I want to say a few things about the Tesco accounting scandal article, which I got a chance to read again today.
It seems pretty progressive–and aggressive—that Britain’s Serious Fraud Office opened up a file on the misreporting by the UK-based hypermarket. Like in America, big government is usually busy when big corporations go off and start doing criminal things. Corporations run the government, not the other way around. I am sure it’s the same there.
It must be that there is something really tangible, that enough people know about, that the UK government has been shifted into “long-term investigation” mode. Like what happened to the too-big-to-fail banks in America, and, to some extent, Penn State/Sandusky here in Pennsylvania before the press leak. According to the piece,
One senior consumer industry source suspects that the SFO has already seen evidence that demonstrates it can build a strong case against Tesco.
I have to wonder if it’s more that enough people know what the wrongdoing is, that the SFO has to move forward on an investigation.
Here is another thing in the article. The one I’ve been wondering about:
Why are suppliers not missing profits?
If Tesco had been overinflating commercial income, then it stands to reason that its suppliers had lower profits than they thought because the retailer was claiming money that they did not know about.
It sounds like what Tesco did was book future income into current closing periods. If so, there would be a mismatch only on Tesco’s books. If you make money off me, I have no way of knowing if you showed it in the year you earned it from me, or in some other period. That’s your screwing around. If I promise you rebates if I don’t market your product enough, and you are on an accrual system, then you will book the rebate anyway, because it’s due you. Whether I settle you fast or slow. So there should be no issue there, either.
But what if the lack of counterparty accounting issues points to something else?
This could be a concern for Tesco because it suggests that there may be two versions of deals – the one that led to the retailer overstating its profits, and the real agreement, which is in the hands of the supplier.
If there are paper or electronic trails telling contrasting stories, the SFO is sure to pay close attention.
This sounds like something plausible, and would explain why eight executives of various departments were suspended. What if the suppliers were being presented one deal, and then a fictitious one was created for purposes of keeping the books. What if there are duplicate contracts and invoices? This would probably require the involvement of department heads, not just the accounting people. “Pulling forward” is something that can occur entirely within accounting. if the managers aren’t given performance numbers, and they have no clue as to what volume of business they are doing, they wouldn’t even suspect a pull forward is occurring on revenue. But the Tesco top people would have been able to determine that right away, wouldn’t they? The facts for that would have been right there. “We didn’t know our performance figures were wrong.”
It doesn’t sound like that happened . . .