Abusing the employee discount? Companies cracking down

There's no telling how many companies are cracking down on abuse of employee discount policies, but one company that recently announced doing so is GM. The logic is simple: Passing the employee discount to a non-employee costs the company money. GM says that the employee purchase program can save a buyer from $1,000 to $9,000.

Imagine an employee buying a car for her uncle using the employee discount. There was clearly a significant savings (the reason why the employee and family member did this in the first place) and GM loses a sale of a car to a legitimate customer which might have been profitable. Multiply this situation by hundreds or thousands, and it's easy to see that GM has lost a lot of money.

Certainly GM is not the only company that struggles with this issue. I'd venture to guess that it has a firm policy about the discount, but hasn't strictly enforced it in the past, when the economics of the car business were better.
I like it when stores have a "friends and family day." Some retailers offer a special discount to anyone shopping on that day. Others give employees passes to give to friends and family members who will receive the special discount.

I think policies like this are a win-win. The employee feels she or he got an extra perk from the employer. The employer makes employees feel good, and might be drawing in shoppers who wouldn't otherwise shop with them. And because such a program is limited in terms of days or participation, the retailer controls the costs associated with promotion. They don't have a free-for-all throughout the year with the discount, but strategically limit it.

Just like in grade school, one or two naughty kids can ruin it for everyone else. The GM employees who abused the employee discount policy now risk having it changed (for the worse) for all employees. Look for GM and other companies to become more restrictive in their employee discount policies as they're trying to shore up their finances during challenging economic times.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
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