Avoiding Common Microsoft SPLA Audit Pitfalls
In Microsoft SPLA audits, even minor mistakes can result in significant penalties. This article examines the most common pitfalls that service providers face in SPLA (Service Provider License Agreement) compliance and guides how to avoid them.
Aimed at CIOs, IT Asset Managers, and licensing specialists, the piece breaks down typical errors, such as underreporting licenses, miscounting user access, and configuration mishaps that auditors often catch.
We provide practical examples of these pitfalls, show the potential financial impact of each, and offer clear strategies to ensure your organization stays compliant and audit-ready.
Introduction: Little Missteps, Big Consequences
Under SPLA, even well-meaning providers can fall into compliance traps.
Microsoft’s audit teams (often third-party auditors from firms like Deloitte or KPMG) know exactly where to look for discrepancies between what you’re using and what you’re reporting.
What might seem like a minor oversight month-to-month (for example, forgetting to report a handful of user licenses) can accumulate into substantial compliance gaps over the course of a year or more.
Why it matters:
Microsoft imposes a standard 25% penalty surcharge on any under-licensed usage discovered during an audit, in addition to back payments for the unreported licenses.
So, a $100 under-report in one month becomes $125 owed, and if that recurs for 12 months, it’s $1,500 plus potential audit costs or interest. The stakes add up quickly.
Below, we highlight the most frequent SPLA compliance pitfalls. For each, we explain what it is, why it happens, and how to prevent it in your organization.
Read Negotiating Microsoft SPLA Audit Settlements: Strategies to Minimize Penalties.
Pitfall 1: Under-Reporting Licenses (Missing Usage in Monthly Reports)
What happens:
This is the number one audit issue. Under-reporting means you are using more licenses than you declare in your monthly SPLA report. It often happens unintentionally – perhaps a new server was deployed and not added to the count, or a subset of users wasn’t included in the SAL count.
Why auditors catch it:
Auditors will compare your environment’s data (users, servers, cores) with the data in your submitted reports. Any usage not reflected in the reports will be flagged as unlicensed. Because SPLA is pay-as-you-go, every unreported instance is considered a shortfall.
Impact example:
Suppose you consistently forgot to report 10 Windows Server Standard licenses each month over 2 years.
If each Windows Server license is roughly $50 per month under SPLA, you underpaid $50 * 10 * 24 = $12,000 with the 25% penalty, which becomes $15,000 owed – for just one product’s oversight. Multiply that by multiple products or longer periods, and the cost balloons.
Prevention:
- Implement a double-check process for each monthly report. Have a second person or a script verify that all active servers and services are counted before submission.
- Maintain a living inventory of all systems. Tie this inventory to your reporting process so that nothing is “off the books.”
- If you find you missed something for the current month, correct it immediately (it’s better to slightly over-report one month or add a late usage than to leave it unreported and pay penalties later).
Pitfall 2: Miscounting Subscriber Access Licenses (SALs) for Users
What happens:
In SPLA, a SAL (Subscriber Access License) is required for each user or device that is authorized to access a service, not just those who actively use it.
A common mistake is to license only the users who logged in, rather than all who had access rights.
Why auditors catch it:
Auditors often request Active Directory (AD) user and group lists for services such as Remote Desktop Services (RDS) and SQL.
They then compare the number of users with access permissions to the number of SALs reported. If you had 500 users in a group that could use SQL Server, but only reported 300 SALs, the auditor will flag 200 under-licensed users.
Impact example:
SAL undercounts frequently form a large portion of audit findings. For instance, consider a provider who reported 300 RDS user SALs ($5 per SAL/month, approximately) but had 500 users enabled in AD.
The shortfall is 200 SALs. Over a year, that’s 200 * $5 * 12 = $12,000 under-reported. With the 25% penalty, about $15,000 due for that single miscount. If this persisted over 3 years, you’re looking at $45,000+ in true-up fees just for RDS.
