Pearson scandal prompts disbelief in City

The City yesterday poured scorn on Pearson's explanation for the accounting scandal at its Penguin books division in America saying it was "unbelievable".

Media analysts expressed disbelief that the accounting scandal, which was revealed on Thursday and has led to a pounds 100m charge against Pearson's 1996 accounts, could possibly have been masterminded by one person, in a relatively junior position and with no apparent financial motive.

Pearson yesterday confirmed that the elaborate scheme had been conducted by a woman in the accounts receivable division of its Penguin USA business in New Jersey.

Over a period of six years she had been granting unauthorised discounts to booksellers in return for early payment.

Pearson said yesterday: "At this stage this is how it seems from how she has explained it. But the investigation is continuing and until it goes further one cannot be absolutely sure."

One analyst said: "I don't think they can just brush it under the carpet like this. They can say what they like but do we believe them? Just a brief look at this tells you that something smells. I find it unbelievable that one little old lady did this for no financial motive."

Pearson said yesterday that no other employees at Penguin USA had been suspended. However, it repeated its intention to take the appropriate action should more details emerge.

The company has yet to make a decision on whether to take legal action against Arthur Andersen, its former auditors. A spokesman for the Andersen office in Chicago said: "We are unable to comment on this matter as it is not our policy to comment on client affairs."

It is also not yet clear whether American book retailers who did not receive the discounts might take legal action against Pearson for failing to treat all retailers on equal terms as agreed under an undertaking with the American Booksellers' Association in 1994.

It is also unclear if senior management at Penguin USA were aware of the accounting scheme. Peter Mayer, who retired as chairman of the division late last year, was unavailable for comment yesterday.

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