How To Get Rogue Spend Under Control

What is ‘rogue spend’?

Rogue, maverick and tail spend are common terms in the procurement business, and they all mean roughly the same thing – unexpected, unpredictable or unorthodox spending.

This sort of spending can happen when purchases are made outside of agreed supplier contracts, often ignoring defined procurement processes. There can be a number of reasons why a department may choose not to adhere to agreed processes:

When the process itself is difficult, time consuming or poorly constructed/ineffective, employees may choose to find other ways to purchase things.

Employees believe that they are in fact saving the company money by using a different process or supplier. This may be true, in which case there should be a process implemented to allow employees to submit their suggestions to improve the process, or it may be due to a lack of understanding on the employee’s part, in which case better education is in order.

It may simply be that the employee is unaware of a standard process or existing contract for the particular product they need. In this instance it is important to make sure that it is easy for employees to check this information, sometimes across departments.

 

What effect does rogue spend have on my business?

Rogue spend can act like an invisible leak, draining your financials and causing real headaches in both finance and procurement departments. Rogue spending can also increase compliance risk – something no business wants!

 

Impacting Profit: It is unlikely that a rogue spend will produce the same preferred terms or prices as a negotiated contract – you will usually end up paying more, which could impact your profits negatively.

 

Impacting Contract Fulfilment: Some contracts will have minimum order requirements and if these are not fulfilled (due to employees purchasing outside of agreed suppliers) this could lead to a broken contract and potential damage to a relationship with a preferred supplier.

 

No contract? No legal protection

Rogue spend usually occurs with no contract in place with the supplier. With no contract, there is no legal protection if the supplier were to provide a substandard quality of work or were to go out of business part way through the project.

 

Internal conflict

Rogue spending can create division internally, between your own departments and teams. Keeping to your agreed parameters for a project keeps everyone on the same page and reduces the chances for misunderstandings.

 

How can I prevent or reduce rogue spend?

 

Audit

The first step towards solving the problem of rogue spend is to conduct an audit to identify where the rogue spend is, and what is causing it.

 

Tracking

Once the audit has been completed, it’s important to start tracking spend, and making sure that no payments are being made to suppliers no longer on your list, and that the correct timesheet amounts are being paid, for example.

 

Accountability

It is key to make sure that identifiable individuals are accountable for any rogue spending, and to put processes in place to ensure that the occurrence of rogue spend is extremely unlikely, and that any effects are mitigated.

 

Technology

Technology can help to keep trach of all spend, and centralise the authorisation of any spending. A Vendor Management System (VMS) is likely your best option for this purpose.

 

Time Sheeting

Reviewing your time-sheeting process, and in particular the approval process. It is vital to ensure that incorrect, incomplete (or even fraudulent) timesheets are never processed, but that there is a process in place to bounce these back for review.

 

Communication

Sometimes the most effective tool is regular, precise and informative communication. It is important to communicate with all stakeholders in the hiring process to reiterate the importance of keeping spend under control, and the benefits of this control in making sure that they get the right talent at the right price, and ideally with budget left over. Regular refresher training on your procurement process for those dealing with suppliers can be a good idea.

 

Keep Monitoring

Continue to monitor spend and relevant policies, and conduct regular reviews to keep things up to date and on track.

 

 

Rogue spend can be damaging to your business, but with good procedures in place it’s easily avoidable.

 

These are just the broad strokes of the kind of process it’s important to put in place to prevent rogue spend. If you’d like more information or advice tailored to your business, get in touch with Will Dennis, our Workforce Solutions Development specialist at Volt Consulting Group (VCG), for a chat about how we can help you put a policy in place for your business with one of our Managed Service Programs (MSPs).

Call Will on +44 (0)7980 685017  +44 1737 236 816 or send an email to will.dennis@volt.eu.com

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