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A-Team Insight Blogs

Financial Institutions Should Focus on Unstructured Financial Data in the Rush for Effective Risk Management, Warns ClusterSeven

Financial institutions will continue to report high profile instances of data mismanagement and fraud unless they take 100% control of the vulnerable financial data files that move and manipulate information between their business systems. These include files known as CSVs* (comma separated variable), plus spreadsheets and Microsoft Access Databases. Systemic failings in the way these files are tracked and monitored remain unresolved; for many businesses this will lead to financial misreporting, leading to financial and reputational losses.

Ralph Baxter, CEO of ClusterSeven, an international provider of software to manage unstructured financial data, said: “Spreadsheets and CSVs are the ‘glue’ that joins everything else together. If this ‘glue’ is contaminated – such as bad data values – then this will be extremely difficult to spot further down the line.

Many firms get used to accepting exceptions in this data such as test values or balancing items. However, these loopholes can hide more malicious entries for long periods. Many firms do not realise how vulnerable their unstructured data processes are until it is too late as they lack formal processes and tools to make sure all these critical data files are accurate and truthful.”

The intense focus on data management by banks and insurers, particularly in light of Basel III, Solvency II and other regulatory moves, has shone the spotlight on the highly sophisticated spreadsheets and CSVs that underpin modern businesses – yet many people fail to realise this basic fact.

Recent studies by ClusterSeven (June 2011) and by risk consultant Protiviti and accountancy institute the ICAEW (July 2011) have concluded that organisations are putting themselves at considerable financial and reputational risk by failing to properly control the way they use spreadsheets. The Protiviti/ICAEW survey revealed that three quarters (75%) said that their company did not have a policy or processes in place relating to the design, development and/or control of spreadsheets.

Of those accountants surveyed, almost a quarter (23%) claim their organisation has experienced financial or reputational losses that can be directly attributed to the use of spreadsheets or poor controls governing the use of spreadsheets.

It is not just banks and insurance firms susceptible to data management challenges. On 12 August this year, the ONS issued a correction after admitting an “arithmetical error” had caused it to overstate the strength of the UK construction industry for Q2 by 180 basis points. According to the ONS’s initial calculation, the sector grew 2.3% in the three months to June (enough for some economists to revise upwards UK economic prospects); the ONS subsequently cut the number to 0.5%.

Ralph Baxter, CEO of ClusterSeven, added: “Most people know of some spreadsheets that help run their business, but these are only the tip of the iceberg of all the unstructured financial data activity in their organisation. We see an increasing demand for our software from firms big and small. However, the worry remains that significant shortcomings remain at the heart of many of the world’s financial institutions. This is a shame as, rather than being a weak link in a firm’s risk management process, properly managed unstructured financial data will strengthen it.”

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