Allegations that it has been overcharging the Government ended up wiping almost half a billion pounds off the value of the outsourcing firm Serco yesterday.
The FTSE 100-listed company – which employs 122,000 staff in 30 countries to run prisons, air traffic control towers and London's Docklands Light Railway – is already under official investigation for alleged overbilling on electronic-monitoring contracts for offenders.
But yesterday it was forced to publish a profits warning for this year and next which led to a 17 per cent crash in its share price to 419.1p, wiping some £450m off Serco's value.
The group said its troubles with the UK Government and the ending of other large contracts would mean its "profits for 2014 being moderately lower than those for 2013". Serco said it expects this year's adjusted operating profit to be approximately £325m. Meanwhile, its operating margin would be slightly down on the 6.4 per cent achieved last year.
It has announced 400 job cuts in its UK and business-process outsourcing operations, from a total 47,000, which will lead to additional costs of £14m this year. Further job losses could follow next year as the company admitted there were plans to "drive further efficiencies".
Acting chief executive Ed Casey, who stepped in when former boss Chris Hyman quit last month, said: "We have taken decisive action, and are encouraged by the Government feedback."
The company is facing a government assessment into whether it has improved things enough to be allowed to win future contracts.
A Serco spokesperson said Serco's UK Government business was "an area that is on ice". However, the company has started a "corporate renewal" programme in an attempt to convince its Government customers – which account for around a third of its revenues – to continue to do business with the firm.
Last week, the Serious Fraud Office confirmed that it would investigate Serco and rival security-services group G4S for allegedly overcharging taxpayers millions of pounds for the electronic tagging of offenders, many of whom were apparently dead, non-existent or in custody.
The company has agreed to repay any amount due on the contract, the bill for which could end up in tens millions of pounds. In a separate police fraud investigation over alleged misreporting in a £285m prison-escorting contract, it has agreed to repay past profits. Staff at the company have been referred to the City of London police after being accused of recording that prisoners in London and East Anglia had been delivered ready for court when they had not.
The company has now lost around a third of its stock-market value in the last six months as it lurches from one crisis to another. Yesterday's warning prompted analyst Graham Brown of Canaccord Genuity, to say: "I don't think it's entirely surprising given that their biggest contract is in the hospital ward at the moment."
Joe Brent, an analyst at Liberum investment bank, said it was "an awful statement and we expect further weakness".