How Excel Could Put Your Legal Entity Management Process at Risk

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How many times a day do you open Microsoft Excel?

If you’re like most modern professionals, the answer is probably a lot.

We lean on Excel for project management, budgeting, accounting, projections. Some particularly diehard fans even create lists in the spreadsheet behemoth. And we do that for good reason: Excel is a powerful tool, capable of managing complex calculations and making sense of mountains of numbers, data and dollar amounts.

But in the grand scheme of technological innovation, Excel isn’t the most secure or reliable option. That poses a real risk for your business, whether you’re using it to manage complex financials or multiple legal entities.

Just how serious can an Excel-induced problem be for a company? Let’s look at a few recent examples.

In 2008, Barclays Capital mistakenly acquired 179 assets from Lehman Brothers when a junior associate tasked with turning the 1,000-row spreadsheet into a PDF accidentally committed a damaging reformatting error. The spreadsheet included hidden rows that were meant to exclude assets not intended for purchase. But in the reformatting process, the associate accidentally surfaced those rows, making them part of the official acquisition deal even though they were never intended to be.

More recently, JP Morgan Chase enlisted the help of an expert to create a value-at-risk model using a series of Excel spreadsheets. Those spreadsheets had to be completed using a manual process of copying and pasting, which resulted in multiple errors and, in the end, losses that totaled some $6 billion for the institution. The incident became known as the “London Whale” trading debacle, and as James Kwak wrote in the Baseline Scenario, it highlighted serious risks inherent in leaning heavily on Excel.

“While Excel as a program is reasonably robust, the spreadsheets that people create with Excel are incredibly fragile. There is no way to trace where your data came from, there’s no audit trail (so you can overtype numbers and not know it), and there’s no easy way to test spreadsheets,” Kwak wrote. “The biggest problem is that anyone can create Excel spreadsheets — badly. Because it’s so easy to use, the creation of even important spreadsheets is not restricted to people who understand programming and do it in a methodical, well-documented way.”

Why do we bring this up? Because 71% of organizations depend on spreadsheets for collecting data across the majority of their business units. And 85% of EntityKeeper customers come to us after using Excel to manage their legal entities.  

While the errors that wreaked havoc on Barclays and JP Morgan Chase are extreme examples, they highlight the vulnerabilities Excel creates:

  • Too many cooks: Excel allows you to share files to accommodate multiple editors, but if multiple parties are editing the document at the same time, how can you ensure that all the necessary changes get made?
  • User error: Every piece of data in an Excel spreadsheet is able to be edited, which is great for adding in numbers and adjusting equations. It also leaves a lot of room for user error, which can lead to costly mistakes for your business.
  • A waste of time and resources: FSN, a U.K.-based news and research organization, surveyed 1,000 CFOs and senior finance professionals and found that more than half spend too much time manually checking numbers each time a change is made. Roughly 60% said they spend too much time cleaning and manipulating data, and 55% were concerned about whether their internal controls were working. And time spent worrying is time not spent working and moving your business forward.

The challenge of managing multiple legal entities is complex: You’re dealing with mountains of documents, filing deadlines and membership information. And it’s tempting to look for a solution in a familiar piece of software. But there is a better way.

We know; we built it.   

Want to learn how EntityKeeper could transform how you manage your legal entities? Schedule a free demo today!

 

 

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