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Financial Blunders: Shining a Magnifying Glass on the Shortcomings of Accounting Spreadsheets

Spreadsheets are currently the most universal, transient tool in accounting—and the most dangerous.

Recent studies confirm that up to 90% of all spreadsheets contain errors[1]. No company is excluded from this statistic, even many notable firms that you might quickly recognize. To demonstrate the substantial impact an accounting spreadsheet error can have, here are a few cautionary tales.

The Case of the Simple Omission

One of the most common types of errors is incorrectly typing or pasting data into spreadsheets. When dealing with over 150 rows in a spreadsheet, the human brain is especially susceptible to fatigue, which can lead to small mistakes and generate huge financial consequences.

For example, an actively-managed mutual fund discovered a $2.6 billion error in their balance sheet. As it turns out, someone omitted a minus sign, accidentally labeling a 1.3 billion capital loss as a capital gain, quickly causing more than a few sleepless nights for the company’s CFO.[2]

The Case of the London Whale

Because this mistake had such a huge financial impact on the banking company, it was nicknamed the “London Whale”. The incident was a result of a spreadsheet copy-and-paste error; one figure was added when it should have been averaged. The mistake caused a $6.2 billion trading loss—traders were fired, executives were summoned to stand in front of Congress, and the FBI even launched an investigation into the company.[3] 

The Case of the Mistaken Formula

Another common error involves using formulas to complete calculations in accounting spreadsheets. It can be tricky to figure out the source of the data.

An advertisement displayed on the New York subway system exemplified this error.[4] The ad showed a visually appealing spreadsheet of holiday expenses. Unfortunately, the figures didn’t add up to the total shown. Presumably, the user applied a SUM formula and added in extra rows that weren’t included in the original formula direction.

The Case of the Coding Error

A spreadsheet error with a more academic impact was made by Professors Carmen Reinhart and Kenneth Rogoff. In 2010, the professors published a paper that concluded that countries with an amount of debt exceeding a certain percentage of their GDP experienced slower economic growth than other governments. However, a graduate student found that the spreadsheet the professors used to record their data was missing a large chunk of data—data that stood to disprove their claim. The two were forced to admit their coding error publicly but stood by their study’s original claim. Obviously this would not be possible in the world of finance, especially for those who are publicly traded, but a similar “coding error” could be made by a business as well.

The Case for Automation

While these stories might have been equally horrifying and entertaining to read, it was disastrous for all parties involved. Reputations were impacted and shaped because of a few simple accounting spreadsheet errors.

Despite their multi-applicable capabilities, spreadsheets are not the best platform for your financial processes. The error rate is unavoidable and the likelihood of your company taking a hit and experiencing a large-scale monetary loss is very high.

To avoid being the next company on this list, you must automate your financial close. Automation reduces the risk of human error by simplifying your processes, reducing your workload and properly managing your data. To learn more about how automation can meet the needs of the office of finance and how it can reduce your financial risk, take a look at our portfolio of solutions.

Written by: Ashton Mathai

[1] Harris, R. (2017, July 28). Excel errors: How Microsoft’s spreadsheet may be hazardous to your health. Retrieved from https://www.zdnet.com/article/excel-errors-microsofts-spreadsheet-may-be-hazardous-to-your-health/
[2] Damn Excel! How the ‘most important software application of all time’ is ruining the world. (n.d.). Retrieved from http://fortune.com/2013/04/17/damn-excel-how-the-most-important-software-application-of-all-time-is-ruining-the-world/
[3] Ibid.
[4] Jelen, B. (2013, November 07). Retrieved from http://ww2.cfo.com/spreadsheets/2013/11/even-microsoft-needs-help-avoiding-spreadsheet-errors/