It’s been almost 35 years since Microsoft launched its Excel spreadsheet software, and for many businesses it is a still a major part of the finance function today. However, relying on spreadsheets to complete important finance-related business activities is unwise.

Why are spreadsheets a problem?

Using spreadsheets to run and manage key financial tasks, such as payroll or expense management, can be problematic. This is because spreadsheets were not designed to handle the volume and complexity of data that is generated in today’s digitally connected world. In fact, using spreadsheets can be counterproductive for an organisation, and even expose it to security risks.

Microsoft Excel was created in 1987 as a way for small businesses and individuals o manually collect and collate information. It was designed to handle small pockets of data in a world where the internet was still a little-known academic research project.

An Excel spreadsheet keeps data stored locally on a PC or laptop. Without integration, there is no easy way to share or collaborate on that information – if you want to share information, you have to create a copy of your Excel document.

Creating a copy wasn’t so much of a problem for small companies in the pre-internet era. In the years that followed, however, this has become a major management weakness that creates risks for businesses and institutions throughout the globe.

Let’s look at why that is:

Stifled collaboration

Whenever a copy of a spreadsheet is made, it creates a financial management risk. With multiple duplicates existing across a company, it’s a constant struggle to identify the most accurate and up-to-date dataset. Whenever updates are made, it creates a flood of legacy docs that remain lurking in the system.

Manual processes

Spreadsheets are designed for data to be manually inputted into each cell. It’s a process that takes up so much of a finance team’s time and resources and means human errors are inevitable. As we will explore later, even the most trivial of data entry mistakes can have severe financial implications.

Inhibited growth

Considering stifled collaboration and manual processes, the use of Excel spreadsheets is exceedingly dangerous for a growing business. A spreadsheet system may cope with a small number of employees and simple tasks, but will struggle to scale as a workforce grows and the finance function becomes increasingly complex.

‘Band-aid’ solutions

As a company grows, a finance manager may look to adapt Excel spreadsheets to handle any increased complexity. This can be done using external templates or internal development of custom formulae. While these can work, they are also fraught with risks.

It creates ‘band-aid’ solutions that mask problems but fail to address the underlying issues cause by outdated software.

History of financial spreadsheet fails

The problems caused from the manual handling of Excel spreadsheets are nothing new, because humans are error-prone.

This makes for an unfortunate history of errors and mix-ups that have caused some eye-watering financial mistakes:

  • 1995 Fidelity Magellan Fund (approximately A$3.3 billion)[1]

The omission of a single minus sign when entering financial data into a spreadsheet caused a US$2.6 billion overstatement for this business. Fidelity Magellan’s president explained to shareholders: “the error occurred when the accountant omitted the minus sign on a net capital loss of US$1.3 billion and incorrectly treated it as a net capital gain”.

  • 2003 Fannie Mae (approximately A$1.4 billion)[2]

The US mortgage provider Fannie Mae had to correct its 2003 financial results after finding a US$1.1 billion spreadsheet error. A review of the incident concluded it was due to, “honest mistakes in a spreadsheet used in the implementation of a new accounting standard”.

  • 2004 University of Toledo (approximately A$3 million)[3]

A typo when entering a spreadsheet formula resulted in the University of Toledo in the US overestimating its budget by US$2.4 million. An investigation found that “an increase mistakenly was shown in a spreadsheet formula that led officials to overestimate enrolment and therefore revenue.”

  • 2012 London Olympics (approximately A$365,000)[4]

For the 2012 Olympics in London, a staff member accidentally keyed ‘20,000’ instead of ‘10,000’ into a spreadsheet. This resulted in the oversell of 3,000 tickets for a synchronised swimming event. It resulted in organisers having to contact the angry ticket holders to offer refunds or alternate events.

How many businesses still use manual spreadsheets?

While more and more finance teams are moving to automated and cloud-based alternatives, the Excel spreadsheet remains a staple within most businesses.

According to ELMO’s 2021 HR Industry Benchmark Report, which is based off a survey of 1800 HR professionals in Australia and New Zealand, half of organisations (49%) said they use spreadsheets to manage employee data, and 26% manage payroll processes exclusively on spreadsheets. Considering what we already know – that spreadsheets cannot handle masses of complex data and are prone to security breaches and human error – this is worrying.

What are the alternatives to spreadsheets?

A whole generation of software and services has emerged to remove any reliance on Excel spreadsheets. These have the advantage of being designed to harness all of the benefits provided by cloud-based data management and process automation.

Instead of information being locked inside each locally stored document, the data is managed online via a cloud service. This means that the same spreadsheet can be accessed, shared and updated by any number of finance professionals from wherever they have an online connection.

This has shown to be particularly beneficial during the pandemic. Cloud-based software meant that the transition to remote working operations was as seamless as possible.

Examples of modern cloud-based spreadsheets include Google Sheets and Apple Numbers. Microsoft has also created a digitally connected version of Excel as a part of their Office 365 suite.

Cloud-based services have transformed the way finance processes such as employee expenses can be managed.

How does Integrated Data Management Services (IDMS) work?

Cloud expense management software integrates the collection and storage of expense data into the system. Whenever an employee makes a claim, all of the information is automatically stored and made instantly accessible – at any time, anywhere – to the relevant account handlers.

It removes the need to manually key data into Excel spreadsheets. It also brings easy access to company-wide data without the need to collate information from multiple documents. This in itself is a game-changer for financial reporting and analysis of company spend.

Connectivity to other accounting systems is built into the system using Application Programming Interfaces (APIs). These ensure that data can flow seamlessly between different systems and software without any need for spreadsheets.

Connectivity and automation deliver a fully scalable system that can handle anything from a small start-up to all the challenges of a large global corporation. By removing the manual processes, it significantly reduces the risks posed by human errors.

Tools that offer this kind of integrated approach are now available for every aspect of financial management, from processing invoices to tracking stock.

Smarter ways to manage finance spreadsheets

While there will always be a role for manual spreadsheets as a primary tool for managing business finances, this method is no longer up to the job. The world these spreadsheets were designed to serve has changed and no amount of tinkering can cover the inherent shortfalls of manual spreadsheets.

An effective tech stack eliminates the need for Excel spreadsheets, creating a data environment in which software, services and processes can communicate freely and create stronger, more agile and future-proofed ways of working.

ELMO Expenses can automate how you manage business expenses. Submitting, approving, and reporting expenses is simplified through our intuitive digital platform. Multi-level workflows can be configured to meet your needs, providing automatic compliance and custom reporting to ensure control and visibility.

To find out more about why your organisation should invest in expense management software, read ELMO’s blog.

ELMO Software offers people, process and pay solutions in an all-in-one cloud-based platform. This includes recruitment, learning, performance management, payroll, expenses, and more. ELMO has helped thousands of organisations across Australia, New Zealand and the UK better manage, engage and inspire their people. For further information, contact us.

[1] The Risk Digest, 1995

[2] “Fannie Mae corrects mistakes in results”, New York Times, 2003

[3] “University of Toledo loses $2.4 million in projected revenue”, The Blade, 2004

[4] “London 2012 synchronised swimming tickets oversold”, The Guardian, 2012

Learn more about how ELMO can help your organisation.
Learn more about how ELMO can help your organisation.