Spreadsheets – A Ticking Time Bomb

It has become customary to use spreadsheets to enable decision making in business. They are easy to use and are a fast and powerful tool in many areas of business. Yet how much do we question the accuracy and integrity of the spreadsheets we have come to rely on? Consider this If we get software developers to write a program for our business, we expect that it will be carefully planned and designed with required outputs and the program will be written by qualified experts who will extensively test the software for bugs. Finally, it will be tested to ensure the required outputs are achieved. If changes need to be made to the software, these will be done leaving an audit trail, so it is possible to keep control of the program. When staff in the business write spreadsheets is the same criteria used?   In many instances it is not.  Surveys by KPMG and Price Waterhouse show that more than 90% of spreadsheets they checked contained errors. There are many horror stories relating to spreadsheet errors – the National Bank of Australia had to take a $3 billion write down of its U.S. mortgage bond holdings due to a spreadsheet error. What should be done? The starting point is to establish what spreadsheets exist in the business? Once this is established, they should be ranked in terms of potential impact on the business. Those with high rankings should be subject to additional review  – have they been planned, do they produce the desired output, are changes easy to follow, are they subject to last minute changes and have they been thoroughly tested? As best practice now indicates, they should be part of the business’ risk profile and ranked with other risks in the business. It is a relatively easy exercise to do – to check and manage spreadsheets in an entity.  The losses can be substantial and the benefits, subject to management control, can contribute to the success of the business.  

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