Establishing SAP License Compliance and Internal Audit for HANA and ECC

SAP License Compliance Program & Internal Audit – Establishing an internal SAP license management practice to stay compliant year-round

SAP’s software underpins critical business operations, and managing its complex licensing is crucial to avoid unexpected costs and surprises.

CIOs and CTOs must establish an internal SAP license compliance program that continuously monitors usage, optimizes license allocations, and conducts periodic audits to ensure compliance.

By staying proactive year-round, enterprises can remain fully compliant with SAP ECC and S/4HANA license terms, avoid hefty true-up fees or penalties, and maximize the value of their SAP investments.

Read Using SAP LAW Tool Effectively.

The Importance of Year-Round SAP License Compliance

SAP licensing is notoriously complex, and non-compliance can be extremely costly.

SAP reserves the right to audit customers (typically on an annual basis) and charge fees for any unauthorized use of its products. In recent years, several global companies have faced multi-million dollar claims due to licensing shortfalls – a stark warning that compliance is not optional.

Beyond avoiding financial penalties, a strong internal license management practice ensures you’re not overpaying for unused licenses or overspending on higher-tier licenses where lower-cost options would suffice.

An internal compliance program gives CIOs peace of mind and leverage. If SAP initiates an official audit or contract negotiation, you can appear prepared with accurate data, rather than scrambling to address last-minute issues.

Real-World Impact: A notable example is the case of Diageo, which was found liable for approximately £54 million in fees due to indirect access to SAP systems.

In another instance, SAP pursued a claim exceeding $600 million against AB InBev for alleged unauthorized use, which was settled.

These scenarios underscore the seriousness of the stakes. By contrast, organizations that invest in year-round compliance and internal audits often discover opportunities to optimize licenses and avoid such dramatic showdowns.

For example, some enterprises have identified 10–15% of their SAP user licenses as inactive or misclassified, allowing them to reallocate or retire those licenses and save hundreds of thousands of dollars in annual maintenance costs.

In short, staying continuously compliant not only mitigates risk, but it can also uncover significant cost savings.

Read SAP License Optimization Through Periodic User Classification Reviews.

Common SAP Licensing Pitfalls and Risks

Managing SAP licenses is challenging due to a mix of technical and contractual complexities.

Below are common pitfalls that can put enterprises at risk if not addressed through an internal compliance program:

• Misclassified Users: SAP offers multiple named user license types (e.g., Professional, Limited Professional, Employee Self-Service, Developer). Each type comes with specific usage rights and costs. A frequent mistake is assigning users the wrong category – for instance, giving a pricey Professional User license to someone who only needs limited functionality, or vice versa. Misclassification can lead to compliance gaps (if a user with a low-level license performs activities beyond their entitlement) or wasted spend (if many users have an expensive license they don’t truly need).
• Inactive or Duplicate Accounts: SAP’s licensing counts every named user ID, regardless of whether it is actively used or not. If former employees or redundant accounts remain active in the system, they needlessly consume licenses. It’s not uncommon to find that 10–20% of SAP accounts are inactive or duplicates in large organizations. Without cleanup, you could be paying maintenance on “shelfware” licenses that provide no business value, and an audit may count them as if you need additional licenses. Regularly purging or deactivating unused accounts is critical to avoid this hidden compliance risk.
• Indirect Access (Third-Party Systems): Indirect use of SAP – when external systems or applications interface with SAP data without a named user logging in – is one of the trickiest compliance areas. In the past, SAP required any indirect usage to be covered by a named user license, which led to high-profile disputes. Today, SAP offers a Digital Access model that licenses indirect use based on the number of certain documents (e.g., sales orders, invoices) created or accessed via external systems. If you have e-commerce platforms, mobile apps, or B2B interfaces feeding data into SAP ECC or S/4HANA, you need to account for that usage. Failing to track indirect access can result in significant license liability during an audit, as SAP will charge for those documents or require additional user licenses if the Digital Access option isn’t in place. Every integration into SAP should have a clear licensing approach (either each external user has an SAP license, or you’ve adopted the document-based licensing for digital access).
• Engine and Package Metrics: Beyond user licenses, SAP also sells package or engine licenses for specific functionality, measured by metrics such as processing volume, number of employees, and database size. Examples include SAP Payroll (licensed by employee headcount), SAP WM (warehouse management, often licensed by the number of warehouse bins or transactions), or the SAP HANA database (licensed by memory capacity, unless under a special S/4HANA contract). These metrics can change as your business grows. If your HR system grows from 1,000 to 1,200 employees but you are only licensed for 1,000 for SAP Payroll, you are under-licensed. Likewise, if your SAP HANA database usage exceeds the licensed gigabytes of memory, you’re out of compliance. It’s easy to overlook these thresholds in day-to-day operations. An internal audit must check the actual usage of each metric against what you’ve purchased. Otherwise, an official audit could force an immediate (and often expensive) true-up purchase to cover the excess usage, potentially with backdated maintenance fees.
• Global and Multiple System Environments: Enterprises operating SAP globally often have multiple instances (e.g., ECC, S/4HANA, BW, CRM) across regions. A common pitfall is inconsistent license management between divisions or duplicative licensing. For example, the same person might have separate user accounts in an Asia SAP system and a Europe SAP system; if not consolidated, SAP could count them twice and charge two licenses for one individual. Without a centralized view, companies may also over-purchase licenses for each location, rather than sharing entitlements enterprise-wide. Ensuring a unified, global approach – utilizing SAP’s License Administration Workbench (LAW) tool to consolidate user counts across systems – is crucial to prevent duplicate payments for the same user and to maintain compliance across all environments.

