Handling an SAP License Audit: A CIO’s Response Plan
When an SAP audit notice hits your inbox, what’s your plan? This article provides CIOs, CTOs, and IT managers with a step-by-step response strategy for navigating an SAP license audit.
From the initial notification and data collection to interacting with auditors and negotiating outcomes, we outline a clear plan to emerge from the audit with minimal damage.
The tone is pragmatic and focused on enterprise needs, helping you stay in control, reduce financial exposure, and maintain a strong negotiating position throughout the audit process.
Who is this for? Enterprise tech and procurement leaders who need an actionable playbook when facing an SAP software audit.
Audit Notification: Don’t Panic, Do Prepare
You’ve been audited; Those words can send a chill down any CIO’s spine, but the first 48 hours after an audit notice are crucial:
- Review the Notice Details: SAP’s audit notification (usually an email or letter) will cite the contract’s audit clause, list the scope (which systems/products are in scope), and often name the third-party auditor (if SAP uses one) or SAP’s Global Audit team contacts. Read it carefully. Note the deadline by which you must submit data (often 20-30 days from notice).
- Alert Your Internal Team: Immediately assemble your core audit response team (which hopefully you’ve designated beforehand – see previous article on readiness). Communicate the timeline and assign responsibilities. For example, inform your SAP Basis/admin team they’ll need to run measurement programs, let procurement/legal know an audit is underway, and brief executive sponsors (CIO/CFO) about the upcoming process. Early transparency avoids last-minute scrambles and ensures management is prepared for any outcomes.
- Negotiate Practicalities if Needed: While you cannot refuse an SAP audit, you can discuss the timing. If the proposed deadline is unrealistic (perhaps your team is in the middle of a critical SAP upgrade), politely request a reasonable extension now, not the night before data is due. SAP is often willing to grant a short extension if justified. Also, clarify the scope in writing: confirm which systems must be measured, and ask any questions about unclear data requests. For instance, if the notice says “all SAP systems,” you might confirm if that includes non-production or only production.
Most importantly, stay calm and organized. An audit notice is serious but manageable with a clear head. Avoid the impulse to dive into data immediately; first, get your plan and team in place.
Read SAP License Audit Readiness: CIO’s 10-Step Compliance Checklist.
Data Collection and Internal Validation
During the initial weeks of the audit, the focus is on gathering and verifying your usage data:
- Run the Required Tools: SAP typically asks you to run USMM on each system and consolidate results in LAW. Follow their instructions precisely. If your team hasn’t done this before, having a step-by-step runbook is wise. Ensure you capture all relevant systems (ERP, BW, CRM, etc., as specified).
- Compile Additional Data: Beyond user counts, auditors often request exports, e.g., a list of all user IDs with license type and last login, lists of engine usage stats (like number of sales orders, number of HR employees), or evidence of indirect access (like interface user transaction logs). Start pulling these from SAP or your monitoring systems. This can be time-consuming, so begin early.
- Verify Before You Submit: This is critical. Do an internal review of the data before sending anything to SAP. Look for anomalies: e.g., users with no license type (which LAW might count as expensive users by default), or obvious inactive accounts still listed as active. If you spot issues, fix what you legitimately can now (clean up data, assign correct license types in SAP, etc.) and document why you made any changes. It’s not about falsifying data – it’s about ensuring accuracy. For example, if you realize 100 users in the report are test accounts that should have been deleted, remove them (or mark them clearly) before submitting. You might also run LAW twice – once to see raw results, resolve duplicates or classification errors, then a final run for SAP.
- Retain Evidence: Keep copies of everything you send to SAP (LAW reports, spreadsheets, etc.) and even the raw data outputs. This audit file will be your reference if questions come up later. Also, log who, when, and how the data was collected.
Think of this phase as “get your house in order.” You want the numbers you give SAP to be as accurate and defensible as possible. Many audit disputes (and big fee demands) arise from companies handing over messy data that auditors interpret in SAP’s favor. Your job is to present a clean, correct picture of usage.
Engagement with Auditors: Setting the Tone
Once data is submitted, expect interaction with SAP’s auditors or the third-party audit firm. How you manage communication can influence the audit outcome:
- Professional and Controlled Communication: Assign a single point-of-contact (usually your SAM manager or a senior IT manager) to interface with the auditors. All communications should go through this person to ensure consistency. Be cooperative and responsive, but also deliberate. When auditors ask questions or request clarification, answer in writing and keep it factual. Avoid casual remarks that could be misinterpreted. For example, if an auditor asks, “What is this interface user doing?”, stick to the facts (“It’s a system account for our e-commerce platform posting orders”). Don’t volunteer extra information like, “We’re not sure if those users have licenses” – that can open new cans of worms.
