Objectivity is Key
“We already have an internal audit department, and they do all our audits for us?” …is something we hear from time to time. This is totally fair. Internal auditing is not something we see as competition, rather to be encouraged and shows attention to compliance many companies overlook. There is a but coming! You knew there would be!
Apart from those companies who already recognise objectivity as key and have it written into audit clauses that they will be appointing an independent third party to audit their licenses, there are many who don’t get why this is important.
For a licensing programme to be monitored/policed effectively, internal compliance plays a huge part, primarily in day to day monitoring of royalties coming in. They also perhaps monitor conversion rates and trends to check on whether there are any breaks in the usual sales pattern etc depending on their industry. However this team would not be able to gain anywhere near as much visibility over a licensees systems or processes as an independent 3rd party would have.
For example, as part of an audit, we would usually conduct an onsite visit at the premises of the licensee. Part of this visit there would normally be a process walkthrough, where we would naturally be privy to confidential information relating to other partners or business practices of that licensee. We have never encountered issues as our practices and professionalism mean the licensee is perfectly at ease with us seeing such information safe in the knowledge it will remain confidential. It is widely recognised and understood that a licensor attempting to go onsite at their own licensees premises, to verify royalties would not be shown the same level of detail as an independent 3rd party, or be accepted as easily. Those who would be ok with this (I’ve not encountered them yet) would be a very small minority. Work carried out by the licensor internally to verify royalties, would only be reworking information already reported in monthly/quarterly reports or royalty calculations, and would rarely reveal sufficient detail to be considered an audit.
I realise this may be coming across as completely doom and gloom, but that’s not my intention. Merely to flag just a couple of points’ with reasons as to why we are able to see so much more than a licence owner would be able to see themselves. It’s a commonly accepted fact among licensees that this is the case and they are much happier allowing an independent 3rd part on to their premises or looking into their books, than the licensor, but as a topic you never really see it discussed. Perhaps as it’s the dark word of ‘audit’ therefore most switch off. After all, auditors wear suits and glasses and sit in the corner with a shiny calculator. Thankfully you won’t find anyone like this at Blue Concept!
If you have any queries or comments about anything I’ve spoken about, please add your comment below or get in touch directly. I (and my team) will be blogging more regularly in future so any topics you would like to see included, please let me/us know.