Deloitte has been fined £4.2m by the accounting watchdog and severely reprimanded for its audit of Serco’s Geografix division during the outsourcing firm’s electronic tagging scandal.
The penalty comes a day after the outsourcing company was fined £22.9m by the Serious Fraud Office (SFO) over the tagging contracts. The settlement, a deferred prosecution agreement (DPA) relating to three offences of fraud and two of false accounting, was approved by Southwark crown court on Thursday. This means the company will not face criminal charges after a six-year investigation. Serco reported the issue to the SFO in 2013.
In his judgment, Justice William Davis said: “Serco Geografix engaged in quite deliberate fraud against the Ministry of Justice in relation to the provision of services vital to the criminal justice system.”
“[DPA] approval will only be given where there is the clearest possible demonstration of integrity on the part of the company … This [requires] early self-reporting to the authorities, full cooperation with the investigation, a willingness to learn lessons and an acceptance of an appropriate penalty … All of that has been demonstrated by Serco Group in this case.”
Serco and its fellow outsourcing group G4S were stripped of their contracts for tagging criminals to track their movements in the UK in late 2013. Both firms were found in July 2013 to have billed the Ministry of Justice (MoJ) for tagging people who were either dead, back in jail, or had left the country.
The Financial Reporting Council’s (FRC) fine outlined on Thursday relates to Deloitte’s audit of Serco Geografix in 2011 and 2012. The accounting firm will pay £300,000 towards the costs of the three-year investigation. The regulator also severely reprimanded a Deloitte partner, Helen George, and fined her £97,500.
The fines were reduced as part of a settlement and would otherwise have been £6.5m for the accounting firm and £150,000 for George. Both admitted misconduct.
Deloitte has arranged for its audit staff to undergo training aimed at preventing similar audit failures.
The FRC said: “Deloitte and Ms George failed to act in accordance with the fundamental principle of professional competence and due care.”
Rupert Soames, Serco’s chief executive, said on Wednesday that he and others now running the business were “mortified, embarrassed and angry” that Serco understated the level of profitability of its electronic monitoring contract in its reports to the Ministry of Justice. He apologised “unreservedly” again.
The SFO director, Lisa Osofsky, said: “Serco engaged in a concerted effort to lie to the Ministry of Justice in order to profit unlawfully at the expense of UK taxpayers.”
It emerged in 2015 that the ministry was still paying G4S and Serco millions of pounds every month for supplying electronic tagging equipment, even though both security firms had been barred from running the contract. The electronic monitoring tags were used to enforce curfews on more than 100,000 offenders each year.
The scandal, involving two of the government’s largest private sector suppliers, was an embarrassment to Chris Grayling, then justice secretary. It deepened concerns over the privatisation of justice contracts.
Capita took over electronic tagging on an interim basis and was awarded a six-year contract by Grayling in 2014, which included the introduction of a new generation GPS satellite-tracking tags for some offenders.
The Guardian | July 4th, 2019