BT have been fined for fixing figures at an MoD call centre
BT has been forced to pay the Ministry of Defence £1.3m in compensation after some of its staff met call-answering targets by phoning each other.
The National Audit Office found they fixed figures to help BT avoid fines for not answering calls quickly enough.
The targets were part of a £3bn Private Finance Initiative (PFI) deal to operate the forces' telephone system.
BT has sacked some of the "small number of staff" involved and the call centre concerned no longer operates.
The company has also paid £1,021,000 in service payments, the £122,000 cost of investigating the fraud and the £197,000 cost of the fake calls.
The call centre concerned, in Kettering, Northamptonshire, has been taken out of operation.
The National Audit Office, the public spending watchdog, said the discovery showed the need for better monitoring of the way such projects are being run.
Tory MP Edward Leigh, chairman of the Commons public accounts committee, described the incident as "a real-life Whitehall farce".
He said: "It says a lot about the MoD's oversight of its contractors that the department's systems failed to spot a serious fraud.
"BT staff working on the MoD's PFI telecoms project actually plotted to phone each other in order to beef up their performance statistics for answering calls.
"It was only later that the department found out it was £1.3m out of pocket and had to recover this from BT."
The National Audit Office said the fake calls were not immediately spotted because they did not have enough impact on the phone service to spark an investigation.
It eventually came to light within BT - which is now required to provide more detailed reporting and undergo regular detailed checks of the integrity of its reporting system.
Tim Burr, head of the National Audit Office, said: "Most of the private finance projects in its portfolio of more than 50 have been delivered successfully by the Ministry of Defence.
"But the department needs to be more alert to the risks that can emerge once the project is up and running, such as inaccurate performance reporting."
The Liberal Democrats said the problems encountered with PFIs were a "scandalous" waste of public money.
Defence spokesman Nick Harvey said: "PFI projects should only be used where they can be clearly proved to provide the best value for money.
"Instead, the MoD appears to be signing up to PFI schemes without thinking, then throwing away millions abandoning them years later.
"This level of waste is scandalous when our troops are still going without vital equipment and helicopter support in the field."
An MoD spokesman said: "The Defence Fixed Networks Integrated Project Team, which is responsible for managing the contract, has reviewed and strengthened their service assurance and management process, with the assistance of external independent advisors.
"These robust management controls should ensure that there is no recurrence of this fraud."