Pizza giant Domino's admits it made an "honest oversight" after being caught failing to comply with the law in relation to its multimillion-dollar advertising fund.
The issue, which Domino's chief executive Don Meij described as a "screw up", relates to the release of information on a fund which receives contributions from store owners of between 4-6 per cent of sales to pay for advertising and marketing campaigns.
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In 2016 it collected more than $40 million from Australian franchisees.
Strict governance requirements around such funds legally require franchisors to send franchisees an annual statement detailing how much money is raised and how it is spent. The report is supposed to be sent by the end of November each year.
![Domino's Pizza admits to 'honest oversight' over regulatory breach.](/web/20170225114509im_/http://www.smh.com.au/content/dam/images/g/u/b/8/r/p/image.related.articleLeadwide.620x349.gukhvy.png/1487917523525.jpg)
Domino's admits that it has failed to meet that requirement having last sent out statements detailing the adfund's operations in December 2014. It sent the 2016 statement on Wednesday after receiving a series of inquiries from Fairfax Media.
A number of current and former franchisees have told Fairfax Media they had never received a statement.
In a statement the company said it had acted in good faith and rectified the issue as well as pointing out that the audit raised no issues about the administration of the fund.
But Fairfax Media can reveal the issue has drawn attention from the competition watchdog.
![The ACCC has confirmed it is looking at whether Domino's breached the franchise code](/web/20170225114509im_/http://www.smh.com.au/content/dam/images/g/o/g/p/f/s/image.related.articleLeadwide.620x349.gukhvy.png/1487917523525.jpg)
The Australian Competition and Consumer Commission (ACCC) has confirmed it is looking at whether Domino's breached the franchise code and the Competition and Consumer Act (CCA).
"If a copy of the statement and auditor's report (if required) is not supplied to each franchisee that contributes to the marketing fund within 30 days of being prepared, this is potentially a breach of the code," ACCC chairman Rod Sims said on the same day he announced franchising would be a top enforcement priority for his agency this year.
![Domino's CEO Don Meij.](/web/20170225114509im_/http://www.smh.com.au/content/dam/images/g/u/8/8/x/b/image.related.articleLeadNarrow.300x0.gukhvy.png/1487917523525.jpg)
Domino's could face penalties or infringement notices if found guilty.
Mr Sims said the ACCC would assess information provided for "potential breaches of the Competition and Consumer Act and the Franchising Code, consistent with our Compliance and Enforcement Policy".
"We note that the CCA also provides a right for affected persons to take their own action to recover damages for loss incurred as a result of a contravention of an industry code."
Mr Sims called on franchisees to come forward and supply information.
Fairfax can also reveal that Domino's actively lobbied franchisees not to have the fund independently audited.
Under federal laws Domino's doesn't have to audit the fund if 75 percent of its franchisees vote against it.
One of Domino's most senior executives Nick Knight emailed franchisees on two occasions last year in August and September informing them it would cost $35,000 to audit the fund, which "is an expense that DPE [Domino's] believe would be better spent on genuine marketing and promotional activities to grow our business and brand".
His emails included a voting sheet.
A copy of the 2016 adfund statement reveals that more than $40 million flowed into the fund in the 2016 financial year, with $3.4 million spent on wages, $16.3 million on media expenses and $15 million on online.
Under franchising laws advertising funds can only be used for legitimate marketing or advertising expenses or costs that have been agreed upon by a majority of franchisees.
A copy of the adfund statement shows money could be used for items including mystery shopping programs and legal costs associated with Domino's trademark. The fund also pays for the personal website of Mr Meij, which details his personal journey from pizza delivery driver to chief executive.
Domino's said the items listed in the audit statement are legitimate uses of advertising and marketing funds but said "not all of these activities listed are undertaken or paid for through the adfund, including secret shopping programs."
"Where the distribution of the audit report to franchisees has been delayed, Domino's has apologised to franchisees for this honest oversight," the company said.
"At all times, the cost of marketing activities is allocated to the market it benefits."