The SCG Blog

To Pop-In or Call Ahead? How to Best Serve a License Compliance Audit

October 18, 2018


Jason Swan
Managing Director


The “pop-in,” one of the many terms that have become part of our popular lexicon that we can attribute to Seinfeld, is a way to describe an unannounced visit that is often unwelcomed by its receiver. 

The “pop-in” popped into my head the other day as I was mulling over a question of whether a client should use a surprise audit versus giving advanced notice of its impending visit.

Now, an audit isn’t typically going to evoke a warm and fuzzy response (at least initially) any way you serve it. But the surprise audit should be reserved for only the most extreme cases, which you can determine by answering this series of questions.

When Do I Use A Surprise Audit?

Do I want to remain friends with my client?

A surprise audit is not something you want to spring on a good, or even a somewhat good, client. But if the relationship with this customer is ailing beyond repair or nonexistent and there is ample evidence of fraud, it is often the only way to ensure license revenue is recovered. Keep in mind that such an approach may require strong support from authorities in the region in which you’re conducting the audit (e.g., a government agency in Vietnam).

What’s our history?

If a recent announced audit of a customer turned up blatant egregiousness in entitlement and usage compliance, you may consider a surprise audit as one of the terms of settlement. Establish the parameters of what that audit might include, and put in place a clause that, say, anytime in the next six months you can give short (24 hours) notice and come and audit again.

Where in the world is this customer located?

There are simply some areas of the globe that do not hold Intellectual Property law in high regard. Advanced notice in such circumstances could have customers in these locations doing anything to avoid licensing penalties, even dumping hardware. In these cases, a surprise audit is often the only way to uncover issues in licensing compliance and seek remediation.

Advanced Notice is Almost Always Best

While companies regularly engage the right kind of customer in a surprise audit, it is not the first choice in most circumstances. In all but the most egregious of situations, notifying your customers of a software audit is the best practice. There even appears to be a correlation between advanced notice and a higher likelihood of a positive reception. In a 2013 study by Cherwell Software on auditing trends, more than half of the respondents reported receiving a month or more to prepare for an audit. More than half of the respondents also rated their audit experience as consultative or collaborative.

With that in mind, there are ways to ensure an announced audit isn’t received with the objections of a pop-in.

Send a letter before THE letter

More and more vendors are opting to send a “prequel” letter a month or so before the actual audit notification goes out – letting a target population (often the top 50 strategic customers) know they’re on notice. The language includes gratitude for their “business and loyalty,” and lets them know about “enhancements we’re making to compliance program,” in order “to protect the investments you’ve made.” This is typically done through email to an individual in the corporate governance role. The letter should also be sent to a champion within the company that is in charge of the account or where there is a strong relationship. It affords the company the opportunity to ask questions on friendlier terms.

Follow-up by mail and phone

The formal “audit” notification need not even contain the word audit. It can be written more with the aim of scheduling a call to determine the course of action and the scope of the usage assessment. Ideal language includes phrases like “you’ve been selected to participate,” in a review of “how you’re using technology today,” in order to “better optimize deployments.”

Keep the dialogue open

Balance your approach so that this engagement is viewed more as a dialogue, less as a dictate. Make sure the client has all of the information they need to feel confident in the process, and comfortable that you’re both working toward a stronger foundation for innovation. And above all, keep your customer informed every step of the way – avoiding, well, any unnecessary surprises.

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