Fraud Files: HP's Culture of Corruption Lives On

If the scandal surrounding former Hewlett-Packard (HPQ) CEO Mark Hurd's resignation has taught us anything, it's this: Dishonesty pays at HP -- if you hold a high enough position, that is.

On Friday, the company announced that Hurd resigned following an independent investigation regarding a sexual harassment complaint involving an independent contractor. But then, the story got much juicier.

It turns out that HP's press release, which said Hurd merely violated HP's Standards of Business Conduct, was misleading. What the release didn't tell us is that the sexual harassment complaint wasn't the real reason Hurd was resigning, nor that he was going to receive almost $28 million for the noble act of stepping down. (Apparently, that is HP's idea of a punishment. After all, it's far less than the $100 million contract Hurd was in the process of negotiating.)

Meanwhile, even more details have emerged about Hurd's infractions. It appears that he lied on his expense reports to get HP to pay for personal dinners with a lady friend named Jodie Fisher. He also got the company to pay Fisher for work she didn't do. That, my friends, is fraud.

Does anyone want to guess whether there is even more to this story? The fact that the "victim" of the sexual harassment complaint, is a D-list actress, has been paid off by Hurd, and has hired attorney-to-the-mistresses Gloria Allred leads me to believe there is even more drama to come.

A Culture of Corruption

This situation isn't the only public scandal HP has endured. In 2006, HP's chairman of the board, Patricia Dunn, resigned after it was discovered that she hired outside contractors to spy on board members and journalists. HP can't seem to escape big headlines about scandals, and it would do investors and the public well to pay attention.

As a forensic accountant and fraud investigator, I've seen fraud at hundreds of companies, ranging from small family-owned businesses to large public companies. Fraud is never pretty. But it's even uglier when companies are doing things that create a culture of corruption, opening the door for fraud to occur over and over again.

The propensity of employees to commit fraud is dictated by the tone at the top. Whether we like it or not, employees look to those above them for cues about appropriate workplace behavior, and that includes fraud. When everyone knows that the boss does personal business on company time, it makes it easier for them to justify doing the same thing. If managers are stealing equipment, their in-the-know subordinates are likely to do the same. Monkey see, monkey do.

Rewarding Bad Behavior

In this case, when the head of the company steals via expense reports, and the company pays him millions on his way out the door, the message it sends to the employees is that stealing is okay. How could it send any other message?

Of course, lower level employees know that if they're caught stealing, they might get unceremoniously shown the door without a penny in severance. They aren't delusional enough to think that they merit millions of dollars as a parting gift. But they still realize that the company is going to allow a certain amount of fraud. So long as they stay under that limit, they are almost assured of keeping their jobs and fitting right in.

Rewarding bad behavior has consequences. And those watching the HP scandal unfold ought to heed this warning: The culture of corruption at HP is alive and well. This is neither the first, nor the last scandal for HPs management, I'm sure. I've seen enough fraud to know that when the company condones and rewards such behavior, the behavior grows in frequency and in magnitude.