Spreadsheet Error Horror Stories
Spreadsheet Errors Cost Businesses Billions
Businesses in virtually every industry worldwide use spreadsheets for financial and statistical analysis. In the days of manual data entry, spreadsheets were rife with math errors. The advent of Excel and other software eliminated most math errors. But spreadsheets in every business, maybe even yours, have data quality problems that make them potential vulnerabilities.
The biggest culprit that plagues spreadsheets at nearly every firm is human error. It wreaks havoc on data and costs companies billions. There are ways, however, you can minimize your company’s risk.
Mistakes in company spreadsheets put billions of dollars – and company reputations – at risk. Studies show that nearly 88 percent of spreadsheets contain errors. Even the most carefully crafted and scrutinized spreadsheets reportedly have errors in 1 percent of formulas.
Most of these problems were caused by human error and were completely avoidable.
One in five large businesses suffered notable financial losses because of mistakes in spreadsheets, according to a British report. But examples abound of companies and organizations worldwide that have had high-profile catastrophes from spreadsheet blunders.
The most common problems involve:
- Typos or bad input
- Mistakes in logic
- Copy and paste errors
- Incorrect hard-coded values
- Cell range omissions or incorrect cell ranges in calculations.
Here are four infamous blunders involving spreadsheet errors that show how easily mistakes can snowball:
Enron Corp. – The 2001 implosion of energy giant Enron has been studied widely and led to Sarbanes-Oxley and other regulatory changes. Yes, there were ethical problems at Enron, but they started with and were exacerbated by thousands of inaccurate spreadsheets that were not caught by auditors. By some estimates detailed in legal proceedings, 24 percent of spreadsheet formulas used by Enron contained mistakes (whether deliberate or accidental). For example, the company built power plants and other assets, then claimed projected profits right away before any profits could realistically be achieved. Then, if the revenue was lower, Enron did not take the loss; they transferred the assets to another corporation so the reductions went unreported and didn’t hurt results for the corporation.
London Olympics Organizing Committee (Locog) – While Enron’s spreadsheet discrepancies were largely deliberate and cultural, the organizing committee for the 2012 London Olympics had a major embarrassment and problem because of a simple typo in a spreadsheet. They sold 20,000 tickets for synchronized swimming, but there was a single digit that was incorrect. There were only 10,000 tickets available. Months after they had sold twice the available seats, the organizing committee had to apologize and try to get spectators to instead accept tickets for other events.
JP Morgan Chase – JP Morgan lost over $6 billion in 2012 in the so-called “London Whale” incident, largely because of spreadsheet errors. While working on a Value at Risk model, an employee copied and pasted data or formulas from one spreadsheet to another. But embedded errors were not reviewed and the calculations never tested. Reportedly some figures were divided instead of averaged, and there were other mathematical errors as well.
Barclays – During the banking crisis in 2008, Barclays agreed to purchase Lehman Brothers, except spreadsheet errors led them to eat losses on contracts they did not intend to buy. The detailed spreadsheet of Lehman assets contained approximately 1,000 rows that needed to be converted into a PDF. Except, the original Excel version had hidden rows with 179 items that Barclays did not want. The notes that they did not want those contracts were not transferred to the PDF, but the hidden rows were. As a result, they had to buy 179 contracts that they did not want.
Avoiding spreadsheet errors
Since Enron, various strategies have been attempted to ensure spreadsheet accuracy. At most firms, data entry is still a manual process. That leaves calculations susceptible to human error, such as inputting a wrong number or copying over a wrong formula. Painstaking scrutiny by others to ensure accuracy helps, but is still subject to human fallibility.
Ubiquitous use of spreadsheets has led to development of sophisticated software that minimizes risks, identifies fraud and helps companies avoid liability issues down the road. For example, Incisive’s innovative software solutions locate, manage and eradicate risk in Excel spreadsheets.
The tools crawl networks to locate and rank spreadsheets, employ document controls for data quality assurance, and conduct a number of tests on every cell to measure data quality. Locating spreadsheets with risk is crucial to minimizing a firm’s exposure to mistakes, whether from fraud or inadvertent error.
Algorithms, such as Incisive’s, help companies monitor spreadsheets to find potential risks. This saves considerable labor and resources, and restores confidence in the accuracy of the underlying data and resulting decisions.
Realistically, everyone has messed up a spreadsheet at some point. But, accuracy is critical with important business decisions riding on Excel spreadsheets, Access databases or comparable tools in nearly every organization. Incisive believes that its software can help businesses of all sizes continue to use spreadsheets without the risk of embarrassing issues that have affected other firms.