- Scope Management: Keep the auditors to the agreed scope. If they ask for data outside of what was in the notice (say, they suddenly want detailed user lists from a system not mentioned), you have the right to question it. Politely ask how the request relates to the audit scope. Sometimes, auditors cast a wide net. You don’t want to be seen as non-cooperative, but you shouldn’t feel obligated to hand over data you aren’t contractually required to. In one scenario, a client was asked for an exhaustive list of all interfaces to SAP, even though indirect use wasn’t explicitly mentioned – the client responded by asking if this was a general request or if a specific concern was identified. This led SAP to narrow the request to just a few known systems.
- Keep It Formal: Treat every email or call with auditors as if it’s part of a legal record (because effectively, it is). Have meetings with them on the record (follow up with minutes or summaries in email). If an auditor makes a verbal claim or comment that concerns you, ask them politely to send it in an email “for clarity.” This ensures there’s a paper trail. Also, loop in a legal or procurement representative from your side for key communications, especially regarding results and negotiation. Auditors often report to SAP’s sales/licensing division, so assume they are not just neutral fact-finders; they’re there to identify revenue opportunities for SAP.
By managing communications tightly, you maintain control. The auditors will sense that you’re organized and informed, which can sometimes lead them to be more careful and fair in their analysis.
Audit Report Review: Analyzing SAP’s Findings
After some weeks of analysis, SAP will send you an audit report outlining compliance gaps. This is the moment of truth, and scrutiny is required:
- Take a Systematic Approach: The report will list each issue (e.g., “x number of Professional Users unlicensed” or “unlicensed indirect usage via system ABC” or “engine XYZ exceeding entitlement by N units”) and often a financial impact per issue. Go through the report line by line with your team. Verify each claim against your data. Did SAP count users correctly? Are they double-counting anyone? Do they list inactive users as active? If they claim you need 100 more Professional licenses, check your user list and last login info to see if some of those users haven’t used SAP in ages (and thus could be argued as not needing a license).
- Cross-Reference Entitlements: Sometimes, auditors make mistakes about what you own. Check their shortfall calculation against your purchase records. For instance, if they say “200 Professional licenses deployed, 150 licensed, shortfall 50,” confirm that you only have 150 licenses purchased. We’ve seen cases where customers had more licenses (perhaps from a past purchase that wasn’t properly recorded in SAP’s system), and the audit report was plain wrong on the entitlement count.
- Challenge Questionable Items: Identify areas where you disagree or need clarification. Common ones: Duplicate users (are some of those “extra” users the same person logged twice?), Misclassified users (is SAP counting some low-activity users as full users incorrectly?), Indirect access counts (how did they calculate that “100,000 documents” – what system logs or assumptions did they use?). List these out as points for discussion. The tone should be collaborative: “We reviewed the findings and have questions/concerns about these three items…”.
- Calculate the Real Exposure: SAP’s report often prices everything at full list price plus back maintenance. Don’t let the shock paralyze you. It’s their opening number, not the final bill. Internally, calculate the realistic cost after negotiation or adjustments. For example, SAP’s report might say you owe $1 million (because they priced 100 users at $3k = $300k plus four years of maintenance ~$264k, plus $500k for some engines). Adding 100 users to a normal purchase might cost far less with a discount. Having a sense of the “true” cost helps you in the next phase (so you don’t, say, agree to $1M if you could settle for $300k of licenses with a discount).
The audit report is not gospel. Treat it as the auditor’s version of events, which your job is to verify and, if needed, counter with facts. Many initial findings are negotiable or can be resolved once you provide additional information. This review sets you up to enter negotiations well-armed.
Negotiation and Settlement Strategy
With the audit findings in hand, the final phase is resolving any non-compliance – essentially, negotiation:
- Set Objectives and Limits: Before you engage with SAP on settlement, define your goals. Know your maximum budget or what you’re willing to concede. Also, identify “red lines” – for example, you may purchase a new product (that adds business value) as part of a settlement rather than just paying pure compliance fees. Or you might have a hard limit from the CFO like “keep any true-up under $X”. Having internal alignment on this is crucial.
