Royalty and Licensing Audits

Understanding and auditing your licensing income can be difficult.

Warfield & Associates provides licensing management services for organisations which license out their intellectual property. Licensing management includes a review of licensing payments / royalties and an audit of compliance with the licensing agreement.

Often there is a reliance on licensee companies’ procedures and controls to ensure the completeness of your revenues as the licensor.

Most licensing audits occur because the licensor is reacting to a variety of circumstances caused by the licensees, that may include – late payments, no payments or incomplete reporting. Questions that often assist in assessing whether a licensor may have unreported royalties revenue include:

  • Does your licensee remit its royalties payments on time?
  • Does your licensee include a detailed supporting schedule with its payment?
  • Are the royalties this period within a reasonable range of the last reporting period or the same period a year ago?
  • Does the royalties calculation include a complex formula?

Our expertise enables you to audit licensing payments to ensure that licensing agreements are adhered to. Warfield & Associates can help keep your licensees accountable to the terms of your agreements, including timely royalties statements and the associated required payments to you.

Almost all of the royalty examinations we have conducted revealed under-reported or misreported royalties, resulting in additional payments to the licensor. Royalty audits involve:

  • notifying the licensee that they have been selected for review
  • discussing any discrepancies with the licensee
  • preparing an information request in preparation for the audit. This would include the types of documentation and information we would be seeking
  • reporting our findings to the licensor, including evidence to support recovery of royalties outstanding
  • undertaking reconciliations of the licensees’ royalty statements to the underlying financial records

Our team can assist by:

  • applying our forensic accounting skills to analyse the licensee’s records to determine whether they are reporting and paying royalties accurately and in accordance with the licensing agreement.
  • establishing appropriate reporting structures to ensure transparency as to the licensee’s compliance with the license agreement
  • working with lawyers in reviewing licensing agreements from a commercial perspective.
  • providing assistance with negotiation strategies for claiming additional royalties due, and our reports may ultimately be used in arbitration or in court proceedings.

We can assist you in creating and executing a compliance program which can increase revenues, identify opportunities to improve processes and procedures used to monitor license agreements and increase confidence in the information received from licensees. In particular, we can help:

  • increase the chances of finding underreported licensing revenues;
  • improve the level of trust, and therefore the business relationship, between licensor and licensee; and
  • reduce the risk of a dispute arising between licensor and licensee.

Warfield & Associates can help your organisation establish a robust system for ensuring your royalties and licensing fees are being calculated and paid correctly. How much could you be losing at the moment ?