We Were Duped

For over 30 years now, I have been teaching college students the basics of business and business management.  I have been teaching these students to think critically, to drill down on the data, and to think “outside-the-box” without violating their morals, integrity, or ethics.  Some of these students did not have the pre-requisite skills to be a college student when they entered my class and granted I did not have much time to improve their foundation knowledge; but, when they left they were definitely at a much higher level.

My more advanced students were able to pick-up on complex issues and break down tasks so that not only could work be easily divided among team members but that it could be easily analyzed as well.   

We repeatedly asked each other “WHY” questions or “Does that make sense” questions in an effort to spot flaws in or miscalculations with the data, especially when preparing Pro Formas for a Business Plan or looking at the financials of a company that in a Strategic Plan is scheduled to be purchased.

I tell my students that it is better to make mistakes in the classroom when presenting a Course Project where one might receive a low grade than in the “real world” where mistakes, at the very least, could financially cripple a company or put the individual who is responsible for the poor analysis at risk for losing their job.

This is why I find it so hard to believe what recently has happened at Hewlett-Packard.

The technology giant said that an internal investigation had revealed "serious accounting improprieties" and "outright misrepresentations" in connection with U.K. software maker Autonomy, which H-P acquired for $11.1 billion in October 2011. 

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"There appears to have been a willful sustained effort" to inflate Autonomy's revenue and profitability,” said Chief Executive Meg Whitman. "This was designed to be hidden."

Michael Lynch, Autonomy's founder and former CEO, fired back hours later, denying improper accounting and accusing H-P of trying to hide its mismanagement. "We completely reject the allegations," said Mr. Lynch, who left H-P earlier this year. "As soon as there is some flesh put on the bones we will show they are not true."

H-P said Tuesday it alerted the U.S. Securities and Exchange Commission and the U.K. Serious Fraud Office and requested that they open investigations. The SEC and Federal Bureau of Investigation are launching inquiries, according to people familiar with the probes.

When the deal was announced in August 2011, Autonomy was Britain's biggest software company and second-largest in Europe.  Its customers include intelligence agencies, big corporations, banks and law firms. H-P said then that Autonomy was key to its transformation into a higher-margin seller of software.

H-P said that Autonomy, before it was acquired, had miss-characterized some sales of low-margin hardware as software and had recognized some deals with partners as revenue, even when a customer never bought the product.

According to a source inside the company, H-P's internal team was aware of talk about accounting irregularities at the time the deal was struck, people familiar with the matter have said. At the time, one of these people said, H-P was looking for a way to unwind the deal before it closed, but couldn't find any material accounting issues.

Perhaps we will never know?

Perhaps the SEC will come to the aid of HP?

One issue is clear and that is someone did not do their homework.