Requiring Audits Only In A Distant Jurisdiction - Traps & Scams Every Musician Must Avoid

Short version You sign a record deal, publishing deal, distribution deal, or sync contract and the small print says you can audit the company books only in a city that feels like a second country. The result is an audit that is theoretically allowed but practically impossible. That costs you money, time, and likely unpaid royalties. Welcome to the shady world of distant jurisdiction audits. This guide is your survival kit.

We will explain legal jargon in plain language. We will show the tricks companies use to deter audits. We will give negotiation scripts a human can say without sounding like a law school robot. We will also include real life scenarios that will make you nod and maybe scream into a pillow. This is for musicians, producers, managers, and anyone who wants to keep money where it belongs, which is usually in your bank account and not somewhere a thousand miles away.

What does "audits only in a distant jurisdiction" actually mean

Imagine a clause that says you can inspect the company records but only at the company office in a city that requires you to fly internationally, get a visa, wait two weeks for an appointment, and then sit in a fluorescent office while someone hands you photocopies. That clause is an audit clause combined with a forum selection clause that favors the other side. Jurisdiction is the place where a court or official can decide cases. Venue is the specific courthouse or city. Governing law is the legal system that applies, like California law or English law. Companies put these words into contracts to push disputes into a location that makes life harder for you.

Here is a plain English example

• Contract says you can audit royalty statements within thirty days of receiving them.
• Contract adds you must do the audit at the companys principal offices in a country on the other side of the planet.
• Contract requires you to pay all travel costs if the audit uncovers less than five percent underpayment.

That is not a permission to audit. That is an obstacle course.

Why companies demand audits only in a distant jurisdiction

Companies are not always evil cartoon villains. Sometimes the clause appears because the company uses the same contract worldwide and does not bother tailoring it. Other times the clause is a deliberate tactic. Motives include

• Cost deterrence. If you must fly to Singapore to inspect ledgers you will likely decide the money does not justify the airfare and time.
• Time deterrence. International travel means visas, appointments, and schedules that slow you down until you give up.
• Information asymmetry. Local accountants and lawyers know the local rules and can resist disclosure. You do not.
• Language and format friction. Records might be in another language or in an accounting system you do not understand. That buys the company more excuses.
• Privacy cloak. Offshore or distant offices sometimes sit in weak enforcement environments where court orders take longer or are easier to avoid.

Common traps and scams to watch for

We will call out specific tricks you will see. Each trick has an explanation, a real life scenario, and a fix you can use at the negotiation table or after the fact.

Trap 1: Short audit windows with remote location

What it looks like: You have 30 days to request an audit and then you must do it within 60 days at the companys principal office in a country with visa rules that take 90 days.

Why it matters: The timing is mathematically impossible without waiver from the company. This is a bureaucratic choke point. Signing this equals giving up most of your rights.

Real life scenario

You get a quarterly statement on a Friday. The contract says you must send an audit notice within 30 days and complete the audit within 60 days in another continent. A Monday plane ticket alone often cannot fit those deadlines.

Fix to ask for while negotiating

• Change the audit window to at least 180 days.
• Add a clause that allows remote audits or electronic production of records at the artists request.

Trap 2: Cost shifting paired with distant jurisdiction

What it looks like: You pay all costs for the audit unless you prove an underpayment above a small percentage threshold. Even if you win you get only the underpayment plus interest, not your costs for travel and accountants.

Why it matters: High out of pocket costs for travel and expert accountants mean only the very wealthy or very stubborn will pursue audits. This is a practical veto on audits.

Real life scenario

A distributor reports a tiny underpayment. You want to audit. Contract says you pay travel and accounting costs if the underpayment is less than five percent. After your travel you find a 3.2 percent underpayment. You get the money and you pay the bill for the audit. The company saved money and kept your time hostage.

Fix to negotiate for

• Artist pays costs only if underpayment is below a small threshold such as two percent. If over that threshold the company pays audit costs including travel and reasonable attorney fees.
• Alternatively, specify that audits may be done remotely without travel cost.

Trap 3: Records retention too short or ambiguous

What it looks like: Contract says the company will keep records for only two years or does not specify retention at all.

Why it matters: Music accounting often needs five to seven years worth of transactional detail to find errors. Labels and sub publishers can claim they do not have older records and then you cannot verify historical claims.

Real life scenario

Your publishing catalog earned big mechanical royalties five years ago. A change of sub publisher makes the accounting messy. The sub publisher claims the older ledger is purged. You cannot go back and verify who paid what.

Fix to ask for

• Specify a retention period of seven years minimum. For catalogs with long tail revenue ask for ten years.
• Require electronic backups to be preserved and accessible on request.

