How to Deal With the Fraudulent Reimbursement?

As the salesman of a Shanghai company, Liao had to travel throughout the country frequently, and apply for reimbursement with a lot invoices every month. At the end of the year, the company hired an accounting firm to conduct audit. The auditor found that some of the invoices submitted by Liao did not match the time and cities of the actual business travel. After investigation, the company found that Liao had used the invoices amount to nearly RMB30, 000 to apply for the reimbursement, and such invoices had no relationship with the business travel, which should be deemed as the Fraudulent Reimbursement (“FR”). The company filed the case to the police, finally Liao was confirmed to constitute the Crime of Embezzlement, and was sentenced to six months imprisonment.

In practice, while a company found FR (mainly including 2 categories, 1) to use the real invoice to apply for the irrelevant expenditures; 2) to use the fake invoices to apply for the irrelevant expenditures.), normally, the company would require the employee to return the relevant reimbursement, and punish the employee in accordance with its internal rules and regulations, such as, warning, demotion, termination of the labor contract, and etc.. However, such methods are not sufficient enough, especially when the punishment articles as prescribed in the internal rules and regulations are not severe, the other employees may imitate such FR. In addition, while the employee uses the fake invoices to apply for reimbursement, the company might be challenged by the taxation administrative department, or undertaken the relevant liabilities.
In fact, for such FR, the company could take the criminal punishment into consideration.

According to Article 271 of the ‘Criminal Law’, whoever from the employee of a company takes advantage of his position to illegally take possession of property of the company shall, if the amount involved is relatively huge, be confirmed to constitute the Crime of Embezzlement. For the ‘huge amount’, different provisions have different criteria. Take Shanghai for example, the Shanghai People’s High Court, the People’s Procuratorate, the Public Security Bureau, and the Bureau of Justice have jointly released the ‘Guideline on the Standard in Dealing with the Criminal Case in Shanghai’, in which Article 33 has prescribed that the minimal amount of the ‘huge amount’ for the Crime of Embezzlement is RMB 5,000. So in the case of Liao, he has applied for more than RMB5,000 for reimbursement, which has reached the minimal standard for the Crime of Embezzlement.

Meanwhile, if the employee uses the real invoices to apply for a reimbursement, if the amount has reached the minimal standard as stipulated in the Article 205 of the ‘Criminal Law’, such action may constitute the Crime of Issuing VAT Invoice or the Crime of Issuing Invoice.
In addition, if the employee uses the fake invoices to apply for a reimbursement, the employee has known that the invoices are fake, and the amount has reached the minimal standard as stipulated in the Article 210 of the ‘Criminal Law’, such action may constitute the Crime of Holding the Fake Invoice.

To sum up, a company shall take the appropriate methods to punish such FR effectively case by case.

Actually, to punish the employee after such action has been done is just one aspect, the more important aspect is that the company shall establish a long-term, effective system in managing the reimbursement, including: the company has prescribed the appropriate punishment rules on FR in its internal rules and regulations; the company has strengthen the examination of the reimbursement, such as checking the verification of the invoices, and the connection between the invoices and the reimbursement items; the company shall also train the employees for their awareness of compliance.