Tuition Reimbursement: How to Prevent Fraud

Posted on Friday, August 24, 2018

Investing in employee education and training is crucial to the long-term success of most companies. In order to remain competitive, many employers offer tuition reimbursement programs to attract and retain talented employees. The programs also provide tax benefits.

How One Tuition Reimbursement Scam Worked

Three women from Alpharetta, GA, pleaded guilty to wire fraud in connection with a scheme to defraud their employer.

According to court documents, the women worked at Exide Technologies, a Georgia-based firm that produces and recycles batteries worldwide.

During a two-year period, the women applied for and received $423,000 in tuition reimbursement from the company for college classes they never enrolled in, attended, or completed. To accomplish their fraud, they submitted fraudulent transcripts and receipts, which falsely represented that they completed many courses, and received good grades.

Variables in Company Programs

Tuition reimbursement programs vary from one company to the next. Here are some questions to ask if your firm is thinking about adding one:

Will the program require certain grades? Some organizations only pay for classes if an employee earns a B or higher.
Will the program be limited to only full-time employees who have been with the company for a certain period of time, for example, one year?
Will reimbursement be limited to degrees or programs directly related to employees' job descriptions, or can employees pursue a program unrelated to their positions?
Will the program reimburse employees for textbooks and other course-related costs?
Will your company handle the management of the program, or outsource it? Some services these firms might provide include advertising the program, handling applications and reimbursing employees.

The vast majority of employees that participate in tuition reimbursement programs do so to comply with their companies' rules. However, these programs can also fall victim to fraud in ways that might surprise you.

For example, in one case, four employees submitted more than $400,000 in fraudulent expense requests to a Georgia company for college classes they never even enrolled in. (See right-hand box for details of the case.)

To avoid a similar fraud in your company, consider the following steps:

1. Request original documentation. Once employees have completed their study programs, most educational institutions provide a transcript and receipt for fees paid as well as a diploma if the employee earned a degree or certification. In order to help prevent the submission of fraudulent documentation, as well as multiple claims for the same expense, consider requesting original transcripts and receiptc for fees paid. In addition, some employers request copies of canceled checks or credit card statements to verify that the payment for which the employee is seeking reimbursement was actually made.

2. Help managers with the approval process. To expedite the reimbursement process and keep employees satisfied, managers may be tempted to quickly "rubber stamp" approvals. Although the vast majority of tuition reimbursement requests are legitimate, failure to scrutinize claims can result in fraud. Managers should be provided with a checklist of documents to be submitted with each request. In addition, if managers have questions about documents submitted or the process in general, they should be told who to contact.

3. Allocate tuition reimbursement to department budgets. To increase accountability and encourage managers to review tuition reimbursement claims, consider allocating education expenses to individual department budgets. The level of due diligence that managers perform when reviewing claims will generally increase significantly if their departments are charged with the expense. In order to prevent managers from discouraging employees from pursuing further education, the final decision to approve or deny an employee's request for tuition reimbursement should rest with someone other than the department manager.

4. Initiate and publicize a formal review process. To increase the "perception of detection" that employees will be caught if they submit fraudulent expenses, create and publicize the existence of a formal review process. The process should include a review by the department manager as well as a second review by another department such as human resources. In practical terms, depending upon the volume of requests submitted, the secondary review can be random.

5. Pay the school directly if possible. Depending on the size of your organization and the number of employees who pursue further education each year, it may be a good idea to pay the learning institution directly. That way, your company won't have to rely exclusively on the documents submitted by employees. In addition, your organization may actually be able to negotiate a discount for providing payments in bulk. Paying an institution directly not only reduces the chances of employee fraud, it may also reduce the overall cost to administer your company's reimbursement program as it involves less paperwork.

6. Reimburse expenses only for accredited schools. Unfortunately, the number of "diploma mills" has exploded in recent years. These schools typically issue fraudulent degrees or diplomas from either institutions that exist in name only, or legitimate institutions that an employee never attended. They aren't recognized by official educational accreditation organizations. In addition to presenting documents from one of these schools, creative employees may choose to create their own fake diplomas using commonly available desktop publishing software. Establishing a policy where your company only reimburses accredited schools can help eradicate tuition fraud as well as potentially increase the quality of education that employees receive.

7. Build and maintain relationships with college registrars. During the review process, it may be necessary to contact an institution's registrar directly to verify the transcripts submitted by employees. Establishing a relationship with local college registrars can also help your company when hiring to authenticate the education credentials claimed by prospective employees. If your company verifies applicants' educational credentials, be sure to disclose this in an upfront manner to all candidates.

8. Implement an employee hotline. When employees commit tuition reimbursement fraud, they may be tempted to share their success with co-workers. A hotline can provide employees with an anonymous method to share the information that can stop tuition reimbursement before losses mount.

Tuition reimbursement fraud is relatively easy to detect and prevent. By preventing fraud, your company may be able to provide this benefit to more employees. Given the importance of educating and retaining motivated employees, preventing reimbursement fraud should be a priority for all organizations.

Posted in Tax And Accounting Topics For Business

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.

"Bruner Dental has been with DWD for well over 15 years. The entire team at DWD has been helpful in many ways. From simple questions day to day, to audits, payroll needs, and much more; they…"

Rondell Nelson

Bruner Dental