Former Tesco chief executive Philip Clarke is set to be questioned by the Serious Fraud Office as it nears the conclusion of an investigation into a multi-million-pound accounting scandal at the retailer.
Clarke, who left Tesco in August last year after overseeing a dive in sales and profits, will be interviewed under caution by the SFO, meaning that any testimony he gives can be used in evidence. Tesco’s former commercial director, Kevin Grace, has also been called in, according to Bloomberg which first reported the story.
The SFO kicked off a criminal investigation into accounting practices at Tesco in October 2014 after the company admitted that it had overstated profits by £263m because it had incorrectly booked payments from suppliers, for reasons such as marketing costs or reaching sales target. Some Tesco suppliers and other directors including Carl Rogberg, the former UK finance director, Laurie McIlwee, the former group finance director, are also believed to have had contact with the SFO earlier this year.
The issue is also being investigated by the grocery market watchdog – the Groceries Code Adjudicator – and the accountancy watchdog, the Financial Reporting Council.
The profit black hole emerged just weeks after the arrival of new chief executive Dave Lewis, who was brought in to turn around falling sales and profits at Britain’s biggest retailer.
After a whistleblower alerted Lewis, a team of forensic accountants from Deloitte established that Tesco had artificially inflated an estimate of first-half profits given to the City in August last year. They found similar practices had been in place in prior reporting periods. In April this year, Tesco said it had found another £60m more in mis-statements from previous years, mostly as a result of an audit of its Irish operations.
Tesco declined to comment on Thursday but has previously said that it would fully co-operate with the SFO. Earlier this year, that led to speculation that the supermarket could be one of the first companies in the UK to strike a new type of deal with the SFO which would enable it to avoid a criminal prosecution. SFO director, David Green, has said he expects the investigation into Tesco will be resolved by the end of this year.
Under new powers introduced last year, the SFO can offer a “deferred prosecution agreement” (DPA), which requires high court approval. It includes fines and other undertakings, if that is considered to be in the public interest and a company cooperates.
In May, Ben Morgan, the SFO’s joint head of bribery and corruption, revealed that the watchdog had handed out its first invitation letters for companies to enter into DPA negotiations. A DPA deal does not protect individuals who might face criminal charges with the help of evidence provided by the company.
Clarke joined Tesco as a schoolboy shelf-stacker in 1974. His father also worked for the business. He took over from long-term Tesco boss, Terry Leahy, in 2011 and spent more than £1bn revamping the chain’s UK stores and product ranges. Yet he failed to spot rising competition from discounters such as Aldi and Lidl early enough or to stem the tide of shopper defections to rivals.
The announcement of his departure last summer came as a surprise for Clarke, who was preparing to celebrate his 40th year at the company with a party in central London. Clarke said it was an “emotional” time but that he had “nothing to regret” during his three-year reign.
Clarke was paid £1.2m for loss of office. Tesco tried and failed to withhold that payment, and another to McIlwee, while it carried out an investigation into the accounting scandal. It has said would seek to recover the money if either was found to have been guilty of gross misconduct. “We have explicitly reserved the company’s rights to pursue recovery of these payments,” the retailer said in its annual report published in May.
Tesco continues to endure a difficult period. Worries about poor trading and difficulties with planned sales of its South Korean and Clubcard business have driven the company’s shares down more than 12% in the past month alone.
The retailer slumped to a record annual loss of £6.4bn when it announced it had axed nearly 5,000 head office and UK store management jobs, as well as more than 4,000 roles overseas and at the group’s banking division. A further 2,500 jobs were lost with the closure of 43 Tesco stores earlier this month.
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