Pearson backs ex-Penguin boss ahead of grilling

The Pearson board yesterday stood behind Peter Mayer, the former head of Penguin Books in America, saying it believed he had no knowledge of the accounting scandal that has forced the media group to take a pounds 100m charge against its 1996 accounts.

The backing came as Pearson prepares to interview Mr Mayer about the affair today following his return to the US after a six-week holiday in Europe. A senior Pearson figure said yesterday that Mr Mayer would not prove a reluctant interviewee: "Peter was obviously in charge of the company for a long time and he would insist on being interviewed about this."

Asked if the board believed Mr Mayer was aware of the complex accounting scheme, the Pearson insider said "absolutely not".

Asked if he should have known, they said: "If the auditors did not know and did not discover the cover-up, then you would not necessarily expect the chief executive to know."

This view has been challenged by some City analysts, who say that while they accept that the invoice procedure in publishing houses borders on chaos, certain factors should have set alarm bells ringing. "They were seeing debtor levels rise. Why didn't they question that?" one said.

Mr Mayer became chief executive of Penguin USA in 1978. He resigned late last year to run Overlook Press, a New York-based publishing house he founded in the early 1970s.

Pearson maintains that the complex accounting scheme, which involved book retailers being given unauthorised discounts in return for early payment, was the work of one woman who has since been dismissed.

It is unclear if the woman is still helping Pearson with its inquiries into the matter. "She was. I'm not sure if she still is. She's not very happy," Pearson said.

Pearson believes the byzantine system of accounting transactions created to deceive management and auditors was not an act of fraud but a cover- up. So far Pearson has discovered no evidence of any financial gain by the woman that would have provided her with a motive.

As the investigation by new auditors Price Waterhouse continues, there is concern among City analysts that Penguin's 1997 sales could be affected. They say retail customers in the US must have known about the discounts and possibly increased their orders accordingly. Some analysts believe that following the termination of the scheme,there is a danger that retailers will buy fewer books from Penguin as they will now be paying higher prices. "You just don't know what the profit will be under the new regime," one analyst said.

It is possible that retailers who did not receive the discounts may take legal action to force Penguin to make a retrospective payout. Under an agreement between book publishers and the American Booksellers Association in late 1994, publishers undertook to treat all retailers on equal terms. However, as the agreement was not enshrined in law, it is unclear if will stand.

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