The Justice Secretary called in the Serious Fraud Office after auditors reported the firm which runs Doncaster Prison, along with another firm, had overcharged the Government by millions of pounds.
Chris Grayling told the House of Commons that G4S has refused to take part in an additional audit so the Government can rule out the possibility that that dishonesty was involved in any of the contracts, while Serco, which runs HMP Doncaster, has agreed to this demand.
Mr Grayling said an initial audit, launched when the billing issues were disclosed in May, found that the Government had been charged in cases when Serco and G4S were not providing electronic tagging - and in a small number of cases when the offender was known to have died.
He said: “The billing practices in question were clearly unacceptable and the Government will take all necessary steps to secure a refund for the taxpayer.”
Serco has agreed to withdraw from the current tender process for electronic monitoring, while the Justice Secretary is to instigate moves to exclude G4S as the company is still attempting to bid.
Electronic tagging is used as a method of monitoring offenders in the community and can be used to make sure criminals stick to court-imposed curfews.
The equipment consists of a tag fitted to the offender’s ankle and a monitoring unit in the home or other place of curfew.
Secro confirmed it will repay any amount agreed to be owed to the Government.
Serco Group chief executive Christopher Hyman said: “Serco is a business led by our values and built on the strength of our reputation for integrity.
“We will not tolerate poor practice and behaviour and wherever it is found we will put it right.”
A spokeswoman for G4S said the firm had not been provided with the results of the initial audit, despite requesting the report.
She said that an internal investigation, with external help, found no dishonesty in the tagging contracts.