Trap 4: Narrow audit scope coupled with refusal to provide electronic records

What it looks like: You can inspect only royalty ledgers but not underlying source files like streaming platform settlement reports, metadata reports, or sub publisher statements. Company also refuses to provide these electronically.

Why it matters: The ledger numbers can be meaningless without source files. Streaming platforms provide CSVs that show song ids, timestamps, territories, and rates. If you cannot see those you are stuck counting envelopes and not receipts.

Real life scenario

Your royalty statement shows odd zeroes for YouTube in certain territories. The company says that is normal and invites you to come across the ocean to read paper reports. They also limit photocopies and do not allow data export. You leave confused and unsatisfied.

Fix to insist on

• Contract language requiring electronic copies of source files including CSVs, PDF platform statements, and ISRC and UPC level reports.
• Right to receive key metadata fields such as ISRC, UPC, writer splits, territory, play counts, and effective rate.

Trap 5: Weak auditor independence and conflict of interest

What it looks like: The company selects the auditor and pays them directly without safeguards. The contract allows only company approved auditors who have a history with the company.

Why it matters: The company can pick auditors who have an incentive to maintain the relationship instead of challenging years of sloppy accounting.

Real life scenario

You request an audit. The company sends you a list of two auditors it uses for every audit. Both auditors also do bookkeeping for the company. As expected the audit finds nothing wrong.

Fix to demand

• Right to select the auditor from an independent list or the right to appoint your own certified auditor. If you select the auditor the company pays reasonable audit fees if underpayment exceeds a negotiated threshold.
• Include conflict of interest provisions preventing auditors who performed internal accounting for the company in the last three years from being used.

Trap 6: Arbitration clauses with remote seat

What it looks like: The contract requires disputes to be resolved by arbitration in a foreign city under foreign rules that limit discovery and evidence gathering.

Why it matters: Arbitration seated in a distant city can severely limit your ability to compel documents, to get depositions, or to enforce rulings. It is another layer of friction designed to dissuade challenges.

Real life scenario

Your audit reveals a persistent underreporting pattern. The contract says arbitrator will be in a distant country and will apply that country law to govern audits. You face long travel, expensive local lawyers, and limited rights to subpoena internal emails.

Fix to push for

• Either carve out audits from arbitration so that audit enforcement uses local courts, or ensure arbitration seat is in a convenient location with discovery rules compatible with full audits.
• If arbitration is non negotiable ask for a specific discovery schedule and the right to seek interim relief in your home jurisdiction.

How to spot these red flags fast when reading a contract

Bring this short checklist to contract meetings. If you tick any two of these boxes you need red lights and a lawyer.

• Audit location is different from the artists home country and requires international travel.
• Audit time windows are shorter than 180 days or are impossible due to local visa rules.
• Company can deny electronic delivery of source files.
• Auditor selection is controlled by the company without meaningful independence safeguards.
• Costs for audits are shifted fully to the artist regardless of underpayment.
• Records retention is less than seven years.
• Arbitration is required in a distant seat with limited discovery.

Negotiation scripts and sample language you can use

Negotiations are awkward but you do not have to be a law professor to be effective. Use plain language and specific asks. Here are phrases you can paste into emails or say during meetings.

Requesting remote audits

Please confirm that audits may be conducted remotely using electronic copies of source files. If electronic access is not possible reasonable video conferencing and screen sharing will be allowed.

Changing audit location

All audits shall be conducted at the companys offices in the artists home country or remotely at the artists option. If physical inspection is required the company will reimburse reasonable travel costs when an underpayment of two percent or more is found.

Independent auditor clause

Artist may appoint an independent certified public accountant or chartered accountant of the artists choice. If the audit reveals underreporting in excess of two percent company shall pay the auditors reasonable fees and related expenses.

Records retention clause

Company will retain all accounting records and source files relating to the exploitation of the works for a period of at least seven years following the relevant accounting period. Electronic backups shall be preserved and made available on request.

Costs and threshold clause

If an audit reveals an underpayment equal to or exceeding two percent of amounts due for the audited period company shall reimburse artist for reasonable audit costs including travel, lodging, and attorneys fees. If underpayment is less than two percent artist shall pay for the costs of the audit.

Step by step plan if you are facing a distant jurisdiction audit now

If you are reading this after the contract is signed and the clock is ticking do not panic. Here is a triage plan you can follow day one through week eight.

Day one

• Read the audit clause and any related arbitration, forum selection, and governing law clauses.
• Note deadlines and the exact wording about electronic records and auditor independence.
• Record the date you received the royalty statement because timing matters for notice rules.

Day two to seven

• Send a clear audit notice that repeats the clause language and proposes remote inspection. Put everything in writing and use a method that proves delivery.
• Ask for immediate electronic copies of source files. Companies often comply to avoid the hassle of a physical audit.
• Document any refusal. Email threads and phone call notes are evidence for later.

