Risk & Economy » Regulation » How to avoid a Marks and Spencer financial results mistake

Henry Umney, director of, ClusterSeven, explores why CFOs are stuck in a spiralling web of spreadsheets and inaccuracies

The pressure of financial reporting is growing due to evolving customer demands, a growing business need for insight into operations and increased scrutiny from auditors and regulators.

At the same time, finance departments are grappling with relentless budget and staff cuts as businesses demand ‘to do more for less’. Evidence suggests that financial directors and CFOs are feeling the crunch.

The latest research conducted by the FSN Modern Finance Forum amongst 49,000 members globally found that the financial reporting process is keeping 97% of CFOs awake at night, with 62% of finance teams concerned that they will not meet their reporting deadlines.

To balance the impact of shrinking resources, CFOs are turning to self-service reporting, ranking it as their number two technology priority after automated document production and electronic signatures.

CFOS are trapped in a spreadsheet spiral

Unfortunately, while the rationale behind self-service reporting is understandable, the notion is fraught with risk due to the ‘spreadsheet spiral’ phenomenon gripping financial departments.

Spreadsheets are extensively used for data collection across business units and within financial reporting, including final mile reporting, for example, alongside complex financial modelling and data aggregation and manipulation. Due to a lack of internal usage policies and structure, the use of these ubiquitous applications is out of control, which in turn is threatening the integrity of many business-critical financial processes.

For genuine business confidence, CFOs must know the data sources that feed into their financial reports; and their providence.

The reality however, is that many finance departments don’t have visibility of data flows across their spreadsheet and end user computing (EUC) landscape.

The data links between the different spreadsheets across departments, regions and models are routinely undocumented and therefore impossible to view and accurately decipher.

Perhaps that is why the research reveals that 40% of CFOs are unable to agree that their data is always trustworthy; and 46% of CFOs worry about an unexpected spreadsheet error being identified. Additionally, 55% of CFOs worry that controls are not operating as they should be.

Despite recognition of the challenges posed by spreadsheets, CFOs are not able to break free from their usage. Most organisations today deploy sophisticated enterprise systems and are the preferred destination for the processing of business-critical financial information. But these technologies aren’t able to deliver against the agility demands of finance departments because of their complexity, making it difficult for finance departments to add new operational processes.

Consequently, finance departments are dependent on the IT function to make amends to their reporting structures in these enterprise systems. This causes delays, leaving CFOs with no option, but to revert to the flexible spreadsheet to fill the functionality gap and use these EUC applications to plaster over the reporting processes. This spiral of spreadsheet usage continues endlessly.

Deep-rooted data anarchy is a business risk

The widespread, uncontrolled use of spreadsheets is causing deep-rooted data anarchy.

As the spreadsheet landscape grows, the business begins to contend with an enormous spider-like web of potentially mission-critical spreadsheets with deep and intrinsic data linkages.

It becomes nigh on impossible to track the lineages between the various files, greatly compromising the accuracy and integrity of the data in the spreadsheets and in turn the outputs of the models and financial reports.

The research highlights that 43% of CFOs cannot identify their business-critical spreadsheets, which is a dangerous situation for finance departments and organisations alike.

With a lack of visibility of the data sources, finance departments are struggling to determine the convoluted data lineages among the various spreadsheets that feed business-critical information to their financial reports.

That may be why 43% of CFOs fear that they will be faced with questions about accounts that they won’t be able to answer immediately.

A single error in a spreadsheet can create a domino effect, creating data mayhem and potentially invalidating the accuracy of financial models and reports, putting the business at extreme operational risk – with the finance director being answerable for it.

The Marks and Spencer incident last year when the company inadvertently issued inaccurate financial results due to a spreadsheet error, is just one such high-profile example.

Adopting best practice-led automation to understand data processes

CFOs need to get their house in order. It’s essential that finance departments and businesses at large gain complete visibility and an in-depth understanding of their data landscape.

This includes the spreadsheets and their distinctive data flows; the enterprise systems and their corresponding data flows; and ultimately the numerous and potentially convoluted interconnections across this combined landscape.

Finance departments manually endeavouring to decode a complex spider-web of data lineages in a spreadsheet and wider corporate information landscape – that transcends functions, departments and jurisdictions – is an impossible task.

A best practice, automation-led approach is the best way forward and must be a serious consideration for CFOs and finance directors.

Technology can routinely automate the analysis of the data flows, identify the data lineages across the landscape and continuously track and monitor data usage via precise change management processes.

This disciplined approach will ensure data quality, accuracy and integrity within the business-critical processes of finance departments and organisations via auditable transparency for both internal and external stakeholders.

The FSN research shows that presently, 75% of CFOs are yet to make the move to real-time reporting in the boardroom.

This can only be achieved if there is indisputable information accuracy, with complete visibility of the spreadsheet universe and transparency of lineages across the data landscape.

Technology can enable finance departments to manage every single spreadsheet and EUC application across its lifecycle – from creation through to inclusion in the enterprise system and its decommissioning – as a matter of course.

This will also go a long way in making self-service financial reporting a reality for CFOs and finance directors too.

 

Henry Umney is Director at ClusterSeven