PROACTIS Blog

Pulling Back the Covers: Spend Review & Financial Controls for Charities/Not-for-Profit

Charlotte Sutton
Charlotte Sutton,
PROACTIS
Charities face multiple pressures – raising funds in a competitive marketplace, operating at low margins and delivering against the varied obligations of the beneficiaries and donors, while demonstrating good value for money. How do they address these challenges?
Charities that are financially efficient spend less money to raise more. As a result, many organisations in this sector are recognising the need to assess the suitability of their current approach to Spend Control. This as an opportunity to examine objectives and revisit core activities and projects.
 
PROACTIS helps Charities to target areas of cost reduction (cash and efficiency savings), process improvements and risk mitigation through a project comprising of analysis of spend data and a review of the Spend Control process. Then providing a spend control framework to achieve rapid ROI and incremental benefit.
 
In this blog article we will share with you a recent Spend Review project for a charity.
 
PROACTIS Spend Review Project
PROACTIS was commissioned by a high-profile charity to undertake a Spend Analysis project. A number of recommendations were made, along with a sense of magnitude and materiality where appropriate, calculated through the application of industry standard metrics.
 
The headlines from the exercise were as follows:
 
There is broad scope for savings through the use of invoice automation techniques:
 
  • Targeting only 20 suppliers with automated invoicing methods could have generated a £3 million reduction in processing costs.
  • Targeting the next tier of suppliers subsequently over time will continue to deliver gains moving forwards.
Purchase Cards will also remove cost and provide greater visibility:
  • Extending the use of purchase cards will also remove large volumes of transaction cost and generate better management information (MI).
  • They will also cater for those situations where there are critical, short notice and/or emergency requirements.
‘Best practice’ processes are not in place. Specifically the following are missing:
  • Effective Spend Control policy, with only belated approvals upon receipt of invoices.
  • Document controls, meaning limited visibility and audit trail.
  • Budget checking.
  • Automated accounting.
  • Transparency of the spend pipeline, limiting scope for better procurement decisions.
  • Supplier management and vetting controls.
  • Controls on who can commit organisation funds.
  • Controls on the terms and conditions under which purchases are made.
  • Visibility on contract compliance.
Also, the use of imprest accounts and staff expenses currently masks the true level of expenditure with individual suppliers. This reduces buying power and also introduces risk.
 
A prioritised list of sub-projects were identified for the Charity and it was noted that an eProcurement project focused on purchase-to-pay (P2P) and a few key suppliers will not introduce risk or endanger business continuity, but will provide:
  • A payback within 1 fiscal period.
  • An efficient, largely automated Accounts Payable function, with exception handling workflows to involve other staff within the organisation.
  • Control and clarity of the spend pipeline, resulting in less spend overall and better information to use in procurement decisions moving forwards.
  • Electronic trading.
  • A single browser-based user interface for all process aspects and users, including:
    • All Procurement, Purchasing and Accounts Payable processes
    • A single point of integration and control with:
      • the finance system
      • all suppliers, for any marketplaces or other online buying resources that might be used in the future
    • Full electronic document exchange 
Prioritised Activities
The data analysis highlighted a number of significant sub-projects which will make a massive impact on the Charity’s Spend Control process by generating opportunities for cost reduction, risk management and price improvements:
 
Full Electronic Document Exchange 
A small number of very significant suppliers have been identified and should be pursued as a priority to assess their ability and willingness to engage in the submission of electronic invoices.
 
With the processing of electronic invoicing as a priority, a second project should be considered to automate the output of electronic orders from the Charity. This will rely on all expenditure being managed by purchase order and not by local funds, staff expenses or any other means.
 
PunchOut plus Document Exchange
Where suppliers have the capacity to manage electronic document exchange, and also have large amounts of catalogue content, they may have the ability to extend the solution to include PunchOut. Buyers can easily PunchOut to suppliers’ websites to see the most recent prices, options, and item selections. At the same time, by eliminating manual catalogue maintenance activities, PunchOut can save the Charity considerable time and effort.
 
PO Flip
Having identified a small list of suppliers who can make a massive impact on the overall expenditure by the use of electronic data exchange, the next tier of suppliers can be accommodated with slightly different technology.
 
