Spreadsheet concerns in risk management: Consistency

Financial institutions use spreadsheets for a variety of tasks including the loan loss reserve, credit analysis and stress testing. Unfortunately, spreadsheets are prone to error and complications, and are often sources of problems when examiners are present. While their complexity is one of the major concerns voiced by regulators, consistency is also a significant concern.

A perceived benefit of spreadsheets in the work environment is that it offers individuals complete control over consistency (or lack thereof). Spreadsheets may be copied and replicated easily, and can be saved in one place or transferred to/shared with another person. They can also be altered to reflect new preferences and/or methodologies. As a result of this flexibility, the responsibility of consistency lies with individual users.

The complete control individuals have over consistency, however, also presents an area of concern for regulators. Different users have the ability to incorporate their specific preferences and methodologies into these spreadsheets, and all too often, the end result may vary widely from one user to the next, from one location to the next and from one institution to the next. This not only presents risks associated with potential inconsistencies, but also exposes institutions to potential regulatory scrutiny. Regulators must ascertain inconsistencies from prior reviews, and then validate the reasoning behind the changes. 

To promote consistency with spreadsheets, financial institutions should:

1) Establish formal policies and procedures that can serve as the guideline/blueprint to a desired output.
2) Assign a specific individual or group to take ownership of any and all spreadsheets, promoting accountability for accuracy and consistency.
3) Minimize how often each particular spreadsheet changes hands, including users changing data or taking ownership.
4) Consider alternative options such as an automated web-based solution to improve consistency between users and locations.

For more information on common concerns that regulators have with spreadsheets, download the whitepaper titled: Regulator Concerns with Spreadsheets in Risk Management.