Why Spreadsheets can send the Pillars of Solvency II Crashing Down


Solvency II is now fast approaching and while it may provide added protection to policy holders, its impact on the insurance industry is not all a bed of roses. Expect insurance companies to restructure, increase manpower, and raise spending on actuarial operations and risk management initiatives. Those that cannot, will have to go. But what have spreadsheets got to do with all these?

Well, spreadsheets aren’t really the main casts in this blockbuster of a regulatory exercise but they certainly have a significant supporting role to play. Pillar I of Solvency II, which calls for improved supervision on internal control, risk management, and corporate governance, and Pillar II, which tackles supervisory reporting and public disclosure of financial and other relevant information, both affect systems that have high-reliance on spreadsheets.

A little background about spreadsheets might help.

Who needs an IT solution when you can have spreadsheets?

Everyone in any organisation just love spreadsheets; from the office clerk to the CEO. Because they’re so easy to use (not to mention they’re a staple in office computers), people employ them for processing numbers and as an all-around tool for planning, forecasting, reporting, complex modelling, market data analysis, and so on. They make such tasks faster and easier. Really?

You probably haven’t heard of spreadsheet hell

Unfortunately, spreadsheets do have certain shortcomings. Due to their inherent structure and lack of controls, it is so easy to commit simple errors like an accidental copy paste, an omission of a negative sign, an incorrect data input, or an unintentional deletion. Such shortcomings may seem harmless until your shareholders discover a multi-million discrepancy in your financial report.

And because spreadsheet errors can go undetected for a long time, they are constant targets of fraudsters. In other words, spreadsheets are high risk applications.

Solvency II Impact on Spreadsheet-based Financial and IT Systems

Regulations like Solvency II, are aimed at reducing risks to manageable levels. Basically, Solvency II is a risk-based system wherein a company?s capital requirements will depend on its measured riskiness. If companies want to avoid facing onerous capital requirements, they have to comply.

The three pillars of Solvency II have to be in place. Now, since spreadsheets (also known as User Developed Applications or UDAs) are high-risk applications with weak control features and prone to produce inaccurate reports, companies will have a lot of work to do to establish Pillars II and III.

There are at least 8 articles that impact spreadsheets in the directive. Article 82, for example, which requires firms to ensure a high level of data quality and accuracy, strikes at the very core of spreadsheets? weakness.

A whitepaper by Raymond Panko entitled ?Spreadsheets and Sarbanes-Oxley: Regulations, Risks, and Control Frameworks? mentioned that 94% of audited real world operational spreadsheets that were included in his study were found to have errors and that an average of 5.2% of all cells in the audited spreadsheets had errors.

Furthermore, many articles in the directive call for the enforcement of better documentation. This is one thing that’s very tedious and almost unrealistic to do with spreadsheets because just about anyone uses them. Besides, with different ‘versions? of the same data existing in different workstations throughout the organisation, it would be extremely difficult to keep track of them all.

Because of spreadsheets you now need an IT solution

It is clear that, with the growing number of regulations and the mounting complexity of tasks needed for compliance, spreadsheets no longer belong in this era. What you need is a server-based solution that allows for seamless collaboration, data reliability, data consistency, increased security, automatic consolidation, and all the other features that make regulation compliance more doable.

One important ingredient for achieving Solvency II compliance is sound data risk management. Sad to say, the ubiquitous spreadsheet will only expose your data to more risks.

More Spreadsheet Blogs


Spreadsheet Risks in Banks


Top 10 Disadvantages of Spreadsheets


Disadvantages of Spreadsheets – obstacles to compliance in the Healthcare Industry


How Internal Auditors can win the War against Spreadsheet Fraud


Spreadsheet Reporting – No Room in your company in an age of Business Intelligence


Still looking for a Way to Consolidate Excel Spreadsheets?


Disadvantages of Spreadsheets


Spreadsheet woes – ill equipped for an Agile Business Environment


Spreadsheet Fraud


Spreadsheet Woes – Limited features for easy adoption of a control framework


Spreadsheet woes – Burden in SOX Compliance and other Regulations


Spreadsheet Risk Issues


Server Application Solutions – Don’t let Spreadsheets hold your Business back


Why Spreadsheets can send the pillars of Solvency II crashing down

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Spreadsheet Woes – Burden in SOX Compliance and Other Regulations

End User Computing (EUC) or end User Developed Application (UDA) systems like spreadsheets used to be ideal ad-hoc solutions for data processing and financial reporting. But those days are long gone.

