Blakenham questioned on Penguin losses

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The Independent Online
Lord Blakenham yesterday faced tough questioning from Pearson shareholders over the pounds 100m accounting scandal discovered at its Penguin USA offshoot earlier this year as he took his last annual general meeting as chairman after 19 years at the head of the media to publishing group.

The criticism came as Pearson revealed a new potential pounds 50m black hole in the shape of the "millennium time bomb" - the cost of reprogramming computers to cope with the change of date at the end of the century.

Lord Blakenham, who was the last member of the founding Cowdray family on the board, hinted that the group was prepared take action to recover some of its losses from the US scandal. He suggested the cover-up may have benefited not only Christina Galatro, the former credit manager in Penguin's New Jersey office at the centre of the scandal, but others as well.

"As to motive, we believe that there has been some element of personal gain involved in this matter. We may be making a claim for recovery against one or more third parties," he revealed. Initially it had been thought that Mrs Galatro had been acting on her own out of a sense of misplaced zeal to collect debts owed the company.

Pearson refused to rule out the possibility that Arthur Anderson, its US auditors, might be sued.

Pearson said it had discovered nothing to force it to increase the size of the pounds 100m provision taken for the losses in last year's accounts, despite the threat of legal action from the American Booksellers Association.

Marjorie Scardino, who took over as chief executive in January, emphasised that there was no evidence that senior management at Penguin was aware of any impropriety.

But the company's responses failed to satisfy some shareholders. Many expressed surprise that Mrs Galatro's activities had gone undetected for so long. "Did this woman never go on holiday?" asked one irate shareholder.

"She took rather a lot of holidays and to some fairly faraway places," replied John Makinson, finance director .

Others were stunned that so much damage could be caused by just one person. But Mr Makinson said: "It is possible for a very determined individual to conceal an enormous amount of improper accounting", adding that the book trade was "a very transaction-intensive business".

Separately, the group revealed that its estimate for the cost of reprogramming computers to deal with the millennium date change was somewhere between pounds 30m and pounds 55m.

On current trading, Pearson said Penguin had enjoyed a good start to the year, but noted that if sterling continued to hold up against the dollar and the Spanish peseta for the rest of the year there would be an impact on the translation of overseas profits into sterling.