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As the global economy continues to suffer through historically high inflation and the looming prospect of a recession, software company sales and revenues are anticipated to flatten or decline. To make up for these revenue shortfalls, software companies will rely on the lucrative practice of software entitlement audits as a source of additional revenue. As such, we at WNS Denali expect major software providers such as Microsoft, Adobe, IBM, Oracle, and SAP to increase their audit activity over the next 12 to 18 months.
When it comes to being audited – whether referred to as “license verifications” or “software asset management engagements” – enterprises must understand that their legal and business interests are being threatened, and they should be prepared to respond in kind. The enterprise needs to defend its interests with a comprehensive audit-response plan. Some of the basic elements of such a plan include the following:
Notify all stakeholders including legal. All communication surrounding the audit should be marked private and confidential to avoid any legal repercussions. Bring Legal into the discussions immediately.
Don’t make any changes to your current estate. Limit the deployment of new installations and do not uninstall any applications unless you’re decommissioning a device or environment. Do not run any programs as requested by the supplier until the NDA, legal documents, and scope have been agreed.
Assemble entitlement documents, including those from any previous audits. Be sure to have all signed final contracts on hand as well as any entitlement documents sent from the suppliers. For example, IBM sends specific entitlement documents following a purchase. These documents can help prove you purchased installed software.
Assemble your audit team. The audit team should consider financial, legal, procurement, asset management, and business stakeholders. Make sure everyone knows their role and responsibility by setting up a RACI chart. Designate a team member (such as Legal or Procurement or both) to be the primary contact with the software provider’s auditor.
Acknowledge the audit notification letter. Receipt of the request for audit is typically required and your agreed upon point of contact should handle this communication. Clarify which products are included in the audit at this time.
Set up an audit-specific non-disclosure agreement. By definition, a software audit requires the organization being audited to disclose certain information to the software provider or the third party performing the audit on the provider’s behalf. This increases the risk that confidential internal, personal, or client data could be exposed/used in a way that is damaging too, or illegal by, the disclosing party. In some cases, you have the right to refuse the third party that the supplier offers to complete the audit. In this case, work with the supplier to find another third party or have them use internal resources.
Set up a kick-off meeting. This meeting formally starts the communication process and sets expectations, roles, and responsibilities. Do not initiate a kick-off meeting until the non-disclosure agreement is fully executed.
Validate the software entitlement data. The software provider’s entitlement data may contain mistakes, so it is imperative to compare the provider’s entitlement data with your own. Do not proceed with the audit until entitlement data is confirmed.
Define scope and methodology, including what will be audited and how it will be audited. Audit scope can include geographies, legal entities, products, versions, and entitlements. Methodology includes processes, scripts, timescales, third-party involvement, and data management. Do not proceed with the audit until audit scope and audit methodology have been finalized. Scope can also include a time range. If there was a previous audit, the scope for this audit should be only installations since the last audit.
Treat any settlements as a negotiation. Don’t just agree to the audit findings and pay any true-up or settlement amounts. Treat this process as a negotiation by taking these steps:
Time any settlements with the software provider’s month, quarter, or year-end to drive more favorable terms.
Identify the provider’s strategic products and indicate which products you currently use that you could cease use of for negotiation leverage.
Remind the supplier that you still want to be their customer. Some audits cause so much tension with the supplier that the relationship is permanently damaged.
Create more favorable terms and conditions of the audit settlement, which may include elements such as these::
Updated audit clauses
Documented and clarified license changes
Mutually agreed-upon remediation activities
Full and final settlement
Document audit close-out and release from the audit. Perform any final activities including purchases and settlements, then finalize all updated entitlement and contractual terms and conditions. Store these documents in a specific location where future team members will be able to access the audit findings.
It should be noted that in instances where an enterprise does not have the team or time to conduct a software audit, there are third parties and software solutions in the market today that can help in the software audit process.
By leveraging an audit process flow and checklist mindset, enterprises can minimize the impact of a software audit.
Reach out to us today to discuss how we can help support you in an audit process!
We invite you to join the discussion on LinkedIn to share your thoughts; let’s keep the conversation going!
Global IT Category Manager
Jeffrey Gaguzis is a global IT category manager for WNS Denali. Jeff has over 20 years in Sourcing and Procurement with over 15 years focused on the IT category. Before joining WNS, Jeff worked for Fairmarkit, a pioneer in tail spend management technology. Prior to that, Jeff held similar senior positions at Accenture, TD Ameritrade, and FreeMarkets/Ariba. Jeff holds a BS in Microbiology from Penn State and an MBA in Marketing/General Business from Robert Morris University.
Global IT Category Manager
Sara Alchin is a global IT category manager for WNS Denali. Sara has over 20 years in Procurement plus 10 years in various IT roles. Sara has previously worked with companies focusing on IT software procurement, hardware asset management and supplier management. Sara has a BSE in Computer Engineering from University of Michigan.