Now imagine the same scenario across other products, such as SQL CALs or SharePoint – it adds up alarmingly fast.
Prevention:
- Strict Access Control: Use the principle of least privilege. Regularly audit AD groups to remove users who no longer need access. Fewer authorized users mean fewer SALs are needed, resulting in easier compliance.
- Periodic AD vs. Report Reconciliation: Compare your AD lists for each product with your SPLA report each month (or quarter). If the numbers don’t match, investigate and resolve it.
- Document Exceptions: If some users in AD are not using the service (perhaps they are disabled accounts or have access for emergency only), document why they were excluded from licensing counts. However, note that Microsoft’s stance is typically “if they are enabled/authorized, they need a license,” so use caution here.
Read Preparing for a Microsoft SPLA Audit.
Pitfall 3: Server Sprawl and “Forgotten” VMs
What happens:
Over time, especially in agile cloud and hosting operations, engineers spin up new virtual machines or even physical servers for various needs (testing, customer projects, demos). If there isn’t a tight process linking these deployments to license tracking, some VMs might never make it into your reports.
These “rogue” or forgotten instances remain unlicensed until an audit discovers them.
Why auditors catch it:
Auditors will request a comprehensive inventory of all environments, including production, development, test, and others. They may also scan for any active hosts or VMs via scripts or data from virtualization platforms. Any running instance of Microsoft software requires a license.
If you weren’t reporting a test server running SQL because it was “temporary,” it’s still non-compliant if it was active during the audit period.
Impact example:
Imagine an MSP that has a habit of cloning a customer’s environment for testing, occasionally doubling the number of Windows Server instances, but never reporting the clones (since they are considered “temporary”).
Even if each clone was online for only 3 months, an audit covering those months will count them.
Say 5 extra VMs running Windows Server Datacenter ( ~$200 per VM/month) were used but not reported for 3 months: 5 * $200 * 3 = $3,000 under-reported, plus 25% = $3,750 owed.
If multiple untracked VMs exist or if some lasted longer, the costs multiply. Moreover, it signals to Microsoft that your internal tracking is weak, potentially prompting a more thorough review.
Prevention:
- Change Management Integration: Ensure that any new VM or server creation undergoes a change management process that includes a licensing review. For example, the final step of deploying a VM could be a checkbox: “Has licensing for this VM been accounted for in SPLA reporting?” This makes teams aware of compliance at the time of creation.
- Regular Environment Scans: Utilize tools (such as hypervisor management tools or Azure/AWS management APIs, if you host in the cloud) to list all running instances on a weekly or monthly basis. Compare that list to what’s expected. This will catch shadow IT or forgotten machines early.
- Tag and Track Testing Environments: Label test or staging servers in your system and decide how you license them. SPLA generally requires even test environments to be licensed if Microsoft software is running (unless they’re strictly internal use and covered by other agreements). If you have a policy for short-lived test VMs (e.g., destroy within 30 days), ensure that they are indeed destroyed. A lingering “temporary” machine can become an audit liability.
Pitfall 4: Misunderstanding Licensing Rules (License Mobility, Outsourcing, etc.)
What happens:
Microsoft’s licensing rules within SPLA can be complex. There are specific restrictions, such as where you can deploy SPLA-licensed software and how certain benefits (like license mobility) work.
A common pitfall is deploying SPLA licenses in unsupported scenarios – for example, using SPLA licenses in a public cloud or data center that is not allowed by Microsoft’s terms.
Why auditors catch it:
Auditors review not just counts, but the deployment context. They may ask where your servers are hosted.
If you moved workloads to a third-party cloud (like AWS or Google Cloud) and continued using SPLA licenses there without Microsoft’s authorization (SPLA generally doesn’t allow this unless the provider is an Authorized License Mobility partner or you leverage specific outsourcing terms), that’s a violation.
Similarly, if you’re using SPLA for internal use (which is not allowed; SPLA is only for service providers serving third parties), it will be flagged.
