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An even bigger hole uncovered

Member: Nifa

Now that the financial investigators looking into the overstatement of profits by Tesco plc have submitted their findings to the Financial Conduct Authority (FCA), further anomalies have been discovered, taking the overstatement to £263m, £13m more than was estimated a month ago.

The investigation has revealed the escalation in the illusory profits that has taken place, namely £118m in the first half of this year, up from £70m in 2013 and £75m in previous financial years.  The publication of the investigation results has caused the supermarket giant’s shares to slump by 8 per cent and the figures were released along with results for the first half of the financial year, which showed that underlying profits plummeted to £783m, down almost 47 per cent on the previous year. Tesco also announced that chairman Sir Richard Broadbent will be leaving.

The problem appears to have arisen because, as is the norm with supermarkets, buyers had been doing deals with suppliers over promotions, but it appears Tesco had been booking returns from those promotions too early, while pushing back the costs. Even though there is no evidence of personal gain from the mis-statement, eight executives have been suspended since the practice was revealed.  Forensic investigators are routinely brought in by business owners and shareholders if there are any financial anomalies, even if there is no concern over malpractice, as someone has to find out where the money has gone and forensic accountants are expert in this field.

Because they have knowledge of every aspect of financial transactions, they are often called in to search for missing money or to find out how the mistakes, if that is what they are, were made when preparing the accounts. In this case, an even bigger hole in the profits has been found, so the next step will be to pin down exactly where it went – or if it existed at all.

Author: Roger Isaacs, 27 October 2014

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