Goals led Dell to cook the books

(continued from previous page)

The main problem was in the way Dell was keeping track of its reserve and accrued liability accounts, which is money set aside, for example, when the company sells a warranty on one of its computers. It's up to Dell to estimate how much will be necessary to set aside should someone call in a repair on their computer. The difference between, say, $50 and $100 isn't much for one computer, but when multiplied by 1 million warranties, it adds up quickly.

The problem with reserve accounts is that they're quite easily manipulated because there's no absolute rule on how much money to set aside, said Tracy Coenen, founder of forensic accountant firm Sequence.

"You can play games with it. It's one of those gray areas in accounting," she said.

Fixing the problem
To make sure this doesn't happen again, Dell says it is reorganizing its finance department. Accounting and financial reporting duties will be kept separate from the people responsible for planning and forecasting future quarters. The position of chief accounting officer has also been "strengthened" and will be responsible for all accounting and financial reporting responsibilities for the entire company.

But even news of numbers being manipulated may not hurt Dell all that much in the financial community. Some investors just seemed relieved that the company could move on from the investigation, which prevented Dell from filing any official earnings reports or giving any guidance about the state of its business for the last year.

"The cumulative impact is not that meaningful, but I think that the main takeaway is that they're now ready to put this behind them," said Bracelin of Pacific Crest. "They're now in a position to fix some of the deficiencies they found, and from an analyst perspective, or an investor's perspective, people don't invest in companies based on what they did. People invest based on what they will do."

Dell executives continue to cooperate with the government's probe, Carty said. But the biggest concern for Dell, which is dealing with shrinking market share, exploding laptop batteries and an increasing perception that its products are decidedly bland (despite a new effort to sell laptops in snazzy colors), is how this will play out with customers.

"You don't want any questions," said Samir Bhavnani, an analyst with Current Analysis West. "They've been doing a bunch of things good to get back on their feet a bit and this is a pretty big speed bump. Hopefully they're able to get over it."

[Stating]

Anybody Seen Rollie Lately?

I'll bet he's shopping for a yacht to be anchored in international waters.

Oh, and the lesson to be learned is this. If you want to get away with shady things, do things manually. DO NOT computerize. DO NOT buy new Dell servers. Repeat. DO NOT buy new Dell servers. Keep your old beater servers, have lots of backup failures, and corrupt the database periodically, as needed.

[ibeetle]

I love the paragraph

I love the paragraph:

Overall, the financial impact to Dell's bottom line is limited. ...Dell's
net income was more than $12 billion. The audit committee now says
that the actual net income Dell earned during that period is $50
million to $150 million less. Earnings per share for that time frame
will likely be 2 cents to 7 cents per share lower.

Oh... no big deal... very limited impact. Just an average of 5 cents a
share. Who is that gonna hurt? Well.. if you are someone who has 2
million shares of stock and lost 5 cents a share you just lost 10
million dollars.

[eccesignum]

Do your math

2,000,000 shares x $.05 = $100,000. And if you have enough money to purchase 2 million shares, then yes, $100k is nothing.

[oxtail01]

Faulty logic

Who it hurt are the shareholders who in total lost millions and millions as the share price tanked. In addition, they got hurt by the millions top executives took for themselves in options and bonuses. I guess you didn't have any Dell stocks.

[yepperdepper]

FUZZY MATH

It's math like IBeetle's that has dell in trouble.

Better recalculate.

[cybervigilante]

Stockholder Value - Phooey

When are good companies going to stop going insane over short-term stock results? It's destroying America. Enron should have taught them a lesson. A company has Many values to employees, society, our nation, the environment, executives And stockholders.

This one-dimensionsal focus Only on so-called "stockholder value" makes corporations so short-sighted they'll saw off the tree limb they are sitting on. Ugh. This crap was started by the Chicago School of Business years ago, but they need an entirely new paradigm for the twenty-first century.

We all need to start being honest and working together or the entire world is going to hell. And that includes "stockholder value."

[xcopy]

easy answer

it's not just the idiots on "wall street" that cause this, but the idiots in the board room that tie executive pay and bonuses to the quarterly income statements.

If there was any financial reality and we stopped paying CEOs for "showing up in the morning" regardless of how poorly a company performs on their watch and instead tied their pay to long term successful stewardship, there would be a lot more healthy firms out there. One thing is for sure, we wouldn't be paying the idiot running Home Depot millions or 100's of millions to turn the place into the worst company in the country (at least I can't think of a worse company, but I'm willing to listen to all suggestions).

