UK watchdog closes investigation into Tesco
Britain’s accounting watchdog said it has closed its examination into accountants at Tesco in relation to the British supermarket chain’s 250-million-pound overstatement of profit in 2014.
The saga over Tesco’s accounting black hole formally ended this week, as the audit watchdogs closed a six-year investigation into the crisis.
The Financial Reporting Council (FRC) said that after the conclusion of the Serious Fraud Office’s (SFO) work on the case it was closing its review into the actions of accountants within Tesco.
This is the accounting scandal in short:
- A trial of two former Tesco employees brought by the SFO collapsed in 2018.
- Its investigation into the grocer’s former chief financial officer and ex-auditors PwC ended in 2016 and 2017.
- The FRC and SFO reached deals with the supermarket in 2017 that led to a combined £214 million of fines, including a Deferred Prosecution Agreement. *
A Tesco spokeswoman says:
“There has been no FRC investigation of Tesco as a company, and we have never commented on the position of any individual in relation to these issues. Since 2014, we have fundamentally transformed our business. Our turnaround journey is now complete, and we have fully satisfied the terms of the DPA we entered with the SFO in 2017.”
The watchdog had been examining a £250 million overstatement of the grocer’s profit that was announced in September 2014. The investigation, which opened three months later, was looking into the preparation, approval, and auditing of Tesco’s financial statements over three separate years.
In the cooling water of this spectacular and formidable scandal - in one of the world's most admired chains at that time, many had to leave, but most did not leave without big parachutes. A big scandal in itself:
CFO Laurie McElwee left his job at Tesco in April 2014 with a £1 million payoff following tensions with the then chief executive, Philip Clarke, who had to leave shortly afterwards. CEO Clarke triggered a parachute of around ten million pounds!
Five months later, Clarke’s successor, Dave Lewis, flagged up the discovery of a black hole in the company’s accounts that was eventually valued at £263 million.
In 2017, Tesco had to pay out £235 million to settle investigations by the Serious Fraud Office and Financial Conduct Authority into the 2014 accounting scandal.
It was due to pay a fine of £129 million as part of a deferred prosecution agreement (DPA) with the SFO, although this deal required court approval.
“I want to apologize to all those affected. What happened is a huge source of regret to us all at Tesco, but we are a different business now,” Lewis said at the time.
After accounting scandals in 2014, the company has never returned to new heights, but struggled a lot back and forth in the fight against what are primarily German, global and family-owned low-price chains, Lidl and Aldi, respectively.
But first and foremost, Tesco has been fighting "against itself". The capitalized value of the group is still only half of what they were before the 2014 scandal.
Tesco chief executive Dave Lewis is set to leave in October. He will be replaced by former Boots executive Ken Murphy.
* In the instance of fraud or a financial crime case, a Deferred Prosecution Agreement (DPA) refers to a judge-supervised agreement between the prosecutor and defendant whereby prosecution is conditionally suspended while the defendant fulfils the requirements of the agreement in a set period of time.
Sources: Tesco, Aldi, Lidl, Reuters, Retail Gazette, and various British newspapers