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Two major private security firms face an investigation into whether they were overpaid for contracts to electronically tag criminals.

G4S and Serco will be investigated after Ministry of Justice officials identified potential "billing" issues.

Justice Secretary Chris Grayling said the companies had promised to reimburse his department if errors had been made.

Both firms defended their services and said they were co-operating fully with the audit.

The contracts are worth £107m a year but unions say this could rise to more than £1bn by 2015.

Report within weeks

Mr Grayling said potential issues had been thrown up during the retendering process for the contract to track offenders by satellite.

Electronic tagging is used to monitor criminals when they are released and to make sure they stick to any curfews.

Offenders have the tag attached to their ankle and their movements recorded via a monitoring unit in their home. Any curfew breaches or interference with the tag is reported to a control centre.

"I take this issue very seriously and my priority is to ensure that taxpayers' money is spent appropriately and delivers value for money," the justice secretary said.

But Keith Vaz, chair of the influential Home Affairs Select Committee, accused the government of failing to monitor the contracts "despite knowing the difficulties with G4S".

"G4S and Serco currently hold 17 contracts with the Home Office and it is essential a complete audit of these contracts is now conducted," Mr Vaz said.

Auditors Price Waterhouse Coopers will look at information supplied to the Ministry of Justice (MoJ) by the two companies during the tendering process and the department's management of the contract.

They are expected to report back on their findings within six weeks.

"Our suppliers have told me that they take this seriously too," Mr Grayling added. "They are co-operating fully and they have given me clear assurances that if any adjustment is required to charges made to date, this will be put right promptly and repayments made."

'Rush to privatise'

In a statement, G4S said it was carrying out the electronic monitoring of offenders in a "completely open and transparent way".

"We have worked with successive governments to provide electronic monitoring services and under the current agreement, which started in 2005, we estimate we have delivered savings to the UK taxpayer of more than £2 billion," the statement said.

Serco's Elaine Bailey said the company had "every confidence" in the service provided to the MoJ and would co-operate fully with the audit.

But probation officers' union Napo called for the two firms to be "disallowed" from delivering services until the audit was complete, and criticised the government's "rush to privatise the probation service".

Government plans to out-source much of the probation service to providers on so-called payment-by-results contracts were recently criticised by senior probation officers.

Charities, voluntary groups and private firms like G4S and Serco stand to benefit from the proposals.