What to Expect During a Software Audit

Industry experts predict that the number of involuntary software audits will continue to rise, as solution providers attempt to combat declining revenues and shrinking profit margins caused by the current economic crisis. One of the best ways to prepare yourself is to know exactly what to expect if and when a software audit does occur. In this post, we will highlight some of the activities that typically take place during a software audit.

A software audit is usually prompted by “whistle blowing” from within the organization or by the software vendor themselves. The Business Software Alliance (BSA) and other similar organizations are quite aggressive when it comes to soliciting tips, and have even gone so far as to offer rewards for information regarding illegal software use. When a software audits is triggered by the software vendor, they will usually have a clause in their software agreement (or enterprise agreement) that allow them to audit customer software licenses, and demand immediate additional payment together with fines due to in-compliance if the client is found to be under-licensed.

In most cases, a formal notice will be send by an attorney (representing a smaller software publisher that does not have in-house legal resources) or a third-party anti-piracy organization – such as the BSA or the Software Information Industry Association (SIIA) – to your company’s executives. This notice will indicate which software titles are in question, and will provide a defined period of time (usually 30 to 45 days) in which your company must respond to the allegations.

Before the software audit begins, the auditing body must provide you with:

Details of all activities that will take place, and who will perform them
A clear explanation of how software license compliance will be measured
An estimate of the type and amount of assistance the auditors will need from your company’s employees
An overview and description of any technologies, such as software asset management tools, that will be used during the auditing process

At the start of the software audit, you will likely be asked to deliver:

Copies of all related license documentation – purchase orders, packing slips, invoices, etc.
A report that clearly outlines the details of all installations of that specific software across all company’s computer.

In order to ensure that you are treated fairly throughout the process, it is best to seek professional help as soon as you receive a notice of a pending audit. Hiring an expert will help protect your interests throughout all phases of the software audit.

Be advised that software audits are time-consuming and disruptive to normal business activities. Records must be collected, research must be conducted, and facts must be checked and double-checked. Additionally, because some software contracts can be vague in nature, there may be ongoing debate and discussion among your company and its auditors – even before software license compliance, or lack thereof, is determined.

What happens if you are found to be under-licensed during a software audit? The risks can be tremendous. There can be fines and monetary penalties imposed by regulatory bodies, as well as the large one-time payments that must be made to vendors to account for copies of software being used illegally. And, there is damage to reputation and poor goodwill that can result if those incidents of non-compliance are made public.

One of the best ways to combat those risks is to proactively manage software licenses internally using an automated software asset management tool (sorry, but excel was not designed to track licenses). By keeping software records up to date at all times, and accurately reconciling software applications being used with those allowed by sales contracts and purchase agreements, you can help your company avoid any problems, and successfully demonstrate full compliance if an audit does occur.