March 29, 2007 1:46 PM PDT

Dell accounting probe finds possible 'misconduct'

Dell's internal investigation into accounting problems has found "evidence of misconduct," the company said Thursday, and therefore it will delay the release of its annual report.

The Securities and Exchange Commission is also looking into Dell's accounting practices over the last several years, poking around the company's methods for recognizing revenue and reserve accounts, among other things. Dell has released only preliminary earnings results and has canceled conference calls with financial analysts and the media as it attempts to sort out the mess, which could require it to restate earnings for prior periods.

"The Audit Committee's investigation has identified a number of accounting errors, evidence of misconduct, and deficiencies in the financial control environment," Dell said in a press release. The two men in charge of Dell's finances over the last several years, former CEO Kevin Rollins and former CFO Jim Schneider, have both left the company in recent months.

A Dell representative said the company was unable to comment beyond its press release.

The ongoing investigation threatens to derail much of the turnaround work that Michael Dell has undertaken since returning to the helm of the company he founded. Several new executives have set up shop at Dell as the company attempts to recover from problems ranging from poor customer service to market share losses.

It's not known specifically what type of accounting practices are at issue in the investigation, but last September Dell said it might have improperly recorded its financial position concerning "accruals, reserves and other balance sheet items." Accruals are items on a balance sheet for which a company hasn't yet distributed or acquired cash, such as accounts receivable or accounts payable. They also include items like goodwill, where a company assigns a numerical value to an asset that doesn't otherwise have a tangible value, such as a brand.

Last year analyst firm Friedman Billings Ramsey criticized the way Dell accounted for warranties, saying the company used an "unusual" method for accounting for the money it takes in from warranty sales and the money it reserves to handle expected warranty claims. Dell has not specifically addressed the issue of warranty accruals in its public statements and filings with the SEC.

Dell was supposed to file its annual report by April 3, but it will be unable to meet that deadline or the extended deadline of April 18. The company also said that as of today executives and directors have been cut off from buying or selling the company's stock until the required reports have been filed with the SEC.

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You knew it was coming.
Posted by felgercarbnaysay (49 comments )
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Maybe the laws are too complex?
Anyone ever think the laws may be to difficult to follow? looks like they have large groups that manage the accounting just to make sure everything in line with the troves upon troves of corporate laws and regulations.

I'm sure Michael Dell is more interested in selling good computers and keeping customers happy than secretly ripping a few people off and hurting there own reputation and overall revenue in the process.
Posted by Solaris_User (267 comments )
Reply Link Flag
Copying Apple again ;)
I was looking at a catalog the other day thinking how much the
laptops look like Apple's way back in 2001 (especially the way they
photograph them standing on end).

Now it seems they're going and copying Apple's fishy accounting
practices too.

But that's probably something you should leave to them, Michael!
Posted by dotmike (154 comments )
Reply Link Flag
It's obviously fraud.
I don't believe that accounting is so difficult that Dell was unable to hire accountants good enough to do the job. If you ask, "What's 2 + 2?, a bookkeeper says, "4." An accountant says "What do you want it to be?"
Posted by lingsun (482 comments )
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Yet another problem with strategic thinking
Yet another problem with strategic thinking goes not further than this coming Friday's "earnings guidance".
Posted by Too Old For IT (351 comments )
Reply Link Flag
Dell's Latest Problems
whoopppeeee (much less graphic than I actually feel).....Dell is a messed up company and I am
sure they are well deserving of any asskicking
or jail time they all should get. Unfortunately, like in most situations like this, there will be scapegoats and most of the incompetent lying-thieving people will skate away with the loot.....including that boob Michael Dell. Did he go to A&M?
Posted by Gerry S (18 comments )
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Dell tried to steal from me
My own personal experience with Dell's business side was extremely negative. I used a Dell credit account to purchase a laptop for my wife for Christmas a year ago. I mailed in a check for a $100 payment, but Dell used the information from my check to debit my checking account for $600! They destroyed the check rather than submit it for processing, which would have prevented the overcharge. My complaints to Dell by phone and email were ignored for weeks.

I arranged to have my bank reject the charge from Dell, and offered to send a new $100 payment, but their collection office in India kept pestering me for additional payments. I explained to every caller that Dell had received a timely payment of several times the minimum amount from me, but that Dell had tried to steal $500 from my account, so it could hardly claim that I was at fault. Each new caller had NO information from the prior calls, despite repeated promises in 30 minute calls that they would tell their supervisors. The next printed statement from Dell did not acknowledge the facts, but made it appear that I had made no payment.

My experience reflects not a single weird aberration, but a deep institutional failure of Dell to ensure honest billing and charging practices, utter failure to pay any attention to customer complaints about criminal fraud and false record keeping by its own employees, and a total breakdown of internal communications and record keeping. Clearly, some Dell employees felt pressure to meet Dell's revenue targets "by hook or by crook". Dell's credit operation will need a complete overhaul to remove this corruption and malicious ignorance of quality control.
Posted by coltakashi (2 comments )
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