- Correct and Educate: Begin discussions by addressing any inaccuracies in the report. For instance, present evidence for duplicates or inactive users to get those removed from the count. If you’ve fixed classification issues (say, you reclassified 30 users properly during the audit process), show that and ask for the report to be adjusted. Essentially, negotiate the numbers before negotiating the money. Money is saved for every user or engine you can knock off the shortfall list. It’s not uncommon to reduce an audit finding significantly at this stage by providing clarity, e.g., proving that 20 “users” in the report were test IDs that can be exempted.
- Explore Resolution Options: Remember, you don’t have to just cut a check for list price licenses. Explore alternatives:
- License Trade or Credit: If you have shelfware (unused licenses of one type), see if SAP will allow a conversion. For example, if you have 100 extra employee licenses but need 50 Professionals, ask to trade (this often comes up in negotiations).
- Purchasing New Products: SAP auditors work closely with sales. They might be open to a deal where, instead of paying purely for past non-compliance, you agree to buy something new (S/4HANA, a cloud module, etc.) and they “forgive” or discount the compliance part. It can be win-win: you get something useful and avoid the stigma of paying for nothing but a penalty.
- Maintenance Waivers: Try to negotiate a waiver of back maintenance fees or at least a reduction. SAP will initially claim that you must pay (per contract). But in many settlement deals, if you buy the required licenses now, they sometimes waive a portion of past maintenance or only charge a year instead of four years’ worth.
- Discounts on Licenses: Just because the contract says list price doesn’t mean SAP won’t deal. If this audit is happening near your fiscal year-end or if the sales team has a quota, they might offer a standard discount to close it quickly (10%, 20%, maybe more, depending on the relationship).
- Document the Settlement: Once you reach an agreement, get it in writing with clear terms. Ensure the additional licenses you buy (or adjustments made) are documented via an official contract addendum. Also, check if SAP will issue an “audit closure letter” stating that you are compliant based on the resolution. This can be important for your files.
Throughout negotiations, maintain a firm but constructive tone. You want to solve the issue, but not at the expense of your company’s wallet. On its side, SAP wants to recognize revenue and preserve customer relationships. Use that: For instance, it’s reasonable to say, “We value SAP as a partner, but this unexpected compliance cost is challenging—let’s find a solution that works for both sides.”
Companies often settle audits for a fraction of the initial claim by combining additional purchases with strategic negotiation. Always remember: you have leverage, especially if you’re a significant customer or planning future SAP investments.
Post-Audit Follow-Up
After the dust settles, take a moment (along with your team) to capture lessons and reinforce defenses:
- Remediation Actions: If the audit uncovered a weakness (say, user management issues or an indirect use case you weren’t licensing), immediately integrate that into your internal processes. Fix policies so that the issue doesn’t recur. For example, if the audit dinged you on inactive users, implement an automated job to lock users after 90 days of inactivity going forward.
- Monitor New Licenses: If you purchased new licenses as part of the settlement, update your inventory and ensure you don’t fall out of compliance in those categories again. Often after a true-up, there’s a tendency to relax – but that’s the best time to double-down on compliance with your current license counts.
- Team Debrief: Conduct an internal post-mortem. What went well in the response plan? What was chaotic? Perhaps communication could be improved, or data was hard to gather from a particular system – address it now. This is also a time to update your audit response playbook with any new insights. Maybe SAP asked for a type of report you hadn’t anticipated; next time, you’ll be ready.
- Relationship with SAP: Strange as it sounds, if handled well, an audit can improve your standing with SAP. You’ve shown diligence. Follow up with your SAP account manager to ensure no lingering concerns. It’s wise to get a written confirmation that the audit is closed and you’re compliant after the resolution – keep that filed away.
Then… get back to business, but with the comfort that you survived the audit and are stronger for it. Just remain vigilant—SAP audits are periodic, so the cycle could repeat in a year or two. You’ll want to be even more prepared the next time around.
Recommendations
- Respond, don’t react: Upon audit notification, activate your plan methodically instead of reacting in panic. A clear head and structured approach set the right course from day one.
- Centralize audit communications: Funnel all interactions with SAP auditors through a single, trained point of contact. This avoids confusion and prevents information oversharing.
- Validate everything: Never accept audit findings at face value. Cross-check SAP’s claims with your logs and records. Even auditors can count wrong – it’s your job to spot discrepancies.