Read Cross-Functional Governance for SAP Licensing Across the Employee Lifecycle.

The table below summarizes these common pitfalls, their scenarios, and potential impacts:

Building an Internal SAP License Management Program

Establishing a formal program for SAP license compliance is the best way to stay on top of these challenges. CIOs and CTOs should treat license management as an ongoing discipline within IT governance.

Key steps to building a successful internal SAP license management practice include:

• Assign Clear Ownership: Designate a responsible role or team for SAP license compliance (e.g., a Software Asset Management team with a dedicated SAP License Manager, or a License Compliance Officer). This team is responsible for tracking licenses, conducting internal audits, and interfacing with SAP on matters related to compliance and regulatory requirements. Clear ownership ensures continual attention rather than ad-hoc efforts only when an audit looms.
• Maintain a License Inventory: Keep an up-to-date inventory of all SAP license entitlements your organization has under contract. This includes the number of each user license type (e.g., Professional, Limited), any package or engine licenses (with their corresponding metrics and limits), and the specific contractual terms (for example, some older contracts may have special ratio clauses or legacy metrics). Know your license grant inside and out – it’s the baseline against which you’ll measure usage.
• Implement Policies and Processes: Develop internal policies for managing SAP users and allocating licenses. For example, define which job roles correspond to which SAP license type (a role-to-license mapping). Incorporate license checks into IT processes: when onboarding new SAP users, assign the appropriate license type based on their role; when offboarding employees, immediately retire or reallocate their license. If a new system integration is introduced, require a review of indirect access licensing. By embedding these checks into HR onboarding and offboarding, as well as project planning, compliance becomes a routine part of operations.
• Leverage SAP Tools and Automation: Utilize SAP’s built-in tools like User Measurement (USMM) and License Administration Workbench (LAW) to automate data collection on license usage. USMM can pull user counts and activity from each SAP system, and LAW consolidates multiple systems to eliminate duplicates. Many companies schedule these tools to run regularly (monthly or quarterly) to get ongoing visibility. Additionally, consider third-party SAP license management solutions or SAM tools that can provide continuous monitoring, alerts for anomalies (e.g., a sudden spike in user count), and optimization suggestions. Automation reduces the manual effort and helps catch issues in near real-time.
• Centralize License Management Globally: For global organizations, manage SAP licensing centrally rather than in isolation by each region or department. A centralized approach ensures consistent classification standards and avoids redundant licensing. It also facilitates enterprise-wide license transfers or reallocations as needs change. The central team should work closely with regional IT teams to gather usage data, but should apply one unified compliance policy. This way, if SAP audits your enterprise, you can respond with a single consolidated view of license usage and compliance across the whole company.
• Continuous Training and Awareness: Make sure stakeholders understand the importance of license compliance. Train your SAP administrators, IT support staff, and business power users on the basics of SAP licensing rules. For instance, administrators should be aware that creating a generic “test” user account still consumes a license if left active, or that copying a user role might inadvertently grant someone access that requires a higher license. When business teams plan new initiatives (like connecting a marketing app to SAP), they should proactively involve the license compliance team. A culture of awareness helps prevent compliance issues at the source.

