Postcript added 18 December
Readers of my book, and of this blog, will be aware of my keen interest in the saga of the scandal which broke as long ago as 2013, involving SERCO and G4S wrongly billing the Ministry of Justice for huge amounts of public money on their contracts for tagging of offenders. The companies were forced to repay nearly £200m – many times the take of the Great Train Robbery or Brink’s Mat heist.
The matter was referred to the Serious Fraud Office whose investigations – incredibly – are still not concluded, 6 years later. In my 2016 book, ‘Competition for prisons’, I devoted a chapter to this story, and noted then that it was unlikely the real story would ever be told, as it suited all parties that it should not be, and that the interminable SFO investigation has conveniently kept the facts under wraps (1). Trying to get at the facts, I have also pursued FoI applications, in one case as far as a FoI Tribunal (I won).
Why raise this now?
Because on 18 December we should be allowed to know at least some of the facts. In July, Mr Justice Davis approved what is known as a ‘Deferred Prosecution Agreement’ between the SFO and SERCO. This device, introduced by the Crime and Courts Act 2013, allows the SFO and the company it is investigating to reach an agreement by which the company avoids prosecution. In return, the company pays compensation, undertakes to fully cooperate with the SFO’s ongoing investigation against individuals and to agree to comply with independent review of its accounting procedures.
Mr Justice Davis also stated that the Statement of Facts drawn up by the SFO, and agreed with SERCO, would remain confidential until 18 December, when a decision is due on whether any individuals should be charged. We may, then, be within days of knowing a good deal more about this case.
It is already clear that we are dealing with not one scandal but a whole series of scandals – one nesting within another, as it were. They comprise:
[EXPLAINER:] If the case is no longer about wrongful charging for work never done, what is it about? It is about manipulation of accounts so as to give misleading information to the customer Government, about profit margins. This is important because the contracts, which appear to have been poorly drafted, did not reduce the unit cost per tagging operation with increasing volumes. One would expect that to be so, because some of the development, infrastructure, etc costs are fixed, and do not increase proportionately as volumes increase. And they did increase very substantially. Thus, if a fixed unit price prevails, profit margins will rise. To guard against this, SERCO was contractually required to report actual costs and revenues as they occurred, as the basis for negotiation of any abatement should the profit margin exceed that assumed at contract signature. The case now is about whether the wholly owned subsidiary of SERCO that made and supplied the tags, SERCO Geographix, manipulated its accounts so as to falsely reduce the apparent profit margin as made visible to the customer. (2)]
6. Lastly there must be some concern whether the outcome will ascribe culpability where it should properly lie. Mr Justice Davis noted: “As it was described in vernacular terms during the private hearing, SGL cooked their books to allow SL to retain the profit, 50% of which was believed otherwise would have been clawed back by the Ministry of Justice…” and “SL [SERCO, the main company, and owner of SERCO Geographix] was the beneficiary of the fraud. Thus, the scheme was devised by management within SL. “ But then added: “However, no “directing mind” of SL currently can be shown to have been involved in the devising and the putting into effect of the fraud. So it is that SL is not a party to the DPA.”
It would appear therefore that the entire hierarchy of SERCO itself is out of the picture, leaving the focus only on officers of its subsidiary, SERCO Geographix. But given that the latter was wholly owned by the former and under its control and direction, how can it be that only SERCO Geographix is now in the frame? Indeed, what possible point or benefit could be achieved by those in SERCO Geographix, if the benefit of the fraud was reaped exclusively by the main company? Is there not evidence of a history of manipulating the margin that historically, clearly involved the main company? (2) And, one might ask, does that not give SERCO somewhat conflicted interests in negotiating the DPA?
That must be a matter of keenest attention now, whether proceedings are launched or not.
POSTCRIPT 18 December
Announced this week that two SERCO employees were to be charged. But neither a Director of SERCO. Job done! Except for that awkward conclusion by Mr Justice Davis: "the scheme was devised by management within SL [ie the main company].....However, no “directing mind” of SL currently can be shown to have been involved in the devising and the putting into effect of the fraud. " That can only mean that the main actors are missing from the charge sheet.
I was formerly Finance Director of the Prison Service and then Director of the National Offender Management Service responsible for competition. I also worked in the NHS and an IT company. I later worked for two outsourcing companies.
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