Britain begins criminal probe of Tesco profits scandal

Britain begins criminal probe of Tesco profits scandal

Wednesday, October 29, 2014 6:32 pm

Tesco: criminal probe of overstated profit

Tesco: criminal probe of overstated profit

Britain announced a criminal investigation on Wednesday into accounting practices at Tesco, the country’s biggest retailer, after the supermarket group overstated its profits by £263 million ($424 million, 333 million euros).

Tesco said it was “cooperating fully” with the inquiry by the Serious Fraud Office (SFO), the government department responsible for investigating and prosecuting serious and complex fraud and corruption.

“The SFO confirmed today that the director has opened a criminal investigation into accounting practices at Tesco plc,” the department said in a short statement, referring to director David Green.

It said it could not provide further details while the investigation was underway.

The SFO’s action prompted the Financial Conduct Authority (FCA), Britain’s financial watchdog, to announce that it had discontinued its own investigation into the overstated profits.

In an update to the London Stock Exchange, the supermarket group confirmed the development and said: “Tesco has been cooperating fully with the SFO and will continue to do so.”

Tesco is the world’s third-biggest supermarket group after France’s Carrefour and global leader Wal-Mart.

So investors were stunned last month when it revealed that its profit forecast for the six months to August 23 was overstated by an estimated £250 million.

Following an independent probe by accountants Deloitte, the final figure was last week put at £263 million, which includes overstatements of £70 million for Tesco’s last financial year and £75 million relating to pre-2013/14.

The announcement, along with the revelation that Tesco’s net profit had fallen to just £6.0 million in its first half from £820 million one year earlier, prompted the resignation of Tesco chairman Richard Broadbent on October 23.

“The issues that have come to light over recent weeks are a matter of profound regret. We have acted quickly to clarify the financial performance of the company,” Broadbent said at the time.

“A new management team is in place to address the root cause of the mis-statement and to develop and implement the actions that will build the company’s future.”

Tesco has also suspended eight executives since recently-appointed chief executive Dave Lewis launched an inquiry on September 22 into the overstated profits.

After the announcement last week, Moody’s rating’s agency cut its long-term debt rating on Tesco from Baa2 to Baa3 — which is just one level above junk.

Even before the profits fiasco, Tesco had seen its profits hit in recent times by increased competition at home and abroad, where it shut its failed US division Fresh & Easy and exited from Japan.

In July, the group appointed former Unilever executive Lewis to replace long-standing chief executive Philip Clarke and help revive the company’s fortunes.

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