Tesco could face a £500m fine for the accounting scandal at the retailer, analysts have warned.
The Serious Fraud Office may announce the findings of its investigation into the £326m black hole in the company’s accounts as early as this week, according to Mike Dennis, an analyst at Cantor Fitzgerald.
Tesco suspended four executives after the chief executive, Dave Lewis, revealed in September 2014 that a shortfall had been found in the retailer’s accounts relating to payments from suppliers. Tesco was accused of bringing forward payments to flatter its financial results as sales fell.
Dennis said the SFO could fine Tesco more than £350m and force it to repay hundreds of millions of pounds to suppliers that it claimed in what has been called “arbitrary unjustified cash payments”.
He said the scope of the alleged fraud at Tesco might be far greater than has been revealed so far. Dennis estimated that the amount Tesco collected from supplier payments rose by £1.7bn over five years to £2.4bn in February 2014 and accounts for 30% of cash profits.
“To secure a case against Tesco, the SFO needs to link the commercial income fraud to a controlling board director and senior management by ‘mens rea’, where ‘the acts and state of mind’ of those who represent the ‘directing mind and will’ of the company can be attributed to the employees’ behaviour and fraud, in our view,” Dennis said.
“We believe [that] Tesco could be fined 1% or more of its UK grocery sales or £350m on £35bn of sales. In addition, there might be individual prosecutions after applying the identification principle to controlling officers of the company. The SFO could also add punitive fines to deter other grocery retailers and force repayments which together could cost Tesco £500m.”
Tesco declined to comment. Shares in the company fell more than 1% in Monday morning trading.
This article was written by Graham Ruddick, for theguardian.com on Monday 25th January 2016 12.56 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010