Southern Water supplies drinking water to 2.3 million people

Southern Water Services Limited alerted regulator Ofwat and the Serious Fraud Office to "certain inconsistencies" it had discovered in its own procedures.

A spokesman said the problems related to responses to customer inquiries and complaints and were uncovered as a new billing system was installed.

SWSL supplies homes in Kent, Sussex, Hampshire and the Isle of Wight.

The firm follows General Levels of Service procedures, which mean customers may be entitled to �25 compensation if water firms do not respond to calls and letters within certain time limits.

A company spokesman said that it might be required to reimburse between �1.5m and �2.5m for the financial year to March 2005.

"That is just a calculation based on the penalty and the number of people who might or might not have been involved," he said.

Customer calls

The spokesman said no-one had been suspended following the reporting of irregularities around a week ago.

SWSL's board appointed law firm Linklaters and specialists from accountancy firm KPMG to investigate the inconsistencies, he added.

The spokesman said that all customers who had been disadvantaged would be reimbursed.

"The company is determined to improve its service to customers," he said. "It is for this reason that SWSL immediately alerted the authorities and is acting urgently and in full co-operation with them."

Water regulator Ofwat said it was taking the firm's statement "seriously" and that customers' interests must be protected.

"Southern Water has given us an assurance that customers who have been disadvantaged will be reimbursed," he said.

"A priority will be to ensure that all the facts come to light and that lessons are learnt."