An internal investigation by senior Dell executives has revealed improper accounting tricks were employed to meet quarterly performance targets. As a result the company will restate some four years of financials for 2003, 2004, 2005, 2006 and the first quarter of 2007.
The investigation, which began in August 2006, involved more than 375 professionals deployed across all the company’s major regions.
The investigation team evaluated more than 5m documents, conducted more than 200 interviews of company personnel and reviewed thousands of journal entries and supporting documentation.
“Errors and irregularities” were identified during the investigation and Dell said the corrections will be significant because of the number of issues identified, the qualitative nature of many of the issues, and in some cases the dollar amounts involved.
As a result the restatement will see net revenue for each annual period to be reduced by less than 1pc of the previously reported figures.
The cumulative change to profits as a result is expected to see a reduction of between US$50m and US$150m and a reduction in earnings per share of between two cents and seven cents.
The largest changes in quarterly net income and earnings per share are expected to occur between fiscal 2003 and the second quarter of 2004.
Dell said that the investigation found evidence that certain adjustments were “motivated by the objective of attaining financial targets” with the knowledge of senior executives keen to meet performance targets.
The investigation also found that sometimes business unit personnel did not provide complete information to corporate HQ and in a number of instances “purposely incorrect or incomplete information about these activities was provided to internal or external auditors”.
Dell management has concluded that these activities constituted “material weaknesses” in the companies internal control over financial reporting.
The full report of the investigation will be included in the company’s fiscal 2007 10-K filing to the Securities and Exchange Commission.
“The rigorous examination of our accounting and finance processes, along with the remedial actions taken and planned, have made and will continue to make Dell a far stronger company and provide a solid foundation on which to move the business forward, reinforce our standards and focus our energy on serving our customers,” said Donald J. Carty, Dell’s vice chairman and chief financial officer.
By John Kennedy
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