For directors and executives, spreadsheet risk is an increasing issue for meeting KYB obligations. Regulators are beginning to clamp down due to the systemic risk for institutions. FSA fined Credit Suisse £5.95m for systems and control failings based on spreadsheets. Hong Kong fined them US$5m. UOB $1.6m Singapore fine and so on. Auditors are increasingly concerned about exposures to spreadsheets after KPMG fined £5m over the Co-operative Bank audit.
Spreadsheets are a wonderful tool for staff who want autonomy, but expose the business to productivity losses and material risks from errors and frauds. You probably have more chance of suffering a material loss from a spreadsheet event than a cybersecurity event. Hence regulation such as Sabarnes Oxley Act recommend spreadsheet risk to be on Risk Registers.
“spreadware” is as big a threat as “malware”.
Cybersecurity is a real concern to boards and senior executives who invest in mitigating the risk. However, spreadsheet risk an equal if not great risk that receives little investment in mitigating. When 1 in 5 corporates in the UK have suffered material losses from spreadsheet errors, the threat is real. JP Morgan lost $6bn from spreadsheet errors in their material. Senior executives of global banks rank data quality from spreadsheets a key issue and bemoan the time waster reconciling multiple reports.
Spreadsheet empires benefit staff not companies
There is a huge problem of individuals building spreadsheet empires for job security that expose the business to risk and cost that seniors executives can no longer allow. If spreadsheet risk is not on your operational risk register, ask why. The use of spreadsheets should be a matter of last resort not the preferred solution. If a spreadsheet is used more than a few times in an operational role, it should be replaced.
As an estimate, the average productivity cost of a spreadsheet is $16K. 100 spreadsheets is an annual $1.6m productivity loss. The time lost in maintaining, checking, copying and pasting, error check and correcting is significant. Those spreadsheets can also attract audit fees from $80k to $200K. McKinsey & Company state that structured knowledge working can increase productivity 50%. That is by replacing autonomy and spreadsheets with structured systems, you can drive significant savings.
Do not Automate Spreadsheets – Build KYB
Significant investment in Business Intelligence and RPA is not solving a key issue. Reporting for the sake of reporting is just dumb. The most critical issue is enabling directors and executives to meet their KYB obligations. This is about actionable intelligence identify exceptions, trends and predicting problems and opportunities. Automating a reporting process does not build KYB capabilities.
To drive significant cost savings, increase productivity and empower the leadership team to win against disruption, organisations must invest in KYB systems. Before investing millions in data lakes, consider the options.