A multi-billion pound BT contract to run Ministry of Defence phone lines was today branded a "real-life Whitehall farce" after it emerged the telecoms giant's staff made sure they met call-answering targets by ringing each other.
BT was forced to pay the Ministry of Defence £1.3m in compensation after the fiddle was uncovered.
Staff phoned one another to help the telecoms giant avoid fines for not answering calls quickly enough as part of a £3bn-plus Private Finance Initiative (PFI) deal to operate the armed forces' telephone system.
The scam was exposed in a report by public spending watchdog the National Audit Office, which said it showed the need for better monitoring of the way such projects are being run.
BT sacked some of the "small number of staff" involved and paid £1,021,000 in service payments, the £122,000 cost of investigating the fraud and the £197,000 cost of the sham calls.
The call centre involved, in Kettering, Northamptonshire, is no longer in operation.
Tory MP Edward Leigh, who chairs the Commons public accounts committee, said the attempt to rip off the taxpayer was "a real-life Whitehall farce".
"It says a lot about the MoD's oversight of its contractors that the Department's systems failed to spot a serious fraud," he said.
"BT staff working on the MoD's PFI telecoms project actually plotted to phone each other in order to beef up their performance statistics for answering calls.
"It was only later that the Department found out it was £1.3m out of pocket and had to recover this from BT. A real-life Whitehall farce."
The National Audit Office (NAO) report said the scam was not spotted immediately because it did not have enough impact on the phone service to spark complaints by users and require an investigation.
It eventually came to light within BT - which is now required to provide more detailed reporting and undergo regular detailed checks of the integrity of its reporting system.
Overall, the NAO painted a positive picture of the MOD's 50 PFI projects - worth some £9bn in total - finding all but two of the eight it examined had been "delivered satisfactorily, on time and on budget".
But it called for procurement times to be speeded up, with the average timespan coming in at 37 months, three months more than the rest if Whitehall, and 45 months for the biggest projects.
Tim Burr, head of the National Audit Office, said today: "Most of the private finance projects in its portfolio of more than 50 have been delivered successfully by the Ministry of Defence.
"But the Department needs to be more alert to the risks that can emerge once the project is up and running, such as inaccurate performance reporting.
"It could also reduce procurement times by speeding up its decision-making, and by collecting better information at the outset on current and prospective use of the service and the condition of assets."
Mr Leigh said: "The Ministry of Defence spends over £1 billion a year on PFI projects alone, so it is vital that it manages risk effectively.
"I welcome the news that most MoD projects funded by PFI are delivered successfully, but today's NAO report has highlighted some severe shortcomings in the MoD's approach to PFI projects, particularly the nearly four years on average it has taken for the MoD to procure each large project. That's no way to do business."
First awarded to BT in 1997, the Defence Fixed Telecommunications System contract was, in 2005, extended by five years to July 2012.
It is centred around the the provision of a phone service used by more than 200,000 personnel.
The Liberal Democrats said the problems encountered with PFIs - which have led some to be abandoned several years down the line - were a "scandalous" waste of public money.
Defence spokesman Nick Harvey said: "At a time of tightening public finances, the MoD should be looking to save money wherever it can.
"However, this report shows that the Government's blind faith in PFI projects is leading to millions of pounds being lost in inefficiencies."
An MoD spokesman said: "In this incident BT call centre staff artificially inflated call numbers in order to meet targets for successfully completed calls.
"On discovery, a full investigation was carried out by the MoD Police and BT and no criminal charges are planned.
"MoD commissioned an independent review to establish the degree of financial loss.
"A settlement of £1.3m has been agreed with BT, which includes recovery of the independent assessor costs."Reuse content