In light of the present uproar regarding employee expenses it should be obvious that a lax attitude to expenses or the "rules" surrounding them can cause major issues for a business. But of at least equal importance, especially in the present climate, should be the potential impact such fraud can have on a business' bottom line.

So, what steps can an employer take to ensure it is not being ‘ripped off' by its employees' expense claims?

The starting point will always be to ensure there are clear rules in place; it is common practice to see a statement in terms and conditions or the staff handbook stating that only those expenses that are "reasonably and properly incurred" will be reimbursed to an employee "upon production of appropriate written evidence". Such statements are fine in principle but provide little real guidance as to the expenses that the employer does consider acceptable.

It is therefore advisable to support such statements with a clear expenses policy which states what expenses will be defined as "reasonably and properly incurred", what documentation evidencing the expense is required and at what stage management approval will be required.

However creating such a policy is not sufficient; it must then be communicated to the workforce and enforced. It is essential to ensure your employees are aware that such a policy exists and understand what is required of them.

Finally the employer's management team must police and enforce the expense policy consistently.

What if an employer has an expense policy but has failed to enforce it?

No policy is worth the paper it's written on if it is only paid lip service to by management. Failing to enforce the expense policy will allow your employees to claim that it did not believe the policy applied to them because it has never been enforced in the past. Quite often in this situation an employee will list a number of colleagues who have made the same claims or more blatant ones without action being taken. If the employee is correct there will be a risk to the employer that a precedent has already been set that will prevent it taking appropriate action now.

Where an employer now wishes to alter its stance and enforce its expenses policy it should re issue it to the workforce with a memo or email which makes it absolutely clear that going forward this will be policed and consistently enforced against all employees.

Of course the employer must then stick to its word and enforce the policy.

What if a member of staff has been caught putting in exaggerated expense claims, can the employer dismiss him?

Any such allegation must be thoroughly investigated by the employer before any disciplinary action is taken. Provided the investigation finds evidence to support the allegation then the employer may take disciplinary action against the employee. When taking such disciplinary action the employer must ensure it follows its own internal policy and meets the requirements of the ACAS Code of Practice on disciplinary procedures.

When deciding the disciplinary outcome the employer must act reasonably and consistently - for very minor or inadvertent breaches of the expense policy a verbal or written warning may suffice however in cases of deliberate fraud or deceit summary dismissal for gross misconduct will usually be appropriate.

Can an employer carry out a review of all employee expenses from the last 3 years and take disciplinary action if appropriate?

Employers are under an obligation to deal with potential disciplinary issues promptly. It could be said therefore that to review expenses claims from up to three years ago, and to consider disciplinary action based on any findings, would be failing to do this.

However, it would depend on the reasons for carrying out the review at this time. For example, has something only recently come to light that would give the employer good cause for carrying out a thorough review at this time? If so, an investigation to cover the previous three years may be justified and the employer would say that any disciplinary action that results has been dealt with promptly once the conduct came to its attention, even though the conduct itself may have taken place some time ago.

Note what is said above in relation to expenses policies that have fallen into disuse, as that may also be relevant, and may prohibit the employer from taking disciplinary action in relation to conduct that took place some time ago.

What if an employer discovers exaggerated or false claims, can it demand that the employee in question pays back the excess?

Provided the employer has evidence to support the allegation it can seek to reclaim the money from the responsible employee.

An employer with an enforceable deduction from wages clause in its written terms and conditions can generally rely on the clause to make appropriate deductions directly from the employee's salary or final salary as the case may be.

If the terms and conditions do not include a deductions clause, at first glance the Employment Rights Act 1996 would appear to allow the employer to make the deduction, provided that the employee provides written consent to this prior to making the deduction. However, that is not the case, as the Employment Appeal Tribunal has made clear, because the Act goes on to say that ‘any agreement or consent signified by a worker does not operate to authorise the making of a deduction on account of any conduct of the worker, or any other event occurring, before the agreement or consent was signified'.  

It is not possible therefore for the employee to provide retrospective consent to the deduction, after the event in question, even if this is before the deduction itself. The employee may still be liable for the excessive claim but this must be repaid voluntarily or enforced in the Courts and not by way of a deduction for the employee's wages.

Kerstie Skeaping is employment partner at Halliwells

Contributors:  Suzanne Grady, assistant solicitor and Phil Hodges, associate at Halliwells