[chash360]

It's the get rich quick mentality

I keep complaining to my own employer about running the company for the business, not for the stockholders. Even when they are doing pretty good, because they must not sacrafice the business, in exchange for quick money (read as increrased stock value). If you are a company (non-finacial, non-banking industry) in the black, you do not depend upon stockholders. Your business can run off the revenue it makes, for the products and/or services it provides. Run the business for the products and services, customers and employees. Do it well and your stock value will go up. Stockholders should be last priority, because they do not have a direct affect on your business. Stock price does not give any direct indication of product or service quality, or customer's satisfaction, or the amount of business you will do even next week. It is only a measure of investor confidence. Too often so much of a companies profit and success go to stock holders at the expense of employees who work hard for the business. Even those companies with employee stock programs, still don't bridge the gap between what an employee makes vs. a major stock holder. And what work did that stock holder do to earn that profit, or meet that finacial goal? We'll keep up the fight, because its a good fight. And in case your wondering, yes, I am a stockholder too, but employees and customers and the business in general should come before stockholders.

[chuck_whealton]

Re: Stockholder Value - Phooey

I have to say that I agree with you 100%.

Contrary to what upper management thinks, it's NOT always all about stockholder value.

And if it was all about "stockholder value", upper management shouldn't be working with their boards to give themselves outrageous bonuses and pay raises. Why should they be paid excessively to do their jobs? That doesn't seem to be adding much "stockholder value" to me.

[oxtail01]

A whole new paradigm?

So I wonder where you got THAT from? Enhancing shareholder value through good business practices is what US is built on and what makes the economy strong. Before you quote empty, years old cliches, you should have something better to offer besides saying " eniterly new paradigm".

[cybervigilante]

I forgot to mention

Their duty to customers and their own reputation. When did people forget about the value of "good will."

If you read the article, though, Dell was not just over-reporting in some quarters, they were under-reporting in others. In other words, they were doing Okay in the long-run, on average. But as usual, everyone was nuts to meet the quarterly. What ever happened to long term vision? Or an investment that takes more than a month to mature?

[cybervigilante]

The shoemaker's children have no shoes

There is so much in this article it's hard to stop commenting ;')

Carty acknowledged that Dell is "underinvested in IT resource in the financial area."

This is actually very common. I go to Fry's Electronics, a huge, modern store that has the Absolute latest in softwear and hardware, including commercial accounting and inventory programs. But if you get a refund you stand in this long line where they wrestle with ancient DOS programs on very old computers and call out passwords to each other, aloud. Very strange system. It's like I've stepped back in time ten years. They don't put a dime into that section.

[nmoore6676]

Cooking the books

The Enron and similar recent financial scandals are the extreme. What Dell (and HP ) as well as others have done is becoming the norm, because the value of companies is now perceived as the Wall Street stock values, not the inherent value of the company based upon balance sheet assets, sales and growth potential as well as the skills and contributions of the management and work staffs. Until this trend is reversed there will be more books cooked at many respectable corporations. In addition the potential for a 1929 type event of exponential proportions is very high until this method of valuation ceases.

[chuck_whealton]

Different Standards

Overall, I tend to like Dell's hardware.

However, what I will say is that I'm sick and tired of upper management holding themselves to different standards than they hold those under them to.

It's not just Dell, and this is just another of many sorry examples.

Charles R. Whealton
Charles Whealton @ pleasedontspam.com

[jelcnet]

GOALS LEAD TO COOKING ? C'MOOONNNN

Goals are the best there is, when they are genuine and sensible... no, I am not talking about Iraq ... talking about Dell, HP, and the lot of companies run by people only interested in filling up their pockets regardless at what expense !!! that is the problem ... PEOPLE .... not goals.

[jpcyr]

Dell's next issue...customer satisfaction

Dell is far from out of the woods...the trees are still falling all around. Read their Direct to Dell blogs (<a class="jive-link-external" href="http://direct2dell.com/one2one/archive/2007/08/17/24548.aspx?CommentPosted=true#commentmessage" target="_newWindow">http://direct2dell.com/one2one/archive/2007/08/17/24548.aspx?CommentPosted=true#commentmessage</a>) and you will quickly see a customer rebellion forming based on a huge credibility gap based on a melt down in their manufacturing, procurement, customer service organizations.