Chris Grayling, the Justice Secretary, has asked the Serious Fraud Office to investigate security firm G4S after a review found the Government had been overcharged by tens of millions of pounds in its electronic tagging contract.
A review has found G4S and rival security company Serco both over-billed the taxpayer for running the tagging schemes, in what the minister said was a “wholly indefensible and unacceptable state of affairs”.
It included charging the government for tagging offenders who had died, been returned to prison, left the country or who had never been put on the tagging scheme in the first place, Mr Grayling told the House of Commons.
Ministry of Justice sources said although they typically had 15,000 offenders on a tag at any one time G4S and Serco had been charging them for 18,000 – meaning one in six was spurious.
It also emerged civil servants first became aware of some of the problems in 2008 but failed to take appropriate action – and Mr Grayling said some may now face disciplinary action.
“I am angry at what has happened and am determined to put it right,” said Mr Grayling.
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“This has included instances where our suppliers were not in fact providing electronic monitoring.
“It included charges for people who were back in prison and had had their tags removed, people who had left the country, and those who had never been tagged in the first place but who had instead been returned to court.
“There are a small number of cases where charging continued for a period when the subject was known to have died.
“In some instances, charging continued for a period of many months and indeed years after active monitoring had ceased.
“The House will share my view that this is a wholly indefensible and unacceptable state of affairs.
Mr Grayling said he expected MPs would share his “astonishment” that two of the government’s two biggest contractors would behave in such a way.
He added: “The audit team is at present confirming its calculations but 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 may date back as far as the previous contracts let in 1999.”
Serco has agreed with a Ministry of Justice proposal for a further investigation, and allow inspection of its internal emails.
But G4S, which was widely criticised for its failure to fulfil security requirements at last year’s Olympics, has rejected that proposal, said Mr Grayling.
“I should state that I have no information to confirm that dishonesty has taken place on the part of either supplier,” he told MPs.
“But given the nature of the findings of the audit work that has taken place so far, and the very clear legal advice that I have received, I am today asking the Serious Fraud Office to consider whether an investigation is appropriate into what happened in G4S, and to confirm to me whether any of the actions of anyone in that company represent more than a contractual breach.”
Mr Grayling first launched an investigation into G4S and Serco in May after an internal audit uncovered a “significant anomaly” in the billing process.
The Ministry of Justice brought in external auditors to find out how much the two companies have incorrectly claimed from the taxpayer, which uncovered the remarkable details announced by Mr Grayling to the Commons.
He said: “I am making changes in my department because it is quite clear that the management of these contracts has been wholly inadequate.
“Enough knowledge came into the department to find out about these issues some years ago but it was not acted upon.
“Proceedings are likely to include, or may well include, disciplinary proceedings to establish precisely what did go wrong.”
Spending on electronic tagging has run to £700 million since G4S and Serco were handed the contracts.
Mr Grayling said no-one had been put in danger and the problem was purely to do with the billing arrangements. The contracts were awarded by the Labour government in 2004 and are ministers are currently going through a process to re-allocate the work.
Serco has pulled out of the bidding process but Mr Grayling said he was “disappointed that G4S still feel it appropriate to participate”.
By David Barrett, Home Affairs Correspondent
12:40PM BST 11 Jul 2013
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