By incorporating these elements into an internal program, organizations can maintain compliance year-round. It turns license management from a reactive scramble into a proactive routine.

Best Practices for Internal SAP License Audits

Performing regular internal audits is the core of a year-round compliance program.

Treat it as a self-imposed “health check” that catches problems before SAP’s official auditors do.

Key best practices include:

• Audit on a Regular Cadence: Don’t wait for the official SAP audit notice. Conduct internal license audits on a fixed schedule – at least annually, and ideally quarterly or biannually. Frequent audits ensure you catch compliance drift early. For example, review user counts and license assignments every quarter across all SAP landscapes (ECC, S/4HANA, BW, etc.). This way, if one business unit quietly added 50 new users without a proper process, or a new interface went live, you’ll spot it within a few months instead of years later.
• Gather Contracts and Usage Data First: Start each audit by reviewing your SAP licensing contracts and current entitlements (from your inventory). Then collect actual usage data from the systems. Export current user lists, including their license types, from SAP (using transactions such as SU01 or USMM for a more comprehensive report). Obtain activity statistics (e.g., using SAP’s ST03N transaction or audit logs) to understand how users are using the system. If you have engine metrics (such as the number of orders and employee counts), pull reports on those as well. Essentially, you want a complete picture of your license “demand” (usage) versus your license “supply” (entitlements). Involving the right stakeholders at this stage is crucial – the SAP Basis team or security team can assist in extracting data. At the same time, business module owners can help identify unusual usage patterns.
• Reconcile and Analyze User Licenses: Compare the list of active users and their assigned license types against what you’re entitled to. Are you within the numbers for each category of user license? If you purchased 500 Professional user licenses but your internal measurement shows 520 users assigned as Professional, that’s a red flag to address before SAP finds it. Next, analyze if each user’s license type is appropriate. This may involve spot-checking some users’ roles or transactions against their license. Many organizations maintain that mapping SAP roles to license types can be used to identify anyone who might be misclassified. Also, be aware of users who have no license type assigned in the system; by default, SAP will categorize them as Professional users in an audit (worst-case assumption), which can inflate your compliance gap. Part of the audit should be cleaning up such anomalies (assigning the correct license types to all active users).
• Use SAP’s Audit Tools (USMM & LAW): A smart strategy is to run the same tools that SAP’s official auditors use and see the results for yourself. Execute USMM in each system to gather raw counts of users by license type and usage of packages. Then run LAW to aggregate the results company-wide. LAW will identify duplicate users across systems, ensuring they’re counted as a single named individual rather than multiple. Reviewing the LAW report internally lets you see exactly what SAP would see if this were an official audit. If the LAW summary indicates that you are exceeding the license count or have users categorized incorrectly, you can correct these issues now. Many companies perform an annual “mock audit” using USMM/LAW and treat it as an internal dress rehearsal, fixing any discrepancies well in advance of an official audit.
• Involve Cross-Functional Teams: An internal license audit is not just an IT exercise with spreadsheets – it should involve representatives from various teams to gain a comprehensive understanding. Engage your technical SAP Basis/security team to help with data extraction and to understand system configurations. Bring in business process owners or super-users from departments (Finance, HR, Sales) to verify that user roles and access match what they need (this helps validate license assignments). Importantly, include integration managers or architects to review all the interfaces to SAP so that you can quantify any indirect usage. This cross-functional approach ensures that no stone is left unturned – you’ll catch things like a nightly batch job creating documents or an external partner portal pulling data, which pure license reports might miss.
• Thoroughly Document the Audit Findings: Treat documentation as an integral part of the audit. Keep a detailed log or “license audit workbook” that records: the number of licenses owned vs. used, the list of any compliance issues found, decisions made (e.g., “user X should be reclassified from Limited to Professional due to job role change”), and actions taken. Document any assumptions or interpretations – for example, if you decide that a certain technical user account is covered by a background process license or exempt per contract, note that clearly. If SAP auditors later question something, having this documentation demonstrates a considered approach and evidence of compliance. It also helps maintain continuity if personnel change; the next person responsible can understand past decisions and build upon them. Essentially, if you can show an audit trail of your compliance management, SAP is more likely to trust your number,s and you’ll be able to answer their queries confidently with backup at hand.

