Outsourcer Serco has agreed to pay £22.9m and admitted responsibility for three offences of fraud and two of false accounting related to its work to deliver an electronic tagging scheme on behalf of the Ministry of Justice.
The settlement was approved as the Financial Reporting Council fined accounting firm Deloitte £4.2m over its audit of the company in 2011 and 2012.
Serco has reached a deferred prosecution agreement with the Serious Fraud Office, which has come to the end of a six-year investigation into the electronic tagging scheme. The arrangement will see Serco pay a fine of £19.2m and reimburse the SFO for the £3.7m cost of its probe.
The agreement was approved by Mr Justice William Davis after a hearing at Southwark Crown Court yesterday. The hearing concluded the SFO’s investigation, with no criminal charges brought against Serco.
The offences in question, which are attributed to subsidiary Serco Geografix Limited, took place between 2010 and 2013. They relate to “a scheme to dishonestly mislead the MoJ as to the true extent of the profits being made” from Serco’s contract to provide electronic tagging and monitoring services.
The court was told SGL had charged parent company Serco £500,000 a month for costs that were in fact “complete fabrications”.
The SFO said the outsourcer deliberately misrepresented its profitability to try and prevent the MoJ using that information to reduce the value of the contract.
“SGL engaged in a concerted effort to lie to the Ministry of Justice in order to profit unlawfully at the expense of UK taxpayers,” said Serious Fraud Office director Lisa Osofsky. “The SFO will pursue those who engage in this sort of criminal conduct so that they are held to account.”
She added: “This resolution not only ensures such accountability, but also recognises SGL’s voluntary self-reporting of the misconduct, its and Serco Group’s substantial cooperation with our investigation, and Serco Group’s extensive corporate reform and other remediation. It also provides substantial assurances regarding the future corporate integrity of Serco Group, one of the UK’s largest government contractors.”
Serco claimed that the fine was half what it would otherwise have been, in recognition of the fact that it reported itself to the SFO.
Following the hearing on Thursday, the FRC said it had fined Deloitte £4.2m over its audit of SFL during the tagging scandal. The firm will also pay £300,000 towards the costs of the investigation, and a Deloitte partner, Helen George, has also been fined £97,500.
After Serco agreed the fine, its chief executive Rupert Soames said: “Those of us who now run the business are mortified, embarrassed and angry that, in a period between six and nine years ago, Serco understated the level of profitability of its electronic monitoring contract in its reports to the Ministry of Justice. Serco apologised unreservedly at the time, and we do so again.
“Nobody who sat on the board of Serco Group, or who was part of the executive management team at the time these offences were committed, works for the group today.”
Serco has already paid a £70m settlement to the MoJ. The payment was made back in 2013, when it was first alleged that the company had charged the government for electronic tagging of people who were dead, in jail, or outside the UK.