Two ex-Serco bosses helped hide £12 million in profits from the firm’s electronic tagging contracts with the Government, a court has heard.

Former senior managers Nicholas Woods, 51, from Ickford, Bucks, and Simon Marshall, 59, Ascot, Berkshire, are on trial at Southwark Crown Court over the alleged fraud against the Ministry of Justice (MoJ) between 2011 and 2013.

Serco had contracts to provide electronic monitoring within the criminal justice system funded by the taxpayer.

Prosecutor Michael Bowes QC told jurors on Tuesday the firm set up a subsidiary, Serco Geografix Ltd, to falsely claim £500,000 a month in costs “which were completely fictitious”.

Between October 2010 and September 2012, Serco allegedly reduced its apparent profits from £27 million to £15 million, concealing an extra £12 million.

Mr Bowes said it was not possible to calculate the precise amount gained by the company or lost by the MoJ.

“This is about a fraud on the taxpayer, on public funds, carried out by the defendants to benefit Serco, the company which employed them,” he said.

“The false reports as to costs were made in order to conceal Serco’s high profit margins and to stop the MoJ from taking steps to recover any of Serco’s previous profits or otherwise reduce the revenue stream Serco was obtaining through its operation of the contracts for the tagging.

“That reduced Serco’s apparent profit figure from £27 million to £15 million, thus concealing an additional profit figure of £12 million.”

Woods, ex-finance director of Serco home affairs, and Marshall, former operations director of field services, are jointly charged with fraud on or about August 11 2011.

Marshall faces two further counts of fraud on or about June 6 2012 and on or about January 18 2013.

They both deny the charges.

The pair are said to have assisted or encouraged another person, who is not on trial and cannot be identified for legal reasons, in the scam to submit false financial reports to the MoJ to conceal Serco’s high profits.

“The prosecution case is that the reported costs were not true and accurate and so were false, misleading or fictitious,” said Mr Bowes.

“The prosecution case is the defendants knew that and acted dishonestly.”

The court heard the subsidiary company charged Serco £500,000 a month, which was then returned to the parent firm through a dividend payment.

Marshall and Woods appeared in the dock with members of their legal team.

Last year, the waste company lost out on a lucrative contract with the new Buckinghamshire Council, which came amid a backdrop of complaints about the quality of the service from frustrated Wycombe residents and councillors.

The trial, which is expected to last up to 12 weeks, continues.