Dell is the latest company to admit to "evidence of misconduct" in its financial practices. The computer-maker, which is under scrutiny by federal regulators and prosecutors, plans to delay filing its 10-K until an internal investigation is complete.
Dell said its Audit Committee's investigation has "identified a number of accounting errors, evidence of misconduct, and deficiencies in the financial control environment." The committee is working with management and independent auditors to determine whether accounting errors will require the company to restate financial statements and is assessing whether a lack of internal controls allowed the misconduct.
"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, chair of Dell's Audit Committee, said in a statement.
Dell's Ongoing Woes
The announcement does not come as a surprise.
Last year, Dell revealed that the Securities and Exchange Commission and the United States attorney for the Southern District of New York were investigating its accounting practices. At that time, the company said the inquires did not involve options backdating, an issue that has seen dozens of technology company CEOs lose their jobs over the past year.
However, Dell has witnessed a management shakeup since the investigations were launched. At the beginning of the year, James M. Schneider stepped down from his position as Dell's CFO. The company did not confirm or deny that his decision was related to the Audit Committee's investigation. And Dell CEO Kevin Rollins resigned at the end of the January. Company founder Michael Dell returned to the helm.
Dell has been struggling in recent quarters with sluggish PC sales. Long-time rival Hewlett-Packard overtook the company as the No. 1 computer-maker and smaller competitors are gaining ground with a focus on Asian markets. Most recently and in response to customer demand, Dell announced it would manufacture PCs that run Linux operating systems, hoping to spur new growth.
Is Michael Dell a Target?
The impact of the federal investigations on Michael Dell remains to be seen. What is certain is that some CEOs are more closely associated with the overall success of a company than others. Apple Computer CEO Steve Jobs and Dell CEO Michael Dell are two of them, said Marc Pado, a market strategist for Cantor Fitzgerald & Co.
So far, Dell has not been implicated in any wrongdoing as was Jobs with the options-backdating issues over at Apple. Misconduct, Pado said, sounds relatively benign compared to the Enron scandal, and he said he expects the matter to be cleared up without major long-term impacts on the company's stock.
"An accounting error and misconduct have two different implications," Pado said. "However, given the lack of severity of the reaction to the stock, it seems the market has discounted this news and just wants it cleared up and out of the way."