(a) General. This section prescribes procedures by which any entity entitled to receive payment or distribution of royalties may verify those payments or distributions with an independent audit. The Collective may audit a Licensee's payments of royalties to the Collective and a Copyright Owner or Performer may audit the Collective's distributions of royalties to the Copyright Owners or Performers. Nothing in this section shall preclude a Verifying Entity and the Payor under audit from agreeing to verification methods in addition to or different from those set forth in this section.

(b) Frequency of auditing. A Verifying Entity may conduct an audit of each Payor only once a year and the audit may cover any or all of the prior three calendar years. A Verifying Entity may not audit records for any calendar year more than once.

(c) Notice of intent to audit. The Verifying Entity must file with the Copyright Royalty Judges a notice of intent to audit the Payor, which notice the Judges must publish in the Federal Register within 30 days of the filing of the notice. Simultaneously with the filing of the notice, the Verifying Entity must send a copy to the Payor.

(d) The audit. The audit must be conducted during regular business hours by a Qualified Auditor who is not retained on a contingency fee basis and is identified in the notice. The auditor shall determine the accuracy of royalty payments or distributions, including whether the Payor made an underpayment or overpayment of royalties. An audit of books and records, including underlying paperwork, performed in the ordinary course of business according to generally accepted auditing standards by a Qualified Auditor, shall serve as an acceptable verification procedure for all parties with respect to the information that is within the scope of the audit.

(e) Access to third-party records for audit purposes. The Payor under audit must use commercially reasonable efforts to obtain or to provide access to any relevant books and records maintained by third parties for the purpose of the audit.

(f) Duty of auditor to consult. The auditor must produce a written report to the Verifying Entity. Before issuing the report, unless the auditor has a reasonable basis to suspect fraud on the part of the Payor, the disclosure of which would, in the reasonable opinion of the auditor, prejudice any investigation of the suspected fraud. The auditor must review tentative written findings of the audit with the appropriate agent or employee of the Payor in order to remedy any factual errors and clarify any issues relating to the audit; provided that an appropriate agent or employee of the Payor reasonably cooperates with the auditor to remedy promptly any factual error[s] or clarify any issue raised by the audit. The auditor must include in the written report information concerning the cooperation or the lack thereof of the employee or agent.

(g) Audit results; underpayment or overpayment of royalties. If the auditor determines the Payor underpaid royalties, the Payor shall remit the amount of any underpayment determined by the auditor to the Verifying Entity, together with interest at the post-judgment rate specified in 28 U.S.C. 1961,accrued. In the absence of mutually-agreed payment terms, which may, but need not, include installment payments, the Payor shall remit promptly to the Verifying Entity the entire amount of the underpayment determined by the auditor. If the auditor determines the Payor overpaid royalties, however, the Verifying Entity shall not be required to remit the amount of any overpayment to the Payor, and the Payor shall not seek by any means to recoup, offset, or take a credit for the overpayment, unless the Payor and the Verifying Entity have agreed otherwise.

(h) Paying the costs of the audit. The Verifying Entity must pay the cost of the audit, unless the auditor determines that there was an underpayment of 10% or more, in which case the Payor must bear the reasonable costs of the audit, in addition to paying or distributing the amount of any underpayment.

(i) Retention of audit report. The Verifying Entity must retain the report of the audit for a period of not less than three years from the date of issuance.