Here’s a terrifying thought for Halloween—you’re presenting financials to your board, and a director interrupts to say, “It doesn’t seem like these numbers add up.”
You take a closer look. Sure enough, it appears a bad formula led to a reporting mistake slipping through. Welcome to your own little Nightmare on Spreadsheet—“a true excel horror story.”
To err, it’s often said, is human. Still, that doesn’t make mistakes any easier—particularly for exacting finance types who thrive on getting it right the first time, and every time.
When it comes to financial reporting, mistakes do indeed happen. Consider the fact that the Wall Street Journal recently reported that 663 U.S. companies filed financial revisions or restatements in 2015, according to research firm Audit Analytics. That’s likely the tip of the iceberg, considering that studies through the years have indicated that as many as 88% of spreadsheets contain errors.
The good news is that the stat for revisions and restatements is down 60% from a decade ago—a strong indicator that increased focus on accuracy as well as more sophisticated reporting tools are making a positive impact.
In the ongoing quest for the utter obliteration of reporting errors, it’s useful to know where the land mines are. Here are three of the most common reporting mistakes—and steps you can take to avoid them.
The problem: Error-prone spreadsheets
Spreadsheet errors can chip away at your finance team’s credibility and, in extreme cases, be disastrous. Kodak famously dealt with this in 2005 when the company essentially had to add $9 million to its loss because finance made a mistake in its spreadsheet calculating severance. At the root of the problem was Kodak’s unsuccessful efforts to try to manually integrate multiple spreadsheets.
The solution: A single source of truth
Spreadsheets in and of themselves are not the problem. Excel to one degree or another remains a staple at most organizations. Yet it is when an error on a spreadsheet spawns a larger problem that the trouble really starts.
One of the most effective ways to address this challenge is to focus on developing a single source of truth in which data from a range of sources is captured and consolidated into a core set of data. A single source of truth allows you to continually integrate data. That ensures you are working with the latest numbers and makes it far easier to flag any inconsistencies that may arise. A single source of truth limits the number of spreadsheets in play and reduces the chance that someone from the organization makes an unknown change that unwittingly gums up the whole works.
The result: greater visibility into the numbers, fewer mistakes, and better collaboration across the business because any confusion around the data disappears, allowing for more informed decision-making.
The problem: Missing the big picture
As the old saying goes, “It’s hard to see the forest for the trees.” Numbers can certainly be like that. Overworked FP&A pros get swamped with data and spreadsheets and have little time to take a step back and strategically contemplate what all the numbers mean. The result: Their ability to identify trends in reports is hamstrung.
The folks at the University of Toledo found this out the hard way in 2004 when they discovered an internal budgeting error that meant they had $2.4 million less to work with than anticipated. A single typo in a formula was the cause of the unexpected shortfall. Yet the mistake spoke to a larger problem—a lack of awareness of the overall financial picture that would have red-flagged the mistake long before it became a major problem.
The solution: Dynamic dashboard views
Manually navigating a labyrinth of spreadsheets to try to create a clear and accessible overview of finances is difficult and labor-intensive. Fortunately, extraordinary developments in cloud corporate performance management have changed the way we do things.
Today, FP&A teams have dashboard software with built-in financial intelligence and insights. By presenting the big picture of the finances through a variety of visualization tools ranging from standard bar, column, and doughnut charts to more innovative waterfall, bubble, and funnel graphics, you can literally see issues and trends directly.
You can also present those trends in ways that are easily understandable and accessible to other users. These digital snapshots additionally create clear benchmarks that can be referenced and go a long way toward helping to ferret out any inconsistencies.
The problem: Lack of real-time data
Data is growing exponentially. In an Adaptive Insights CFO Indicator report, one-third of CFOs surveyed predicted the amount of data they manage will increase over 50% within the next five years. As more data needs to be managed, it becomes increasingly challenging to keep pace and find ways to make sure you are using the best and latest data available.
Relying solely on spreadsheets amid such complexity all but ensures that your finance team will face a never-ending battle to stay current. Not only does this limit the potential for FP&A to be more strategic partners for business, it can lead to costly errors.
The solution: Data integration software
The only way to keep pace with the wave of data is to utilize technology tools that can automatically update and integrate information in real time. Data integration software such as the Adaptive Suite continually pull current data from spreadsheets and other sources to present a real-time view of the organization’s finances. Further, data that traditionally might have been siloed can now be easily integrated with other data and made accessible to finance and other users through a self-service data platform.
The real-time data not only serves as a defense against potential mistakes spawned by outdated information, but also sets the stage for a more dynamic planning and forecasting process. Leaders can make more informed business decisions with the confidence that they are basing those decisions on the most recent information.
As we said earlier, to err is human. So why not allow the most advanced developments in technology to help us reduce our errors? Some of the biggest blunders in reporting history have happened as a result of working in outdated spreadsheets. Now is the time to transition to a smarter form of FP&A to dramatically reduce mistakes and provide the kind of data-driven insights that will push business forward. And let us all sleep a little better at night.