Dell: Audit Found Evidence of Misconduct
In the most serious admission yet of the extent of Dell Inc.'s financial woes,
the company's internal audit committee said it has found a number of accounting
errors and evidence of misconduct in its months-long review of previous earnings
In a short news release, the Round Rock, Texas, company said that the audit
also found "deficiencies in the financial control environment."
Dell shares fell 56 cents, or 2.4 percent, to $22.83 in after-hours trading,
when the announcement was made. The shares had closed up 4 cents to $23.39 on
the Nasdaq Stock Market.
Dell also said Thursday that it would miss an April 18 deadline to file its
annual 10K financial report to the Securities and Exchange Commission until
the internal review is completed.
The company added in the statement that it was working with management and
the company's independent auditors to determine whether the errors would require
the restatement of previous earnings reports.
"As we move toward the conclusion of our investigation, we are committing
the time and resources required to ensure a thorough and comprehensive review
and resolution of all identified issues and the implementation of appropriate
remedial measures," Thomas W. Luce III, chairman of Dell's audit committee,
said in the statement.
The company did not say how much longer the internal investigation would last,
and further details were not provided. Dell spokesman Dwayne Cox said the company
was unable to comment further.
In August, company officials said Dell received a letter from the SEC in August
2005 asking broad questions about some revenue recognition. Company executives
initially shrugged it off as an informal investigation and something that happens
to hundreds of other companies.
It has since grown into a formal look by federal investigators into Dell's
finances. Dell also faces a slew of shareholder lawsuits, and the U.S. attorney
for the Southern District of New York has subpoenaed documents related to Dell's
financial reporting since 2002.
Dell's earnings statements from the second, third and fourth quarters remain
preliminary and have yet to be filed with the SEC.
One analyst who said he has talked to top Dell management about the ongoing
investigation in general terms called it "serious" but "not life
threatening" and said he doubted the investigation would rise to the criminal
"It's a bad thing to have happened," said Roger Kay, president of
Endpoint Technologies Associates Inc. "Clearly, they did something that
they should not have, but in terms of the company, I think it's going to be
more of an annoyance."
In recent months, Dell has seen a management shake-up that included the departure
of several top executives -- including ex-Chief Executive Officer Kevin Rollins
and Chief Financial Officer Jim Schneider -- and the return of Michael Dell
With Dell at the helm, the company has been trying to orchestrate a turnaround
plan to improve customer service and combat Hewlett-Packard Co. and other electronics
manufacturers who have eaten into Dell's market share with low-cost, low-profit