Spreadsheet error leads to Mouchel meltdown

Support services group Mouchel has gone into meltdown after an accounting error caused an £8.6m blow to its profits, resulting in its shares plummeting.

On the discovery of an error made by a client’s actuaries, and an over-optimistic expectation of contract settlements, chief executive Richard Cuthbert tendered his resignation on 6 October. The company share price then dropped by a third, leaving its equity value at just £19.4m by the end of last week.

The outside firm of actuaries told the group about the error the day before the profit warning - that a spreadsheet error meant a pension fund deficit had been wrongly valued. Around £4.3m of Mouchel’s profit write-down has been attributed to this error. 

Continued...

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Comments
listerramjet's picture

blame it on the spreadsheet

listerramjet | | Permalink

I guess you can't sue a spreadsheet!!!!!!

David Winch's picture

Don't believe everything you read on a spreadsheet!

David Winch | | Permalink

If you wrote it, check the formulae!

If you didn't write it, check the formulae!

If you can't check the formulae, think about whether to use it!

David Winch

Make Sales Without Selling and Get Paid What You're Worth

Imagine the poor actuary    1 thanks

youngloch | | Permalink

Imagine the poor actuary (probably very well paid actually!) at that moment when it dawned on him/her what had happened and the impact it had on the numbers...........

It just goes to show that the most simple things can cause the most damage - if ever there was a lesson to pay attention to the basics this is it!

The "value" of an audit

Roland195 | | Permalink

Presumably another company with a clean audit report from a big firm.

 

 

 

 

 

Spreadsheet error

wiggywiggy | | Permalink

Name and shame the actuaries

KH's picture

It's not always the spreadsheets...

KH | | Permalink

My one and only claim to fame was when I was training to become an accountant, back in those bowler-hatted pin-striped furled-brolly 60s and while working with a top-4 firm in London, and I accidentally discovered a single decimal-place error in the amount of interest accruing on the client's investment portfolio ... this was way before computers were any smaller than the large air-controlled rooms needed to house the huge arrays of valves, so no spreadsheets to blame back then.

The result of this single-decimal place error was that the client's profits more than doubled (and this was no small client, but a large bullion dealer), our large team of auditors withdrew for a month while the client company hired another top-4 firm to come in to check and double-check its books prior to our return, and I earned an extra £50 (nearly half my month's salary at the time, if memory serves me right). Tricky thing these numbers ... on spreadsheet or otherwise.

Malcolm Veall's picture

98%

Malcolm Veall | | Permalink

Some years ago at a Digita conference the owner, (forgot his name), in the opening welcome said that the advantage of systematic software over spreadsheets was shown by the fact that he had been told that 50% of spreadsheets had fundamental errors in.  At a break-out session with the well known Excel wizard Simon Hurst he said that was not right - he thought it was more like 98% that had fundamental errors.

shurst's picture

98%?

shurst | | Permalink

Did I really say that! If so it was probably the result of a misplaced bracket in a formula... I think it's meant to be well over 50% though. The European Spreadsheet Risk Interest Group website is a good place to look for research on the area and lots of interesting 'horror stories'. The 'basic research' section includes one estimate that puts the number of spreadsheets with errors at over 90%: http://www.eusprig.org/basic-research.htm. The same section mentions the 50% referring  to 'spreadsheet models used operationally in large businesses hav[ing] material defects'. Whichever is right, it's probably too many...

 

Malcolm Veall's picture

misquote

Malcolm Veall | | Permalink

Sorry Simon, did not mean to mis-quote you - stuck in my mind at the time but probably not the % but the qualitative comment that I got wrong.  Your point was: if you chaps are going to use spreadsheets you should do them carefully & rigorously.

shurst's picture

98%

shurst | | Permalink

Hi Malcolm - no problem - I could well have said something very similar - I usually quote 70-80% which came from a survey a few years ago. As you say, the principle is more important than the actual percentage.

listerramjet's picture

number of spreadsheets with errors

listerramjet | | Permalink

unfortunately (it is likely that) the research quoted was compiled using a spreadsheet, which unfortunately contained a significant error.  The actual result after correcting for this was 42%.

Mouchel meltdown - school governors take note

Moo | | Permalink

On a more sober note any AW readers out there who are school governors may want to forward this news on to their Head; Chair of Governors; Chair of Resources/Facilities etc as Mouchel provide a large amount of project management and building consultancy services to schools.

beddj's picture

Mouchel meltdown - real need is appropriate management practices

beddj | | Permalink

There is a widespread underlying issue here, one that my company has worked on extensively.

Spreadsheets are widely used by organisations of all shapes and sizes, they help solve many issues and help people to organise many things.

but they often solve one problem and create another elsewhere, ....

Spreadsheets are often used to manage key corporate information, as in this quoted Mouchel case, but they are seldom managed and controlled in ways that reflect that they are a part of key corporate information systems.

A very high percentage of companies use spreadsheets in an extremely high risk manner and are as exposed as this Company was.

Their spreadsheets are used daily but rarely independently checked, they are not audited, they are not controlled, in many cases the senior management are not even aware of their existence!  Are back ups taken? Do third parties know how they function or where they are filed?

We have prepared training courses and workshops to make both operational and executive managers more aware of these kind of hidden risks in their management practices.  All management practices need to be fit for purpose, yet many organisations have not adjusted their management controls and practices to reflect their modern use of information technologies like spreadsheets.

All software is susceptible to this

NewACA | | Permalink

the advantage of excel is at least you can check the formulas yourself (unless they have been protected/hidden).

That's why most accountancy software crashes, an error occurred.

With publicly available software, it is likely to have less errors only because:

-proper time and investment has been spent during coding/production, data validation and testing.

-the software is used by many customers and errors are picked up early. Most excel spreadsheets are just used by the person that made them (or a small team).

 

Therefore, it is not because it is a spreadsheet perse, but because of lack of testing and publicly available use.

 

Alll software relies on formula, but at least with excel you can see the formula.

beddj's picture

Spreadsheets are intended for

beddj | | Permalink

Spreadsheets are intended for simple, low volume applications, and, as explained by several authors here, are transparent and straightforward to accounting personnell and others.

They are not intended for high volume, complex data processing and applications where the ability to audit and verify is compromised.

They are not intended as corporate data repositories or for use to ease information sharing and maintenance amongst multiple users, -- but that has not stopped them being used and applied in this way by the unwary.

Databases and properly controlled software systems mitigate risks in high volume, multi-user distributed scenarios. These can lack transparency, but shouldn't. If you use an application you really need to know how it is working, what calculations it does, how it decides on the actions it takes.  You don't need to know the technicalities, but you should know the underlying business process handling. If your supplier cannot tell you this and if the process is not doing what you wish and need then you should not be buying the solution.