4 massive accounting blunders
Accountants often don’t get the credit they deserve within their organisations and it is only when things go wrong that they become the focus of attention. Like a good interviewer or referee, they tend to fade into the background when things are running smoothly, but there is hell to pay when an accounting error comes to light. Here are four of the biggest accounting blunders.
A 2014 audit revealed that Californian state accounts were off by an astonishing $31,65bn, due to errors caused by understated expenditure, overstated tax receipts and bond debt, as well as a $9,1 billion reporting error on a public building construction fund. The Californian economy dwarfs many countries and the error alone accounted for more than the GDP of Iceland and Jamaica combined. Their accounting issues don't appear to have been resolved - in January, a "straight-up accounting error" left a $1,9 billion hole in the state medical aid budget.
Fannie Mae comes clean
In October 2003, US government-backed home loan financier Fannie Mae announced that it had discovered a $1.136 billion error in total shareholder equity. Jayne Shontell, Fannie Mae senior vice president for investor relations, said in a written statement, "There were honest mistakes made in a spreadsheet used in the implementation of a new accounting standard." It resulted in increases to unrealised gains on securities, accumulated other comprehensive income and total stockholders' equity and placed the government enterprise under intense scrutiny.
A simple spreadsheet error cost Canadian power generator TransAlta $24 million and resulted in it buying a surplus US power transmission hedging contracts at higher prices. Then CEO Steve Snyder told Reuters: "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." An individual preparing bids had misaligned the rows of information in the spreadsheet.
JPMorgan's Whale woes
In 2012, JPMorgan's investigation into the London Whale scandal, which involved a trader's outsized bet that got the Wall Street firm into trouble, uncovered a corrupted financial model. The model its traders were using was operated through a series of spreadsheets that added a key measure instead of averaging it. JPMorgan risk officers therefore were under the impression that credit derivatives bets were only half as risky as they actually were.