How a Simple Spreadsheet Mistake Caused a $3.1 Billion Loss

Many crypto companies depend on customized spreadsheets to track and record their crypto assets, view daily balances and transaction details. Newer, more agile programs have emerged in the market, but spreadsheets have staying power. After extensive research and hosting conversations with companies around the world, we’ve identified the two primary reasons why spreadsheets remain the de-facto tool instead of employing more advanced and automated crypto accounting tools. Those reasons are that they are ubiquitous and they’re familiar.

Spreadsheets are common in traditional finance, so it’s easy to default to them when managing crypto assets. But familiarity doesn’t guarantee safety or success and instead of simply telling you that using spreadsheets can be risky, I’ll show you a real-world example.

In the case of JPMorgan’s London Whale, a spreadsheet error led to a $3.1 billion loss.

The loss occurred because derivatives trader Bruno Iksil was engaging in high-risk trades with complex financial instruments. His story and the lack of repercussions for his actions highlight the ongoing challenges of regulating and disciplining financial behaviors.

But what is truly remarkable from an accounting perspective is that half of that $6.2 billion loss was due to a spreadsheet error.

Following the fateful trade (which amounted to more than three times the SEC’s annual budget), JPMorgan Chase investigated what happened and got governing agencies involved. Though risky trading was at play, the loss occurred because the Excel model designed to limit those behaviors failed.

The model involved manually copying and pasting data across several different Excel spreadsheets. When an element was added, not averaged, computers appraised the trade to be

half as risky as it actually truly was.

The model could have failed for any number of reasons. The model review team responsible for vetting it might have felt pressure to quickly approve it for implementation, leading to several human oversights. The model also required manual copying and pasting between spreadsheets, and any time humans are involved in a repetitive process like that, there is a high risk of error.

A lapse in attention or a simple mistake can become incredibly expensive mistakes. In this case, the model showed the trade as less risky than it actually was, letting the trader move forward without raising any alarms that there could be a problem.

The JPMorgan Chase Excel failure generated headlines because of the size of the financial loss, but this wasn’t a fluke. The risks of relying on spreadsheets are real, and they can threaten a company’s image and financial even stability.

Multiple instances have cost companies millions of dollars due to spreadsheet errors, and the continued prevalence of spreadsheet programs in the financial world should be frightening.

No matter how well-trained human employees are they will make mistakes, even in high-stakes scenarios. Accountants and other finance professionals deal with significant amounts of data all the time. When they have to copy and paste information or work across multiple spreadsheets, errors are inevitable.

Proactive crypto companies are waking up to the fact that a spreadsheet is a landmine just waiting to be stepped on. Automating data inputs, financial modeling, and asset tracking functions will save companies from the expensive and embarrassing mistake JP Morgan Chase made.

While most businesses are not aware of new technologies to solve this problem, it all starts with decision makers implementing the best solution for their company.

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