1998 IT review - Time to face reality

It is a sign of society’s increasing dependence on technology, andead on. John Stokdyk reports. perhaps the technical ignorance of politicians and financiers, that one of Europe’s top gurus on Economic and Monetary Union is Dennis Keeling, chief executive of BASDA, the UK accountancy software developers’ trade association.

When business people in Europe wake up on 4 January, they expect to have accounting software that can handle the euro. Many of them are in for an ugly surprise.

Already, the City of London is gearing up for a New Year euro frenzy.

The fixed conversion rates for EMU currencies will be announced on Thursday 31 December. Managers responsible for financial systems that will need to make euro currency conversions will have four days to reconfigure and test their programs.

To cope with the extra workload, major institutions have paid London Underground to keep the Waterloo & City Line open over the weekend of 2-3 January.

In microcosm, that is what accountancy software developers have been doing for the past six months. The European Commission set down basic rules covering currency conversions, but BASDA, which maintains a detailed software specification for its members, was still taking in changes as we entered December.

Developers say changing the underlying calculation routines and database field sizes is more of a challenge than dealing with the year 2000 – and they were expected to deliver in little more than three months.

Along with Taskforce 2000 director Robin Guenier and KPMG partner Alan Reid, Keeling has argued that EMU should be delayed until after the year 2000. In the words of one wit, however, there’s more chance of delaying the new millennium than getting the European Commission to change its mind.

Keeling advised companies moving their base accounting currency to the euro to adopt a phased transition, starting with customer-facing documents such as receipts and invoices, then progressing to transaction processing when volumes made it feasible, and delaying the final conversion of their accounting records for as long as possible. Converting historical records could put accounting systems out of action for several days, he warned, and that depended on the software companies being able to complete their conversion software.

Keeling’s message was at odds with the ‘go early, Big Bang’ line promoted by the European Commission and FEE, the European accountancy federation, which has been running an EU-funded euro education programme.

Peter Blackie, head of multilateral institutions at the European Commission’s DG II, came out fighting at a FEE conference in Brussels this October.

‘Software people are highly intelligent, but should not take over the finance function from you,’ Blackie told the assembled accountants. ‘Systems analysts can’t make the decision about how you do conversions and when you need to convert. The only person who can do that is the finance director or equivalent.’

BASDA came under fire from some of its own members when it appeared to downscale its euro accreditation scheme. Initial contacts with the Big Five in the spring failed to bear fruit, so BASDA put a self-test triangulation and rounding program up on its website.

‘Would you buy a car where the manufacturer gave you a self-test safety certificate?’ wondered Richard Pearce, marketing manager of Uxbridge-based SquareSum.

In August, Moret Ernst & Young of the Netherlands came to the rescue.

It already had experience of testing Baan software and decided to lend its weight to BASDA’s testing regime.

Four vendors have gone through the process so far and around 60 have expressed an interest in the scheme, which costs 10,000 ecu.

National laws and regulations, however, continue to hamper the industry.

Customs & Excise, for example, viewed the euro as just another currency under its longstanding VAT rules. Companies switching their base currency to the euro would still be required to maintain VAT records and file reports showing the transaction amounts in sterling, Customs confirmed in October.

Only one or two commercially available software packages in the UK could actually process sterling and euros in parallel, BASDA reported. After further consultations, Customs has agreed to meet developers this week to thrash out a compromise.

Accountancy Age has been known to criticise software companies in the past, but the fact that many suppliers are already shipping euro-capable software is a testament to their professionalism and forward planning.

What a pity the politicians couldn’t demonstrate as much common sense.

Crunch time is now long gone

For many organisations, the crunch time for tackling year-2000 IT compatibility problems probably occurred some time this year.

Early in the year, the Accounting Standards Board’s Urgent Issues Task Force published its guidance. It advised that, from 23 March, companies should have to disclose the total estimated costs for 2000 remedial work.

