Generally when a Licensee is elected for an audit they want to run for the hills, put their heads in the sand and hope the auditors don’t find them. This does not need to be the case, you can have a seamless audit provided that you comply with the terms and conditions of your Licensee Agreement. I have found that having a comprehensive reporting system with paperwork to back it up goes a long way in the expediency of your audit, let’s face it, time is way too precious to waste scrummaging for misplaced data. Ensure that you have read and understood every clause of your agreement and implement processes to ensure compliance thereof.
Common audit findings are as follows –
- Under Reporting of Sales – Ensure that all sales are recorded at the correct Royalty Rate for each product and that timing of sales and reporting coincide. When using a third party supplier that is also a Licensee, confirm whether their prices are inclusive/exclusive of Royalties. Royalty Findings also incur other costs such as interest and any other fees directly linked to Sales Reported.
- Unlicensed Products – Verify that every product/brand sold is in your agreement. Request an amendment to your agreement every time you introduce a new product/brand.
- Under spend of MAE – If you are contracted to a minimum Marketing Spend per year, ensure that it is calculated correctly and spent within the period as stipulated in your agreement.
- Returns and Discounts in excess of % Allowed – Keep track of returns and discounts per accounting period, ensuring that the total discount/returns per brand does not exceed the % per your agreement of total sales per brand.
- Late Payment Interest – Interest is incurred when payment is made after the due date, ensure that you are aware of when payments are due and remit accordingly. Be aware that a Licensee’s internal supplier payment policy does not override the due dates as set out in your agreement or stipulated on your invoice.
Generally an audit can cover trading periods between 3 and 5 years. So keep your records, and if archived, make sure they are referenced correctly. Make records easily accessible for both your internal team, and the audit team.
You are now one step closer to getting to the end of this hair pulling audit process. Fill your coffee cup and look forward to the well- deserved break and clean audit with no nasty monetary surprises.