisors can stay on top of their wage fraud risks.  But regular auditing can be expensive if its not properly designed.  For example, too much auditing and you could be throwing money down the drain.  Too little, and you could miss a major non-compliance issue.  Getting this balance right is critical to the success of any regular auditing program.

This is where recent advancements in A.I. risk-based thinking technology can help franchisor’s strike the optimum balance between their wage fraud risks and auditing costs.

One of the key benefits of this smart auditing technology is its ability to automatically focus a franchisor’s limited auditing and improvement resources on its highest risk franchisees. In other words, franchisees with an unacceptable compliance track-record are automatically audited more rigorously i.e. more frequently and with a bigger sample-size, than those with an acceptable compliance track-record.

This dynamic, risk-based approach to franchisee auditing is significantly more effective and efficient than conventional static auditing solutions, and can significantly reduce a franchisor’s costs when combined with its quality and safety audits.

For more information about how smart, A.I. risk auditing can benefit your organisation visit our website at

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