Today, due to regulations like the:

  • Sarbanes-Oxley (SOX) Act,
  • Dodd-Frank Act,
  • IFRS (International Financial Reporting Standards),
  • E.U. Data Protection Directive,
  • Basel II,
  • NAIC Model Audit Rules,
  • FAS 157,
  • yes, there?s more ? and counting

a company can be bogged down when it tries to comply with such regulations while maintaining spreadsheet-reliant financial and information systems.

In an age where regulatory compliance have become part of the norm, companies need to enforce more stringent control measures like version control, access control, testing, reconciliation, and many others, in order to pass audits and to ensure that their spreadsheets are giving them only accurate and reliable information.

Now, the problem is, these control measures aren’t exactly tailor-made for a spreadsheet environment. While yes, it is possible to set up a spreadsheet and EUC control environment that utilises best practices, this is a potentially expensive, laborious, and time-consuming exercise, and even then, the system will still not be as foolproof or efficient as the regulations call for.

Testing and reconciliation alone can cost a significant amount of time and money to be effective:

  1. It requires multiple testers who need to test spreadsheets down to the cell level.
  2. Testers will have to deal with terribly disorganized and complicated spreadsheet systems that typically involve single cells being fed information by other cells in other sheets, which in turn may be found in other workbooks, or in another folder.
  3. Each month, an organisation may have new spreadsheets with new links, new macros, new formulas, new locations, and hence new objects to test.
  4. Spreadsheets rarely come with any kind of supporting documentation and version control, further hampering the verification process.
  5. Because Windows won’t allow you to open two Excel files with the same name simultaneously and because a succession of monthly-revised spreadsheets separated by mere folders but still bearing the same name is common in spreadsheet systems, it would be difficult to compare one spreadsheet with any of its older versions.

But testing and reconciliation are just two of the many activities that make regulatory compliance terribly tedious for a spreadsheet-reliant organisation. Therefore, the sheer intricacy of spreadsheet systems make examining and maintaining them next to impossible.

On the other hand, you can’t afford not to take these regulations seriously. Non-compliance with regulatory mandates can have dire consequences, not the least of which is the loss of investor confidence. And when investors start to doubt the management’s capability, customers will start to walk away too. Now that is a loss your competitors will only be too happy to gain.

Learn more about our server application solutions and discover a better way to comply with regulations.

More Spreadsheet Blogs


Spreadsheet Risks in Banks


Top 10 Disadvantages of Spreadsheets


Disadvantages of Spreadsheets – obstacles to compliance in the Healthcare Industry


How Internal Auditors can win the War against Spreadsheet Fraud


Spreadsheet Reporting – No Room in your company in an age of Business Intelligence


Still looking for a Way to Consolidate Excel Spreadsheets?


Disadvantages of Spreadsheets


Spreadsheet woes – ill equipped for an Agile Business Environment


Spreadsheet Fraud


Spreadsheet Woes – Limited features for easy adoption of a control framework


Spreadsheet woes – Burden in SOX Compliance and other Regulations


Spreadsheet Risk Issues


Server Application Solutions – Don’t let Spreadsheets hold your Business back


Why Spreadsheets can send the pillars of Solvency II crashing down

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Energy Audit – clearly clear?

An energy audit is an examination of an energy system to ensure that energy is being used efficiently. It is the inspection, survey and analysis of energy flows for energy conservation in a building. Energy audits can be conducted by building managers who examine the energy account of an energy system, checks the way energy is used in its various components, checks for areas of inefficiency or where less energy can be used, and identifies the means for improvement.

An energy audit is often used to identify cost effective ways to improve the comfort and efficiency of buildings. In addition, homes/ enterprises may qualify for energy efficiency grants from central government. Energy audits seek to prioritise the energy uses from the greatest to least cost effective opportunities for energy savings.

An energy audit is an effective energy management tool. By identifying and implementing improvements as identified, savings can be achieved not only on energy bills, but also equipment will be able to attain a longer life under efficient operation. All these mean actual dollar savings.

An energy audit has to be conducted by a competent person with adequate technical knowledge on building services installations, after which he/she comes up with a report recommending plans on the Energy Management Opportunities (EMO) for energy saving.

