Understanding maverick spend in your organization

Decentralized procurement allows everyone in your organization to easily purchase the resources they need to do their jobs. It gives them a level of ownership over the procurement process too, cutting through the ‘red tape’ sometimes associated with a centralized approach to procurement. But without proper processes in place, it also increases the risk of maverick spend, damaging the organization’s ability to control costs, ensure sound purchasing decisions, and meet its compliance and audit obligations.

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Maverick spending creates headaches for everyone. The first step in tackling it is to determine what it looks like in your organization and understand why people do it. Let’s explore some common problematic buying behaviors and how they impact your organization.

Unintentionally purchasing against policy

Every workplace has its rules and ways of doing things. These might include how to request time off work, how to use the printer, how to book a meeting room, what and how to recycle — the list goes on and on. Not being aware, or forgetting about, a particular company policy is common, especially if that policy does not directly relate to what we’re in the organization to do. For many, purchasing falls into this category. 

Why they do it

Without a user-friendly procurement system that guides people to purchase in the most compliant way, they may not know the proper buying process or which suppliers to use. If this information isn’t easily accessible and effectively communicated, some may even assume there is no preferred way of purchasing. People usually have good intentions and want to abide by organizational guidelines, but exactly what those are is not always clear. As a result, they may consider independently finding a supplier for their purchasing needs as standard practice or as an example of taking the initiative.

The consequences

• Less spend is directed to preferred suppliers, making it difficult to take advantage of preferred supplier pricing and volume discounts and establish the buying power needed to negotiate better prices and contract terms in the future.
• Purchases can be made without review and approval, increasing risk.
• There’s a lack of visibility into committed spend as finance and procurement are only aware of the purchase when an invoice arrives.
• There’s an increased risk of bad purchasing outcomes by using suppliers that haven’t been thoroughly vetted and approved.
• It erodes relationships with preferred suppliers who don’t gain the expected value from the relationship.   

Consciously purchasing against policy

Sometimes people are fully aware of how they are supposed to purchase, but choose an alternative, non-compliant way. This is often a more complex problem for procurement teams to tackle. “ The purchasing policy is just a 

Why they do it

There can be a number of reasons why people consciously choose to ignore your purchasing guidelines. A significant factor in many organizations is that users find the current purchasing process too complex. Do you have a manual buying process or one delivered through a clunky ERP? Does the user have to navigate multiple screens over several steps? Is the approvals process manual and time consuming?

A cumbersome, frustrating buying experience is one of the most common reasons that users look for alternatives. Employees may assume that purchasing guidelines are merely suggestions — best practice to be followed where possible. This can lead to a vicious cycle in which the more those guidelines are sidestepped, the less likely people are to follow them in the future.

People in your organization may understand the “rules” but not why they’re in place. Your policy is devised to deliver the best overall procurement outcomes for your organization, factoring in volume discounts, total cost of ownership, environmental, social, and governance (ESG) goals, and possibly much more. But people may just see a low price from an online store and assume it’s the best choice for the organization. 

The consequences

Along with the consequences outlined previously, intentionally buying against policy will have its own negative effects. Depending on the nature of the maverick purchasing and the intent behind it, the buyer could end up in hot water, and your organization may have to report the activity to stakeholders, customers, auditors, or regulatory bodies.

Your procurement team may also face uncomfortable questions about why it’s unable to enforce policy effectively. In a worst-case scenario, non-compliant spend may even raise the question of fraud. Perhaps an employee has been directing spend to a friend’s or family’s business, or purchasing products for personal use.

No one likes to think their organization will experience something like this, but it’s not as unusual as you might think. A report published by SAS shows that organizations lose an average of US$10,000– US$150,000 per year to procurement fraud. It erodes relationships with preferred suppliers who don’t gain the expected value from the relationship.   

Using a pCard for all purchases

Purchasing cards (pCards) provide flexibility and convenience, and they can be particularly useful for travel expenses and emergency purchases. But while they are convenient for staff, an overreliance on their use can be problematic for procurement and finance teams and make it difficult to implement an efficient and compliant procurement policy.

Why they do it

If raising a purchase order is more complex than it could be, the benefits of pCards will be clear to users. People want purchasing to be simple and easy. If your existing procurement process cannot provide that, they will be inclined to rely more on their pCard — even in instances where it is less than ideal for the organization.

The consequences

Whatever the reason for buying with a pCard instead of raising a purchase order, it can create a real headache from a procurement standpoint. The use of pCards inevitably leads to a lack of visibility and control. There’s no record of purchases until an expense is raised, by which time the money is already spent. There’s also no way to ensure the purchase offers value for money or is in the organization’s best interests.

Finally, pCard reconciliation can be challenging and time consuming for both users and procurement teams. This is especially true when receipts are needed to verify purchases over a particular value.   

Download the eBook

Get non-compliant spend under control in your organization — download Maverick spend: From defiance to compliance today.

Download the eBook