How to Control Maverick Spending in your Company

Maverick or rogue spending is a silent financial burden for companies of all sizes. Research by the Chartered Institute of Procurement & Supply (CIPS) highlights that maverick buying can account for up to 80% of all invoices-even at large organizations with dedicated procurement departments. Furthermore, due to maverick spend, companies stand to lose as much as 10 to 20 percent of their targeted savings. Therefore, identifying and rooting it out from your organization is a non-negotiable if you want to grow profitability. 

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But what exactly is maverick spending, and how do you control it?  This guide dives into what maverick spends, what it includes, and its causes. In addition, it details actionable steps to control maverick spending and optimize your procurement. 

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What is Maverick Spending?

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Maverick spending, or maverick buying, includes all company purchases outside the organization's established procedures and policies. These spends can be by both procurement or non-procurement team members and broadly fall under three categories: 

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• Off-contract purchases from suppliers not on the company's approved vendor list. 

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• Purchases without proper approvals or adhering to budget allocations.

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• Unplanned purchases in emergencies and spiralling incidental costs.

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Research suggests that expenses from maverick spending can be 20% higher than expenses with strict compliance, resulting in shrinking savings and profitability.

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What causes Maverick Spending?

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Nearly all maverick buying stems from two primary reasons:

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• Lack of well-laid procurement policy: Sometimes, organizations fail to establish and communicate sourcing and procurement rules and guidelines. In such decentralized or ad hoc situations, line managers and supervisors often use their judgment. They sometimes even 'bend' the ideal purchase decisions on a case-by-case basis for convenience.

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• Complex procurement workflows: Sometimes, despite clearly laid procurement policies, they aren't followed. This may be because of the lengthy workflows involved or continued reliance on legacy manual processes that are challenging to follow. For example, without automated, pre-defined approval workflows, even high-performing employees in large, multi-departmental organizations may feel inclined to take shortcuts and proceed without approvals before purchasing. This can result in unauthorized purchases, which become challenging to identify or analyze without readily available spending data. 

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Whatever the root cause, maverick spending hurts the companies' bottom line. 

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What's the Problem with Maverick Spending?

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Maverick spending undermines financial control and leads to the following issues:

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• Increased procurement costs: High maverick spending increases procurement costs. With it, companies often lose out on potential savings through bulk purchasing discounts and favorable supplier agreements. Some organizations report up to 16% losses in negotiated savings under maverick spend.

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• Disrupted budget management: A lack of financial control often causes unplanned expenses, shooting them beyond the budget. Moreover, unauthorized spending also complicates budget tracking and financial reporting. The lack of visibility makes it challenging to maintain records and forecast accurately.

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• Operational inefficiencies: Maverick spending also spurs efficiencies. For instance, if new suppliers and vendors don't undergo traditional vetting, onboarding, and contract management process issues become common. These may also lead to non-compliance concerns.

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But, the good part is, you can control it.

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How to control Maverick Spending

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Controlling maverick spending is straightforward, with the right processes and a friendly technical infrastructure.

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Here are steps to control maverick buying:

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Step 1: Clarify roles and responsibilities.

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Controlling maverick spending starts with clarifying roles and responsibilities within your organization. Make sure you assign designated purchasing roles to specific individuals. This will help you ensure accountability and streamline your purchase and procurement process. 

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Step 2: Define spending policies and communicate them.

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Alongside designating individuals within departments, clearly outline spending policies. Formalize a list of approved suppliers that everyone can access. Ensure you also set budgets, define purchase limits for different departments, and establish transparent processes for requisition. 

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Step 3: Implement robust expense management systems.

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Once you create spending policies, make sure you also implement a solid, accountable framework to simplify procurement workflows and expense management. This is necessary to ensure your employees actually follow the buying policies you've laid down. A handy way is introducing robust expense management software that comes with features that simply and automate cumbersome aspects of the workflow. This includes capabilities for:

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• Centralizing all expense data in a unified interface for quick and easy visibility.

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• Pre-setting visible budgets on corporate cards to ensure employee awareness.
  
  

• Defining custom approval workflows to make sure that the right stakeholders are automatically looped in before purchases, eliminating time-consuming back and forth.

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• Setting auto-enforced limits, controls, and submission requirements on corporate cards and reimbursements—from merchants to categories to auto-curtail out-of-policy spending without managers spending too much time on avowing or disavowing.

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• Simplifying submitting expenses on the go for employees without making it an additional task for clear expense accounting.

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• Automating expense reviewing and reconciliation by eliminating lengthy manual workflows.
  
  

• Introducing inbuilt controls to prevent fraud or accidental charges such as duplicate subscriptions, weekend spending, unauthorized purchases, or reusing duplicate receipts twice.
  
  

• Integration with your ERP for accurate reporting and speeding up your monthly close. 

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Step 4: Regularly track real-time spending activity

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Even with the right processes to approve and record spending, make sure you track spending activity in real-time. This will help you identify potential overspending as it occurs and take immediate corrective actions. You can leverage the insights to adjust your budgets and expenditures on the go, preventing overruns and ensuring financial stability.

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Step 5: Educate and train your team

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Finally, educate your team about the consequences of unauthorized spending and train them to follow financial best practices. This will help employees understand the impact of maverick expenditures and what they need to do to effectively adhere to company spending policies. The result will be a culture of accountability and fiscal responsibility.

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Case example: How Red Antler addressed maverick purchasing efficiently

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The creative production team at the brand marketing agency Red Antler made hundreds of monthly purchases for their operations. Three producers in their team were responsible for all purchasing related to production costs. However, they tracked these expenses manually. As a result, the three producers spent hours each month reconciling spreadsheets and verifying hundreds of transactions line-by-line against hard-to-read card statements. The high volume of transactions and reliance on manual reconciliation resulted in high undetected unauthorized expenses and employees covering costs out of pocket, spurring inefficiency and losses.

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Red Antler partnered with Ramp to address this and gain centralized control over employees' designated corporate cards. With this new system, their employees could request card limits to cover their daily expenses independently. The producers could also easily control purchases and budgets in real time with their custom-defined controls without manually spending hours reviewing and approving requests. The expense management system's dashboard made it easy to visualize the entire team's spend across categories, departments, clients, and projects.  As a result, they were able to reduce maverick expenses and optimize their spend. They've now reclaimed more than 80 hours a month that they used to spend on burdensome expense reimbursement and have much better clarity on the spending patterns organization-wide.

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