Maverick spending is a form of employee expense fraud. Employee fraud via expenses accounts for more than a fifth (21%) of all fraud in small businesses. It is well worth finding out all about the activity, its causes, and the ways of preventing maverick spend.
Trustpair’s services help secure the entire supply chain and prevent fraud thanks to ongoing account validation. Request a demo to learn more!
Maverick spend: what is it?
Maverick spending is purchases that go against the procurement policies. For example, this could be because they are purchased with other vendors as opposed to approved suppliers.
Maverick spend – which can be referred to as rogue spending – occurs mainly as a mistake by an employee when purchases don’t align with the procurement processes. Or it can be a purposeful action to disregard purchasing policy.
A clear form of maverick spend involves employees buying goods outside the policy and expensing them through the company.
Alternatively, a vendor could fake an invoice that violates your policies. Without spotting this, if it is approved, you have technically committed maverick spending.
Maverick spend example
An example of maverick spend could involve an employee who needed to make purchases of 3D printers rather urgently. However, they found that the purchasing process was too time-consuming and needed too many approvals from those higher up. Therefore, the worker purchased from an unapproved vendor to get the products quickly.
The lost funds still all add up which means that there is less capital for your organization. Data shows that organizations and businesses can lose 10% – 20% of targeted savings because of maverick buying.
Here are some of the impacts of Maverick spend:
- Less capital available
- Potentially damaged supplier relationships
- Fewer quality goods available
- Budgeting becomes harder
- The accounting department loses time
- Fewer discounts and higher costs from vendors due to less spend
- Increased risks with non-approved vendor
Maverick spend vs tail spend
Tail spend can sometimes be used interchangeably with maverick spend. However, tail spending focuses on small buys that are low in value, volume, or frequency and unaccounted for. This could look like print and packaging services.
Maverick spend is more so a type of tail spend that best describes buying that violates the operational procurement policy of an organization. It can involve purchases that aren’t with the preferred supplier and don’t follow your negotiated contract with them.
Now you know all about maverick spending in procurement, let’s take a look at the causes.
What causes maverick spending?
Decentralized purchasing system
This refers to a purchasing system or policy that is operated by different teams rather than through one system. It does simplify the procurement process as purchases can be made easily and quickly when they need to be as there are fewer people to navigate through.
However, a byproduct of it is that employees may purchase something that an existing order already covers so it requires consistent, transparent cross-team communication to make it work.
Cheaper alternatives elsewhere
An employee may identify a cheaper alternative to your business’s current contracts, ignore a current contract, and prioritize cost savings. They may also find a better service with this alternative.
By having open chats about maverick spending with your employees, you could end up with a cheaper, better vendor for the future and make more savings.
Easier alternatives
Lengthy internal processes that are time-consuming to work around can lead some staff members to explore easier alternatives.
Especially if there is a sense of urgency surrounding a purchase, employees may look to bend the rules.
Poor spending visibility
If your business has poor spending visibility, it can be easy for colleagues to go over set budgets.
How can you prevent it?
There are several steps you can take for maverick spend management:
Analyze spending
A maverick spend analysis will enable you to work out where your money is going and how aligned you are with your purchasing policy.
By being aware of what is being spent and how you can take action to lessen the impact of maverick spending. For example, you could lessen the spending power of individuals.
The analysis process includes collecting data on spending like:
- Invoices
- Business credit card statements
- Financial documents
By analyzing spending, you will increase visibility.
Explore simpler processes
Move with the times and take a look at adopting more modern, simpler processes. This could look like integrating a purchase approval system to ensure there isn’t overlap with purchases and existing orders with vendors.
This entire process can also involve your team. Encourage their feedback on the current procurement process to outline pain points and how to improve it.
Have a process for urgent purchases only
Sometimes there is a need for an order to be made quickly and there is no vendor that covers what you need in the order. Alternatively, your current supplier may not be able to deal with the order in time for the deadline. Therefore, maverick spending must take place.
There should be a process for this specifically to bypass the longer process. Educate staff about this and provide a guide for them to swiftly executive the spending if they need to.
Training
Educate your staff about the financial implications of maverick spending on the business and its relationships.
For example, maverick spending with another supplier could result in a discount being missed out on due to a lack of spend with a vendor that you have a contract with. This could then damage a relationship with a vendor.
Moreover, empower your employees to fully understand the procurement process and the steps they have to take to control maverick spending.
Maintain easy spend visibility
It’s a lot easier to know the budget that you need to stick to when you can see it. Use a SAAS management software tool for this. You can see what you are spending on suppliers using SAAS management software that provides a healthy vendor database.
Ensure that spending targets can be easily found.
Card restrictions
This is a method for those that don’t want to work with the maverick spenders and simply limit the maverick spend calculation as much as possible.
Your company can get your card issue to limit or block a business card from spending certain amounts with outside organizations. This should result in less or no maverick spending, depending on the restrictions.
Recap
Maverick spending is something that can cause issues in your company if it gets out of hand. It may appear due to a decentralized purchase system, easier and cheaper vendor alternatives, and poor spending visibility. To control maverick spending, analyze the spending and make it visible, train your staff about it, explore refined processes, and look at card restrictions. Use systems like Trustpair to stop other payment errors – it secures the supply chain and blocks wire transfer fraud.
