When Neri shoots Fredo, we see Michael in the boat house looking at the lake.
Are we to believe that he actually witnesses the killing of his brother?
Or does he only hear it?

He stands at the window, waits and hears the shots.

One would guess that, since the body must be dumped over Neri has to take Fredo pretty far out onto the lake, farther than where they can be seen from Michael's window.

Also...Fredo must be led to believe he's actually going fishing...

I think he sees the murder. Afterall, they didn't have to go very far out on the lake to fish.

Heeerrre, puppy.....!!!

I think it was directoral license. Neri probably had to report to the police that Fredo "fell overboard," and that he tried and failed to rescue Fredo. He had to dump Fredo's body in a place remote enough that the police wouldn't find it when he and/or Michael called to report the "accident." And, if Michael heard the gunshot, so would everyone else in the compound.

I knew that there were apparently fish in that scene, but there was a dog?

Maybe the police weren't even notified? After all, if they made the excuse of "drowning", then there had to have been a body that police could have fished out. So I'm not really sure they were even called...

I agree. It's not like the police in Tahoe would be putting out some kind of manhunt for a "missing" mobster just because nobody's seen him at the corner grocery in a few weeks.

even if they called the police, i'm sure michael would have had them in his pocket

Oh, and sorry for the mistyping in the subject.

does it say his body was ever found? did Neri dump his body in the water?
would have been to sloppy for a body to be dumped in the lake. when fredo and neri left the dock nothing was brought to weigh the body to the bottom of the lake.. and i do not think mike would want to live near a lake where his older brother's body still be and may wash up ... i bet Neri took it ashore.

There's no indication that Fredo's body was recovered. We don't know what happened to it. If it was dumped, Lake Tahoe is about 1,500 ft deep and the body would be subject to the ravages of that water environment. Since Michael ordered his brother murdered, I don't think he'd be concerned about living there.

Would have been a funny ending for Neri: Drowning while dumping Fredo.