How We Helped
Our audit professionals worked with the licensor to strategically develop a customized audit program. The project included a detailed analysis and documentation of the client’s business processes which required cooperation from all relevant personnel from all levels. The testing performed over the sales transaction and inventory data uncovered several issues:
- Sales derived from the licensee’s IT system was incomplete as sales made by the affiliates were not captured,
- Sales were reduced by volume discounts and actual returns which exceeded the maximum volume discounts allowed per the license agreements,
- Sales were made outside of the European Union without prior approvals from the licensor,
- Contractual marketing commitment was not met,
- Several products sold by the licensee were not approved by the licensor,
- Licensee’s accounting clerks responsible for preparing royalty reports did not always have access to the latest agreement or addendum, were unaware of some rate changes and did not reflect actual distribution channel in their systems.
The Solution
The audit review resulted in more than €500,000 in monetary findings, which included underreported royalties, marketing commitment shortfall and interests. Our team was able to provide recommendations to the licensee to avoid future misinterpretations of the contractual terms, to strengthen its internal controls, and to assist in implementing best reporting practice.
