Business Council: Economic Survey Wrong Reuters, October 12, 2004

"NEW YORK (Reuters) - Chief executives in the United States are not as pessimistic as the Business Council thought last week when it issued its economic survey, the group said on Tuesday, citing a "tabulation error." The Business Council, a group of 125 U.S. CEOs, last week said 70 percent of its members expected flat to 2 percent growth in the U.S. economy next year -- painting a much more bearish outlook than major economists.

But on Tuesday, the group said it had gotten the survey wrong and its members had actually projected moderate to solid economic growth in 2005, from 2.1 percent to 4.5 percent, and were "guardedly optimistic" about the economy's prospects.

The revision comes in the midst of an election year that has put a spotlight on the state of the economic recovery. Business Council Executive Director Philip Cassidy said the correction was not influenced by politics in any way.

"It was a computational error. The spreadsheet shifted so the wrong numbers appeared in the wrong columns," Cassidy said. "It was just one column on the spreadsheet."

He said the error, which was caught on Friday afternoon, has never happened before in the survey's history."

$5M Actuarial Overstatement
James Hardie Actuarial Expert Witness Report, KPMG Actuaries Pty. Ltd., June 4, 2004

"Over the years 1996-2001, James Hardie Industries Ltd ('James Hardie') received advice from Trowbridge Consulting, the actuarial subsidiary of Deloitte Touche Tohmatsu ('Trowbridge'), in relation to the level of asbestos liabilities to which it was potentially exposed.

There are some errors in the report and the valuation model. Most notably, the insurance recoveries have been over-discounted due to spreadsheet errors (this had been corrected by the 13 February 2001 valuation). This has resulted in a $5m overstatement in the liability Trowbridge have recommended relative to that which they ought to have recommended on their valuation basis."

University of Toledo loses $2.4M in projected revenue. "While official UT projections call for a 10 percent decline in graduate student enrollment, an increase mistakenly was shown in a spreadsheet formula that led officials to overestimate enrollment and therefore revenue, Mr. Decatur said." "Dr. Johnson said no job action will be taken against the employee who made the mistake, who has a good performance record. Officials will, however, pursue systemic changes to provide more safeguards in the future. "We have very competent people," Dr. Johnson said. "I do think that the continuing fiscal pressures on universities have forced us to a level of staff support where there is little or no redundancy in the process."

"The town of Brookhaven paid 2,400-employee Kroll $2.2M to look for possible corruption in the Highway Department, But at the resulting trial, investigators have been caught red-faced by revelations that they went to an incorrect address and exaggerated financial figures because of typos ... two numbers were transposed on a spreadsheet, and Kroll said Milvid overbilled by $18,000 for concrete work on Boyle Road in Port Jefferson Station when he had actually overbilled by less than $3,000."

Links to reports regarding  forecasting, slope and intercept functions causing different results in Excel 2003 than in earlier versions of Excel. Also a report about the RAND function returning negative numbers in Excel 2003.

Microsoft reports inconsistencies in functions between Excel 2003 and earlier versions. Functions affected include variance, poisson, normal and binomial distributions, statistical tests and random number generation.

Shares of the Seattle self-storage company fell 7.1 percent after Shurgard disclosed that Deloitte and Touche quit upon learning Shurgard overpaid its chief executive and another investor $700,000 each and took more than six months to find and correct the error.

Shurgard said the overpayment occurred when the company bought out a limited partnership owned by Chief Executive Charles Barbo and another investor. A person in Shurgard's accounting department used the wrong spreadsheet to figure out what the two were due, spokesman Jeff Szorik said. The payment was discovered and repaid six months later.

A well-known Grand Rapids investment manager's alleged mishandling of stock orders has led to $475,000 in fines by the New York Stock Exchange and censures for him and two other employees involved in the orders.

The stock exchange said Cusack, 47, bought large blocks of Foremost stock in September and October of 1999, but didn't properly document which of his clients would have the stock placed in their accounts. The lack of documentation raised the possibility that he could wait to decide how to distribute the shares until he knew how the shares performed that day -- a violation of NYSE rules and Securities and Exchange Commission laws.

Cusack told the stock exchange he had a spreadsheet that spelled out how the stock would be distributed when the orders were placed, but the spreadsheet was thrown away after the transactions and other documentation were completed.

"An agency may permit correction of a bid where clear and convincing evidence establishes both the existence of a mistake and the bid actually intended."

"Our review of the record, including Emerson's computer-generated spreadsheets, confirms that the price at spreadsheet cell number D159 (for electrical work) was not included in the subtotal at cell number D160. Based on the format of the spreadsheet, it is clear that the $3,702,025 price at cell number D159 was intended to be included in the firm's subtotal price. "

Download spreadsheet showing a 10% hit on FNM stock after the announcement.

"Fannie Mae filed a Form 8-K/A with the SEC amending their third quarter press release to correct computational errors in that release. "There were honest mistakes made in a spreadsheet used in the implementation of a new accounting standard. The bottom line is that the correction has no impact on our income statement, but resulted in increases to unrealized gains on securities, accumulated other comprehensive income, and total shareholder equity (of $1.279 billion, $1.136 billion, and $1.136 billion, respectively)... the correction had to do with a computational error in performing complicated calculations required in the implementation of FAS 149."

