Eight of the Worst Spreadsheet Blunders

Hello Excel-lent,

Following up on our last "Numerical Diarrhea" discussion, it is important that I share some publications with you, just to let you know how damaging a plus (+) or minus  (-) sign could be to your reports. As you read this, tens and hundreds of companies have suffered from this "Numerical Diarrhea" following wrong "simple" copy and paste errors made by employees, down to some "honest mistakes" in data manipulation. But for Fannie Mae, it resulted to a loss of $1.3Billion.

This publication is culled from http://www.cio.com/article/2438188/enterprise-software/eight-of-the-worst-spreadsheet-blunders.html

1. Fidelity's "Minus Sign Mistake"

Lesson learned: Be sure to differentiate your gains from your losses, and have another employee review the work. January 1995

"There was a big flap recently over Fidelity's Magellan fund estimating in November that they would make a $4.32/share distribution at the end of year, and then not doing so. A letter of explanation was sent to the shareholders...from J. Gary Burkhead, the President of Fidelity, including the following pertinent items: During the estimating process, a tax accountant is required to transcribe the net realized gain or loss from the fund's financial records (which were correct at all times) to a separate spreadsheet, where additional calculations are performed. The error occurred when the accountant omitted the minus sign on a net capital loss of $1.3 billion and incorrectly treated it as a net capital gain on this separate spreadsheet. This meant that the dividend estimate spreadsheet was off by $2.6 billion...

2. The $24 Million "Clerical Error" at TransAlta.

Lesson learned: Have another employee double-check the documentation. June 2003

A simple spreadsheet error cost a firm a whopping $24 million. The mistake led to TransAlta, a big Canadian power generator, buying more US power transmission hedging contracts in May at higher prices than it should have.

In a conference call, chief executive Steve Snyder said the snafu was "literally a cut-and-paste error in an Excel spreadsheet that we did not detect when we did our final sorting and ranking bids prior to submission," Reuters reports.

This looks like a career limiting move by the person who made the cock-up and the people who failed to spot it. Snyder said the company would "deal with the individuals in the appropriate fashion if there is anything found. At the end of the day it's a simple clerical error."

3. Fannie Mae Discovers $1.3 Billion "Honest" Mistake.

Lesson learned: When billions are at stake, it's best to have a financial peer review the documentation. October 2003

Fannie Mae, which finances home mortgages, stated in a news release of third-quarter financials that it had discovered a $1.136 billion error in total shareholder equity. Jayne Shontell, Fannie Mae senior vice president for investor relations, explained in a written statement, "There were honest mistakes made in a spreadsheet used in the implementation of a new accounting standard."

4. University of Toledo Loses $2.4 Million in Projected Revenue.

Lesson learned: Future-looking financial statements should have extra scrutiny and review. User training would also help prevent these formula-based errors. May 2004

Already facing significant state funding reductions for next year, UT officials have discovered an internal budgeting error that means they will have $2.4 million less to work with than anticipated. The mistake—a typo in a formula that led officials to overestimate projected revenue—was found Tuesday.... The budgeting error discovered this week was made in the institutional research office by an employee whom officials refused to identify. While official UT projections call for a 10 percent decline in graduate student enrollment, an increase mistakenly was shown in a spreadsheet formula that led officials to overestimate enrollment and therefore revenue, Mr. Decatur said.

[President Daniel] Johnson said no job action will be taken against the employee who made the mistake, who has a good performance record. Officials will, however, pursue systemic changes to provide more safeguards in the future.

"We have very competent people," Dr. Johnson said. "I do think that the continuing fiscal pressures on universities have forced us to a level of staff support where there is little or no redundance in the process."

5. RedEnvelope Skids on Loss Forecast and Budgeting Error.

Lesson learned: Quality control is king, especially when reporting to The Street. March 2005.

Shares of RedEnvelope Inc. lost more than a quarter of their value Tuesday after the company warned of a fourth-quarter loss due to weak Valentine's Day sales and a budgeting error that resulted in an overestimation of gross margins. [The company] said its chief financial officer, Eric Wong, had resigned.

"While the concurrent preannouncement and Wong's departure may suggest management believes Wong's replacement remedies the situation, we are not yet convinced the weaknesses are solely related to Wong," analyst Rebecca Jones Kujawa wrote in a research note.

News outlets reported that RedEnvelope spokeswoman Jordan Goldstein said the budgeting error was simply due to a number misrecorded in one cell of a spreadsheet that then threw off the cost forecast and was unrelated to the CFO change.

6. "Think-and-Do Tank" Flubs the Math.

Lesson learned: Have another employee double-check the work. May 2005

The Center for Regional Strategies recently confirmed that a researcher's errant cut-and-paste from a spreadsheet caused one measure of the region's level of educational attainment to appear a lot worse than it is. Specifically, in a study released in March by the Center for Regional Strategies, a self-described "think-and-do tank" housed at Virginia Tech, the center reported that a dismal 11 percent of the region's population older than 25 had bachelor's degrees or higher. That number should have been 20 percent.

"It was just a simple cut-and-paste error," said Stuart Mease, a spokesman for the Center for Regional Strategies. "I don't know how it happened, but it did. We apologize for our mistake and want to correct it."

7. Kodak Restates, Adds $9 million to Loss.

Lesson learned: Lack of data-quality controls can have a negative outcome. November 2005.

Robert Brust, Kodak's chief financial officer, said that the severance-related error stemmed from miscalculating severance pay accrued by just one employee, revealing what he called "an internal control deficiency that constitutes a material weakness that impacted the accounting for restructurings." Brust said the company expects to fix the problem by year-end.

Kodak spokesman Gerard Meuchner said the hefty $11 million severance error was traced to a faulty spreadsheet. "There were too many zeros added to the employee's accrued severance. But it was an accrual. There was never a payment," he said.

8. Westpac Jumps the Gun on Profit.

Lesson learned: You can never get enough spreadsheet and data-handling training. November 2005.

Westpac was forced to halt trading on its shares and deliver its annual profit briefing a day early after it accidentally sent its results by email to research analysts. Details of the $2.818 billion record profit result for the 12 months to September 30...were embedded in a template of last year's results and were accessible with minor manipulation of the spreadsheet. (Some news reports indicated an employee had thought that a black cell background fill would hide black text.)

Westpac CFO Philip Chronican said, "It is not just one error, it is a compounding of two or three errors.... We will obviously be conducting a full inquiry to make sure it doesn't happen again."

If you're sweating after reading this, first, take a deep breath, and second, initiate a conversation with your boss about what controls are in place to make sure these kinds of events don't happen to your company, then ask for a training.

Remain Excel-lent.

Oladapo Sorinola 

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