Reasons For Being Audited By Oracle

By Author: Nafkha Consulting
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Through these articles, we aim to educate clients on LMS, licensing rules, negotiation strategies, Unlimited License Agreements, cloud migrations, and much more.

Types of audits:
It’s important to note that not all audits are conducted through formal channels. Oracle’s sales and audit teams often collaborate to identify potential compliance gaps by gathering insights during client meetings. This information is then used to encourage clients to purchase additional Oracle licenses.

We’ll explore this topic across three categories:
1. Oracle’s motivations for auditing clients
2. Informal LMS/Audit (Soft Audit)
3. Formal LMS/Audit (Official Audit)
With a little help from our friend ChatGPT, we have listed the potential reasons why the Oracle team may believe that a particular client is out of compliance.

Oracle’s motivations for auditing clients:
1. Revenue Protection: Oracle generates a significant portion of its revenue from software licensing. Audits help ensure that clients are correctly licensed and paying the proper amount for their usage. This helps Oracle ...
... prevent revenue loss due to under-licensing or unauthorized usage.

2. Software Compliance: Oracle’s software licenses come with specific terms and conditions. Audits help Oracle enforce compliance with these terms, ensuring that clients are using the software in ways that align with their agreements.

3. Usage Verification: Companies may add features or expand usage beyond the original scope agreed upon in the licensing contract. Audits verify whether the client is using features or services outside the scope of their purchased licenses.

4. Unauthorized Cloud And Virtualization Deployments: Many Oracle products have strict rules on where and how they can be deployed, especially in cloud and virtualized environments. Audits check for unlicensed use in such environments, where clients may exceed their licensed rights.

5. Changes In IT Infrastructure: When clients change their IT environment — such as by acquiring new servers, migrating to the cloud, or expanding databases — this can trigger an audit. Oracle wants to ensure that any infrastructure change remains compliant with licensing terms.

6. Suspicion Of Non-Compliance: Oracle may initiate audits based on data or patterns that suggest a client might not be compliant. Such signals could come from support requests, surveys, or customer data Oracle gathers in other interactions.

7. Mergers And Acquisitions: When companies merge, acquire, or spin off business units, Oracle often audits to ensure all entities under the new structure have the necessary licenses.

8. Competitive Pressures: With increased competition in the enterprise software market, Oracle uses audits to protect its market share by ensuring that clients don’t under-license Oracle products in favor of other solutions.

9. Contract Renewal And Upselling Opportunities: Audits can serve as a strategy to assess usage as clients approach contract renewals, often leading to recommendations for additional products or services.

10. Data Protection And Security Concerns: With data protection regulations in mind, Oracle wants to ensure that clients are not inadvertently exposing data by using unlicensed software or using software in insecure environments.

Informal LMS/Audit (Soft Audit):
Every Oracle client is assigned multiple account managers from various LOB’s like applications, cloud, technology, hardware, industry apps, etc. The primary goal of the account managers is to build strong relationships with clients and sell products they are responsible for. Often, this leads to confusion amongst customers as these LOB’s often compete against each other to sell their products.

There has been a significant push towards adopting cloud solutions by organizations globally. This has led to decrease in Oracle’s on-premise database new business revenue. The fact is that new project budgets are no longer focused on acquiring on-premise technology as these are getting outdated and incur heavy capital expenses, the Oracle sales team still have a target to hit. So, what do they do?

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1. Meet clients, educate them about new technology or upgrades, understand what problems customers face with their Oracle setup (on-premise) and what have they done to address the existing challenges.

2. They then try to find gaps or irregularities between what customer own versus what they have deployed.

3. They may also position exercises like an Assurance Program, Health Check, License optimization program , etc. It is very important to know that the primary goal of such exercises is not just help customers understand where the technical issue lies but to also understand where the gap in licensing is.

4. This may then lead to sales teams informing clients about the license gaps they have identified and that these gaps need to be fixed asap for clients to adhere to Oracle’s licensing rules.

5. While clients may be under the impression that they are being supported by Oracle, the reality is that they are being unknowingly asked for info that will later be used to sell more licenses.

Reasons for formal LMS/Audit:
1. Virtualization Technologies (e.g., VMware): Oracle does not recognize VMware as a “soft partitioning” tool, meaning that all servers within a cluster — or potentially an entire data center — must be licensed, even if Oracle is only running on a subset of hosts. We will share more info on this topic in a separate article.

2. Hardware Upgrades: Hardware refreshes often involve new servers with increased CPU and core counts. Without Oracle-recognized hard partitioning technologies (such as KVM or LPAR), this may create a licensing gap.

3. Business Growth: As businesses grow, so do their software requirements. This is especially true for clients using Oracle applications like E-Business Suite, JD Edwards, or Flexcube.

4. Lack of Recent License Purchases: Continuing to use Oracle products without purchasing additional licenses in the last 3–4 years can increase non-compliance risk.

5. Mergers and Acquisitions: Organizational changes, such as mergers, acquisitions, or spin-offs, often prompt Oracle to audit for licensing compliance across the newly structured entity.

6. Previous Audit History: Clients previously audited by Oracle are increasingly receiving License Management Services (LMS) notifications, indicating a trend of repeat audits.

7. Unauthorized Software Downloads: Downloading Oracle software, especially Java, without the necessary licenses is a common audit finding.

8. Engineered Systems Usage: With scalable systems like Exadata, organizations often scale up their database instances without scaling down afterward, inadvertently exceeding licensed core counts.

9. Database and Middleware Options: Use of additional features such as Partitioning, Real Application Clusters, and Diagnostic/Tuning Packs may be assumed to be included in Oracle Enterprise Manager but are, in fact, licensable options.

10. Audit Rights Clause in Master Agreement: Oracle reserves the right to conduct formal audits with a 30-day notice, as outlined in the LMS clause of the Master Agreement, often triggered by any of the above factors.

Summary:
There are several reasons — both logical and otherwise — that may lead to an audit by Oracle. From Oracle’s perspective, the actions taken by their License Management Services (LMS) and sales teams are justified, as clients utilize technology that must be properly licensed.

It is essential for organizations to take proactive control of their deployments. This includes a comprehensive understanding of contract terms and conditions, familiarity with Oracle licensing rules, and implementing checks to ensure ongoing license compliance.

While this process can be time-consuming, neglecting it can result in significant financial repercussions.

It is important to note that Oracle has audited clients in the past, continues to conduct audits currently, and is likely to do so in the foreseeable future, particularly in the Middle East and Africa region.

We recommend engaging with Oracle licensing experts, such as Nafkha Consulting, to ensure that you achieve license compliance and optimize your Oracle-related costs.

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Originally published at Nafkha Consulting.