Impact example:
Consider a scenario where an MSP moved some client workloads to Azure or a non-Microsoft cloud for flexibility, but continued to report them under SPLA. Suppose 10 Windows Server licenses were running on unauthorized infrastructure for a year.
Those licenses might all be considered non-compliant. Microsoft could require the purchase of alternate licenses or impose penalties.
While it’s challenging to quantify without specific details, you may end up needing to purchase equivalent licenses through other programs (which might be more expensive) and pay penalties for breach of contract.
In worst-case scenarios, Microsoft might terminate the SPLA agreement for serious breaches, such as improper use of licenses, which can be business-threatening.
Prevention:
- Stay Educated on SPLA Terms: Regularly review the SPLA contract and Microsoft’s program updates. For instance, changes in 2022 introduced the “Flexible Virtualization Benefit,” allowing some BYOL in certain clouds for customers with Software Assurance. Know what is and isn’t allowed.
- Check Before You Change Environment: If you plan a major change (moving to a new data center, adopting a new cloud service, merging with another company’s infrastructure), consult your Microsoft rep or a licensing expert to ensure your SPLA usage remains compliant in the new scenario.
- Document Your Architecture: Maintain an architecture diagram or documentation that delineates where SPLA-licensed software is running. This helps identify if something is outside the allowed bounds. During an audit, it also helps demonstrate you have control over your environments.
Pitfall 5: Incomplete or Late Reporting
What happens:
Sometimes a provider might miss a monthly report submission or be late. In other cases, they submit the report but omit required details (like forgetting to include a new product added that month). Any gap in the official reporting is a red flag.
Why auditors catch it:
Microsoft’s compliance teams notice missed reports; they might initiate contact if you skip a month. In audits, if there was a month with no report, auditors will ask, “What happened here?”
They could assume any number of things – perhaps you deliberately skipped because usage was high or you were unsure how to report something. A single missed report can trigger deeper scrutiny.
Impact example:
If you failed to submit a report for one month, Microsoft could treat it as full non-compliance for that period. For instance, if your average monthly SPLA bill is $20,000 and you didn’t file for one month, auditors might estimate a similar amount is owed for that month as a starting point.
Add the 25% penalty, that’s $25,000. Even if it was an innocent oversight, you’ll need to provide the data for that month eventually (and likely pay any difference).
Moreover, repeated lateness could lead to Microsoft charging interest or invoking contractual penalties.
At worst, chronic non-reporting can lead Microsoft to consider termination for breach of agreement.
Prevention:
- Calendar and Reminders: Treat the monthly SPLA report as you would a tax deadline. Set multiple reminders well ahead of the due date (usually the first few days of the month for the previous month’s usage). Have a backup person assigned in case the primary responsible individual is out.
- Standard Operating Procedure: Create a documented process for report submission, including a checklist (Did we capture all products? New customers? Changes? etc.). Following the same routine each month reduces the chance of omissions.
- Communication with Microsoft/Reseller: If a report will be late (perhaps due to a system issue or awaiting some data), proactively inform your SPLA reseller or Microsoft contact. While this doesn’t exempt you, showing proactivity and providing a revised submission ASAP can be looked upon more favorably than silent failure. Always keep records of these communications.
Pitfall 6: Not Adhering to Contractual Requirements (Customer Reporting & Agreements)
What happens:
Beyond technical licensing, SPLA has contractual obligations. Two common pitfalls are: (a) not reporting required customer information to Microsoft, and (b) failing to have proper agreements with end customers.
For example, Microsoft requires that if an end customer’s monthly usage fees exceed a certain threshold (e.g., $1,000), you must report that customer’s name to Microsoft. Also, each customer must agree to certain end-user terms (often via a Microsoft-provided template or by reference in your contract with them).
Why auditors catch it:
During an audit, auditors may request a list of your customers and compare it with the customers listed in your submitted reports. If you have high-revenue customers not listed in your reports (when they should be), that’s non-compliance.
