If you were to ask the average person on the street how their taxpayers’ money is spent – what do you think their response would be?
Every year the country braces for the chancellor of the exchequer’s announcements during the budget. Media coverage from national press is up-to-the minute, informing the public of the allocations to government departments where £172.8 billion of taxpayers’ money will be spent by local government authorities alone.
Yet seldom are we, the public, informed of how it is spent by that government department.
In September, Applegate PRO, released a white paper titled: Maverick Spend – a local government case study, via Procurious - that provides an overview of research that aims to achieve exactly that.
The paper uses a case study of local government procurement to explore the variety of strategies and systems in place to allocate and monitor the use of taxpayers’ money by local government, with a particular focus on maverick spend.
In this article, Applegate will discuss the startling differences in levels of uncontrolled expenditure revealed from this research and explore its implications.
The findings are as relevant for procurement professionals in the private sector as the public, as they illustrate the effect of maverick spend wherever it may be found.
Councils that are the most effective at preventing maverick spend between 2012-2016
Case study questions
276 councils across the UK responded to a FOI request asking them the following questions:
- The percentage of maverick spend undertaken in their council from each financial year from 2012 to the present day.
- Are there sanction systems in place for non-compliance to procurement practices?
- What percentages of transactions require a purchase order?
- Please state the number of procurement professionals that have a CIPS or other professional procurement qualification
- Of this number, how many are currently undergoing procurement training?
Defining maverick spend
Maverick spending is defined as any transaction made outside the remit of procurement. It often occurs when buyers within an organisation believe established procurement frameworks are too complicated, time consuming or that they could obtain better value outside of these set guidelines.
By nature, these transactions are not compliant to procurement contracts, from unapproved suppliers and are often unnecessarily expensive and impulsive.
Defined by the Chartered Institute of Procurement and Supply as: “the business management function that ensures identification, sourcing, access and management of the external resources that an organisation needs or may need to fulfil its strategic objectives. Procurement exists to explore supply market opportunities and to implement resourcing strategies that deliver the best possible supply outcome to an organisation, its stakeholders and customers.”
Obtaining the best value for the money spent by an organisation or business is the primary responsibility of procurement and in some forms, maverick spending can jeopardise the efforts to achieve this.
The procurement function has a responsibility across all industries to help them obtain the best value for money and this value can come in a variety of forms: monetary – savings made directly to the bottom line; reduced risk - supply chain management – added value – increased efficiency and traceability – innovation – security.
Preventing Maverick Spend
Historically, the adoption of systems that can reduce maverick spend, primarily eProcurement, has been challenging and often expensive, to implement.
De-centralisation of procurement processes and platforms not only to local authorities but the departments within them, makes holding staff within an organisation to account when spending taxpayers’ money, extremely challenging.
There are several high profile examples of the negative impacts of maverick spending.
Colin Cram, a public sector consultant, specialising in procurement, reported in the Guardian that some NHS trusts pay over 135% more for the same products and, in December 2016, Actavis UK were accused of overcharging the NHS for lifesaving drugs by more than 12,000%.
These are examples of how maverick spend can have an immediate impact on the bottom line of a business or authority.
Increasing the traceability of these transactions is an issue that modernising the procurement using electronic procurement and tendering processes could solve.
Just 66% of local councils require a purchase order for each transaction, 15% with the exception of utilities and ‘low risk items’ and 6% with the exception of procurement cards. This begs the question, what is being purchased with spending in the 13% of local councils without these requirements and what, if any, accountability is in place for this?
Although the word ‘maverick’ may imply that these types of transactions are made with ill-intention, this is not always the case as it can occur simply through lack of knowledge of a set procurement frameworks or a lack of training to adhere to them.
To combat maverick spend, 79% of local councils have a sanction system for buyers and procurement professionals that engage in ill-intentioned maverick spend.
Reasons for maverick spend.
So why, if an organisation is aware maverick spend can be detrimental to their organisation, are there buyers continuing to conduct it by going off-contract?
Extending the remit of procurement would be a simple way to prevent this type of spend. It is, however, easier said than done.
Public buyers who have already made the transition to e-procurement commonly report savings of between five and 20%. The Freedom of Information request from Applegate revealed that in local government, it is not uncommon for just 1% of an organisation to have access to tools like e-procurement and e-tendering.
Even a small rise in this percentage nationally, from 1% to 10% could provide huge untapped savings to local government, that spends billions annually on products and services. A heightened profile for procurement, to board level, would increase the remit of the function that has historically been an uphill battle.
Effective leadership by CPOs to evidence value to not only the CEO of an organisation but all departments they work with, coupled with effective training on systems that are simple to use, will give maverick spenders a reason to comply with procedures.
Within local government, 86% of procurement staff receive access to in-house training. 79% have access to eLearning, 90% have access via an external learning provider and 79% have access to CIPS training.
Summary – Stuart Brocklehurst, chief executive of Applegate PRO.
“Procurement has never been more important; it defines companies’ ability to innovate. It drives the operating model of companies, which therefore determines their capital requirements and their ability to provide a return. And yet, the function is unique in having influence over only a small proportion over the area of which it has responsibility.
“HR, legal, public affairs would never allow this. So for procurement to play its crucial strategic role in the business, it needs to have greater coverage over spend and particularly with the cultural changes with millennials, that’s not going to work by trying to order people or issue directives that they have to follow certain procedures. It’s time to hug a maverick, embrace people who are not engaging in procurement and give them good reasons and easy means to come on-board.
“By doing that the function will elevate its role and play a greater role as a true strategic partner to the business.”