Fraud office probe into water company

The employee, who has not been named, made allegations in May 2004 about accounting inaccuracies in information about leakage rates supplied by the company to regulator OFWAT.

The tip-off prompted an investigation by the regulator in January and the matter has now been referred to the Serious Fraud Office (SFO).

SFO spokesman David Jones said he was unable to comment while an investigation is ongoing.

"It is a criminal investigation and possible prosecution which is under way," said Mr Jones.

"What we are looking at is matters surrounding the provision of regulatory information by Severn Trent to OFWAT."

In a prepared statement Severn Trent, which covers the Vale and Cotswolds, denied customers had been overcharged as a result of the alleged irregularities.

The statement said: "Severn Trent is supporting OFWAT in its review of these allegations and will co-operate fully with the Serious Fraud Office.

"An employee of Severn Trent Water raised a number of allegations relating, in particular, to alleged accounting inaccuracies and regulatory returns.

"PricewaterhouseCoopers LLP Forensic Services was appointed by Severn Trent Plc to carry out a thorough and independent investigation and in the light of their findings Severn Trent Plc announced on 22 November 2004 that the Board was, and remains, of the view that the matters raised have no effect upon the integrity of the accounts and that Severn Trent Water's customers have not been overcharged."

The OFWAT investigation is ongoing, pending the results of the SFO's enquiries and Severn Trent have told the regulator any customers overcharged as a result of the alleged irregularities will be compensated.

OFWAT spokesman Peter Mandich added: "Leakage is important as a level of company performance and is one of the areas we look at when we set price limits.

"Any further details of the investigation will be a matter for the SFO to comment on."