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G4S & Serco fraud: Oops, we couldn't tell the difference between right and wrong

British outsourcers cheated taxpayers out of tens of millions of pounds. Yesterday they said sorry. So that's all right, then.

Yesterday, senior executives from Britain's four largest public services outsourcing firms, G4S, Atos, Serco and Capita, appeared before the people's watchdog — Members of Parliament on the Public Accounts Committee (PAC).

All eyes were on the representatives for G4S and Serco, companies that charged taxpayers tens of millions of pounds for doing absolutely nothing.

Both had billed the Ministry of Justice for applying electronic tags to ex-offenders who were no longer being tagged, who were in prison, or dead. G4S and Serco remain under investigation by the Serious Fraud Office.

In a gesture of corporate cleansing, both companies sent freshly minted ambassadors to Committee Room 15 yesterday. G4S, having parted from its chief executive Nick Buckles in May, despatched Ashley Almanza, a man who joined as chief financial officer in May, and found himself instantly propelled into the top job. Serco's chief Chris Hyman walked the plank last month. Facing the committee instead was Serco's part-time non-executive chairman, Alastair Lyons.

Despite rather disorganised and timid questioning from MPs, the session did teach us a few things about privatisation in the UK.

1. Everybody thinks transparency is a great idea; we still don’t have any

The witnesses emphasised how crucial transparency was. They stated their beliefs in open-book accounting, the necessity of third-party auditors and even suggested there was a duty upon corporations to be transparent when providing public services. One would be forgiven for assuming that reams of data and financial information about these companies and the public services they provide is easily accessible – but this is far from the case.

The National Audit Office noted on Monday that Serco in particular failed to disclose all the information requested for the purposes of their audit, and that the information they did receive relied on the companies' co-operation – they had no legal right to access it.

Indeed, Serco is currently in dispute with PriceWaterhouseCoopers over access to information regarding an audit of health services Serco provided (or rather, didn't) in Cornwall.

For the ultimate client, the taxpayer, transparency is even worse. The publicly available annual accounts provide little or no information about contracts with the public sector. Access to the contracts themselves is denied to the public (and in many cases also denied to the MPs who are tasked with holding G4S, Serco et al to account). Companies providing public services are not subject to Freedom of Information legislation.

2. Despite decades of public service delivery, none of the big outsourcers have adequate controls

Ashley Almanza conceded that it was obvious that "historically G4S have not had proper controls in place", and Alastair Lyons repeatedly insisted that Serco were working on strengthening its control structures. However, neither was able to explain why it had taken more than twenty years of public service outsourcing, a handful of third-party audits and an investigation by the Serious Fraud Office for them to realise the inadequacy of internal management and oversight. The message appeared to be, we had no control over quality of delivery before, but we promise we do now.

3. There is a fine (and blurred) line between poor judgement and dishonesty amongst the outsourcers

Both G4S and Serco argued that technically charging for electronic monitoring for people who were in prison, no longer under supervision or who had died was not breach of contract (the Ministry of Justice disputes this).

Almanza and Lyons admitted that their companies had charged for services for years after they had ceased to provide them. Both denied that this amounted to dishonesty. They claimed that during third-party audits no dishonest behaviour had been found.

Ashley Almanza, for G4S, did concede:

"It's not appropriate to bill before you've fitted the equipment and carry on billing after it’s been removed. It was flawed . . . I don't think we did correctly tell the difference between right and wrong."

PAC's Chair, Margaret Hodge MP, challenged Alastair Lyons about Serco's practice of "charging an arm and a leg" for hardware provided to Serco from a subsidiary called Serco Geografix, "pretending to the taxpayer that the costs were reasonable when in fact they were excessive".

Lyons claimed the practice was "known to the Ministry of Justice", and had since been abandoned.

Hodge said: "What you're really saying is we ripped you off in the past but we won't do so in the future."

Lyons replied: "I don't believe that as you say we ripped the taxpayer off. I think it was totally transparent. Clearly contract management has changed materially since 2005."

4. Central government is not very good at procuring services

Although couched in polite and positive language, the session confirmed what many had already noticed – central government departments are not very good at contracting out services. The witnesses reported that outsourcing competency varied widely from department to department, relatively junior civil servants were tasked with negotiating complex and high value contracts, and key performance indicators were sometimes poorly defined. Many government departments were only beginning to flex their buying power and drive a harder bargain.

5. Central government is not very good at managing contracts

Contract management was as bad, if not worse, than procurement and commissioning. Again, government departments assigned fairly junior civil servants, without the necessary skills, experience or confidence, the task of managing enormous contracts. We heard that there is some improvement in this area – but such poor management suggests the tagging scandal might not be the last of its kind.

The session revealed a bleak picture of privatisation in Britain today. Billions of pounds of taxpayer money has been spent by government departments who are neither particularly good at commissioning nor managing services, and most of this money has been given to companies who admit to exercising bad judgment and not really knowing the difference between right and wrong . . .  while denying that anybody has behaved dishonestly!

The PAC's stated purpose is to scrutinise the public accounts, focussing keenly on "value-for-money criteria based on economy, effectiveness and efficiency". Members' general lack of acuity and punch yesterday was not reassuring.

Perhaps most worrying was Margaret Hodge’s acknowledgement that it was as good as inevitable that the involvement of G4S, Serco, Atos and Capita in public services would grow in the coming years and that G4S and Serco had not ruled out bidding for the Ministry of Justice’s £500 million per year probation contracts. 


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