Oh what fun it has been to watch Westminster politicians squirm as they try to explain away their worst excesses. There is a salutary lesson to be learned though, and not just by MPs….

Travelodge carried out a survey of employees recently which indicated that UK workers are fiddling expenses claims to the tune of over £1 billion a year. Some of the more exceptional expenses claims included the cost of a honeymoon, Viagra, plastic surgery and a goat (mercifully not all claimed by the one employee!).

The survey involved 3,000 workers. The most popular swindles included adding extra mileage to travel claims and asking for more in taxi fares than was actually paid. The average cost to the employers was around £17 per month. Not much, you may think, but in large organisations it soon adds up. When you add into the equation the fact that employees who get away with ‘low level’ fraud are likely to go on to commit larger-scale fraud, there are compelling reasons for employers to take a fresh look at their expenses systems.

So what can employers do to prevent abuse of expenses?

Duckhouse Rules (your guide to an anti-fowling policy)…

The first step for an employer is to ensure that they have a written expenses policy. This needs to set out in clear, unambiguous terms what the employer regards as allowable expenses. It should give a general statement of what is allowed. It will often be helpful to expand on this by giving specific examples of what is likely to be regarded as acceptable (e.g. overnight accommodation and flights going to London for a client meeting) and what is unlikely to be acceptable (duckhouses and moat clearing being obvious examples!).

Scrutiny on the bounty…

The next step is to ensure that any claim submitted for expenses is subjected to proper scrutiny. This task will usually be done by the accounts or HR department. To state the obvious, this task is of crucial importance. The person applying the expenses policy needs to know the policy well and be able to apply it fairly and consistently. By way of example, Gordon Brown has refused to condemn some members of his government for making the same claims as Hazel Blears, despite labelling her behaviour as “totally unacceptable”. In the real world of employment law, this difference in treatment just wouldn’t stand up to scrutiny.

Fiddler on the proof…

The person applying the policy must be prepared to carry out a proper scrutiny of the claim which has been made. If a claim appears to be suspicious, payment should be held back pending further investigation. The employer should then carry out a full investigation to enable it to decide on the validity of the claim. If, after investigating a claim, an employer concludes that an employee has submitted a false claim, it should consider disciplinary action.

It is worth noting that, if expenses abuse has been suspected but has been allowed to continue unchecked for a substantial period of time, this may limit the employer’s options in terms of disciplinary action. The employee may be able to argue that the employer knew of and condoned the behaviour, so that it would be unfair for the employer to rely on it now for the purposes of disciplinary proceedings. For this reason, employers should ensure that expenses claims are checked when submitted and immediate follow-up action taken in respect of suspicious claims.

You’re fired…

If after investigation it appears that there has been fraud or abuse, the employer should take disciplinary action in accordance with its disciplinary procedures. When considering what penalty is appropriate, an employer should consider the seriousness of the offence and how similar incidents have been treated in the past. If the investigation suggests deliberate fraud or dishonesty, this may warrant summary dismissal on the ground of gross misconduct. In contrast, a minor breach of the policy might warrant an informal chat or a first warning. Each case depends on its own circumstances. The important point for employers to remember is that the penalty imposed should be proportionate to the seriousness of the offence.

In some cases and in particular for significant incidents of fraud, employers should consider involving the criminal authorities at an early stage, not least with a view to preserving evidence. Another consideration for regulated entities is that there may be a duty to notify the regulatory authorities of the situation. Similarly, employers may need to notify their insurers or risk policy cover being denied. Finally, it may also be appropriate to consider the scope for media interest and to make arrangements to deal with this.

Goodbye to the gravy train?

The debacle over MPs’ expenses has brought the issue of remuneration packages into sharp focus and MPs have been rightly criticised for riding the expenses gravy train.

However, one sector which might feel particularly aggrieved at the recent disclosures is the banking sector. Only a few months ago MPs were expressing their indignation at the bonus culture which prevailed in that sector and the extent to which this encouraged irresponsible asset management. Oh how times have changed!

Pushing the headlines to one side, there are useful lessons for employers to be drawn from these recent events. Whilst the public may have little sympathy for some MPs’ arguments that their pay was so low that they had to ‘top up’ by maximising their expenses claim, the argument does demonstrate one of the key difficulties for employers: the need for remuneration packages to strike the right balance between basic pay and other benefits. For example, a bonus scheme has to be carefully structured so that it offers a real benefit to employees but also allows the employer’s business to operate profitably and flexibly. A good bonus scheme can be crucial in attracting and retaining good staff. You can read more on bonus schemes in next month’s Red Letter.

Now, where did I put my receipt for that Maldives Christmas business trip…