Employee reward programs are hit hard by internal fraud, and we’re talking about millions of dollars disappearing every year from scams that can run for months or even years without anyone realizing it. Moving these programs online has been a double-edged sword – it’s opened up new ways to cheat the system.
Old-fashioned oversight has a major flaw – the employees trying to game the system already know just how these controls work, and they can design their scams to slip right past them. Savvy firms have caught on to the fact that relying on just one detection method won’t cut it anymore – they need to stack multiple layers of protection on top of one another. Anonymous tip lines give employees a safe way to report sketchy behavior, and automated systems can pick up on weird patterns that human reviewers might miss completely. And these organizations are finally building approval processes that actually make sense instead of just piling on more bureaucracy.
This whole situation becomes even more maddening when you realize the money you lose is only the start of your problems. Once the staff catch wind that others have been gaming the system, it completely tanks team morale and gets everyone asking themselves if the reward program is actually doing any good at all. Catching these cheaters and corner-cutters before they do serious damage is tough, but you still need to keep everything simple and stress-free for the honest employees who just want to earn their rewards fair and square.
Let’s go over the main warning signs that could point to fraud in your programs!
How Employees Steal From Reward Programs
Employees who commit fraud in reward programs almost never wake up one day and just choose to steal thousands of dollars from their company. It’s actually a pretty predictable pattern that almost always starts off quite small. Most of them begin with something pretty minor and seemingly innocent – maybe they’ll give themselves a few extra points here and there to test the waters and see if anyone notices what they’re doing. Once they see that nobody is actually keeping a close eye on their day-to-day activities, the behavior gets worse pretty fast. Just a free coffee or maybe a small discount at first can eventually snowball into thousands of dollars worth of stolen rewards in just a few months.
Employees most commonly create completely fake customer accounts. They’ll set up multiple profiles with made-up email accounts and phone numbers that don’t belong to anyone. During normal transactions with real customers, they’ll scan these phantom accounts to grab the rewards. Later on, they cash out the accumulated rewards for themselves or even sell them online to buyers. Some employees get a bit more creative and use slight variations of legitimate customer names and information to make detection much harder for management.
Another popular trick happens right at the register during regular sales transactions. Employees scan their own personal loyalty cards when customers either forget theirs or don’t want to join the program, and it seems harmless enough – most employees justify it by thinking that those rewards would just go to waste anyway. These small thefts build up very fast, especially in high-volume retail stores where hundreds of different customers shop day after day.
Returns fraud takes a bit more planning and coordination, but usually brings much bigger payoffs for dishonest employees. An employee will process a completely real return for a customer, but will leave the reward balance active instead of removing it. They then move these orphaned rewards to personal accounts that they control. Customers almost never notice because they have already received their money back and moved on. Meanwhile, the employee walks away with valuable rewards that don’t actually belong to anyone anymore.
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How to Build Anonymous Reporting Systems
Employees are almost always the first ones to see fraud in their workplace. They’re the ones who watch their coworkers turn in obviously fake receipts, or they see when managers start approving reward claims for customers who apparently aren’t even real. Research repeatedly shows anonymous tip lines catch far more fraud than traditional audits or random compliance checks ever do, and it makes perfect sense – the workers on the ground each day see what’s actually happening.
Encouraging employees to speak up about what they’ve seen remains difficult. Most workers are very worried about retaliation, even when their employers make all kinds of assurances about protection. They’ve all seen the horror stories about whistleblowers in the news and what happens to them. True anonymity is very important to the whole process because of this. Employees become far more willing to come forward with what they know once they really believe they can report fraud without anyone ever finding out who they are.
You can use a few different methods to set up these reporting channels, and each one has its own upsides. Phone hotlines work very well when an employee wants to talk through what they’ve seen. Web portals give employees a way to upload evidence and write long reports when they have more complex situations to explain. Mobile apps make it easy to report problems right away when something suspicious happens. Successful approaches usually combine all three methods so employees can pick whatever feels most comfortable to them. Trust matters with these systems, and I see this being missed all the time. Employees need to feel confident that their reports won’t vanish into some corporate void where nobody ever looks at them. They want to see plain evidence that management actually takes fraud to heart and carefully investigates every credible tip that comes in. Once word starts to spread around the workplace that the company actually follows up on reports and takes concrete action, you’ll see that more employees become willing to use the system!
Systems That Watch for Problems
Anonymous reporting is a solid first step for catching possible fraud in reward programs, and most businesses want this capability. It gives employees a safe way to report suspicious activity without worrying about retaliation. However, it still leaves a pretty big gap in the security plan. Employees can only report what they actually see or pick up on during their day-to-day work, and most fraudsters are smart enough to hide their questionable activities when everyone else is around. Analytics software fills in those blind areas by continuously watching reward programs and detecting those suspicious patterns that even the most observant team members will miss.
It works like a security system built just for your points program. Around the clock, it monitors employee behavior and account activity, watching for anything unusual. Unusual activity gets flagged when an employee hands out far more rewards than their coworkers or when accounts build up very big point balances. An employee who hands out twenty $100 rewards in one day while everyone else gives out two or three – that’s worth a closer look.
Learning what normal behavior looks like first is the best strategy. Most managers approve five to ten rewards each week, so you can set alerts for anyone who hits thirty or more. These settings need to fit your own program, though. Sales teams naturally give out more rewards than accounting departments, so your alert levels have to take those differences into account.
False positives will happen. Holiday bonuses and seasonal incentives get flagged as suspicious all the time, which is why fine-tuning matters. You can tighten your alert settings after you learn to separate legitimate spikes from actual fraud. Most teams use wide detection ranges at first and then narrow them down as patterns become obvious.
