Who relies on spreadsheets? Too many: a survey finds a surprising inability of companies to reduce their dependence on spreadsheets as a primary means of controlling/accounting for treasury-related transactions that supported future actions or decisions.

Despite numerous technological advances in the area of treasury management, let's face it: many companies still rely on spreadsheets to keep track of their cash and determine whether their plan is being met and whether the company is in compliance with various regulatory edicts.

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How pervasive are they? Nearly two-thirds (64 percent) of companies continue to depend on spreadsheets, despite the availability of more sophisticated financial systems, according to a recent treasury technology survey conducted by SimCorp USA Inc. and the Financial Executives Consulting Group (FECG).

While spreadsheets are inexpensive and easy to use "out of the box," in this age of Web-based, real-time information, dependency on spreadsheets creates unacceptable levels of operating risk, especially for those senior managers responsible for certifying, under penalties, that their company has well-established financial controls.

There are many disadvantages to using spreadsheets for treasury management. They are difficult to audit; their outputs are not well integrated with other data sources; they can present information in non-standard formats; are usually dependent on a single individual to "program"; and they do not live up to the recent regulatory demands for internal control that The Sarbanes-Oxley Act requires.

Today's headlines are filled with examples of what can happen when good companies go bad. Last year, a Canadian company made a spreadsheet error resulting in losses of $24 million, and in October 2003, Fannie Mae reported that it uncovered errors in unrealized P/L valued at more than $1 billion because it was unable to integrate various spreadsheets with its internal financial systems when marking its portfolio to market.

Survey Eyes Resources

The SimCorp/FECG study was designed to determine the role of technology and the resources available to treasurers as they struggle to manage their company's banking networks and cash balances and access the capital markets to invest/borrow in a manner that minimizes financial risks.

More than 220 companies of all sizes responded to the 19-question survey. Forty percent were small companies (annual sales under $100 million), 31 percent mid-sized ($100 million--$1 billion) and 29 percent were large (over $1 billion). Thirty-nine percent of the respondents were CFOs, 17 percent treasurers or vice presidents of finance and 14 percent directors of treasury. The remaining 30 percent of respondents held other titles such as controller, assistant treasurer or manager.

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The responses from the participating companies confirm the existence of a set of widely used practices, but the survey also suggests that many companies can better utilize the investments already made in their "state-of-the-art" systems or the system investments made by their financial partners, their banks. In addition, the survey hints at new policies and procedures or "best practices" that companies and treasury functions should adopt as they look to the future for growth and the need to remain competitive in their chosen marketplaces.

Treasury Best Practices?

In considering whether spreadsheets or any other financial system are adequate in today's harsh business environment, a company needs to consider its goals. The survey asked questions about the company's treasury and business goals and asked whether the company had recently completed or was in the process of completing any efforts associated with attaining these goals.

Regardless of company size, three issues were ranked most highly by the respondents:

* Develop new methods to improve cash forecasting that accurately predicts future liquidity requirements;

* Seek a mandate to reduce and/or more efficiently manage the company's working capital and operating cash flows in conjunction with the company's business units;

* Play a more active role controlling financial risks in accordance with the company's corporate governance policies.

At first glance, these goals might seem obvious. What was most surprising was that very few efforts have been completed or are even underway to address these issues. In other words, these most important issues had the largest variance between importance and action by all companies in the survey. Even more surprising was the inability of companies to reduce their dependence on spreadsheets as a primary means of controlling/accounting for treasury-related transactions that supported future actions or decisions.

Do You Have the Right Resources?

Assuming for the moment that the top three identified issues are the most important ones faced by corporate treasuries, it is unlikely that treasury staffs could perform their current responsibilities and plan for change at the same time. According to the survey, corporate treasuries' staff resources are consumed by process-oriented tasks such as creating the daily cash position, disbursing/transferring funds, investing and borrowing. Even among larger companies with international operations, more time is spent managing domestic balances than all balances on a global basis. Little time is left to prepare for change.

Lack of integrated systems may be the main reason for treasury's inability to allocate resources for planning; staffers are busy extracting data from one financial system, pasting it into another system and then communicating the results to others. While additional staff could alleviate this situation, that will not reduce a company's operating risk associated with poorly integrated systems, the underlying causes for hiring the staff in the first place.

