G4S and Serco shares plunge on fraud claims

BRITISH outsourcers were thrown into chaos yesterday after the justice secretary called for a fraud probe into claims G4S charged “tens of millions of pounds” for tagging criminals who had left the country, were back in prison, or even dead.

Chris Grayling told the House of Commons that he has asked the Serious Fraud Office to investigate the company after it refused to take part in a forensic audit. Fellow outsourcing firm Serco, which holds another contract to electronically track criminals, is also accused of overcharging but has agreed to a full audit.

Investors rushed to sell G4S and Serco stock, wiping more than £440m off their combined value amid fears that the revelations will harm their ability to win future government contracts. Both companies are at the bottom of the FTSE 100 and could now face relegation from the top tier of British businesses.

“The House will share my astonishment that two of the government’s biggest suppliers would seek to charge in this way,” Grayling told MPs.

“The current estimate is that the sums involved are significant, and run into the low tens of millions in total, for both companies, since the contracts commenced in 2005.”

It is thought the government was being billed for around 18,000 tags when only 15,000 offenders were actually being monitored.

The government immediately ordered a review of all contracts held by Serco and G4S. Grayling also said he would delay awarding two contracts to run private prisons that Serco had been expected to win.

Many of the government’s justice reforms had been expected to benefit the outsourcing sector but yesterday’s announcement threatened this plan.

Serco said that as a result of the claims it would withdraw from bidding for a new £3bn electronic monitoring contract. By contrast, G4S still wants to tender for the deal but the ministry of justice is set to block its bid.

Grayling’s statement was based on the preliminary findings of a PwC audit that began in mid-May. G4S and Serco were only informed of Grayling’s decision to go public late on Wednesday night, while City A.M. understands that G4S has still not seen a copy of PwC’s findings. The company is willing to defend the quality of its own internal investigation that found no evidence of wrongdoing.

It is understood G4S did discuss the billing issue with the department in 2008 but civil servants at the time gave it the go-ahead to continue with the status quo.