Police have arrested four former employees from the company which holds the government's welfare-to-work contracts.
The government has been urged to suspend its Work Programme contacts with A4e, based in Slough, Berkshire, after revelations that it had referred former employees' activities to police.
Thames Valley Police visited the firm's offices in Slough over the claims on Friday, and the force has confirmed that it had arrested four people in connection with the investigation.
A police spokesman said: "Thames Valley Police officers visited the offices of A4e in Slough on Friday, February 17 as part of an allegation of fraud, which was referred to the Force by the Department for Work and Pensions.
"As part of the investigation, four people, two women aged 28 and 49, and two men, aged 35 and 41, were arrested on suspicion of fraud on January 18 from addresses across the Thames Valley.
"They have all been released on police bail until mid-March.
"The investigation is ongoing and at an early stage, therefore we are unable to comment further at this time."
The company is chaired by Emma Harrison, who was appointed by Prime Minister David Cameron in 2010 to help get troubled families into work.
Its five shareholders were paid £11 million in dividends last year, of which Ms Harrison received 87%.
A4e chief executive Andrew Dutton has repeated assurances that the company has "zero tolerance" towards fraud.
He said: "I will not sit by and let these accusations discredit the hard work that our staff do to support thousands of people into work.
"A4e has zero tolerance towards fraud, and any instance of fraudulent or otherwise illegal activity is completely unacceptable.
"We take our responsibility very seriously, and we are committed to using taxpayer's money effectively and efficiently to deliver the best services to the public."
A company statement added: "A4e employs over 3,500 staff across the UK and overseas, out of more than 250 offices. This incident relates to four people, so we are dealing with a very small number of individuals."
The firm said Thames Valley Police visited its offices for a mutually agreed meeting in relation to an allegation of fraud that was identified by A4e's internal processes and was reported to the authorities by the company.
It said the ongoing investigation concerned four former A4e front-line staff who were working on ESF contracts, and are alleged to have falsely claimed that customers had been placed into employment.
Three of the staff involved were suspended once the allegations had been made and the other had already left the business, but all four have now left, A4e said.
Labour MP Margaret Hodge, chairwoman of the Public Accounts Committee, has attacked the firm's performance record as "abysmal" and said the Government should consider suspending its Work Programme contracts with A4e until the matter was resolved.
But Employment Minister Chris Grayling said that would not be possible under the coalition's Work Programme because private providers were not paid until after six months.
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