Spreadsheets have become a staple tool in finance but the complexity of the world around them has changed. Regulatory obligations have intensified, tax computations more numerous, and corporate structures more complicated.
In response, spreadsheets have become unwieldy so that populating and managing them has become a resource-intensive process. Now, as we move toward the age of real-time reporting, the concern is that spreadsheet dependency will find organisations ill-equipped to meet demands from tax authorities. So where do the main problems lie?
- Efficiency: Retrieving financial data is troublesome with some businesses having to report on numerous networks or suppliers in addition to multiple group entities. Collecting, formatting, cleansing and querying this data is time consuming. Some corporation tax filers report spending up to 75% of compliance cycle time on data input.
- Errors: As spreadsheets multiply so too does the capacity for error. Conservative estimates suggest 88% of spreadsheets contain errors caused through manual data entry. Mistakes are often only spotted during review, if at all.
- Macros: Macros are often created an attempt to automate processes within the spreadsheet but these can often be faulty. Untested or documented, these macros can slip beneath the radar and persist for years.
- Audits and Risk: Auditors routinely highlight spreadsheets as the single biggest cause of non-compliance. Errors can be costly, resulting in investigation leading to the prospect of reputational damage, possible litigation, and financial losses.
- Key person dependency: A select few individuals are tasked with creating, managing and updating the data but this can result in knowledge silos, heightening risk. When these individuals leave they take the understanding of how things have been calculated with them.
- Accountability: The business also needs checks and balances in the process to be able to determine exactly where things went wrong. Spreadsheets don’t use role-based access or tracking which can make it hugely difficult to trace and correct the origin of errors.
- Scalability: As regulatory demands change - and with it the need for near-real time data access and more frequent reporting - so businesses will need systems that can provide drill down detail in near or real-time. The spreadsheet will struggle with such demands.
- Oversight: Spreadsheets are not a centralised real-time resource. Without a user-centric dashboard they are not accessible or visible to the company. This means they cannot deliver the valuable insight needed to drive decisions.
They can act as a bottleneck in the process and this can erode confidence in the financial data. Research has found that 50% of CFOs worry that documents and disclosures have not been updated with the latest changes to accounts due to these delays and 40% did not believe their data was trustworthy or accurate.
Tackling these issues will help release resource, improve accuracy and deliver access to more reliable data while mitigating the risk of investigation. But it will also pave the way for the business to become ‘digital ready’ and able to meet the real-time reporting requirements from HMRC that we can expect following digitalisation of the tax regime.
Organisations should therefore begin to look at how they can reduce their spreadsheet dependency. To do this, they need to create an end-to-end process that can automate the calculation, preparation and management of data using a centralised system. This will mitigate risk and reduce the likelihood of errors, eliminate the problem of data silos, alleviate workloads, and create a watertight digital audit trail. But perhaps most importantly of all, it will give the business the assurance that comes from knowing you have a pool of consistent and reliable data.