Automated tracking catches small irregularities that employees just can’t see. Duplicate redemptions from the same IP address and reward approvals at 3 AM when nobody else is in the office, and employees redeeming points in California minutes after signing into their account in New York – these red flags pop up quickly instead of months later during audit season.
Multi-Level Approvals That Actually Work
This logic is pretty sound. If an employee wants to give themselves or a friend some undeserved rewards, they can’t just do it quietly anymore. They have to get at least one other person to go along with their scheme, which is obviously much riskier than doing it alone.
Threshold limits add another layer of protection on top of the approval process. Rewards under fifty dollars get approved automatically. Anything above that amount needs a manager to sign off. Once you hit five hundred dollars, you might need a director to sign off, too. These checkpoints help to catch unusual activity before it turns into a big issue.
Security and usability need to be balanced carefully, and I see businesses mess this up all the time. Make the process too confusing, and your employees will hate it. Eventually, they’ll start to hunt for workarounds or just give up on the program altogether. And make it too easy, and you’re basically inviting fraudsters to take advantage.
Schedule Regular Audits for Your Program
They still need regular check-ups to catch what the automated controls sometimes miss. Manual audits work like complete health exams for fraud programs and create the accountability that helps everyone stay honest and alert. They also help catch fraud patterns that only become visible after stepping back to look at the operations from a different angle.
You should look at three main areas during your audit process. First, check how rewards are actually being issued and watch for any unusual spikes or patterns that don’t make sense. Maybe one department suddenly has triple the normal reward volume, or approvals are happening at weird hours when nobody should be working. Next, check for account anomalies – like duplicate entries, rewards going to employees who aren’t even active anymore, or other red flags that show something fishy is going on. Finally, review approval documentation to make sure that the managers actually authorized what the system shows they approved.
You face a challenge – stay thorough yet sensible about it. You can’t audit everything all the time – that would be a nightmare and probably not worth the cost. Most teams I work with have success with quarterly deep dives on the riskiest areas and then full reviews once a year. Also, you should throw in some random audits. Nothing makes employees stay honest quite like never being sure if anyone could be checking up on their work!
Train Your Staff to Spot Fraud
Catching fraud isn’t always about flashy technology or expensive audits. Sometimes your defense is actually simpler than that – it’s just having employees who know what they should be looking for. Once your team understands how fraud usually happens, they’ll naturally start to spot patterns that just don’t seem right.
Let me explain. You work next to the same person day in and day out, and you probably know them fairly well by now. You’re going to notice if they suddenly start driving a brand-new luxury car or taking expensive trips to Europe that just don’t match their salary. Maybe they get unusually defensive during innocent conversations about the company reward program, or they act nervous whenever some topics come up. These small behavioral changes are early warning signs of much bigger problems lurking underneath.
Employee training for fraud prevention doesn’t need to feel overwhelming or be confusing for anyone on your team. Most businesses make this process far more scary than it needs to be. An easier way actually works better. You should blend fraud awareness naturally into your usual new-hire onboarding process so it comes across as a normal part of their job training instead of some scary security briefing. Your team learns faster from true-to-life examples of fraud cases than from boring theoretical scenarios, so you can pull together some recent cases from other firms in your industry and walk your new employees through them during their first week. Interactive exercises where they get to see the red flags and talk through what went wrong help the whole learning experience stick. Team members who can practice recognizing these warning patterns in a comfortable setting develop that fraud-detection instinct without becoming paranoid about each customer interaction.
Teaching employees to stay reasonably alert without making them suspicious of each coworker around them can be tricky. Nobody wants to work in an environment where everyone is watching one another like hawks all the time. You can approach this differently by explaining how protecting the program actually means there will be more rewards left for the team members who deserve them. Anyone who cheats the system is stealing from their honest coworkers, too.
You should make fraud awareness a regular part of your continuing ethics discussions throughout the year. You should plan to refresh this training every year or two because employees forget important points over time, and fraud methods are always changing. Your employees will become your most helpful early-warning system once they know what they should be watching for.
Level Up Your Incentives and Rewards
Fraud protection works best when you build multiple layers of defense that all support one another. Any single method on its own won’t catch every scam out there. Multiple tools like anonymous reporting channels, real-time analytics, multi-level approvals, regular audits, and well-trained staff combine to create a system that’s really tough for fraudsters to get around. These criminals always get smarter and come up with new tricks, so your detection methods have to stay one step ahead and adapt right along with them.
Today’s fraud detection technology pairs exceptionally well with old-fashioned human intuition. Machine learning can pick up on data patterns that even sharp-eyed reviewers might miss, and your front-line employees can catch unusual behavior that no computer algorithm would ever think to flag. This blend of advanced technology and human awareness gives you the most reliable protection possible for your reward programs. Employees who trust that the system is fair and safe will join your reward programs far more actively. Leadership becomes far more willing to make the rewards generous and valuable when they know the program’s integrity is bulletproof.
With all these moving parts, you need the right partner to design and manage these systems.
At Level 6, we build incentive programs that deliver strong security without making the process overly hard for your employees. Whether you need branded debit cards or full employee recognition systems, the fraud protection is baked into everything we create from day one, so you never have to trade simplicity for safety. We manage everything from sales-team incentives to company-wide recognition programs, and we build each system specifically for your business so you get results you can measure and verify.
Contact us today for a free demo to see just how we help high-performing businesses maximize their ROI and make their programs safe and easy for everyone to use.
Claudine is the Chief Relationship Officer at Level 6. She holds a master’s degree in industrial/organizational psychology. Her experience includes working as a certified conflict mediator for the United States Postal Service, a human performance analyst for Accenture, an Academic Dean, and a College Director. She is currently an adjunct Professor of Psychology at Southern New Hampshire University. With over 20 years of experience, she joined Level 6 to guide clients seeking effective ways to change behavior and, ultimately, their bottom line.
