The three biggest culprits of rogue spending

Pre COVID-19, ‘rogue spending’ surfaced in many areas of business, ranging from non-compliant expenses claims through to contingent workers, disparate fleet strategies and of course, non-strategic procurement. But how has that changed in the wake of the pandemic, and what does this mean when it comes to your world?

Although the devastation caused by Coronavirus has left many financial forecasts in tatters, there are some crucial lessons to be learned from this difficult period. Here,  we explore three of the biggest culprits when it comes to unplanned expenditure, before considering how cost-control and the need for complete transparency is key in this ‘new normal’.

While the pandemic has unequivocally changed life as we know it, there is a glimmer of hope as organisations slowly begin to adapt and look ahead to how they might thrive – rather than simply survive.

As is the case with any industry ‘black swan’, an unplanned chapter in the best-laid business plan usually introduces several new business challenges, usually involving a cost element. A recent blog considered how to control expenditure during remote working, for example.

But as we delve a little deeper, it’s worth noting that even prior to the pandemic, rogue spend typically accounted for 5-10% of overall expenditure. While it might sound like a relatively small proportion, these suppliers can actually make up 90% of your firm’s entire supplier list.

But fast-forward to summer 2020 and while the causes of rogue spending may have changes, the issue is more prevalent than ever. Here are the biggest culprits:

Kneejerk reactions

In March, millions of workers moved to a homeworking setup with just a few hours’ notice, and as a result, procurement teams were tasked with ensuring staff were set up, secure and ready to continue with ‘business as usual’.

With the world in chaos – and many suppliers having run out of stock when it came to the workplace infrastructure we often take for granted – buyers were forced to make non-strategic purchasing decisions, simply to ensure workers had everything they needed to be able to operate from home, efficiently.

While several streams of ‘non-essential’ spend were put on hold, office essentials, health and safety equipment, and cyber security software needed to be acquired and shipped out to remote workers in a matter of days. And, while many employees are still operating from their new ‘home offices’, the reverse purchasing process is now in place for those venturing back into HQ, with COVID-specific signage, a raft of PPE and heightened hygiene measures all flooding the market.

Although choice is in abundance, the process has perhaps not been helped by panic buying across the nation, as well as ongoing confusion over what was required, and when. And this rush to purchase something which might be needed has led, in many instances, to internal costs spiralling.

While the nature of the pandemic meant there was an inevitable element of kneejerk spending, as we start to adjust to a new way of life, now is the time to bring it under control.

Contingent workers

While software and physical supplies are key, so is the human workforce which drives a company forward. But, with staff demanding a more agile way of working long before the pandemic, these ad-hoc teams are nothing new.

Prior to COVID, it was estimated that five million people were employed in this capacity in the UK, a number that is sure to now rise as workers look to instil more flexibility over their shift patterns and workload.

Although the media has pondered whether we will see ‘the hybrid workplace’ continue to emerge throughout 2020, the real question lies in if we will favour a freelance workforce, given it offers an attractive solution – when coupled with the right in-house support.

Interestingly though, at present, this is where a considerable amount of ‘rogue spend’ lies, with Ardent Partners suggesting that 60% of all contracted work is unaccounted for in financial planning, forecasting and budgeting – often as a result of ‘off book’ negotiations.

Although such instances – including everything from the hiring of a freelance photographer, to a self-employed designer or recruitment consultant – might not appear to make a significant dent in the bottom line, agreeing rates outside of a pre-agreed parameters can make it tough to keep a handle on outgoings.

Non-controlled procurement of business supplies

For CFOs and financial controllers, one of the biggest challenges of recent months has been maintaining their position as ‘gatekeepers’ of spend.

With purchasing teams operating from multiple locations, it has been increasingly difficult to keep track and manage all procurement expenditure – particularly when items have been required at relatively short notice. With departments often responsible for their own budgets, it’s important to proceduralise authorisation routes to ensure company money is spent wisely.

And, as the threat of a second wave lingers on, combined with a potential shift to a non-centrally located team, companies should consider a digital system to take back some control. Clear communication is a key component of keeping the cogs of industry moving, and the savvy use of technology will not only streamline operations but implement the necessary checks and audit trails needed to keep the finances in check.

That’s why our recently updated SmartPad tool offers even greater intelligence, cost control, product choice, user engagement and procurement efficiencies. If you want to know more, and you’re interested in the impact OfficeTeam could have on your bottom line, please contact us

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