How to Respond Strategically to Microsoft Audit Findings
You’ve been through the nerve-wracking process of a Microsoft license audit, and the auditors have presented their findings. Perhaps they claim you are under-licensed for certain products and owe a significant true-up. This stage – receiving and responding to the audit findings – is critical.
How you react can dramatically influence the outcome, financially and operationally. This article will discuss how to respond strategically to Microsoft audit findings.
This means accepting the report at face value, carefully analyzing it, pushing back where appropriate, and negotiating a resolution that minimizes costs and aligns with your business interests. Licensing professionals, CIOs, and audit response teams should approach this phase methodically and calmly.
Let’s break down the strategic steps after receiving an audit report.
Take a Breath and Organize Your Response Team
First and foremost, don’t panic and don’t rush into buying licenses or making statements the moment you see the audit report. Microsoft audit findings can be complex documents (often called an Effective License Position report) detailing where auditors believe you’re non-compliant.
The initial dollar amount or license gap might look frightening. However, it’s vital to remember that audit findings are not final demands but the start of a discussion.
Gather your internal response team immediately. This team likely includes: your Software Asset Manager or Licensing lead, representatives from IT who understand the deployed environment, someone from procurement or finance who knows your contracts, and possibly a representative from legal or senior IT leadership.
If you have an independent licensing consultant or audit defense expert (like Redress Compliance) on call, bring them into the loop now. Assign a point person who will coordinate communications with the auditor/Microsoft in the future (often the SAM manager or IT procurement manager).
The key at this stage is to stay calm and systematically plan your response. Many organizations make the mistake of either going on the defensive aggressively without facts in hand or, conversely, immediately agreeing with the findings out of fear. A strategic response lies in being cooperative and professional with Microsoft and methodical and firm in validating every claim.
Review the Audit Report in Detail
Now, dive into the audit findings with a fine-tooth comb. This review phase is arguably the most important part of your response strategy.
Some best practices while reviewing:
- Check for Calculation Errors: The auditing firm often prepares audit reports on large spreadsheets. Mistakes can and do happen. Verify the math—e.g., if they say you have 120 installs and 100 licenses, shortfall 20, ensure that is correctly calculated. We’ve seen cases where a formula was dragged incorrectly, resulting in overstating usage. Also, check aggregation across multiple sites or business units if applicable; ensure no double-counting.
- Match Every Deployment to Your Records: The report will list installations or usage figures the auditors collected (for instance, a list of servers running SQL, or several users active on Office 365, etc.). Cross-check these with your inventory. Are there servers listed that you already knew about and perhaps even retired? If an entry looks unfamiliar, investigate – it might be an old hostname or a test environment that was counted as production. Sometimes, auditors assume all installations are in scope, even if some should not be (like DR cold standby servers). Identify any such items because they can be grounds for adjustment.
- Verify Licensing Interpretations: Auditors try to apply Microsoft’s licensing rules, but they may misinterpret how a license applies to your scenario. For example, if you have a SQL Server with Software Assurance, you’re allowed certain passive failover rights. Did the auditor erroneously count your passive failover server as needing a license? That could show up as a finding unless you point it out. Or perhaps they counted all users with an Active Directory account as needing a Windows CAL. Still, maybe you have a specific licensing alternative (like a third-party authenticator), or those users don’t access the server software. For each finding, ask: Is the auditor correctly applying the product’s license terms? If not, note it for the challenge.
- Ensure Entitlements Weren’t Missed: Cross-check the licenses they credited you with against what you own. Auditors sometimes miss licenses, especially if you have recent purchases, licenses acquired via acquisition, OEM licenses on hardware, or special entitlements like student use benefits or grandfathered clauses. If you see a shortfall for a product you believe you have licenses for, gather proof of those licenses. It could be as simple as the auditor not having the latest purchase records. You are well within your rights to provide additional proof of entitlement that might have been overlooked. This can directly reduce the compliance gap.
