Spreadsheet Risks in Banks

No other industry perhaps handles such large volumes of critical financial data more than the banking industry. For decades now, spreadsheets have become permanent fixtures in the front-line reporting tool sets of banks, providing organised information when and where needed.

But as banks enter into a period of heightened credit risks, elevated levels of fraud, and greater regulatory scrutiny, many are wondering if continued reliance on spreadsheets is a wise decision for banks today.

The downfall of Lehman Brothers which eventually led to its filing for Chapter 11 bankruptcy protection on September 15, 2008, served as a wake up call for many institutions across the globe to make a serious examination of their own risk management practices. But would these reforms include evaluating the security of user developed applications (UDAs), the most common of which are spreadsheets, and putting specific guidelines as to when they can – or cannot be – used?

Banks and Spreadsheet Use

Banks have been known to utilise spreadsheets systems for many critical functions because most personnel are well-acquainted with them, and the freedom of being able to develop customised reports without needing to consult with the IT department offers flexibility and convenience. In fact, more than having a way to do financial budgeting and analysing customer profitability, even loan officers and trade managers have become reliant on spreadsheets for risk management reporting and for making underwriting decisions.

But there are more than a few drawbacks to using spreadsheets for these tasks, and the sooner bank executives realise these, the sooner they can adopt better solutions.

General Limitations

Spreadsheets are far from being data base systems and yet more often than not, they are expected to act as such, with figures constantly added and formulas edited to produce the presumably right set of reports.

In addition, data integrity is always a cause for concern as most values in spreadsheets are entered as manual inputs. Even the mere misplacement of a comma or a negative sign, or an inadvertent ?edit? to a formula can also be a source of significant changes in the outcome.

Confidentiality risk is also another drawback of the use of spreadsheets in banks as these tools do not have adequate?access controls to limit access to only authorised individuals. Pertinent financial information that fall into the wrong hands can lead to a whole new set of problems including the possibility of fraud.

Risks in Trading

For trading transactions, spreadsheets can prove to be of immense use – but only for small market volumes. As trade volumes increase and the types vary, spreadsheets are no longer a viable solution and may likely become more of a hindrance, with calculations taking longer in the face of bigger transaction amounts and growing transaction data.

And in trading, there is always the need for rigorous computational functions. Computing for the Value at Risk (VaR) for large portfolios for instance, is simply way beyond the capabilities of spreadsheets. Banks that persist in using them are increasing the risk of loss on those portfolios. Or, they can be opening up?opportunities for fraud?as Allied Irish Bank (in the case of John Rusnak – $690 million) learned the hard way.

Risks in Underwriting

Bankers who use spreadsheets as their main source of information for underwriting procedures also face certain limitations. Loan transactions require that borrowers? financial data be centralised and easily accessible to risk officers and lending officers involved in making decisions. With spreadsheets, there is no simple and secure way of doing that. Information can be pulled from different sources – individual tax returns, corporate tax documents, partnership documents, audited financial statements – hence there is difficulty in verifying that these reports adhere to underwriting policies.

Spreadsheet control and monitoring

Financial institutions which are having difficulty weaning themselves from the convenience and simplicity that spreadsheets offer are looking for possible control solutions. Essentially, they want to find ways that allow them to continue using these UDAs and yet somehow eliminate the?spreadsheet risks?and limitations involved.

Still, the debate goes back and forth on whether adequate control measures can be implemented on spreadsheets so that that the risks are mitigated. Many services have come forward to herald innovative solutions for better spreadsheet management. But at the end of the day, there really is no guarantee that such solutions would suffice.

More Spreadsheet Blogs


Spreadsheet Risks in Banks


Top 10 Disadvantages of Spreadsheets


Disadvantages of Spreadsheets – obstacles to compliance in the Healthcare Industry


How Internal Auditors can win the War against Spreadsheet Fraud


Spreadsheet Reporting – No Room in your company in an age of Business Intelligence


Still looking for a Way to Consolidate Excel Spreadsheets?


