Lack of Spreadsheet Error Detection Solution Can Lead to Nightmares for CFOs

February 16, 2012

Most of today’s large businesses rely on spreadsheets as a way to increase productivity in encapsulating, analyzing and allocating tabular data sets. While this business tool largely underpins the operation of companies’ financial systems, it has also proven to be fallible. This poses the question: What, if any, best practices does management employ to ensure spreadsheet errors are caught before it’s too late?

Looking at the number of spreadsheet risk management processes, compared to those of actual spreadsheets in use by companies, it’s a pretty scary picture. According to a recent survey from global consulting firm Protiviti, only one in 10 accountants believe their firm has included error detection and risk assessment practices for spreadsheets in their business model.

“Our research with clients has shown that 94 percent of an organization’s spreadsheets will contain errors,” said Scott Bolderson, director of IT Consulting for Protiviti. “Not all of these errors will result in financial loss, but organizations won’t know without investigating which errors could cause serious issues. Regulators are starting to apply more pressure on organizations to address the issue, recognizing the level of dependence many organizations place on calculations in spreadsheets.”

Much like a chain reaction, any slight change or inconsistency in a formula or value can affect the outcome of spreadsheet data and may generate major problems for the company or organization as a whole. For instance, Framingham, a municipality in the state of Massachusetts, took a page out of the spreadsheet horror story book when it uncovered a pretty costly mistake in its 2012 budget spreadsheet. In trying to make sense of the $208.6 million operating budget back in October, the town’s chief financial officer discovered that a missing figure, within a mess of “monstrous spreadsheets,” showed that the town had $1.5 million more than it actually had. As a result, the town was forced to use $600,000 in unexpected state aid to help fill that budget gap.

It’s obvious that simple, miniscule errors within spreadsheets can generate unimaginable consequences with the potential to destroy a company’s reputation and integrity. According to experts at Denizon, an IT project management services firm, common spreadsheet risks frequently encountered by spreadsheet users include:

• Accidental copy-and-paste
• Omission of a negative sign
• Invalid range selection
• Inaccurate data input
• Accidental deletion of a character, cell, range, column or row.

Combine these common spreadsheet risks with the fact that only a small portion of accountants have received formal training on how to properly utilize spreadsheets, and it’s a pretty major conundrum. However, by employing a spreadsheet error detection solution, companies can counteract the risks associated with spreadsheet use and identify blunders and inconsistencies.

Some argue that companies can significantly reduce risks by simply introducing best practices for designing, auditing and sharing spreadsheets. However, considering that spreadsheet use is often performed by individuals with limited training, having a spreadsheet error detection solution in place will introduce an additional pre-emptive layer to these workbooks for swift analysis and resolution. Not only do today’s next-generation spreadsheet auditing tools catch errors that may cause considerable damage, but some also meet the audit and compliance reporting needs required by most companies. Even more, they can eliminate hours upon hours of laborious efforts associated with manually debugging spreadsheets.

Xcellerator is one such spreadsheet analysis program from Incisive, a company specializing in spreadsheet management and analysis solutions for large businesses. Xcellerator is built to assist in the digestion of critical accounting reports by acting as an overlay that highlights all the data and formula errors and risks present within a spreadsheet file. It’s particularly helpful for forensic accountants in their task to detect errors and investigate fraudulent activities that lay deep within spreadsheets.

“It’s absolutely critical for any organization that uses spreadsheets to implement risk assessment practices and technologies,” Diane Robinette, president of Incisive, told TMCnet. “Fraudulent activities certainly account for some errors, but employees are human and simply make unintentional mistakes. Solutions like Xcellerator are designed to keep any mistake or change from compounding and creating serious financial problems.”

Eliminating laborious manual checking, Xcellerator helps forensic accountants mitigate risk by scanning entire spreadsheets or individual workbooks for errors, uncovering any hidden data with just one click, and comprehending discovered errors. Users can also utilize error-finding tests to correspond with a workflow, and switch to a “Structure View” to look further into formulas. For more information on Xcellerator, click here.

As one of the most common of all computer software programs, spreadsheets may be the standard for tracking everything from payroll to accounts receivable. But, for a tool that’s notoriously prone to errors, CFOs must take the additional steps to ensure a spreadsheet nightmare doesn’t haunt their company’s reputation for years to come. 

Tammy Wolf is a TMCnet web editor. She covers a wide range of topics, including IP communications and information technology. To read more of her articles, please visit her columnist page.

Edited by Jamie Epstein

Back to Forensic Accounting Channel »