Why are robust compliance practices essential for your procurement? Because organizations lose an estimated 5% of their revenue to fraud each year, and procurement fraud is the third most disruptive economic crime globally.
Yet many procurement departments or procurement compliance organizations within larger entities still rely on manual processes and disconnected systems that create dangerous compliance gaps.
This article explores how to build a compliance-first procurement function that protects your organization while actually making it easier for teams to follow the rules.
What is procurement compliance?
Procurement compliance ensures that all purchasing activities follow established policies, procedures, and regulatory requirements. It includes everything from vendor selection and contract management to payment processing and audit documentation.
But compliance and procurement functions aren't just about risk mitigation. They're designed to build a foundation for better business outcomes.
Think of compliance as the guardrails that keep procurement on track. When everyone follows consistent procurement processes, you naturally get better prices through leveraged contracts, stronger vendor relationships through fair dealings, and cleaner data for making strategic decisions.
Tracking procurement compliance can transform rule-following from a necessary evil into a competitive advantage, strengthening your organization's overall risk management.
Procurement compliance extends to clear controls and accountability throughout the purchasing process, helping prevent fraud before it happens. They ensure you meet regulatory requirements without scrambling during audits, and they create the transparency executives and auditors need to trust procurement's operations.
In essence, ethical procurement practices make procurement a more valuable business partner.
Top procurement compliance challenges
Procurement teams face increasing complexity in technology, operations, and regulations. Understanding these challenges can help your team streamline procurement processes efficiently and develop targeted compliance strategies.
Manual workflows and disconnected tools
Relying on spreadsheets, email approvals, and paper-based processes instead of vendor management software can create dangerous compliance gaps in procurement operations and risk management. When purchase requests bounce between different systems and manual handoffs, policy enforcement becomes inconsistent at best.
One department might follow strict approval limits while another routinely bypasses them, a practice that might not come to light until a thorough audit is conducted. Even then, piecing together evidence from emails, spreadsheets, and filing cabinets can take weeks of effort while still leaving gaps in the data.
Cybersecurity and data risk
Procurement teams handle sensitive information, including vendor banking details, that make them prime targets for cybercriminals. Data breaches can expose organizations to financial fraud, intellectual property theft, and regulatory penalties.
Meeting data protection regulations like GDPR or CCPA adds another layer of complexity, as procurement must track the way vendor data is collected, stored, and shared across the organization.
Evolving regulatory requirements
Keeping pace with changing regulations across industries and geographic regions creates constant compliance pressure for procurement teams. New sustainability reporting requirements, supply chain transparency laws, and industry-specific regulations emerge regularly, each demanding process changes and additional documentation.
Multi-national organizations face the added challenge of managing compliance across jurisdictions with different requirements. The time and expertise needed to monitor regulatory changes and implement necessary updates often exceeds the capacity of lean procurement teams.
Maverick spending and policy violations
Unauthorized purchases made outside established procurement processes undermine compliance efforts and expose organizations to unnecessary risk. Employees bypass procurement policies for various reasons, including urgency, convenience, or simple lack of awareness about proper procedures. This maverick spending makes it impossible to leverage negotiated contracts and cost savings, verify vendor compliance, or maintain accurate spend visibility.
The decentralized nature of many organizations makes policy enforcement especially challenging, as procurement leaders lack direct oversight of spending decisions made across different departments and locations.
Limited visibility and audit trails
Without clear visibility into procurement activities, compliance monitoring becomes reactive rather than proactive. Many organizations struggle to track who approved purchases, why certain vendors were selected, or whether contracts were properly reviewed before execution.
Incomplete audit trails make it difficult to investigate compliance issues or respond to audit requests efficiently. This lack of transparency also prevents procurement from identifying patterns of non-compliance and applying risk management that could indicate systemic problems requiring process improvements.
Key compliance metrics every procurement team should track
In effective procurement compliance, the right metrics can mean the difference between ensuring compliance by catching issues early and explaining failures after the fact.
Efficient procurement teams track specific indicators that reveal the health of their compliance program, highlight areas needing attention, and improve compliance rates over time.
Compliance rate
This fundamental metric measures the percentage of purchases that follow established purchasing rules, policies, and procedures. Calculate compliance rate by dividing compliant transactions by total transactions over a specific period.
A declining compliance rate signals the need for additional training, process improvements, or stronger enforcement mechanisms to effectively manage risks and ensure teams follow established protocols.
Vendor compliance score
Track supplier performance through systematic scoring, including how well they meet procurement contract obligations, regulatory requirements, and performance standards. This KPI measures compliance factors like on-time delivery, quality standards, documentation completeness, operational efficiency, adherence to pricing agreements, and other aspects of contract compliance.
Regular vendor compliance scoring helps in managing supplier risks, minimizing supply chain disruptions, identifying suppliers that pose procurement risks to your organization, and supporting data-driven decisions about your compliance standards, supplier relationships, preferred suppliers, and approved supplier list.
