Tesco cuts profit outlook again and suspends staff after accounting error

Mon Sep 22, 2014 2:20pm EDT
 
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By James Davey and Kate Holton

LONDON (Reuters) - Accounting mistakes in supplier contracts forced Tesco to suspend its UK boss along with three other senior executives and cut its profit outlook for the third time in two months, dealing another major blow to the world's No. 3 retailer.

People familiar with the matter said the company had been overly ambitious when predicting the sales of products in its UK food business. This in turn reduced the cash rebates Tesco receives from suppliers who pay out when certain volumes are achieved.

They also said Tesco had mis-reported in its accounts the costs of "waste", which is out of date food, and "shrinkage", which is stolen or unaccounted for product.

A profit warning on Aug. 29, three days before its new chief executive Dave Lewis joined, had overstated expected first half profit by 250 million pounds ($408.50 million) or 23 percent.

The news sent shares in the group down 12 percent to an 11-year low after Tesco said it had called in its lawyers and new accountants to investigate the error in its UK food business. Along with the UK managing director Chris Bush, three other senior executives were suspended.

The accounting issue draws attention to Tesco's lack of a group finance director, with Lewis, who succeeded the ousted Phil Clarke as CEO, the only executive director on the board of Britain's biggest private sector employer.

Tesco's error was discovered by a "commercial manager", Lewis told reporters, who informed the firm's legal counsel on Friday when he discovered it during preparations for the forthcoming first half results.

Lewis declined to name the individual and said it was too early to say if the issue involved fraud. Tesco's interim results have now been pushed back from Oct. 1 to Oct. 23.   Continued...

 
A sign spells out the store name on a Tesco store in Bow, east London August 29, 2014. REUTERS/Paul Hackett