Spreadsheets are commonly used in the financial services industry, and because of their inherent flexibility, they can be used as a tool for a wide range of applications. However, they are not always the best solution. Using spreadsheets might be understandable in the case of a small company with a limited budget, but it never ceases to amaze me the number of large financial institutions (with billions of dollars in their annual IT budgets) which choose to rely on spreadsheets instead of more robust tools for their more complex and high risk transactions.
The International Data Corporation estimates that the overall IT budget for the global financial services industry will exceed $430 billion in 2014, with the largest institutions each spending several billion dollars apiece. And yet, many of these companies are relying on unsophisticated, inexpensive software to process billions of dollars in transactions. The use of spreadsheets by these companies is difficult to control and prone to error. Because tracking funds via spreadsheets increases the risk for error, money can be lost, companies’ reputations can suffer, and investors can lose confidence. Just ask JP Morgan Chase, Barclays, and Fannie Mae.
In the wake of JP Morgan Chase’s $6.2 billion trading loss, an internal report released earlier this year claimed that the spreadsheets utilized by the bank’s risk and compliance department to monitor and gauge their risk tolerance and thresholds, contained a crucial data entry error. A field requiring the average of several variables was aggregated instead, resulting in a substantially reduced risk assessment value.
When Barclays submitted its offer to purchase Lehman Brothers in the midst of the firm’s 2008 collapse, a spreadsheet was used to detail all of Lehman Brothers’ assets and to identify the assets Barclays intended to purchase. Unfortunately, the assets Barclays opted not to acquire were not properly removed from the spreadsheet and reemerged in the final draft of the offer documents. Long story short, Barclays was saddled with a multitude of losses and 179 toxic deals that they never intended to buy.
And back in 2003, Fannie Mae made a gigantic error while utilizing spreadsheets to conform with accounting regulation changes. The clerical error made Fannie Mae look $1.3 billion more profitable than it actually was.
A recent article by iLEVEL™ about the hazards of spreadsheets examines the problems that may arise when a company uses the tool to house all of their information. The more complex your data set gets, the more cumbersome and intricate your spreadsheets must become to remain useful. The effectiveness of spreadsheets depends upon the initial input of data as well as ongoing updates and maintenance. As such, they are prone to inaccuracy.
Any time multiple users are making changes to the same spreadsheet the risk of error increases. Even if there is only a single user in charge of all of the company’s spreadsheets, most users resort to cut and paste methods to transfer data from one place to another to save time. If the incorrect cell is unknowingly copied or pasted, especially when there are many formulas that derive from that cell, every affected cell after that will be inaccurate, and the results may be disastrous.
In an industry like EB-5, the more investors involved in a project, the more information that must be entered and the more room for error. Here, an investor’s money and family’s immigration status are both at stake, and the need for an effective solution to achieve success is paramount. The cost of a simple mistake in a spreadsheet somewhere along the way can be devastating. For investors, this may mean an unsuccessful I-829 petition, loss of their investment, and even deportation. Why manage such crucial information with manual data entry, filing cabinets, and spreadsheets when a more effective solution exists? Your investors deserve better than that.
NES Financial has designed solutions that ensure the highest levels of security, transparency, and compliance around, minimizing the risk for error and increasing efficiency. Our EB-5 Fund Administration, and Workflow Solutions not only centralize data so you don’t have to scramble around trying to piece it together but also provide a complete audit trail throughout the entire process, so both you and your investors can see all activity from beginning to end. Plus, our unique platform can be deployed quickly to minimize any downtime in your operations.
Don’t take a chance on a spreadsheet and risk making a costly mistake. Invest in a reliable solution that minimizes risk and ultimately increases efficiency.
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