By following these best practices in internal audits, your team will consistently identify and remediate compliance issues before they escalate into significant problems.

This not only avoids panic when an official audit notice arrives but fosters a mindset of continuous improvement in how you manage SAP licenses.

Illustration: Regular internal audits and proactive license management help organizations stay in compliance with SAP’s complex licensing terms, avoiding penalties and optimizing costs. The image depicts a compliance checklist and software license certificates, symbolizing the ongoing oversight required.

Ongoing Compliance Optimization

After each internal audit, don’t just file the results away – use them to improve your license position and reduce future risk.

A year-round compliance program should feed directly into optimization and action:

• Immediate Remediation: For any issues uncovered, take corrective action promptly. Suppose you found certain users were under-licensed (e.g., performing activities outside their license scope). In that case, you have options: assign them a higher license type and procure additional licenses if needed, or restrict their access to match their license. If you’re exceeding your entitlement in an engine metric, consider purchasing extra capacity before SAP forces it (it’s often cheaper to negotiate proactively than under audit pressure). Addressing shortfalls voluntarily is always better than having SAP catch you off guard – it avoids backdated maintenance fees and shows good faith. On the other hand, if you find that you have more licenses than necessary in a particular area, plan to trim down or terminate those at the next renewal to save costs.
• License Reallocation & Recycling: Optimize usage of the licenses you already have. If the audit identifies several unused or underutilized licenses (e.g., dozens of Professional users who haven’t logged in for 90 days, or developers who are no longer with the company), reclaim them. Establish a practice where, when a user leaves or no longer needs SAP access, their license is returned to a “free pool.” New users or projects should draw from this pool first before buying anything new. For example, if 100 Professional user licenses are sitting idle, they can potentially cover the next 100 new hires or contractors without spending an extra dime. This recycling can significantly reduce unnecessary purchases. Some organizations even implement automated checks – if an account is inactive for 60 days or more, they flag it for review or automatically downgrade its license classification until it is needed.
• Cost Optimization and Contract Alignment: Use insights from audits to drive smarter budgeting and negotiations. If you discovered that many users could be on a cheaper license type, you might negotiate with SAP to adjust the mix of license types in your contract (some contracts allow conversions or exchanges of license types). If you identified shelfware (unused products or modules), consider removing those from your maintenance at the next opportunity to reduce support costs. Additionally, staying compliant gives you leverage when negotiating new SAP agreements or migrations – SAP sales reps often use compliance issues as a pressure point. Still, if your house is in order, you can focus the conversation on forward-looking needs rather than plugging compliance holes. In some cases, companies have used their clean compliance position to negotiate better terms (like credits or discounts) when transitioning to SAP S/4HANA or cloud subscriptions, because SAP has less leverage to push unwanted costs.
• Stay Informed on Licensing Changes: SAP’s licensing policies are subject to change. The company periodically updates definitions, introduces new license models (for example, the transition from traditional Named User licensing to **SAP S/4HANA “Functional” user categories or the Digital Access document model), and may even modify rules regarding how certain engines are measured. Ensure that someone on the team is responsible for staying up-to-date with these changes by reading SAP’s official announcements, attending user group sessions (e.g., ASUG), or consulting industry analysts. For instance, SAP has phased out the old “Limited Professional” user category in favor of new terms in S/4HANA and introduced RISE with SAP subscriptions, which bundle licensing in new ways. Such changes could affect how you manage compliance. Adapting your internal practices when policies shift will prevent nasty surprises. It’s wise to review your compliance checklist at least yearly against current SAP rules.
• Continuous Improvement: Treat license compliance as an ongoing cycle of continuous improvement. After each audit and remediation, ask what processes can be improved to prevent similar issues from arising in the future. Maybe you discovered a particular department was creating SAP accounts without going through IT – you might implement a stricter access request workflow. Or you found that indirect usage wasn’t being tracked well – you could invest in a monitoring tool or assign an “integration license steward” role to oversee that area. Over time, these refinements make compliance easier. Your end goal is a self-sustaining process where compliance is woven into daily operations (much like security or data governance), rather than a periodic fire drill.

