“Inappropriate” behaviour, not an accounting error, is to blame for Tesco’s £250m profit overstatement, according to those tasked with looking into the black hole scandal.
A source close to the investigation told yesterday’s Sunday Telegraph that a small group of Tesco staff deliberately “misled” auditors and accountants over a period of around a year in order to make its financial results seem better than they really were. In the six months before the scandal broke, as pressure on sales increased, this activity intensified.
In particular, the group made conditional arrangements with suppliers that were based on unachievable sales targets, before pacifying these suppliers with secret deals that promised to reimburse them during the next financial period. This was to be achieved either by providing benefits to the suppliers or, in some cases, actually paying back cash.
“There was a deliberate intention not to be upfront with the auditors,” said the source.
Despite apparent concerns among Tesco’s finance team and PwC, its auditors, that commercial income appeared to remain unchanged even as the company saw sales fall, the company’s accounts were given a clean bill of health earlier this year. However, PwC did state that there was a “risk of manipulation” in the company’s accounts.
It is not yet known whether the “inappropriate” behaviour extended beyond the identified group, but many investors, including the entrepreneur Warren Buffet, continue to dump their shares.
Meanwhile, Tesco faces another headache in South Korea, where executives may face prosecution over allegations that the company sold customer data.
