Serco is to be investigated for fraud after the British government and the services giant called in police to examine irregularities in records kept for its £285m prisoner escorting contract.

Justice Secretary Chris Grayling announced that the company has agreed to repay past profits from its £40m-a-year contract and forgo all future earnings after an investigation suggested records relating to the delivery of prisoners to courts had been falsified by members of its staff.

Mr Grayling said the review by Ministry of Justice (MoJ) officials had not found evidence that knowledge of the alleged malpractice reached the boardroom of the company, which last year had revenues of £4.8bn, but warned Serco that it faces being frozen out of all future public contracts.

Serco is one of two companies, along with G4S, which are also being investigated for allegedly over-charging the taxpayer in the “low tens of millions” to monitor non-existent electronic tags on prisoners, some of which had been assigned to dead detainees.

The Prisoner Escort and Custodial Services (PECS) contract is one of a gamut of public sector deals held in Britain by Serco, which earns hundreds of millions of pounds a year for providing services ranging from border controls to managing London's cycle hire scheme.

The MoJ said an audit of Serco's contract for transporting prisoners between court and jails in London and East Anglia had found “evidence of potentially fraudulent behaviour” by employees.

The alleged fraud concerns the recording of prisoners having been delivered to courts when they had not - a key measure of performance for the contract. An audit is understood to have produced evidence that the figures may have been manipulated to enhance performance and earnings.

Mr Grayling said: “It has become very clear there has been a culture within parts of Serco that has been totally unacceptable, and actions which need to be investigated by the police.

”We have not seen evidence of systemic malpractice up to board level, but we have been clear with the company - unless it undertakes a rapid process of major change... then it will not win public contracts in the future.“

Chris Hyman, Chief Executive of Serco Group plc, said,: “The Justice Secretary is right to expect the highest standards of performance from Serco. I am deeply saddened and appalled at the misreporting of data by a small number of employees on the contract. This is a very serious matter for the customer and for us.

"We will not tolerate any wrongdoing and that is why we have referred this matter to the Police. It is also why I have immediately initiated a programme of change and corporate renewal.

“The overwhelming majority of our people work hard every day to deliver important public services and will share my deep concern about this matter.”

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Belfast Telegraph