National Coalition Demands That SEI Fix ASI 2 Bugs Immediately

BY TOM AYRES, | WITMER, KARP, WARNER & RYAN, LLP

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 calculations necessarily implicate the accuracy of SEI’s financial reporting because its share of the gross profit split as recorded by ASI 2 is not accurate. Accordingly, part of any solution going forward will require close cooperation with SEI’s independent auditors to assure all stakeholders that SEI’s 2021 financial statements fairly represent the results of operations.

In the letter to SEI, the lawyers pointed out over three dozen separate problems reported to the National Coalition, including technical issues with the 7-Eleven and 7Now apps, inconsistencies between information in the purchase summary report and the DMR, delayed processing of billbacks and scanbacks for cigarette products, delayed transmission of store orders to vendors resulting in delivery delays, etc.

SEI effectively treated its franchisees as test subjects in a vast and irresponsible experiment that has caused massive dislocation, distraction, and damages. Since 2006, SEI has expended $28.3 billion in 39 M&A transactions, yet failed to devote adequate human and financial resources to the design and implementation of ASI 2. Nevertheless, the National Coalition seeks to work with SEI to achieve a rapid and complete solution to this debacle and fair recompense to its member franchisees.

While SEI may describe itself as a convenience store and gasoline retailer, its core function in relation to its franchisee community is bookkeeping, accounting, and financial reporting. Each day, every franchisee in the system entrusts SEI with the cash receipts of its franchised store and the responsibility to pay substantially all expenses of that business. The franchise agreement obligates SEI to undertake these bookkeeping and accounting functions, and to provide monthly financial summaries to franchisees. The National Coalition maintains that SEI must therefore fulfill its obligation by delivering complete and accurate financial reporting of the results of the operation of each store. Before SEI made ASI 2 available to approximately 4,000 stores in March 2021, it designed and tested the system by concentrating on company-owned locations and stores outside of the United States. SEI was under enormous pressure to proceed with the rollout even though the system was not ready, fearing a delay which would impact its Capital Expenditures budget and its depreciation deductions, as well as the projected annual savings of more than $3 million from the decommissioning of the mainframe computer. The ASI 2 rollout coincided with other SEI initiatives that diverted attention and resources and reduced the effectiveness of the system’s deployment: the rollout of 7BOSS and the purchase of 3,600 Speedway locations (and the later divestiture of 293 locations to three separate buyers).

Given the number of problems in the first 90 days, ASI 2 may never live up to the expectations created by SEI and may need to be scrapped altogether.

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“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 letter to SEI, the lawyers pointed out over three dozen separate problems reported to the National Coalition.” TOM AYRES

CAN BE REACHED AT 617-423-7250 or tayres@wkwrlaw.com