Unfortunately, it is also the one that is most prone to significant error. IT experts fear that organisations may be putting themselves at risk as they rely on Excel spreadsheets to report a wider range of financial and management information.

A look through news cuttings will show that there have been some high-profile causalities of problematic spreadsheets, such as C&C, the Irish group that owns Magners cider. A spreadsheet error caused the company’s shares to fall by 15 per cent in July 2009 after it admitted that its total revenues in the previous four months had dropped five per cent, not risen three per cent as previously reported.

Another example was the £5.6m fine that Swiss banking group Credit Suisse received from the UK’s Financial Services Authority (FSA) in August 2008. The regulator said the booking process that its structured credit business relied on “was complex and overly reliant on large spreadsheets with multiple entries”, which “resulted in a lack of transparency and inhibited the effective supervision, risk management and control”.

And in November 2005 – thanks to a faulty spreadsheet – US camera and imaging giant Kodak found a hefty US$11m severance error after too many zeros were added to an employee’s accrued severance.

Rob Stavrou, director of consultancy at IT consultant Northdoor, says that there is growing awareness within companies that spreadsheets are creating several “versions of the truth” and that, as a consequence, the integrity of the data that they are basing management decisions and business strategies on is not sound enough.

“Regulators want greater assurance about the integrity of the raw data and more transparency about how financial and management information is being crunched to produce the numbers. We have seen in the past couple of years that companies have woken up to the fact that spreadsheets cannot deliver that level of certainty,” he says.

Indeed, analyst IDC has found that dependence on spreadsheets is blamed by companies as the second most commonly named challenge in implementing revenue policies and the “timely and accurate generation of revenue numbers”.

According to IT experts, the key problem with Excel occurs when inputting data, or trying to change incorrect data entries: people see an incorrect entry and change it within the box, but they often forget to make sure that the new entry does not corrupt the data for the entire column. Another problem is that because financial and management data on spreadsheets is shared among management and staff, it is easy for people to amend the figures on their own PCs and laptops when they either make a new data entry or spot an error. As a result, employees inadvertently create multiple sets of figures ostensibly based on the same data. As the software does not enable an audit trail to find the original error, users have to find the original data source – if they can.

There is a host of other common problems with spreadsheets, one of which is the use of formulas. When sorted, these can produce corrupted results, especially if care has not been taken to address these risks. While the use of the software’s “edit” and “paste-special” functions may well resolve these difficulties, it will still require the user to amend the data. Joining databases also poses problems as it can make the analytical spreadsheet complex to develop and even more difficult to review.

Colin Taylor, head of risk management at Prime Risk Solutions, a professional indemnity broker, says that there is an over-reliance on the integrity of software packages like Excel. “The more that people think that software will detect problems and correct errors, the more likely that errors will occur. Our increasing reliance on spreadsheets to carry out even basic aspects of financial accounting means that companies are at risk,” he says.

But some organisations are beginning to wake up to the risks. In the UK, Salford Primary Care Trust (PCT), part of the country’s National Health Service, used spreadsheets to manage its £43m portfolio of fixed assets, but the system proved inefficient and time-consuming. Karen Pickersgill, Salford PCT’s assistant financial accountant, says that “using spreadsheets to manage our fixed assets presented a number of problems, including the fact that formulae would often not read through to the following table, resulting in unstable and inaccurate data. With the number of assets increasing we realised it was just not viable to continue with this system and we decided to invest in a specialist package.”

Andrew Cherry, group finance director at Volex Group, a global producer of electronic and fibre optic cable assemblies, says that his organisation has greatly reduced its reliance on Excel spreadsheets for budgeting and forecasting. “Excel did not provide a robust and detailed enough view of either the historical or future business performance,” he says.

Tougher regulation seems to be a positive driving force in making companies question their use of spreadsheets. For example, companies with a US listing are taking spreadsheet risk more seriously because they are duty-bound to do so under US corporate governance legislation.

Richard Shaw, sales manager at software vendor Real Asset Management, says that regulatory reporting requirements such as the US Sarbanes-Oxley Act 2002 (SOX) and the move to adopt International Financial Reporting Standards (IFRS) has made it apparent that spreadsheets simply cannot deliver the level of visibility and transparency needed. “SOX and IFRS want more detail and disclosure about the information used to produce the figures that are being reported,” he says.

But some experts believe that the key driver for change needs to be strategic rather than compliance-led. Rich Murphy, executive in residence at US IT consultancy Plainview, says that the real danger facing organisations is the fact that their reliance on spreadsheet software may be impeding business growth and strategy.

“There is a risk that the finance department becomes disconnected from what the company is doing on an operational level because it always wants to crunch data in a spreadsheet to pass on to management to make a decision on. This takes time, provides flawed analysis and results and there is a danger that companies may not be reacting quickly enough to opportunities in the market, or to what their competitors are doing. What a spreadsheet says is happening in the market, and what is actually happening, can be two very different things,” he says.

But organisations may be able to mitigate many of the key risks through careful planning and tight controls about how spreadsheets are to be used and who has access to them. For example, to reduce the likelihood of creating different sets of figures, organisations should ensure that business-critical spreadsheets are held on the organisation’s network rather than on PCs or laptops, and that these are regularly backed up. Stavrou recommends rigorous and ongoing testing of the formulae and calculations within spreadsheets and that the results are reconciled back to the underlying data each time it is amended, or the data refreshed.

Crucially, says Shaw, organisations should use an accounting package to store financial data and only use Excel to analyse that data to create financial reports. “A key area where errors occur is when people use Excel to store financial data. The package isn’t designed to do that and should only be used to provide analysis,” he says.

Malcolm Trotter, chief executive of the International Association of Book-Keeping, says that the key is to provide appropriate training and to implement robust policy and procedures governing spreadsheet use, secure storage and access.

“An all too common weakness is that executives have had minimal formal training in the use of spreadsheets, developing skills on a ‘needs must’ or ‘just in time’ basis,” says Trotter.

“There needs to be an established framework, set by management, within which spreadsheet use is defined and clearly linked to other business processes,” he adds.

While experts can easily flag up the flaws inherent in Excel, most agree that the software package is likely to be around for some time yet. “Excel is a popular and ubiquitous accounting tool. It is hardly going to disappear overnight,” says Stavrou. “However, the package contains serious risks and organisations need to be aware of them and mitigate them as much as possible,” he says.