A Microsoft audit is a structured inspection process:
Microsoft audits are routine inspections conducted by Microsoft or a third-party auditor to ensure that businesses comply with Microsoft’s licensing agreements. These audits are initiated when Microsoft sends an official audit letter to the organization. The process involves collecting and analyzing data related to the organization using Microsoft’s software and services. The result of an audit can lead to negotiations with Microsoft regarding licensing adjustments, potential penalties, or future commitments to Microsoft services.
The primary purpose of a Microsoft audit is to ensure that businesses are correctly licensed for the Microsoft software they are using. They ensure organizations adhere to the terms of their licensing agreements, preventing software piracy and under-licensing. They also provide Microsoft with an understanding of how their software is used in the marketplace.
When you receive an official audit letter from Microsoft, responding appropriately is essential.
Here are the steps you should take:
Informing Stakeholders and Assembling Your Team
The first step upon receiving the audit letter is to inform all relevant organizational stakeholders. It is crucial to maintain transparency and ensure all affected parties are aware of the upcoming audit.
Next, assemble your audit response team. This team will play a pivotal role in the audit process. It should include well-versed individuals in your organization’s IT infrastructure, licensing agreements, and legal considerations.
The team should consist of the following:
You should also have an executive sponsor for added support and decision-making power.
Once your team is assembled, organizing your agreement paperwork is next. These documents form the basis of your entitlement data, which is crucial for the audit process.
They include all your existing Microsoft licenses, special terms in your agreements, links between OEM and Software Assurance, and licenses obtained through mergers/acquisitions.
Ensure all these documents are accurate, up-to-date, and readily available for the audit.
The legal team plays a crucial role in the Microsoft audit.
Their primary responsibility is to ensure that the audit process adheres to the stipulations outlined in the Microsoft Business and Services Agreement (MBSA) and any other relevant contracts.
They will review the official audit letter and help interpret the legal language and requirements.
The legal team will also be instrumental in negotiating confidentiality agreements with the auditor to safeguard your company’s sensitive information.
Furthermore, they will ensure the audit doesn’t infringe upon your legal rights and provide guidance and support during any negotiation phase with Microsoft.
What to Expect During the Kick-off Meeting
The kick-off meeting is the official start of the audit process. During this meeting, the auditor will outline the process and timelines, setting the stage for what’s to come.
They will provide a detailed overview of the audit process, clarify its scope, and explain your organization’s expectations.
This is also the opportunity for your team to ask questions, clarify any uncertainties, and ensure everyone is on the same page about the process.
Essential Materials You Will Receive
During the kick-off meeting, the auditor will provide several essential materials to guide you through the audit process.
These may include a detailed audit plan, a schedule of upcoming activities, templates or formats for presenting your licensing and deployment data, and guidelines for data collection.
These materials ensure the audit process is organized, consistent, and seamless.
Tips for the Kick-off Meeting
The kick-off meeting is your opportunity to set the tone for the audit process. Here are a few tips to ensure it goes smoothly:
What Data will you need to Provide
The data you must provide during a Microsoft audit typically includes evidence of your software usage and license entitlements.
The auditors may request inventory data from all the end-user devices and servers in your estate, Active Directory data, details of your infrastructure and environment types across all data centers, and procurement records showing license purchases and terms of agreements.
Additionally, they might require information about your regular software True-Ups and how you separate your production environments for Dev, Test, and DR environments.
How to Gather and Organise Your Data
Organizing your data for a Microsoft audit can be complex, but a systematic approach can significantly simplify the process. Here are some steps you can take:
The Importance of Evidence in the Audit Process
Evidence plays a vital role in the audit process. It serves as proof of your compliance with Microsoft’s licensing terms and is crucial for verifying the accuracy and reliability of the data you provide.
Auditors will base their findings on the evidence you provide, so having comprehensive, well-organized, and accurate evidence can help ensure a smoother audit process.
It can also help you avoid penalties and negotiate a better outcome if discrepancies are found. Additionally, maintaining good records can make future audits easier and less time-consuming.
Microsoft auditors use a systematic approach to analyze data during an audit. First, they’ll cross-check your software inventory against your license entitlements.
This involves assessing your usage records and matching them with the terms of your licensing agreements.
They will identify any over-usage (software usage beyond the entitlements) and under-usage (unused licenses).
They will also look at historical data to understand if non-compliance is a one-off or recurring issue. They aim to determine whether you comply with Microsoft’s licensing terms.
Auditors might make certain assumptions during an audit. For example, they may presume you’re liable for all Microsoft software deployed in your estate, whether you support or maintain it.
They could also assume that all software installed is being used unless you provide data to show otherwise. Similarly, they may infer that missing or incomplete records indicate non-compliance unless you can provide evidence to the contrary.
Remember, the auditor’s role is to establish compliance with licensing terms, not to represent your interests, so any room for interpretation may only sometimes fall in your favor.
After the auditors complete their analysis, they will produce a report outlining their findings. It’s crucial to review this report thoroughly.