- Leverage the “discussion” phase: Use the period between receiving the findings and final settlement to clarify and contest issues. Once you write a check, leverage is gone, so resolve what you can before paying anything.
- Negotiate creatively: Remember that an audit settlement can be more than “pay X for licenses.” Consider proposing deals with new SAP products or longer-term commitments in exchange for waivers or discounts. Frame it as a partnership solution.
- Keep executives in the loop: Update your C-suite (CIO, CFO) at key audit stages – notice, findings, and resolution plan. Their support might be needed for decisions (and budget), and no leader likes financial surprises.
- Document every step: Maintain an audit log – record when data was sent, who said what, and decisions made. This protects you during the audit and serves as a knowledge base for future audits.
- Stay professional under pressure: Audits can be contentious, but maintaining a respectful, professional demeanor with auditors can only help. Show them you’re organized and knowledgeable – it may encourage them to move to the next, easier target.
- Use external help if needed: If negotiations get tough or the findings are complex, don’t hesitate to involve an experienced licensing consultant or legal advisor. Their seasoned perspective can often break a stalemate or identify negotiation angles you hadn’t considered.
- Prepare for next time: Once the audit is over, immediately channel that momentum into strengthening your compliance program (as noted in post-audit follow-up). Each audit should leave your organization less vulnerable in the future.
FAQ
Q: SAP just notified us of an audit. Can we refuse or delay it outright?
A: You cannot refuse an SAP audit – the right to audit is almost certainly in your contract, and blocking it would put you in breach (risking termination of licenses or legal action). However, you can often negotiate the timing. If the requested schedule is very disruptive, explain your situation to SAP (for instance, “We’re in the middle of a fiscal year close or a system migration, can we start the audit next quarter instead?”). SAP might not always agree to a long delay, but they sometimes allow a short deferral or negotiate a mutually agreeable start date. Always get any such agreement in writing. The bottom line is that you can manage when it happens to some degree, but not whether it happens.
Q: Should we involve our legal team during the audit process?
A: Involving legal or at least procurement contracting experts is a good idea, especially when reviewing findings and negotiating. They can interpret the contract language and ensure SAP isn’t overreaching on what you agreed upon. Also, if things get contentious (e.g., you strongly dispute SAP’s interpretation of a clause), engaging legal counsel shows SAP that you’re taking compliance rights seriously. That said, the day-to-day running of the audit (data gathering, technical discussions) is usually handled by IT/SAM teams. Legal doesn’t need to be on every call, but they should review communications regarding obligations and settlements. Think of them as your safety net for contractual clarity.
Q: The auditors ask for information not listed in the initial audit scope. How do we handle that?
A: This can happen. First, refer back to the audit clause in your contract – it typically defines what SAP can request (usually information “reasonably necessary to verify compliance”). You should seek clarification if an auditor asks for something unusual or broad (e.g., “provide all SAP user login logs for two years”). It’s fair to ask, “Can you help us understand how this request relates to the license compliance verification?” If it seems outside scope or excessively burdensome, you can (politely) push back or negotiate – perhaps offer a summary or a sample instead of full data. In many cases, auditors might withdraw or narrow an odd request when questioned, or SAP might clarify it. Always keep the tone cooperative: you’re willing to provide what’s needed, but you also have the right to ensure the request is relevant and within reason.
Q: During the audit, we found some compliance issues ourselves. Is it better to disclose them to SAP or try to fix them quietly before they notice?
A: This is tricky. Generally, if you have time to fix something before providing data to SAP, do it (e.g., classify those unclassified users, remove obvious duplicates). Once data is in their hands, though, don’t try to hide issues – it can backfire if they catch on (and they usually do). Transparency can sometimes build trust: for example, if you submit data and say, “We noticed 30 users were misclassified and we’ve remedied that internally, here’s the updated count,” it shows proactiveness. But use judgment – you don’t need to volunteer every minor worry, only those that will clearly show up in the audit results anyway. And don’t falsify data; providing knowingly incorrect data could be considered a breach. Fix what you can, then be honest (with evidence of your fixes) about any problems discovered.
Q: SAP’s initial audit report says we owe a huge amount. How do we negotiate that down?
