China Update: Practical Identification and Handling Suggestions for False Reimbursement of Typical Disciplinary Violations

False reimbursement by employees in the course of their daily performance of duties is a typical disciplinary violation that is commonplace. According to the observation of the employer’s rules and regulations, the employer often has zero tolerance for the violation of false reimbursement because it involves the integrity of the employee and the financial security of the enterprise, that is, if the employee commits such a disciplinary violation, regardless of the amount involved, it constitutes a serious disciplinary violation that can be terminated immediately. However, on the other hand, based on the observation of judicial cases, even if the employer has a clear “zero tolerance” disciplinary clause, when evaluating whether the employee’s illegal reimbursement or false reimbursement is a disciplinary violation that can be immediately discharged, the adjudication and adjudication department will still comprehensively judge the employee’s malice and the seriousness of the act in multiple dimensions, and will usually make a comprehensive judgment and determination of the legality of the termination from the aspects of reimbursement amount, frequency, duration, subjective malice, actual use of the reimbursement payment, and the employer’s reimbursement management model.

1. Determination of “false reimbursement”.

Based on the combing of the behavior pattern of false reimbursement in labor dispute cases, we can find that in order to reach the level of immediate termination of the labor contract, it is often necessary to prove that there is indeed fraud in the reimbursement, such as the actual non-existence of the reimbursement cause/expense, and not just a simple violation of the process. Common forms of false reimbursement include: submitting a proxy ticket to reimburse expenses that the unit does not allow to reimburse, fabricating reimbursement reasons, exaggerating the amount of expenses, reimbursing private expenses, etc., and in judicial cases, such disciplinary violations are often more likely to be identified as serious violations of discipline due to the employee’s intention to defraud and defraud the reimbursement payment.

In addition, some of the so-called false reimbursements may involve the fact that there are expenses incurred for business purposes but the reasons for reimbursement are falsely declared, such as the reason for reimbursement, the amount of reimbursement, and the reimbursement bill, and there may be only one item of false information. The author is inclined to believe that if there is fraud in one of the reasons for reimbursement, the amount of reimbursement and the reimbursement expense, it can constitute false reimbursement. Take a typical case as an example to illustrate that an employee asks his subordinates to make expense reimbursement on his behalf, so as to achieve the process of approving his own expense reimbursement and bypassing the approval process of his supervisor. As a result of such reporting behaviors, the employee’s reimbursement has not been approved in essence, and the reasons for reimbursement filled in by the subordinate are also false in terms of the personnel and reasons for the reimbursement of expenses, combined with the employee’s intention to circumvent the approval, the author believes that although the employer may not be able to prove whether the reimbursed expenses have not actually occurred or should not have been reimbursed, the author believes that such a situation may constitute “false reimbursement”. For example, enterprises often set an upper limit on the reimbursement amount in the reimbursement system, such as banquet meal standards, and employees are obliged to make official expenses within the limit. In such cases, although the employee has indeed incurred the corresponding reimbursement due to work-related reasons, the amount has exceeded the upper limit agreed to be borne by the employer, and the employee is still defrauding the company into bearing the expenses through fictitious multiple banquets, which shall also constitute “false reimbursement”, reaching the level of immediate termination of the employment contract for serious disciplinary violations. However, it should be noted that, compared with the situation where the employee “obtains private benefits” with false reimbursement without actual expenditure, the malice of the employee to obtain direct benefits by “accumulating wealth” in such disciplinary violations is not great, and the adjudication department has discretion in determining the malice of the employee, and may need to further judge the legality of the immediate termination in light of the frequency and amount mentioned in point 2) in the follow-up.

However, if the employee only violates the company’s reimbursement process, such as incomplete information on the company’s official itinerary, or the lack of strict approval process due to the wrong declaration of expense type, etc., if the employer cannot further prove the existence of “false reimbursement”, it should not be deemed a serious disciplinary violation, and it is recommended that the employer take a lighter disciplinary action in accordance with the rules and regulations.

2. Handling of “false reimbursement”.

Employers also need to pay attention to the following reimbursement behaviors when dealing with “false” reimbursements:

1. Unreasonable expense reimbursement does not mean falsehood, and the employer has proved the reason for reimbursement/actual expenses

Non-existent burden of proof

Since most of the disciplinary violations involving reimbursement occur after the reimbursement has been actually approved, the employer still has the right to further investigate and verify with the employee if it finds that the expenses are suspicious, but according to the allocation of the burden of proof in labor dispute cases, the employer should bear the burden of proof to prove that the cause of reimbursement/expenses did not actually occur or could not have occurred, and cannot presume that the employee has made false reimbursements just because the expenses are unreasonable. Common methods of proof generally include the employee’s self-admission, the conflict between the reason for reimbursement and the employee’s actual performance of duties (such as the contradiction between the expense and the business trip), and the confirmation of the merchant of the expense bill.

