• by Nina Lentini  @Nina_Lentini, September 5, 2008

Dunkin' Donuts franchisees are calling for greater controls over the franchisee ad fund after the indictment of a former Dunkin' Brands executive on charges of mail fraud in connection with an alleged kickback scheme involving ad fund dollars.

The DD Independent Franchise Owners (DDIFO), which represents the largest association of Dunkin' Donuts franchise owners in the U.S., wants franchisee oversight and regular audits by an independent CPA made available to all franchisees.

Dunkin' Brands said only that it has fiscal controls in place that include independent auditing, but it did not address franchisees' requests to be informed of the results.

Stephen J. Caldeira, chief global communications and public affairs officer, released a statement that says Dunkin' Donuts takes "very seriously our obligation to protect the brand."

"Regarding the indictment of our former employee, we detected the fraud and promptly reported it to the authorities, and we have recovered all monies. As previously stated, as this is a pending legal matter, we will not make any further comment on the case."

The U.S. Attorney's case, filed on Aug. 31, alleges that 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% kickback. The funds Dunkin' Brands paid to Luminore came from the ad fund, which is financed by contributions from all Dunkin' Donuts franchisees.

The franchisee group also took issue with language in its contracts with the franchisor.

Kevin McCarthy, chairman of the board of directors for DDIFO, said the case shows 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. The group asked Dunkin' to remove the clause.

"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."