microsoft audit

Brief Overview of Microsoft Audit

Microsoft audit are routine inspections conducted by Microsoft or a third-party auditor to ensure that businesses comply with Microsoft’s licensing agreements. These audits are initiated when Microsoft sends an official audit letter to the organization.

The process involves collecting and analyzing data related to the organization’s use of Microsoft’s software and services.

The result of an audit can lead to negotiations with Microsoft regarding licensing adjustments, potential penalties, or future commitments to Microsoft services.

The Purpose and Importance of Microsoft Audit

The primary purpose of Microsoft audit is to ensure that businesses are properly licensed for the Microsoft software they are using. They ensure that organizations adhere to their licensing agreements’ terms, thereby preventing software piracy and under-licensing.

They also provide Microsoft with an understanding of how their software is used in the marketplace.

The importance of Microsoft audits extends beyond compliance. They can highlight areas where an organization may be overspending on unnecessary licenses or not fully utilizing them.

They also offer an opportunity for organizations to review and streamline their software deployment processes, potentially leading to cost savings and efficiency improvements. Further, Microsoft audits can help organizations identify potential security risks associated with outdated or unsupported software.

It’s worth noting that while Microsoft audits can pose a challenge, they can also be viewed as an opportunity. Organizations can better understand their software usage by preparing for an audit, leading to more informed decision-making and strategic planning.

Receiving the Official Audit Letter

What is an Official Microsoft Audit Letter?

The official audit letter from Microsoft is the formal communication that initiates the audit process. Typically sent by Microsoft or its designated auditing firm, this letter will notify an organization that its Microsoft licensing compliance is under review.

It outlines the process, timelines, and expectations for the audit and often requests initial data to be collected and submitted by the audited organization.

Key Details to Look for in the Letter

When you receive an official audit letter, there are several key details you should look for:

  1. Audit type: Microsoft can conduct different types of audits, including SAM (Software Asset Management) reviews, voluntary self-audits, and formal audits.
  2. Requested data: The letter will outline what kind of data Microsoft requires from you. This could include details about the Microsoft software and services you use and the number of users, devices, and servers.
  3. Timeframes: Pay close attention to the deadlines specified in the letter. There will likely be a deadline for your initial response and data submission.
  4. Contact information: The letter should provide contact details for the auditor or Microsoft representative overseeing the audit.
  5. Next steps: The letter will usually indicate the subsequent steps of the audit process after you submit the requested data.

How to React When You Receive the Letter

When you receive an official audit letter from Microsoft, responding appropriately is essential. 

Here are the steps you should take:

  1. Don’t panic: Remember, audits are a routine part of doing business with Microsoft, and most companies will be audited at some point.
  2. Assemble your team: You will need a team of specialists, including a team lead, system team lead, procurement lead, and legal lead. An executive sponsor is also beneficial.
  3. Review the letter carefully: Understand the type of audit, the requested data, and the deadlines. If anything is unclear, reach out to the provided contact for clarification.
  4. Plan your approach: Determine how you will gather the requested data. This may involve coordinating with various departments within your organization.
  5. Consider seeking professional help: If you lack the internal resources or expertise to manage the audit effectively, consider enlisting the help of a professional Microsoft negotiator or consultant. They can guide you through the process and help you avoid potential pitfalls.

Preparing for the Microsoft Audit

Informing Stakeholders and Assembling Your Team

Upon receiving the audit letter, the first step is to inform all relevant organizational stakeholders. Maintaining transparency and ensuring all affected parties are aware of the upcoming audit is crucial. Next, assemble your audit response team. This team will play a pivotal role in the audit process. It should include well-versed individuals in your organization’s IT infrastructure, licensing agreements, and legal considerations. The team should include the following:

  • A team lead (a single point of contact).
  • A system team leads.
  • A procurement lead.
  • A legal lead.

You should also have an executive sponsor for added support and decision-making power.

Organizing Agreement Paperwork

Once your team is assembled, organizing your agreement paperwork is next. These documents form the basis of your entitlement data, which is crucial for the audit process. They include all your existing Microsoft licenses, special terms in your agreements, links between OEM and Software Assurance, and licenses obtained through mergers/acquisitions. Ensure all these documents are accurate, up-to-date, and readily available for the audit.