For example, the company found that the employee was reimbursed for five meals a day, had banquet expenses on weekends, could not provide electronic payment vouchers, and spent much more than the merchant’s per capita consumption, etc., and believed that it was impossible for the employee to eat five meals a day, have a banquet on weekends, or pay in cash, or eat at a small restaurant for an average of 5 to 600 yuan per person, and then determined that the employee had made false reimbursements. However, it should be noted that unreasonable does not necessarily mean untrue, because the termination of the labor contract is involved, the adjudication and adjudication department has high requirements for the employer to provide evidence, and it is impossible to determine that the employee has “false” reimbursement based on the existence of “unreasonable”, and the employee will often argue that he invited five different customers on the same day, the customer only has time on weekends, is used to using cash, and has expensive dishes such as seafood in small restaurants. In such cases, the employer should also conduct further verification and investigation with the reimbursing employee, require the employee to explain the situation, review the employee’s work, business trip, etc., determine whether there is a contradiction with the place where the expenses occurred, and at the same time make further confirmation and evidence collection with the banquet personnel and merchants if possible, so as to effectively prove that the banquet does not actually exist or has a “false” element, and is not just “unreasonable”. Taking the common serial number invoice as an example, the employee submitted the taxi serial number invoice in different itineraries, although according to the common sense of taking a taxi and printing the invoice, such taxi invoices corresponding to different itineraries and different car numbers after several months could not be generated by real trips, it can also be seen in the case that some adjudication and adjudication departments also determined that the company did not provide sufficient evidence because there was no direct evidence to prove that the invoices were false and the itinerary was false. In such cases, the author also suggests that the employer may conduct further investigations, such as verifying the flow of taxi invoices from the tax authorities, obtaining invoices from the taxi companies shown on the invoices, and relevant certificates of non-existence of the itinerary.

2. The frequency/amount of false reimbursement by employees

Although employers have zero tolerance for false reimbursements when formulating rules and regulations, considering that employee reimbursements often occur at work but the amount is not very large each time, employees who deliberately defraud the reimbursement will often continue to “accumulate money” through such means, so if it occurs only once, the possibility of the employee’s intention to obtain personal benefits will be greatly reduced, and there may be reasonable explanations for this situation, such as the merchant providing false invoices, The employee inadvertently provided an incorrect ticket or misremembered the reason for the expense at the time of reimbursement. Therefore, it is recommended that when the employer discovers that the employee has made false reimbursements, it can further verify whether the employee has committed a continuous disciplinary violation, and communicate with the employee to further confirm whether the expenses have actually been incurred and whether the employee has a reasonable explanation.

3. Whether the employer has fulfilled its audit duties

Since the reimbursement process of an enterprise often flows through multiple links such as supervisor approval and financial approval, and if the employer believes that the employee’s “false” situation is obvious, such as a banquet in multiple places on the same day in the same reimbursement, or an obvious serial number of invoices pasted together, etc., but the supervisor, finance and other approval personnel approve it, then at this time, although the employee’s reimbursement is unreasonable, and even the bill may not be genuine, the adjudication department may think that the relevant expense reimbursement has been approved by the supervisor during the trial. The supervisor may confirm that the employee can entertain customers or allow the employee to use the ticket without his or her attendance, or he may think that the employer has allowed the occurrence of illegal reimbursement, neglected daily management, and failed to strictly implement the financial reimbursement system, so that the company should not strictly require the employee to “settle accounts after the autumn”. In some regions, the adjudication and adjudication department has even adopted the principle of “Therefore, if the employee’s false claim is to be dealt with, the employer must provide a reasonable explanation for why the approval was carried out before, such as if the “false” is not obvious, the supervisor has been deceived and deceived, or the company has also held the person who has been negligent in the approval accountable.

4. Recovery of false reimbursement payments

In the case of false reimbursements, since the reimbursements are confirmed by the employer to be false, the employee should not have received the reimbursement, whether from the perspective of unjust enrichment or fraudulent gains, and the company has the right to recover the reimbursement that has actually been paid. However, in actual cases, we advise companies to be cautious, especially in the case of deductions from other receivables of employees. On the one hand, the reimbursement and the wage and salary income are not of the same nature, and the law does not authorize the employer to make direct deductions on the different natures, and on the other hand, the false reimbursement is determined by the employer itself, and the unauthorized deduction may cause other negative legal consequences if it has not been confirmed by the labor dispute adjudication department, such as the employee’s claim that the employer is in arrears of labor remuneration. In addition, although the reason for the accountability of the false reimbursement mainly focuses on the integrity of the employee and does not emphasize the actual loss caused to the employer, after the payment is recovered, the adjudication department may consider the employee’s willingness to cooperate with the refund and the company has no direct economic loss, and believes that the employer does not need to take the maximum penalty of immediate dismissal when the payment has been recovered and the employee has actively made up for the loss.

3. Prevention of “false claims”.

False reimbursement will cause substantial damage to the rational use of enterprise funds and the standardization of financial management, and serious treatment of false reimbursement is only the company’s last remedy, the company can consider optimizing from the following aspects, intervening and preventing such common disciplinary violations, and ensuring the standardization and transparency of the company’s financial management:

1. Establish a clear and detailed reimbursement process and system, and deliver and train employees, clarify the scope, category, standard, process, approval authority at all levels, as well as the identification standards, punishment measures and legal consequences for illegal reimbursement and false reimbursement.
2. Clarify the audit standards and obligations of supervisors and financers when approving reimbursements, and clarify the responsibility for dereliction of duty if they fail to perform their audit duties. Enterprises can also provide training to supervisors with approval responsibilities to remind them of the precautions during reimbursement review.
3. Conduct regular internal audits on reimbursement to check whether there is any false reimbursement. Through audits, problems can be identified and corrected in a timely manner to prevent the spread of false claims.

Anjie Broad, China, a Transatlantic Law International Affiliated Firm.  

For further information or for any assistance please contact china@transatlanticlaw.com

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