The government has launched a review into security outsourcing firms G4S and Serco after an audit found evidence that they had charged for tagging criminals who were dead, in prison or had never been tagged in the first place.

After lawmakers ordered an independent audit of the billing arrangements of both tagging contracts, justice minister Chris Grayling told parliament today (Thursday) that erroneous charges had been revealed.

The firms are two of Whitehall's biggest suppliers, running services from prisons and immigration centres to transport.

"The audit team is confirming its calculations but the estimate is that the sums involved are significant, and run into the low tens of millions for both companies since the contracts commenced in 2005," Grayling said.

"The House will share my astonishment that two of the government's biggest suppliers would seek to charge in this way."

G4S, the world's largest security firm, has been rocked by a number of setbacks in recent years, including an ominous profit warning, a costly mishandling of its Olympics security staffing contract, and a botched takeover attempt of cleaning contractor ISS.

Politicians confirmed that Serco had agreed to cooperate with an audit of all its contracts.

External auditors

Serco said: "We will not tolerate poor practice and behaviour and wherever it is found we will put it right." It confirmed that the company would repay any amount found to be due.

The Home Office has asked the Serious Fraud Office (SFO) to consider whether an investigation into G4S was required after the firm declined to allow a further review.

G4S said it was conducting its own review, assisted by external auditors, and that it would reimburse any money it owed. "Any evidence of dishonesty should be referred to the relevant authorities, including if appropriate, the SFO," it said

G4S blocked government access to contractual arrangements and evidence such as internal email trails between company executives. Serco has agreed to government access.

Serco's shares plummeted by nearly 9% near the market close while G4S shares fell by nearly 5%.

Serco confirmed that it had withdrawn from bidding for the new electronic tagging contract although G4S has not.

Grayling said he had started a formal process into whether G4S should be allowed to compete for the tender.

G4S's reputation was tarnished over its failure to provide enough guards for the London Olympic Games. It lost out on contracts to run six prisons including the Wolds in northern England which it had managed since 1992.

In January it won a tagging contract with the French Ministry of Justice worth €80m ($107.6m, £68.2m). The contract is initially for a period of four years which can be extended to six years.