They may also ask for proof that you’ve had each customer sign appropriate terms (to ensure you’re not offering unauthorized rights). While these issues may not always carry a direct financial penalty, they are compliance failures that Microsoft will require you to address. In serious cases, a lack of proper customer agreements could be considered a breach of your SPLA contract.
Impact example:
If you failed to report customer identities for large accounts, Microsoft could insist on this disclosure immediately and view your operations as higher risk. If an audit reveals that you have customers without proper agreements, you may need to rush to get all clients to sign updated terms. This potentially embarrassing situation can harm customer trust.
Although there may not be a fine associated with this, the indirect impact (legal risk, relationship strain, and the possibility that Microsoft suspends your SPLA until the issue is resolved) can be significant. In extreme cases, it could halt your ability to take on new customers until it is remedied.
Prevention:
- Regular Compliance Audit of Contracts: Periodically (e.g., annually), have your legal or compliance team review a sample of customer files to ensure the necessary terms and documentation are present. Maintain a checklist for onboarding new customers that includes “SPLA End User Agreement accepted” and thresholds for reporting to Microsoft.
- Record Customer Data for Microsoft Reporting: Maintain an internal record of which customers exceed the revenue/license threshold each month, ensuring those names are included in the report submitted to Microsoft or sent as required. This can be integrated into your billing system – e.g., if an invoice to a customer for SPLA services goes over $X, flag it.
- Stay Aligned with Microsoft’s Rules: If Microsoft updates the threshold or terms (they sometimes adjust program rules), adapt your process immediately. For instance, the threshold for reporting customers can change; keep up with SPLA program communications to stay informed about the current number.
Pitfall 7: Ignoring Minor Non-Compliance Signs
What happens:
Sometimes, small red flags appear, such as a one-time license shortfall in a single month, or a customer requesting something unusual that may violate SPLA terms. If these are ignored or brushed aside (“it’s just a small thing”), they can accumulate or lead to bigger problems.
Why auditors catch it: Auditors are trained to identify both patterns and anomalies. They might ask, “Why did your SQL CAL count jump in March last year and drop in April?”
If the answer is that you realized you were under-reporting and fixed it, they’ll then question the earlier period in detail. Each little inconsistency can open a new thread of inquiry. If you had multiple “small issues,” collectively, they paint a picture of weak compliance management.
Impact example:
Consider that your internal review identified a shortfall, which you corrected in future reports, but you never went back to address the past under-reporting. Auditors will likely still calculate the past due amount.
A small issue like missing five licenses for 3 months (5 * $100 * 3 = $1,500, plus 25% = ~$1,875) is easy to resolve early, but if left, you’ll pay it later anyway.
Moreover, a pattern of several “minor” misses could make Microsoft less lenient in negotiations, because it may seem you weren’t proactively compliant until forced.
Prevention:
- Fix Issues Immediately: If you identify a compliance gap internally, don’t wait. For example, if you notice a licensing count error for last quarter, address it in the next report (and optionally inform Microsoft or your reseller). Demonstrating a correction before an official audit shows good faith.
- Root Cause Analysis: For each minor issue you catch, do a quick root cause check. Was it a process gap? A knowledge gap? Resolve that systematically. One missed VM might lead you to improve the VM deployment process; a miscounted SAL might lead to better AD scripts.
- Document Your Fixes: Keep a log of compliance issues found and fixed. If an audit occurs, you can use this log to demonstrate that you actively manage compliance. It won’t erase past mistakes, but it supports the narrative that you are committed to getting things right (which might help in negotiations on penalties).
Recommendations
- Perform Regular Compliance Training: Ensure your IT and operations teams receive routine training on the latest SPLA rules. An informed team is less likely to make the common mistakes outlined above.
- Use Checklists for Reporting: Develop a standard checklist to go through before submitting each monthly SPLA report. This should include reviewing user counts, server lists, new deployments, and any unusual changes from the previous month.
