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Scot Petersen, Editorial Director, SearchCIO-Midmarket
Framingham, Mass.-based International Data Corp. and RevenueRecognition.com surveyed 118 high-ranking financial officials -- most of whom work for SMBs -- and found that the vast majority believe such processes are far too error prone to be trusted in today's highly regulated atmosphere.
Instead, according to Kathy Willhide, IDC's director of corporate compliance and business performance management applications, more SMBs are in the market for applications that create a live link between spreadsheets and central repositories of financial data, improving their analytical capabilities and synchronization levels.
"Spreadsheets are actually still a part of even large organizations and really aren't going away," Willhide said. "What I'm finding is that spreadsheets need to become more mission critical and part of [the accounting] applications that are delivered."
Proper financial practices and regulatory compliance issues have taken center stage in recent years, following the high-profile accounting scandals at Enron and other large firms. Those concerns have been compounded as a result of stringent new data retention requirements, such as those found in the Sarbanes-Oxley Act and Health Insurance Portability and Accountability Act.
Interestingly, IDC said, the general level of concern over financial practices has spilled over into industries not bound by tough government regulations.
"I think Sarbanes-Oxley is moving [people] more toward getting things systemized, and actually having computers do a lot more of that type of work, as opposed to having an accountant crunch through the numbers and put it onto a spreadsheet," said Al Flores, revenue manager at ArcSight, a midsized IT security vendor in Cupertino, Calif.
Today, SMBs commonly rely on spreadsheets for key accounting processes such as contract management, purchasing, inventory, billing and payroll.
According to the survey, companies are particularly concerned about the safety of a few key tasks. Slightly less than half of the respondents said they expect to stop using spreadsheets for closing the books. IDC also expects companies to reduce their use of spreadsheets for tasks such as reporting, forecasting and handling deferred revenue.
Asked to define the major risks associated with spreadsheet-based accounting processes, 63% of respondents said they are prone to errors, 58% cited the lack of a proper audit trail and 56% said they lacked internal controls. A total of 5% reported that no risks existed.
Flores said that manually maintaining and reconciling data from a spreadsheet back to the accounting system is a time-consuming process. "It's hard to maintain, especially when you're dealing with huge spreadsheets," he said.
Vendor opportunity
Word that midmarket companies are shopping for new accounting software is good news to some of the largest software vendors, many of whom have been vying for a bigger piece of the SMB market in recent years.
Most accounting software companies, including the Softrax Corp., Cognos Inc. and Hyperion Solutions Corp., are realizing that customers want to see spreadsheet applications tied in with back-end systems, said IDC's Willhide.
"They all are at a minimum, including spreadsheet functionality in their environment," she said. "I'm seeing a lot of vendors starting to [include Microsoft] Excel and connect it to the database as part of their applications."
The trend toward more comprehensive accounting applications will ultimately translate to more work for IT departments at many SMBs. The survey suggests that IT employees will most likely be asked to work with business users to determine the best accounting systems for their organization.
IT departments, therefore, will have to find systems that enable consistent information and solve data management problems while simultaneously provide functionality in a timely fashion.
"What IT departments really need to think about in this tougher compliance environment is the need to support the development of an infrastructure to manage information in a more integrated environment," Willhide said. "One that can support really all of the financial accounting processes, report preparation processes and provide a tighter audit trail."