Week two to four

• If you receive electronic records start a preliminary review. A spreadsheet with totals, rates, and unique identifiers will reveal obvious problems.
• If the company refuses to provide electronic records escalate to a lawyer or a chartered accountant experienced in music audits. Lawyers can send a demand letter which often flips the tone.

Week four to eight

• If the company insists on a remote seat you can propose mediation or local interim measures that will allow document production without travel.
• Consider contacting your performing rights organization, mechanical rights society, or digital distributor for independent verification. These organizations may provide statement reconciliation or help force cooperation.

If it looks like the company is stonewalling do not give up rights by going to a meeting and accepting limited photocopies. Walk away, record the refusal, and escalate. A single well timed demand letter often produces the entire set of records in electronic form because companies do not want to risk a formal dispute.

DIY audit basics for artists who want to start without a lawyer

If you are bootstrapping and want to do a preliminary audit before hiring help here are the documents to request and the items to check. This list is not a replacement for a professional audit but it will catch obvious thefts and errors.

Documents to request

• Royalty statements for the relevant periods.
• Platform settlement reports in CSV or Excel format from major sources such as Spotify, Apple Music, YouTube, and other streaming services.
• Performance society statements from organizations like ASCAP, BMI, SESAC in the United States, PRS in the United Kingdom, SOCAN in Canada. Note: Performing rights organizations or PROs administer performance royalties, which are payments for public performance of songs. We will explain acronyms as needed.
• Mechanical royalty statements from mechanical rights organizations such as the Harry Fox Agency in the United States. Mechanical royalties are payments for reproducing a composition, like on a stream or download.
• Sync license agreements and payment records if the song was used in TV, film, or adverts.
• Sub publisher statements if you assigned publishing to a third party in foreign territories.
• Metadata files showing ISRC codes, writer splits, publisher splits, and sound recording ownership. ISRC stands for International Standard Recording Code and it is a unique identifier for each recording.

Quick math checks to run

• Unit checks. Match total reported streams or plays on platform CSVs to the numbers on the royalty statement. If Spotify says 1,000,000 streams and the statement shows 100,000 total for the month you have a problem.
• Rate checks. Calculate the effective rate per stream by dividing dollars by stream counts. Compare to typical market rates for the platform. Rates vary greatly by territory and account type but a big discrepancy is a red flag.
• Split checks. Verify songwriter and publisher splits. Metadata should reflect splits you agreed on. If splits are wrong the wrong person may be getting paid.
• Withholding checks. Look for unexplained withholding taxes when you did not authorize them. Some companies apply withholding incorrectly on foreign payments.

Example DIY scenario

You get a royalty statement showing $400 for a month where your distributor reports 500,000 streams. Open the streaming CSV and check plays per territory and per track. Confirm that the ISRC in the CSV matches your ISRC. If the CSV shows mismatched ISRCs or diverted tracks you likely have a metadata problem or intentional misallocation.

Common accounting tricks and how to spot them

Bad actors and sloppy accounting produce predictable patterns. Learning to spot them makes you less likely to be conned.

• Revenue reallocation. A company moves income from one account to another and claims it belongs to different artist or catalog. Spot this by checking unique identifiers like ISRC and UPC.
• Rate compression. Company applies a lower rate category to large swaths of streams. Look for sudden drops in effective rate when platform rates were stable.
• Duplicate deductions. The same expense appears under two line items. Cross reference ledger entries and source invoices.
• Split rewrites. Company modifies writer splits without a documented amendment. Compare metadata and signed split agreements.
• Offshore routing. Payments are routed through a third country and fees are deducted without explanation. Require invoices from the intermediary.

When to hire a lawyer or an accountant

Hire professional help when any of the following is true

• The alleged underpayment is significant in absolute terms such as several thousands of dollars or more.
• The company refuses to provide electronic records and insists on an impractical physical location.
• There is evidence of intentional misconduct like forged metadata or redirected payments.
• The contract contains complex clauses about arbitration, governing law, or multi party accounting that you do not understand.

What kind of professional

• For legal strategy and contract interpretation hire an entertainment lawyer who understands music revenue streams. Entertainment lawyers know industry norms and enforcement options.
• For number crunching hire a forensic accountant or a certified public accountant with experience in music royalties. They will read settlement CSVs and match them to statements and bank deposits.

How collection societies and distributors can help

Some organizations will help reconcile statements. These organizations include performing rights organizations or PROs such as ASCAP in the US, BMI in the US, PRS in the UK, and SESAC in the US. Mechanical collection societies and digital distributors also often have portals that show independent reporting. While they cannot replace a full audit they can provide evidence of mismatches and may pressure a company to cooperate.

