Three former Tesco directors have been charged in the UK as part of an ongoing Serious Fraud Office (SFO) investigation into the grocery giant's accounting irregularities. The SFO began investigating the British supermarket giant in October 2014 after Tesco admitted it had artificially overstated its first-half profits by £263 million. After Tesco included previous accounts, that figure was revised to £326 million.
Auditors discovered that the inflated profit was the result of Tesco recording payments from suppliers, before the company was due the money. Tesco also admitted to charging its suppliers twice for sums owed in order to improve its own financial position. The SFO further accused the executives 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 Tesco”.
This month, former Tesco directors Christopher Bush (managing director), Carl Rogberg (finance director) and John Scouler (food director), appeared at Westminster magistrates court and plead not guilty to each charge of fraud by abuse of position and false accounting. The three men may face up to 10 years in jail if found guilty of fraud by abuse and seven years for false accounting.
The executives charged were three of the 'Cheshunt Eight' who were suspended from Tesco in late November 2014 following the revelations. The fate of the remainder of the 'Cheshunt Eight' is not yet known, although the SFO investigation is still ongoing and it is possible that further charges may be laid.
Tesco dominates the British grocery industry, holding the largest market share of over 25%, operating 3,500 stores with over 310,000 employees. However, the accounting scandal has significantly damaged Tesco's business. Within only hours of the Supermarket chain admitting it had overstated income from suppliers, the company's share price had plummeted by a staggering £1.6 billion. As a result, the company faces a huge damages claim from investors, who allege they have lost tens of millions of pounds as a result of the accounting scandal.
Rumours are still afoot as to whether Tesco itself will be charged. The SFO was believed to be pushing for a deferred prosecution agreement that would let Tesco avoid a criminal prosecution. If Tesco co-operated, this would require High Court approval, possible undertakings and a fine, which analysts have warned could reach £500 million. In addition, Tesco is also being investigated by the UK's Financial Reporting Council.
All in all, the headache is far from over for Tesco. In the interim, it has released the following statement: "We note the decision of the SFO to bring a prosecution against former colleagues in relation to historic issues and acknowledge the investigation into the company is ongoing. Tesco continues to cooperate with the SFO's investigation. The last two years have seen an extensive programme of change at Tesco, but given this is an ongoing legal matter, we are unable to provide any further comment at this time".