Many employees have expense accounts, or are reimbursed for business expenses, including travel claims. According to a 2007 report by the Association of Certified Fraud Examiners (ACFE), every year the typical Canadian organization loses 5% of annual sales to fraud. Unfortunately, most employees do not have acquaintances willing to repay $90,000 in inappropriate expense claims.
While the Senate may be a job for life, most employers ask whether they can terminate an employee for cause when they discover inappropriate expense claims. The inquiry is highly contextual, with an emphasis on proportionality of the punishment to the severity of the offence and procedural fairness.
In order to summarily dismiss an employee for expense claim fraud, an employer must prove dishonesty or fraudulent intent. A single act of dishonesty does not necessarily provide an employer with a licence to dismiss; a contextual approach must be taken to cases of erroneous or fraudulent expense claims.
Factors to be considered include:
- Whether there was deliberate, premediated deception;
- Whether the employee was in a position of trust or leadership;
- Whether the industry requires especially rigorous standards of public confidence;
- attempts by the employee to cover up or attempts to confess/express remorse;
- efforts of repayment by the employee;
- length of employment/employment record; and
- the severity of the economic harm.
Given the seriousness of an accusation of dishonesty or fraud, employers must take caution when raising concerns about fraudulent expense claims. Unfairness in the investigation and dismissal exposes an employer to increased damage awards.
A claim which is fraudulent will likely be cause for summary dismissal. A claim which arguably results from a misunderstanding of company policy, or a disagreement on “businesss” will be much less likely to constitute cause, unless there has been a history of similar behaviour in the past with proper progressive discipline.
Consider the following strategies to minimize unauthorized expense claims:
- Always have clear written policies as to what expenses are reimbursable, and require advance approval. Once you have established a clear policy, ensure employees know what they can claim, how to submit claims, what review mechanisms are in place, and know the consequences for breach of the policy.
- Resist providing company credit cards to the most senior trusted executives. Company credit cards tend to be paid by the company without as much scrutiny as expenses seeking reimbursement.
- Ensure expenses are submitted in a timely fashion, and have someone in management (not just an accounting clerk) responsible for approval. For items like business lunches, etc. ensure the reimbursement voucher requires the employee to name and specify who the lunch was with (and how it was connected to business).
- Sort out the details of any questionable expense claims immediately, do not wait until year end.
- Conduct regular and frequent review and reconciliations of expense accounts.