Excel in Banks: Exceptionally Analytics or Dangerously Manipulative?
Thursday February 26, 2015, by Satya Mohan Yanambaka
Unauthorized manipulation of crucial spreadsheets has led to losses to the tune of billions of dollars at top financial institutions. Increased regulatory strains and the need for transparent and efficient process for spreadsheet usage have only necessitated the need for an integrated multichannel web based tool with Audit, Workflow and Reporting capabilities.
In September 2014, a spreadsheet mix-up had Tibco shareholders coughing up $100 million. When Tibco’s financial advisor Goldman Sachs used a spreadsheet that overstated the company’s share count, the error led to a miscalculation of Tibco’s equity value; leading to a $100 million loss for Tibco.
In another infamous case of Allied Irish Bank in 2002, a rogue trader ‘’Rusnak’’ circumvented controls by manipulating spreadsheet models used by the bank’s internal control staff and deceived the bank of $700 million.
This is only the tip of the iceberg. There have been many frauds reported on misuse of spread sheets and by the time these errors are identified, the fraudsters have done the damage, leaving banks with no recourse. This raises very grave questions….
Can we use Excel at all for routine business functions—let alone for complex treasury financial models like VaR?
Does using Excel in banks translate to exceptional analytics or is this a dangerously manipulative tool?
Why has Excel been indispensable?
Microsoft Excel, by far, is the most powerful and widely used analytical tool used by commercial banks, especially in the ever evolving regulatory and market landscape.
The ease of using Excel coupled with its unlimited combinations of analytical computations enables an infinite capacity to do quantitative analysis, from statistical modeling of databases with thousands of records to application of complex estimation tools with user-friendly interfaces. There wouldn’t be a day in any banker’s life without some kind of work being done on a spreadsheet.
Banks have adopted Excel as a formal analytical tool in every area of operations, whether it is a simple simulation of a business event, a complex financial model or a VAR calculation. In fact, bankers insist that the output format should be in Excel irrespective of the application used, whether an ERP application, HRMS, Core Banking or other analytical tools.
But is the Excel output as authentic as the robustness of the program itself? If it indeed is so genuine why there are so many cases of enormous losses owing to manipulation and errors being reported?
Why has Excel usage turned into a business threat?
Without exception, Excel – like other applications – is prone to manipulation. Core traits like manual data entry, manual copy-and-paste, and formula errors provide scope for perpetrators with criminal intent. While no software application is foolproof, Excel spreadsheets have particularly been susceptible to break all the time. The other serious danger with the application is that it is difficult to find the source of manipulation or malfunction. Was the manipulation deliberate or unintentional?
By the time the source of the error is identified, the damage is already done, losses are already incurred and remedial measures usually can only be a post-mortem.
How to leverage spreadsheet analytical models without being a victim of manipulation of the tool?
Despite the analytical forte of Excel, its catastrophic inability to trace the user identity who dealt with data, or the lack of audit trail, makes it a risky and manipulative tool, whether used for simulation or for reporting. However, this does not mean that we have to shelve Excel permanently. Its infinite formula combinations and instant grand computing capability is quite incomparable. Therefore, there should be a solution, which combines the ease and utility of Excel along with an ability to detect mismatches, adequate checks and balances so that no errors occur. More importantly, the application should allow for managing trail of users with a time and activity stamp.
The way forward is to utilize a scalable, extensible, customizable web based application to replace complex legacy spreadsheet models. The ideal features of such a web-based application typically focus on bank wide drivers and address different business needs as technology enablers.
With the introduction of new and advanced web applications, banking companies can now easily structure web based solutions with stringent information security features, while retaining the user-friendly interface of Excel and encompassing all the complex computational capabilities. This way, banks can have the best of both the worlds – a web-based spreadsheet model with adequate security to minimize risk of errors and frauds.
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