Blog: LTC Scam: When greed overtakes integrity

Strategic HR

LTC Scam: When greed overtakes integrity

Covetousness in implementation mode spawns the greed that overtakes personal values and integrity
LTC Scam: When greed overtakes integrity

One of the most memorable and unpleasant memories during my corporate upbringing was when a senior colleague was fired for fudging an allowance reimbursement bill. It was a simple ceremony. A quick confession and it was goodbye – relieved the same day!

All through my career I have come across more people being fired for integrity issues than for poor performance – Fudged reimbursement and allowance claims being the biggest ‘culprits’!

An allowance is different from a benefit: It is money guaranteed to the employee over and above his salary. The caveat being that the money should be spent for the purpose specified and documentary proof provided.

A reimbursement is money spent on behalf of the company by the employee in the line of duty. The principle for both being: The money has been spent and the employee needs to be paid back – hence the tax exemption.

So when The Times of India broke the story about the ‘LTC scam’ last week, it touched a chord. The report stated that employees in some PSUs, parts of the bureaucracy and even some MPs are involved as of now. Considering that the investigation is still at a very preliminary stage, there is every chance that this ‘best practice’ is a universal phenomenon. It’s easy money and there is hardly anyone to object!

The scam throws up two issues: A lack of integrity and tax evasion. The former is a function of an individual’s upbringing while the latter is an out-and-out crime. Some extra-smart folks – oh, they’re everywhere – have chosen to use their extra-smartness at variance from the spirit of the principle.

Approvers too look for variances and obvious factual errors. They tend to ignore minor variances. Chances are this is where it all starts. Devious employees will try their luck with small amounts, taking a punt on the approver. Will she notice, will he object, will she raise a stink over a few rupees, will he question my integrity…? The last being the clincher!

Approvers tend to shy away from questioning an employee over a claim, unless it is overtly obvious. For example, an employee may be using his own motorbike but claiming cab fare because that’s the eligibility given in the policy! Unless the approver was to catch the employee red-handed, the claim can never be disproved! So it passes off.

Interestingly, claiming per-eligibility instead of per-actuals is probably one of the worst kept secrets given the size of the population indulging in the practice. However, managers turn a nelson’s eyes giving every excuse from ‘he needs the money’, to ‘if we fire him, it’ll take us ages to replace him’! Exactly the punt the more devious ones are relying on!

However, when greed pushes the limits of basic common sense, it also crosses the boundaries of error, omission and feigned ignorance. The sin of greed then moves into the realm of the premeditated criminal act – where no mercy should be given or expected!

Some of the initial findings of the ‘LTC scam’ currently ‘under investigation’ by the CBI indicate the brazen impunity of the perpetrators – clearly powerful people. Creative itineraries, non-existent classes of travel and claiming for no travel at all are just some of the hair-brained examples of claims reported in the story.

Cocking a snook at the intent of the policy, these perps have unabashedly mocked the intelligence of the exchequer, the tax authorities and the general public – those unfortunates whose tax money is pouring out to foot the bill!

The investigation will take its own course. Hopefully the corrupt employees will be brought to book before they retire – or die natural deaths…

Meanwhile, the bigger challenge is for the voice of reason to stop public money from being squandered? What can the owners of Human Resources policies in government organisations and institutions do immediately?

Limit the fraud potential: LTC is an open-ended allowance. Employees can and do claim LTC for the farthest possible destinations. As fares increase, so does the exposure and the greed! Therefore, LTC should be limited to a fixed value. If travel has not happened, the employee can get this amount minus tax at the end of the defined block.

Market fares for LTC: Force the national carrier to implement the same fares for LTA as their regular fares. The fact that Air India’s LTA fares are significantly higher than their normal fares for the same flight only encourages the misuse of this facility! Just because the exchequer is paying is no licence to have a disproportionate fare for LTC tickets – even if they are actually being utilised for leave travel.