The Role of the Legal Team in the Audit

The legal team plays a crucial role in the Microsoft audit. Their main responsibility is to ensure that the audit process adheres to the stipulations outlined in the Microsoft Business and Services Agreement (MBSA) and any other relevant contracts.

They will review the official audit letter and help interpret the legal language and requirements. The legal team will also be instrumental in negotiating confidentiality agreements with the auditor to safeguard your company’s sensitive information.

Furthermore, they will ensure that the audit doesn’t infringe upon your legal rights and provide guidance and support during any negotiation phase with Microsoft.

The Kick-off Meeting

What to Expect During the Kick-off Meeting

The kick-off meeting is the official start of the audit process. During this meeting, the auditor will outline the process and timelines, setting the stage for what’s to come.

They will provide a detailed overview of the audit process, clarify the audit’s scope, and explain your organization’s expectations. This is also the opportunity for your team to ask questions, clarify any uncertainties, and ensure everyone is on the same page about the process.

Essential Materials You Will Receive

During the kick-off meeting, the auditor will provide several essential materials to guide you through the audit process. These may include a detailed audit plan, a schedule of upcoming activities, templates or formats for presenting your licensing and deployment data, and guidelines for data collection.

These materials are designed to ensure the audit process is organized, consistent, and seamless.

Tips for the Kick-off Meeting

The kick-off meeting is your opportunity to set the tone for the audit process. Here are a few tips to ensure it goes smoothly:

  1. Be prepared: Understand the audit process and know your rights and obligations. Review the audit letter and any relevant agreements ahead of the meeting.
  2. Ask questions: If anything is unclear about the process, ask for clarification. It’s better to clarify uncertainties early rather than face confusion later in the process.
  3. Establish clear communication lines: Make sure you know who your point of contact will be during the audit, and establish a clear process for communication.
  4. Set realistic expectations: Be honest about your capabilities and timelines. If you believe the proposed schedule is too tight, communicate this during the kick-off meeting.
  5. Advocate for your interests: The auditor is there to ensure compliance, but you also have rights and interests to protect. Make sure these are respected throughout the process.

Data Collection and Provisioning

What Data will you need to Provide

The data you must provide during a Microsoft audit typically includes evidence of your software usage and license entitlements. The auditors may request inventory data from all the end-user devices and servers in your estate, Active Directory data, details of your infrastructure and environment types across all data centers, and procurement records showing license purchases and terms of agreements.

Additionally, they might require information about your regular software True-Ups and how you separate your production environments for Dev, Test, and DR environments.

How to Gather and Organise Your Data

Organizing your data for a Microsoft audit can be complex, but a systematic approach can significantly simplify the process. Here are some steps you can take:

  1. Identify the sources: Pinpoint where your data resides. This could be within various systems, databases, or even physical files.
  2. Collect the data: Use automated tools where possible to collect the data. For physical files or non-digitized records, you may need a manual process.
  3. Clean and verify the data: Ensure the data is accurate and up-to-date. Remove any outdated records, and validate the information you have.
  4. Organize the data: Similar Group data together, categorize it and make it easily searchable. Using a database or a spreadsheet can be helpful.
  5. Keep records: Document how and where you collected the data from. This will be useful if you need to reference back or if the process is questioned.

The Importance of Evidence in the Audit Process

Evidence plays a vital role in the audit process. It serves as proof of your compliance with Microsoft’s licensing terms. It is crucial to verify the accuracy and reliability of the data you provide.

Auditors will base their findings on the evidence you provide, so having comprehensive, well-organized, and accurate evidence can help ensure a smoother audit process. It can also help you avoid penalties and negotiate a better outcome if discrepancies are found. Additionally, maintaining good records can make future audits easier and less time-consuming.

How Microsoft Auditors Analyse Data

Understanding the Auditor’s Approach

Microsoft auditors use a systematic approach to analyze data during an audit. First, they’ll cross-check your software inventory against your license entitlements. This involves assessing your usage records and matching them with the terms of your licensing agreements.

They will identify any over-usage (software usage beyond the entitlements) and under-usage (unused licenses). They will also look at historical data to understand if non-compliance is a one-off or recurring issue. They aim to determine whether you comply with Microsoft’s licensing terms.

