7 Worst Financial Fiascos caused by Excel errors

Posted by Rick Yvanovich

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Spreadsheet software like Microsoft Excel has long been indispensable to organisations thanks to its ubiquity, versatility, and ease of use. Such attributes, however, also make spreadsheets particularly susceptible to human errors, as demonstrated by the following cases.  

Even though those errors may seem trivial, their consequences can be severe. We may very well never be able to eliminate all human errors. And that is why organisations need to pay more attention to such factors as internal control protocols, user training, and alternatives to Excel, etc.

And the 7 Worst Spreadsheet Fails are:

7 Worst Financial Fiascos caused by Excel errors

The US$2.6bn omitted minus sign

An accountant at the Fidelity Investments’ Magellan mutual fund omitted a minus (-) sign and turned a US$ 1.3bn net capital loss into a US$1.3bn gain. This mistake took place in December 1994 and led the company to withdraw its promised year-end distribution of $4.32 per share.

During the dividend estimating process, the accountant had to transcribe the fund’s net gains or losses, which were recorded correctly, to a separate spreadsheet and performed calculations. The mistake happened when the accountant left out the minus sign of a US$1.3bn loss, which threw off the estimate by a whopping US$2.6bn.

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The error slipped through the initial review and was only detected when the company prepared the make the final payment calculation, which involved outside auditors.

"Some people have asked how, in this age of technology, such a mistake could be made,” said J. Gary Burkhead, President of Fidelity, in a letter to the fund’s shareholders. He pledged not to let the same error occur again by making the initial review as rigorous as the actual calculation process. It would include not only their fund accountants but also treasurer and independent auditors.

Read more: Getting rid of Excel in financial planning and budgeting: modern trend for CFOs

The big difference between “Hide” and “Delete”

When Lehman Brothers, once the U.S.’ fourth-largest investment bank, collapsed in September 2008, it triggered the 2008 global financial crisis. But few are aware of one related incident when Barclays Capital almost bought Lehman Brothers’ 179 trading contracts by accident.

Lehman Brothers filed for bankruptcy on September 15, 2008. Three days later, Barclays Capital offered to acquire a portion of the US bank’s assets, including some of Lehman’s trading positions. As part of the deal, Cleary Gottlieb Steen & Hamilton, the law firm representing Barclays, had to submit the purchase offer to the U.S. Bankruptcy Court for the Southern District of New York’s website by midnight on Sept. 18.

Barclays sent an Excel file containing assets they intended to acquire to Cleary Gottlieb at 7.50pm on Sept. 18, only a few hours before the deadline. The spreadsheet had 1,000 rows and 24,000 cells, including those listing the 179 trading contracts that Barclays did not want to buy. They were, however, hidden instead of being deleted.

A junior law associate at Cleary Gottlieb was tasked with reformatted the Excel file to a pdf document so it could be uploaded to the court’s website. Already working on a tight schedule, he was not aware of those hidden rows, which were visible again in the pdf file.

The mistake was only spotted on Oct. 1, after the deal had been approved. Cleary Gottlieb then had to file a legal motion to exclude those contracts from the deal.

Read more: It’s time to replace your spreadsheets with EPM

The US$ 24 million Cut and Paste mistake

Excel users are all too familiar with the Cut and Paste functions. But those simple functions also caused a US$24 million worth of damage to TransAlta Corp, a Canadian electricity company, in 2003. The figure was equivalent to 10% of the company’s profit that year.

At the end of each month, TransAlta, along with other power generating companies, submitted bids to buy power transmission hedging contracts for the following month. The bidding prices apparently depend on the demand. Transmission paths with higher demand will have higher prices.

On April 25, 2004, TransAlta was very surprised when it found out that it had won a series of contracts it had not needed and at prices higher than usual. The cause was traced back to the process of preparing the spreadsheet file used for bidding.

A staff performed a cut and paste action but misaligned the rows. As a result of that mistake, higher bidding prices were assigned to lower-demand routes.

The rules dictate that bids cannot be amended after they are submitted. So TransAlta had to choice but to absorb the loss.

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Topics: CFOs, Enterprise Performance Management (EPM), Financial Accounting Management Software

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 Rick Yvanovich
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