Former Serco executives discussed inflating costs on electronic tagging contracts to “whatever we wish” as part of a fraud on the UK government, according to legal documents newly published by the Serious Fraud Office (SFO).
Serco, the FTSE 250 outsourcing company, has already paid a fine and legal costs of nearly £23m to the UK’s anti-corruption agency in relation to the fraud, which it admitted in 2019 under a deferred prosecution agreement.
The company admitted its responsibility for the fraud, but reporting restrictions prevented the publication of the details while two former executives were on trial. However, a serious failure in evidence disclosure by the SFO meant that trial collapsed on Monday, with a judge instructing jurors to find the executives not guilty.
Serco has previously apologised for the fraud and has said it has changed its management and culture since. It has continued to take a key role in some government operations, including in the Covid-19 test and trace system during the pandemic.
The documents published on Wednesday showed that executives at Serco’s offender tagging subsidiary, Serco Geographix, regularly submitted numbers to the Ministry of Justice (MoJ) that were inflated by £500,000 a month. Serco executives added the costs, eventually adding up to £15m, after realising that profit margins were far higher than expected when it bid for the work, as offender numbers rose without a proportionate increase in costs.
The Serco executives discussed “mitigating the higher than planned profit levels, yet keeping the overall profits within Serco”, the documents say. In one email discussing shifting costs an executive asked a colleague: “Fancy £500k a month...?”
Serco’s fraud was found to have taken place between 2010 and 2013 only, but the new documents showed that the company had sought from April 2006 to January 2011 to push costs worth £6.2m back on to the Serco Geographix subsidiary, lowering the reported profitability of the contract with the government.
During the period of the fraud Serco added “fictitious” charges, the documents say. In 2011 a manager wrote that “[w]e can, of course, make the numbers whatever we wish”.
Managers were aware they were reporting margins significantly below reality. In 2008 in an internal presentation referring to profit margins a manager wrote: “Bid 14%; Reported to client 18% - 19%; Actual margin 24%”. Actual profit margins from 2011 to 2013 regularly topped 30% – far higher than Serco reported to the MoJ – and rose to as high as 68% in December 2012.
As well as the fine, Serco has since paid the MoJ £70m in a civil settlement. That included £20m of the tagging subsidiary’s profits above the level set out in its original bid between 2005 and 2012.
Serco declined to comment.
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