- Adopt “No Assumption” Policy: Do not assume that a certain scenario doesn’t need a license. When in doubt, err on the side of caution or seek clarification. It’s safer to slightly over-report or double-check than to under-report due to a false assumption.
- Implement a Secondary Review: Establish a minimum of two-person rule for compliance-critical tasks, such as SPLA reporting. A fresh pair of eyes can catch errors or ask questions about anomalies that might otherwise be missed.
- Monitor Usage Trends: Keep an eye on trends in your reported numbers. If something spikes or dips significantly, investigate why. Understanding these changes helps ensure they are legitimate (or catch any issues that may be due to a forgotten license or error).
- Maintain Close Contact with Your Reseller/Microsoft: If you are unsure about a licensing requirement or notice something unusual (such as inadvertently violating a rule), discuss it with your SPLA reseller or Microsoft account manager. They can provide guidance, which demonstrates proactive intent.
- Plan for Growth: Many pitfalls arise when a business scales up without adjusting its compliance processes accordingly. If you’re adding many new customers or expanding services, anticipate larger license volumes and put checks in place early. Growth should trigger a review of compliance capacity – as more servers and users are added, your tracking process may require upgrades or additional personnel.
- Secure Administrative Access: Limit who can create new VMs or allocate user permissions in your environment. The fewer people who can spin up resources, the lower the chance that something gets added without proper licensing. Those with such privileges should be thoroughly familiar with SPLA compliance.
- Leverage Reports and Analytics: Use the data from your monthly reports to analyze your environment. For example, track the average number of licenses per customer, or the ratio of users in AD versus reported SALs. These metrics can highlight outliers that deserve scrutiny.
- Stay Calm if Audited: Many pitfalls are exacerbated when companies panic during an audit and give inconsistent or incomplete information. If you face an audit, rely on your preparation. A calm, organized response avoids turning a small issue into a larger one due to miscommunication. Show auditors you have a grasp on all these areas – it builds confidence that any findings might truly be unintentional oversights and not systemic neglect.
FAQ
Q: What is the biggest contributor to SPLA audit penalties?
A: Under-reporting user SALs is often the single biggest contributor to audit findings. Many MSPs mistakenly count only active users, but Microsoft requires counting any user authorized for access. This misstep, especially for services like Remote Desktop or SQL access, can result in significant license gaps. Under-reported server licenses (from forgotten VMs or growth outpacing tracking) are another major contributor. Essentially, missing any recurring usage in reports will snowball financially over time.
Q: How does Microsoft verify our usage during an audit?
A: Auditors use multiple methods: they will ask for raw data exports (from Active Directory, virtualization platforms, configuration management databases, etc.), run their scripts or tools to scan environments, and compare these findings to your monthly reports. They’ll scrutinize anomalies, such as a server in your VMware vCenter that never appeared in reports, or an AD group with more users than licenses reported. They also often interview your staff to understand processes – inconsistencies in answers can lead to deeper digging.
Q: If we accidentally over-report some licenses, can that offset under-reported ones?
A: In general, Microsoft doesn’t do direct “offsets” of over-reporting against under-reporting in an audit. Each product is looked at separately. Suppose you over-reported one product and under-reported another. In that case, you’ll usually still be asked to pay for the shortfall on the under-reported product (and you won’t get a refund for the overage, since those were voluntarily paid). That said, during negotiation (post-audit), you can bring up over-reported areas as part of your discussion to seek a more favorable outcome. For instance, “We were short on SQL licenses but consistently over on Windows licenses, so overall spend was closer to correct.” It’s not guaranteed to reduce fees, but it frames that you weren’t trying to cheat the system.
Q: Can a small MSP get audited, or is it only large providers?
A: Any SPLA partner can be audited, regardless of size. While Microsoft may prioritize larger providers (because the stakes are higher), smaller MSPs are by no means exempt. Smaller providers sometimes have less formal processes, which can lead to more findings. Microsoft also performs random audits or audits triggered by specific events (like a complaint, or a sudden stop in reporting, etc.). So even if you’re a small operation, assume you could be audited and follow best practices.
