The chief executive of Tesco has recalled the “genuine shock” he felt when he found out about the grocer’s alleged £326 million accounting back hole less than a month into his job.
The news comes as Dave Lewis took the stand at Southwark Crown Court and gave evidence at the trial of two former Tesco senior managers who are accused of fraud and false accounting.
Giving evidence on Wednesday, Lewis recounted how three weeks after he became the new Tesco chief executive, he was alerted to a paper on September 19 — known as the legacy paper — prepared by an employee, which detailed the alleged practice of accounting for income that had not yet been earned, thus inflating profits.
Lewis said he recalled feeling “genuine shock” after reading the paper because “the level of what was implicated in the paper was a way of operating I had not seen before.”
He added that it was “striking” how detailed the legacy paper was, and immediately launched an investigation to test the accuracy of the figures in the trading update that was issued in August that year.
The Serious Fraud Office (SFO) – which sought a retrial after their first prosecution came to abrupt end in February shortly before the jury were to hand down their verdict – alleged that two former senior managers were aware that income was being improperly included in accounts before it had been earned.
The SFO claimed this was “false accounting on an industrial scale.”
Chris Bush, who was managing director of Tesco UK, and John Scouler, who was UK food commercial director, are on trial for their alleged role in the accounting scandal.
They denied the charges in the trial at Southwark Crown Court.
Prosecutor Sasha Wass QC told the jury this week that the alleged fraud sent “shockwaves” through the City when Tesco was forced to issue a corrected statement to the stock market in September 2014, in which it said it had overstated its profits.
The court heard that Tesco’s corrected profit statement caused its share price to fall by 12 per cent and wiped £2 billion off its value.
Bush and Scouler were charged last year with offences including false accounting and fraud by abuse of position.
Former finance director Carl Rogberg was also charged, but he had suffered a heart attack and was admitted to hospital towards the end of the first trial, which is what prompted it to come to an abrupt end. SFO said earlier this year that would still seek a retrial of Rogberg.
The trial continues.