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G4S: Further reputational damage leads to defiance from their new CEO

Security services company G4S has suffered another blow to their reputation as the UK’s Justice Minister Chris Grayling called in the Serious Fraud Office (SFO) related allegations of fraud of a potential £50m ($79m).

The allegations relate to the charging of the government for their electronic tagging services. Both G4S and Serco continued to bill the government after tagged individuals moved abroad, returned to prison, or even died. The ministry believes there could be a case of over 3,000 “phantom” taggings, when it received billing for 18,000 offenders when it only has 15,000 monitored. The SFO was called in when G4S declined to voluntarily submit their billing practices to a forensic audit by PriceWaterhouseCooper (PWC) in May. Both companies have withdrawn their tenders for the next generation of tagging contracts, which could be worth up to £3bn ($4.8bn), and the Ministry of Justice have also suspended Serco’s application to run a South Yorkshire prison until clarification has been provided.

Between the two companies, the companies provide a plethora of services to the UK government, with their combined annual total revenues above £1.5bn ($2.4bn), running for several years. Serco has submitted its billing accounts willingly to assess if there was overcharging.

This is another incident in a barrage of failings which has unfortunately brought G4S under examination. G4S has previously been under scrutiny for its failure to fulfil its obligations at the London Olympics in 2012, when it didn’t recruit enough security personnel in time to cover the event, forcing the army to plug the manpower deficit. G4S employees are also facing criminal charges after an inquest into the death of an Angolan man put under restraint on a deportation flight died, with the investigation ruling in favour of unlawful killing.

Both companies share prices slid, but this represents compounded embarrassment for G4S. It is unlikely that the UK government will deny them further contracts, as the outsourcing market has few competitors of an equal size to one of the largest global employers. However, further questions will be raised about private companies’ provision of public goods. The Guardian called Serco “the biggest company you’ve never heard of” in 2006, and many people remain unaware to the nature of these companies’ activities or their scope. Furthermore, the monopolistic markets in which these companies provide services raises questions over the validity of profit maximizing entities being charged with them. Concerns arise over human rights issues, value for money and accountability will be perpetuated amongst the more sceptical members of the political spectrum.

G4S have responded by blaming the Ministry of Justice for failing to provide them with full information and insisting their billing was in line with the contract. The company had no legal power to curb curfew orders, so was awaiting the ministry to do so. It remains unclear at present how G4S acted to notify the ministry in these cases, however. It also insists its internal investigations have found little to no evidence of overcharging, with only one case of ex-poste death overcharging; it was worth just £60, and was refunded to the Ministry.

G4S’ new CEO Ashley Almanza seems determined to break with the company’s past reputational blows, and his defiance to the ministry is a stark contrast to Serco’s willing submission. Investors remain concerned about a deleterious relationship with the UK government, with this course a risky strategy in the short run.

Find this interesting? You may also like our ‘Industry Reports on Security Services’.

 

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