Rail fraud 'aimed to help success of sell-off'

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The Independent Online

Transport Correspondent

The London, Tilbury and Southend line fraud, which has led to the postponement of one of the first British Rail privatisations, involved little more than transporting suitcases full of tickets from one station to another, it was claimed yesterday.

It appeared that the alleged scam was not designed to line the pockets of the perpetrators, but to profit the company which they had created to help ensure the success of privatisation.

According to sources, it is claimed the fraud allegations involved the printing of rail tickets incorporating London Travelcards at Fenchurch Street station, the line's terminus, and selling them at Upminster, one of the line's intermediate stops. Tickets issued at Fenchurch Street raise more cash for LTS than those issued at Upminster.

Because passengers at Fenchurch Street, which is not connected to the London Underground, are expected to use their tickets mainly for travel on the LTS, London Transport only gets 22 per cent of receipts from Travelcards sold there. But at Upminster, which is on the Tube's District Line, London Transport receives 48 per cent. The customer would not notice the difference on the ticket, but LTS would retain more of the revenue.

The irregularity was discovered by BR's routine internal audit because the auditors wondered why there was such an upsurge in ticket sales at Fenchurch Street and a drop at Upminster. Investigators were sent in last week and once the extent of the alleged fraud was discovered, postponement of the franchise was inevitable.

Michael Heseltine, the Deputy Prime Minister, claimed that the affair was a triumph for the new system, but BR insiders claim it was due to the efficiency of its auditing systems.

The allegations have resulted in the resignation of Colin Andrews who was commercial director of both LTS and the new private company, Enterprise Rail, which had been due to take over the service yesterday.

In the six weeks of the alleged fraud, it was claimed to have cost London Transport about pounds 45,000 and over a year would have netted LTS about pounds 500,000 - enough to make the difference between profitability and loss for a company with an annual revenue of about pounds 55m and a subsidy of pounds 29m.

Brian Wilson, Labour's transport spokesman, said the franchise process should be restarted: "If it is confirmed that Enterprise Rail would have benefited from this alleged fraud, then there is no way that it should be ever allowed to take on the franchise."

The affair raises questions over the position of management buy-out teams. Buy-out teams have taken over two of the first three franchises and are expected to figure prominently in the next round of four lines due to be privatised in the spring.

One rail insider warned that they could, for instance, artificially depress income in the period running up to privatisation by allowing fare dodgers a free rein and then tighten up procedures once they had taken over the line.