In my previous article Auditing: Accounts Payable / Vendor Payments I spoke about Relative Size Factor (RSF) and how it can used to identify isolated outliers in vendor invoices. In this article I’ll try to show how RSF can be calculated in Excel.
The RSF test is an important tool for detecting errors. RSF test compares the top two amounts for each subset and calculates the RSF for each. The test identifies subsets where the largest amount is out of line with other amounts for that subset.
Spreadsheets are known to be error prone. As per one study by Raymond Panko, 86% of spreadsheets contains errors. Errors in spreadsheets can’t be eliminated completely, but steps can be taken to reduce them.
In 2003, “a cut-and-paste error in a spreadsheet cost TransAlta, a Canadian power generation company, $24 million in overpayments for hedging contracts.”
In the previous post I mentioned few of the risks associated with spreadsheets. In this post I’ll try to show some excel tools which can help in detecting errors and frauds in Excel spreadsheets.
In the late 1990’s “Poor control over spreadsheets at Jamaican indigenous banks contributed to management information and external reporting problems (i.e., P&L distortions) that contributed to the banks’ management and external regulators losing sight of the banks’ true positions and exposures. Which led to collapse of entire Jamaican Banking System.
Spreadsheets have stood the test of time because they continue to meet the analytical needs of organizations, especially for analyzing and reporting financial results and providing support for decision-making.
“…spreadsheets will always fill the void between what a business needs today and the formal installed systems…” Mel Glass et al