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Whistleblower sparks forensic investigation

Member: Nifa

A whistleblower at supermarket giant Tesco sparked a criminal investigation into alleged false accounting after a new Chief Executive took over two years ago. This has led to three former directors being accused this week of acting dishonestly for personal gain.

The former Finance Director and former Managing Director of Tesco UK and the former Commercial Director for Food of the whole group have all been charged with one count of fraud by abuse of position and one count of false accounting.  According to the court papers, the three concealed the fact that Tesco’s accounts contained improperly recognised income from suppliers and hid the firm’s true financial position from its auditors and colleagues.

They have also been accused of dishonestly falsifying Tesco’s digital accounting records and its draft interim accounts by the “inputting of and/or reliance upon commercial income figures, which gave a false account of the financial position” of the retailer.

The Serious Fraud Office (SFO) launched a criminal investigation into accounting practices at Tesco in October 2014 after the company admitted it had overstated profits by £263m because it had incorrectly booked payments from suppliers, relating to issues such as marketing costs or reaching sales targets.

The forensic accountants found that Tesco had artificially inflated an estimate of first-half profits given to the City in August 2014 and that similar practices had been in place during previous reporting periods, taking the total to £263m. 

In April, Tesco said it had found another £60m in mis-statements from previous years, mostly as a result of an audit of its Irish operations.

All three men have pleaded not guilty, so they are undoubtedly relying on the forensic evidence to prove that they committed no crimes. Many people believe that a forensic investigation is only held to prove guilt but, in fact, the painstaking trawl of accounts, financial transactions, emails and other forms of communication can just as easily come to the opposite conclusion.

Author: Roger Isaacs, 23 September 2016

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