Policy exception rate
Monitor the frequency of approved deviations from standard procurement policies throughout the procurement cycle to understand where policies may be too restrictive or where additional compliance measures are needed to mitigate risks and support security regulations. Calculate this by tracking the number of exception requests against total procurement transactions.
High exception rates often indicate policies that don't align with business needs or insufficient change management when implementing new procedures.
Time to compliance resolution
Measure how quickly your team addresses and resolves identified compliance issues, from detection to full remediation. Faster resolution times indicate effective procurement efforts in maintaining compliance with procurement laws, standardized internal controls, and strong organizational commitment to maintaining standards.
This metric helps procurement demonstrate responsiveness to audit findings and continuous improvement in compliance management.
Audit finding closure rate
Track the percentage of audit findings successfully addressed within agreed timeframes to show compliance program effectiveness. This metric reflects both the severity of compliance gaps and the organization's ability to implement corrective actions.
Improving closure rates over time demonstrates to auditors and executives that procurement takes compliance seriously and can execute necessary changes.
Spend under management
Calculate the percentage of organizational spending that flows through approved procurement channels to understand compliance reach. Higher spend under management correlates with better compliance visibility and control.
This metric helps procurement demonstrate its role in protecting the organization while identifying areas where additional governance may be needed.
Best practices for building a compliance-first procurement function
Building a compliance-first procurement function doesn't mean drowning your team in red tape. The best programs make it easier to do the right thing than to work around the system.
These proven strategies can strengthen compliance while simplifying daily operations for procurement professionals.
Develop a clear compliance policy
Start with documented policies that clearly define compliance expectations, responsibilities, and consequences for violations. Effective policies use plain language, provide specific examples and compliance checklists, and explain the reasoning behind requirements to encourage buy-in from key stakeholders.
Make policies accessible through procurement portals or shared drives, and establish regular review cycles to ensure they remain current with regulatory changes. Including clear escalation paths for questions or exceptions can help teams handle unusual situations without compromising compliance.
Standardize vendor onboarding and approval
Consistent vendor vetting and onboarding processes ensure that every supplier meets compliance requirements before conducting business with your organization. Establish clear criteria for your supplier evaluation process, including financial stability checks, insurance verification, and regulatory compliance confirmation.
Risk-based screening offers additional scrutiny for vendors in high-risk categories or those handling sensitive data. Be sure to maintain centralized vendor records that track compliance certifications, performance history, and any identified issues.
Automate PO, invoice, and approval workflows
Automation transforms compliance from a burden into a seamless part of daily operations. Today's SaaS procurement compliance platforms can embed controls directly into digital workflows, making sure employees follow policies without exception.
Purchase order automations can enforce spending limits and approval hierarchies before any commitment is made. Three-way matching between POs, receipts, and invoices happens automatically, catching discrepancies that human reviewers might miss. Better yet, every action leaves a digital fingerprint, creating a detailed audit trail without adding extra steps to your team's work flow.
Train teams on policies, procedures, and tools
Regular training ensures all stakeholders understand their role in maintaining procurement compliance and know how to use available tools effectively. Develop role-based training programs that focus on the specific compliance requirements relevant to each user group, from requesters to approvers.
Include practical scenarios and examples in your training curriculum to demonstrate how compliance protects both the organization and individual employees. You'll also want to supplement your training with quick reference guides and regular communications about policy updates or common compliance mistakes to maintain awareness.
Monitor with dashboards and audit trails
Real-time monitoring through intuitive dashboards enables procurement teams to identify compliance issues before they escalate into serious problems. Configure dashboards to highlight key metrics, flag unusual patterns, and track trends over time for different categories, vendors, or departments.
Comprehensive audit trails provide the documentation needed for internal reviews and external audits. Regular monitoring also helps procurement teams recognize when policies need adjustment to better serve business needs while maintaining appropriate controls.
How BILL Procurement can help improve procurement compliance
BILL Procurement addresses the fundamental compliance challenges that plague manual procurement processes. The platform's automated workflows enforce your purchasing policies at every step, from request through payment, eliminating the gaps that lead to maverick spending and compliance violations.
The pre-approval mechanisms built into BILL Procurement stop unauthorized purchases before they happen. Employees must follow established approval chains based on spending thresholds and categories you define, ensuring that every purchase receives appropriate oversight. The system automatically routes requests to the right approvers and maintains complete documentation of the approval process.
The platform's expansive vendor network streamlines supplier management, helping your team manage required documentation and track performance metrics across your entire supplier base. This centralized approach to vendor management reduces the risk of working with non-compliant suppliers and simplifies vendor audits.
Real-time visibility through comprehensive dashboards and reporting tools transforms compliance monitoring from a periodic exercise into an ongoing process. Track spend by category, monitor policy exceptions, and identify potential issues before they impact your organization. Detailed audit trails capture every transaction, approval, and change, providing the documentation auditors need while reducing the time your team spends gathering compliance evidence.
"With BILL, invoices are routed to the right people automatically. I can even tag people with questions. I really like that everything’s in one record. And it’s all documented in an audit trail. Between entry and approvals, the time savings from BILL have been significant." — Galileo Learning
