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 statements.

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 level.

"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 as CEO.

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 PCs.


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