If an Employer discovers that an employee has submitted fraudulent claims and the employee has been reimbursed for these expenses, is their any tax implication to that employee?

Depending on what the employer does about the bad acts and the nature of noncompliance, the reimbursements would be taxable compensation.

If the employee does not return the money to the employer, then it is taxable no matter what. Fraudulent amounts do not qualify for any preferential treatment by definition of what a qualified reimbursement is. It would need be appropriately reported under "other income" on the employee's tax return unless the employer includes the amount in the W2.

Note that the proposed regs. under Section 125 take the position that an operational failure blows up the entire plan. Is this an operational failure? Maybe. If so, how is it cured? Perhaps the IRS would say that it is cured only by the employer restoring the amount in question to the employee's flexible spending account out of the employer's own pocket (I assume it is an fsa), and then independently the employer can choose or not choose to attempt to recover the amount paid to the employee. How ironic, indeed, but how else can you prevent the entire plan from blowing up?