THE Serious Fraud Office (SFO) has opened a formal criminal investigation into accounting errors at Tesco, raising the stakes in a scandal that has hammered the reputation of Britain’s biggest supermarket.
Already battling challenges on multiple fronts, Tesco said yesterday that it had been notified of the SFO’s new investigation into a £263 million overstatement of its first-half profits that has led to the suspension of eight senior members of staff.
Tesco is already facing one proposed investor lawsuit in the United States over the accounting irregularities, caused by booking deals with suppliers too early.
The accountancy watchdog, the Financial Reporting Council, is also examining how the error came about.
Shares in Tesco, which had been up about 2 per cent all day, fell initially on the news by half a per cent before recovering to close up 2.09 per cent at 173.35p.
When the SFO launches a full criminal investigation against a company or individuals, it has to be satisfied there are reasonable grounds to believe that conduct might involve serious or complex fraud or bribery. Such investigations can take years to complete.
It said in a statement: “The SFO confirmed today that the director has opened a criminal investigation into accounting practices at Tesco plc.”
Tesco said the eight senior staff members suspended remained employees of the company but have been asked to step aside while the matter is investigated. It added that there was no suspicion of wrongdoing.
In a statement, the group said: “Tesco confirms that it has been notified by the Serious Fraud Office that it has commenced an investigation into accounting practices at the company.
“Tesco has been co-operating fully with the SFO and will continue to do so.
“Tesco has been notified by the Financial Conduct Authority that, in light of the SFO investigation, its investigation will be discontinued.”
The SFO confirmed that its director, David Green QC, “has opened a criminal investigation into accounting practices at Tesco plc”.
It said that as the investigation was under way, it could not provide further details.
The 95-year-old supermarket group, which has dominated the British high street for years, is battling a severe slowdown in trading that has led to a string of recent profit warnings and resulted in a near-halving of its market value this year.
It recently appointed a new chief executive and finance director and is now looking for a new chairman.
Tesco revealed in September it had found a £250m overstatement in its first-half profits, prompting investors to dump shares in the company. Then last week, the group said in its delayed first-half results that it now believed the accounting hole stretched to £263m.
Chief executive Dave Lewis – who has been in the role only seven weeks – also said he could no longer provide a full-year profit forecast because he did not know how much it would cost to rebuild the firm, which is also Britain’s largest private employer.
The SFO inquiry will replace one already being carried out by the Financial Conduct Authority.
Some investigations can qualify for a deferred prosecution agreement – effectively the corporate version of a suspended sentence – which is a new string to the SFO’s bow that has yet to be tested.
The SFO has said such an agreement will only happen where it can both persuade a judge it is in the interests of justice and where a company co-operates fully and can show it has put any misdemeanour behind it and removed offending personnel.