Clarity
ROYALTIES MANAGEMENT
Pre-Audit Checks
Clarity ROYALTIES MANAGEMENTcan shine a light into the dark corners of your royalties.
We can help you identify any gaps in your licensing documentation, see where the errors in your calculations are and calculate how much you are likely to owe.
When an audits starts you'll be properly prepared, and able to achieve the best outcome for your business.
Be Prepared
The Licensor relies on the royalty declarations you've submitted to ensure you are complying with the terms of the license and paying what is due. The only way they can validate the accuracy of the information you've sent them is by carrying an audit - an expensive, time consuming and disruptive process for you.
Over the years, I’ve managed countless audits. One thing I’ve been able to demonstrate to clients is that being well prepared with a comprehensive Pre-Audit check puts them in a much stronger position both in terms of financial planning and in dealing with the audit itself.
No matter how careful you are, there will be calculation errors, omissions or incorrect applications of specific license terms in your declarations. Your standard licensing contract will specifies a maximum permitted percentage error in declarations, above which you will bear the cost of the audit. The Licensor can also charge you late payment interest on the amount you have under-declared. In serious cases, they can terminate the contract, in which case all guarantees will be immediately payable.
A thorough review of your royalty declarations, license terms and supporting documentation, allows you to find the mistakes. A Pre-Audit check will help you calculate how much those mistake will cost you when you are audited.
The question is, what do you do with that information? Firstly, you can make provision for the expected cost because it’s far better to be able to plan for this than for it to be entirely unforeseen.
Depending on the severity of the situation, you may have to make room for this in your cash flow, and you may even need to reconsider investment plans.
Not a pleasant task, but either way you are going to have to pay what you owe, so time to plan and prepare will cushion the blow.
If you’ve prepared with a Pre-Audit check, when the audit starts, you will already have all the information you need for the auditor, and it will be complete, accurate, and cross-referenced.
You will have way more time to respond to any additional requests from the auditor. This means the audit will be quicker and the audit duration will reduce - along with the audit fee if you do have to pay it.
Without a Pre-Audit check in place, you will be leaving the auditor in charge and will miss any opportunities to challenge findings you believe are incorrect. Remember, a draft audit report can contain reversible findings.
The report details what the auditor thinks is payable, based on their application of the license agreement terms and the information they have at hand……information you have provided.
Another benefit from having a Pre-Audit check is that you will be able to compare your pre-audit calculations with the audit findings. To be clear, there will be differences, but now you have the analysis to challenge them where there are reasonable grounds.
What’s more, it’s not all about reducing losses……you can find gains too.
Permissible allowances and discounts that you may have overlooked when declaring your royalties mean you could have overpaid the royalty amount. You may even have over-declared by using the wrong royalty rate.
Your Pre-Audit report will have identified these errors in advance, so you can propose they are off set against any findings from the audit itself.
The bottom line is you need to be prepared for any royalty audit, long before the Licensor has notified you of one.
So how much will it cost?
We'll agree either a one-off fee for a single Pre-Audit check, or a recurring charge for an ongoing service, depending on where you are in the audit cycle.
The cost will be based on the number and complexity of your licenses, and your royalty declaration process.
No matter how complex, the charge will be more than offset by the savings you'll make by being prepared.
A Pre-Audit Check by Clarity ROYALTIES MANAGEMENT can help you pass a royalty audit, so you don't have to pay the auditors fee.
You'll have the ability to address any issues before the audit, and negotiate a more favourable outcome.
What’s more, you'll have built a stronger relationship with your Licensor, with the potential for more lucrative licenses in future.
Sound good? Contact me to discuss how I can help your business thrive.
We can also pro-actively manage the Audit process, helping you achieve a better outcome.
You can avoid many of the pitfalls in the first place by outsourcing your royalty declarations to Clarity Royalties Management
Both options will give you peace of mind and can save you money.