Disadvantages of Spreadsheets


Spreadsheet woes – ill equipped for an Agile Business Environment


Spreadsheet Fraud


Spreadsheet Woes – Limited features for easy adoption of a control framework


Spreadsheet woes – Burden in SOX Compliance and other Regulations


Spreadsheet Risk Issues


Server Application Solutions – Don’t let Spreadsheets hold your Business back


Why Spreadsheets can send the pillars of Solvency II crashing down

?

Advert-Book-UK

amazon.co.uk

?

Advert-Book-USA

amazon.com

Contact Us

  • (+353)(0)1-443-3807 – IRL
  • (+44)(0)20-7193-9751 – UK

Check our similar posts

Saving Energy Step 5 – Bringing it together

We hope you have been enjoying our series of short posts regarding saving energy, so what we use we can sustain. We have tried to make a dry subject interesting. After you read this post please comment, and tell us how it went. We are in the environment together. As the man who wrote ?No Man is an Island? said, ?if a clod be washed away somewhere by the sea, Europe is the less? and Europe was his entire world.

The 4 Steps we wrote about previously have a multiplier effect when we harness them together

  1. Having a management system diffuses office politics and pins accountability in a way that not even a worm could wriggle
  2. This defines the boundaries for senior managers and empowers them to implement practical improvements with confidence
  3. The results feed back into lower energy bills: this convinces the organisation that more is possible
  4. This dream filters through all levels of the organisation, as a natural team forms to make work and home a better place.

None of this would be possible without measuring energy consumption throughout the process, converting this into meaningful analytics, and playing ?what-if? scenarios against each other to determine where to start.

The 5th Step to Energy Saving that brings the other four together can double the individual benefits as innovative power flows between them. The monetary savings are impressive and provide capital to go even further. Why not allow us to help you manage what we measure together.

ecoVaro turns your numbers into meaningful analytics, makes suggestions, and stays with you so we can quantify your savings as you make them. We should talk about this soon.

Contact Us

  • (+353)(0)1-443-3807 – IRL
  • (+44)(0)20-7193-9751 – UK
Finding the Best Structure for Your Enterprise Development Team

An enterprise development team is a small group of dedicated specialists. They may focus on a new business project such as an IoT solution. Members of microteams cooperate with ideas while functioning semi-independently. These self-managing specialists are scarce in the job market. Thus, they are a relatively expensive resource and we must optimise their role.

Organisation?Size and Enterprise Development Team Structure

Organisation structure depends on the size of the business and the industry in which it functions. An enterprise development team for a micro business may be a few freelancers burning candles at both ends. While a large corporate may have a herd of full-timers with their own building. Most IoT solutions are born out of the efforts of microteams.

In this regard, Bill Gates and Mark Zuckerberg blazed the trail with Microsoft and Facebook. They were both college students at the time, and both abandoned their business studies to follow their dreams. There is a strong case for liberating developers from top-down structures, and keeping management and initiative at arm?s length.

The Case for Separating Microteams from the?Organisation

Microsoft Corporation went on to become a massive corporate, with 114,000 employees, and its founder Bill Gates arguably one of the richest people in the world. Yet even it admits there are limitations to size. In Chapter 2 of its Visual Studio 6.0 program it says,

‘today’s component-based enterprise applications are different from traditional business applications in many ways. To build them successfully, you need not only new programming tools and architectures, but also new development and project management strategies.?

Microsoft goes on to confirm that traditional, top-down structures are inappropriate for component-based systems such as IoT solutions. We have moved on from ?monolithic, self-contained, standalone systems,? it says, ?where these worked relatively well.?

Microsoft’s model for enterprise development teams envisages individual members dedicated to one or more specific roles as follows:

  • Product Manager ? owns the vision statement and communicates progress
  • Program Manager ? owns the application specification and coordinates
  • Developer ? delivers a functional, fully-complying solution to specification
  • Quality Assurer ? verifies that the design complies with the specification
  • User Educator ? develops and publishes online and printed documentation
  • Logistics Planner ? ensures smooth rollout and deployment of the solution

Three Broad Structures for Microteams working on IoT Solutions

The organisation structure of an enterprise development team should also mirror the size of the business, and the industry in which it functions. While a large one may manage small microteams of employee specialists successfully, it will have to ring-fence them to preserve them from bureaucratic influence. A medium-size organisation may call in a ?big six? consultancy on a project basis. However, an independently sourced micro-team is the solution for a small business with say up to 100 employees.