Potential Assumptions and Inferences Made by Auditors

Auditors might make certain assumptions during an audit. For example, they may presume that you’re liable for all Microsoft software deployed in your estate, whether you support or maintain it.

They could also assume that all software installed is being used unless you provide data to show otherwise. Similarly, they may infer that missing or incomplete records indicate non-compliance unless you can provide evidence to the contrary.

Remember, the auditor’s role is to establish compliance with licensing terms, not to represent your interests, so any room for interpretation may only sometimes fall in your favor.

How to Validate and Challenge the Microsoft Audit Report

After the auditors complete their analysis, they will produce a report outlining their findings. It’s crucial to review this report thoroughly. Here are some steps to validate and potentially challenge the report:

  1. Check for Calculation Errors: Auditors often use complex spreadsheets with manual data manipulation. Mistakes can happen. Check all the calculations meticulously.
  2. Review Licensing Interpretations: Ensure that licenses are assigned accurately. Misinterpretation of licensing rules can lead to incorrect findings.
  3. Verify Entitlement Data: Ensure all entitlement data is considered, including licenses obtained through mergers/acquisitions, OEM licenses, and special terms in your agreements.
  4. Review Inventory Data: Ensure the inventory data is complete and accurately reflects your software usage.
  5. Seek Expert Advice: If you find discrepancies or disagree with the findings, seeking advice from a Microsoft licensing expert or legal counsel might be beneficial. They can guide how to challenge the audit report effectively.

Negotiating the Audit Outcome with Microsoft

Understanding Microsoft’s Objectives

Microsoft’s objective is aligned with future growth and fostering a long-term relationship with you as a customer. Thus, the negotiation phase should be seen as an opportunity to engage in commercial discussions and explore alternative solutions.

For example, Microsoft may be interested in you committing to increasing your Azure consumption, upgrading from Microsoft 365 E3 to E5, or migrating from Salesforce to Dynamics CRM. By understanding Microsoft’s objectives, you can better navigate the negotiation process and turn an audit into an opportunity for beneficial changes in your software environment.

The Role of a Professional Microsoft Negotiator

Having a professional Microsoft negotiator on your side can be an enormous advantage during the audit process. A negotiator with expertise in Microsoft’s licensing agreements and audit procedures can provide valuable insights and guidance. They understand what works and doesn’t when dealing with Microsoft and can effectively communicate your standpoint.

The negotiator can either guide you while staying in the shadows or be present as a part of your team during discussions with Microsoft. Their role is to help you achieve the best possible outcome from the audit. This may involve reducing or eliminating penalties, negotiating favorable terms for required license purchases, or securing beneficial agreements for future software usage.

Remember, the key to successful negotiation is preparation and understanding. Knowing your data, compliance status, and Microsoft’s objectives can help you achieve a favorable audit outcome.

Microsoft Audit Penalties and Settlement

Potential Penalties You May Face

Microsoft’s Business and Services Agreement (MBSA) stipulates that you must purchase missing licenses within 30 days of an audit. Failure to do so may result in penalties. For volume licensing, the penalty can be 125% of the list price of the missing licenses. Additionally, if your non-compliance exceeds 5%, you may be required to cover the cost of the audit.

However, these penalties aren’t set in stone and are subject to negotiation. The extent to which you can negotiate the penalties will depend on your case’s circumstances, such as the degree of non-compliance and your willingness to rectify the situation.

How to Negotiate a Microsoft Audit Settlement

Negotiating a Microsoft audit settlement can be complex, but there are a few key strategies to remember. The first is to gather evidence to support your case. If you can demonstrate that you’ve made a good faith effort to comply with licensing requirements, you can negotiate a penalty reduction.

Microsoft aims to keep you as a customer and ensure future compliance. This means they may be open to discussing alternative solutions, such as committing to increasing your usage of certain Microsoft services or upgrading to more comprehensive licensing packages.

Having a professional Microsoft negotiator on your side can be a significant advantage during these negotiations. They can provide valuable insights and advice, helping you to navigate the negotiation process effectively and achieve the best possible outcome.

The negotiation phase is not just about resolving the current audit. It’s also an opportunity to establish a solid foundation for future compliance and a positive relationship with Microsoft. By approaching the negotiation process with this mindset, you can turn a challenging situation into a chance for growth and improvement.

