Severn Trent Water denies £75 million fraud allegation

Severn Trent Water has denied allegations that it overcharged customers and misled Ofwat over accounts and regulatory returns.

The statement comes in response to claims in a Sunday newspaper that David Donnelly, described as Severn Trent's income and debt reporter, alleged the company deliberately deceived Ofwat in order to disguise a £75 million discrepancy in its figures, including customers being overcharged by £50 million.

As a result of the allegation, the board of Severn Trent Plc appointed forensic accountants from Pricewaterhouse Coopers to conduct an independent investigation into the matters raised.

"Having reviewed the results of the investigation, the Board has concluded that these issues have had no effect upon the integrity of the Group's accounts and that water customers have not been overcharged," Severn Trent's statement said.

In addition, the investigation "revealed prima facie evidence of some behaviour that the Board believes falls short of the high standards it expects from employees. Accordingly, a disciplinary investigation has been instigated and other action is being taken as necessary," the statement said.

It is unclear exactly how many employees are being investigated or in fact the full nature of the inquiry.

However, Ofwat is now studying the PwC report to see whether Severn Trent's customers have been overcharged. The regulator said that compensation would have to be paid if the allegations were found to be true.

In the article, Mr Donnelly is alleged to have said that accounting problems began in 1999 when a lack of communication between the regulatory and the finance departments led to a £75 million discrepancy in accounts, including a £50 million overcharge to customers.

Severn Trent denies all allegations of impropriety and says the company is "committed to maintaining ethical and professional standards which support compliance with laws and regulations and seeks to safeguard effectively the interests of customers and shareholders."

Ofwat has said the investigation will not affect its announcement on December 2nd over final price limits. Nevertheless, news of the claims sent Severn Trent's share prices tumbling this week.

By David Hopkins



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