By optimizing in this way, organizations often find they can reduce total cost of ownership for SAP.

For example, one company’s internal audit revealed that it could retire 15% of its licenses and downgrade dozens of users, resulting in immediate savings on support fees and avoiding the need to purchase new licenses for a planned expansion.

In another case, a firm that diligently tracked indirect usage was able to negotiate a cost-effective digital access license package with SAP before deploying a new e-commerce system, rather than facing an exorbitant bill afterward.

These wins reinforce the value of a proactive compliance program: it’s not just about avoiding risk, but also about running SAP more efficiently and strategically.

Recommendations

To ensure year-round SAP license compliance and optimal license usage, CIOs and CTOs should consider the following actions:

• Designate a License Owner or Team: Establish a clear owner (or team) for SAP license management and compliance. Assigning a dedicated SAP license manager or SAM team ensures accountability and continuous focus on compliance efforts.
• Conduct Regular “Self-Audits”: Schedule internal SAP license audits regularly (quarterly if possible, but at least annually). Frequent audits make compliance a routine process, allowing issues to be caught early, long before any official SAP audit.
• Use Official Tools and Data: Leverage SAP’s measurement tools (USMM and LAW) to assess your usage, and consider supplemental third-party license management software for ongoing monitoring. Using the same data that SAP would use in an audit provides an accurate representation of compliance.
• Proactively Clean Up User Accounts: Implement Strict User Lifecycle Management. Remove or deactivate SAP accounts immediately when people leave or roles change. Regularly purge inactive or duplicate users (e.g., quarterly cleanup) to prevent license bloat.
• Right-Size License Assignments: Continuously verify that each user has the appropriate license type for their actual needs. Adjust license classifications as roles evolve – upgrade users who assume broader responsibilities, and downgrade or restrict access for those who only require limited functionality.
• Monitor Indirect Usage: Keep a close eye on all integrations and third-party systems that interact with SAP. Document them, measure the data, and document usage coming from these sources. If indirect usage is significant, engage with SAP early to adopt a Digital Access license or ensure proper named-user coverage, rather than waiting for an audit to flag the issue.
• Track Engine License Metrics: Internally track consumption of any SAP engine/package licenses (HR employee counts, SAP HANA memory, transactions, etc.). Set internal alert thresholds (like at 90% of licensed capacity) to trigger action before you exceed entitlements. Proactive management of these metrics can prevent costly true-ups.
• Keep Detailed Records: Maintain an “audit-ready” documentation repository, including contracts, user lists with assigned licenses, the most recent audit results, and decisions and rationales for classification and integration. This preparation enables you to respond confidently and swiftly with evidence to support your license compliance position if SAP initiates an audit.
• Educate and Communicate: Ensure that both IT staff and business leaders understand the importance of SAP license compliance. Provide guidelines for adding new users or systems, so everyone is aware of the proper procedures and the implications of unplanned usage. A well-informed organization is less likely to accidentally create compliance issues.
• Stay Current with SAP Licensing Policies: Regularly update your knowledge on SAP’s licensing changes, whether you run ECC or S/4HANA. For example, if SAP introduces a new license model or changes how indirect access is handled, adjust your internal compliance program accordingly. Make it a standard practice to review SAP announcements and user group insights on licensing at least once a year.

By following these recommendations, organizations can build a resilient internal license compliance capability. The goal is to make compliance business-as-usual, minimizing risk, avoiding wasted spend, and maintaining a healthy SAP environment.

