Meaning
Purchasing activities that occur outside the official channels and oversight of the procurement department create risks for an organization. Shadow procurement often happens when a local team buys tools or software using a corporate credit card to avoid a slow approval process. This results in a lack of visibility into the total cost of a project.
Unauthorized Acquisition
Bypassing the standard vendor vetting process can lead to the use of substandard materials. Shadow procurement hides the true level of spending from the central finance team. This makes it impossible to negotiate bulk discounts or manage supplier relationships effectively.
Maverick Spending
Individual departments might buy redundant services that the company already owns under a different contract. Within the context of shadow procurement, these hidden costs can add up to a large percentage of the total budget.
Governance Bypass
Ignoring the established safety and security reviews when buying equipment puts the entire facility at risk. Shadow procurement often results in the purchase of items that do not meet the company’s internal standards for environmental or social governance. Bringing these activities back into the light is a primary goal of any effort to improve financial governance across the enterprise.
This process involves auditing expense reports to find recurring payments to unapproved vendors.
