CFO Talks: Employee Using Company Card for Personal Purchases

Golden rule for managing corporate cards - don't mix business with pleasure

Imagine this: A gleaming corporate card sits snugly in your wallet, whispering temptations of an all-expenses-paid night out. Sounds tempting, doesn't it? But here's why giving in to that temptation could cost you and your company far more than just the price of a lavish dinner.

The bottom line impact: First, companies thrive on efficient use of funds — every dollar spent aims to drive value back into the business. Dropping $500 on a round of drinks or a gourmet feast with potential clients? That's a hard no in the ledger of smart business spending. Not only does it not add value, but it also risks the enterprise's financial health.

Tax troubles brewing: Let's talk taxes. Only expenses that directly contribute to your business operations are seen as tax-deductible by the keen eyes of tax authorities. Slide personal expenses through on the company dime, and you're inviting scrutiny, potential audits and penalties. Imagine the tax man combing through your expense reports and raising their eyebrows at every non-business-related entry. Not a pleasant thought.

Data distortion: Every expense logged feeds into your company's performance metrics and analytics. Pollute your accounting system with personal expenses, and suddenly your data is as reliable as a weather forecast in a hurricane. Misleading data leads to misguided decisions distorting the true picture of your company's financial health and strategic direction.

Diminished stakeholder trust: These folks have entrusted their funds to your company's vision and execution. Discovering that their investment is funding someone's personal indulgences? Expect fury, legal action, and demands for immediate repayment. Remember, loans and investments come with strings attached, including strict stipulations on how funds are utilized.

Mixing personal pleasures with corporate provisions is a shortcut to disaster. It's not just about the immediate financial implications but the broader repercussions on your company's integrity, financial reporting, and relationship with investors and tax authorities. The message is clear: Keep business and personal expenses distinctly separate.

Cautionary tales: How employees misuse company cards in real life

In today's fast-paced business environment, using company cards for personal purchases is a concerning reality. Modern finance controllers have to deal with various real-life scenarios connected to the misuse of corporate cards for personal expenses. Here are the main issues finance departments run into:

Scenario 1: The accidental purchase made on a company card

Imagine a busy day filled with back-to-back meetings and deadlines. Amid this chaos, an employee rushing to complete their tasks mistakenly uses the company card for a personal expense, believing it to be their own. Although this act may appear innocent and unintentional, it highlights a fundamental lapse in card management and personal accountability.

How to prevent accidental misuse of corporate cards?

• Immediately contact the employee and ask for clarification. Was this indeed an accident?
• Provide the employee with the details on how to reimburse the company for the accidental expense
• Check that the employee reimbursed the company

At Payhawk, our user-friendly expense management system can help employees distinguish between company and personal cards, and even prohibit certain types of purchases to prevent such errors.

Scenario 2: A pattern of misuse with multiple personal expenses billed to a corporate card

Now, consider a more complex situation where small, seemingly insignificant personal expenses are charged to the company card over time. These transactions may go unnoticed initially but eventually accumulate, leading to significant financial discrepancies and a breach of trust. Examples of such misuse usually stem from a fundamental misunderstanding of the company expense policy.

Preventing chronic misuse: Update and communicate your expense policy.

• Run a financial audit on similar transactions in the past to uncover the extent of the misuse.
• Introduce stricter employee expense policy and communicate the specific requirements, and consequences for non-compliance
• Conduct periodical audits to check that the errors don't occur anymore

Spend management solutions like ours, offer real-time reports and custom expense policies, allowing finance controllers to set specific spending limits and even block transactions before they occur, effectively preventing patterns of misuse.

Scenario 3: Employee as a threat actor or blatant abuse

In the most egregious cases, an employee might exploit the company card for outright personal gain, funding anything starting from a toaster to luxury purchases, or extravagant accommodation. This blatant abuse is not just a financial issue but a serious ethical violation that requires immediate and decisive action.

How to stop fraudulent use of corporate cards?