The UITF suggested that directors should provide further narrative information, either in their reports or in the operating financial review. Rather than setting aside provisions for the work – which is, after all, a foreseeable event – year-2000 IT expenditure should be recognised in the year it is spent.

Deloitte & Touche national audit technical partner Martyn Jones, a UITF member, confessed the guidance was ‘too little, too late’, and raised the concern that disclosures in the OFR would not be legally enforceable.

Guidelines for auditors instructed them to seek assurances from management that preparations are being undertaken, but failed to detail what questions they should ask.

The going concern rule also allowed auditors to dodge the problem for most of the year, as they are only required to look ahead to the next financial year. No year-2000 qualifications have come to light yet, but this could well change in the months ahead.

In July, an analysis by Edinburgh-based accounts monitor Company Reports found that only 64 of the FTSE 250 mentioned the millennium bug in their annual reports, and only two firms had contingency plans in place.

Chemical specialist Blagden reported it had committed #800,000 to tackle the millennium bug and stated in its annual report that it was confident its systems would be 100% compliant by the end of this year. Company Reports reminded such ‘over optimistic’ companies of advice from the US Securities and Exchange Commission that the problem is so complex, it is not realistic to claim total success.

In March, prime minister Tony Blair set out the government’s emergency plan, backed with a #97m budget, to tackle the millennium bug. Blair announced a Cabinet Office unit would tackle public-sector compliance and the Action 2000 pressure group’s budget was increased to #17m. Around #70m was put aside to help UK businesses with IT training, #30m of which would be made available in the form of #1,300 grants to help companies train their own ‘bug busters’.

In October, when it emerged that only 240 people had completed the course, the government attempted to resuscitate the programme by making the course free and reducing it to two days rather than ten. Even these changes, however, are unlikely to meet the prime minister’s goal of an army of 20,000 trained bugbusters.

Belinda Bridgman, group director of training company FSS Financial, had a more practical suggestion in September when she urged businesses to take on more part-qualified accountants to tackle the year 2000 and euro-compliance work. Her call met with a muted response from accountancy bodies and finance directors.

Accountancy software house Sage has championed the year-2000 issue in tandem with Action 2000. In August, it shared the results of a summer survey of 1,000 accountancy firms’ thoughts on the millennium computer problem.

Awareness of the issue was almost total, but only 56% of firms claimed to have fully year 2000-compliant IT systems.

Even more worrying, less than a quarter of accountants had checked whether their clients were year-2000 compliant and only 52% planned to do so.

Four-fifths of firms were confident that IT problems would not prevent them from completing 2,000 year-end accounts within three months. A 41% minority expressed concern that the bug would close down small and medium-sized companies.

Insolvency practitioners will be the only ones interested in the accounts of failed businesses, but how do accountants plan to close the books of surviving companies if they cannot gain access to data in crippled accounts systems?

Chantrey Vellacott DFK’s head of economics Maurice Fitzpatrick spent much of the year warning the government that its year-2000 cost estimates were inadequate – particularly the #370m budgeted for central government systems, which was officially revised to #400m in September. Fitzpatrick reckons the costs will total #40bn for the country as a whole, with #10bn required for the public sector, of which around #1.5bn will be needed by the NHS.

Fitzpatrick also suggests that, even if it could be spent in the time available, the amount of money needed would blow a huge hole in the chancellor’s precious public spending targets.

‘If anything, the figures have proved to be underestimates,’ says Fitzpatrick. ‘The most disappointing thing has been the apparent failure of public sector to get to grips with it. The government just don’t understand this is the biggest issue facing them.’

For both public and private sectors, it is too late to consider a year-2000 fix. ‘The time has come to focus on contingency planning to remedy the worst effects when systems inevitably begin to crash,’ he says.

If Fitzpatrick’s doomsday predictions do come true, many in the profession will need to ask themselves whether they fulfilled their responsibilities to clients and shareholders when it mattered most – in 1998/1999.