RSS feedsHistorically the accountants’ best friend, but fast becoming the finance directors’ worst enemy, the humble spreadsheet is increasingly coming under attack.
Countless software companies are attempting to cash in on its failings, from Adobe to Cartesis to Oracle. And, rightly so. The spreadsheet is a weak link in the corporate reporting chain, with directors, managers, individual members of staff and sometimes entire departments maintaining their own mini spreadsheet-empires.
Companies must gain far greater control over their data and information, or compliance will go down the toilet faster than you can say “that would never happen to me”. Consider the recent horror story when, in November last year, Kodak was forced to increase its already swollen third-quarter losses by an extra $9m. The relatively modest increase to $1.038bn was due entirely to a spreadsheet error.
While it was only a small restatement, in contrast to the company’s already jaw-dropping losses, what little confidence investors and analysts may have had left in the company could have suffered irreparably.
In a separate, but perhaps even more embarrassing incident, that same month Australian bank Westpac was forced to halt trading on its shares and deliver its record results a day early because details of its $2.82bn profit were accidentally sent to research analysts. The bank’s latest results were embedded in a template of the previous year’s results and accessible with a minor manipulation of the spreadsheet.
Both incidents show how easy it can be to let seemingly minor errors or oversights snowball into a major market-effecting event. In a statement at the time, Kodak’s chief financial officer, Robert Brust, was forced to concede that the error was due to an “internal control deficiency that constitutes a material weakness”. The reality was that too many zeros were added to an employee’s accrued severance in an Excel spreadsheet.
At a recent event, James Bennet, director of technology, communications and entertainment at Ernst & Young, summed it up when discussing the current compliance demands faced by companies and how they fit with the technology frameworks many organisations are maintaining. “A patchwork quilt of financial systems glued together with Excel spreadsheets simply won’t work in today’s world,” he said. This is especially true when we consider frequent claims that up to 80% of spreadsheets contain errors.
Small cap JKX Oil & Gas made for better reading recently, with news that it has signed a deal to implement Cartesis Magnitude, a management reporting and financial consolidation package, to replace its current spreadsheet environment. It is worth a closer look. JKX has grown exponentially over the past four years. Listed on the LSE, with headquarters in London, the company’s principal overseas operation is in the Ukraine.
Until now, the company has been using a spreadsheet-based reporting environment, and as part of the tender process, when Cartesis was ultimately chosen, it actually considered keeping it. “We felt that there was too much concern over its integrity on an ongoing basis,” says Sue Rivett, financial controller at JKX. “There is always a certain amount of concern with the integrity of spreadsheets, particularly if someone builds them and someone else takes them on and doesn’t know the full set up,” she says.
With one, albeit substantial, cast of the die, JKX has gained greater control over its business. Rivett can access data from the company’s operations more easily, rather than having to rely on spreadsheets manually-produced in the Ukraine. “Spreadsheets are updated on an automated basis from Magnitude, so our risks are greatly reduced,” she says. And for a company which has operations in some of the less settled regions of the world, this has to be for the best.
Organisations now have so much information that it is almost impossible to maintain proper controls using legacy applications, disparate spreadsheets and Access databases. But while compliance is a buzzword too often used by the software industry to try and frighten finance directors into buying their products, it can also offer substantial value-creating benefits.
Rivett says that the Cartesis software implementation will allow her company to grow, as well as cope with any industry step-changes far better than it ever could using traditional spreadsheets. It will also allow her greater control and improve confidence over the integrity of that data.
In a recent research paper for the European Spreadsheet Risks Interest Group, its membership secretary, Grenville Croll, interviewed several senior financial executives about the uncontrolled use of spreadsheets. “It is completely within the realms of possibility that a single, large, complex but erroneous spreadsheet could directly cause the accidental loss of a corporation or institution,” he says. Don’t let it be yours.
