CEO Meg Whitman avoided calling it a fraud, but
said Tuesday that there were "serious accounting improprieties, disclosure
failures and outright misrepresentations at Autonomy Corporation PLC."
HP is taking an $8.8 billion charge in its latest
quarter largely to align the accounting value of Autonomy with its real value.
Whitman said Autonomy's financial illusion started
to unravel after founder and CEO Mike Lynch left on May 23. A senior Autonomy
executive then volunteered information about the accounting shenanigans,
prompting an internal investigation, she said.
The case has been referred to the U.S. Securities
and Exchange Commission and the UK's Serious Fraud Office, she said. The
company will also try to recoup some of the cash it paid for Autonomy through
lawsuits.
On a conference call with Whitman following the
earnings report, analyst Ben Reitzes of Barclays Capital asked who will be held
responsible internally for the disastrous acquisition.
Whitman answered that the two executives that
should have been held responsible — Apotheker and strategy chief Shane Robinson
— are gone. But the deal was also approved, essentially, by the current board.
Quote most of the board was here and voted for this
deal, and we feel terribly about that," Whitman said. "What I will
say is that the board relied on audited financials. Audited by Deloitte — not
'Brand X' accounting firm, but Deloitte. During our very extensive due
diligence process, we hired KPMG to audit Deloitte. And neither of them saw
what we now see after someone came forward to point us in the right direction
unquote.
The magnitude of this problem is huge but in itself
it is not an unfamiliar scenario.
Essentially there are
many instances of conflict of interest such as taking on consultancy work for
Clients and becoming too cosy with management teams.
It is all too easy for
companies to bully the young staffers sent in to do the grunt work.
For example what chance
has a newly appointed auditor walking around a factory warehouse to adequate
value stock? In reality they have to rely on the company for “valuations” and
this can result in a totally inaccurate picture being presented.
The validity of a
company’s accounts reflects the integrity of the company which is being
audited.
As was demonstrated with
the banking crisis in Spain an unrealistic valuation of the property portfolio
either through deviousness or sheer incompetence ll ultimately had disastrous
consequences.
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