Serco is in trouble with the British government over fraud allegations (Reuters)

Serco's reputation took another blow with the news that its United Kingdom and Europe division chief will step down amid a probe by the Serious Fraud Office.

Serco said that the UK and Europe chief executive Jeremy Stafford would be replaced by its UK and Europe chief operating officer Andrew White on an interim basis.

The company said it had been working hard over the last four months to refresh its relationship with the UK government and had concluded that a change in the senior leadership of its UK and Europe division would accelerate and consolidate that process.

Both Serco and its counterpart G4S are under criminal investigation by the SFO amid allegations of over charging the government for the electronic tagging of criminals, done on behalf of the Ministry of Justice.

Justice Secretary Chris Grayling raised the alarm over Serco and G4S in June.

Grayling said he had seen evidence that both firms had charged taxpayers for carrying out electronic tagging work that had not in fact occurred. In some cases, it is claimed that the government paid for the tagging of prisoners who were actually dead.

He added there was no evidence that knowledge of any wrongdoing went up to executive level.

An opening of criminal investigations came days after the resignation of Serco chief executive Christopher Hyman.

G4S UK chief executive Richard Morris, who had previously been managing director of electronic monitoring at G4S Care & Justice Services, also resigned.

The government has suspended Serco and rival G4S from signing any new contracts before the Cabinet Office review into existing work is complete.

Recently, Serco revealed that it will axe around 400 jobs in its UK and business process outsourcing operations.