A: First, remember that the initial number is a starting bid. Your approach: validate, then negotiate. Highlight discrepancies or overcounts to reduce the scope of non-compliance. SAP often overestimates usage in their first pass (not maliciously, but to be conservative). Once you’ve trimmed down the findings to actual issues, engage in negotiation tactics: bundle license purchases with future needs, ask for discounts, or propose alternative resolutions (like moving to a different license model). It helps to align internally on what a “reasonable” outcome looks like (e.g., maybe you know spending $200k to true-up is acceptable, but $1M is not). SAP sales reps (who typically join at the negotiation stage) have leeway, especially if you’re a valuable customer. Show willingness to close quickly for a fair deal – for instance, “If you can approve a 50% discount on these licenses, we’ll sign and pay immediately.” Everything is case-by-case, but many customers negotiate audit fees down substantially. Just ensure you’re negotiating from a point of facts and data (so SAP sees you’re not paying for issues you resolved or don’t agree with).
Q: Our audit is done, and we have settled. Is there a chance SAP will come back soon for another audit?
A: Typically, SAP won’t turn around and audit you again immediately after a settlement – unless there’s a compelling reason. Most contracts say audits are, for example, annual at most. You’re usually in the clear for a while if you just finished one. They might monitor whether your settlement involves future action or follow-up (like you promised to deploy a tool or phase out something by next year). Also, if the audit revealed serious under-licensing, SAP might schedule you for a re-check in a year to ensure you remain compliant. But it’s unlikely to have surprise back-to-back audits. Use the breathing room to tighten up compliance (so that when the next audit eventually comes, next year or later, you’ll be in good shape). One more thing: if you acquired another company or made a big SAP purchase after the audit, those could trigger a new audit outside the normal cycle. But absent major changes, expect a bit of a reprieve.
Q: The auditors found “indirect use” issues, which we resolved by buying document licenses. How do we avoid indirect access problems in the future?
A: Indirect access is an audit pain point. Now that you’ve been through it, map out exactly where those indirect use cases came from. Moving forward, inventory any new integration that links to SAP. Implement an internal review whenever a team wants to connect a new third-party software to SAP – a mini “indirect access check” as part of project planning. Also, consider technical controls: SAP has an “RFC log” and other tools to monitor external access; use those to report document counts or interface users’ usage regularly. If you opted into SAP’s Digital Access (document-based licensing) as part of your settlement, periodically run SAP’s Document License Measurement program to track document creation. Staying on top of these metrics is key. Additionally, ensure your contract now reflects the digital access model or clearly defines indirect use to your satisfaction. If something was ambiguous, work with SAP to clarify it in writing (maybe at your next renewal). Preventative maintenance in the indirect access area will save you from repeat surprises.
Q: What if we believe SAP’s audit findings are wrong or unfair?
A: It does happen that a customer vehemently disagrees with SAP’s position (e.g., SAP counts something as use that the customer argues isn’t, or a contractual interpretation dispute). First, exhaust the negotiation route – escalate within SAP if needed (your account manager, then their managers, etc.). SAP doesn’t want a public fight, so it often will find a compromise behind closed doors. If that fails and the amounts or principles at stake are enormous, you might consider legal action or arbitration as per your contract’s dispute resolution. This is a last resort – it’s costly and sours relations. Notably, a few cases (like the famous Diageo case) ended up in court, and the vendor won, which emboldened SAP’s stance on indirect use. So legal routes can be risky. Another approach is to seek executive-level negotiation, from the CIO to the SAP executive, to resolve an impasse. That sometimes yields a business solution that the audit teams couldn’t. The best strategy is to avoid getting to this point by handling things earlier, but if you’re there, document everything and get expert legal counsel on software licensing to advise on the strength of your position before proceeding.
Q: How can we turn this audit experience into a positive outcome?
A: As painful as audits are, use it as a catalyst for improvement. After an audit, companies often get budget and attention to fix systemic issues (because now execs see the real risk). For example, you might secure funding for a license management tool or additional headcount for SAM. You can now benchmark where you stand and track progress – “Last audit we had X findings, next time we aim for zero.” In some cases, companies have used an audit to restructure their SAP licensing in a beneficial way (like moving to more flexible licensing models or getting a better deal on a future migration). Also, the audit likely forced teams (IT, procurement, legal) to work together more closely – nurture that teamwork for other compliance efforts. Finally, you have a fresh compliance report; leverage it to educate internal stakeholders on why good license hygiene matters. Turning the audit into an internal case study can yield more support for compliance initiatives, which means you’ll be better prepared and maybe even save money through optimization.
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