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Spreadsheet Risks, Controls and Testing

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Spreadsheet Risks, Controls and Testing
There is no doubt about the integral role that spreadsheets have played in the modern
business. However, while appreciating spreadsheet, we should not get carried away and forget
the concerns and risks as well as the controls and tests that are supposed to work hand in hand
with this business application. It is because of this that spreadsheet risk management has taken
center stage. Hidden errors in spreadsheets might prove catastrophic to a business whenever
important operational or strategic decisions are made based on such calculations. Such mistakes
might also relay the wrong message to shareholders, general public or tax authorities. The
consequences of such might include heavy fines, tainted reputation and consequently low public
confidence. Fraud is another concern that each organization has to deal with when using flawed
spreadsheet.
Spreadsheet has certain common risks that tend to make them vulnerable to any
organization. Unskilled users, data entry and recycling and data loss are some of the common
security concerns in spreadsheet. Inadequate training of those handling spreadsheet leads to
mistakes such as improper referencing, use of inappropriate formulas for complex calculations,
and linking of spreadsheets. There is always a tendency amongst most spreadsheet users to cut
and paste information from one period/transaction to another. Copying and pasting of

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spreadsheets presents numerous flaws in the final results as the formulas change, links break and
cells become overwritten. While many people know the importance of backing up data, few take
it seriously when it comes to spreadsheets. There is a significant risk if data is not backed up as
hours of data entry will go down the drain. Many users tend to have lots of confidence in the
spreadsheet calculations. This creates an illusion that makes them avoid further scrutiny of the
output. Users also tend to form habits overtime hence they develop tendencies to practices such
as cutting and pasting.
AstraZeneca (AZN.L), Britain’s second largest drug maker, is a perfect example of
spreadsheet risks as evident through their 0.4 percent fall in share prices. In 2011, some
confidential information on the company’s mid-term financial forecast was mistakenly sent to a
sell-side analyst. This information had been embedded in the spreadsheet sent to this analyst. As
it would be, such information went on to become public knowledge leading to a slump in the
shares.
Given all the risks associated with spreadsheets, controls are therefore inevitable for
accurate spreadsheet results. Controls are broadly divided into input control, access control,
change control and logic control. User training is important if there is any chance of getting the
best out of spreadsheets. This training will help them understand the aspects of spreadsheets and
keep them up-to-date with the latest versions. Mistakes associated with cutting and pasting can
be creating three distinct and separable segments for inputs, calculations and outputs. Errors in
formula totaling in columns can be eliminated by using a control total. Error checking formulae
in adjacent cells, automatic total stop and self-checks can be used for further control. Entities
should also establish schedules for regular and frequent backing up of data.

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After establishing the necessary controls, the spreadsheet should be tested. This test ought
to be done by an uninterested third party whose sole objective is to prove that the spreadsheet has
flaws i.e. anybody other than the primary user. The testing can be low, medium or high. The tests
that are to be performed are foot and cross-foot, review for reasonableness, and recalculation of
formulas. A map is probably the most appropriate way of testing a spreadsheet that has numerous
formulas and functions. Maps in Excel can be used in accessing formulae improperly copied to
other cells, links to other worksheets, and values in cells that have been missed out of ranges in
formula.

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