No hiding the distortions

Tesco’s recent accounting mis-statement shows how the mis-recording of revenues generally falls into one of two categories, which are either booking revenues earned in one quarter being moved forward or backward into another one, and fake sales.  According to forensic investigators that have been brought in, the supermarket’s promotional deals with suppliers will have provided room for error, deliberate distortion and discretion, underlining recent warnings of the risk of manipulation of rebates. 

Even if the mis-recordings were unintentional, it is clear to the investigators that Tesco’s internal controls need “a thorough overhaul”, regardless of whether fraud was intended or if there was just a misunderstanding of the rules.  In a bid to get to the bottom of the matter, the investigators trying to get a clear picture of Tesco’s £250m profit shortfall have demanded full access to the email accounts of every single one of the company’s hundreds of buyers, as it is thought that they have been wrongly booking revenues from suppliers before they should, artificially bumping up profits. 

The use of forensic investigators means that email trails and attachments will provide details of the dates of payments agreed with suppliers which can be cross-checked with when Tesco marked them in as revenue.

Although rarely on this scale, mis-representation will always be found out if forensic accountants are brought in, which is why they are used routinely in cases of due diligence and business valuations.  Apart from being experts in various sectors, these forensic investigators have seen every trick in the book and will not be put off the scent by figures that look accurate if they suspect that something untoward is going on.

Author: Roger Isaacs, 6 October 2014

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