What happened to Henry McLeish serves as a salutary lesson to us all. You cannot be too careful when claiming back office expenses. The Scottish former First Minister has paid a high price for allowing the administrative details of his Glenrothes constituency to get into a "muddle" when he was a Westminster MP.
McLeish's woes arose from his apparently claiming for constituency expenses as a Westminister MP whilst simultaneously receiving a proportion of that cost back from sub-tenants over 14 years which he failed to disclose to Parliament. A possible analogy would be for a tenant living in local authority accommodation to receive benefit for rent while at the same time accepting a partial sub-let of the tenancy. This could in certain circumstances amount to a criminal offence which can be punishable by imprisonment.
It would be unfair to McLeish to dismiss the possibility that there is an innocent explanation for his troubles. Those in high authority are rarely permitted the luxury of resolving even trivial accounting irregularities without falling on their sword. In politics, few have Peter Mandelson's gift of returning from the wilderness after making an error of judgment in a financial transaction. Probity in public life means appearing to be whiter than white.
Many ordinary people following the events in Scotland may have wondered whether the rules on recovering expenses at their workplace are sufficiently clear and what the legal penalties are for breaking them. What are recoverable expenses?
Barry Stanton, an employment partner with solicitors Boyes Turner says: "An employer faced with an employee who has claimed expenses has a number of options. The starting point should be what the employer has said either in the contract or the staff handbook about employees and expense claims. A good policy will provide that expenses are to recompense an employee for costs reasonably and properly incurred during the course of employment."
The formula often used, says David Convisser, tax partner of Gerald Edelman chartered accountants, echoes the wording in the threshold test for tax-deductible benefits in section 198, Income and Corporation Taxes Act 1998. This legislation allows tax relief to be claimed on such expenditure which is incurred "wholly, exclusively and necessarily" in the performance of employment duties.
Mr Convisser explains that the Inland Revenue review such claims and will reject those where relevant criteria have not been met. In one landmark case, Mailleau v Drummond, the Revenue Commissioners held that barristers could not claim tax relief in respect of items of dark coloured clothing which the female barrister concerned said that she would not have worn ordinarily.
Barry Stanton points out that a breach of the rules can justify serious disciplinary action in the office. Company documentation is likely to "state what will happen to false expense claims. It may be described as a gross misconduct offence which would entitle the employer to dismiss." Even where there is no express provision employers "may be able to argue that the employee has broken the bond of mutual trust and confidence so that the employer can justify a dismissal."
He cites a recent decision of the Employment Appeal Tribunal, Patricia Murray v Common Services Agency (Blood Transfusion Service). In that instance the Tribunal concluded that an employee in a managerial position who had claimed travelling expenses in excess of those that had been incurred had not been unfairly dismissed because dismissal was an option reasonably open to the employer.
John Bowers QC agrees that it is likely to be "gross misconduct if there is an intention to deceive. The onus is on the employer, however, to make clear what the duties are in either the contract or the employee handbook." On a cautionary note he warns that "many employers fail to document their requirements adequately" which can "make it difficult for employers to know where they stand".
If an employee were to be guilty of what is effectively expenses fraud the employer would, depending on the company's internal rules, be entitled to reclaim the expenditure and more importantly to summarily dismiss the person and hence not be liable to compensate them for contractual severance pay. It will be interesting to see if the powers that be at Westminster seek to recover any payments to McLeish when he moved to Scotland.
Certainly, companies are increasingly alive to the potential for abuse of office perks such as company cars. "Smart cards" allow employers to vet petrol receipts more easily. Stephen Godfrey-Isaacs of George Harrison Limited, an established paper distribution company, comments that "qualifying employees are able to use a designated credit card for purchase of fuel and engine oil only. A newspaper would have to be purchased separately. The card has a number plate to prevent misuse." He says that if he "discovered that someone had been abusing the company's trust in making incredulous expense claims, for instance entertaining their spouse or girlfriend on their birthday at the company's expense, then this would be a very serious offence."
It is not surprising that entertainment expenses are a vexed issue. How many people "expense" an extra meal for friends or family without considering the legal implications? This can be plainly dishonest unless there is some business content to the event.
Whether or not the expense is legitimate expense depends on the circumstances. The litmus test is whether the additional guest promotes a business objective. If you are taking out a client and his partner or an individual of the opposite sex who may feel uncomfortable with being dined alone, the business case for taking your spouse is more compelling.
Overnight trips to hotels and foreign travel can also present awkward dilemmas. Common sense should prevail. If you are invited to a conference the cost of an extra person should not be passed onto your employers – or the client if this is a business trip. Likewise travel costs. Incidentally, the question of air miles is much debated. The consensus is that although they are undoubtedly a perk derived from employment, no charge is made to the employee since no additional cost has been incurred by the employer in providing them and you are therefore entitled to keep them.
Freya Slade, a human resources officer at Badhams law firm, views expense account abuse as merely one of many conundrums facing employers. Other significant drains on office resources come from what she terms "innocent fraud" – employees using or misusing their employers equipment, facilities and time. Office e-mail used for personal messages can also lead to embarrassment as one lawyer, Bradly Chait, discovered when he sparked an exchange concerning a female friend.
Often, the only protection for the company against the plethora of opportunist behaviour is a catch-all paragraph in the staff manual outlawing "excessive use".
"Within each business," she says, "there is a balance to be struck as to what is not acceptable within its culture."Reuse content