Fraudulent expenses claims: legal Q&A

The recent media spotlight on the expenses claims of MPs should be a reminder to employers to keep an eye on the expenses claims of their own staff. In fact, recent surveys suggest that 5% to 20% of all expenses claims are either inflated or simply fictitious. So what is the legal position of the employer when dealing with expenses claims?

Q To what extent can the employer probe dubious-looking expenses claims?

A Employers should have an expenses policy detailing the documentation required to support each claim. This should also specify which expenses are reimbursable and whether the employee needs approval before incurring the expenditure.

If an employer suspects that the employee has submitted an incorrect claim, it should investigate thoroughly. Employers must ensure expenses claims are checked when they are submitted and take immediate action if they are suspicious. If expenses claims go unchecked, it will be more difficult to obtain evidence from the employee or to take disciplinary action further down the line.

Q What should an employer do on finding a suspect expenses claim?

A On finding a suspicious claim, the employer should withhold payment pending investigation. A full investigation should be carried out to ensure claims are not improperly withheld and to determine if disciplinary action is necessary.

Q Inevitably, some claims will slip the net. Can an employer deduct overpaid expenses from an employee’s wage packet?

A Usually, yes – provided the deduction relates to overpaid expenses. This right must be exercised in a reasonable manner (so as not to breach the trust and confidence between employer and employee). It is also advisable to obtain the employee’s written consent to the deduction or to include a specific clause in the employment contract allowing such deductions.

Q What can an employer do if the employee has left the company?

A The employer could potentially sue the employee for breach of contract or try to claim the money back from the employee through a restitution claim. In reality, unless the sums involved are very large, this is not likely to be cost effective. Employers should therefore always check there are no expense claims issues before making the final salary payment to departing employees.

Q What can the employer do if it discovers fraudulent claims?

A In cases of fraud or deceit, the employer should take disciplinary action, following its policy and the statutory minimum disciplinary procedures. Any penalty should reflect the seriousness of the offence minor breaches of expenses policy may only require a chat between employee and manager, whereas deliberate fraud or deceit could warrant summary dismissal for gross misconduct. In certain cases, particularly large-scale fraud, the employer should consider criminal/regulatory proceedings.

Q Some firms are launching new web-based tools designed to simplify the processing of cash expenses. What are the implications of this?

A A correctly implemented and supervised programme could help simplify processes and limit the scope for fraudulent claims. For example, more sophisticated tools can check mileage claimed between two destinations against a pre-populated figure, reducing the scope for inflating mileage claims. Such tools can also identify duplicated expenses claims.

However, commonsense still needs to be applied – for example, in case the employee took a longer route to that mapped due to diversions or traffic. Employers should monitor claims regularly to ensure the correct amounts are paid and that the claims are genuine, rather than relying solely on the computer system.

Also, as expenses claims will constitute personal data, employers should ensure the information processing complies with data protection laws.

Q What are the implications on a company’s ethical stance, if its employees cannot be trusted with expenses?

A Given recent controversies surrounding Parliamentary expenses claims, there is a clear PR element to the management of expenses. In particular, if a high-ranking employee has ‘fiddled’ their expenses this may reflect badly on the company, especially if the company has strict ethical policies. In certain industries, such as banking, the employer should bear in mind its obligations to the regulators, such as the Financial Services Authority, if it suspects an employee has made fraudulent claims.

Kerry Garcia, senior associate, and Thomas Flinn, trainee solicitor, Stevens & Bolton

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