Every company with paid time off, flexible spending accounts, health reimbursement accounts and similar benefits is at risk of improper reimbursements. In extreme cases, there can be outright fraud.

In most cases, the mistakes are honest, but costly. An HRA administrator may reimburse an ineligible medical expense (e.g., an excluded service for a pre-existing condition) or an employee may not have met his or her share of a deductible but been paid anyway. Periodic audits are a must.

An even bigger concern: reimbursement fraud. One rather alarming report claims that companies’ payroll departments are organizations’ biggest source of potential benefits fraud. I do not agree with the study author’s conclusion, but it’s still a must-read for the way the study shows just how easily fraud can occur.  

How it happens: The company cuts a check for a legit benefits claim. The check gets cashed – but not by the employee entitled to the money.  Instead, it’s channeled to the payroll employee administering the reimbursement plan. The most vulnerable victims are employees who either don’t know they’re entitled to certain benefits, or are unaware of how much they’re owed. Recently terminated employees are another prime victim.

While the vast majority of Payroll employees are honest, it pays to have procedures in place to:

• keep employees’ and managers’ signatures on file in case the handwriting needs to be audited against reimbursement checks
• run reports of recently terminated employees, and audit canceled benefits reimbursement checks cut in their names
• consider the use of direct deposit for these benefits, and
• establish an anonymous reporting system if an employee suspects fraud.