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Employer's guide to dealing with fraudulent claims by employees

Fraudulent claims by employees can be both

· Bogus expense claims, and

· Bogus compensation claims

UK employers are losing more than a £1bn annually from false expense claims, this is nearly 25% of the total paid out by companies, a survey has found.

A survey of more than 4.8 million expense sheets by employee expenses service provider, Global Expense, found that fraudulent expense claims account for about £350m, while £671m is paid to employees for expenses not recoverable according to company policy.

The highest claim was £24,000 for a week's training, while the purchase of 20 bibles, haircuts and even a betting slip, were some of the receipts logged in as expenses.

David Vine, managing director at GlobalExpense, warned that companies are throwing away money by failing to check claims. "Not all out-of-policy expenses are phoney - it may be that an employee has overstepped the spending limit by £1 or failed to produce a valid receipt. But this is an area where public figures and working professionals can forget their ethics," he said.

If an employer finds 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.

If invalid expenses are accidentally paid, the overpaid expenses may be deducted from the employee’s wages. This action should be exercised in a reasonable manner (so as not to breach the trust and confidence between employer and employee). It is also good practice to obtain the employee's written consent to the deduction or to include a specific clause in the employment contract allowing such deductions.

If evidence of fraud or deceit are discovered, the employer should take disciplinary action, following its policy and the statutory minimum disciplinary procedures. Any penalty should be appropriate to the seriousness of the offence. Minor breaches of expenses policy may only require an informal chat, whereas large scale deliberate fraud or deceit could warrant summary dismissal for gross misconduct. In certain cases, the employer should consider criminal proceedings.

Workers are now bombarded with adverts asking such as ‘have you had an accident at work?, make a no win no fee claim’

The consequence has inevitably been an increase in fraudulent compensation claims against employers. The initial reaction to these claims might often have been to make a quick and sometimes generous payout, rather than endure the time consuming and very expensive legal process. For instance £7,000 might settle a claim for an injury, to go to court might cost several times more than this in legal fees, and on top of this there is management time lost.

Most businesses are insured for employee claims, and in the long run, the easy pay out will prove to be much more costly. It encourages further claims to be made. It increases the insurance premium payable for years to come.

It makes commercial sense to ensure that compensation claims are fully investigated before any payment is agreed. Often claims are dropped when it becomes clear that claims are going to be fully investigated.