Serco to pay £22.9m in fines and costs over electronic tagging scandal

Outsourcing giant Serco has agreed a deal with the Serious Fraud Office that brings to an end a lengthy investigation into the scandal over its electronic tagging of offenders.

The firm has been fined £19.2 million and will pay £3.7 million in investigation costs as part of a deferred prosecution agreement (DPA) after it overcharged the Government for tagging contracts.

Serco admitted it was “mortified” as it said its UK subsidiary, Serco Geografix, has taken responsibility for three offences of fraud and two of false accounting committed between 2010 and 2013 relating to understating profits from the contracts with the Ministry of Justice (MoJ).

Its prosecution agreement with the Serious Fraud Office (SFO) – which is subject to approval by the courts – sees lengthy investigations brought to an end without Serco facing any criminal charges.

The issue was first reported by Serco to the SFO in 2013.

Serco previously paid a £70 million settlement to the MoJ in December 2013.

SFO director Lisa Osofsky said Serco had “engaged in a concerted effort to lie to the Ministry of Justice in order to profit unlawfully at the expense of UK taxpayers”.

But she said the deal was agreed in light of Serco’s “extensive corporate reform and other remediation”.

Serco’s fine with the SFO was reduced by half given that it self-reported the issues and has co-operated with the investigation.

Its agreed settlement with the MoJ in 2013 came after the group and fellow outsourcer G4S faced allegations of overcharging the Government for electronically monitoring people who were either dead or in jail, or had left the country.

They were stripped of their responsibility for tagging criminals in the UK in late 2013.

G4S, which repaid the Government £109 million plus VAT for its part of the scandal, remains under investigation by the SFO.

Serco group 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.”

He added: “The management and culture of Serco, and the transparency with which we conduct our affairs, have changed beyond all recognition.”

Serco said it has taken “significant steps” to reform itself, including more than 80 actions and initiatives, including rewriting its system of management control, as well as strengthening its bidding, contract management, internal audit and management assurance processes.

It added that no board members or senior executives who were in post at the time of the offences still work for the company.

The group now reports annually to the SFO and the Cabinet Office on its assurance programme following the saga.

The Financial Reporting Council also launched an investigation in June 2016 into Serco’s group auditor, Deloitte, at the time of the offences.

Jessica Parker, a partner at law firm Corker Binning, said the settlement marks a success for the SFO and its increasing use of DPAs.

She added: “If approved, today’s DPA against a subsidiary of Serco will demonstrate that DPAs remain more appealing to corporates than taking a chance at trial.”