Share prices of G4S and Serco dropped sharply today as Chris Grayling, the Minister of Justice, announced that the Serious Fraud Office (SFO) has been asked to investigate G4S. http://www.bbc.co.uk/news/uk-23272708 He said that there was evidence that both companies had overcharged the UK government by 10s of £millions for contracts related to tagging criminal offenders. Both companies have agreed to return any money overpaid. Serco has agreed to a forensic audit. G4S has not, hence the SFO investigation. It was also announced that there would be a wider review of the UK government contracts of both companies – those of G4S amounting to £394m.
This is potentially extremely serious for both companies. Half of G4S’s business is in Europe and one quarter is with the public sector. If the SFO find evidence of fraud, G4S could find itself barred from further EU government contracts. One might think, therefore, that G4S’s refusal to agree to a forensic audit could be a serious own goal. Non-EU governments, such as the USA, might also be tempted to look hard at their contracts with both organisations.
It must be stressed that fraud has not been proved. However, the British Broadcasting Corporation reports that action may be taken against civil servants responsible for managing the contracts as it is said that they were aware of possible irregularities several years ago.
It is not clear how the evidence of possible fraud was discovered, so we may well find that it was a ‘whistle-blower’. These are the most common ways that organisations are alerted of possible fraud. It is also worth noting that fraud is 6 times more likely to take place after a contract has been let than in the contracting phase.
There may be further implications for government procurement. We can presume that the Cabinet Office will have a lead role in examining the companies’ other government contracts. This would represent a further shift towards centralisation of UK government procurement. Watch this space.
On the plus side, I will be running another combating procurement fraud course overseas in a couple of weeks’ time and new case studies are always welcome.