6 Weaknesses Of Spreadsheet-Based CAFR Solutions
You may be familiar with the expression, “lipstick on a pig”. Variations of the expression date back nearly 130 years but the meaning has not changed. “Lipstick on a pig” can be most easily defined as, “superficial improvements that do not change the underlying nature of something”.
Spreadsheets by any Other Name
We have seen an increasing number of spreadsheet-based CAFR/financial statement tools promoted as ultimate solutions for complex reporting. This is ironic considering many organizations are currently using spreadsheets and are looking for a better approach.
Sometimes, these solutions are desktop add-ons to enable better connections to a source of data. Other times, these are cloud-based solutions that rely on spreadsheets to maintain their data and develop their reports.
Hard to Tell They are Spreadsheets
The fact that these are spreadsheet-based tools may be hard to tell on initial review. You can spend hours reviewing their websites and sitting in on presentations and still not recognize it.
In fairness, these tools often have improvements over the desktop spreadsheets you are used to, such as:
- Better collaboration abilities for sharing comments, tracking changes or assigning tasks.
- Better audit trails and change management.
- Ability to tie supporting documents to a given value/cell.
- More granular security/permissions.
The core of these products are still spreadsheets. That means:
- No database – All data resides in spreadsheets/workbooks, not in a database. This means you must build all your own personalized systems to:
- ensure your G/L balances
- identify the 100 – 1000 new G/L accounts added each year
- No processes – There is no structured system that you can leverage to support industry best practices. What steps should be followed and in what order? You must develop all of these processes on your own and maintain them separately from your reporting environment.
- No grouping mechanisms – The G/L accounts that sit in your spreadsheet must be summarized in numerous different ways (by object, by fund, etc.) to power your financial statements/CAFR. If you use spreadsheets, formulas must add the right accounts together. This is fragile and susceptible to error. Moreover, unless you interrogate every formula, there is no way to know what is being included in a given number; there is no legend. Assuming you do get this right in year one, all the new accounts next year means these formulas must all be updated.
- Tons of custom formulas – All values are derived by “linking” – which is to say writing spreadsheet formulas of varying complexity. Any mistakes you make means errors in your report. Consistency in how these formulas are written or maintained is entirely dependent on the user’s expertise, accuracy, and completeness.
- No content libraries – Reporting standards are continually evolving. There are new GASB pronouncements all the time and keeping up with them and what new statements, schedules or footnotes are required this year can be daunting. Spreadsheet solutions do not come with any content. It is entirely up to you to figure out what must be presented and how.
- No adjusting journal functionality – Adjusting or changing balances is an absolute requirement for financial statement/CAFR production. In spreadsheets you are left with no tools for the following:
- The values in your G/L are typically maintained on a modified accrual basis. For many of your statements, you need full accrual.
- Debit balances in A/P accounts or credits in A/R are just two examples of balances you need to reclassify.
- Prior year adjustment/restatement caused by changes in accounting policy.
Our message in this post is not that the additional features – the “lipstick” – have no value, or that there is no situation when spreadsheets should be used.
We are saying that when finance officers evaluate possible solutions for their most complex reporting tasks, they must exactly match the critical requirements of their processes to the solution’s abilities. If they do this carefully, they will find that spreadsheet-based “solutions” are only marginally better than their own collection of desktop-based spreadsheets.
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