Shares in G4S (LSE: GFS) and Serco (LSE: SRP) plunged by 6% and 7% respectively following the news that the Serious Fraud Office is launching an investigation into allegations that the companies overcharged the government by “tens of millions of pounds”.
It is claimed that both firms charged the taxpayer to electronically tag people who were not being monitored, whether in prison or out of the country — or, worryingly, a small number who were deceased.
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The existing contract is worth £700m, with the Ministry of Justice billed for non-existent services dating back to at least 2005 — and allegedly as long ago as 1999.
Justice Secretary Chris Grayling called for the investigation, with Serco voluntarily agreeing to take part in a forensic audit of their billing practices, but G4S yesterday refused to co-operate with this offer.
“The House will share my astonishment that two of the Government’s biggest suppliers would seek to charge in this way,” commented Justice Secretary Grayling.
G4S has also withdrawn from bidding for the next generation of ‘tagging’ contract, worth a lucrative £1bn, while Serco has agreed to withdraw as well, in light of the investigation.
One of G4S’s biggest supporters during its troubled times has been Invesco Perpetual’s Neil Woodford, who also holds Serco among his market-beating funds. Whether he continues to buy into the support-services duo remains to be seen; he publicly backed chief executive Nick Buckles during the Olympics fiasco, but Buckles left G4S in May and this could have a strong bearing on what Woodford does next.
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> Sam does not own shares in any company mentioned.