A key player in the global fashion industry appointed our team to review the completeness of the royalty reporting for several of its manufacturing licensees. The objective was to determine whether its long term business partners whom had never been audited previously had complied with the terms and conditions set forth in the licensing agreements.

  • Industry: Fashion
  • Licensee location: South America and Europe

How We Helped

Our Paris and Los Angeles audit team worked together and provided audit review on the selected licensees. We performed extensive analysis prior to the onsite visits. Royalties subject for review amounted to €1 million per year. We also developed macros internally to ensure the accuracy of the data derived from the compilation process.   These macros allowed us to analyze data in an effective and efficient manner. Ultimately, we came across the following issues:

  1. One of the Licensees sublicensed rights to another third-party and never reported revenues derived from the sublicensee,
  2. For those licensees who had affiliates, calculated royalties were based on transfer pricing as opposed to actual price sold to its customers,
  3. One licensee manufactured and sold licensed products combined with non-licensed products, which resulted in substantial unreported sales.
  4. Another licensee failed to stop selling licensed products after the contractual sell-off period.
  5. Foreign exchanges used for local currency conversion were not at arm’s length,
  6. Licensee deducted costs related from the sales basis that were not accepted as per License agreements.

The Solution

The onsite review and post fieldwork analysis identified several million euros in monetary findings. We provided post audit service to ensure that the licensees corrected the errors noted during the audit and were subsequently in compliance with their contractual requirements. The examination also revealed lack of internal control in place over royalty report monitoring, invoicing and collections by the licensor. The said findings were effectively addressed and communicated to the licensor and licensees which enhanced the settlement process over the monetary findings with the respective licensees.