Hidden Risks in Your Employee Rewards Program (and How to Fix Them)

Safeguarding Rewards

Employee reward programs should build trust, drive engagement, and recognize outstanding work. But what happens when programs designed to motivate your workforce become a liability?

That was the focus of last week’s HR.com webcast, Safeguarding Rewards: Simple Ways to Protect Your Employee Recognition Program, presented by eGifter’s Senior Vice President, Tracey Klein. If you weren’t one of the many HR professionals who tuned in live, here’s what you missed—and why this conversation couldn’t be more timely.

Why This Webinar Matters—Right Now

With distributed teams, hybrid work models, and leaner HR resources, employee reward programs have become more essential—and more exposed. As companies prioritize recognition to boost morale and retention, many overlook a critical vulnerability: security.

As Tracey explained in the webinar, manual processes, outdated tools, and limited oversight create the perfect conditions for fraud, waste, and misuse. And while it’s tempting to think these issues only affect large or complex organizations, the truth is: any reward program, at any size, can be exploited.

Fraud Happens—Even in “Trusted” Environments

One of the most compelling sections of the webinar featured a series of real-life fraud case studies, each offering a clear example of how reward programs can go wrong when safeguards are missing. A few highlights:

A school district in Texas lost over $37,000 in gift cards from an employee wellness program due to a lack of oversight. Gift cards were hidden in a storage unit, and digital logs were altered to hide the theft.

At the NYC Department of Health, employees stole gift cards intended to be used as wellness incentives to pay personal bills instead. Though the total was under $5,000, the reputational damage was significant, making front-page headlines.

A national pizzeria chain discovered $130,000 in loyalty rewards fraud by a long-trusted general manager who exploited the system for years before anyone noticed.

Each of these incidents wasn’t just about a rogue employee. They were about systems that made it easy to exploit good intentions.

The 5 Hidden Risks That Undermine Rewards Programs

While the fraud stories Tracey shared in the webinar took place in very different settings—a public school district, a city health department, a restaurant chain—the underlying issues were remarkably similar. Across industries, she sees the same five weak spots show up again and again.

These aren’t technical failures or complex schemes. They’re simple, fixable process gaps that quietly leave programs open to abuse, often without anyone realizing it.

1. Too much control, not enough oversight

The #1 red flag: a single person can send and approve rewards with no checks in place. Whether it’s an HR coordinator or a department head, giving someone complete control over both issuance and approvals means no one is watching the watcher.

That’s precisely what happened in the Texas school district case Tracey shared. The employee responsible for distributing wellness program gift cards simply logged them manually on a paper checklist, without independent review. Nearly $37,000 worth of gift cards disappeared before anyone noticed.

2. No digital trail to fall back on

Many teams still track rewards manually in spreadsheets or physical logs. But if something goes wrong—or even if someone leaves—it’s nearly impossible to confirm who sent what, when, or why. There’s no reliable audit trail to check, and no easy way to catch quiet misuse.

That’s why in the New York City Department of Health case, it took an internal audit to uncover that employees had falsified records and pocketed wellness program gift cards. Without strong digital tracking from the start, small frauds snowballed into a major reputational crisis..

3. No guardrails for big-ticket rewards

Most programs are designed to make it easy to send small thank-you rewards—and that’s important. But without limits or approvals in place for either larger amounts or high-volume activity, serious losses can happen quietly over time.

In many of the cases Tracey shared, it wasn’t one big reward that triggered fraud—it was dozens or hundreds of smaller rewards slipping through without oversight. At the Texas school district, for example, the missing $37,000 in gift cards wasn’t from a single large order. It was the accumulation of many small-value cards that were easy to distribute—and even easier to pocket without detection.

Programs need flexible workflows that keep everyday recognition simple, while flagging when overall value or volume crosses a certain threshold.

4. No way to catch strange behavior

Even with access controls and approvals, you still need to watch for unusual activity. Fraud often doesn’t happen all at once—it builds up slowly through odd patterns, like multiple rewards sent to the same person or gift cards issued at odd hours.

In the national retailer example, it wasn’t a person who noticed the fraud—it was an AI system that flagged unusual activity: high-value rewards sent late at night to the same group of employees. Without monitoring tools in place, that pattern might have continued indefinitely.

5. Too much trust, not enough structure

Many reward programs are built on a culture of goodwill. While that’s a strength, it can also be a blind spot. When programs rely on trust instead of transparent controls, even well-intentioned employees may be tempted to exploit gaps if the opportunity arises.

One case Tracey shared involved an employee quietly redirecting unclaimed survey rewards to their email. There were no safeguards to prevent them from changing recipient information, and because no one was regularly reviewing redemption activity, the fraud continued unchecked for months.

The good news? These vulnerabilities are fixable. Every one of these risks can be addressed with better design, better tracking, and a layered approach to security, without making recognition harder or slower.

How to Strengthen Your Program: From Vulnerable to Resilient

Tracey shared a simple but powerful framework: the strongest reward programs are built on two pillars—prevention and detection. Together, they create a layered defense that dramatically reduces the risk of fraud while preserving the speed and ease that makes recognition effective in the first place.

In other words, you don’t want to make it harder to reward employees—you want to make it harder to exploit the system.

Here’s how each pillar works:

Pillar 1: Detection — See Problems Early and Act Quickly

Even with strong prevention measures, no program is immune. That’s where detection comes in: spotting red flags before they become costly problems.

