On an individual basis, the majority of people participating in loyalty programs with travel companies keep up-to-date with their accounts. However, what happens on the corporate level to loyalty programs, especially within large institutions that utilize a travel department for their travel expenditures?
Increasingly, we are seeing fidelity insurance claims involving the theft of credit card points and travel rewards. Smaller institutions most likely let their employees book their own travel and accumulate rewards on an individual basis. However, larger institutions such as universities, may utilize a travel department to coordinate, book, and pay for travel expenses.
A couple of questions come to mind when reviewing a theft of reward points;
- What are the policies and procedures for tracking reward accounts?
- Who actually uses the rewards?
- What is the valuation?
- What happens if there are left-over reward points in the individual’s account?
Many large institutions have no policies or procedures to keep track of rewards and the use of rewards. We have seen instances where companies were unaware that the travel department had enrolled the company in these programs.
A recent claim involved the travel coordinator of a company with a large travel budget. This employee enrolled the employer in various hotel, rental-car, and airline reward programs. Over time, the employee was able to provide free hotel stays, rental car vouchers, and even flights for family and friends. Once the institution discovered the scheme, the employee was immediately terminated and an investigation commenced.
At this point, we know the employee enrolled the company in reward programs and used the rewards to the benefit of friends and family. You might be asking yourself, “Ok, what is the actual loss to the employer?” The company travel was legitimate, so the initial expenditure was not an issue. And before the employee began this scheme, the institution had no policies and procedures for the accrual and use of reward points, so no internal rules were broken. Yet the employer’s spending created an asset, and the asset was diverted.
Coverage for this type of loss is typically on a case-by-case basis. We have seen these rewards considered as covered property. Under a typical fidelity bond, such property is indemnified at replacement cost. As forensic accountants in this scenario, we are tasked with understanding the replacement cost of rewards points used for hotel stays, rental car vouchers, or airfare. When reviewing a theft which occurred over numerous years, it may be difficult to assign a value to each point used, especially with older redemptions. It is our duty to understand the fluctuations in reward valuations and the impact these fluctuations have on the claim. Using the information we are able to gather, we provide the examiner with information to make an informed decision.