Why auditors don't like spreadsheets for school accounting.

 

 

Back in the old days, schools managed their trips, music lessons, prom tickets and everything else that came under the heading of 'private funds' manually. Starting on sheets of paper, many schools moved onto spreadsheets, as they can provide a powerful computational engine that anyone who is reasonably numerate can bend to their will to perform tasks.

 

Spreadsheets were designed to total up payments, calculate amounts owing, provide chase up lists for debtors and then more complex spreadsheet designed to provide summary information for the private fund as a whole.

 

But spreadsheets can be the source of hidden errors that can drastically affect the outcome, and many auditors visiting schools to audit the private funds, have become less and less happy with the reliance on a tool that can offer amazing complexity but can also make noticing and finding computational errors very difficult. 

 

This is especially true when spreadsheets are designed and created by one person, and then used and managed by someone with less Excel knowledge.   Some form of ongoing check should be provided, yet in a recent survey of senior managers regarding spreadsheets, they said there were either “no usage controls at all” or “poorly applied manual processes” in spreadsheets used by their organisations.

 

Because of this, many auditors prefer schools to use school fund software - such as the Private Funds Manager from Istek - where all the calculations and formulas are built in and cannot be amended. Of course, its still possible to enter wrong figures but these are much more likely to be picked up by the internal controls - such as regular bank reconciliations and monthly checks - than on individual spreadsheets. 

 

Even in large, complex organisations with dedicated technical staff, spreadsheets can go wrong and be very costly for organisations.

 

The London 2012 organising committee encountered an error in its ticketing process that led to four synchronised swimming sessions being oversold by 10,000 tickets.  They said the error occurred when a member of staff made a single keystroke mistake and entered ‘20,000’ into a spreadsheet rather than the correct figure of 10,000 remaining tickets.

 

A year earlier, a council in the UK found that they could not pay back the interest on a loan, because they had under calculated the interest repayment. The Chief Executive stated that "operator error" resulted in a spreadsheet underestimating the total cost of the 10-year bond."When we re-looked at the numbers we discovered a cell was not across the line being added correctly," he said. "So it understated the impact by £400,000."

 

In January 2012, mega bank J P Morgan had a spreadsheet that calculated losses on a derivatives portfolio.  It stated that the loss stood at 100m dollars but due to two calculation errors in spreadsheet formulas the loss was actually  more than $6bn.

 

Don't get me wrong - spreadsheets are very useful. Without them schools would certainly be less efficient. However, the easy access it grants to significant computational power will continue to leave room for expensive errors.  Because of this many auditors believe that for accounting and management in schools, the trend should be away from spreadsheets towards bespoke software written by developers in a more formalised process.  This is where a dedicated package like the Private Funds Manager can be a better option that a reliance on spreadsheets.  For further information please visit our website on www.istekuk.com or call 01722 413255