Treasury Today Country Profiles in association with Citi

Don’t let spreadsheets kill your business

Woman using spreadsheets on laptop

Spreadsheets are the lifeblood of most financial professionals. But if you don’t know how well they are being controlled, they could be killing your business.

When the vast drinks retail empire of Conviviality was forced into administration in April this year following a spreadsheet ‘error’, its auditor, KPMG was taken to task by the UK accountancy watchdog, Financial Reporting Council (FRC). It was not the first time KPMG had come under scrutiny by the FRC for such mistakes.

A ‘failure among auditors to sufficiently test the accuracy and completeness of data or reports produced by management’ has been highlighted by the FRC as one of the major problems. Similar accounting failures were cited as potentially having led to the collapse of UK construction giant, Carillion in January.

In the US, the Public Company Accounting Oversight Board (PCAOB) is also coming down hard on auditors for failures and violations of the Board’s quality standards to enforce SOX compliance by organisations.

According to the PCAOB Division of Registration and Inspections, the most frequent audit deficiencies relate to auditing internal control over financial reporting, assessing and responding to risks of material misstatement and measurements.

According to the International Forum of Independent Audit Regulators, accounting lapses were identified at 40% of the 918 audits of listed public interest entities they inspected last year.

Pointing the finger

“Ensuring accuracy of data and management reports at client sites for auditors is potentially nigh impossible without the aid of technology,” suggests Henry Umney, CEO of spreadsheet data-integrity software vendor, ClusterSeven. This lack of control, he adds, is primarily due to ‘spreadsheet risk’.

Corporates often use spreadsheets to augment their IT systems for data collection and enrichment, complex calculations and financial reporting.

Whilst spreadsheets can deliver the required functionality, flexibility and familiarity required by professional users, Umney argues that they are largely used in an unmonitored and uncontrolled manner.

Manual supervision over large numbers of what can be complex files means the necessary quality and integrity of data is unachievable. In Conviviality’s case, it led to “a spreadsheet error” that caused a £5m hole in the company’s profit forecast and omission of a £30m tax bill.

Faced with huge fines and immeasurable reputational damage, Umney says accountancy firms need to look for ways to deliver against regulators’ demands of more evidence of auditability and control. “Enforcing a best practice, automated approach to data management and spreadsheet governance from corporates is an easy win. It’s time accountancy firms started demanding it of corporates.”

Points of view

Umney clearly has a vested interest in automated spreadsheet control. But with their use being such an integral part of everyday corporate life, the regulators gunning for the auditors, and large firms going under because of ‘missed’ irregularities, maybe the time has come for the treasury community to consider just how well they are being managed internally.

The spreadsheet has life in it yet though, says former Tatts Group treasurer and Cofounder at Arkava, Cale Bennett. Read what he had to say in this Treasury Insider from May 2018.