Serco is facing possible exclusion from all current and future government contracts after it emerged that the Ministry of Justice (MoJ) has asked the police to investigate alleged fraudulent activity by members of Serco staff.
The government department is claiming an apparent disparity between Serco’s records of performance and the ‘situation on the ground’, following months of investigating the management of the company’s Prisoner Escorting and Custodial Services contract.
Evidence of potentially fraudulent behaviour has emerged, according to the secretary of state for justice, and shows some staff recording prisoners as having been delivered ready for court when they were not.
Serco is a massive business process outsourcing provider to the government and gets approximately 45 percent of its revenue from public sector contracts.
It came under fire, alongside G4S, after it was accused of overcharging the government for years on an electronic tagging contract.
"It’s become very clear there has been a culture within parts of Serco that has been totally unacceptable, and actions which need to be investigated by the police,” said the secretary of state for justice Chris Grayling.
“We have not seen evidence of systemic malpractice up to board level, but we have been clear with the company - unless it undertakes a rapid process of major change, and becomes completely open with government about the work it is doing for us, then it will not win public contracts in future."
He added: “The taxpayer must know that their money is being properly used."
MoJ has informed Serco that in light of the evidence, it is putting the prisoner escorting contract under administrative supervision with immediate effect. Serco has agreed to repay all past profits made on the contract (approximately £2 million to date) and to forgo any future profits.
The contract was signed in March 2011 and is worth approximately £285 million over seven years.
The Cabinet Office and MoJ have also put Serco on notice that the company will have to undergo a process of ‘corporate renewal’, which would include an overhaul of the management at Serco, a review of internal audit procedures and opening up all their management and accounting information on government contracts, which will be subject to intense scrutiny.
After a three-month period, the changes Serco has put in place will be assessed by a specially convened committee of government non-executive directors. It will be this committee that will advise government, and if it is not satisfied that the changes made by Serco are sufficient to guarantee the future integrity of government contracts, it will then face exclusion from all new and future work with government.
Serco’s shares fell by up to 17 percent on the announcement last week and are yet to recover.
The company’s chief executive, Chris Hyman, placed the blame on a select few working at Serco, rather than it being a company-wide problem.
Hyman said: "The justice secretary is right to expect the highest standards of performance from Serco. I am deeply saddened and appalled at the misreporting of data by a small number of employees on the contract.
“This is a very serious matter for the customer and for us. We will not tolerate any wrongdoing and that is why we have referred this matter to the police. It is also why I have immediately initiated a programme of change and corporate renewal.”
He added: "The overwhelming majority of our people work hard every day to deliver important public services and will share my deep concern about this matter."