Microsoft Audit Readiness Checklist

Key Indicators of Audit Preparedness

Several indicators can help you gauge your readiness for a Microsoft audit. Here are some key factors to consider:

  1. Reliable, near-real-time data: You should have access to current, accurate data from all end-user devices and servers in your network.
  2. Awareness of Microsoft software deployment: It’s important to understand that Microsoft will assume you are liable for all Microsoft software deployed in your estate, regardless of whether you support or maintain it.
  3. Knowledge of infrastructure and environment types: Be familiar with all your infrastructure across all data centers, including outsourced and hosted ones.
  4. Regular True-Ups: Frequent self-audits or “True-Ups” can help ensure that you’re maintaining the right level of licensing.
  5. Software installations and Active Directory records: Regularly clean up old on-premise software installations and maintain accurate Active Directory records.
  6. Differentiation of environments: Separate your production environments from your Dev, Test, and DR environments.
  7. Compliance monitoring: Continuously monitor the compliance of installed software with the license purchases (“entitlement”).
  8. Identification of service and discountable records: You should have a robust method of identifying service and discountable records in Active Directory.

How to Ensure You’re Ready for an Audit

Ensuring readiness for an audit involves several measures. First, you need to have a strong team in place, which should include roles such as team lead, system team lead, procurement lead, legal lead, and executive sponsor.

You should maintain a clean, organized Active Directory with up-to-date user and computer records. Regular inventory audits will help you identify gaps or issues in your inventory data. This includes technical and process-related issues and those that cannot be obtained technically and must be declared.

Regular True-Ups can ensure that you’re maintaining the right level of licensing. You should also be aware of how and why licenses are assigned in a particular way. Remember, having a professional Microsoft negotiator on your side can be a significant advantage during these processes. They can provide valuable insights and advice, helping you navigate the negotiation process effectively and achieve the best possible outcome.

Staying proactive in your audit readiness can help minimize the potential stress and disruption of an actual audit and ensure you are well-prepared to navigate the process effectively.

The Role of Internal Resources in the Audit Process

Essential Team Roles for the Audit Process

The successful navigation of a Microsoft audit involves a diverse team of specialists within your organization. Here are some essential team roles for the audit process:

  1. Team Lead: This person is a single point of contact for the audit process, coordinating between the audit team and the rest of the organization.
  2. System Team Lead: This role is responsible for managing system-related aspects of the audit, including coordinating the collection and analysis of system data.
  3. Procurement Lead: The procurement lead manages all procurement-related activities, such as tracking software purchases and understanding licensing agreements.
  4. Legal Lead: The legal lead is responsible for managing all legal aspects of the audit, including understanding the legal implications of non-compliance and negotiating the audit settlement.
  5. Executive Sponsor: This person, typically a high-level executive within the organization, sponsors the audit process and ensures it receives the necessary resources and attention.

How to Control an Active Audit

Controlling an active audit involves managing the flow of information between your organization and the auditor and ensuring that the audit process is conducted to respect your organization’s rights and interests.

One of the first steps in controlling an active audit is establishing a direct Non-Disclosure Agreement (NDA) with the auditor. 

This protects your sensitive information and ensures the auditor cannot share it with third parties, including Microsoft, without your consent.

Another important aspect of controlling an active audit is actively participating in the audit process. This includes providing complete agreement paperwork, explaining the background of your organization’s software usage, and validating and challenging the audit report.

Remember, auditors are not infallible. They can make calculation errors, and their interpretations of licensing terms may not always be in your best interest. Therefore, it’s crucial to check every version of the audit report meticulously and to challenge any aspects of the report that you believe is incorrect or unfair.

By taking a proactive role in the audit process, you can ensure that the audit is conducted fairly and transparently and that your organization’s interests are adequately represented.

