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G4S Charges for Tagging the Dead Prompt U.K. Fraud Probe

July 11 (Bloomberg) -- G4S Plc, the U.K. security company that failed to provide enough guards for the London Olympics, is being investigated for allegedly overcharging the government for electronic monitoring services.

The company continued charging for tracking offenders even after they had moved abroad or returned to prison, Justice Secretary Chris Grayling told lawmakers today. “There are a number of cases where charging continued for a period when subjects were known to have died.”

The Serious Fraud Office is probing G4S after the company refused to cooperate with an audit, Grayling said. Services company Serco Group Plc, also under scrutiny for irregularities in payments for tagging prisoners and defendants, agreed to an audit of its government contracts, he said. G4S shares dropped as much as 6.8 percent while Serco fell as much 9 percent.

The investigation is another blow for G4S after the company, based in Crawley, southern England, bungled a contract to guard the 2012 London Olympic Games and Chief Executive Officer Nick Buckles stepped down in May. Grayling said he’s considering taking steps to exclude G4S, which generated about 10 percent of revenue last year from U.K. government deals, from tendering for future tagging contracts.

G4S “is committed to co-operating with all audits of current contracts to the full extent provided under those contracts,” the company said in a statement, adding that it isn’t aware of any indications of dishonesty or misconduct. Spokesman Adam Mynott did not immediately respond to phone or e-mail requests for further comment.

Overpayments

Overpayments that “run into the low 10s of millions of pounds” have been made to the two companies since 2004 for monitoring services, Grayling said, citing an audit of billing arrangements he ordered in May.

U.K. prosecutors already said this week they were reconsidering whether to charge former employees of G4S after a jury in London ruled that a man in their custody was unlawfully killed while being deported to Angola.

Serco, based in Hook, England, agreed to a “forensic audit,” Grayling said. “They’ve said they’ll cooperate fully with the auditors PricewaterhouseCoopers and assure me senior management were not aware of it.” Serco had given assurances that “nothing dishonest has occurred,” he told lawmakers.

In a statement, Serco said it will cooperate with the audit and the award of a contract for prisons in South Yorkshire, for which it’s the sole bidder, will be delayed.

The SFO is looking into the matter, Susan Givens, a spokeswoman for the body, said by phone.

‘In Tatters’

G4S has been seeking to restore a reputation that former CEO Buckles admitted was “in tatters” after the Olympics, when insufficient staffing prompted the U.K. government to assign troops to augment protection of athletes and the public.

Growth plans are now focused on emerging markets as European profitability gets squeezed by struggling economies. G4S’s operating margin shrank in the first quarter, with the company forecasting on May 7 that the decline will probably continue through the year. The stock had lost 12 percent this year before today, valuing the company at about 3 billion pounds ($4.5 billion).

The company, formed from the merger of Securicor Group and Group 4 Falck A/S in 2004, had several contracts with the U.K. government, including deals with the Home Office valued at 600 million pounds, Buckles said in July 2012, when he faced lawmakers’ questions over the Olympics security contract. The government stripped G4S of a prison-operating order in November.

To contact the reporters on this story: Thomas Penny in London at tpenny@bloomberg.net; Alex Webb in Munich at awebb25@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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