Important acronym guide

• PRO stands for performing rights organization. These collect performance royalties for songwriters and publishers when music is played on radio, TV, streaming platforms, venues, and other public performances.
• ISRC stands for International Standard Recording Code. It is a unique identifier for a sound recording and is critical for reconciling streams with payouts.
• UPC stands for Universal Product Code. It identifies a release and links sales and streams to the right product.
• Mechanical royalty is a payment for the reproduction of a composition. On streaming platforms mechanical royalties can be complex because streams create multiple revenue types.
• Recoupment is the process where the company deducts an advance or costs from your royalties before paying you net royalties. Check recoupment accounting carefully.

Preventive measures before you sign any deal

Prevention is the cheapest audit. Here is a checklist to run with managers and advisors before you sign.

• Ask where audits can be done and insist on remote or local options.
• Insist on independent auditor selection clauses and reasonable cost shifting language.
• Require retention of at least seven years of records and mandatory electronic delivery on request.
• Check arbitration clauses and the seat of arbitration. Prefer local courts for audit enforcement or at least a seat within your region with full discovery rights.
• Get a plain English summary of royalty flows from the company. If they cannot explain in simple terms they will not be easy to audit later.
• Have your manager or lawyer walk through sample statements with you to confirm transparency and clarity.

What to do if you suspect fraud or intentional hiding of royalties

If you have clear signs of fraud such as forged metadata, redirected payments to unknown accounts, or repeated refusal to provide records then escalate immediately. Document everything. Send demand letters. Notify collection societies. Hire a forensic accountant. If you have clear proof you can bring a claim in your home jurisdiction to seek preservation orders for documents and to get emergency relief while you build the case. The faster you act the more likely you will preserve critical evidence.

Real life scenarios that could be your nightmare or a wake up call

Scenario A: The missing territories

You sign a sub publishing deal that covers Asia. Statements show minimal income from South Korea and Indonesia despite heavy playlisting. The contract requires audits only at the publisher office in London. You request electronic statements. The publisher claims those platforms send only paper reports. You push back and ask for CSV data or an audit in your home country. After a strong demand letter the publisher provides the CSV and you find missing millions of streams. You win a retroactive payment and reimbursement for your audit costs.

Scenario B: The travel trap

A small indie label insists audits must occur in a country with long visa waits. They hope you give up. You do not. Instead you hire a local lawyer who sends a preservation order. The label flips and offers electronic access and pays the auditor costs when the audit finds a 7 percent underpayment. The label learned that obstruction costs more than cooperation.

Scenario C: The fake auditor

A company offers an auditor but that auditor also does bookkeeping for the company. The auditor clears everything. You suspect bias. You hire an independent auditor and find material misallocations. You negotiate a settlement that includes a contract amendment making auditor selection independent going forward.

Frequently asked questions

Can a company really force me to fly overseas to audit

Sometimes the contract appears to say that. But contracts can be negotiated. If the clause is already in place you may have statutory rights or local remedies that allow remote discovery. Start by requesting electronic production. If they refuse ask your lawyer about seeking interim relief or a preservation order in your home court. Many companies will cooperate once the risk of a court backed remedy appears.

What is a preservation order and why do I need one

A preservation order is a court or arbitrator instruction to preserve documents and not destroy or alter them. It helps prevent a company from claiming it no longer has records. If you suspect tampering or deletion a preservation order is critical. Lawyers usually file this early to stop evidence destruction.

How long should I keep my own records

Keep everything forever if possible. At minimum keep source files, contracts, metadata spreadsheets, and statements for at least ten years. Longer is better for catalog sales or licensing disputes. Digital backups in multiple places are your friends.

How much will an audit cost

Costs vary widely. A basic review by a competent accountant might be a few thousand dollars. A full forensic audit involving international travel and lawyers can be tens of thousands. If you find recoverable underpayments negotiate for the company to cover audit costs when underpayment exceeds a reasonable threshold such as two percent.

Can I do an audit through my performing rights organization

Some PROs offer audit support or can provide statements showing discrepancies that help your claim. However PRO audits focus on performance royalties only. They will not examine master royalties, physical sales, or many sync deals. PRO data can be powerful evidence but it is usually a piece of the puzzle rather than the entire fix.

What if I am in a small claims court situation

Small claims courts may be a fast option for low dollar disputes and often allow you to pursue the company without expensive lawyers. However small claims courts usually require the defendant to be served locally. If the company is overseas you may lose the venue advantage. Small claims are good for local distributors or for reclaiming small but clear underpayments.

What is a reasonable audit clause for an artist friendly deal

A reasonable clause will allow audits within 180 days of receipt of a statement, permit remote electronic inspection, allow you to appoint an independent auditor, require records retention for seven years, and obligate the company to pay audit costs if an underpayment above two percent is discovered.

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