Tracey emphasized these detection strategies:

1. Monitor for unusual patterns. Fraud typically escalates over time, not overnight. Look for outliers like employees issuing frequent small rewards, the same person receiving multiple rewards, or rewards sent outside regular business hours. Patterns tell a story; your system should help you read it.
2. Train your teams to recognize risks. Managers and HR staff aren’t fraud investigators, but they are well-positioned to notice when something feels off. Regularly reinforce what “normal” activity looks like—and when to escalate concerns.
3. Enable safe reporting channels. Some fraud is caught not by systems, but by people. Make it easy—and safe—for employees to report suspected issues without fear of retaliation.
4. Conduct periodic audits. Don’t wait for a major problem to trigger an investigation. Regularly review reward issuance and redemption activity, looking for minor inconsistencies that repeat over time, not just large discrepancies. Most fraud grows quietly before it becomes obvious.

Detection isn’t about creating a culture of suspicion. It’s about protecting the integrity of your recognition program—and everyone who benefits from it.

Together, prevention and detection create a resilient rewards program:

• Flexible enough to keep recognition flowing easily.
• Secure enough to protect against the human and financial cost of fraud.

Pillar 1: Prevention — Remove Opportunity Before It Becomes Risk

Prevention isn’t about assuming the worst of people. It’s about recognizing that even the best employees can make mistakes—or rationalize small shortcuts—if the system leaves the door wide open.

The goal is simple: remove the opportunity for fraud to happen in the first place.

Tracey outlined four key practices:

1. Automate tracking and approvals. Manual processes leave room for errors and manipulation. A digital rewards system provides real-time visibility, creates automatic records of every transaction, and ensures that every reward is tied to an auditable trail.
2. Enforce role-based access. Issuing, approving, and modifying rewards should never fall to the same person. Define clear roles and permissions so that no single employee has unchecked authority over rewards.
3. Set smart thresholds for approvals. Everyday spot rewards should stay fast and easy. But programs must also flag when cumulative spending or bulk ordering crosses a specific limit. Fraud often starts small—$25 here, $50 there—and grows through volume, not size.
4. Secure the system at the access point. Require multi-factor authentication (MFA) for all users. Validate identities before allowing password resets. Immediately deactivate access when employees leave. Small gaps in login security often lead to bigger breaches.

When prevention is layered thoughtfully, you make fraud inconvenient, risky, and harder to rationalize, without making the reward experience harder for honest employees.

Building a Layered Defense: How Strong Programs Stay Secure

Fraud prevention doesn’t happen with a single policy or system. It happens by layering protections at different points in the reward process—so even if one safeguard is missed, others are there to catch mistakes before they become bigger problems.

Tracey outlined three critical layers every resilient reward program needs:

1. Access Controls: Protect the Front Door

The first layer is about limiting who can get into your reward system—and what they can do once they’re inside.

• Require multi-factor authentication (MFA) for all users
• Immediately disable access for employees who leave the company
• Define role-based permissions so no one has unnecessary access
• Restrict administrative privileges to as few users as possible

If someone can’t access the system—or can only see what they need to—opportunities for misuse shrink dramatically.

2. Approval Workflows: Add Oversight Without Adding Friction

The second layer ensures that no single person can quietly move large amounts of rewards without oversight.

• Set automatic approvals for low-dollar, everyday rewards to keep recognition easy
• Require additional approvals for higher-value rewards, bulk orders, or cumulative activity
• Build workflows that are fast but deliberate. Sending $10 is instant, but sending $1,000 requires a second set of eyes

Smart approval flows protect both your program and your employees—helping honest mistakes get caught early, without slowing everything down.

3. Monitoring and Auditing: Watch for Patterns Over Time

The final layer is ongoing monitoring because even strong access controls and approval workflows can’t catch everything in real time.

• Regularly review activity reports to look for unusual trends
• Set alerts for patterns like high-volume rewards, odd-hour activity, or duplicate recipients
• Use monitoring tools or AI-driven analysis where available to flag anomalies faster

Monitoring your rewards program means you’re prepared to detect issues as they emerge, not after they’ve done damage.

No single control is perfect. But when access, approvals, and monitoring work together, they create a strong safety net to catch most issues long before they make headline news. That’s how you build a rewards program that’s not just flexible and fast—but trusted by employees, finance teams, and leadership alike.

Take Action: Strengthen Your Rewards Program

If there’s one thing Tracey emphasized in the webinar, it’s this: You don’t have to overhaul your entire program to make it safer—you just have to start closing the biggest gaps.

Here’s where to begin:

• Audit your current setup. Take a fresh look at how rewards are issued, approved, and tracked today. Are there manual steps? Single points of control? Gaps in access management? You can’t fix what you can’t see.
• Close the obvious vulnerabilities first. If you rely on spreadsheets, email approvals, or physical gift cards, prioritize moving to digital systems with automated tracking and role-based access. Small upgrades can create big protections.
• Layer your safeguards. Add simple approval thresholds, require two-factor authentication, and set up basic monitoring for unusual activity. You don’t need a complicated system—you need smart, visible guardrails.
• Train and empower your team. Recognition works best when everyone trusts the system. Help managers and HR staff understand what to watch for, how to raise concerns, and why small safeguards matter.
• Plan for regular check-ins. Fraud prevention isn’t a one-time fix. Build periodic audits into your process to catch risks early and keep your program healthy as it grows.

When you strengthen your reward program’s foundation, you don’t just prevent fraud—you protect the culture of recognition that keeps your people engaged, motivated, and loyal.

And that’s what every great rewards program is really about.

In the end, safeguarding your rewards program isn’t just about avoiding losses. It’s about preserving the trust, fairness, and recognition culture you’ve worked hard to build. When your rewards are protected, your people are protected, which keeps great teams thriving.

Ready to strengthen your program with a solution built for security, simplicity, and scale? Look no further than eGifter Rewards™ for Employees.

We’ve got you covered.

Shelley

P.S. Book a quick call to learn about the eGifter Rewards platform. It’s easy to use and secure.