Too Many Spreadsheets – Is your company in trouble and you just don’t know it yet?

July 17, 2014 By Kent Thomas

I met with the management team of a client yesterday that we have been working with for about two months. Initially we performed an assessment of their accounting personnel and procedures, prepared a short term cash flow forecast and have advised them on modeling and securing the financing for their expansion plans. During our work, we found an overworked controller who had allowed himself to get caught up in the activities of “accounting” and, as a result, had not done a good job of designing good procedures or controls or learning the Company’s ERP (Enterprise Resource Planning) system well enough to set it up and use it to its fullest capacity. We found that he and the company’s accountant had created several “manual work-rounds” and use over 20 individual spreadsheets to track, manipulate, manage and process transactions that could and should be done within the ERP system.

The work of the accounting department was, in fact, eventually getting done each month and usually with reasonable accuracy so you might ask, “what’s the problem?” Well there are problems here – major problems – please allow me to explain just three.

First, the controller has been spending 12 – 15 hours per day in the “weeds” of the company’s accounting. He is so preoccupied with details, transactions and making sure that the information is accurate that he has not spent time:

  1. Building an infrastructure that will scale with the company’s planned growth, as a result, his only solution for managing increasing transaction volume is to add people to follow the flawed procedures now in place. Increasing volume in this situation will lead to errors and breakdowns that could have major impact on the Company’s ability to process and invoice orders correctly and to manage and collect customer accounts receivable.
  2. Analyzing & understanding the Company’s results because the systems & procedures were not set up to capture and report important profitability or contribution margin information (e.g., by customer, product, channel, etc.). As a result, any reporting and analysis takes hours because the controller has to export data to Excel and perform time consuming manipulation of the data each time it is completed and he rarely has time to do this.

Second, any information that is stored and managed in MS Excel, is, by definition not in the ERP system and, therefore, is not available to anyone who does not have access to the spreadsheet(s). As a result, transaction and processing transparence is non-existent – this increases the potential for fraud or theft and means that potentially critical information is hidden from those who most need to know that it exists and who could best determine what it really means to the company and/or its customers. This means that decisions are likely being made without the benefit of information that may change the ultimate decision if management had access to the data and could properly analyze it.

Third, MS Excel spreadsheets are easily susceptible to errors – intentional or unintentional and typically no one is auditing the spreadsheet in sufficient detail to uncover the error(s). A recent study by the Institute of Internal Auditors found

error rates from 45% to more than 90%. In addition, when KPMG Management Consulting audited spreadsheets from over 21 major UK banking and financial organizations, they found that 92% of the spreadsheets dealing with tax issues had significant errors, 75% had significant accounting errors, and 59% were judged to have poor design! If your company’s spreadsheets have errors (and they undoubtedly do), you may be making decisions based on flawed information and analyses!

I have worked with companies with more than $100 million in annual revenue who have these exact problems – they have called for help because the accounting “house of cards” will eventually fall under its own weight and that is not a pretty sight – it can destroy your business! These problems not difficult to resolve when approached with the right knowledge and expertise. If any of this sound familiar to you, please don’t ignore the reality, you need to take charge and demand changes – now! You can reach us at: http://advancedcfo.com/contact-us/ for a free consultation.

Kent Thomas is the Founding Partner of Advanced CFO. In that role he has served as the outsourced CFO of over 75 different businesses.  Kent is a licensed CPA and recently served as the President of the Utah Association of CPA’s. He was a founding member of the Olympus Angel Investors and is active in the Utah entrepreneurial community where he advises companies, associations, and educational institutions and is a frequent speaker on finance, accounting and entrepreneurship. Kent is married to Kim Ericson – between them they have eight children and eight grandchildren. They enjoy running, hiking, water sports (especially Lake Powell) and international travel.

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