Excel Abuse Running Rampant
Financial firms look to improve spreadsheet controls
October 27, 2008
Microsoft Corp.'s Excel spreadsheet application is celebrated among financial firms for its power and flexibility on the desktop. But those same attributes can cause problems when it is used as an enterprise solution.
Earlier this month, Barclays Capital had to go to court to amend its acquisition of the U.S. assets of Lehman Brothers. In reformatting an Excel file into a PDF for the U.S. Bankruptcy Court for the Southern District of New York, a junior associate inadvertently deleted hidden rows in the spreadsheet that showed contracts that were to be excluded from the deal.
Scott Hirth, former CFO of Ann Arbor, Mich.-based digital archiving vendor ProQuest Co., was recently fined $420,000 by the Securities and Exchange Commission and banned from serving as an officer or director of a public company after allegedly using Excel to falsify financial records and make the company look more profitable than it was. The SEC said he hid spreadsheet data in invisible cells by using white fonts on a white background. The company lost $437 million in market capitalization and changed its name to Voyager Learning Co.
In 2005, Australia's Westpac had to halt trading after it sent out profit information in a spreadsheet--certain blacked-out cells could be reversed to reveal data it didn't want shared. A similar incident happened in 2006, when Toronto-based Sun Life Financial issued a spreadsheet with hidden data that could be recovered using Adobe Acrobat.
Microsoft Excel is probably the most widely used application in financial services. And while it is fast and robust, as an individual desktop application it lacks the controls and audit trails that firms typically have in their trading or treasury systems.
"I have talked with senior executives at international banks who tell me they are giving certain desks the capability to generate 150,000 or even 200,000 trades per day through an Excel spreadsheet," says P.J. Di Giammarino, CEO of London-based think tank JWG-IT Group. "Robust interfaces are built from the spreadsheet into the trading environment, but the core remains a spreadsheet. With the skyrocketing market volumes, and the increasing burden of regulatory proof, one has to question how long this operating model can be sustained."
Auditor Demands
A large firm may have more than 100,000 spreadsheets, often without knowing where they are or who is using them. Increasingly auditors are requiring them to bring the spreadsheets under control. At least two Microsoft partners have developed software that helps enterprises detect, control and audit spreadsheets.
Like ClusterSeven, a London-based vendor that provides controls for spreadsheets, Prodiance Corp. offers a scanning program that finds the files on the network and builds an inventory. "We have a risk engine that will open the file and, based on the complexity and hidden data, rank it in terms of risk," says Eric Perry, VP of marketing at San Ramon, Calif.-based Prodiance. It also keeps the risk profile up to date.
"Customers often come to us when it is too late," says Perry--after auditors refuse to sign off on a report unless the firm does something to improve its spreadsheet controls.
Excel is so widely used, according to Adam Honoré, senior analyst at Boston-based research firm Aite Group, because a spreadsheet is a natural interface for people in financial services. "Everybody understands how they work," he says. "If you are going to get people off Excel, what can do the work better?"
