The Light Paychecks ​

The employer is at the center of time theft when franchisees of an Australian convenience store chain are accused of underpaying employees.

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​​An investigation by the Australian Broadcasting Corp.'s Four Corners program has found that 7-Eleven Australia franchisees have systematically underpaid their store employees by submitting false time sheets that underreported the number of hours they actually had worked, among other methods. According to the Herald Sun, the company, which owns the Australian license for the convenience store chain, condu​cted its own review of 225 franchises and found 69 percent of stores had payroll compliance issues, including falsified records. Franchisees withheld holiday pay, paid employees as little as AU$10 an hour (US$7.02) — the employee wage was AU$24 an hour (US$16.86) — and confiscated an employee's passport and driver's license. 7-Eleven Australia Chairman Russ Withers has vowed to reimburse all shortchanged employees.

Lessons Learned

I wrote about time theft by employees in an earlier column, so it is fitting that we now have an opportunity to see how time theft fraud can be perpetrated by the employer. Here are some audit recommendations that could help to deter and prevent the kind of fraudulent activity found at 7-Eleven Australia. A key theme in these recommendations is to ensure that the head office has the means ​to know what is going on in a franchise environment and is held accountable for how it deals with balancing profitability, efficiency, and fraudulent activity.

  • Implement a modern, efficient, and readily monitored time management system. Closed-circuit TV as a basis for time management appears to be quite a 1990s solution, yet that is how 7-Eleven Australia monitored payroll activities at its stores. In 2015, there are numerous cost-effective, software-based solutions that enable employees to clock in and out from traditional time clocks, any computer with Internet access, mobile devices, or telephones. Time clocks are cloud-based and can be configured to record information in a variety of ways, including through fingerprints, magnetic strips, bar codes, proximity badges, and touch screens. All of the data is automatically and immediately transferred as soon as employees clock in or out, which saves the employer the work of getting the times in and out of video. More importantly, these solutions easily can be networked so that the head office has fast and accurate access to the data.
  • Establish and monitor an effective whistleblower program, along with a "no reprisals" policy. The various news stories about this fraud show that a local citizen became concerned about the potential payroll abuse of foreign worker employees on visas and became an advocate and an important factor in uncovering the 7-Eleven Australia fraud. But a large number of these employees expressed deep concern that if they came forward, they would face reprisals including firing and deportation. A corporate whistleblower program, established and enforced by head office, that includes mechanisms for local franchise employees to report abuses to a neutral central office would help to counteract employee concerns about reprisals and catch fraudulent activity earlier.
  • Raise the stakes with regard to deterring fraud and increase the consequences of getting caught. It is clear in this case that there is a long-term systemic problem that needs to be addressed. Australian Fair Work Ombudsman investigations going back as far as 2009 have found numerous violations. With regard to materiality, one franchisee was found to have underpaid four workers almost AU$90,000 (US$62,915) over four years. The Melbourne Magistrates Court penalized that franchisee AU$150,000 (US$104,858) in 2011, but even that is a relatively small amount compared to the kinds of revenues and profits 7-Eleven Australia creates regularly. And, certainly fines and penalties should strike an effective balance between franchise profitability/survival and consequences for violations. However, given that 7-Eleven Australia operates within a corporate franchise business model that relies on an overall franchise agreement — which it claims cannot be altered once signed — perhaps bigger fines and penalties should be assigned to head office as an incentive for positive change. Certainly, 7-Eleven Australia at least should be encouraged to change its franchise agreements going forward so that franchisees who systematically commit fraud lose their license. The company has claimed it did not have the necessary information to either report or deal with franchisee violations, so an appropriate remedial measure would be to require head office reporting to regulators of all franchise violations, at least until the systemic problems are addressed.
  • Finally, governments need to regularly review labor laws, along with the roles, powers, and enforcement mechanisms available to regulators. That seems to be happening in Australia now. To that I would add that this kind of fraud is a problem requiring international cooperation and alignment, given how many countries 7-Eleven operates in. 7-Eleven itself, or governments if necessary, should review and act upon knowledge of the state of franchise theft from employees in all of the countries in which it operates.​
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