Outsourcing giant Serco is being probed by the cops over allegations of fraud relating to its Prisoner Escort and Custody Services (PECS) contract with the Ministry of Justice.
Under the terms of the contract, Serco is supposed to ferry defendants from prison to court on time and is measured against this.
The suspected fraud came to light following months of investigation by MoJ into an alleged disparity between Serco's PECS performance data and the "actual situation on the ground", the MoJ said.
"Evidence of potentially fraudulent behaviour has now emerged as part of the detailed audit work," said the MoJ, "It has shown some staff recording prisoners as having been delivered ready for court when in fact they were not."
As a result the MoJ has put the contract under "administrative supervision".
In a statement, Justice Secretary Chris Grayling said:
"It's become very clear that there has been a culture within parts of Serco that has been totally unacceptable, and actions which need to be investigated by the police."
He said there were no indications of "systemic malpractice up to board level" but said that unless the firm becomes "completely open with government about the work it is doing for us", Serco "will not win public contracts in future".
The outsourcing firm confirmed that the "Designated Ready and Available for Court" stats on defendants had been "overstated", and the details had been handed to the City of London Police. It said: "Serco has identified misreporting of DRACT data locally on the PECS contract."
Given three months to sort out PECS issues
Serco has already come to an agreement with the MoJ on a three-month plan to make improvements with its PECS contract. If targets are met, the company gets to keep the contract, but it did not reveal what those metrics would be.
The cost of this improvement work will be shouldered by Serco and £2m profits made on the contract since it was renewed in 2011 will be repaid. The PECS contract was signed in March that year and was valued at £285m over its seven-year tenure.
In a further bid to appease the justice ministry, which is Serco's largest customer, the outsourcing titan has agreed to also forgo future profits from the contract.
It will roll out a "programme of change and corporate renewal" to give customers a louder voice in the organisation and strengthen its internal systems, the firm said.
"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," said Serco boss Chris Hyman.
"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.
All this rather took attention away from Serco's half year numbers to 30 June, in which sales were up 10.4 per cent on the same period a year ago to £2.11bn, but pre-tax profit fell three per cent to £106.1m.
John O'Brien, senior researcher at analyst TechMarketView, pointed out this was "another blow" for Serco after all of its contracts were put under government-wide review back in July.
The review had been prompted by an independent MoJ audit which found that charges made by Serco and global security group G4S for operating the ministry's electronic tagging schemes had allegedly been inflated. Grayling said at the time: "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... There are a small number of cases where charging continued for a period when the subject was known to have died."
"The stakes couldn't really be much higher for Serco after this second accusation of fraud," said O'Brien. "Serco needs to show that it is doing all it can, and quickly, if it is to restore confidence from its largest customer, and ensure it isn't barred from future UK government work."
Among other contracts, Serco also has a £47m-a-year deal with the Department for Business Innovation and Skills to run the National Physical Laboratory and a £23m-per-year contract with the Home Office to look after the Colnbrook Immigration Removal Centre. ®