Top 10 Disadvantages of Spreadsheets

Fraudulent manipulations in company Excel files have already resulted in Billion-Dollar losses. The main underlying reason behind this spreadsheet vulnerability is the inherent lack of controls, which makes it so easy to alter either formulas, values, or dependencies without being detected.


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1. Vulnerable to Fraud

Of all the spreadsheet disadvantages listed here, this is perhaps the most damaging. Fraudulent manipulations in company Excel files have already resulted in Billion-Dollar losses. The main underlying reason behind this spreadsheet vulnerability is the inherent lack of controls, which makes it so easy to alter either formulas, values, or dependencies without being detected.

2. Susceptible to trivial human errors

While fraud will always be a threat to spreadsheet systems, there is a more significant threat that should make you seriously consider getting rid of these outdated systems. And that is its extreme susceptibility to even trivial human errors. Missed negative signs and misaligned rows may sound harmless.

But when they damage investor confidence or cause a considerable loss of opportunity amounting to millions of dollars (Are we serious? Google up ?spreadsheet horror stories? to find out), you should understand that it?s time to move on to better alternatives.

3. Difficult to troubleshoot or test

So how about testing spreadsheets to mitigate the risks of items 1 and 2? Good luck. Spreadsheets just aren?t built for that. It?s not uncommon to have interrelated spreadsheet data scattered across different folders, workstations, offices, or even geographical locations.

Worse, even if you are able pinpoint the locations of every related file, tracing the logic of formulas from one related cell to another can take ages. It?s pretty obvious now how you?ll also encounter a similar problem when troubleshooting questionable data.

4. Obstructive to regulatory compliance

Combine items 1, 2, and 3, and what do you get? A big headache impacting regulatory compliance. There are number of regulations that have a serious impact on the use of spreadsheets.

Some of the many regulations that impact spreadsheet systems include:

And to think it looks like regulatory bodies are just getting warmed up. Over the last two decades, we’ve seen a surge in regulations that directly affect spreadsheet-based systems. Now, you tell me that you haven?t wished there was a better way to beat regulatory compliance deadlines. Well, if you?re still using spreadsheets, then there certainly is a better way.

5. Unfit for agile business practices

We’re now in an age when major changes are shaping and reshaping the business landscape. Mergers and Acquisitions, Management Buyouts, earthquakes, tsunamis, hurricanes, uprisings, climate change, new technologies, and so on. If your business is not agile enough to adapt to such changes, it could easily be left behind or even face extinction.

Spreadsheets are normally created by individuals who have not the slightest know-how regarding software documentation. In the end, spreadsheet files become highly personalised user developed applications. So when it?s time for a new person to take over as part of a large scale business change, the newcomer may have to start from scratch.

Read further about Implementing Large-Scale Business Change

 

6. Not designed for collaborative work

Planning, forecasting, budgeting, and reporting are all collaborative activities. In other words, plans, forecasts, budgets, and reports typically require information from different individuals belonging to different departments. In addition, the final documents are a result of multiple exchanges of data, ideas, and files.

Now, if your company?s offices are scattered throughout the country or if certain team members are separated by large distances, the only way to exchange data stored in spreadsheets is through email.

Experience will tell you that such a method of exchange is susceptible to duplicate and even erroneous data. Team members will tend to find it hard to keep track of similar files going back and forth, and sometimes even end up sending the wrong version.

7. Hard to consolidate

When it comes to simple data entry and quick ad hoc data analysis tasks, spreadsheets are highly favoured by end users. This has made them one of the most ubiquitous office tools on the planet. But as a consequence, data in spreadsheet-based systems are distributed throughout the organisation.

So when it’s time to generate reports, you’ll really have to go through a slow consolidation process. In most cases, end users would have to collect data from different files, summarise them, and submit the same to their department heads through emails, portable storage media (e.g. CDs or USB flash-drives), or by copying to a commonly shared network folder.

Department heads would have to undergo a similar process before submitting them to their own superiors. This has to go on until all the information reaches their organisation’s top decision makers. Throughout the entire consolidation process, data is subjected to numerous error-prone activities such as copy-pasting, cell entry, and range specification.

8. Incapable of supporting quick decision making

In a spreadsheet-based environment, extracting data from different departments, consolidating them, and summarising the information so that it could aid the company’s top brass in making sound decisions can be very time consuming.

And because we know how susceptible spreadsheets are to errors, everyone involved in the information processing has to be ultra careful to keep the integrity of the data intact. Hence it would be prudent to enforce double-checking as much as possible.

