The U.K. Financial Reporting Council has ended its third and final investigation into the Tesco accounting scandal. Like its other probes into why—and how—Tesco managed to overstate its profits by £250 million (U.S. $317.5 million) between 2012 and 2014, the FRC was unable to find anyone responsible.
The corporate governance regulator was looking at whether employees working in the supermarket’s accounting department might have been involved. On Monday, over five years since the investigation commenced, the FRC conceded it did not have enough evidence to build a case.
Two other FRC-led investigations into Tesco’s former chief financial officer, Laurie McIlwee, and its former auditor, PwC, were closed in August 2016 and June 2017, respectively, when the regulator concluded a tribunal would be unlikely to make adverse findings against either of them.
The FRC’s decision to end its investigations into Tesco, which began in 2014, concludes one of the U.K.’s most embarrassing corporate fraud cases.
At the heart of the issue was the way Tesco had used excessively aggressive accounting methods to boost profits. The company booked supplier contributions that were conditional on hitting sales targets it was not going to reach in an effort to make its financial numbers look healthier than they were (the previous year the company had reported its first drop in profits in two decades).
The scheme came to light when the company was about to publish its interim results and just two weeks after the company’s new chief executive, Dave Lewis, took the reins.
Despite the company admitting a fraud had occurred, paying a £132 million (U.S. $167.6 million) penalty and costs as part of a deferred prosecution agreement (DPA), and cooperating with the Serious Fraud Office’s (SFO) case against three former senior managers, however, it seems no one can be found responsible for overinflating Tesco’s profits (a black hole that later grew to £326 million [U.S. $414 million]).
Furthermore, no agency or regulator is prepared to look anymore. Instead, Tesco investors will go to trial in October with an $800 million lawsuit that has been delayed multiple times due to the criminal trials, regulatory investigations and, more recently, the coronavirus pandemic.
Following the announcement of its DPA with Tesco in April 2017, the SFO duly brought charges against three former senior managers. The agency, however, was widely derided for its efforts: In one trial, a judge ruled that two of the managers had no case to answer, while in the third the SFO offered no evidence and the defendant was acquitted.
Critics say the SFO has been trying to recover its reputation—as well as that of its DPA process—ever since. Lawyers, meanwhile, have suggested the FRC and SFO’s handling of the Tesco case may well convince companies down the line to simply stand their ground and take their chances in court rather than bend over and beg the SFO for a plea bargain.