Examples of such errors and fraud are rampant and have been summarized by the European Spreadsheet Risks Interest Group. Following are some highlights:

The main cause for spreadsheet issues is that they don’t follow a standard software development lifecycle.  Unlike most professionally-written applications, spreadsheets are generally not created with a diligent requirements, code review, and then testing process.  Such process steps, when followed, lead to a higher quality application as:

Given it is unlikely spreadsheets will ever be developed with such rigor, especially considering practically anyone with a computer can build one, the only other option is to complete diligent auditing to detect underlying issues. Microsoft Excel  comes with an ability to complete precedent and dependent analysis.  By selecting the Tools > Auditing menu bar, one can easily see the flow into a formula cell, and then the cells that are dependent on that formula.  With a focus on key formulas and input cells, an audit can be manually completed in this fashion. Other audit options include manual walkthroughs of the spreadsheet logic and a reasonableness analysis of the results based on expectations.

 

Yet another option is to use a software tool that automates the above manual process. Products like EXChecker (which is available for a 30-day demo at http://www.spreadsheetauditing.com/exchecker/auditsoftware.shtml) provides some compelling reasons for making the switch from Excel’s native audit features: 

Spreadsheets are a fact of business life and while no one approach is best, simple steps and automated tools should be considered to control the potential of errors and fraud in an organization.

RICH LANZA, CPA, CFE, PMP, is President of Cash Recovery Partners, LLC. He is the author of 12 publications and training courses in ACL, IDEA, Access, ActiveData, and Excel and has over 50 articles for major audit publications. For more information or to contact Rich, visit his SmartPros column, The Bottom Line.