This extra but necessary exercise can further delay the process. So, when the final information arrives at the hands of the top executive, he may not have much time to work with. (Read about Business Intelligence)

9. Unsuited for business continuity

As mentioned earlier, data in spreadsheet systems are never kept in a single place. In fact, it’s the exact opposite. The worse thing about it is that they’re always in the hands of non-IT personnel, who are understandably not familiar with storage and backup best practices.

Thus, if a major disaster strikes, full data recovery can be very difficult if not impossible. As a consequence, even if the company has financial reserves, the absence of data (e.g. accounts receivable records, customer records, and inventory) to work on can prevent the company from making a quick restart.

10. Scales poorly

As an organisation grows, data in spreadsheet-based systems get more distributed; subsequently compounding the issues outlined above. It is absolutely not advisable for a large organisation to keep using spreadsheets.

 

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

 

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How To Get Started with your IT Compliance Efforts for SOX

There’s no question about it. For many of you top executives in the corporate world, all roads leading to a brighter future have to go through SOX compliance. And because the business processes that contribute to financial reporting (the crux of the Sarbanes-Oxley Act) are now highly reliant on IT systems, it is important to focus a good part of your attention there.

It is a long and arduous path to IT compliance, so if you don’t want your company to fall by the wayside due to inefficient utilisation of resources, it is important to set out with a plan on hand. What we have here are some vital information that will guide you in putting together a sound plan for SOX compliance of your company?s IT systems.

Why focus on IT systems for SOX compliance?

We’ll get to that. But first, let’s take up the specific portions of the Sarbanes-Oxley Act that affect information technology. These portions can be found in Section 302 and Section 404 of the act.

In simplified form, Section 302 grants the SEC (Securities and Exchange Commission) authority to come up with rules requiring you, CEOs and CFOs, to certify in each annual or quarterly financial report the following:

  • that you have reviewed the report;
  • that based on your knowledge, the report does not contain anything or leave out anything that would render it misleading;
  • that based on your knowledge, all financial information in the report fairly represent the financial conditions of the company;
  • that you are responsible for establishing internal controls over financial reporting; and
  • that you have assessed the effectiveness of the internal controls.

Similarly, Section 404, stated in simplified form, allows the SEC to come up with rules requiring you, CEOs and CFOs, to add an internal control report to each annual financial report stating that you are responsible for establishing internal controls over financial reporting.

You are also required to assess the effectiveness of those controls and to have a public accounting firm to attest to your assessment based upon standards adopted by the Public Company Accounting Oversight Board (PCAOB).

While there is no mention of IT systems, IT systems now play a significant role in financial reporting. Practically all of the data you need for your financial reports are stored, retrieved and processed on IT systems, so you really have to include them in your SOX compliance initiatives and establish controls on them.

Now that that’s settled, your next question could very well be: How do you know what controls to install and whether those controls are already sufficient to achieve compliance?

Finding a suitable guide for IT compliance

The two bodies responsible for setting rules and standards dealing with SOX, SEC and PCAOB, point to a well-established control framework for guidance – COSO. This framework was drafted by the Committee of Sponsoring Organisations of the Treadway Commission (COSO) and is the most widely accepted control framework in the business world.

However, while COSO is a tested and proven framework, it is more suitable for general controls. What we recommend is a widely-used control framework that aligns well with COSO but also caters to the more technical features and issues that come with IT systems.

Taking into consideration those qualifiers, we recommend COBIT. COBIT features a well thought out collection of IT-related control objectives grouped into four domains: Plan and Organise (PO), Acquire and Implement (AI), Deliver and Support (DS), and Monitor and Evaluate (ME). The document also includes maturity models, performance goals and metrics, and activity goals.

A few examples of COBIt’s detailed control objectives are:

DS4.2 – IT Continuity Plans
DS4.9 – Offsite Backup Storage
DS5.4 – User Account Management
DS5.8 – Cryptographic Key Management
DS5.10 – Network Security
DS5.11 – Exchange of Sensitive Data

By those titles alone, you can see that the framework is specifically designed for IT. But the document is quite extensive and, chances are, you won’t need all of the items detailed there. Furthermore, don’t expect COBIT to specify a control solution controls for every control objective. For example, throughout the control objective DS4 (Ensure Continuous Service), you won’t find any mention of virtualisation, which is common in any modern business continuity solution.

Basically, COBIT will tell you what you need to attain in order to achieve effective governance, management and control, but you’ll have to pick the solution best suited to reach that level of attainment.

