UK: Tesco facing criminal fraud inquiry
- Credit: PA
The Serious Fraud Office (SFO) is reportedly poised to launch a formal criminal probe into Tesco following the supermarket’s discovery of a £263 million hole in its profit expectations.
It comes after an investigation by accountants Deloitte and law firm Freshfields found the error was worse than first thought and that the supermarket had been overstating its earnings for years.
The Financial Conduct Authority (FCA) is already investigating and pay-offs totalling around £2 million to departed chief executive Philip Clarke and former finance director Laurie McIlwee have been suspended pending the inquiry.
Accounting watchdog the Financial Reporting Council has also said it is “giving careful consideration” to whether it should take regulatory action.
It was already known that the SFO was looking into whether to launch its own inquiry. Sky News reported that it was now preparing to launch a formal criminal investigation within days and had notified the supermarket of its intention.
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Tesco and the SFO both declined to comment.
Eight executives including UK managing director Chris Bush have been asked to step aside pending the investigations.
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Sir Richard Broadbent last week said he was preparing to step down to show someone was “carrying the can” for the scandal - which was “a matter of profound regret”.
Deloitte’s probe into the affair, which involved rebates from suppliers being moved around to different periods on the company’s balance sheet, found that it had been going on for years and at least as far back as the 2012/13 period.
New chief executive Dave Lewis tried to draw a line under the episode as he unveiled details of the inquiry while reporting a 92% fall in first half profits and deteriorating sales last week.
But Tesco has now had to re-write its rules on dealing with suppliers in light of the mistakes and said this would have an impact on its second-half performance.
It has also warned that the FCA investigation could result in “significant” fines.
The Deloitte probe involved more than six million documents with 18,000 invoices reviewed and 700 scrutinised in detail.
It found a £118 million trading profit shortfall related to the latest half-year plus a £70 million hit for the previous financial year and £75 million for 2012/13.
Tesco first announced last month that it had discovered a problem but initially expected it to result in a £250 million overstatement - lower than the sum it eventually calculated.
Details of the probe revealed that, once started, the accounting error seems to have spiralled out of control, as Tesco said “current and prior practices appear to be linked as income pulled forward grew period by period”.
But Mr Lewis brushed off any suggestion of fraud, saying that no-one had gained financially from the mistake.
The new boss is trying to turn the performance of the grocer around as it faces sliding sales amid a squeeze on market share from discounters Aldi and Lidl and a price war with its more established rivals.