- Question Unclear Items: Audit reports might include notes or assumptions. For instance, it might say, “Assumed SQL Processor License required for X deployment lacking data.” Any assumptions made in the report should be scrutinized. Auditors might assume the worst-case scenario when the data is incomplete. If you see phrases like “assumed to be Enterprise Edition” or “unable to determine usage, counted as requiring license,” these are red flags to address. You may have data or context to replace those assumptions with facts, often lowering the compliance gap (auditors typically assume higher usage if unsure).
- Identify Negotiation Priorities: As you review, categorize findings into: (a) Valid and expected – you knew about these gaps and indeed need to address them; (b) Disputable – you have counter-evidence or interpretation; (c) Mistakes – clear errors by the auditor. This categorization helps focus your response. You might accept valid findings, but plan how to remediate them cost-effectively. Disputable ones will form the core of your pushback arguments. Mistakes you’ll correct outright.
Document the outcome of your review in an internal sheet – an annotated version of the audit findings where you add your notes: “Item X – auditor counted 50 users, but 10 of those accounts are service accounts that don’t consume a CAL” or “Server Y – auditor listed as unlicensed, but we have license under EA license ID 1234.” This becomes the basis for the next conversation with the auditor/Microsoft.
Read Internal Audit Best Practices to Stay Ahead of Microsoft Audits.
Engage with the Auditor and Microsoft Constructively
After your internal analysis, it’s time to return to the auditors (or Microsoft’s audit representative) with questions and clarifications. Approach this as a collaborative fact-finding discussion, not a confrontation.
Some strategies for this engagement:
- Consolidate Questions/Challenges: Instead of piecemeal queries, send a consolidated list of questions/points to the auditor. For example: “On section 3 of the report, you list 120 Windows Server instances as unlicensed. Our records show 10 were decommissioned before the audit period – can you clarify if these were counted? We have evidence of their decommission dates.” Or “For SQL Server XYZ, you assumed Enterprise Edition; however, it’s Standard Edition (we have configuration screenshots). This changes the license requirement.” By presenting an organized list, you show you’ve done your homework and make it easier for the auditor to respond.
- Provide Supporting Evidence: Wherever you challenge a finding, provide the backup. If you say a certain user account shouldn’t count, show the log or description of that account. Attach the purchase record or license certificate if you assert you have licenses that the auditor missed. Make the auditor’s job easy to agree with you by giving clear proof. This signals that you take the audit seriously and won’t be pushed over.
- Stay Professional and Factual: Stick to facts and contract terms. Avoid emotional or combative language like “your findings are wrong/incompetent.” Instead, use phrasing like “we respectfully disagree with this interpretation because Section X of our licensing agreement states Y” or “according to Microsoft’s Product Terms (Month Year edition), product Z includes this use right, which covers our scenario – thus we believe this finding should be adjusted.” Showing you know the rules can cause auditors to reconsider overly aggressive positions.
- Ask for Clarification on Calculation of Penalties: If the findings include a financial figure or a statement of owing $X, ask how it was calculated. Are they quoting Microsoft’s list prices? Did they include a 5% or other penalty? Understanding the calculation might give you leverage – for instance, if you’re still within an EA, perhaps pricing should be at your level price, not retail (this can be negotiated). Or if they added an extra fee, confirm if your agreement indeed stipulates that. If not, that fee could be negotiable or waived.
- Keep Microsoft in the Loop (as needed): Often, a third-party firm conducts the audit, but Microsoft account reps will step in once findings are finalized to discuss settlement. You don’t necessarily want to escalate to Microsoft management prematurely, but if the auditor is being uncooperative or you find a major error. They are not acknowledging it, you can (tactfully) involve your Microsoft contact. Sometimes a Microsoft rep can moderate and ensure the audit stays fair – Microsoft doesn’t want to sour customer relationships unnecessarily.
This phase may involve a few back-and-forth rounds. The goal is to adjust the audit report to be as accurate and favorable as possible before it becomes “final.”
