Dell Execs Fudged Earnings

Dell's internal audit shows that some executives adjusted figures in order to make quarterly results look better.

A year-long internal audit found that Dell had misstated its earnings by as much as $150 million during a four-year period, the company announced Aug 16.

The audit, which had been conducted by an internal company committee, focused on the PC vendors financials between 2003 and 2006. The auditors also looked at the first financial quarter of 2007.

The auditors found that Dell executives would change the companys financial outlook in order to meet quarterly earnings estimates, according to a statement by Dell, based in Round Rock, Texas. The investigation found that "certain adjustments appear to have been motivated by the objective of attaining financial targets." These adjustments usually happened near the end of a financial quarter.

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The result of the audit means that Dell will have restate its earnings for that time period, although a statement announced that the result will not have a "material" impact on the companys bottom line. The adjustment will likely mean a reduction of revenue of about 1 percent or less for each year the auditors examined.

The audit covered several years when Michael Dell ran his namesake company as the CEO. In 2004, Dell stepped down and Kevin Rollins became the CEO. In January of 2007, Rollins left and Michael Dell returned to day-to-day control of the company.

The transition from Rollins to Dell came soon after the first news of the companys auditing problems became public and Dell was forced announce that both the Securities and Exchange Commission and the U.S. Attorneys Office for the Southern District of New York had begun looking at the companys financial practices.

The return of Michael Dell also came at a time when the company had been losing market share to Hewlett-Packard, as well as smaller PC vendors such as Acer.

Rollins is now an advisor to a private investment firm and Dell announced that it would pay Rollins $48 millions for his stock options.

Several technology analysts have said they believe that Michael Dell and his company have to move past the accounting problems in order to get the company back on track. Dell also needs to work on bringing new technology to both enterprise customers and consumers, according to analysts with Technology Business Research. The companys cost-cutting measures should also help its financial outlook.

"Dells broader efforts to reduce costs and increase unit shipments, including working with resellers, improving service and support, and increasing its emphasis on product design with its latest Inspiron notebooks and Vostro SMB PCs, will be what determine the pace of its financial recovery," TBR said.

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