Amazing Real-Life Stories
A tech startup gave its software engineers additional cards with a $2,000 monthly limit. Three months later, one of the managers noticed that expenses for a game console and home renovations had been reported as business expenses. The system did not raise any red flags because the card was labeled as a “company card” and control was left entirely to the accounting department.
A construction company in the U.S. issued additional cards with unlimited spending limits to field managers. An employee stayed at a luxury hotel in Vegas under the guise of business expenses and spent $4,800 on the card. After an investigation, the employee was fired, but the expense could not be recovered because “there was no pre-set limit.”
A startup set a total company limit instead of individual limits on employee cards. An employee transferred $20,000 to their personal account via PayPal under the pretext of purchasing software licenses. The expense was not initially noticed because it appeared to be an “IT expense.”
Common Oversights in Employee Cards
When issuing additional cards, over 60% of companies do not require cardholders to submit detailed expense reports. This increases the risk of misuse, especially among remote teams.
Some accounting software only tracks card expenses based on the total balance, so individual expenses made with additional cards are not visible. As a result, 35% of companies cannot provide detailed card-based reporting. According to a study conducted in the US, 22% of small businesses discover employees' additional card expenditures unexpectedly at the end of the month. The reason: the absence of real-time alert systems.
Psychological and Strategic Effects of Setting Limits
Setting limits is not only a financial choice, but also a cultural one. An employee with a $5,000 limit is more careful about business expenses. The same employee with an unlimited card may feel that their spending is “less visible” and push the limits.
Setting “category-based limits” instead of “daily limits” yields more efficient results, especially in areas such as sales and marketing. For example, specific limits such as $50 per day for food expenses and $1,000 per month for advertising campaigns provide healthier control.
Different Practices by Country
In Canada, some banks offer “additional cards requiring spending approval” specifically for businesses. Employees can make transactions, but payments are not processed without immediate approval from a manager. This is used especially in high-risk sectors.
In the United Kingdom, some business credit card systems offer the option of setting a “weekly spending time frame” limit on employee cards. This means that employees can only make purchases during specific days and hours. In the US, some fintech solutions analyze employee spending using artificial intelligence to detect “unusual behavior.” For example, a purchase made at a restaurant at 3 a.m. is flagged by the system as a red flag.
Unknown Facts About Insurance and Legal Liability
If an employee purchases an illegal product (such as dark web services) with the card, the company may be required to pay the bill. This is because the card is registered in the company's name and the employee is considered to have made the transaction on behalf of the company.
Some corporate credit card agreements do not cover expenses incurred by additional cardholders in the event of misuse. This situation is considered “negligence” if the company has insufficient internal controls, and no right to compensation arises. In lawsuits filed in the US in 2022, companies were found to have suffered direct losses of approximately $14 million due to suspicious expenditures made by employees using additional cards. These are only cases that have been brought to court.
The Hidden Costs of Additional Cards
Employee expenses are not limited to the amounts paid directly. It is estimated that companies lose an average of 5-8% of recoverable expenses due to late invoice checks, incorrect category coding (MCC), and non-tax-compliant expenses. In some companies, small but frequent expenses made by employees using additional cards (between $10 and $20 per day) can accumulate into tens of thousands of dollars annually, forming a “shadow budget.” These amounts often remain “hidden” in company reports.
Under the US tax system, expenses made with additional cards that are not included in invoices may be completely invalid for reimbursement of certain business expenses. The IRS often considers unexplained expenses made with individual cards as personal expenses.
Security and Fraud Vulnerabilities
17% of cyber fraud cases occur through business credit cards. In particular, the lack of adequate training for additional cardholders on protecting card information triggers this situation. Some additional card users skip security measures when sharing their information in mobile apps or third-party expense apps. This can lead to access to all company information with a single phishing attack.
In 2021 in the US, a fraudulent employee obtained an employee card and made purchases in 11 different states before the company noticed. The total loss was $32,000. The card limit was low, but the damage grew because it was not blocked in time.
Creative and Effective Ways to Set Limits
Some companies implement a “location-based restriction” system for additional cards. This means the card only works within specific city or country borders. Transactions outside the country or designated areas are immediately rejected. Another way to set up an approval system for transactions is to require a manager to approve the transaction via a mobile app before it is made. This is particularly effective for transactions over $500.
Some smart card solutions allow the card to be active only during certain hours. For example, it works from 8 a.m. to 6 p.m. and automatically locks after that. This is ideal for preventing suspicious transactions outside of working hours.
The Fine Balance Between Company Culture and Additional Cards
Some managers consider giving employees additional cards as a “sign of trust.” This can psychologically increase employee loyalty to the company. However, when left unchecked, the rate of abuse of this trust is surprisingly high.
