When the popular chief executive of a global Fortune 100 company was ousted by its Board of Directors this summer for allegedly filing inaccurate expense accounts, the message was clear: companies are becoming increasingly concerned about compliance and ethical behavior.

As organizations continue to tighten their belts in tough economic times, expense account recklessness is not taken lightly. To the employee abusing an expense account, the first offense can seem harmless enough — a $40 lunch with a friend that is written off as a “business meeting.” Yet abuse of company expense accounts can lead to major headaches, especially if the company gets audited as a result.

The Internal Revenue Service has stringent rules about expense accounts, which all businesses must follow. It permits companies to steer clear of payroll taxes on reimbursements or allowances in situations in which the employee expense has a clear business connection, has accounted for it in a reasonable time period, and has given back any leftover allowance within a reasonable time period. If any of those steps are discovered to have been disregarded, it’s a red flag.

In addition, expense account abuse can tell a lot about an employee’s ethics and character. In essence, they’re stealing from the company — with no remorse about doing so. That’s not a character trait you want in a long-term employee. That’s why it’s so important for employers to watch for warning signs. They might include:

• Inflated travel expenses, such as a $30 cab ride over a $10 distance
• Charging for items used for personal reasons (such as gas, toiletries or groceries)
• Seeking reimbursement for items never purchased (client gifts, office supplies, etc.)
• Adding tips to reimbursement claims when they were already included in the bill
• Tuition reimbursement claims for classes never taken or seminars not attended
• Keeping unused cash advances

Make sure your company has clear guidelines about expense accounts. Spell out what exactly is an allowable expense and what the reimbursement policies are. The IRS has many stipulations that must be followed. For example, employees must return unused advances within 120 days after paying or incurring an expense. Establish categories of expenses the company will not cover, such as alcohol or clothing.

If expense limits must be changed due to economic conditions, be sure to clearly communicate what those new limits are. Finally, lead by example. Set the tone from the top — by requiring the highest level executives in the firm to abide by the same rules as everyone else.