Tesco worries deepen as SFO announces investigation

The Tesco crisis has deepened with news that the Serious Fraud Office (SFO) is to launch a criminal investigation into the accounting practices at the company, which led to profits over the last three years being overstated by £263 million.

An SFO statement said “further details” of its probe could not be given, because the investigation is now under way.

However, the SFO will be seeking to establish whether the activities among those responsible for Tesco’s accounting were sufficiently non-compliant with the regulations to constitute fraudulent activity, and if this was done with the aim of providing anyone with personal gain.

Last week, Tesco chief executive David Lewis claimed that the probe into accounting at the company by Deloitte indicated that “nobody gained financially as a consequence of the overstatement of performance”. However, the information Deloitte uncovered was passed to the SFO and the Financial Conduct Authority (FCA) and appears to have provided sufficient reason for further investigation.

Mr Lewis was speaking last week after Deloitte found the level of profit overstatement totalled £263 million, of which £118 million related to the first half of this year. That left Tesco announcing a 92 per cent drop in pre-tax profits and declining to offer any guidance on its full-year figures.

The problems at the retailer first came to light in the summer, when it revealed that previous projections for revenue and profit were likely to have been greatly exaggerated. It suspended eight executives, withheld bonuses to former chief executive Phil Clarke and former finance director Laurie McIlwee pending an investigation and brought Deloitte in to establish the extent of the black hole in the company’s finances.

In response to the situation, the FCA revealed on October 1st that it would be investigating the affair.

While many Tesco executives have already left and chairman Sir Richard Broadbent is poised to leave, the extent of Tesco’s non-compliance with accounting regulations may mean its troubles have only just begun.

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