Manual reconciliation opens the doors to both potentially catastrophic errors and fraud. But what is the real risk to our business and what can we do to prevent it?
A quick glance at the business section of the newspaper will reveal the extent of business accounting problems. The reliance on manual processes, such as using spreadsheets for reconciliation, inevitably leads to errors and fraud in dozens of companies and government institutions.
You may think that with an average error rate of between 0.8-1.8%, spreadsheets are a pretty safe accounting tool. However, if you process an average of 100,000 daily transactions, that equates to 800-1,800 errors a day. These errors, while risky in themselves, also open the door for ‘creative’ accountants – those looking to manipulate your accounting system for personal gain.
What is the risk level of spreadsheet discrepancies?
Most of the embarrassing errors or frauds are not picked up in the press. However, some of the bigger examples tend to make a bigger impression.
An example that strikes close to home is Barclays who in 2007/8, through a simple spreadsheet error, were left holding $30m more toxic Lehman Bros. assets than they expected. Further back in 2003, US mortgage giant Fannie Mae discovered a simple spreadsheet error that had led to a discrepancy of $1.2bn and resulted in a severe drop in shareholder confidence.
And these are only two examples of accidental errors that made their way to the press – there are also a number of examples of deliberate fraudulent spreadsheet activity that has lost companies millions.
One such example is of Allied Irish Bank/Allfirst who, in 2002, found themselves in hot water when they discovered that John Rusnak, a former currency trader at Allfirst, had been fraudulently manipulating spreadsheets to grossly exaggerate bonuses. The company lost nearly $700m and the bank has struggled financially ever since.
How can we stop spreadsheet errors and manipulation?
With automatic data matching software, reconciliations are processed automatically in a matter of minutes – filtering out the mismatched items to be reconciled. This immediately removes the potential for human errors.
The rest of the reconciliation process is completed through the software’s intelligent matching system – displaying the most likely transaction matches for the user to approve or investigate. This makes it very difficult, if not impossible, for staff to manipulate the accounts for their own benefit.
What’s more, given that users must log in and out of the software with their own unique user ID, automatic account-matching software maintains the accounting trail, making any external audit easy and pain-free. You can be sure that there will be no nasty surprises and, if there were, they would be easily traceable.