Working to the contract

Richard Garside
Tuesday, 19 November 2013

Earlier this month, in the briefest of press releases, the Serious Fraud Office (SFO) announced that it had initiated a criminal investigation into security companies G4S and Serco, following allegations that they had overcharged on electronic monitoring contracts. A few months earlier both companies had pulled out of bidding for the next generation of electronic monitoring contracts.

Today the National Audit Office (NAO) has published a report on the Ministry of Justice's electronic monitoring contracts

According to the NAO report, the Ministry first identified anomalies in data provided by G4S earlier this year, as part of preparations to retender the electronic monitoring contracts. Not satisfied with the G4S explanation the Ministry called in accountants PwC to conduct a forensic audit of the G4S contract.

PwC began its work in May 2013, subsequently expanding it to cover the Serco contract in addition to the G4S one.

The audit identified three charging practices that are at the heart of the dispute between the Ministry on the one hand and G4S and Serco on the other.

1. Charging based on orders vs charging based on subjects

One individual (the subject) can have more than one order imposed upon them. Even though each subject is monitored only once, Serco and G4S appear to have charged for each order, something the Ministry argues they should not have done. For example, Serco monitored one subject with four separate orders, charging for each order being monitored, rather than just for the subject.

2. Charging a fee after electronic monitoring has ceased

Serco and G4S were continuing to charge a monitoring fee when individuals were no longer being monitored. Examples cited in the report include:

  • An individual sentenced to two years' imprisonment for breach of curfew conditions in September 2011. G4S removed the monitoring equipment in the same month. However, by May 2013 it was still charging a monitoring fee, at the cumulative cost of around £3,000.
  • In another case Serco charged monitoring fees for over two and a half years after equipment had been removed following a breach of bail conditions.

3. Charging monitoring fees whether or not monitoring equipment had been installed

Serco and G4S have been charging from the formal start of the monitoring period even if monitoring equipment has not been installed. In most cases this might have resulted in an extra day of charging. However, the NAO observes that 'in some cases equipment was never successfully installed but charging nonetheless occurred for months or even years'.

In an example cited by the report Serco tried unsuccessfully to install monitoring equipment at an address on multiple occasions between July 2008 and April 2012, charging some £15,500 over the five year period, despite the fact that the monitoring equipment was never installed.

Monitoring into the next millenium

One of the most striking paragraphs in the report covers the different, and rather arcane, matter of determining end dates in relation to bail orders:

'Although Serco and G4S used different management information systems, our understanding is that both systems required an end date for an order to be entered so that those systems could function properly. As bail orders typically did not have specified end dates that could be entered both providers chose arbitrary end dates as standard, on the basis that otherwise there was a risk that orders might have been closed down before an appropriate authority requested that this occur. In the case of G4S this was set as being the year 2020, and in the case of Serco the year 3000. This meant that charges on individual cases could have continued until an end date was formally notified by an appropriate authority.'

Taken together these practices were rather lucrative. The NAO reports that potential overcharges could be in the region of 'tens of millions of pounds'. G4S have offered to repay £23.3 million. Serco has said that it will 'refund any agreed overcharges'.

A further audit of the contracts is currently being undertaken. Both companies also continue to face investigation by the SFO.

This should all provide extra spice to what was already shaping up to be compulsory viewing for policy anoraks everywhere: the appearance tomorrow of G4S, Serco, Capita and Atos executives before the powerful House of Commons Public Accounts Committee.