The privatisation of the rail line which was the subject of a fraud inquiry has been halted following the dismissal of two managers from the board of the BR subsidiary running the line.
New bids are to be invited for the London, Tilbury and Southend line causing further embarrassment to the Government over its controversial rail privatisation programme.
Chris Kinchin-Smith, who headed the management buy- out team's bid for the line, and Roger Turner, his finance director, are to be redeployed to other parts of British Rail as a result of the completion of the investigation into the ticketing fraud which cost London Transport pounds 45,000 over a six-week period.
Their departure follows the suspension of five junior managers earlier this week and the resignation last Saturday of Colin Andrews, the commercial director, after the discovery of the fraud last week.
Enterprise Rail, the management buy-out team's bid for the franchise came within nine hours of being granted the franchise when Sir George Young, the Secretary of State for Transport, halted the transfer on Saturday night.
They were to have received pounds 29m annual subsidy to run services on the line in a 15-year deal involving the purchase of new trains.
The franchising director, Roger Salmon, will now be inviting bids from the other shortlisted bidders, thought to be two bus companies, Prism and Stagecoach, and GB, a team of rail experts. The new bidding will take several weeks, further delaying the franchising process which is already nearly two years behind its original schedule.
Ministers asked Mr Salmon to speed up the process in order to try to get all lines sold by the time of the next general election, but the fiasco over LTS will make Mr Salmon even more careful over how he allocates future franchises. Two companies, South West Trains and Great Western were handed over to private operators last weekend.
The decisive action by the BR board was inevitable after the inquiry confirmed that the fraud had taken place. Although neither of the two directors dismissed yesterday knew of the fraud, the board was thought to have been concerned at the lax financial management of the top team and at their slowness in reacting to the seriousness of the situation.
The fraud involved tickets being issued at one station and sold at another. Large numbers of season tickets with a London Transport Travelcard element were printed off at Fenchurch Street in central London and sold at Upminster in east London. This was advantageous to LTS because the company gets a greater proportion of revenue from tickets issued at Fenchurch Street than it does at Upminster.
It is thought the fraud could have been worth about pounds 1m over a year if plans to extend it to a second station, Barking, had materialised.
Sir George said last night: "Irregularities of this sort are totally unacceptable in either the public or the private sectors."
The Secretary of State welcomed the fact that systems put in place detected irregularities and that BR had taken decisive action. It is thought that while the fraud was discovered during the course of a routine audit, it was only thanks to the intervention of an employee who warned the auditors of the scam.
The collapse of the management buy-out also raises questions about the enormous pressures being faced by managers in the rail industry who are involved in such bids. They have to continue running the railway, negotiate the contractual agreements with Railtrack and other parts of the new structure and develop their management buy out bid.
Mr Kinchin-Smith was also hampered by having broken his leg in a skating accident late last year which immobilised him for several weeks. In virtually all the 25 train operating companies due to be franchised, management buy-out teams are expected to put in bids.
However, outside bidders have already been angered by the advantageous position of management teams who are in sole possession of large amounts of data and may be able to manipulate the figures in the same kind of ways as occurred at LTS.
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