It’s much easier to negotiate corrections now than after Microsoft has issued an official compliance claim.
Read Defending Your Licensing Position: How to Challenge Microsoft’s Audit Claims.
Strategic Considerations for Settlement and Next Steps
Once the findings are as accurate as possible (i.e., you and the auditors more or less agree on the facts of what’s unlicensed), the focus shifts to resolving the non-compliance.
Here’s where strategic thinking comes into play:
- Understand Microsoft’s Goals: It helps to realize that Microsoft’s primary goal in audits is often to drive sales or renewals, not to punish. Yes, they want license compliance, but they want you to acquire more of their products (or move to newer offerings). Auditors often hand off a final report to Microsoft’s sales/licensing team, who will then propose how to “settle.” This could be as straightforward as “buy these missing licenses at list price,” or “this is a great opportunity to transition you to cloud subscriptions or a higher-tier suite.” Knowing this, you can steer the outcome. For example, if you were considering upgrading some users to Microsoft 365 E5 for its features, and the audit finds a shortfall in certain on-prem licenses, Microsoft might be amenable to a deal. Instead of paying penalties, you agree to an E5 licensing deal that covers the compliance gap and gives them future revenue.
- Explore Remediation Options Before Paying: If the findings say you are short 100 licenses of something, consider if there are ways to remediate without purchase (at least partially). Could you uninstall or reduce usage now that it’s highlighted? Microsoft might allow a reduction if it’s immediate and verified. For instance, if you genuinely had 20 extra installs of Visio that no one is using, you might negotiate to remove them and not pay for those (focusing purchases only on truly needed ones). You’d need to propose this credibly: commit to removal and demonstrate it. Microsoft may or may not accept, but it’s worth raising if applicable.
- Negotiate the Numbers: Don’t assume you have to pay the sticker price for everything when paying for licenses. If you’re under an Enterprise Agreement, the missing licenses may be added at your agreed EA price (usually lower than retail). Or if it’s a large compliance exposure, use that as leverage: “This is a big spend for us outside our budget cycle. We are willing to purchase these licenses to comply, but we’d like to discuss obtaining them at a discount or as part of a modified agreement in the future.” Microsoft might prefer to turn this into a new deal – for example, extending your EA term or signing you up for a new 3-year cloud subscription, in exchange for forgiving some portion of the compliance cost or giving a discount.
- Consider Future Needs (Strategic Licensing instead of one-time fixes): A strategic response means looking beyond the immediate audit. Is the solution to just buy what you’re missing, or is this a trigger to optimize your overall licensing? For example, the audit might have found you need more Windows Server licenses – maybe it’s time to consider moving more servers to Azure or adopting Azure Hybrid Benefit, which could change your licensing model. Or if you’re short on Office licenses, moving those users to Microsoft 365 subscriptions would be more cost-effective. It could even be an opportunity to consolidate and eliminate things. For example, if you got dinged for using an older product like Project Server unlicensed, maybe you should shift to a cloud project management tool rather than invest in more licenses for a legacy system. Use the audit as a catalyst to drive smarter licensing decisions that align with your IT roadmap.
- Timeframe and Budget Considerations: Negotiate timing if the audit resolution requires spending. Perhaps you can spread purchases over a couple of quarters or align it with your fiscal budget. Microsoft might be open to phased approaches (like immediately buying some licenses, and plan to true-up the rest at the next EA anniversary). The key is to communicate openly your constraints – most Microsoft reps will try to work out a schedule rather than risk non-payment or a breakdown in relations.
- Get Commitments in Writing: As you negotiate the resolution, clearly document any concessions or deals. For instance, if Microsoft agrees that you only need to pay for 80 licenses instead of 100 because you’ll remove 20 installations, that needs to be written in the settlement. Or if they waive the 5% penalty fee due to a new purchase commitment, document it. A formal settlement agreement or an amendment to your license agreement might be executed. Have your legal team review it so that it indeed releases you from further claims on the audited period once you fulfill your end.
