Rahman Ravelli
Rahman Ravelli Solicitors Logo
Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539

About Us Expertise PEOPLE International Legal Articles News Events Contact Us toggle button for phone toggle button for search
Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539
Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539

Every Little Helps

Author: Azizur Rahman  18 December 2014
4 min read

From being the UK’s favourite grocer, Tesco has slipped from grace amid claims of a £250M black hole in its finances. Is this a classic case of salesmanship, perfectly legal but aggressive accounting or straightforward fraud? Maybe only the accountants can provide the real answers.

Tesco Store

There was a time a few years ago when Tesco almost appeared to run large parts of the UK. It was opening huge, out-of-town supermarkets, colonising the high street with more compact shops and holding land and influence up and down the country. And apart from some local residents groups – who did not want the retail giant on their doorstep – the nation saw little to object to as the blue and red logo swarmed over the nation.

Now, however, things have changed. The firm’s fortunes are not quite so buoyant and it has become embroiled in a financial scandal that really does not look good for a company that regularly reminds its customers of the need to be prudent with the pennies.

The exact details have not yet been disclosed – or possibly even discovered – but the supermarket empire has let it be known that there appears to be a £250M black hole in its accounts. Five senior executives have been told to stay away while accountants Deloitte and law firm Freshfields investigate just what has happened. Reports indicate that more suspensions may be on the way but, at the time of writing this, we have no precise date for when any findings will be made public. In the meantime, customers wonder what has happened, Tesco’s overseas associates look on nervously and everyone in the company waits to see what the fall-out proves to be.

According to early reports, the issue is centred on the payments made by suppliers to Tesco that should have been banked at the end of last year. These, however, were pushed into the first half of this year to give an artificial boost to trading figures for 2014. Better trading figures lead to higher share prices, meaning happier shareholders. At least that is the argument being put forward by outside observers. Such shareholders must be far from happy at present, however, as the scandal is reflected in the share price and the Financial Conduct Authority (FCA) has started to investigate.

It’s the kind of situation that would be a nightmare for any grocer, let alone one as gigantic and high profile as Tesco. But beyond the headlines and the running commentary – which seems to relish the chaos at such a consumer colossus – we actually know very little. When it comes to the legality or otherwise of what may or may not have been done, we will have to wait for Deloitte, Freshfields and, ultimately, the FCA to declare whether there has been criminal wrongdoing. When large companies are looking for that all-important growth, the pressure on executives to deliver it is tremendous. The issue here is whether that pressure prompted illegal behaviour.

If that is the case and the books have been “adjusted’’ to give a wrongly favourable impression, then it is possible that we could see prosecutions for fraud. But everything will depend on exactly what has been done and how that has been portrayed to all and sundry. Similarly, the activities under investigation may have implications for Tesco’s tax liabilities. Was tax avoidance a guiding hand in what was carried out? Or, on an even more serious level, was there any element of tax evasion in what is now under investigation?

There are no general rules in such instances. Each case is different. This means, quite simply, that investigators will look at each scenario on a case-by-case basis. The investigation could be painstaking, lengthy and involved, as could any subsequent criminal prosecution. What we can probably say is that this will not be straightforward. The sums involved, the size of the Tesco operation and the wide jurisdiction that so many senior staff possess all ensure that investigators will have to ask a lot of questions of a lot of people. But perhaps it is the accountants who can provide the most valuable answers.

When any outside body comes in to investigate another, it takes time to comprehend the precise working methods, the people involved and the exact allegations. It can then work back to see how the working methods have been followed by those responsible and if and how there has been any breaching of these. From that point, it is then a question of identifying the people who may have erred by deviating from the established working methods.

At Tesco, this appears to be an issue of money, pure and simple. As such, the accountants within Tesco are likely to be able to give the most appropriate, informed answers to the investigators; whether they are from Deloitte, Freshfields or the FCA. Being the people responsible for the money and the balancing of the books, it will be the accountants who will have the perfect overview of what should have happened – and possibly what shouldn’t have happened. The age-old issue of honesty will, of course, play a large part in the findings of the investigators and whether any criminal charges should be brought. In such circumstances, accountants within Tesco could prove invaluable to any court case because of their knowledge of the workings of the company. On a slightly different note, external accounting figures could play a role as expert witnesses; evaluating what has gone on at Tesco and issuing an opinion based neither on loyalty or the need for job security.

Accountants have at times been blamed for failing to react to workplace fraud. Such fraud affects an estimated 7% of turnover in UK industry and has often led to calls for tighter restrictions to prevent it continuing. Those making the calls are often the ones placing the blame at the door of the accountants; blaming them for doing nothing to prevent it. But this is an inaccurate and unfair portrayal of the circumstances. Accountants do certainly know the workings of the company finances. They also have arguably the best overview of a firm’s true financial standing. As a result, they are often in the best position to identify where the potential for fraud exists and how this could be identified. But to accuse them of failing to prevent fraud is misleading.

A firm looking to prevent fraud can only do so if it takes a methodical approach. Legal expertise can be brought in to introduce compliance measures, devise and promote a whistleblowing policy and work with the accountants and senior figures to assess and eliminate the potential for fraud. In the absence of such a concerted effort by a company, it would be wrong to criticise the accountants when wrongdoing is spotted. Far better to cooperate with them and use their expertise and inside knowledge to examine what has gone wrong  and work to put it right.

Whether it is Tesco or a corner shop, the accountants should be sought out for what they know rather than condemned for what they do not. This is not the first time Tesco has been at the centre of aggressive accounting suspicions. The idea of counting sales before payment, of using ways to disguise liabilities and of using whatever tactics are on hand to boost a share price are nothing new in retail. Just ask the accountants.

< Previous Check Out
Azizur Rahman C 09369

Azizur Rahman

Senior Partner

+44 (0)203 911 9339 vCard

Download Profile PDF

View Profile

Aziz Rahman is Senior Partner at Rahman Ravelli and its founder. His ability to coordinate national, international and multi-agency defences has led to success in some of the most significant corporate crime cases of this century and top rankings in international legal guides. He is recognised worldwide as one of the most capable legal experts regarding top-level, high-value commercial and financial disputes.

Share this page on