Autonomy faces US Air Force "financial irregularity" claims

HP/Autonomy

Autonomy's former senior management team have been forced to deny new claims about the firm's alleged financial impropriety in the US.

The claims stem from the publication of a US Air Force memo in the Washington Post to US Autonomy reseller partner MicroTech about its alleged efforts to artificially inflate the HP-owned software house's revenues.

The report claims a memo and letter were sent to MicroTech on 6 September 2013, accusing the company of engaging with Autonomy in "accounting improprieties" by erroneously claiming to have secured million dollar software deals, before it was acquired by HP several years ago.

"The information available to this office establishes that former principals of Autonomy leveraged [Micro Tech] to engage in numerous accounting and sales practices designed to deceive analysts, investors, and potential purchases into believing that Autonomy could, and would continue to, generate margins and revenues that it could not ultimately sustain," the Air Force letter stated.

Even if these deals had in some way been questionable, they would have had no effect to justify the write-down.

Autonomy is also alleged in the letter to have booked $11 million in software sales to a company known as "Entity A", but only banked $500,000 from it.

When an outside auditor queried the deal, it is alleged Autonomy wired MicroTech $9.6 million for putative services, which was later sent back to the firm to cover MicroTech receivables.

"Your alleged conduct raises serious concerns regarding your business integrity and overall responsibility because you are a US Government contractor," the letter states.

"I consider these allegations sufficient to support your proposed debarment from Government contracting."

This means the company could be excluded from bidding for US government contracts in the future.

Autonomy's former management team have been at the centre of a probe into alleged financial irregularities at the firm in the lead up to its acquisition by HP since November 2012.

This was prompted by HP's announcement about having to foot a $8.8 billion impairment charge relating to its acquisition of Autonomy. This charge, the hardware giant claimed, had been caused by "accounting improprieties" and "disclosure failures."

At the time of writing, these claims were still under investigation by the Serious Fraud Office in the UK.

The allegations contained in the US Air Force's letter have been "strongly rejected" by Mike Lynch and the rest of the firm's former management team, and explained away in a blog post.

The post, featured on AutonomyAccounts, states: "The deals cited in the USAF (US Air Force) letter constitute a tiny number of deals of low materiality in the context of Autonomy's size," the post reads.

"Even if these deals had in some way been questionable, they would have had no effect to justify the write-down (impairment charge)."

The post also suggests the root of HP's original allegations could all be down to a misunderstanding about overseas accountancy practices.

"We strongly reject HP's allegations. The few examples seen to date in support of its allegations, such as those cited in the USAF letter, show that HP appears to have had a fundamental misunderstanding of IFRS accounting practices, and we vehemently deny anything improper," the blog post continues.

Caroline Donnelly is the news and analysis editor of IT Pro and its sister site Cloud Pro, and covers general news, as well as the storage, security, public sector, cloud and Microsoft beats. Caroline has been a member of the IT Pro/Cloud Pro team since March 2012, and has previously worked as a reporter at several B2B publications, including UK channel magazine CRN, and as features writer for local weekly newspaper, The Slough and Windsor Observer. She studied Medical Biochemistry at the University of Leicester and completed a Postgraduate Diploma in Magazine Journalism at PMA Training in 2006.