by Robyn da Silva, Account Director, Gresham Computing
In a recent poll we conducted with global corporates, over half the respondents confessed to still using spreadsheets to manage their general ledger or accounts receivable processes. When we asked them how long, on average, it takes to allocate and reconcile money received in their back office, more than a third said it takes three days or more, with 16% taking up to a week. When you’re dealing with high volumes of transactions this has a real impact on working capital. So why are corporates hesitant to move on from reliance on spreadsheets, and how can they get from A to B more quickly?
While a wave of new technologies are reshaping the order-to-cash cycle, the drawbacks of reliance on spreadsheets isn’t new. More than ten years ago a paper from PwC, The Use of Spreadsheets - Considerations from Section 404 of the Sarbanes-Oxley Act, highlighted the fact that interlinked spreadsheets, created by end-users, are often prepared with minimal or no planning and documentation, and are rarely subject to the same rigorous level of controls as commercially-developed applications.
However, many are still committed to spreadsheets as the primary tool for managing their cash positions. The issue spans much of the finance and accounting spectrum, making it a huge issue for corporates – in this set-up, one typo could lead to a multimillion pound mistake. C&C, the Irish group that owns Magners Cider, found this out when a human spreadsheet error resulted in shares falling by 15% back in 2009 – after admitting its revenues in previous months had fallen 5%, rather than having risen 3% as initially reported. When technology infrastructure poses a risk to the company’s bottom line, it’s time to seriously reconsider the existing approach.
Despite being a technology issue, some of the key reasons for this issue are innately human. Many corporates have stuck with spreadsheet technology or basic accounting packages, because they are familiar: Excel is a programme that people know, are comfortable with, and can use instantly on their desktop. It’s also fair to suggest that most companies haven’t been forced to change in the way that financial institutions have. They don’t face the same level of stringent, rapidly changing regulatory drivers. So they stick with the tried and trusted routine.
The need for control
The reality here is that spreadsheets are not inherently bad. Microsoft Excel, as the obvious example, became so widely adopted because it was the first programme of its kind to wrap an easy-to-use interface around moderately sophisticated number crunching capabilities. And for smaller volumes of transactions, there are worse options. But for the larger corporates, the maze of interlinked spreadsheets quickly grows into an almost unmanageable mess – they need greater control over the larger volume of transactions being processed. The severity of this need for control becomes even clearer when considering the logistics of the cash management process.
For most organisations, the ability to share and access up-to-date and accurate information across the board is imperative. When using spreadsheets as a control mechanism for matching and allocation, it’s easy to get caught up in information jams where timely sharing of knowledge is hindered through disparate files, folders and processes. As far as the back office is concerned, many corporates would benefit from a more efficient handling of accounts receivables management to relinquish their reliance on spreadsheets. Used for cash allocation, spreadsheets are inherently manual, meaning that payments received are not allocated as quickly as they could be and the process can grind to a standstill. This directly affects the days sales outstanding and may have more serious consequences if the funds are classified as client money. Spreadsheet allocation also means that the risk of misallocation of funds, either fraudulently or in error, is much higher. This can lead to all kinds of accounting tailbacks further down the road when the misallocation needs to be unravelled. In contrast, data integrity software would ensure that funds can be automatically identified and cleared accurately and instantly, eliminating the chance of human error.
The stark need for greater automation would of course apply to any other transaction control process in finance and treasury departments. As an example, large corporates with an advanced treasury function will need to carry out portfolio reconciliations or reconciliations between their systems, and the systems of an exchange or a broker. This has become particularly important in light of the regulatory requirements for transaction reporting where organisations are required, by the FCA, to maintain accurate records. In this instance data integrity software would provide data verification, matching and reconciliation as well as robust reporting capability.[[[PAGE]]]
A cultural issue
Will treasury functions free themselves from spreadsheet gridlock in the next few years? The hard truth is that not all will. For those making a transition onto more intelligent, automated systems, success will be underpinned by a strong commitment from the top of the organisation. This is a cultural issue – a willingness to change is key, and must be driven by senior leaders with the clout to instigate organisational change, and take the internal team with them on that journey. The benefits of a more simplified process, where visibility and standardisation of data are paramount, are clear. In a complicated world where corporates can often get bogged down in disparate processes and differing systems, future best practice will be shaped by those with the decisiveness to move beyond simple spreadsheet technology – as warm and familiar as it may be.
