Seven Trent faces fraud inquiry

WATER regulator Ofwat has set up a special unit to investigate claims by Severn Trent whistleblower David Donnelly of attempted fraud.

Financial Mail revealed last year how Donnelly was forced to take part in a scheme to exaggerate the scale of Severn Trent's bad debt and then persuade the regulator to allow higher price rises.

Donnelly complained to managers and an inquiry was carried out by Severn Trent's auditors.

Donnelly told his story to Financial Mail after he became convinced that regulators were not being given the facts behind his allegations.

The investigating team, based in Birmingham, will not only consider whether overcharging occurred as a result of the alleged bad debt ploy, but also Severn Trent's intent in carrying out the scheme.

The team is led by Tracey Anderson, head of regulatory accounts and business affairs at Ofwat, and includes at least two senior accountants. They will consider the case on the balance of probabilities rather than proof beyond reasonable doubt. If they find evidence of overcharging, Severn Trent will be required to make refunds.

Financial Mail has also learned that senior figures at the Serious Fraud Office are considering evidence provided by the regulator and by Donnelly and are expected to decide whether to start their own investigation shortly.

A dozen MPs in areas covered by Severn Trent have also written to Ofwat and Environment Secretary Margaret Beckett demanding action.

Donnelly's MP, Liberal Democrat Matthew Green, said he would table Parliamentary questions if he thought Ofwat was not investigating the allegations rigorously.

Donnelly said: 'I have been assisting the regulator with the investigation and I am pleased with the response of MPs.

'There is enormous public concern about whether paying customers of Severn Trent have been overcharged as the result of a scam orchestrated by directors.'

Last week, Severn Trent revealed it would cut 350 jobs after accepting Ofwat's ruling that it would be restricted to raising prices by 20% over the next five years, a lower increase than it had wanted.