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Good news, bad news at Dell

After concluding a year-long internal investigation into its accounting practices, Dell will restate earnings for four years. While the change in profits is minimal, the investigation found several unnamed senior executives involved in end-of-quarter acco

As reported, Dell recently concluded a year-long internal investigation into its accounting practices. As a result, the company will restate its financials for four fiscal years (2003 through 2006) plus the first quarter of fiscal 2007. The good news is that the cumulative decrease in net income will be between $50 and $150 million - peanuts compared with Dell's reported profit of $12 billion during the restatement period.

The bad news, however, is contained in a rather heavily wordsmithed paragraph of Dell's press release:

"The investigation identified evidence that certain adjustments appear to have been motivated by the objective of attaining financial targets. According to the investigation, these activities typically occurred at the close of a quarter. The investigation found evidence that, in that timeframe, account balances were reviewed, sometimes at the request or with the knowledge of senior executives, with the goal of seeking adjustments so that quarterly performance objectives could be met."

It appears that certain senior executives had a chronic case of end of quarter madness, a relatively common disease among executives of publicly traded companies.

Confirming what was evident from Dell's announcement, CFO Don Carty said in a conference call with investors, "We did find evidence of fraud." But neither Carty nor Michael Dell - who reclaimed the CEO role in January - would divulge the identities of the senior executives referenced in the company's release.

The SEC - which is conducting its own investigation into Dell's accounting and financial reporting practices - may not be so discrete. The SEC investigation actually preceded and probably precipitated Dell's internal investigation, which shows you just how fast the fed's wheels turn.

Anyway, the big question for those who follow the company is what, if any, role did Michael Dell play in the fraud. There is concern that the company may lose its savior before he has a chance to complete his mission of restoring Dell to its former grandeur.

I could be wrong, but I don't believe there's much to worry about there. After all, the SEC has access to the same 5 million documents, interview transcripts and journal entries that Dell's audit committee reviewed. Unless the feds find a smoking gun with Dell's fingerprints all over it that the company missed, the buck will likely stop at the desk of former CFO Jim Schneider, since he was responsible for financial reporting. Worst case, the blame could extend to former COO and CEO (depending on the quarter) Kevin Rollins.

Both Rollins and Schneider resigned their posts in January of this year. Their departures may or may not have been related to the accounting investigation, which began the prior August.

While I expect Dell (Michael and the company) to survive this investigation intact, there are far greater perils to keep the company's executives and investors up at night. HP is firing on all cylindersand Dell's once-vaulted direct-sales model is under attack.

Perhaps the only thing harder than inventing a great company is reinventing one, and that's the challenge Michael Dell finds before him now. While many have failed at that endeavor, a few exceptional leaders - Lou Gerstner at IBM, Steve Jobs at Apple, and most recently, Mark Hurd at HP - have succeeded.

I expect Michael Dell to make the short list.