Common Mistakes in the Microsoft Audit Process

Five Reasons Why Audits Go Wrong

Audits can go wrong for several reasons, often due to misunderstandings or insufficient preparation. Here are five common reasons why audits might go wrong:

  1. Insufficient agreement knowledge: If the auditor doesn’t fully comprehend your specific agreement details and background, they might make mistakes or misinterpretations. It’s your responsibility to provide complete agreement paperwork and explain the background.
  2. Incomplete entitlement data: An auditor’s Microsoft License Statement may not include licenses obtained through mergers/acquisitions, licenses bundled with hardware or other software, or your specific grants. Providing all this information is crucial.
  3. Inventory data gaps and issues can arise from disorganized Active Directory data, outdated user and computer records, and incomplete and low-quality inventory data. In some cases, certain data may be impossible to obtain technically and must be declared instead.
  4. Licensing interpretation: There can be multiple ways to assign licenses. If the auditor lacks licensing experience or isn’t working in your best interest, they might not choose the most beneficial licensing scenario for you.
  5. Calculation mistakes: Auditors often use Excel for calculations, which leaves room for human error. Mistakes can occur, and once fixed, they might reappear in subsequent versions of the report.

How to Avoid Common Audit Mistakes

Avoiding common audit mistakes often involves meticulous preparation and proactive participation in the audit process. Here are a few tips to avoid these common errors:

  1. Ensure you understand your licensing agreements and can explain them to the auditor.
  2. Keep comprehensive records of all your software licenses, including those obtained through mergers or acquisitions or bundled with hardware or other software.
  3. Regularly clean up your Active Directory and maintain up-to-date user and computer records.
  4. Understand your licensing scenario and be ready to explain why licenses are assigned in a particular way.
  5. Carefully check every version of the audit report and challenge any aspects you believe are incorrect.


Final Thoughts and Key Takeaways

Microsoft audits can be complex and daunting, but they can be successfully managed with the right preparation, team, and approach. Remember that the audit is a process, and you are a key part. Stay informed, stay involved, and don’t hesitate to challenge the auditor if you believe they’re wrong. 

Case Study: Navigating a Microsoft Audit for a US Manufacturing Company


A leading US-based manufacturing company was notified of an upcoming Microsoft audit. Despite having a dedicated IT team, the company lacked the specific knowledge and expertise required to navigate the complex audit process. They approached Redress Compliance for assistance, seeking help to ensure they would not face any unnecessary penalties or expenses.


The manufacturing company’s extensive IT infrastructure is spread over multiple locations, including a diverse range of Microsoft products used for various purposes. Their licensing agreements were complex, and there were concerns about potential non-compliance, particularly with their server licenses and user CALs. The company was also worried about the potential disruption the audit might cause.


Redress Compliance assigned a team of experienced Microsoft audit specialists to the case. The team began by reviewing the company’s existing licensing agreements and comparing them with the usage data gathered from its IT systems. They identified potential areas of non-compliance and worked closely with the company’s IT and legal teams to understand the specifics of their situation.

Next, Redress Compliance prepared a detailed response to the audit notification, outlining the company’s compliance status and explaining any discrepancies. They also helped the company negotiate a confidentiality agreement with the auditor to protect sensitive data.

During the audit process, Redress Compliance maintained regular communication with the auditor, addressing any queries and providing additional evidence as required. They also worked with the company to improve their software asset management practices, reducing the risk of future non-compliance.


Thanks to the expertise and diligent work of Redress Compliance, the company navigated the audit process smoothly and with minimal disruption to its operations. Redress Compliance successfully defended the company’s licensing position, resulting in no penalties for non-compliance.

Moreover, the audit process revealed opportunities for cost savings. Redress Compliance identified several areas where the company was over-licensed and helped them optimize their software licenses to match their actual needs better. This resulted in significant savings in annual licensing costs, greatly offsetting the cost of the audit defense services.

Key Takeaways

This case study highlights the value of engaging professional audit defense services when facing a Microsoft audit. With their detailed knowledge of Microsoft licensing agreements and the audit process, Redress Compliance guided the company through the audit, avoided penalties, and identified cost-saving opportunities. This experience also underscored the importance of regular software asset management practices to maintain compliance and optimize licensing costs.

FAQs on Microsoft Audit

Facing a Microsoft Audit? We’re Here to Help!

Audits can be overwhelming, but you don’t have to navigate them alone. At Redress Compliance, we specialize in providing expert support and guidance throughout the entire Microsoft audit process. We’re committed to helping you minimize costs, manage the complexities of the audit, and maintain a positive relationship with Microsoft.

Don’t leave your audit outcome to chance. Let our team of professionals help you prepare effectively, negotiate efficiently, and achieve the best possible results. Contact us today to discuss how we can support you in your Microsoft audit.