An energy audit culminates to a written report. This could show energy use for a given time period (for example a year) and the impact of any suggested improvements per year. Energy audit reports are then used to identify cost effective ways to improve the comfort and efficiency of buildings. The energy audit report therefore gives management an understanding of the energy consumption scenario and energy saving plans formulation.
Energy audit reports should always translate into action. No matter how well articulated, the energy management objectives are afterall, an energy audit (EMOs), all the effort will be futile if no action is taken. The link between the audit and action is the audit report. It is therefore important for the audit reports to be understandable for all the target audiences/ readers, all of whom may have diverse needs, hence the reason why they should be clear, concise and comprehensible.

What are the do?s and don’ts when writing energy audit reports?

Avoid technical jargon as much as possible; present information graphically; use different graphics such as pie charts, data tables. Schematics of equipment layouts and digital photos tend to make EMO reports less dry. Some of the energy audit software?s come in handy in the generation of such graphs and charts.
The climax of it all is the recommendations, which should be made very fascinating.

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What GDPR Means in Practice for Irish Business

The General Data Protection Regulation (GDPR) is a European directive aimed at ring-fencing consumer data against illegal or unnecessary access. There is nothing to discuss or debate with local politicians, or the Irish Data Protection Commissioner for that matter. As a European directive, it has over-riding power. To obtain an English version, please visit this link, and select ?EN? from the table of languages.

As you reach for your tea, coffee or Guinness after sighting it, you will be glad to know the Irish Data Protection Commissioner has the lead in turning this into business English we understand. The following diagram should assist you to obtain a quick overview of the process we all have to go through. In this article, we briefly describe what is inside Boxes 1 to 12. The regulation comes into force on 25 May 2018 so we have less than a year to get ready.

The 12 Essential Steps to Implementing the General Data Protection Act

1. Create awareness among your people of what is coming their way. The GDPR has given our regulator discretion to dish out fines up to ?20,000,000 (or 4% of total annual global turnover, whichever is greater) so there is determination to make this happen.

2. Become accountable by understanding the consumer data you hold. Why are you retaining it, how did you obtain it, and why did you originally collect it. Now you know it is there, how much longer will you still need it? How secure is it in your hands, have you ever shared it?

3. Open a communication channel with your staff, your customers, and anyone else using the data. Share how you feel about how accountable you have been with the information in the past. Explain how you plan to comply with the GDPR in future, and what needs to change.

4. Understand the personal privacy entitlement of the subjects of the information. They have rights to access it, correct mistakes, remove information, restrict its use, decline direct marketing, and copy it to their own files. What needs to change in your systems to assure these rights?

5. Issue a policy for allowing consumers access to their information you hold. You must process requests within a month, and you may not charge for the service unless your cost is excessive. You may decline unfounded or excessive demands within your policy guidelines.

6. Adapt to the requirement that you must have a legal basis for everything you do with, and to consumer data. You need to be in a position to justify your actions to the Irish Data Protection Commissioner in the event of a complaint. Having a legitimate interest is no longer sufficient.

7. Ensure that consumer consent to collect, use, and distribute their data is ?freely given, specific, informed, and unambiguous.? From 25 May 2018 onward, this consent will be your only ground to do so. You cannot force consent. Your benchmark becomes what the GDPR says.

8. Issue rules for managing data of underage subjects. This is currently under review and we are awaiting results. Put systems in place to verify age. Set triggers for where guardians must give consent. Make sure age is verifiable. Use language young people understand.

9. Introduce a culture of openness and honesty, whereby breaches of the GDPR are detected, reported, investigated, and resolved. You will have a duty to file a GDPR report with the Data Protection Commissioner within 72 hours, thus it is important to fast track the process.

10. Introduce a policy of conducting a privacy assessment before taking new initiatives. The GDPR calls for ?privacy by deign?, and we need to engineer it in. This may be the right time to appoint a data controller in your company, and start implementing the GDPR while you have time.

11. You may also need to appoint a data protection officer depending on the size of your business. Alternatively, you need to add managing data protection compliance to an employee?s duties, or appoint an external data-protection compliance consultant.

12. Finally, and you will be glad to know this is the end of the list, the GDPR has an international flavour in that multinational organisations will report into the EU Lead Supervisory Authority. This will manage the process centrally while consulting national data authorities.

The GDPR is a project we all need to complete. If we are out of line, it is in our interests to get things straightened out. Once everything is in place, the task should not be too onerous. Getting there could be the pain.

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