The inquiry, which was confirmed by the watchdog on Wednesday will supercede an investigation by the Financial Conduct Authority (FCA), the City regulator which has been halted with immediate effect. It is not clear whether it will affect the launch of an inquiry by the accountancy watchdog, the Financial Reporting Council (FRC), which is also being considered.
“Tesco has been co-operating fully with the SFO and will continue to do so,” the retailer said in a statement.
Tesco’s shares have nosedived 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 turnaround falling sales and profits at Britain’s biggest retailer, 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 £263m.
Deloitte said £118m of the figure related to the first six months of the current financial year but that £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.
Some analysts have speculated that increasingly desperate executives were pulling forward payments in order to paint a more flattering picture of the supermarket’s finances. Last week, Lewis dismissed the suggestion that fraud was involved: “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 grew period by period. The report is being shared with the FCA and FRC. Major suppliers to Tesco have also asked auditors to look into their dealings with the retailer, according to recent reports.
The criminal investigation, first reported by Sky News, comes at a very difficult time for Tesco as it struggles to cope with a rapidly changing grocery market amid new competition from discount chains and the rising influence of online retailing. Shares in the group have halved in the past year as the retailer continues to lose market share while German discounters Aldi and Lidl continue to grow rapidly.
Last week, Tesco revealed that first-half profits had plunged by 92%, to £112m, and declined to give any guidance on the full- year outcome.
Chairman Sir Richard Broadbent has said he will step down next year. Bonus payments to former chief executive Phil Clarke and former finance director Laurie McIlwee have been withheld as investigations continue.
Lewis has told staff he wants to see a change in culture at Tesco and has led the way by swapping his limo for the train in an effort to save money. Bonuses and long-term incentives at the group for current senior executives, including the CEO, are also under review.
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