Here are some steps to validate and potentially challenge the information:
Understanding Microsoft’s Objectives
Microsoft’s objective is aligned with future growth and fostering a long-term relationship with you as a customer. Thus, the negotiation phase should be seen as an opportunity to engage in commercial discussions and explore alternative solutions.
For example, Microsoft may be interested in you committing to increasing your Azure consumption, upgrading from Microsoft 365 E3 to E5, or migrating from Salesforce to Dynamics CRM.
By understanding Microsoft’s objectives, you can better navigate the negotiation process and turn an audit into an opportunity for beneficial changes in your software environment.
The Role of a Professional Microsoft Negotiator
Having a professional Microsoft negotiator on your side can be an enormous advantage during the audit process.
A negotiator with expertise in Microsoft’s licensing agreements and audit procedures can provide valuable insights and guidance. They understand what works and doesn’t when dealing with Microsoft and can effectively communicate your standpoint.
The negotiator can guide you while remaining anonymous or be part of your team during discussions with Microsoft.
Their role is to help you achieve the best possible outcome from the audit. This may involve reducing or eliminating penalties, negotiating favorable terms for required license purchases, or securing beneficial agreements for future software usage.
Remember, the key to successful negotiation is preparation and understanding. Knowing your data, compliance status, and Microsoft’s objectives can help you achieve a favorable audit outcome.
Potential Penalties You May Face
Microsoft’s Business and Services Agreement (MBSA) stipulates that you must purchase missing licenses within 30 days of an audit. Failure to do so may result in penalties. For volume licensing, the penalty can be 125% of the list price of the missing licenses. Additionally, if your non-compliance exceeds 5%, you may be required to cover the cost of the audit.
However, these penalties aren’t set in stone and are subject to negotiation. The extent to which you can negotiate the penalties will depend on your case’s circumstances, such as the degree of non-compliance and your willingness to rectify the situation.
How to Negotiate a Microsoft Audit Settlement
Negotiating a Microsoft audit settlement can be complex, but there are a few key strategies to remember.
The first is to gather evidence to support your case. You can negotiate a penalty reduction if you demonstrate that you’ve made a reasonable faith effort to comply with licensing requirements.
Microsoft aims to keep you as a customer and ensure future compliance. This means they may be open to discussing alternative solutions, such as committing to increasing your usage of certain Microsoft services or upgrading to more comprehensive licensing packages.
Having a professional Microsoft negotiator on your side can be a significant advantage during these negotiations.
They can provide valuable insights and advice, helping you to navigate the negotiation process effectively and achieve the best possible outcome.
The negotiation phase is not just about resolving the current audit. It’s also an opportunity to establish a solid foundation for future compliance and a positive relationship with Microsoft.
By approaching the negotiation process with this mindset, you can turn a challenging situation into a chance for growth and improvement.
Key Indicators of Audit Preparedness
Several indicators can help you gauge your readiness for a Microsoft audit. Here are some key factors to consider:
By following these tips, you can better prepare for and defend your company against a Microsoft audit, ensuring compliance and minimizing potential risks.
Essential Team Roles for the Audit Process
The successful navigation of a Microsoft audit involves a diverse team of specialists within your organization.
Here are some essential team roles for the audit process:
Controlling an active audit involves managing the flow of information between your organization and the auditor, ensuring the audit process respects your organization’s rights and interests.
Here are some key steps to help you effectively control an active audit:
By following these steps, you can effectively control an active audit, protecting your organization’s rights and ensuring a fair outcome.
Five Reasons Why Audits Go Wrong
Audits can go wrong for several reasons, often due to misunderstandings or insufficient preparation.
Here are five common reasons why audits might go wrong:
Background
A leading US-based manufacturing company was notified of an upcoming Microsoft audit. Despite having a dedicated IT team, the company lacked the specific knowledge and expertise required to navigate the complex audit process. They approached Redress Compliance for assistance, seeking help to ensure they would not face any unnecessary penalties or expenses.
Challenge
The manufacturing company’s extensive IT infrastructure is spread over multiple locations, including a diverse range of Microsoft products used for various purposes. Their licensing agreements were complex, and there were concerns about potential non-compliance, particularly with their server licenses and user CALs. The company was also worried about the potential disruption the audit might cause.
Solution
Redress Compliance assigned a team of experienced Microsoft audit specialists to the case. The team began by reviewing the company’s existing licensing agreements and comparing them with the usage data gathered from its IT systems. They identified potential areas of non-compliance and worked closely with the company’s IT and legal teams to understand the specifics of their situation.
Next, Redress Compliance prepared a detailed response to the audit notification, outlining the company’s compliance status and explaining any discrepancies. They also helped the company negotiate a confidentiality agreement with the auditor to protect sensitive data.
During the audit process, Redress Compliance maintained regular communication with the auditor, addressing any queries and providing additional evidence as required. They also worked with the company to improve their software asset management practices, reducing the risk of future non-compliance.
