Exaggerating the number of miles someone has driven for work is a form of employee theft. Although sometimes disregarded, employee mileage fraud poses a serious threat to businesses operating with mobile workforces. In cases of mileage fraud, employers reimburse their employees for more mileage than required for them to perform their job. Without proper processes in place to review these reports for accuracy, businesses are at risk of experiencing the cost of mileage fraud.
Mileage fraud is not commonly thought of as theft. Still, businesses need to understand the potential cost existing in their workforce. For example, perhaps an employee claims an extra five miles in business mileage per day. That may not seem like a detrimental expense, but over time and across multiple employees – it quickly adds up. A recent example shows how even one employee can cost a business thousands of dollars in mileage fraud.
Consider the case of what happened in the Mansfield, Connecticut school district. The town’s school district realized the mileage they had been reimbursing an employee for didn’t quite add up. In 2014, the district’s Board of Education decided to investigate the mileage reports submitted by their superintendent of schools Frederick Baruzzi.
The school district found that in addition to his $150,000 annual salary, Baruzzi also received approximately $50,000 in mileage reimbursement over the course of two years. According to the State Police investigation, Baruzzi claimed to have driven 96,000 miles for business purposes during this two-year period. In return, the school district reimbursed him $32,000 for this mileage in the 2012 school year and another $22,000 for the next school year. The reimbursement was determined based on the IRS standard cent-per-mile rate at the time.
The school district placed Baruzzi on administrative leave during the investigation. In January 2015 he resigned from his position. More recently, the former superintendent of schools plead guilty to larceny under the Alford Doctrine for claiming false mileage reimbursements. The 66-year-old is now facing up to two years in prison if found guilty during his sentencing in March 2017.
Unfortunately, the case of Frederick Baruzzi is only one of many examples of employee theft occurring through mileage fraud. These cases prove how important it is for organizations to fairly reimburse their employees for business mileage. Without a processes to accurately capture an employee’s mileage and separate it from their personal mileage, companies are at risk of mileage fraud cases. Cases like the one the Mansfield school district faced.
The first step to take in protecting your organization is to understand the variations in mileage reimbursement programs. Having a reimbursement program in place is critical because both state labor laws and IRS regulations require companies to reimburse their employees for the business use of their personal vehicles. There are a few options available to businesses although not all of them are created equal.
Then you will need to implement the right type of reimbursement program for your business. If your mobile employees are driving more than 5,000 business miles per year, consider the benefits of a Fixed and Variable Rate (FAVR) Reimbursement program. With FAVR programs, employers can pay reimbursements tax-free. You can also rest assured knowing your employees are receiving a reimbursement for exactly what they deserve. From there, be sure to educate your employees on how they can capture and submit their business mileage to receive proper reimbursement. If your employees are unsure what they can claim as a business mileage, they can follow these guidelines.
With an accurate mileage reimbursement program, businesses are able to save on their bottom line, comply with IRS regulations, and avoid a mileage fraud case like the one in Mansfield.