In October 2003, about 2 weeks after releasing their third quarter earnings figures, Fannie Mae had to restate their unrealized gains by $1.2 billion. This was apparently the result of "honest mistakes made in a spreadsheet used in the implementation of a new accounting standard." Honest mistake or not, $1.2 billion is a lot of money: more than the $70 million of Provident Financial in March, or the $24 million lost by TransAlta in June. It's reasonably common to see errors of half a million or so, but they don't usually make the headlines.

Apparently Fannie Mae picked up the error as part of the normal processes of preparing their financial statements for filing. Presumably they failed to pick it up as part of their review process before issuing the earnings statement. They claim that the event demonstrates that their accounting processes and controls work as they should."

An August 2003 Department of Defense report states, "... many of the invoice amounts listed on the MCIWorldCom spreadsheet were inaccurate. Specifically, 467 invoices on the MCIWorldCom spreadsheet differed from the hard copy invoices by $2.1 million. Last month, The New York Post reported a former MCI employee's claim about over-billing at the State Department: "It was wrong and I regret it. We were over-billing the government $20,000 a month on one circuit. [The order to overcharge] came down from a vice president and through three layers of management."

June 03, 2003 TORONTO (Reuters) - TransAlta Corp. said on Tuesday it will take a $24 million charge to earnings after a bidding snafu landed it more U.S. power transmission hedging contracts than it bargained for, at higher prices than it wanted to pay.
[...] the company's computer spreadsheet contained mismatched bids for the contracts, it said. "It was literally a cut-and-paste error in an Excel spreadsheet that we did not detect when we did our final sorting and ranking bids prior to submission," TransAlta chief executive Steve Snyder said in a conference call. "I am clearly disappointed over this event. The important thing is to learn from it, which we've done."

New York ISO rules did not allow for a reversal of the bids. The contracts were honored.

"CINCINNATI, March 5 /PRNewswire-FirstCall/ -- Provident Financial Group, Inc. announced today a restatement to its operating results for the years 1997 through 2002.

The restatement of previously reported operating results is attributed to errors in the accounting for nine auto lease financing transactions originated between 1997 and 1999.

The errors that existed in the accounting for these transactions were first discovered by the company's finance staff in connection with the testing and installation of a financial model that identified differences in income that was originally recorded, compared with the income generated by the financial model. The company then notified its independent auditors and bank regulators and has reported all relevant information to its board of directors and audit committee. The company has been working closely with its independent auditors since the accounting errors were first discovered.

A review of the accounting for the nine transactions also concluded that none of the transactions should have been reported off-balance sheet as a sale and lease back of operating leases. The appropriate accounting was to report the transactions as financing leases with all assets and related liabilities included on the balance sheet. As a result, the company will also be restating its balance sheets for the years 1997 through 2002 to include the nine auto lease financing transactions.

Christopher J. Carey, Executive Vice President and Chief Financial Officer of Provident, stated, 'The restatement announced today is attributable solely to errors in the accounting for the nine auto lease transactions that were originated between 1997 and 1999. All auto lease transactions originated beginning in 2000 and thereafter were structured and treated as financing leases and have been included on our balance sheet. We also reviewed the accounting for each of the subsequent transactions and concluded that they were accounted for correctly.' "

Grant Accruals Understated by $1.5 Million
KPMG Audit Letter to US Department of Commerce, Dec 27, 2002

"During our FY 2002 audit of the Department's consolidated financial statements, we noted certain matters involving internal control over financial reporting and its operation that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants The amount recorded as a grant accrual in CAMS disagreed with the grant accrual spreadsheet, resulting in a $1.5 million understatement of grant accruals. This difference occurred because of an error in the spreadsheet formula. "

$137,500 Penalty For Not Double Checking a Spreadsheet
Department of Energy, August 12, 2002

"Preliminary Notice of Violation and Proposed Imposition of Civil Penalty $137,500 ... quality assurance issues affecting nuclear safety surrounding the discrepant nondestructive assay (NDA) data provided to Bechtel Hanford, Inc., in support of their decontamination and dismantlement activities at Building [ ]. Contrary to the above, between September 1998 and May 2001, work was not performed to established standards and controls using approved procedures. Examples include the following
... the modification to the spreadsheet was not subjected to validation
... the revisions to the spreadsheet used in the [ ] NDA process were not uniquely identified and labeled
... several deficiencies related to the use of NDA applicable spreadsheets"

"ASD did not have current policies and procedures to help ensure revenue distributions were correct, and controls over supervision also need strengthening. Spreadsheets used to distribute tax revenue to the State's General Fund contained a formula error. Consequently, from October 1999 through May 2001, approximately $9.5 million in sales tax revenue was not distributed to the General Fund. Although this spreadsheet error was corrected in June 2001 and the $9.5 million was transferred to the General Fund, internal controls are still weak. Consequently, further spreadsheet errors could occur and go undetected. "

"The National Australia Bank wrote down the value of its US mortgage business HomeSide Lending by a massive AUS$3 billion. The news triggered a free fall in the NAB's share price that knocked more than $6.5 billion of the bank's market value. Contributing to the write down was an incorrect interest rate assumption fed into HomeSide's financial modeling. This alone has cost the lender's $755 million. A selling spree knocked more than 13 per cent of the value of NAB shares."

Ray Butler outlines how spreadsheets were used as one of the vehicles for John Rusnak's fraud and the revenue control lessons this case gives us. One error in a spreadsheet subverts all controls in all systems feeding into it.