Spreadsheets are too flexible and accessible and they were never intended as business-level tools. They can be changed too easily, they lack internal control, you can’t expect consistent and accurate results and there is the ever looming human error component to consider as well.
Point being spreadsheets should be a cause for concern and suspicion during audits. In cases of fraud, the issue becomes more intricate as these errors are hidden intentionally and are most cleverly concealed.
To a business owner, the mere thought of fraud can be enough to send a shiver down your spine, and not in a good way. Just like the heartbreaking Shakira song “ a gaping hole where my heart use to be”, during a global financial crisis, the last thing stakeholders would want to discover is a huge, gaping hole where a neat profit should have been. Also, the absolute horror to discover a corrupt accounting department with poor, or worse, no spreadsheet control were to blame for such a tragedy.
Therefore, it is important for auditors to be aware of the different kinds of risks associated with spreadsheet use.
Spreadsheet training should be compulsory for all employees and not just auditors and the accounting department. The lack of adequate training will result in poor to inferior spreadsheet results, such as improper referencing, formulas applied incorrectly for complex calculations, or linking to other spreadsheets.
Lack of Guidelines for Spreadsheet Preparation
You will never attempt to bake a cake without knowing the basics about baking and a recipe showing you step-by-step what to do and what not to do. The same goes for preparing financial spreadsheets. If the policies and procedures to lessen spreadsheet risks are inadequate, errors will become more regular and the absence of consistency will show up in internal control audit reports. Therefore, the style, content, and accountability for spreadsheets should be documented in the organization’s policies and standard operating procedures or in the spreadsheet used.
Data Capturing Errors and Re-using Spreadsheets
Humans are lazy and stingy and they don’t like to be taken out of their comfort zone, which is why spreadsheets are reused from year to year. Unfortunately, spreadsheets become corrupt or damaged, links get broken, data gets overwritten and this is due to years of copying and pasting.
Humans are social creatures and we can’t live without the daily distractions of phone calls (not always work related), chatty coworkers (absolute horror for your concentration in an open plan office), and coffee breaks are common reasons workers make data entry errors such as skipped entries or transposed numbers. Unfortunately, if auditors know there are spreadsheet errors, so do fraudsters. Fraudsters can smell spreadsheet errors from miles away and will take the opportunity when they find it. For example, inadequate spreadsheet controls may lead to errors, misstatements, and possibly fraud.
No Backup Data
Failure to backup data is a common and sometimes fatal error that may result in the loss of hours of data entry for computer users, which applies equally to all software tools including spreadsheets. Hardware and software breakdowns do occur from time to time, and backing up regularly and frequently is the best prevention for the spreadsheet user. As a general rule, it’s always easier to retrieve information from a backup file than redo the entire spreadsheet.