In today’s workplace, employee recognition programs are crucial for driving engagement, improving retention, and fostering a positive culture. However, when these programs are left unprotected, they can become vulnerable to fraud and misuse, turning what should be a tool for motivation into a source of distrust.

The Hidden Cost of Rewards Program Fraud

It starts small—an employee manipulates a rewards system to redeem extra gift cards, a manager falsifies incentive payouts, or a team member redirects unclaimed rewards to their account. These actions might seem insignificant initially, but once fraud is exposed, it has ripple effects far beyond the financial losses. Suddenly, employees begin questioning whether leadership is aware, or even complicit. Morale suffers. Trust erodes. A system designed to reward hard work now creates resentment, and, in some cases, even public scandal.

Why Do Employees Commit Fraud?

Behavioral experts often point to the Fraud Triangle as a framework for understanding workplace fraud. It consists of three factors that contribute to unethical behavior:

• Motivation – Financial or personal stress drives employees to seek additional income
• Opportunity – Weak controls or lack of oversight make fraud easy to commit
• Rationalization – Employees justify their actions and don’t expect to get caught

According to Understanding the Fraud Triangle, fraud rarely stems from a single factor but rather a combination of motivation, opportunity, and rationalization. While personal financial struggles or ethical justifications may contribute, the most controllable factor is opportunity.

By closing security gaps in a rewards program, businesses can remove the temptation to commit fraud before it even begins. The key is predicting vulnerabilities, eliminating opportunities, and layering safeguards so that no single failure point exposes the program.

Strengthening Your Rewards Program

Whether managing a digital gift card program or a merchandise-based rewards system, reducing the opportunity for fraud is the most effective way to protect your program. The key is layering security measures that deter fraud while keeping the program efficient and easy to manage.

To bring this to life, here are three real-world examples of reward program fraud, along with the specific strategies that could have prevented them.


1. Automate Distribution, Tracking, and Approvals
Manual reward distribution processes are prone to human error, manipulation, and a lack of oversight. Employees may take advantage of disorganized tracking systems to issue unauthorized rewards, alter records, or duplicate redemptions. Digital rewards platforms eliminate these risks by providing real-time tracking, automated approvals, and detailed audit logs. With built-in controls, businesses can ensure every reward is accounted for and prevent fraudulent payouts before they occur.

Fraud Example:
An HR executive at a Texas school district falsified logs in a manual rewards tracking system to cover unauthorized distribution. The fraud went unnoticed until a report triggered a police investigation, leading to an internal audit that uncovered a stockpile of $37K in missing gift cards in a closet.

How to Eliminate This Opportunity:

• Replace manual tracking with a digital rewards system for real-time visibility
• Automate approvals to prevent unauthorized distribution
• Implement detailed audit logs to detect discrepancies early
• Require segregation of duties, so one person records transactions while another reviews

2. Enforce Role-Based Access and Approval Workflows
When too many–or too few–employees have unrestricted access to issuing or approving rewards, the risk of internal fraud increases. Excess permissions can lead to a lack of accountability, while limited oversight creates gaps that bad actors can exploit. In both cases, employees may create fake accounts, approve fraudulent transactions, or transfer funds without review.

A common fraud tactic in digital reward programs is employees sending gift cards to themselves using alternate email addresses. Effective platforms include safeguards to detect and block self-gifting attempts, along with recipient-tracking workflows that provide full visibility. Many systems also allow administrators to configure order-value limits by user—giving teams granular control over reward permissions without increasing complexity.

Implementing role-based access ensures that only authorized personnel can approve, issue, or modify reward transactions. By defining clear roles and permissions, companies strengthen accountability and significantly reduce the risk of insider fraud.

Fraud Example:
An employee exploited a colleague’s login credentials to access the company’s reward program, change the password, and purchase eGift cards using a corporate credit card. Without role-based access controls, 2FA, or identity verification, the fraud went unnoticed until the accounting department disputed the charges, triggering chargebacks and an inquiry from the rewards vendor.

How to Eliminate This Opportunity:

• Restrict reward program access to approved users only
• Require Two-Factor Authentication (2FA) for login security
• Enforce identity validation before allowing password resets
• Implement role-based approvals—one employee issues rewards, another approves
• Limit administrative permissions—only designated users can modify account settings
• Prevent self-gifting using automated safeguards and recipient tracking
• Configure per-user order-value limits to block high-value fraud
• Ensure finance teams have independent oversight to flag suspicious purchases

3. Monitor & Audit Activity
Fraud often goes undetected for months or even years when companies lack proper monitoring tools. Minor discrepancies, if ignored, can snowball into major financial losses as employees test the system and gradually take bigger risks. Regular audits, real-time analytics, and fraud detection software can flag suspicious activity, such as an employee repeatedly issuing rewards to themselves, changing recipient information, or increasing reward amounts. With proactive oversight, companies can quickly identify irregularities and take corrective action before fraud impacts their bottom line.

Some platforms also enable automated enforcement—sending alerts or temporarily disabling ordering when certain thresholds are met (e.g., a user hits a spending limit or max order count), ensuring that questionable activity is paused until a manager can review it.

Fraud Example:
An employee creates a fake vendor email address and slowly sends increasingly high-value rewards to that account. Because there are no automated alerts and no regular audits of recipient domains, the fraud goes unnoticed until finance teams review transaction logs and notice irregular reward distributions.

How to Eliminate This Opportunity:

• Restrict reward emails to company-approved domains
• Whitelist other emails to allow for exceptions while maintaining oversight
• Set spending limits and approval thresholds to prevent unauthorized rewards
• Automatically pause ordering or alert a manager when business rules are triggered
• Set automated alerts to flag unusual transaction patterns
• Use AI-driven fraud detection to analyze reward trends in real time
• Conduct regular finance or compliance audits to review reward recipients

These three real-life examples demonstrate a simple truth: the best way to prevent fraud is to remove the opportunity for it to occur in the first place.

Eliminate Opportunity, Prevent Fraud

A well-designed rewards program isn’t just about distributing incentives—it’s about making the reward process secure and easy to manage. The best way to achieve this is by predicting vulnerabilities, eliminating opportunities, and layering safeguards like automation and role-based checks and balances.

Removing the opportunity also protects employees. When reward systems lack oversight, even well-intentioned employees may justify misuse, especially if they feel underpaid or notice gaps that no one seems to address. Closing these loopholes deters fraud and fosters a workplace where employees aren’t tempted to compromise the system. It also allows reward program managers to focus on making the program more engaging and impactful, rather than policing misuse.

With the proper safeguards, businesses can shift their focus from fraud prevention to creating a rewards program that truly drives engagement and recognition.
 

Author Bio

Tracey Klein is the SVP of Sales & Business Development at eGifter, leading corporate incentives, rewards, and merchant gift card solutions. She serves on the Board of Directors for the Incentive Gift Card Council (IGCC) and is an active member of the IMA and RGCA.

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