News that staff at private security giant Serco are to face a police investigation after the Government uncovered potentially fraudulent behaviour in the management of its £285 million prison escorting contract has seen the company shares plummet as half a billion pounds is wiped off its value.
Converse can exclusively reveal that a further investigation is about to be launched into Serco charging prisoners who sue them £200 to be escorted to see medical doctors who visit to compile reports into injuries they have sustained – claims which Serco admit but claim are perfectly legal – see Update 1 below.
The scandals have seen half a billion pounds wiped off Serco shares today alone – see Update 2 below.
In the current scandal it is alleged that Serco employees recorded prisoners as having been delivered ready for court – a key performance measure for the contract – when in fact they were not, the Ministry of Justice (MoJ) said.
The contract, which covers prison transfer services in London and East Anglia, has been put under administrative supervision with immediate effect.
Justice Secretary Chris Grayling said: “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.
“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.
“The taxpayer must know that their money is being properly used.”
Both the MoJ and Serco’s directors have asked City of London police to investigate the actions of the staff working on the prison escorting contract.
The Government department said differences between Serco’s records of contract performance and the actual situation on the ground has been subject to investigation for some months.
Evidence of potentially fraudulent behaviour emerged as part of the audit work announced by Mr Grayling in July in the wake of an electronic tagging scandal, in which G4S and Serco were both accused of overcharging the Government for monitoring offenders.
The time at which prisoners are made available for legal visits, prior to being delivered to the courtroom dock, is a key measure of Serco’s performance on the contract, the MoJ said.
The process of getting a prisoner from the prison van to the point where they are ready for legal visits can be lengthy, as they have to go through comprehensive security checks and processing.
The audit findings suggest some Serco staff have been manipulating their performance figures.
In light of the new findings, Serco have agreed to repay all past profits made on the prison escorting contract and to forgo any future profits.
The FTSE 100 giant has told the MoJ that no member of the board had knowledge of the allegedly fraudulent practice.
The annual contract value is £40.7 million, with the current projected contract value over seven years at £285 million.
The discovery comes after it was revealed that Serco and G4S overcharged the Government by tens of millions of pounds on its electronic tagging contracts – including for monitoring dead offenders.
G4S now faces a criminal investigation after the Government reported the firm – well-known for its botched handling of its Olympics security contract – to the Serious Fraud Office when it refused to take part in an additional investigation to rule out any dishonesty.
The scandal prompted a a Government-wide review of all contracts held by Serco and G4S.
The problems with the two companies comes as Mr Grayling rolls out plans that will see large areas of the Probation Service turned over to the private sector or charities, under what he has dubbed a ”rehabilitation revolution”.
The likes of G4S and Serco were set to bid for a wide range of payment-by-results contracts to supervise low to medium-level offenders across England and Wales. The providers will be judged by reoffending rates.
Chris Hyman, chief executive of Serco Group, 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.
“The overwhelming majority of our people work hard every day to deliver important public services and will share my deep concern about this matter.”
Juliet Lyon, director of the Prison Reform Trust, said: “Everyone wants to see proper rehabilitation but, if the ‘rehabilitation revolution’ means handing shed loads of money to apparently untrustworthy private companies, it will be a disaster for the taxpayer and for the criminal justice system.
“It’s not too late for the Ministry of Justice to deliver rehabilitation reform by driving up standards and building on best practice in probation, prison and voluntary service.
Mark Leech editor of Converse the National Prisoners Newspaper said Questions were to be tabled in Parliament this week asking Serco to explain why they charge some prisoners £200 to be escorted inside the Prison to see medical doctors in connection with legal proceedings.
Mr Leech said: “Its outrageous that Serco should levy this charge, Rule 20(4) of the Prison Rules gives prisoners a legal right to see a doctor in connection with legal proceedings – no other private company charges for this and no public sector prison charges either.
“We have asked Serco to explain the charge but they decline to be specific so Parliamentary Questions are being tabled in the next few days demanding that Serco explain this seemingly unlawful charge.”
Security and outsourcing giant Serco saw up to half a billion pounds wiped off its value today as it faced a freeze on lucrative Government contracts amid a fresh scandal over allegedly fraudulent behaviour.
The group, which runs a vast range of services from prisons to rail services, admitted revenues would be hit and new deals delayed following the latest controversy, which centres on its £285 million prisoner escorting service.
Justice Secretary Chris Grayling said it had become clear there was a culture in parts of Serco that was “totally unacceptable”. Shares were down by as much as 17%, reducing the company’s value by £500 million, though they later recovered some losses.
Mr Grayling warned that unless there was a “rapid process of major change” the group would not win public contracts in the future.
Serco, which was announcing half-year results, said upcoming bids included tenders to run Ministry of Defence infrastructure and support organisations as well as probation outsourcing and community health services for NHS trusts.
Investors took fright despite seeing adjusted profits before tax rise 11% to £127.1 million on revenues that were up 12% to £2.55 billion. The group said expectations for the full year were unchanged.
The prisoner escorting scandal centred on allegations that Serco employees allegedly recorded inmates as having been delivered ready for court when in fact they were not.
Now the contract, which covers prison transfer services in London and East Anglia, has been put under administrative supervision and the affair referred to police.
Serco has agreed to repay £2 million in profits earned since the deal was renewed in 2011 as well as future earnings.
It comes in the wake of an electronic tagging scandal in July, in which Serco as well as G4S were accused of overcharging the Government for monitoring offenders, prompting Mr Grayling to launch an audit.
Following the tagging revelations, Serco withdrew from bidding for a new generation electronic monitoring service.
The group said in its results announcement that the move would impact on growth in 2014 with the loss of annual revenues of around £50 million.
Elsewhere, it said it was the single remaining bidder for Moorland, Hatfield and Lindholme prisons in South Yorkshire but the award would be delayed pending the Ministry of Justice’s review.
But Serco is still eyeing the opening up of probation services to the private sector, which it described as a “significant market development” while it said it was also looking at healthcare opportunities after Government NHS reforms.
The group said the Cabinet Office and spending departments looked “increasingly focused on bringing new opportunities to market”, adding: “Serco is well positioned to target future growth opportunities across our markets.”
It argues that competitive outsourcing helps the Government achieve savings while improving services although critics have attacked its record.
Recent contract awards include running the Docklands Light Railway in east London, environmental services for Canterbury city council, and pilot training at RAF Cranwell in Lincolnshire.
The FTSE 100 group operates services across the world with more than 50% of revenues coming from UK and Europe. These were up 7% to £1.28 billion for the first half.
Chief executive Christopher Hyman said the interim figures showed a “strong financial performance” and the outlook remained positive. He said Serco was working closely with the Government over the ongoing review of contracts.
“Serco prides itself on being a values-led organisation, delivering essential services that matter to people around the world.
“We will act with integrity to deliver the standards expected of a service business such as ours and will put right any issues that arise from these reviews.”