You’ve spent hours working on standardized workflows and approval pathways for procurement.
But still, every month, you’re seeing purchases pop up on the company card that don’t relate to negotiated contracts or pre-approved vendors.
In other words, you’ve got a bit of rogue spending on your hands.
Rogue spending is the acquisition of goods or services without following established procurement and purchase methods.
But how big of a problem really is it? Is a little bit of rogue spending here and there okay, or should you be striving for 0%?
We’ll help you answer those questions in this guide, by going into detail about what rogue spend is, why it happens, and why it's a problem. Then, we’ll dive into some helpful strategies for reducing its occurrence in your business.
What is rogue spending?
Rogue spend is when someone in your organization procures a good or service without following the established processes.
Rogue spending goes under a few other names: maverick spending, non-contract spend, shadow spending. Whatever pseudonym you choose to use, it's probably happening more than you think.
Here are just a few examples of how rogue spending pops up:
- A sales team leader signs up for a new piece of software without first seeking approval from the IT procurement team.
- The office manager receives a promotional email from an alternative stationery supplier and orders several reams of paper from them at a reduced rate, even though they are not a pre-approved vendor.
- An HR employee adds five new seats to the payroll software subscription but doesn’t route this through the procurement leader who manages that supplier.
These all sound like relatively innocent cases, right? So, what’s wrong with rogue spend in the first place?
What’s the problem with rogue spending?
The issue with maverick spend isn’t just that employees are skirting the rules.
More importantly, rogue spend brings with it additional risk.
When an employee buys from a non-vetted supplier, they’re not giving procurement the opportunity to run a risk assessment and to uncover potential issues such as previous supply chain delays with that supplier.
When managers purchase software without seeking input and approval from IT or procurement, the organization is opened up to security risk, as critical data is stored offsite on the software provider’s servers.
There’s also a huge impact on financial health and the ability to budget and forecast effectively.
If finance teams have low visibility into where spending is going — which is the cases when high levels of rogue spend exist — they are unable to create effective budgets, or exercise control over where those budgets are spent.
By addressing rogue spending at the root, you’ll benefit from:
- Increased efficiency in your purchasing process
- More effective budget management
- Improved supplier relationships
- Reduced risks
- Greater financial control and visibility
So, should we get rid of rogue spending altogether?
Achieving 0% in any discipline comes at a cost. Reducing rogue spending from 60% to 10% is easy (just implement the strategies we recommend below). Going from 10% to 0% will be much harder and require much more bureaucratic and restrictive practices.
It's a balance between agility and security, and you need to decide what’s more important to you as an organization. Our broad advice, though, is to seek to reduce rogue spend as much as practical without implementing practices that would impinge on your employees’ ability to work effectively.
Why does rogue spending happen?
The first step to getting on top of rogue spending is understanding its root causes so you can easily identify it and effectively address it.
The biggest drive of rogue spending is the desire to work quickly. Employees rarely want to wait around for procurement to run through what is perceived as overly bureaucratic checks and processes.
They need the thing now, and they see established procurement processes as getting in the way of that.
That is, of course, if established processes are accessible and understood (or even exist) in the first place. Many SMBs don’t have clearly established policies, meaning all spend is rogue spend.
That’s why the first step we’ll recommend shortly, when we cover strategies for curtailing maverick spend, will be to create and distribute clear policies.
In some cases, rogue spend is actually seen by employees as beneficial to the organization.
They might, for example, spot an opportunity to purchase from a non-established supplier at a reduced price. Here, they believe they are doing the right thing by the company by saving it money without realizing the potential costs related to the various forms of risk that come along with doing business with unvetted vendors.
You’ll see very shortly, as we dive into our favorite tactics for reducing rogue spending, that education and training will play a critical role.
How to keep rogue spend under control: 6 strategies
Controlling rogue spend needs to start at the top.
Leadership and management need to set the tone and expectations regarding adherence to spending policies, and also demonstrate to employees that they too abide by those rules.
Once you’ve got buy-in at the senior level, start implementing each of these six strategies to reduce the occurrence of rogue spending.
1. Implement comprehensive and clear procurement policies
Begin by getting super clear on what your expectations are for employee spending.
Does all purchasing need to go through the procurement department? When can department heads approve purchase requisitions, and when do they need to request additional authorization? What approval workflows do you want people to follow?
Ensure these policies are documented and easily accessible using an online documentation platform like Notion or Google Drive.
2. Provide regular training and communication on spending policies
Help your team understand the importance of the policies you put in place by providing regular training.
If this is the first time you’re putting any kind of procurement procedure in place, it would be worth holding a formal meeting to go through the workflows and answer questions.
Additionally, consider adding a “Why we built this process” section to each SOP (standard operating procedure) document you distribute.
3. Leverage spend management software to monitor and control expenditure
Modern financial tech like BILL can help you centralize spend data, providing better visibility into where rogue spend happens.
For example, if you can identify that a particular employee or spend category is a major culprit because your data is centralized and easily digestible, you can tackle the issues at the root cause.
4. Set up easy-to-follow approval workflows
Once you’re set up in BILL (or whatever other financial management solution you choose to use), start building out automated approval workflows.
This will make it simple and fast for employees to raise a purchase requisition and route it through to the right approving authority, then convert that to a purchase order once the requisition is signed off on.
5. Provide purchasing authorities with spend cards
Rogue spend is tough to track when all spending goes through the same credit card.
Instead, provide those who are authorized to make purchasing decisions (such as branch or department managers) with their own spending cards, allowing you to easily break spending down by person or department and more easily identify rogue spend.
6. Consider a centralized approach to procurement
Finally, consider whether a centralized approach to procurement is the right move for your business.
Centralized procurement is an approach that requires all company spending to be approved by and often orchestrated by the procurement department. It is in contrast to decentralized procurement, which provides purchasing authority to branch or department leaders.
While centralized procurement is a little more cumbersome, it comes with the major benefit of greater control over spending and a high degree of rogue spend prevention.
Cut down on rogue spend with BILL
Rogue spend can seriously jeopardize a company's ability to create precise budgets, predict future expenses, manage costs effectively, and ensure compliance with legal requirements.
Even small businesses should implement strategies to combat rogue spending.
The most efficient approach typically involves the use of modern financial tools like BILL that come stacked with powerful features like automated approval workflows and invoice matching alongside advanced spend analysis functionality.
BILL, our financial operations platform with built-in accounts payable automation, is the perfect partner for cutting down on rogue spending.