A startup introduced a “spending code” system instead of cards for its employees. This meant that no transaction could be made without a code approved by a manager. This system revealed that 23% of employees completely abandoned the idea of making unnecessary purchases. Some large companies sign a separate “usage agreement” with employees for additional cards. These agreements clarify the employee's personal responsibility and prevent “I didn't know” type objections later on.
A New Era in Card Technology: Virtual Additional Cards
“Single-use virtual cards” are becoming increasingly popular as an alternative to physical cards. In this system, employees receive a card number for a specific transaction, and the card becomes invalid as soon as the transaction is completed.
Some fintech companies offer the ability to apply four different control parameters simultaneously on employee-based virtual cards: spending limits, category restrictions, time frames, and regional restrictions. According to 2023 data from the US, the rate of inappropriate spending by employees at companies using virtual cards decreased by 18%. These cards make tracking and analysis easier because each card is created for a specific function.
The Cost of Not Training Employees Who Use Additional Cards
According to a study conducted in the U.S., only 27% of employees who use additional cards at work report having received training on tax, billing, and reimbursement processes related to these cards. The remaining 73% use the card in a manner similar to a personal credit card. Some companies assume that after providing employees with additional cards, expenses will be monitored solely by the accounting department. However, issues often arise at the point of purchase, as employees make decisions based on what can be avoided rather than what is permissible.
Some fintech-based companies require their employees to complete a 15-minute online mini-course before issuing them cards. Employees who completed the course had 40% fewer inappropriate expenses.
Expense Tracking and Visibility Strategies
Some accounting systems report expenses from additional cards without separating them from the main card, only showing the total balance. This makes it difficult, especially in small businesses with a few employees, to identify inappropriate spending by a specific individual. Modern solutions can send instant notifications of every additional card expense to the manager's cell phone. This allows managers to manage the process with real-time control rather than “end-of-month surprises.”
Some companies make employee card expenses visible to their teammates through weekly summary reports. This social visibility increases individual responsibility and encourages cardholders to be more careful, knowing that they are being watched.
Motivational Usage Models
Some companies not only control employee spending, but also link this process to an incentive system. For example, employees who spend within appropriate categories and limits for three months receive small bonuses. A large advertising agency established a “transparency score” system based on card spending performance. All company employees can view these scores, and team members with the highest scores receive a “safe spending award” at the end of the period.
Analyses show that when employees are given more responsibility, not only inappropriate spending decreases, but also the use of “unnecessary low-quality suppliers.” In other words, card discipline indirectly contributes to business efficiency.
Reporting Strategies and the Power of Automation
Instead of manually reviewing the expenses of employees with additional cards, some companies use automatic classification algorithms. For example, data such as the business where the expense was made, the time, and the amount are combined to create a “suspicious” score. Some accounting software offers employee-based “expense category deviation analyses.” In other words, an employee's shopping locations, spending types, and averages over the last three months are compared graphically, and any discrepancies are reported.
Some UK-based companies present this data to managers in the form of weekly “spending radar reports.” This allows them to identify not only incorrect transactions but also potential deviations early on.
Application Examples: Differences by Industry
Logistics companies often give field workers additional cards for fuel and vehicle expenses. However, these cards are restricted to “gas stations only.” The same card cannot be used to shop at a supermarket.
In advertising and marketing agencies, representatives have additional cards for restaurant and customer entertainment expenses. These cards may be filtered to be invalid at entertainment venues or establishments that sell alcohol. In public or hybrid institutions such as the education sector, instead of spending limits, approved supplier lists are defined for employee cards. This means that card systems are used where only products such as school books, stationery, and educational software can be purchased.
Risks of Using Additional Cards from the Perspective of Tax Authorities
The IRS (U.S. Internal Revenue Service) considers three things when determining whether an expense is a business expense: is it necessary, directly related to the business, and reasonable? These criteria apply to every additional card expense made by employees. If employees do not have receipts for expenses in areas such as restaurants, electronics, software, or transportation, or if there is suspicion of personal use, the entire amount may be deemed invalid during an audit.
If the employee did not keep a “simultaneous note” for expenses made with the additional card—for example, whether the meal was with customers or staff—the IRS may consider the expense personal. This means losing reimbursement and tax benefit rights. In an IRS audit, a company manager was unable to provide details for $12,000 in advertising expenses incurred by an employee, resulting in the entire amount being taxed as personal expenses. The company lost its reimbursement and expense deduction rights and was also fined.
Legal Applications in Canada and the United Kingdom
The Canada Revenue Agency (CRA) only accepts documented expenses that are directly related to the business. Expenses made with additional cards but cannot be explained often fall into the “open rejection” category. In the United Kingdom, HMRC (tax authority) requires that all expenses made with company cards be reported in detail. Without employee explanations, tax benefits cannot be claimed for expenses such as “entertainment,” “accommodation,” and “transportation.”
