$55 million. That’s a lot of scratch. Hard to imagine that amount of money going unnoticed. For 15 years.
But it did, in an extreme and costly example of how paper and spreadsheet royalty report templates allow Licensors to over look glaring mistakes made by Licensees. In this case, an Australian Mining company unintentionally under reported iron ore royalties for 15 years by inadvertently using the wrong royalty rate on their royalty reports.
Even worse, the $55 million only covers the last 2.5 years of underpaid royalties:
The back-payment covers only the 2 1/2-year period to June 30 to correct what appears to have been a huge clerical error. The mining giant will avoid hundreds of millions of dollars in royalties it should have paid since 1995.
How did this happen? Quite simple – the Licensee used the wrong royalty rate (3.75% of Net Sales instead of 7.5% of Net Sales) on their royalty reports, and nobody noticed. For 15 years!
It is understood that neither the government nor Rio were aware for at least 12 years that the incorrect royalty was being paid. The problem is believed to have been a clerical error.
How can you prevent a clerical error resulting in $55 million, $55 thousand, or even $55 dollars in lost royalty revenue? Easy.
Replace spreadsheet based royalty report templates with royalty software to calculate royalties owed.
- Royalty software always uses the correct royalty rate. Always. (even when there are multiple or variable rates on an agreement)
- Royalty software never makes math errors. Never.
- Royalty software does not make copy and paste mistakes.
- Royalty software does not edit or delete your spreadsheet formulas.
- Royalty software always uses the correct exchange rate for currency conversions.
- Royalty software lets you instantly review and analyze royalty data.
We often discover similar historical royalty reporting errors as our trademark licensing and technology licensing customers are ramping up with RoyaltyZone. The errors we find often pay for the software many times over!
Full article here.