Excel Blunders that Cost Companies Millions.. and for some Jail Time.
Updated: Sep 7, 2020
Across the globe, businesses use Microsoft’s Excel for their daily accounting needs. It is easy to use, widely known, and allows for extreme personalization. Many finance professionals use spreadsheet formulas they created over decades of trial and error which still prove to be the most accurate interpretation of business health. However, the issue with these manual, outdated processes is that they leave a lot of room for error.
Users of Quickbooks and other financial software types still predominately use Excel spreadsheets in daily operations. Many studies have been done on the frequency of errors amongst operational spreadsheets and the verdict is in, over 90% of Excel spreadsheets contain errors. Sometimes these errors lead to small mishaps that can be easily repaired but on some occasions, the smallest inaccuracies have led to drastic consequences.
“Errors in spreadsheets are pandemic,” said Ray Panko, a professor of IT management at the University of Hawaii
It’s time to understand the results of spreadsheet blunders and more importantly how to ensure your business does not become vulnerable.
The Hide vs Delete Error
Remember in September 2008 when Lehman Brothers collapsed due to the U.S. housing crisis? Well, Barclays jumped to the rescue and offered to acquire a portion of Lehman’s assets. In doing so, they hired a law firm to draw up the purchase offer. This offer was drafted on a lengthy excel spreadsheet, consisting of over 24,000 cells. Amongst these cells was the 179 trading contracts Barclay’s was not interested in. The issue, these cells were hidden on the Excel sheet rather than deleted. When Barclay’s hired a law firm to compile the necessary paperwork, a junior associate in the firm went ahead and converted the spreadsheet to a pdf - as is required by the courts. Unbeknownst to the junior associate, these contracts became as visible as the light of day, as part of the acquisition, rather than being excluded from it. This was a multi-million dollar mistake, although numbers were never revealed and required both parties to return to court to settle.
The Misrecorded Number
While compiling their 4th quarter budgeting reports, RedEnvelope an online gift shop, had one employee, misrecord one number, in one cell, on one spreadsheet. This seemingly small mistake resulted in a huge underestimation of the cost of goods sold and an overestimation of gross margins. With the now obvious negative outlook for the fourth quarter, the publicly-traded company lost the confidence of its shareholders and ultimately took a huge hit. In one day, their shares plummeted by more than 25%, and the CFO handed in their resignation, all due to one number, in one cell, on one spreadsheet.
The Unexpanded Cell Conundrum
In a recent case brought to the United States Court of Appeals, a highschool student was facing threats of blackmail through an application called Kik. The county deputy assigned to the case started to extract the necessary evidence from the Kik application onto an excel spreadsheet using one column for the name, one for the username and one for the contents of the messages. The deputy, while compiling this document, continuously mentioned two users ‘anonymous’ and ‘anonymousaf.’ The Excel sheet was then used by the NYPD to acquire a search and seizure warrant, ultimately leading to an arrest. Weeks later it was realized that when the spreadsheet was sent from the county deputy to the NYPD, the cells were collapsed, making both ‘anonymous’ and ‘anonymousaf’ look identical. The officers never expanded the cells and this excel error led to the wrongful arrest and detainment of the wrong individual for over five weeks.
The Cut-and-Paste Error
When submitting a sealed bid on an electricity transmission contracts, accountants at Transalta, misaligned entire rows of information on an excel spreadsheet. This cut-and-paste error led to overbidding on low-demand routes and Transalta winning the bid, for contracts they did not want, at prices that weren’t ready to pay. Once bids are submitted they cannot be altered, regardless of the circumstances. These prices amounted to over $24 million in overspending that cost the corporation 10% of their annual profits.
Ensure you are not Vulnerable to an Excel Fiasco
The issues with Excel are known - so well known that many solutions have come out trying to replace excel interfaces in their entirety. But businesses have tried for over 3 decades to find an Excel alternative that met their needs and yet Excel still prevails. Instead of attempting to replace Excel, it may be more prudent to find a solution that works with your existing Excel spreadsheet-based interface, this is where a financial analytics platform such as DataRails or an automation engine like Quickbooks come into play. Picture this - one unified interface to upload all financial data from across the business.
With DataRails if data discrepancies exist or numbers are not in sync across spreadsheets, the software flags them and brings them to the attention of financial analysts - meaning the end of version comparisons. The analysts can drill down into the inconsistencies, determine where they are coming from, and ensure they are edited to convey real results. With the ability to instantly generate graphs and reports, small mistakes that could lead to huge consequences, like what happened in any example above, cannot occur.
Quickbooks is another accounting software that changes the way companies work by tracking expenses, invoices, reports, and more to help keep organized and automate tedious processes. It syncs with your company’s many applications and platforms to manage everything in one place allowing you to run your business on your own terms and avoid costly mistakes.
The solutions are out there! Let these Excel-based blunders remain in the past without needing to comprise on the software you have spent a lifetime growing accustom to. Embrace a financial analytics and reporting platform for your business today.