Outcome
The company navigated the audit process smoothly and with minimal disruption to its operations thanks to Redress Compliance’s expertise and diligent work. Redress Compliance successfully defended the company’s licensing position, resulting in no penalties for non-compliance.
Moreover, the audit process revealed opportunities for cost savings. Redress Compliance identified several areas where the company was over-licensed and helped them optimize their software licenses to better match their needs. This resulted in significant savings in annual licensing costs, significantly offsetting the cost of the audit defense services.
Key Takeaways
This case study highlights the value of engaging professional audit defense services when facing a Microsoft audit.
With their detailed knowledge of Microsoft licensing agreements and the audit process, Redress Compliance guided the company through the audit, avoided penalties, and identified cost-saving opportunities.
This experience also underscored the importance of regular software asset management practices to maintain compliance and optimize licensing costs.
A Microsoft Audit is a formal, legal process during which Microsoft or one of its partners verifies the accuracy of a customer’s software licensing position.
A Microsoft Audit aims to ensure that a customer’s use of Microsoft products complies with the terms and conditions of their licensing agreements.
An Official Audit Letter is a formal notification from Microsoft or its representative notifying customers that they have been selected for an audit.
Upon receiving an Official Audit Letter, you should take it seriously, review it carefully, and seek professional advice.
Stakeholders in a Microsoft Audit typically include your IT, legal, procurement teams, and executive sponsor.
Organizing your agreement paperwork is crucial as it helps you understand your licensing entitlements and can be used as evidence of compliance.
The legal team can advise on contractual obligations, help negotiate terms, and protect your rights and interests during the audit.
The Kick-off Meeting is the initial meeting with the auditor, where they explain the audit process, provide key documents, and answer any questions you may have.
Data collection and provisioning is gathering all necessary data about your Microsoft software usage and providing it to the auditor.
Evidence is critical in proving your compliance with licensing agreements and can help you challenge any findings of non-compliance.
Auditors compare your software usage data with your licensing entitlements to identify any instances of non-compliance.
Yes, you can challenge the Audit Report if you believe there are errors or misunderstandings, especially if you have evidence to support your case.
Penalties can include paying a premium to purchase missing licenses and covering the audit cost if non-compliance exceeds a certain threshold.
Common mistakes include insufficient agreement knowledge, incomplete entitlement data, inventory data gaps, licensing misinterpretations, and calculation errors.
You can negotiate a settlement by challenging findings of non-compliance, presenting evidence of compliance, and engaging in commercial discussions with Microsoft.
You can avoid common audit mistakes by thoroughly understanding your licensing agreements, keeping accurate records of your software usage and entitlements, and seeking professional advice when needed.
An NDA, or Non-Disclosure Agreement, is a legal agreement that stipulates that the auditor will not share specific confidential information obtained during the audit.
Having a direct NDA with the auditor ensures that your confidential information is protected and that the auditor is legally bound not to share this information with third parties, including Microsoft.
Having a direct NDA with the auditor ensures that your confidential information is protected and that the auditor is legally bound not to share this information with third parties, including Microsoft.
A Microsoft License Statement is a document provided by Microsoft that summarizes a customer’s license entitlements.
The MLS may not include licenses obtained through mergers/acquisitions, licenses bundled with hardware (OEM), other software (ISV), or special terms in your agreements.
A typical licensing misinterpretation is misunderstanding the terms of use for a product, such as believing a license covers multiple devices when it only covers one.
Calculation errors can occur if the number of devices or users is counted incorrectly, license terms are misunderstandings, or certain license exemptions or allowances are not considered.
Potential areas of non-compliance could include using more licenses than you have purchased, using the software in ways not covered by your license, or not adhering to the specific terms and conditions of your licensing agreements.
Declining a Microsoft Audit is generally not advisable, as your licensing agreements with Microsoft typically include a clause that allows Microsoft to audit your software usage. Declining an audit could lead to legal action.
If you disagree with the audit findings, you can challenge them by providing evidence to support your claims and negotiating with Microsoft or their representative.
The length of a Microsoft Audit can vary based on the size of the organization and the complexity of its software usage, but audits typically last several weeks to a few months.
Audits can be overwhelming, but you don’t have to navigate them alone. At Redress Compliance, we provide expert support and guidance throughout the entire Microsoft audit process.
We’re committed to helping you minimize costs, manage the complexities of the audit, and maintain a positive relationship with Microsoft.
Don’t leave your audit outcome to chance. Let our team of professionals help you prepare effectively, negotiate efficiently, and achieve the best possible results.
Fredrik Filipsson brings two decades of Oracle license management experience, including a nine-year tenure at Oracle and 11 years in Oracle license consulting. His expertise extends across leading IT corporations like IBM, enriching his profile with a broad spectrum of software and cloud projects. Filipsson's proficiency encompasses IBM, SAP, Microsoft, and Salesforce platforms, alongside significant involvement in Microsoft Copilot and AI initiatives, improving organizational efficiency. View all posts