[IMGCAP(1)]If you believe the words of salesmen peddling financial software for the last 25 years, it may come as a surprise that more than 70 percent of companies rely on spreadsheets to support their business-critical financial reporting, according to a 2009 study by Deloitte.

Many accountants operate under the false assumption that they are the only ones holding onto their spreadsheets against this tide of technologists telling them it is time to move to more robust applications. But no matter how antiquated spreadsheets may seem, they remain an essential business application, with more than 100 million business users.

Excel is and will remain for at least within our lifetimes the primary frontline tool of analysis in the accounting industry. The question should no longer be, “how shall I eliminate spreadsheets from my operations,” but “how can I use them reliably where I need them.”

Recently spreadsheets have entered the limelight with many regulatory bodies, including the Institute of Internal Auditors, the Financial Industry Regulatory Authority, and the Public Company Accounting Oversight Board as an area that demands more attention from auditors.

Accountants can transform spreadsheets from an indispensible, but fragile, solution into a reliable data management and analysis tool by re-examining the strengths of spreadsheets and completing the following three key steps.

Avoid denial.
Before accountants can begin to appreciate the inherent benefits offered by spreadsheets, they need to recognize why spreadsheets exist within the organization at all. The accounting industry is a dynamic, changing environment, and the spreadsheet is the best tool for tackling and maintaining order within that changing environment.

Understand that the speed of business, the ability to respond to customer demands, the ability to re-process products, and the ability to get information out to regulators and auditors in a timely fashion is only possible through the use of spreadsheets.

Spreadsheets’ flexibility and ease of use empower accountants to move forward with their businesses. They have always been one of the most cost-effective and adaptive technologies that all companies turn to when dealing with business change.

However, in the absence of any control, spreadsheets have major deficiencies and are highly accident-prone, especially when they have hundreds of thousands of lines of crucial data. With the pressures facing the accounting industry around improved governance, spreadsheets by themselves cannot be relied on for accuracy or accountability. It is critical for companies to protect these powerful agents through a thorough spreadsheet management process.

Expose and monitor what is going on in your spreadsheets.
Once you have accepted that spreadsheets not only exist within your business, but that they require a significant level of control in order to work their intended purpose, you need to ask yourself, “What does control look like?” In order to sufficiently answer that key question, you must know exactly what you are doing with spreadsheets, where they are, and who is doing what to them. That is the only way you can then find out how to make them operate better for your business.

Spreadsheets keep a business moving; they are the blood pumping through the veins of an organization. If you do not know where they are or who is managing them, it is like puncturing an artery and collapsing. That’s a very intense metaphor to pose, but the companies that overlook activity within spreadsheets are the companies that suffer the most.

The data management process is very difficult to do correctly, and it is critical for companies to embrace an automated compliance tool that detects any irregularities in the system and alerts senior management. Accountants who still operate manual systems are very vulnerable to control problems.

By investing in an automated control environment, you can obtain control as part of an overall risk management program. Implementing a system that can preserve the needed flexibility also provides a control framework to flag anomalous activity within your operational spreadsheets.

When your company or your client’s company has a firm understanding of its spreadsheets’ location and usage, then they are in a good position to go back to the IT department and inform it of the spreadsheets that are most hazardous to the company. That way they can make a safe decision to eliminate the risky spreadsheets in order to prepare for the next piece of their company’s IT roadmap.

Incorporate a continuous migration strategy.
Once you identify and correct any irregularities within the company’s spreadsheets, do not congratulate yourself too soon. Control within spreadsheets cannot be performed on a case-by-case basis or even once every three years or so. Think of it instead as more of a continuous journey.

In most areas, spreadsheets act as precursors to the replacement systems that will come from the larger technology vendors. But despite the significant time spent building and adopting the new system, by the time it arrives, new business demands will have arrived that will create demands for new spreadsheets.

The answer is to stop regarding spreadsheets as the inferior system trying to compete with business intelligence; instead view spreadsheets as a potentially powerful tool complementing and enhancing your company’s BI. It is impractical and unrealistic to launch a spreadsheet extermination campaign.

Rather than dismiss spreadsheets altogether, use them wisely by following the steps described above. This way you can shorten the closing cycles for accounting periods, and improve the relationships between business and the IT department. Once everyone understands how and why spreadsheets are being used within your business, you will have shorter audits, considerable cost savings, and your IT spending will be focused on the right targets.

Ralph Baxter is CEO of ClusterSeven, an international provider of enterprise-wide strategic spreadsheet and data management software to financial institutions and Fortune 500 financial reporting divisions.

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