This conclusion is supported by another survey finding, indicating that despite the well-established presence of enterprise resource planning (ERP) systems, 54 percent of companies still use two to five major financial systems. In large companies, 15 percent use between 6 and 10 systems. Among large companies, 11 percent of those responding didn't know how many systems they had, even though respondents were senior managers. "Major" financial systems were defined to exclude spreadsheets.

Does Bank Data Help?

When looking to upgrade treasury technology, many companies turn to their financial partners--banks--since every major bank has made large investments in modern, Web-based systems. This makes them useful for companies interested in upgrading their treasury management system, especially since banks have operations in other countries and can accumulate data on a global basis.

It is when companies try to aggregate their data across all banks that bank systems show their limitations. The problem is that companies continue to use a large number of banks, making data integration and forecasting trends elusive, forcing companies to rely on spreadsheets to create an enterprise wide view of their cash.

For example, the survey showed that more than two-thirds (65 percent) of companies rely on bank systems for their basic cash management information and the raw data to create forecasts, repay loans and invest--even though those same companies possess more sophisticated systems like treasury workstations or ERP systems.

Why do companies continue to use methods that may have worked only when they were smaller, simpler organizations? The survey results are unclear on this point, except for the fact that cost is an issue. Ease of use and the relatively low cost of using spreadsheet-based systems are the basic reasons why companies continue to rely on spreadsheets; however, low cost doesn't necessarily translate into effective, value-added output.

Will Technology Really Help?

Technology vendors try to convince companies to subscribe to a "one size fits all" solution by buying the proper number of modules that accomplish a set of standard tasks. There is nothing wrong with this approach as long as decision-makers realize that it is the system outputs that measure the effectiveness of treasury, not its inputs.

Having a modern treasury system is the first step in lessening a company's dependence on spreadsheets, which have been around, at least in a computerized form, since the early 1970s. When queried about the age of their treasury and other financial systems, 34 percent of all respondents said that their non-treasury systems had been upgraded within the last 12 months. In contrast, only 24 percent said their treasury systems had been upgraded within the last 12 months.

When considering changes in technology, most companies have a limited budget. Therefore, they should ask themselves if they should acquire a system that does everything or one that is a "best of breed." There are no right answers, but larger companies have found that specialized treasury systems are preferable even to the best of the ERP systems or systems developed in-house.

Among the different sized companies, 47 percent of large companies have specialized treasury systems acquired from non-bank, non-ERP vendors. When in-house, specialized systems are included, the percentage increases to 67 percent. Sixty-five percent of large companies still depend on spreadsheets for treasury management. Six percent of medium-sized companies and one percent of small companies have specialized treasury systems. Most depend on spreadsheets and bank systems.

The survey clearly shows that growing companies considering technology changes should be exploring more specialized systems for treasury.

Also, the survey reveals, a growing company should no longer depend on the "same old" systems. All companies should explore alternatives, including non-bank vendors, to reduce dependence on non-integrated (such as spreadsheet) systems. Integrated systems that offer straight-through processing are best because they offer seamless interfaces with accounting systems and banks.

Older systems--together with large banking networks, limited staff resources and a lack of good performance metrics--present companies and their treasury areas with a host of problems as they struggle to comply with regulatory and business pressures. Despite the presence of these market forces, however, few companies have initiated or completed efforts to control their banking network operations or upgrade their systems, both of which could more adequately safeguard the company's assets. While it is too early to tell whether delays have compromised any business goals, some senior managers could be taking on unacceptable levels of operating risk without being aware of it.

Technology can be a useful tool as long as companies upgrade their technology as they grow, since what worked when the company was smaller or operated in fewer countries or in fewer lines of business will likely not work with a larger entity. Thus, to improve working capital management, reduce operational risk and become compliant with the growing number of regulatory requirements, investments in new technology can be a real necessity.

RELATED ARTICLE: Survey: Spreadsheets and Budgeting

Respondents to a survey earlier this year by Hyperion Solutions were asked:

1 Has your organization extended planning, budgeting and forecasting process out to more than the finance department?

Yes  43%
No   38%
N/A  19%

Of those that said "yes," the following are percentages of respondents that extended it to individual departments:

Sales & Marketing  20%
Human Resources    18%
Operations         27%
Engineering         7%

2 Has your company eliminated/reduced the use of spreadsheets in favor of business performance solutions?

Yes  31%
No   46%
N/A  13%

Peter Falck ([e-mail]) is Vice President, Corporate Treasury Solutions, at New York City-based SimCorp USA Inc., and Bruce Lynn ([e-mail]) is Managing Director at Financial Executives Consulting Group, LLC.