Leveraging Expert Help and Negotiation Skills
A strategic response often means knowing when to bring in reinforcements. Independent licensing experts or professional negotiators can significantly tilt things in your favor.
Here’s how:
- Expert License Knowledge: Specialists can pinpoint obscure licensing rules that support your case. They might say, “According to Microsoft’s June 2022 Product Terms, you have legacy downgrade rights for that product, so those installs are compliant.” Citing such specifics can nullify certain findings. Experts stay current on Microsoft’s voluminous and evolving licensing terms, which can be invaluable.
- Audit Defense Experience: Those who have defended many audits know the typical “give and take” in negotiations. They can advise on what Microsoft might be willing to concede. For example, an expert might say, “In cases like yours, Microsoft often waives the audit cost if you agree to a quick resolution – let’s ask for that.” Or “The last client I worked with negotiated a move to Microsoft 36,5, which resolved their shortfall – maybe pitch that.”
- Shielding Identity in Negotiations: Sometimes companies prefer not to deal directly to keep emotions out. You can have a third-party negotiator represent you or guide you behind the scenes. Microsoft is used to this; they often deal with outside counsel or consultants in audits. The benefit is that Microsoft’s tactics won’t faze these negotiators – it’s business for them, and they can firmly stand their ground on contentious points without the internal stress an employee might feel.
- Ensuring Fair Valuation: If there is a dispute over how much is owed, legal experts (especially if it veers into BSA territory) can ensure that any settlement is based on reasonable valuation. For example, even if you used older versions, BSA often calculates penalties for the latest versions at high MSRP. A skilled negotiator might argue that you should use the version you used as a price baseline to reduce costs. Or they may point out that certain software was used only for part of the time and negotiate partial credit.
- Maintaining Relationship: A consultant or lawyer can play “bad cop” to your “good cop”. They can press Microsoft hard on contentious issues while you, as the customer, maintain a positive relationship with your account team. Later, you can engage with Microsoft on normal business once the audit is settled, without as much residual bitterness.
Remember, the audit outcome is negotiable. While you can’t escape having to resolve real under-licensing, the terms and costs are not simply dictated to you – you have leverage too: Microsoft wants to keep you as a customer and keep you buying their products. Use that fact to drive a settlement that is as favorable as possible.
Aftermath: Implementing Lessons Learned
Part of a strategic response is also looking inward after the dust settles. Conduct a post-mortem with your team: What caused the compliance gaps, and how can we prevent this in the future? Perhaps the audit revealed weaknesses in tracking or a particular business unit’s rogue IT deployments.
Take corrective actions so that you won’t have similar findings next time. Strengthen processes, invest in better SAM tools or training (if needed, as identified in previous articles), and keep management informed of improvements.
Also, if needed, mend fences with Microsoft. If the audit negotiation was tough, ensure the relationship is smoothed over.
One strategy is to ask for a Microsoft true-up or architecture review (outside of audit) to show you want to be compliant going forward, or schedule regular meetings with your Microsoft account rep to stay aligned on licensing.
Conclusion
Facing Microsoft audit findings can feel like standing at a crossroads: one path is passively accepting potentially costly results; the other is actively managing the outcome to your advantage. By responding strategically—carefully validating the findings, engaging in constructive challenges, and negotiating solutions—you can significantly reduce the pain of an audit.
Companies that handle this phase well often pay far less than the initial report suggested, sometimes turning the situation into an opportunity (for example, by getting a better licensing deal or adopting newer tech that benefits the business).
The key takeaways for any licensing professional or CIO: stay composed, do your homework, involve experts, and treat the audit resolution as a business negotiation, not just a bill to pay.
Microsoft audits are as much about future relationships and sales as about past compliance – leverage that reality. With a strategic approach and possibly independent advisory support, you can emerge from an audit compliant, wiser, and more optimized in your licensing.
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