NATIONAL COALITION DEMANDS THAT SEI FIX ASI 2 BUGS IMMEDIATELY B Y T O M AY R E S, | W I T M E R , K A R P , W A R N E R & R Y A N , L L P
In June 2021, SEI rolled out its Accounting System Improvement 2 (ASI 2) to replace its 40-year-old mainframe computer. Although SEI called it an “improvement,” it was anything but because many franchisees have complained about malfunctions and grossly inaccurate reports. The monthly financial statements contain multiple errors and results that are so far removed from reality that they cannot possibly be true. Worse still, many franchisees have been coerced into making equity payments based on inaccurate statements of month-end equity. In response to this system-wide problem, the National Coalition’s General Counsel prepared an extensive demand letter to SEI in conjunction with outside litigation counsel and retained a nationally prominent expert in retail store software accounting systems to assist in understanding the nature and scope of ASI 2’s problems. In the spirit of cooperation and transparency, on August 20, 2021, the National Coalition demanded that SEI take the following steps before the end of the year: 1. No booking of audits above $5,000; 2. For audits already booked, pay money back to franchisees until review process is complete; 3. Suspend all demands for equity contributions; 4. Conduct weekly videoconference calls to monitor progress; and 5. Include National Coalition expert and Officers in the monitoring and review process. At present, an undetermined yet substantial portion of the financial results reported to franchisees are riddled with errors. These cal-
culations necessarily implicate the accuracy of to pay substantially SEI’s financial reporting because its share of all expenses of that the gross profit split as recorded by ASI 2 is not business. The accurate. Accordingly, part of any solution go- franchise agreeing forward will require close cooperation with ment obligates SEI’s independent auditors to assure all stake- SEI to undertake holders that SEI’s 2021 financial statements these bookkeeping and accounting functions, and to provide fairly represent the results of operations. In the letter to SEI, the lawyers pointed monthly financial summaries to franchisees. out over three dozen separate problems re- The National Coalition maintains that SEI ported to the National Coalition, including must therefore fulfill its obligation by delivertechnical issues with the 7-Eleven and 7Now ing complete and accurate financial reporting apps, inconsistencies between information of the results of the operation of each store. Before SEI made ASI 2 available to apin the purchase summary report and the DMR, delayed processing of billbacks and proximately 4,000 stores in March 2021, it scanbacks for cigarette products, delayed designed and tested the system by concentransmission of store orders to vendors re- trating on company-owned locations and sulting in delivery delays, etc. stores outside of the United States. SEI was SEI effectively treated under enormous pres“ In the letter to SEI, the sure to proceed with the its franchisees as test subjects in a vast and irresponlawyers pointed out over rollout even though the sible experiment that has system was not ready, three dozen separate caused massive dislocation, fearing a delay which problems reported to the would impact its Capidistraction, and damages. tal Expenditures budget Since 2006, SEI has expendNational Coalition.” ed $28.3 billion in 39 M&A and its depreciation detransactions, yet failed to devote adequate ductions, as well as the projected annual human and financial resources to the design savings of more than $3 million from the and implementation of ASI 2. Nevertheless, decommissioning of the mainframe comthe National Coalition seeks to work with puter. The ASI 2 rollout coincided with SEI to achieve a rapid and complete solution other SEI initiatives that diverted attention to this debacle and fair recompense to its and resources and reduced the effectiveness of the system’s deployment: the rollout of member franchisees. While SEI may describe itself as a con- 7BOSS and the purchase of 3,600 Speedvenience store and gasoline retailer, its core way locations (and the later divestiture of function in relation to its franchisee commu- 293 locations to three separate buyers). nity is bookkeeping, accounting, and finan- Given the number of problems in the cial reporting. first 90 days, ASI 2 may never live up to the Each day, every expectations created by SEI and may need “ The National Coalition’s General Counsel prepared franchisee in to be scrapped altogether. an extensive demand letter to SEI in conjunction the system en- If you have any questions regarding this with outside litigation counsel and retained a trusts SEI with article, you can call or email me. nationally prominent expert in retail store software the cash receipts TOM AYRES of its franchised accounting systems to assist in understanding the CAN BE REACHED AT 617-423-7250 store and the or tayres@wkwrlaw.com nature and scope of ASI 2’s problems.” responsibility J U LY | A U G U S T 2 0 2 1 AVANTI
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