PO Flip offers the ability for many suppliers to be approached and given the opportunity to view the purchase orders they have placed with a buying organisation, by linking to a portal. Once viewed the supplier may choose to flip the PO and create a purchase invoice automatically.
 
Any supplier with a PC and internet access could be in a position to use this type of functionality.
 
Purchase Cards
There are undeniable limitations with the management of expenditure by local funds and/or staff expenses, not least the ease of visibility of the original provider. An easier and more visible approach, which allows a higher degree of automation, will be to extend the use of Purchase Cards. Some are currently in use and more should be considered once a sound means of managing and reconciling the statements is in place.
 
Purchase Cards would cater for the short notice requirement that is a genuine part of the Charity’s procurement. If goods and services are needed at off-peak times or at very short notice, these can be managed with Purchase Cards.
 
The area that must be addressed is the policy that clearly states the circumstances in which card use is acceptable i.e. the card must not be used to avoid a more robust Spend Control policy.
 
Spend Control Policy
The issues noted within the category analysis, with significant levels of expenditure being managed by local funds and/or expenses, highlights the need for a formal and rigorously applied Spend Control policy.
 
Currently it will be extremely difficult to assess the overall expenditure in a given area, to identify potential contracting opportunities.
 
The policy needs to be absolutely clear on the circumstances where:
  • Corporate contracts are used/not used.
  • Where local funding is acceptable.
  • Where reimbursement via staff expenses is acceptable etc.
Only when such a policy is in place will the Procurement team have sufficient detail to identify and pursue further corporate contracts.
 
Contracting and Compliance
Progress on any or all of the sub-projects will significantly increase the buying power that the Charity has. What will be essential is for corporate contracts to be readily available, and with a mandate for use.
 
Once in regular use it is essential for the contract reference to be stored with the transaction so that an accurate picture of contract compliance can be gained. Where there is non-compliance this can be reviewed and appropriate action taken.
 
Self-Billing
For the longer-term or partnership-type agreements a further option may be to introduce Self-Billing, whereby the Charity would raise their own purchase invoices on behalf of a supplier on the basis of a contractual agreement.
 
Whilst there may be few supplier relationships that lend themselves to this approach, a small number may impact greatly on the overall invoice processing, particularly if the generated invoice is electronic and can be registered automatically.
 
Expenses Review
A review, particularly around the massive expenditure on mileage, is needed to assess whether it is all absolutely necessary and if technology solutions such as conference calls and video conferencing will provide a better option and, in doing so, reduce the amount of dead employee time taken up by travelling.
 
The recording and claiming of mileage should be assessed to ensure that a degree of rigour is required by the user. System-managed expenses would allow the mandatory entry of ‘To’ and ‘From’ destinations, along with legitimate reasons and any organisational validation e.g. any journey over ‘n’ miles should be made by train.
 
An automated solution for expenses is well worth considering as this would allow:
  • Validation of expenses as entered e.g. maximum costs for overnight stay, assessing the correct mileage rate.
  • Authorisation via workflow.
  • Full audit trail.
Target Suppliers and Potential Benefits
A small number of very significant suppliers were identified and these should be the initial targets in the pursuit of automated methods for invoicing.
 
Using industry analyst statistics the adoption of electronic methods would elevate the Charity from their current status to best-in-class when dealing with these suppliers. Using the analyst metrics, the cost of processing an invoice would reduce from £16.37 to £3.07.
 
In itself, and with none of the other Spend Control projects being undertaken, this would result in a process cost saving over of almost £3 million.
 
With other initiatives in place, such as PO Flip, Self-Billing and improved contracting and compliance, the available benefits will increase greatly.
 
PROACTIS’ experience of working with charities and not-for-profit organisations to improve source-to-contract and purchase-to-pay initiatives with cutting edge technology makes us extremely well placed to help executives to address the challenges of controlling costs and optimising efficiencies.
 
PROACTIS clients include: NSPCC, RSPCA, Royal British Legion, Peabody Trust, RNID, Age UK
 
To learn more about how to achieve greater financial visibility, compliance and control, visit www.proactis.com.
 
 
 
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