HP has admitted that it was suckered when it wrote a cheque for  $11 billion to buy British accountancy firm Autonomy. The scandal is fast turning into the IT Industry's Enron as Autonomy appears to have little value and its key software product vapourware.

Yesterday HP CEO Meg Whitman wrote 80 per cent of the purchase price for Autonomy and accused “some former members of Autonomy’s management team” of using “accounting improprieties, misrepresentations and disclosure failures” to hide what the company was doing. Autonomy was bought by HP CEO Leo Apotheker who wanted to dump PCs and hardware and become a software company, like SAP.

According to Forbes, Autonomy was based around some dodgy accounting. Founded by Michael Lynch, a Cambridge-educated computer scientist who based the outfit some Bayesian search technology he had developed called IDOL. IDOL was a souped up search engine and not something you would base an entire mega-company around. Autonomy grew by buying storage companies like Iron Mountain and enterprise software firms like Interwoven. It would then go to customers and offer then storage but structure it as a $3 million purchase of IDOL software, paid for up front.

So while it appeared to be a software company, Autonomy was really just a low-margin, commodity storage business. The IDOL software was given to companies for free, but the costs were shifted around to make it look like they had bought $3 million in software sales. HP has handed over details of its forensic accounting to fraud officials in the US and the UK. Lynch has not said anything and is probably laying low.

Sadly this is the sort of cash that HP cannot afford to spend at the moment. Wall Street had been hoping that Autonomy’s business could help pull HP out of trouble.