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January 5, 2014 7:37 pm
Autonomy, the UK software company at the centre of massive fraud allegations, booked revenues from uncompleted transactions at the end of a number of quarters to meet sales targets, according to claims levelled in a document from the US Air Force.
The accusations, made against Autonomy founder Mike Lynch and five other former executives, contain the first details of the alleged accounting irregularities that US computer group Hewlett-Packard has said forced it to take an $8.8bn write-off in 2012, a year after buying the UK company.
Also named in the letter are two US government contractors, MicroTech and Capax Global, that acted as resellers of Autonomy’s software and played a role in the disputed transactions.
A representative for Mr Lynch responded that Autonomy’s accounting had been in compliance with international accounting standards.
“We strongly reject HP’s allegations,” a spokesperson for Mr Lynch’s private investment firm said. “The few examples seen to date show that HP appears to have had a fundamental misunderstanding of [international] accounting practices, and we vehemently deny anything improper.”
MicroTech did not immediately respond to requests for comment, while Capax could not be contacted.
The Air Force document, a copy of which was seen by the Financial Times, lays out a case for barring the contractors and former Autonomy executives from undertaking work for any part of the US federal government, based on what it says are findings from HP’s own internal investigation into Autonomy.
The allegations, which were first reported by the Washington Post, detail three transactions that had not been completed when Autonomy recorded revenues on them. One of the deals later fell through, while another was completed for less than the amount Autonomy recorded.
Mr Lynch’s representatives have argued that the international accounting rules under which the UK company operated required it to recognise sales to resellers when they occurred, even if no sale had been made to the ultimate customer.
Referring to the small number of deals highlighted by the Air Force, Mr Lynch’s spokesperson added: “Even if these deals had in some way been questionable, they would have had no effect to justify the writedown.”
Under one of the contracts, Autonomy was said to have booked $11m in revenue at the end of March 2010 on a transaction involving MicroTech and an unnamed end customer. The final sale failed to materialise, with Autonomy only receiving $500,000 on the contract.
After an auditor queried the large uncollected debt from MicroTech at the end of the year, according to the claims, Autonomy made a payment of $9.6m to the contractor under the heading “Advanced technology innovation centre” and MicroTech wired back the same amount to cover some of the money it owed Autonomy.
Autonomy booked a further $15.7m of revenue in two instalments on the final days of March and June the following year on a separate deal involving Capax, even though the ultimate sales transactions had not been completed, according to the Air Force document. The deal was later completed for $14.1m. In the third case, a $1.95m sale was booked in December 2010, six months before it was finalised.
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