Spreadsheets and Manual Processes: Understanding Fraud Risk

FinLync | April 4, 2022

Fraud continues to be a major concern for corporations everywhere. PwC’s Global Economic Crime and Fraud Survey 2020 found that almost half of the companies surveyed had experienced a fraud in the previous 24 months, with an average of six instances per company. What’s more, 13% of those respondents who had experienced a fraud reported that they had lost $50 million or more.

These numbers make it clear that fraud represents a significant threat for corporations around the world. But fraud can come in many different forms – and corporate treasury teams do not always fully consider the extent to which manual processes and the use of tools such as spreadsheets may leave them vulnerable to attack, as well as increasing the risk of error and incurring unnecessary costs. But in today’s environment, it’s more important than ever for companies to protect themselves from fraud and ensure that their systems and processes are as efficient as possible.

Let’s take a closer look at the risks associated with spreadsheets and manual processes, and how treasury teams should be addressing them.

Spreadsheets and manual processes: what’s the appeal?

In reality, many corporate finance and treasury teams are still using spreadsheets for a variety of financial operations. They also continue to rely on manual processes when it comes to activities like accessing banking portals. The risks associated with spreadsheets are well understood, from human error to the risk of fraud, while manual processes are both inefficient and associated with a greater vulnerability to fraudulent attacks. So why do treasury teams continue to use these methods?

For one thing, spreadsheets are highly flexible to use – for example, it is easy for users to manipulate formulas and link datasets between different tabs and different spreadsheets. They are also perceived to be inexpensive: there’s no arguing with the fact that the cost per user associated with Microsoft Excel looks attractive, compared to a dedicated corporate treasury solution that requires onboarding and maintenance. However, spreadsheets also come with hidden costs, which should not be underestimated or overlooked.

Where processes are concerned, likewise, treasury teams might conclude that it is cheaper and easier to leave existing manual processes in place, rather than pursuing an automated solution and/or disrupting the status quo. But again, this approach does not take into account the true cost and risk the company may be exposed to by continuing to rely on processes that are not only inefficient, but also expose the treasury to unnecessary risk.

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What are the costs?

In fact, the true costs of spreadsheets and manual processes can be much greater than they seem, while the benefits of these outdated methods are likely to be relatively small.

Whether you’re keying in data from your e-banking portal or reconciling payments with bank statements, carrying out treasury and finance activities manually is unlikely to be the best approach. Manual processes are suboptimal for a number of reasons: they are time-consuming and often tedious to carry out, meaning that people’s time is wasted instead of being spent on strategic or value-adding tasks. What’s more, manual processes are typically error-prone – for example, any time that data needs to be manually rekeyed, there is an opportunity for mistakes to occur. And of course, any mistakes involving finance and treasury activities can have far-reaching repercussions that may not be noticed straight away.

Spreadsheets, meanwhile, represent a significant risk when it comes to both fraud and the risk of human error. Cells can easily be changed without any sort of audit trail, and it is notoriously easy for errors to creep in, with sometimes significant repercussions results.

Notorious examples include J.P. Morgan’s $6 billion trading loss in 2012, which was at least partly attributed to the flawed use of spreadsheets, as well as a €750,000 loss incurred by a State fund in Ireland when the value of a fund was recorded in euros instead of in dollars. And the costs of spreadsheet errors are not always financial: in 2020, for example, nearly 16,000 cases of coronavirus dropped off a UK spreadsheet when the maximum file size was reached – meaning that thousands of people were not told to isolate by contact tracers.

Alongside the risk of human error, spreadsheets can also be manipulated in various ways to perpetrate fraud. For example, fraudsters might hide certain lines of data, or change the links within a spreadsheet to different data sources.

Counting the costs

For a modern treasury and finance teams, the risks involved in using spreadsheets should not be underestimated. The cost of fraud, in particular, can be eye watering: respondents to the PwC survey reported losses amounting to $42 billion over the last 24 months. And notably, not all of the instances of fraud reported had been instigated by external fraudsters: 43% of the frauds that resulted in losses of $100 million or more had been committed by internal employees.

What’s more, falling victim to fraud is not just a matter of financial loss. Companies that experience significant fraud instances can also experience reputational damage – and this, in turn, can have a knock-on effect on the company’s relationships with its customers, suppliers and potential employees.

The cost of manual processes can also be high, even without taking fraud risk into account. It goes without saying that processes carried out manually take more time to complete than automated processes, resulting in a higher cost of labor and tying up employees with non-value-adding tasks.

For example, when manual processes are used for bank connectivity, corporate treasury and finance teams may need to log into each banking portal individually – which is not always straightforward for a company that works with multiple banks. This approach also makes it difficult to track who has access to the relevant passwords, and to ensure that the physical tokens needed to access the various bank portals are being kept safe. And of course it takes time to navigate different portals with their own tokens and user interfaces – so by the time you’ve collated all the information you need, it is no longer fully up-to-date.

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Benefits of a corporate treasury solution

Relying on spreadsheets and manual processes can be costly, while also leaving the company exposed to avoidable risks. Fortunately, alternatives are available – and modern corporate treasury solutions can provide the tools companies need to automate processes, increase the efficiency of treasury activities, and mitigate fraud risk.

For one thing, treasury solutions enable companies to keep closer control over users and workflows, minimizing the risk of fraud. In addition, solutions that take advantage of bank API connectivity provide a direct link between the corporate and the bank. Data is exchanged in real-time between the two counterparties, with each counterparty keeping control over its own data. Bank APIs can be used for everything from balance information and transactions to payment initiation, providing real-time visibility over cash and automatic reconciliation.

As such, sophisticated treasury solutions that use bank APIs can help treasury and finance teams reduce opportunities for fraud in a number of different ways:

  • Reduce the number of hands a payment touches. Unlike traditional bank connectivity methods, such as host-to-host connectivity, solutions that take advantage of bank APIs do not require companies to store files on servers before sending them to the bank. This minimizes the number of hands that touch any particular payment, greatly reducing the opportunity for fraud.
  • Update information instantly. Data is always up-to-date, enabling users to spot any discrepancies in dollar amounts or account information much sooner than using traditional connectivity methods.
  • Enforce tight controls. With a dedicated treasury solution, you can enforce tight access management controls, ensuring that only your chosen users have access to sensitive information and processes.
  • Secure and traceable processes. The treasurer, CFO or finance lead should be able to control who within the team has access to the system. In addition, treasury solutions can track the actions carried out by different users, which acts as a powerful fraud deterrent as well as making it easier to understand the source of any errors. In contrast, a spreadsheet does not allow companies to track who has made changes to dollar amounts or account numbers.

As well as protecting the company from fraud, a modern treasury solution also enables you to automate manual and repetitive tasks – particularly when using bank APIs, which remove the need for an intermediary and allow companies to access up-to-the minute cash balance information whenever they need it. This not only saves time and effort, but ensures treasury teams can make decisions based on fresh data.

Conclusion

Concerns about fraud risk are not going away. While many companies continue to rely on spreadsheets and manual processes, there’s no doubt that these practices increase the vulnerability of corporate treasury departments, leaving companies more susceptible to fraud, as well as to the risk of error. At the same time, there’s increasing pressure in today’s challenging markets for treasury and finance teams to become increasingly effective – which means taking full advantage of technology.

Fortunately, today’s sophisticated treasury technology can do much to help companies protect themselves. From effective user controls to direct connectivity using bank APIs, the right treasury solution can play a vital role in protecting your organization from fraud – so if you haven’t yet taken steps to automate your processes and reduce your reliance on spreadsheets, there’s no time like the present.

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