The Case for Freelancing Individuals versus Functional Microteams

While it may be doable to source a virtual enterprise development team on a contracting portal, a fair amount of management input may be necessary before they weld into a well-oiled team. Remember, members of a micro-team must cooperate with ideas while functioning semi-independently. The spirit of cooperation takes time to incubate, and then grow.

This is the argument, briefly, for outsourcing your IoT project, and bringing in a professional, fully integrated micro-team to do the job quickly, and effectively. We can lay on whatever combination you require of project managers, program managers, developers, quality assurers, user educators, and logistic planners. We will manage the micro-team, the process, and the success of the project on your behalf while you get on running your business, which is what you do best.

Contact Us

  • (+353)(0)1-443-3807 – IRL
  • (+44)(0)20-7193-9751 – UK
The Cloud: Changing the Game for Small Businesses

There is a consensus among cloud experts that the onset of cloud computing will benefit small organisations the most. In fact, many even go as far as saying that the cloud and small businesses are a match made in IT heaven. How much of this is true and how much of this is merely part and parcel of the hype surrounding cloud computing?

The Cloud as the Great?Equaliser

If you closely examine the essential characteristics of cloud computing, particularly public cloud services, you will see why small organisations would be very interested in the cloud, and would eventually flock to it, like moths to a flame. And why not? Cloud computing is turning out to be the weapon that can allow small and medium organisations to compete on a more level playing field against large enterprises.

Here are some cloud computing benefits that may just close the gap between the two.

  • Significantly lower IT spending. With little to no investment at all on hardware infrastructure and practically zero maintenance costs, SMBs that would have required substantial capital for IT are now finding it easy to get a business started from scratch or develop and test out new products by using the cloud as the backbone of their IT set-up. The pay-as-you-go pricing scheme that cloud computing offers allows companies to start small and scale up as needed, or when the revenue starts coming in.
  • Higher employee productivity. Licensing fees for software applications can run high even if you don’t have a large staff. Good thing there are now a host of cloud-based office tools – word processors, spreadsheets, presentations, accounting systems, etc. – that can boost employee productivity without the corresponding costs that small businesses can ill afford. Plus, team members in remote locations can continue to collaborate with the rest through any internet-connected device in real time.
  • Easier, better communication. The easy accessibility of communication apps has also changed the way employees interact with fellow employees and more importantly, with customers. Whether through email, instant messaging, or social networks, cloud services have given individuals and businesses more ways of giving and getting feedback. The best thing about it is that most of these services don’t cost much or are even free, giving SMBs ample tools to create better products and improve service.
  • A Look at the Figures Many small businesses are already seeing the potential in the cloud, with SaaS (Software as a Service) applications most commonly used among the early adopters. These services include email and other communication apps, file sharing, and backup.

In a February 2012 Edge Strategies survey (commissioned by Microsoft) of 3,000 small businesses in the US, the following data came to light:

  • The number of small companies with 2 to 10 employees using paid cloud services will triple in the next three years;
  • Current cloud users report purchasing an average of 4 services in the cloud now and expect to use 6 in the future;
  • Fifty percent agree that cloud computing is going to become more important for businesses such as theirs.

Further, a survey of 323 SMBs recently released by social business site Spiceworks and sponsored by EMC reveals that from 48 percent at the start of 2012 and 28 percent a year ago, 62 percent of the businesses surveyed now use some type of cloud app.

What these numbers show is that cloud adoption among small and medium enterprises is starting to gain ground and for sure, more will do the same as understanding and awareness increase. Yes, these businesses should still perform their due diligence as there is no one-size-fits-all cloud solution. But for those companies who have managed to find the right cloud apps and services for their needs, it’s all sunny skies up ahead.

Contact Us

  • (+353)(0)1-443-3807 – IRL
  • (+44)(0)20-7193-9751 – UK

Ready to work with Denizon?

Contact Us Today