Q: What are “audit triggers” in the SPLA context?
A: Audit triggers are signs that might prompt Microsoft to take a closer look. Known triggers include: irregular reporting patterns (e.g., dropping a product’s usage to zero suddenly), frequently late reports, customer complaints to Microsoft about how an MSP is licensing them, mergers/acquisitions (if an MSP merges with another, Microsoft might audit to ensure compliance during the transition), and any tip-offs or whistleblowers. Additionally, if Microsoft launches a broad compliance initiative in a region or segment, it may proactively audit many providers in that category.
Q: How do license costs in SPLA compare to other licensing models? Could higher costs incentivize under-reporting?
A: SPLA licensing costs are generally structured to be competitive for service providers – you pay monthly for what you use, which is flexible. In some cases, SPLA prices can be slightly higher than long-term committed licenses (like an Enterprise Agreement), but you get the benefit of no upfront purchase and the ability to scale down. Intentional under-reporting to save money is highly risky, as the penalties far outweigh any potential savings. For instance, saving $5,000 by underreporting in a year could result in $ 10,000 or more due to a penalty. Ethical and accurate reporting is always cheaper in the long run.
Q: If we realize a compliance gap, should we inform Microsoft before they audit us?
A: This is a delicate situation. On one hand, proactively coming forward can demonstrate integrity and may allow you to negotiate a resolution more amicably (perhaps through true-up orders). On the other hand, alerting Microsoft to non-compliance guarantees it will need to be addressed immediately. A balanced approach: if the gap is significant and ongoing, it may be wise to inform your Microsoft SPLA reseller or account manager and seek guidance to correct it (they might just tell you to adjust in future reports or make a one-time catch-up order). If it’s minor and already fixed, some choose to quietly correct it going forward. However, be aware that if an audit happens later, any known concealment would reflect poorly. Generally, honesty and prompt correction are the best policies.
Q: Are there any tools Microsoft provides to help with compliance?
A: Microsoft provides the SPLA Usage Reporting Tool (SPUR), which is the format and guidelines for monthly reporting, but it doesn’t automatically discover usage. Some third-party tools, as well as Microsoft’s own System Center or Azure tools, can help inventory environments. Microsoft’s License Verification process (not exactly an audit, but a lighter compliance check) might be offered to some partners, where you fill out questionnaires about usage. Ultimately, Microsoft expects partners to manage their compliance, utilizing the necessary tools. They do publish documentation and occasional training for partners to understand the rules.
Q: What is the 25% penalty, and how is it applied?
A: The SPLA contract includes a clause that any under-licensed use found in an audit carries a 25% uplift fee. This means if you underpaid $100, you owe that $100 plus an additional $25 as a penalty. This is Microsoft’s way of recouping costs and discouraging non-compliance. In an audit settlement, this penalty is usually clearly itemized. Note that this is separate from potentially having to cover the costs of the audit (if you were significantly non-compliant, Microsoft can charge you the auditor’s fees) and any interest on late payments. The penalty applies to each shortfall line item, typically, and it adds up across the entire finding.
Q: How can we keep up with changes in SPLA to avoid accidental non-compliance?
A: Assign someone (or a team) the responsibility of “licensing watch.” This person should subscribe to Microsoft partner newsletters, attend SPLA program webinars, and periodically review the Microsoft Product Terms (which include SPLA details). Communities of licensing experts (forums, LinkedIn groups for SAM professionals) can also alert you to changes. For example, suppose Microsoft announces a rule change regarding data center outsourcing or the inclusion of a new product in SPLA. In that case, your team should update internal guidelines and communicate the change. Regular internal newsletters or meetings on compliance can disseminate this information to all relevant staff, so everyone adjusts their processes accordingly.
Read about our Microsoft SPLA Audit Defense Service.