Articles highly relevant to the one you just read:

Month End Accounting The Way It Should Be Today
Spreadsheet Woes ? Burden in SOX Compliance and Other Regulations
Spreadsheet Woes ? Limited Features For Easy Adoption of a Control Framework
How Internal Auditors Can Win The War Against Spreadsheet Fraud

Spreadsheet Fraud

To any company executive or business owner, the mere possibility of fraud can be enough to send alarm bells ringing – for good reason. In a prolonged recession, the last thing investors would want to discover is a huge, gaping hole where supposedly a neat profit should have been. Also to find out that such loss was brought about by deliberately falsified accounting and poor spreadsheet controls only makes the situation even more regrettable.

Why?

Because these losses would not have occurred had there been a stronger risk management program in place and more stringent quality control on critical data to begin with.

But given the nature of a spreadsheet system i.e. its sheer flexibility and easy accessibility, plus the fact that they were never intended to be enterprise-level tools, there are no hard and fast rules for auditing spreadsheets. Also because of the lack of internal controls for end user computing (EUC) applications, in this case spreadsheets, you can’t expect these systems to yield consistently accurate results.

In fact, most managers assume that major spreadsheet errors should result in figures that are blatantly out of touch with how things stand in the real world, making these errors easily detectable.

Well they assumed wrong. You’ll find cases where the losses ran to millions of dollars without anyone being the wiser.

In instances of fraud, the problem becomes more complicated as these errors are deliberately hidden and cleverly disguised, perhaps one erroneous cell at a time. Even if these cover-ups started out with smaller figures that may have had negligible impact on a company?s operation, the cumulative costs of these ?insignificant? errors multiply exponentially as the spreadsheets are reused and utilised as bases for other related reports.

While there is no generally accepted definition of the term ?spreadsheet fraud?, its quite easy to identify one when a case crops up. Fraud arising from spreadsheets are typically characterised by:

Fallacious inputs – correct figures are deliberately replaced with false values.

Erroneous outputs owing to data alteration – hyperlinks are linking to the wrong spreadsheets or cells; use of macros or special lines of code which are understandable only to the person who developed the code.

Concealment of critical information – can be done with easy ?tweaks? such as hidden rows and columns, using the same colour for both the font and the background, or hard coding additional values into a cell.

There is nothing really highly-sophisticated or technical in any of these methodologies. But without internal spreadsheet controls in place, it would take a discerning eye and a thorough review to catch the inconsistencies contained in a spreadsheet fraught with errors. Also, if these errors are knowingly placed there, the chances of finding them are close to nil.

Learn more about our server application solutions and discover a better way to protect your company from spreadsheet fraud.

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

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amazon.co.uk

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Advert-Book-USA

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ESOS What is the Truth?

When the UK administration introduced its ESOS Energy Savings Opportunity Scheme reactions from business people followed a familiar theme.

  • Do nothing it will go away
  • The next Westminster will drop this
  • Another stealth tax. I don’t have time for this
  • Give the problem to admin and tell them to fix it

ecovaro decided to share three facts with you. These are

(1) ESOS is not a government money spinner

(2) all major political parties support it, and

(3) it is a cost-effective way to put money back in your pocket while feeling better about what business pumps into the environment.

Four More ESOS Facts

1. You Cannot Give the Problem to Admin ? Energy is technical. The lead belongs with your operations staff because they understand how your systems work. Some things are best outsourced though. ecovaro is here to help.

2. ESOS is Not Going to Go Away ? A company inside the regulation net must submit its first report by 6 December 2015. Non-compliance risks the following penalties:

  • ?5,000 for not maintaining adequate records
  • ?50,000 for not completing the assessment
  • ?50,000 for making a false or misleading statement

3. The Employee Count is the Annual Average – The employment criteria (unlike balance sheet and turnover) is the monthly average of full and part-time employees taken across the full financial year. The fact you have <250 employees in December 2015 when the first report is due does not necessarily let you off the hook.

4. The 6 December 2014 Report is No Big Deal ? When you think about it the administration is hardly likely to spend years wading through 9,000 detailed company energy plans. It has no authority to comment in any case. All that is required is for a senior director to confirm reading the document, and a lead assessor to agree it complies with the law.

Does this mean that ESOS is a damp squib? We do not think so, although some firms may take the low road. ecovaro believes the financial benefits will carry the process forward, and that the imperative to make the world a better place will do the rest.

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