You might also be interested in
Replies (11)
Please login or register to join the discussion.
A problem or Not?
Are we following the US down the route of Sarbanes-Oxley legislation?
I think not as it took Enron, WorldCom and others to get it on the political agenda in the US. If we really did have a problem here in the UK why wasn't it raised back in 2001 when the debate raged in the US?
I suspect this 'debate' is driven by vested interests such as Excel add-on software developers.
That's not to say accountants shouldn't take care but, hey, we're accountants - we're cautious about everything. Aren't we?
When it's unavoidab;e
"products designed to supplant or manage spreadsheets within finance" are undoubtedly very good and to be preferred to Excel hack work. But for those who have no canned alternative, they have to find other ways to manage the risk. Hence the need for the annual conference of the European Spreadsheet Risk Interest Group (EuSpRIG). They meet to learn new ways next July 5 & 6 in Manchester.
Managing Spreadsheet Risk
Solvency II is pushing the issue up company's priorities in the UK at the moment. Whilst this is focused on the Financial Services industry it does seem to be creating noise around the subject in the wider UK business environment.
In my opinion this is no bad thing. Review the "Horror stories" section of EuSpRIG's site and you will see a host of examples of the issues poorly controlled spreadsheets can cause.
The key to successfully managing spreadsheet risk is for a business to first evaluate their spreadsheet risk and then to put in an appropriate level of control to mitigate the risk.
For some SMEs this could be as simple as validating and locking down a few critical spreadsheets and up-skilling a few individuals on the concepts of spreadsheet risk and best practice modelling.
The ERP dream never was going to come true
Accounting systems were one of the first big applications of the computing era, for excellent reasons. But it's a truism in IT that your corporate systems meet 90% of the needs you used to think you had.
Spreadsheets were invented to make our lives that much better.
Perhaps most importantly, you can play with a spreadsheet, and nobody gets hurt. And you can do so much more with a spreadsheet than you can with a corporate system.
ERP systems grew out of accounting and other operational systems coming together. The dream was that every process and every datum in the enterprise would be captured in one place - a single source of truth, a single point of control. According to this worldview, every piece of business information that exists outside the system is an act of treason.
But command and control systems have been about as successful as command and control economies, and for precisely the same reason. Decision-making and expertise live at the edge of the business, and intelligence degrades as it's aggregated.
Is this an argument against corporate systems? Not at all! The IT function has the constant task of delivering to business users the best view of the operation. And your ERP needs (I bet it already has) ways of connecting with the world beyond its secure structures.
It's not our job to seek and destroy local spreadsheets, but to make sure the human network functions well, so that knowledge and expertise flow.
Do some of these spreadsheets contain errors? Yes, of course. And so does the ERP, so do your customers' and suppliers' systems. But unlike the strategic systems, those spreadsheets can be fixed in a moment, without expense!
Spreadsheet risk
With 89% of accountants confessing that their organisations aren’t doing enough to prevent spreadsheet risk, why are Financial Directors continuing to rely heavily on Excel spreadsheets? This especially applies to the complex processes involved with managing the capital assets register and associated depreciations.
How an organisation manages its assets has multiple effects on a company’s finances, from tangible costs of heightened insurance premiums through to neglected depreciation. Having an accurate and robust asset register that shows the location, value and condition of assets can also help ensure that resources are available and usable when needed as well as achieving compliance with key industry legislation. And whilst spreadsheets are adequate for collecting basic data, there are several compelling reasons for switching to a bespoke system designed to cope with these intricacies.
Too many spreadsheets contain errors, which is to be expected with information entered by hand. Whether it be the background asset data or the formula itself, there’s little doubt that depreciation calculations, when based on a spreadsheet, are likely to be inaccurate – potentially affecting the overarching balance sheet. Furthermore, with the raw data within a spreadsheet dictating that each report be constructed individually using complex macros, this also wastes valuable time and resources at month-end.
With such a high degree of attention focused on your organisation, why would you risk the integrity of your financial data by relying solely on spreadsheets, which are inherently unstable and invariably achieve poor audit results?
Karen Conneely
Group Commercial Manager
Tools for the job and right approach ...
The underlying problem is not the tool but the lax discipline using Excel. The fact that Excel allows one to do almost anything doesn't mean that you have to do it and having a 'personal' spreadsheet is vastly different from suddenly migrating it across a department.
There are many ways of dealing with the matter but for the most part a number of Excel users don't like standards, have not been trained and refuse to be constrained - that the beauty of Excel after all! Essentially many are wannabe programmers (sometimes more fun than the core work) without the discipline and adopting very little testing before using the resulting spreadsheet
Most spreadsheets are not defined at the outset and 'evolve' over time with each new idea - ultimately resulting in something that does the job but is un-documented, un-supportable, un-testable and potentially containing errors. Furthermore, when each member of staff puts their own requirement on a distributed spreadsheet then suddenly there are xxx variations of the same original spreadsheet - all slightly different; hence errors are perpetuated!
It is perfectly possible to download formulas with or without data from ERP systems into Excel spreadsheets and this approach could easily be used to distribute a 'standard' format over an entire user base from a central source, however, that again is frowned upon because it 'stiffles the users creative ability' and not nearly so much fun as designing it oneself
Basically it is all down to a structured approach with underling rules - goodness know why those in the profession refuse this concept
why those in the profession refuse this concept
Because the perception of the immediate expense is larger than the perception of the possible risk. It needs IT resources to define and maintain these standard formats. As soon as one person wants something which is not in the standard set, they either have to wait for IT to deliver it, or do it themselves, as best as they know how, in the time they have, for the purposes for which they want it that day, which may be different another day.
Workmen and tools
Spreadsheets aren't evil - they are useful, and very flexible tools.
They aren't very easy to check, so a bit of extra effort must be made to ensure you haven't made a gigantic mistake like this one:
What is referred to above as spreadsheet risk is simply the risk that the budget has been prepared incorrectly. Although most organisations don't have a department for spreadsheet risk, I'm sure they'd know who is responsible for ensuring the budget is accurate. Whoever has that responsibility can choose the most appropriate tool.
Asking accountants who has responsibility for spreadsheet risk is like asking a building firm who is responsible for defects caused by careless use of hammers.
Z
And what about Zombie Apocalypse risk? Have we taken any steps against it? Who's responsible when it happens? These are worrying times.
If we package something up as a risk, and then give it a name, and ask who's responsible, and people say no one is, should we be surprised? Meanwhile I regularly have to deal with software defects of all kinds, plus outside agencies who cannot produce reliable information regardless of software use, or usually because of it.
Computer-aided Spreadsheet Audit
Spreadsheets are tremendously valuable tools for powerful, flexible, and efficient analysis, reporting, and a whole slew of other purposes. Simply because error risk exists when spreadsheet development is uncontrolled or improperly used, we can't just throw out the baby with the bath water. In addition to the many thoughts presented in the article and in the comments, including implementing best spreadsheet development practices, version variance analysis, and manual audit, a key weapon that should exist in everyone's aresenal is computer-aided spreadsheet audit. It can not be used to replace these other tools, but rather it further augments and extends them to deliver a much more robust solution to the issue of spreadsheet risk mitigation. There are many options out there, although frankly not many really good ones. The one we use is The Audinator (I think they still offer a free trial at http://www.audinator.com???), which employs an entirely new technology that finds more errors with less false positives, but there are also a couple other very nice alternatives as well. The key is to find one that works for you - and use it. You'll look at the subject of error risk in an entirely new light.
Conclusive Proof
I was going to post a spreadsheet with data that proves I am right - but then I found it was full of errors.