Tesco's chairman 'shocked' by accounts mess
Problems come not in single spies but in battalions. After a series of profit warnings, a plunging share price and month after month of falling sales, Tesco today revealed its latest crisis.
The accounts are wrong, with profits overstated by as much as 23 per cent.
Speaking to a very senior figure in the business it is clear that there is serious anger at the top of the retailer.
I am told Sir Richard Broadbent, the chairman, has described the accounting problems revealed today as "shocking" and "unacceptable". They were apparently revealed in a short presentation provided to the chief executive on Friday by a whistle blower.
Sources tell me the problem is not a one off aberration on a single contract but is systemic. That is the only explanation for such a large overstatement figure of £250m.
A major investor I spoke to said that investing in Tesco was like "buying a lottery ticket" such was the difficulty in judging where the business was going.
The top retail analyst, David McCarthy at HSBC - so highly rated that even Tesco's management speak of him in glowing terms - said that "investing in Tesco is investing in the unknown and is high risk".
Tesco matters because of its colossal size. At its peak one pound in every seven spent in the UK's shops was spent at Tesco. Its profits support the pension funds of millions of people.
The new chief executive, Dave Lewis, is now in charge of clearing up this latest mess. He has only been in the job for three weeks.
Some are suggesting that Mr Lewis is taking advantage of his new arrival status to "kitchen sink" the business - that is get out as much bad news as possible now so that if and when he turns the business around the profit numbers can bask in a higher level of reflected glory.
However, the figures are so bad that such an exercise would be tremendously risky. The last thing Mr Lewis needs during his first month in charge is an inquiry by an external auditor and legal team.
But that is what he has announced.
Investors and analysts I have spoken to today raise two major issues that need to be tackled.
First, Mr Lewis needs to reveal the full details of this accounting crisis which, I am told, appears to have been continuing for a large part of this year - bringing forward payments from suppliers for promotions that had yet to take place.
Tesco needs to answer the question whether executives were under intense pressure to hit targets as customers deserted the retailer for the discounters Aldi and Lidl.
That Tesco's own internal audit committee report failed to find anything amiss earlier this year has raised concerns among investors. Is governance at the retailer all it should be?
The second issue is the broader strategy. How on earth is Tesco going to reverse declining sales?
The arrival of Mr Lewis puts that task in the hands of a consummate marketing expert.
Expect a major re-launch of the business with some of the £900m proceeds Tesco will gain following its announcement that it is slashing its dividend by 75%.
Sir Richard has his own questions to answer. At one point in the summer, Tesco had neither a chief executive or a chief financial offer. Mr Lewis has now arrived following Philip Clarke's departure in July.
Alan Stewart, Tesco's new chief financial officer, doesn't arrive from Marks and Spencer until December. The Tesco board is urgently trying to bring that date forward.
Tesco's shares fell nearly 12% today to just above £2. Last summer they were trading at £3.70 and more than £10bn has been wiped of the value of the company in 12 months.
No business can take that kind of pounding indefinitely.