Serco overcharged British taxpayers on its government contract for the electronic tagging of criminalsReuters

Serco has expanded its contract with the Ministry of Justice to run Thameside prison, despite the outsourcing firm being under investigation by the Serious Fraud Office on allegations of overcharging taxpayers in its electronic tagging work for the government.

Alongside its rival G4S, Serco is being probed for charging the MoJ for the electronic tagging of criminals that was never carried out. It has already agreed to hand back £68.5m to the government.

Serco has only had the 26.5 year Thameside contract since July 2010. It is worth £415m and is to run a Category B prison.

"We are delighted to have been awarded this contract expansion to extend the size of the prison at Thameside which will support the MoJ in its programme to modernise the UK prison estate," said James Thorburn, Serco's managing director for home affairs.

"Both Her Majesty's Chief Inspector of Prisons and more recently the Independent Monitoring Board have recognised the progress that has been made since the prison first opened but we also recognise that much remains to be achieved."

The extension will take the number of prisoners able to be housed at HMP Thameside from 900 to 1,231.

Serco and G4S lost their MoJ electronic tagging contacts to rival outsourcing specialist Capita.

Christopher Hyman stepped down as Serco chief executive in the wake of the tagging scandal. The firm's UK and Europe chief executive Jeremy Stafford quit soon after.