Eliminate the travel agent: Today, one can book tickets online for any airline from any number of travel sites or through a mobile phone and pay by credit/debit cards. Why then should there be a need to use a travel agent? In the scam cited, one of the major suspects is the travel agent who has been inflating the bills!

Break the monopoly: Allow government employees to use other carriers as well. Okay, this is political! Air India would sink even further into the red. But by artificially propping up the airline using a non-existent customer base is about the same thing, right? And only to personally benefit a specific group of corrupt individuals! Besides, it’s about time Air India stood its ground in the market without having to rely on taxpayer’s money for its inefficiency and losses. But that’s a different discussion!

Exemplary and immediate punishment for perpetrators: Perpetrators being defined first as the recipient employee, second as the person who approves the claim and thereafter anyone else who is found to have been involved. Starting with the recipient employees. They should be:

(a) made to immediately return all the money they have falsely claimed – even if this has to be recovered from their long-term benefits and/or liquidation of personal assets
(b) summarily dismissed from service. Subsequently, criminal charges may also be filed against the employees, and those who have abetted the fraud – airline/railway staff, travel agents, etc.

Place a timeline for investigation: Since the evidence is obvious and available, investigations should happen quickly. Since LTA can only be claimed a limited number of times in one’s career, the pieces of evidence are limited as well.

Random reviews: Let the whole thing not be limited to, or stop with, LTC. Every reimbursement – including business expenses – should be reviewed before approval. Many companies do a random, but very detailed, review of a percentage of their employee population. It is done in the background without the employee knowing it – unless, of course something incriminating pops up.

Communicate so that no one claims ignorance: Effective and non-threatening communications should be sent from the desk of the Chairman/Managing Director or head honcho, about the importance of personal integrity. Communication levels should be heightened around the time when maximum claims come in - usually at the end of school holidays, festival seasons and the financial year. The message should be crystal clear: Integrity is not negotiable.

Nay-sayers may logically argue that the size of PSUs and the sheer quantum of the employee constituency are too huge to be compared to smaller entities in the corporate sector. True! But that’s no excuse to ignore the crime, is it? And our PSU folks are a smart bunch, with the right amount of pressure, and some scary enough deterrents, it won’t take long for them to find a viable solution!

Also that the punishment I suggest is too harsh. It is indeed! Should people who actively demonstrate a lack of integrity be allowed to keep their jobs? What’s the assurance that they are not applying dishonest means in their day-to-day work? Would you hire a person who has demonstrated an integrity issue in a previous role? Chances are, the answer is an unequivocal NO! Then there is the more serious issue of breaking the law itself: premeditated tax evasion. The same questions would apply and – I am guessing – will elicit the same answer.

Having said this, forgiveness is always an option – yes I do have a soft heart…somewhere – but not without due penance. And only after the entire amount embezzled (is there a better word?) has been returned in full. Letting off the employee with just a ‘stern warning’ should not even be considered since it has no real consequences.

Corruption in government circles is no secret. The Transparency International Corruption Perceptions Index 2012 gives India a dismal 94th position amongst the 176 countries surveyed. Our CPI score was 36/100 – in effect, we flunked!

It is no surprise therefore that the perceived corruption practiced by the public sector externally should seep into the personal space of some employees as well. For this lot, it’s probably a DNA thing!

The bigger question is: Can we expect public sector leaders to bite the bullet and penalise the criminals on their teams or ministers to penalise their bureaucratic staff? Can we hope this wastage of people’s money will finally stop? Will this go the way of every other scam involving the government and its employees?

Or, has greed overtaken integrity to such an extent that it can never, ever catch up?

Haguette Labelle, Chair, Transparency International says: “We must ensure that there are real consequences to corruption. ‘No to impunity’ cannot just be a slogan — it must be carried out with all our combined strength and inspire citizens to speak up and to no longer tolerate corruption.”

Ah, but I may as well try and catch the wind…

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Topics: Strategic HR

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