Expenses fraud – possible liability and ways to prevent

Expenses falsified? In a business, employees are sometimes given a Company or business credit card. Sometimes, an employee has incurred expenses personally for the benefit of their employer, which they expect to recoup back from their employer. There is nothing wrong in claiming back for expenses incurred personally by you, or on behalf of your

Home » David Rosen » Expenses fraud – possible liability and ways to prevent

Expenses falsified?

In a business, employees are sometimes given a Company or business credit card.

Sometimes, an employee has incurred expenses personally for the benefit of their employer, which they expect to recoup back from their employer.

There is nothing wrong in claiming back for expenses incurred personally by you, or on behalf of your Company so long as your employer agreed and authorised you to repay for genuine expenses.

Genuine expenses are usually expenses wholly and exclusively incurred for or on behalf of business, such as entertainment costs for clients, customers, or prospective clients or customers, car-parking, telephone expenses, petrol etc…

How about claiming non-genuine expenses?

This is likely to include, takeaways or entertainment for yourself, friends and family, petrol for friends and family, phone-bills for personal or indirect benefit nothing whatsoever to do with the Company.

In civil Law, as a non-exhaustive list, without approval, authority, or consent of your employer, claiming for non-genuine costs and expenses will likely be a breach of your employment contract, breach of trust, breach of fiduciary duty, making a secret profit. Unauthorised claims can potentially be clawed back.

In criminal Law, as a non-exhaustive list, claiming for non-genuine costs without agreement or authority of your employer may amount to theft, fraud, use of a fraudulent instrument, stealing a chose in action contrary to the Theft Act, or the Fraud Act. The value of the theft, and the circumstances in which the deception and honesty took place, will affect the level of a fine or length of prison sentence upon a convicted offender.

How about claiming for partly authorised, and partly non-authorised expenses?

That which is honestly claimed for genuine expenses your employer has agreed to pay, is legitimate. That part of non-authorised expenses may be dealt with as at paragraph 1 above.

This may include claiming for an extra person or meal which had nothing to do with the business or meal.

What about travelling overseas, and claiming hotel and taxi expenses as well as food and entertainment?

Was it solely and exclusively for the benefit of the Company, and authorised and approved by them?

If not, it is not a genuine expense, and you should not claim or attempt to claim such an expense.

What steps should a prudent employer take, to audit expenses, avoid or monitor such expense discrepancies?

Trusting your employees is not really an option alone. Safeguarding protects both employer and employee and provides boundaries as to what is and is not an acceptable expense to reclaim. Trust is important, but trust with no monitoring may leave your employer facing criticism for not being prudent in business decisions.

That in turn could lead to unwanted criticism or neglect of an employer’s duties. At worst, negligent actions, dishonesty, bad faith, a failure to set in place safeguarding or monitoring policies, could lead to an employer’s liability.

Remember, that in the event of an employee causing loss to his employer or 3rd party because of fraud or dishonesty, the Company or business may still be considered vicariously liable for the actions of its employee.

There should be adequate check-ups in place. Some suggested auditing and regular checking to consider:

A. Once a month, a statement of expenses should be sent to the individual making the claim, and ask them to confirm what the expense was for;

B. That explanation should be compared to diary entries for meetings, follow-up emails confirming a good lunchroom dinner, or breakfast. Where there are inconsistencies, there may be a perfectly good explanation. Await an explanation before casting aspersions;

C. Are there duplication of claims for expenses in the same month? Filling of petrol in more than one car in a household? Check dates of intervals of filling and re-filling. Again, there may be a reasonable explanation if there was significant driving, but diary entries should be compared.

D. How about restaurant or other entertainment expenses? When did the meal or entertainment take place? If on a weekend, was that employee really working to make such a claim? Was the claim for the bill high? Expensive? How many people ate or drank?

E. Hotels? Necessary expense? Where was the hotel? Who stayed there? Why?

Scrutiny undertaken constructively, should not be considered by any employee to be anything other than a safeguarding and monitoring exercise.

It is widely accepted that one of the main factors that provide for an environment for fraud or theft to take place is the perceived opportunity to do so.

An open policy as to monitoring and safeguarding, and constant constructive scrutiny, should eliminate or certainly reduce that perceived opportunity to commit fraud or dishonesty.

drosen-1-sbProfessor David Rosen is a Solicitor-Advocate, Partner and head of Litigation at Darlingtons Solicitors. He is a working member of the Fraud Advisory Panel, a Certified Fraud Examiner, and an associate Professor of Law at Brunel University.

Visit our main fraud advice page ?

David Rosen • Fraud

Haven't found what you need yet?

Why not search the whole site?

Contact Us

Comments are closed.

Archives