What dark secrets are your spreadsheets and models hiding?

Importance of spreadsheets

Spreadsheets are an integral part of the 21st century economy. Most companies today somehow rely on spreadsheets. The multicellular document is widely used for business and transactional information, spreadsheets are used for various reasons covering all aspects of accounting and math. They include budgeting, graphs / charts, financial analysis and scientific applications. Spreadsheet programs also help manage data in a variety of formats.

Spreadsheets in the news

Spreadsheet errors can happen to the best of us. Typos and mistakes in spreadsheets can cost your business millions. Financial regulations, such as Sarbanes-Oxley requirements, have had a huge impact on how companies manage changes and controls in financial documents, such as spreadsheets. Due to their preponderance and the amount of digital fingertips that these documents can touch, spreadsheets have come under heavy fire. In particular, companies lack proper controls and repeatable processes to mitigate risks.

There is a lot of research into the spread of spreadsheet errors. Research has repeatedly shown that an alarming portion of corporate spreadsheet models are not tested to the extent necessary to support directors’ fiduciary, reporting and compliance obligations. This is not about software errors within the applications, such as Microsoft Excel, Google Sheets or OpenOffice. The problems associated with a spreadsheet do not normally lie in the software program itself. It’s those imperfect people who use the applications: enter data, copy and paste numbers from row to row and column to column, and write inaccurate formulas.

Risk on spreadsheets

Spreadsheet allows us to quickly run analyzes that would otherwise be difficult or time consuming to prepare. We all use them because we love the flexibility that comes with them. The problem is that we tend to place too much faith in the integrity of the analysis we are preparing. Mistakes happen. Given tight deadlines and workload, mistakes are more common than we would like. The simplest mistakes, which often occur as a result of a copy and paste error, an incorrectly placed insert row or a bad assumption, can have catastrophic consequences.

Lack of spreadsheet audits and security and integrity issues pose huge challenges. These risks include: lost sales and profit; wrong pricing and poor decision making due to common but undetected errors; fraud resulting from malicious tampering; and difficulties in demonstrating fiduciary and regulatory compliance.

There is an extensive research basis on the risks of using spreadsheets within companies. The main known risks of spreadsheets are:

  • Human Error – Making mistakes is human, which is why most spreadsheets contain errors. Because spreadsheets are rarely tested, these errors persist. Recent research has shown that spreadsheet models used operationally have material defects.

  • Fraud – Because of the ease with which code and data are mixed, spreadsheets are the perfect environment for committing fraud.

  • Overconfidence – Because spreadsheet users don’t look for mistakes, they find none or many. Spreadsheet users are therefore overconfident in using spreadsheets.

  • Interpretation – Translation of a business problem into the spreadsheet domain may result in decision makers acting in the belief that decisions can be made with confidence based on the spreadsheet output, despite evidence to the contrary.

  • Archiving – Poor archiving can lead to spreadsheet weaknesses that contribute to operational risk.

It has been suggested that spreadsheets may still pose a range of systemic risks, including (but not limited to!) Assumptions, opacity, validation and interoperability of companies.

To minimize risk while gaining the inherent BI value of spreadsheets, information and knowledge management professionals need to distinguish between the different ways spreadsheets are used. Next, they should help users apply advanced spreadsheet tools and techniques to their day-to-day tasks, while also implementing a tightly controlled (or closely controlled) environment for critical production processes that rely on spreadsheet data.

Spreadsheet controls

Spreadsheet profiling is the first step in the process of analyzing data to determine its structure and meaning. Several processes are performed to reveal patterns, metadata matches, value completeness and so on. Spreadsheet profiling emerges as an important requirement for business users to get full value from spreadsheet items.

A picture is worth a thousand words … A spreadsheet formula [ = 1 + 1 ] in a cell returns an output of [ 33.00 ]. Here is a simple example of a spreadsheet with a conveniently crafted but incorrect output, and no errors or warnings are generated for the spreadsheet user.

Could this happen to one of your most important spreadsheets – intentionally or unintentionally and how your decisions could be influenced?

Source by Muizz Hassan