B2B Payments

Tesco Accounting Scandal Costs Grocer $300M

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U.K. grocery giant Tesco will pay nearly $300 million to settle allegations by the nation’s Serious Fraud Office (SFO) and Financial Conduct Authority (FCA) of false accounting at the retailer’s subsidiary Tesco Stores Limited linked to how the company booked supplier payments.

The company will pay a $160 million fine as part of its deferred prosecution agreement with the SFO, according to reports this week, an agreement that will require court approval. Separately, Tesco had previously agreed to pay $105 million to investors affected by the scandal, which saw Tesco overstating profits in an August 2014 trading statement. That second deal was struck with the FCA.

“I want to apologize to all those affected,” said Tesco chief executive Dave Lewis. “What happened is a huge source of regret to all of us at Tesco, but we are a different business now.”

Lewis took the lead at the company in September 2014, and investigators say Tesco conducted false accounting between February and September 2014. Tesco admitted in 2014 that it overstated profits, a miscalculation that links to how the company books payments from suppliers, reports said.

Investors who purchased bonds or shares in the company between August 29 and September 19, 2014 will be compensated through Tesco’s agreement. KPMG will monitor the compensation scheme, according to reports, which the FCA will continue to oversee.

“Tesco has now settled three out of four challenges” that relate to the accounting scandal, said Bruno Monteyne, an analyst at Bernstein, in an interview with the Guardian. “U.S. investors, the SFO and the FCA. That leaves one more issue from the past to be dealt with: possible lawsuits by European-based investors.”

“There is no progress on that,” he added. “There are occasional reports about groups of investors filing a claim, but clearly not enough in their cases to make any real progress.”

While legal repercussions of the scandal are still ongoing, some analysts say it may also bring new light on the problem of late B2B payments in the country. The nation’s Groceries Code Adjudicator said last year that Tesco “knowingly delayed paying money to suppliers in order to improve its own financial position, between June 2013 and February 2015,” but Tesco has said that it since changed its supplier payment practices. The company was also accused of processing invoices only sporadically and failed to correct errors in the accounts payable department.

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