FAQ

Q: How often should we conduct internal SAP license audits?
A: Aim to perform internal SAP license audits every quarter if possible. Regular quarterly (or at least biannual) audits ensure you catch new users, system changes, or usage spikes early. Frequent audits transform license compliance into an ongoing process, rather than a yearly scramble, ensuring you remain continuously compliant and ready for any official audit.

Q: What are the biggest risks of not managing SAP licenses proactively?
A: The risks include steep financial penalties and unbudgeted costs. If SAP finds you to be out of compliance, they can require the immediate purchase of missing licenses (often at list price, plus back maintenance fees for the period of unlicensed use). In extreme cases, this can amount to millions of dollars. There’s also a risk of disruption – SAP could restrict access to support or even software usage until compliance is resolved. Additionally, lacking an internal handle on licenses often means overspending on licenses you don’t need, tying up budget unnecessarily.

Q: How can we identify and control indirect access to SAP systems?
A: Start by inventorying all third-party applications and interfaces that connect to your SAP ECC or S/4HANA systems. For each integration (customer portals, supplier systems, mobile apps, etc.), determine how data is exchanged and whether it triggers the creation of SAP documents or the retrieval of data. Utilize SAP’s tools, such as the Digital Access Estimation Note (which analyzes your system for documents created by indirect means) or log analysis, to quantify this usage. Once you know where indirect access is occurring, decide on a licensing strategy: either ensure that every external user or system is covered by an appropriate named user license, or opt into SAP’s Digital Access model, which licenses the documents themselves (such as sales orders and invoices). Regularly review these interfaces as part of your internal audits. By continuously monitoring indirect usage, you can proactively negotiate any necessary digital access licenses and avoid unexpected fees. In short, visibility and proactive licensing of interfaces are the key to indirect access compliance.

Q: How does migrating from SAP ECC to S/4HANA or SAP HANA affect license compliance?
A: The fundamental need for license compliance doesn’t change – you still must ensure users and usage are correctly licensed – but some specifics do evolve. SAP S/4HANA introduces new license types and models (for example, S/4HANA often uses “Functional User” instead of the old Limited Professional, and includes the Digital Access document licensing by default for indirect use). If you transition via RISE with SAP (the cloud subscription offering), the licensing shifts from perpetual user licenses to subscription contracts, which bundle a certain level of usage. When planning a migration, it’s critical to re-evaluate your license inventory and compliance under the new model: map your existing users to S/4HANA-equivalent license types, and make sure any legacy metrics (like engine licenses) are addressed in the new contract. Additionally, S/4HANA runs on the HANA database. If you previously licensed HANA separately by memory size, verify whether your S/4 contract covers the HANA runtime or if there’s a limit. In summary, migrating to S/4HANA presents an opportunity to reset and right-size your licensing; however, you must be diligent in carrying over only what is necessary and ensure that S/4HANA’s license terms align with the new environment’s usage. Conducting an internal audit both before and after migration is highly recommended to ensure compliance throughout the transition.

Q: What steps can we take to optimize SAP license costs while staying compliant?
A: License optimization goes hand-in-hand with compliance. First, ensure that you eliminate or reassign any unused licenses. For instance, if dozens of users haven’t logged in for 90 days, consider downgrading or removing them and reallocating those licenses elsewhere. Second, review user license levels: many organizations find that a portion of their users can be moved to a lower-cost license category without impacting their work (e.g., switching some users from Professional to a Functional/Limited license if their usage is limited). Third, leverage your internal audit data during contract negotiations – if you know exactly what you need (and what you don’t), you can avoid overbuying when renewing or expanding licenses. You might negotiate to swap surplus licenses for ones you lack, or push for volume discounts based on actual usage patterns. Another step is to consider third-party support or maintenance reductions for shelfware. If you have SAP modules or users not in use, review whether you can remove them from your maintenance to save the 22% annual support fee on those items. Finally, stay compliant above all else – non-compliance can wipe out any savings through hefty penalties. By continuously right-sizing your license portfolio and engaging with SAP with a clear understanding of your needs, you can minimize costs while still meeting all licensing obligations.

Read about our SAP License Optimization Service.

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