Outlook: Allied advisers deserve a carpeting

ALLIED CARPETS is looking more threadbare by the minute. When the problem of "early recognition of sales" first surfaced last month, the board was quick to play down the scale of the problem. Don't worry, directors said, the scam was only evident in a handful of stores over a limited period, and anyway there was no monetary loss since it was confined to orders already paid for. Not only that but a round of applause, please, for our sleuth-like auditors Arthur Andersen, who sniffed out the ruse during their twice yearly audit.

What a difference six weeks makes. Now we learn that the practice was going on in virtually all the group's 254 stores for fully five years. Furthermore the plonkers at Arthur Andersen didn't have a clue what was going on until one of the company's store staff telephoned to tell them.

Before getting too harsh with our strictures it ought to be said that on the Richter scale of great accounting scams, this barely registers one. The profits hit is only pounds 3m, there is, as yet, no evidence of personal financial gain, and the offense committed is not nearly as bad as other recent cases in the retail sector, notably Wickes.

All the same, coming so soon after the due diligence that was supposed to have gone into the company's flotation prospectus, it's bad enough. The two directors who have gone over the affair have done so clutching their obligatory redundancy cheques. Just what does a director have to do to get fired without compensation these days. Steve Barber, the manager who directed the stores to change the way sales were recognised (without taking the trouble to tell the board) walks away with pounds 156,000 - the ostensible purpose being to tie him to a non-competition clause because "he would be immediately snapped up by a competitor". Oh really?

But the wider questions here relate to the conduct of the board and its advisors. The claim by directors that they had no knowledge of the scam does not absolve them of responsibility. Ignorance is not much of an excuse. That all this went unnoticed for so long doesn't say much for the quality of the group's controls and systems.

And what of the advisers who brought this company to the stock market two years ago at four times the price the shares now change hands for. Step forward, Barings, sponsors to the issue, Hoare Govett, the stockbrokers, and Arthur Andersen, the auditors. Andersen's, which was also auditor in the Wickes fiasco, should should at the very least be considering its position.