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Doing the diligence

Member: Nifa

News that Hewlett Packard (HP) has finally accused the former officials of a firm it bought in 2011 of fraud should serve as a reminder to any organisation thinking of purchasing another one to get their financial investigations done thoroughly by forensic accountants before they sign on the dotted line.

HP acquired UK software company Autonomy for $11.7bn (£7.1bn), making it the largest-ever acquisition of a British technology company. Then in August 2012, Autonomy’s founder and CEO, Mike Lynch, quit, saying that Autonomy wasn’t making enough money.  In November 2012, HP revealed it had uncovered “inconsistencies” in the books, so was forced to write down the firm’s value by $8.8bn, and accused Mr Lynch of accounting fraud. He says that they knew everything before the deal was signed.

HP is also accusing former Chief Financial Officer (CFO) of Autonomy, Sushovan Hussain, of fraud following his intervention in a settlement with its own shareholders, who sued the firm over the write down.

Mr Hussain hit back by saying that HP was denying access to evidence and covering up its own behaviour in the process, as he is convinced that the acquirer was to blame for the write down, even though HP officials were absolved of wrongdoing when the takeover was investigated.

Shareholders have now joined forces with HP and have agreed to end efforts to force current and former HP officials to pay damages to them over the purchase and will instead pursue Messrs Lynch and Hussain.  Whatever the outcome of the case, the lesson must be to get forensic accountants in from the beginning, as they would not take the books at face value but would pore over every line, examine bank accounts in minute detail and look at the wider picture, so any “inconsistencies” would be made clear before the deal took place.

Author: Roger Isaacs, 26 August 2014

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