Avoid nightmare spreadsheets
By Real Business Reporter

MORE than 90% of spreadsheets contain errors of some kind, research by the University of Hawaii’s Professor Ramond Panko has found.
David Finch, head of internal audit at Superdrug in the UK, says: “The use of spreadsheets in business is a little like Christmas for children. They are too excited to get on with the game to read or think about the ‘rules’, which are generally boring. ”

It will be difficult for companies that have financial data in a series of spreadsheets to comply with regulations which require companies to maintain a consistent audit trail, as it is difficult to maintain one version of the truth in spreadsheet-driven financials.

Adrian Miric, MD of Miricle Solutions, which supplies Spreadsheet Professional, an Excel auditing tool, mentions a local example of spreadsheet error with the country's first democratic elections.

The final results were unreliable, due to bugs in spreadsheet macros and typographical errors made when moving data from fax to computer.

Miric says errors in spreadsheets are a nightmare when it comes to tenders, public-private partnerships (PPPs), and engineering contracts. “The reason is, if you make an error in a tender and it is to your company's advantage, you probably won't win the tender as the price will be too high. Alternatively, if the price is too low, the chance is you will win the tender, but will have to deliver the product and service at a fixed lower price than you anticipated.”

Canadian company TransAlta took a $24m charge last year after a bidding mistake caused by a cut-and-paste error in a spreadsheet. This is one of the most common sources of errors in spreadsheets, says Miric.

TransAlta's computer spreadsheet contained mismatched bids for transmission congestion contracts. As a result, it bought more contracts at higher prices than intended. The actual value of the contracts was determined daily, based on changing supply, load and transmission conditions. TransAlta worked throughout the month to mitigate the financial impact from the error.

The National Australia Bank (NAB) wrote down the value of its US mortgage business HomeSide Lending by a massive AUS$3bn, according to the Australian Broadcasting Corporation. It says: “A big chunk of the loss can be attributed to a basic accounting error.” The news triggered a free fall in the NAB's share price that knocked more than $6,5bn off the bank's market value.

In the US, a bidder lost a government tender to supply internet connectivity to all of the state of Tennessee's schools.

The bid appeared cheaper until costs for the duration of the contract were computed.

The bidder had made an error on a spreadsheet and the bid was actually higher than that of the competitor. “There are increasing instances such as these,” says Miric. Because of this, conferences are now being dedicated to spreadsheet risk, with the next one being held in July in Austria.

Miric says projects such as the Gautrain and the 2010 soccer World Cup could be at risk, as the likelihood is high that a significant amount of money will be spent based on feasibility studies done in spreadsheets, which could contain errors.

“Resource-intensive industries in SA, which are particularly capex-heavy, are also at risk, due to the likelihood of spreadsheet errors.”

Miric says in some businesses, the spreadsheet is more important than the company's accounting system, as it is used as the basis for business decisions on whether or not to go into a venture, while the accounting system tells executives whether or not they made money from a venture.

“People don't realise how important non-process software is,” he says.

According to Panko, “One reason why individual spreadsheet developers do not use rigorous development disciplines may be the fact that few organisations have policies on end-user development in general, much less spreadsheet development.

“Galletta and Hufnagel surveyed 107 MIS executives using a mail questionnaire that focused broadly on policies for controlling end-user development.

For restrictions on end-user development, 23% said they had rules and 58% said they had guidelines. Yet even for corporations with rules and guidelines, the respondents said that there was full compliance only 27% of the time.

“When asked about requirements for post-development audits, only 15% said they had rules, and another 34% said they had guidelines.

The respondents said that where they had rules and guidelines for post-development audits, furthermore, there was full compliance only 10% of the time, and guidance was completely ignored 41% of the time.”

He says overall, formal spreadsheet policies seem to be rare and their enforcement casual.

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Avoid nightmare spreadsheets By Real Business Reporter

Avoid nightmare spreadsheets
By Real Business Reporter