When it comes to financial reporting, Excel is still the go-to tool of choice for many organizations. However, when surveys show that 90% of spreadsheets contain critical errors, the reality is financial reporting is the one area where you shouldn't be using Excel in your business, especially when important business decisions are being based on inaccurate data.
Risk of errors, lack of security and lack of auditing are just 3 reasons why it’s easier to fail with Excel than you might think when it comes to financial reporting. Here we explore each of these 3 issues and then show how forward-thinking organizations have moved beyond Excel to deliver more effective financial reporting.
1) Risk of Errors
Spreadsheets are created by humans and as such they are prone to errors. Errors can occur at the data entry stage because someone made a mistake when they keyed in a number. Or errors can occur when defining Excel formulas. The larger and more complex the spreadsheet is, the more formulas it will likely contain. And as formulas start to reference other formulas that reference yet other formulas, then the likelihood of introducing errors increases.
We heard before that over 90% of spreadsheet contain errors and research shows that one of the main reasons for this is that we don’t test our spreadsheets thoroughly. An independent test where someone who wasn’t involved in the spreadsheet creation walks through and validates each formula will catch around half the errors in a spreadsheet. Repeating these tests 2 or 3 more times will further reduce the number of errors, but is unlikely to eliminate them entirely.
So where the accuracy of the financial data we are reporting is of primary importance, using Excel to create these reports is a risky business.
2) Lack of Security
Excel has very limited security capabilities. You can password protect a spreadsheet, but this feature is rarely used. You can lock cells to stop people from editing them but again, this feature is rarely used. So the reality in most organizations is that anyone who has access to an Excel spreadsheet can change the data within it.
This cavalier attitude towards data security is never something you would allow with other systems. You would never allow just anyone to access and update data within your ERP system. For example, you will have tight controls over who can update data within your organization’s General Ledger. But once you export that same data from your General Ledger into Excel, then anyone can change it to their heart’s content.
Nor can you hide data from specific users based on their role. So if you wanted a departmental manager to just see the expenses for their department, you can’t hide other departments’ expenses from them. There is no role-based security in Excel.
The bottom line: if you care about data security, you shouldn’t be using Excel to create your financial reports.
3) Lack of Auditing
We’ve seen from Excel’s lack of security that you can’t control who changes the data in your spreadsheets. But related to this and equally concerning is there is no audit trail. You have no idea if the data in your spreadsheet has changed and, if so, who made that change or what change they actually made.
Again, imagine taking such an approach with your ERP system. Imagine if you didn’t know who had made changes to one of your ledgers.
What’s more is that anyone can save and distribute a copy of an Excel spreadsheet around the organization. Each version of the spreadsheet can be subject to changes. The result is you can end up with a myriad different versions of your spreadsheet flying around the organization, and no one knows which is the official version with the correct figures.
This should be worrisome for any organization, as having access to accurate financial information should be the cornerstone of running an efficient business. But for organizations that are subject to Sarbanes-Oxley or similar regulations, using spreadsheets will make it very hard to comply with these rules.
So if you care about having a single, consistent and accurate view of your business that everyone can trust and that allows you to comply with corporate governance regulations, you are best to steer clear of Excel.
Beyond Excel: How Companies Transformed Their Financial Reporting
So, we’ve seen three reasons why Excel isn’t the best tool to rely on for your financial reporting. If you are convinced that your organization needs a better way of reporting against your ERP data, read on to discover how other organizations have successfully transitioned away from Excel and implemented error-free, secure, auditable reporting.
Womble, an American pipeline coating company, switched to Hubble’s business reporting solution. Before moving to Hubble, Womble was using spreadsheets to manage its over 400,000 pieces of serialized pipeline in more than 2,300 locations. The visibility into inventory was nearly non-existent.
Implementing Hubble changed that. Hubble’s business reporting solution enables Womble’s customers to track their inventory throughout the entire order process. Womble’s president can now check any aspect of the company’s operations from any place at any time, something that was previously unthinkable. Thanks to Hubble, Womble has gone from meeting 70% of its planned targets to 99% of its planned targets on every order, every day.
The electronic gaming giant Nintendo has a similar success story. Since 2003, Nintendo’s European division had relied upon its JD Edwards ERP system. The budgeting process was time-consuming and frustrating. Members of the finance department had to email financial reports in Excel back and forth to one another to create a single financial business report. Nintendo’s finance team complained that data wasn’t always accurate, and they had to depend on luck and guessing to formulate business strategies.
For Nintendo, Hubble was a game changer. It integrated seamlessly with JD Edwards, eliminating the need to manually load or export data from the ERP system. The finance team could finally access information in real time so they never had to worry that their numbers were out of date.
Thanks to Hubble, Nintendo’s finance team now has confidence in its data. In addition, they can run their financial business reports, plans and close the books in one solution (which is linked in real time to the firm’s ERP system). Security concerns are a thing of the past – there aren’t multiple versions of spreadsheets floating around and only authorized users have access to Hubble to ensure data integrity.
Excel is useful, but it was never designed for financial reporting. As a result, companies can find themselves failing (and in costly ways) without much effort. There’s a better solution out there, though. Hubble integrates with your ERP so you can trust your numbers every time.
To learn more, download the Bloor report on spreadsheet management.