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Tesco will face criminal inquiry over accounting: UK retailer overstated its profit guidance by pounds 263m: SFO investigation could take as long as two years(Guardian (UK) Via Acquire Media NewsEdge) The Serious Fraud Office has launched a formal criminal investigation into accounting practices at Tesco that saw the UK's biggest retailer overstate profit guidance by pounds 263m. The inquiry will supersede an investigation by the Financial Conduct Authority (FCA), the City regulator, which has been halted with immediate effect. The accountancy watchdog, the Financial Reporting Council (FRC), continues to gather information and consider whether it might also launch a formal investigation into the behaviour of accountants and auditors linked to the supermarket. "Tesco has been cooperating fully with the SFO and will continue to do so," the retailer said in a statement yesterday. Tesco's shares have plunged since the retailer admitted last month that a whistleblower had identified an issue with the way it booked payments from suppliers. Just weeks after the arrival of new chief executive, Dave Lewis, who was brought in to turn around falling sales and profits, a team of forensic accountants from Deloitte established that the estimate of first-half profits that Tesco gave the City back in August was artificially inflated by pounds 263m. Deloitte said pounds 118m of the figure related to the first six months of the current financial year, but that pounds 145m related to previous years. The inquiry triggered the suspension of eight senior executives, including Chris Bush, the head of the UK food business. None has yet been reinstated. It is not clear which potential offences the SFO is investigating at Tesco. The body has the power to prosecute individuals and companies of complex crimes including false accounting or fraud. Company directors who are found to have dishonestly or recklessly signed off inaccurate accounts can face a fine or up to two years in prison, although it is rare for directors to be prosecuted for such offences. Concealing or falsifying records for accounting purposes for personal gain or the benefit of someone else is potentially punishable by an unlimited fine or up to seven years in prison. There is no suggestion that anyone involved with Tesco was involved in wrongdoing or committed a criminal offence. Some analysts have speculated that executives were pulling forward payments related to marketing or sales targets in order to paint a more flattering picture of the supermarket's finances. Last week, Lewis dismissed the suggestion that fraud was involved. He said: "Nobody gained financially as a consequence of the overstatement of performance." Deloitte concluded that supplier payments had been pulled forward or deferred in a manner that was contrary to Tesco's accounting policies. It also found there had been similar practices in prior reporting periods and that the sums pulled forward increased period by period. The report was shared with the FCA and FRC and is likely to be examined closely by the SFO. Leading suppliers to Tesco have also asked auditors to look into their dealings with the retailer, according to recent reports. The SFO investigation could take as long as two years, particularly as the watchdog is embroiled in a string of other high-profile investigations into big British companies including aircraft engine maker Rolls-Royce, Barclays Bank and pharmaceutical group GlaxoSmithKline. The SFO is likely to begin by taking a "forensic copy" of the relevant financial data and may then direct Tesco to provide it with further relevant information. The SFO also has the power to compel individuals to provide evidence, but is unlikely to use this power over individuals which it considers may be suspects. Omar Qureshi, a partner at international law firm CMS, said: "It is far too early to speculate as to whether or not Tesco or anyone working for them has committed any criminal offences. There could be lots of unfortunate reasons for the accounting issues, which do not amount to criminal offences. The SFO will need time to complete their investigation. Don't expect any decisions from the SFO on this matter any time soon." (c) 2014 Guardian Newspapers Limited. |