Dell Finds Signs of 'Misconduct' in Accounting Probe

Mar 30, 05:00 AM

Current Headlines: By Michelle Kessler

SAN FRANCISCO -- Dell's board uncovered "evidence of misconduct" during an ongoing investigation of the company's accounting, the PC-maker said Thursday.

The board also found "a number of accounting errors" and "deficiencies in the financial control environment," Dell said in a statement. It did not provide details and declined further comment.

There could be more bad news. The board is continuing its investigation, which was sparked by a Securities and Exchange Commission inquiry that began in August 2005. For that reason, Dell will miss the April deadline for filing its annual report with the SEC.

It's still too early to say if Dell will have to restate prior earnings, the company said. The disclosure comes amid many troubles for Dell. The company lost the No. 1 PC-maker spot to Hewlett-Packard last year, and several key executives left in a recent management shake-up.

Dell has been vague about the accounting problem, saying only that it relates to "accruals, reserves and other balance sheet items." Those terms generally refer to the way income and expenses are recorded.

The problem occurred prior to its 2006 fiscal year. Dell hasn't provided exact dates.

The long-running investigation has been a huge distraction, says tech analyst Richard Shim at researcher IDC. Dell has long promoted itself as being "very efficient and thorough in all that they do," he says. "This contributes to the growing impression that they don't have control of their business."

But Dell's already-battered shares haven't reacted strongly to its accounting woes. They fell 2.3% to $22.85 in after-hours trading on the news, released after market close.

Investors aren't too worried, because many of the people in charge before 2006, including CEO Kevin Rollins and CFO James Schneider, have already left, says independent tech analyst Rob Enderle. Current CEO Michael Dell was chairman then. Since he wasn't in charge of day-to-day operations, the accounting problems probably don't threaten his job, Enderle says.

There is also no indication that anyone manipulated the numbers for personal gain, Enderle says.

Dell has missed several quarterly SEC filing deadlines, which could cause problems with the Nasdaq. Still, Nasdaq has been lenient in recent months because a flood of its companies have struggled with accounting issues. (c) Copyright 2005 USA TODAY, a division of Gannett Co. Inc.