8 Risks of Spreadsheets in Treasury & How a TMS Can Help

In the late 1990s and into the early 2000s, the spreadsheet was the treasury and accounting tool of choice. Computer programs were still relatively primitive, and the smart phone had not yet arrived. Business professionals leaned heavily on spreadsheets due to their flexibility, powerful set of available formulas and relative ease of use.

But the business climate has changed since then. Sarbanes-Oxley Section 404 was introduced following Worldcom and Enron scandals. Cloud based computing has replaced the in-house server, and software-as-a-service (SaaS) has taken the torch from client server based applications and spreadsheets.

Not convinced? Still holding on to that great spreadsheet you built five years ago (maybe 10)? In this post, we will discuss the pitfalls and risks of spreadsheets, as well as discuss some better alternatives for accounting and finance functions.

Spreadsheets: The Pitfalls

These pitfalls include any characteristic that makes using spreadsheets less productive than other solutions in the marketplace.

#1 General Application

A spreadsheet is a very general tool. It’s not designed for anything specific like accounting or finance — no industry focus or application. This means it takes a lot of effort to create and maintain a spreadsheet that works for your specific use-case. Even with the vast amount of templates and tutorials available, spreadsheets are completely self implemented. When it comes to do-it-yourself spreadsheets, how do you really know that you’re using the right formula for that very specific accounting or finance calculation? Rules change, treatments change and a generic spreadsheet can fall behind.

#2 Time Waste

Tying into the first pitfall, spreadsheets are ultimately a waste of time. Setting up and managing the spreadsheet is time consuming and cumbersome. Users have to manually add rows, update formulas and add different components when the business changes — like acquiring new legal entities or hedging new currencies.

#3 Static

When it comes to treasury and finance, functions and workflows are anything but static. A spreadsheet saved on a local drive is typically passed between different departments and manually updated. Even when some automation is used, there’s always someone that’s stuck verifying the numbers before any meaningful decisions can be made based off of that spreadsheet.

Sharing a spreadsheet is painful since only one person can update it at a time, and, typically, only the person who created the spreadsheet is 100 percent comfortable working with it.

#4 Poor Historical Data Storage

Spreadsheets are poor at storing historical data. This is not to say that the data isn’t stored in earlier versions or periods passed, but a spreadsheet cannot do what a database or other types of technology can. Since it’s much more difficult to access historic data in a spreadsheet, utilizing this data in a useful way becomes more complicated. There is also the risk of saving over past history or losing the files altogether.

#5 Error Prone

Spreadsheets are prone to errors.

Spreadsheet errors could cause one to enter into more or less derivatives, causing a real impact to the bottom line. Journal entries could be backwards, wrong or missing entirely.

#6 Insecure

Spreadsheets are not very secure. Yes, you can add a password to the document, but how long is it before at least several employees in the company know it?

Also, it’s not the kind of security required to protect the spreadsheet from nefarious characters. Spreadsheets get mixed up or changed by accident all the time. We’ve all changed or deleted a formula and accidentally said “yes” to saving it, which is frustrating at the least and very risky at the worst.

#7 Lack of Scalability

We all know someone in our organization that has built a mega-spreadsheet with nested formulas, v-lookups, fancy pivot tables and a hundred tabs. These scare me the most because finding an error can be daunting, and fixing it can be even harder, especially if you were not the original designer. Building Goliath workbooks creates unnecessary risk in times of really affordable, valuable and easy-to-use SaaS solutions.

#8 Key Person Risk

Just as a “mega” spreadsheet can be risky, so is the very real chance that one day the Excel guru who designed and maintains it will move on. They may be promoted, move into a new department or leave the Company altogether. Regardless of why they leave, the hole left can be risky to your organization because you may no longer have the internal talent to maintain the workbook or recognize errors.

Moving From Spreadsheets to Software

Today, there is technology for almost any treasury and accounting function.

For example, hedge accounting software can be implemented in a few days to manage foreign currency derivatives, designate Cash Flow hedges and provide accounting’s journal entries and disclosure reports.

Companies are embracing what’s called a digital ecosystem and connecting different niche solutions together to optimize a complex process. For example, trading portals, exposure management, hedge accounting, TMS and ERP systems can be connected easily to provide a best-of-breed solution that outshines not only spreadsheets but also larger more expensive all-in-one solutions.

Technology today is built to connect and be flexible. Poor performing software can be replaced in the ecosystem as needed without exorbitant switching costs. While holding onto a spreadsheet solution that has technically gotten the job done for years might feel more comfortable, modern finance departments thrive when they welcome new technology to help them save time, add needed controls and provide more functionality than ever before.

The risk of trading a derivative incorrectly or accounting for transactions in error can cost your company real dollars and could even risk your employment if the damage is large enough.

With more complicated and larger volumes of transactions occurring, the time is now to migrate away from spreadsheets. New technology is faster, easier to use and very flexible.

More finance teams are utilizing SaaS models over spreadsheets whenever possible. Applications are cost effective and can be linked together as needed to scale, add functionality and remove mundane tasks off employees’ plates to expand team bandwidth.

Companies always want to do more with less, and ridding the department of unnecessary spreadsheets is a great place to start.