HMRC can question both the company and the employee individually regarding suspicious expenses made with employee additional cards. For example, in 2021, an employee of a consulting firm was asked to provide individual statements explaining why accommodation expenses made in four different cities were for business purposes.
Audit Scenarios: Real Cases and Their Impact
In a federal audit conducted in the US in 2023, one of the cards issued to employees of a small software company was used to make over 100 purchases on Amazon over a nine-month period. The company was fined $18,000 because it had no record of what the purchases were for. In Canada, an employee of a transportation company used their card for regular grocery shopping. They submitted the receipts, but since the connection between the expenses and the business was unclear, the CRA classified the expenses as “personal” and requested the company to recalculate its filings from two years prior.
In an independent audit conducted in the United Kingdom, the company's financial statements were deemed “unreliable” due to unexplained expenses on three employee cards, even though the company's overall spending budget was appropriate. As a result, the company lost investors.
Smart Ways to Protect Your Tax Advantage
Keeping digital invoices or receipts for every additional card expense is critical not only for audits but also for year-end tax benefits. Some companies require employees to use an “expense note” system. This means that after an expense, a 60-second voice or written note explaining the purpose of the expense is immediately entered into the system. These small notes can be a lifesaver during audits.
Some companies create a “spending defense report” system that includes spending categories and justifications at the end of each month. This allows cardholders to review their spending and enables the accounting department to conduct a preliminary assessment.
Lack of Internal Audit Mechanisms
Many SMEs do not establish any internal audit mechanisms when issuing additional cards to employees. This situation not only facilitates fraud but also increases the risk of being caught unprepared during audits. According to a study conducted in the US, the rate of additional card fraud drops below 5% in companies with an internal audit system, while it can reach up to 20% in companies without such a system.
Some advanced companies conduct “simulation audits” every six months to prepare for external audits. This involves an independent team selecting random months, requesting explanations for expenses, and reporting any discrepancies.
How to Decide Whether to Issue Additional Cards
Issuing cards to employees is not always a “necessity,” but rather a “convenience” in most cases. However, sacrificing financial control for convenience can lead to greater burdens in the long run. The first question to ask is: “Does this person need to make regular expenditures as part of their job processes?” If not, a pre-approved expense system may be a better option. For example, if a field worker only makes transportation expenses once a week, requiring them to fill out an expense form each time may be more secure. However, this method may be inefficient for a marketing manager who makes daily expenses.
In many companies, the decision to issue cards to employees is based on their “trust level” rather than their past behavior or position. However, the main criteria should be frequency of spending, transaction category, traceability, and compliance with reporting requirements.
Issuing Cards Only to Managers: Advantages and Risks
Issuing cards only to middle and senior managers can increase control in small teams. Especially if there are only a few company owners or financial officers, expenses can be tracked more easily. However, issuing cards only to managers can create a sense of inequality among other team members. This can lead to low motivation, especially among sales or support teams that make direct purchases in the field.
Some companies implement temporary solutions such as using manager cards for employee expenses (e.g., employees make purchases with a physical card but the transaction is charged to the manager's card). This method leads to a loss of transparency and can create “personal transaction complexity” during audits.
Additional Card Strategy Based on Business Model
If employees in the service sector make direct expenses such as customer visits, equipment purchases, and social events, flexible yet controlled additional cards are beneficial. Cards with restrictions such as restaurants, hotels, and transportation should be preferred. In manufacturing companies, it is more logical to assign cards to specific individuals in the purchasing and procurement departments. Limiting card access to authorized suppliers enhances security.
In companies with field teams (logistics, maintenance, distribution), cards should be limited to specific areas such as fuel, spare parts, and quick purchases. Additionally, cards can be geographically restricted to the city or region where they are used. In startups and fast-growing companies, a “trial limit” system can be introduced for additional cards. For example, $200 for the first month and $500 for the second month if used correctly. This allows employee behavior to be observed and prevents uncontrolled growth.
Decision Matrix for Issuing Additional Cards (Summary)
The decision to issue a card can be determined based on the answers to the following questions:
- Does this person make regular and non-business-related expenses?
- Are their expenses immediate or planned for business processes?
- Can they provide regular post-expense reporting?
- What was their previous expense management experience?
- Can their expenses be limited to specific categories?
- Would another solution (prepayment, expense approval) be sufficient instead of a card?
The answers to these questions can lead to three different decisions: “do not issue a card,” “issue a restricted card,” or “issue a card with confidence.”
Technology Integration: The Future of Cards
Thanks to AI-powered spending analysis systems, card spending is no longer just tracked—it can also be predicted in advance when risks may arise. Some card solutions dynamically adjust the card limit based on spending habits. For example, if an employee's average spending decreases, the card limit is automatically restricted.
QR code authorization systems offer solutions that do not require the physical card to be shared. The employee obtains a QR code from the manager and makes the purchase, with the code being valid only for that transaction.