• Implement a zero-tolerance policy towards misuse of company resources
• Introduce and severe disciplinary actions to threat actors, including termination and possible legal repercussions

By using our advanced features, such as automated receipt matching and custom expense categories, you can immediately detect unusual spending patterns and prevent abuse. You can also take advantage of our card auto-blocking feature to stop threat actors from using your cards immediately.

These real-world examples serve as a stern reminder of the critical need to establish clear guidelines, foster a culture of accountability, and adopt corporate spend control tools like our for managing company expenses. By taking proactive steps to prevent misuse, companies can protect their financial health, maintain an atmosphere of trust, and ensure that company resources are used responsibly and ethically.

Understanding the 'why' behind personal purchases on corporate cards

Before diving into corrective actions, it's crucial to understand the motivations that might lead someone to use a corporate card for personal expenses:

• Business owners and SMEs often struggle with separating personal and business finances, sometimes treating company funds as personal reserves, or taking advantage of the tax breaks they offer.
• Employees may be motivated by rewards, credit score management, or the need for a higher credit limit. Misuse might also stem from personal gain or simple mistakes.

Recognizing these motivations is the first step in developing effective policies and preventive measures. The second step is to act on them.

A four-step process to minimize the effects of personal spending on a business card

Mistakes happen, but how you handle them can make all the difference. Here's what to do if personal expenses end up on a business credit card:

For business owners, or finance controllers:

1. Notify your direct manager of the incident as soon as possible, adhering to company protocols for accidental personal charges.
2. Retain all receipts: Gather and secure all receipts related to the accidental purchase. This documentation is crucial for rectifying the mistake.
3. Schedule a meeting with your accountant or tax consultant to explore options for addressing the expense.
4. Provide an employee with the way to reimburse the company legally (or seek legal action in case of financial abuse), or deduct the amount of personal expenses made from the employee’s paycheck if necessary

For employees:

1. Communicate to your spend controller that the mistake occurred.
2. Review and follow the guidelines established in the expense policy, which should outline the procedures for such situations.
3. Provide all the receipts to the financial manager and ask them for help with reimbursing the company.
4. Pay the employer back for the incurred expense (or agree for paycheck deduction).

Institutional and technological safeguards that can help you prevent unauthorized spend

To prevent and manage the misuse of corporate cards, companies must establish clear, comprehensive expense policies. These should include:

Expense policies: Detailed guidelines on what company funds can be used for and the protocols for addressing misuse. These should also outline the consequences of non-compliance, as well as steps that an employee must take to pay the company back.
Cardholder agreements: Before issuing a company card, have employees sign an agreement that emphasizes the card is for business use only and outlines the terms of usage.
Leveraging technology: Besides policies and agreements, adopting spend management solutions like ours can offer finance controllers a robust framework for monitoring and controlling expenses.

Eliminate unauthorized business spending with Payhawk corporate cards

To safeguard your company's financial transactions, our corporate cards offer a robust set of features to prevent misuse, including:

• Real-time transaction monitoring: Instant alerts for every transaction, ensuring oversight and quick detection of unauthorized spending
• Custom spending limits: Set specific limits on each card to control spending thresholds and prevent excessive use
• Spend category restrictions: Limit transactions to approved merchant categories, blocking purchases from unauthorized transactions
• Receipt and approval workflow: Enforce submission of receipts and spending justifications for each transaction, following an automated flow and promoting accountability
• Integrated expense policies: Automatically enforce company expense policies, reducing the risk of policy violations

Conclusion: How to safeguard your business from personal purchases

Mixing up business and personal spending irrevocably negatively affects the company, regardless of whether it happens by accident or on purpose.

Addressing this issue is easy with our all-in-one spend management solution. Using modern expense management software ensures that all transactions are accounted for. Our corporate cards make it easy for CFOs and financial managers to enhance transparency in terms of business spend, too. Lastly, our expense policies, custom approval workflows, and card auto-blocking also help you prevent potential threat actors from infiltrating your finances.

Take a look at how A.T.U transformed its spending operations by adopting our corporate cards. Or if you would like to see them in action, schedule a personalized demo today.