Category Archives: Economic IQ Trainwrecks

Did an Excel coding error destroy the economies of the Western world?

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The title of this post is taken from an article by Paul Krugman (Nobel prize winning economist) in the New York Times of the 18th of April 2013. And it really is a good question that sums up the significance of the information quality problems that have emerged in an economic model which has been used to guide the actions of governments and non-governmental organisations in response to the global financial crisis.

Krugman’s article summarises the background very succinctly but we’ll summarise it again here:

  1. In 2010 two Harvard economists, who between them had served with and advised a number of governmental and supra-governmental organisations, produced a paper that argued that there was a key threshold above which Government debt became unsustainable and had a negative effect on economic growth. That threshold was 90%.
  2. That threshold was used as a key benchmark to inform policies for dealing with government debt crises in Europe and elsewhere. It became an article of faith (despite some economists questioning the causation/correlation relationship being argued). The official line being taken with countries with sovereign debt challenges was that austerity was required to reduce debt below 90% to prevent a fall off in growth – and there was academic research to prove it.
  3. However other researchers struggled to replicate the results presented in the original paper – decline in growth was never as severe and the causal relationship was never as definitive. Eventually one researcher got access to the original spreadsheet and uncovered methodological issues and fundamental calculation errors, including a formula calculating an average that left out data points (5 countries were omitted).

The reanalysis of the spreadsheet data, correcting for methodology issues and for calculation errors found no average negative growth above the 90% threshold. According to author Mike Konzcal on economics blog NextNewDeal.net:

They find "the average real GDP growth rate for countries carrying a public debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not -0.1 percent as [Reinhart-Rogoff claim]." [UPDATE: To clarify, they find 2.2 percent if they include all the years, weigh by number of years, and avoid the Excel error.] Going further into the data, they are unable to find a breakpoint where growth falls quickly and significantly.

Konzcal goes on to hope that future historians will recognise that:

one of the core empirical points providing the intellectual foundation for the global move to austerity in the early 2010s was based on someone accidentally not updating a row formula in Excel.

An alternative analysis of the data presented on NextNewDeal.net also raises questions  about the causal relationship and dynamic that the original paper proposed (that high government debt causes decline in demand).

Paul Krugman has posted further updates on his NYTimes blog today.

Impact?

As with many information quality errors, the impacts of this error are often not immediate. Among was the potential impacts of this spreadsheet error and the nature of the causal dynamic are:

  • Austerity policies in Ireland, Greece, Cyprus, Italy, Portugal, Spain and other countries
  • Business failures (due to fiscal contractions in an economy reducing supply of investment finance, weaker demand, longer payment cycles etc)
  • Reduction in public services such as health care, and increases in taxation
  • Increases in Suicide in Austerity countries (e.g. Greece)

 

Conclusion

Where data and its analysis becomes an article of faith for policy or strategy it is imperative that attention be paid to the quality of the data and its analysis. In this case, opening up the data for inspection sooner might have allowed for a more timely identification of potential issues.

It also highlights the importance of careful assessment of cause and effect when looking at the relationship between two factors. This is an important lesson that Information Quality professionals can learn when it comes to figuring out the root cause of quality problems in the organisation.

Accounting Accountability

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From Europe we learn of two stories with similar characteristics that tick all the boxes for classic Information Quality Trainwrecks.

 

From Germany we hear that due to errors in internal accounting in the recently nationalised Hypo Real Estate, the German National debt was overstated by €55 Billion (US$76 bn approx). This was doubly embarrassing for Germany as they had spent the last while criticising the accuracy of accounting by the Greek Government.

According to the Financial Post website:

In an era of austerity where their government has squabbled tirelessly for two years over a mooted €6-billion tax cut, Germans found it hard to fathom that their government was so suddenly and unexpectedly 55-billion euros better off.

The net effect of the error being found and fixed is that Germany’s Debt to GDP ratio will be 2.6% lower than previously thought.

The root cause appears to be a failure to standardise accounting practices between two banks who were being merged as part of a restructuring of the German banking system. This resulted in the missing billions being accounted for incorrectly on the balance sheet of the German government who owns the banks in question.

From Ireland we have a similar story of missing Billions. In this case a very simple accounting error resulted in monies that were loaned from one State agency (the National Treasury Management Agency) to another State Agency (the Housing Finance Agency) being accounted for by the Department of Finance in a way which resulted in €3.6billion being added to the Irish National Debt figures.

This (almost co-incidentally) resulted in a 2% misstatement of the Irish National debt. Also co-incidentally it is exactly the same figure as the Irish Government is seeking to reduce net expenditure by in its forthcoming budget.

The problem was first spotted by the NTMA in August of last year (2010) but, despite a number of emails and phone calls from the NTMA to the Department of Finance the error was not fixed until October 2011. For some reason there was a failure in the Department to recognise the error, understand the significance, or take action on it.

The Secretary General of the Department of Finance blames middle-management:

Secretary general of the department Kevin Cardiff said the error was made at “middle management” level and was never communicated up to a more senior level. He said the department was initiating an internal inquiry to examine the issue and would establish an external review to look at the systems and to put safeguards in place to ensure such mistakes were not repeated in the future.

Information Quality Professionals of course would consider looking at the SYSTEM, and part of that is the organisation culture which is in place in the Department which prevented a significant error in information from being acted upon.

Lessons to Learn:

There are a lot of lessons to learn from these stories. Among them:

  1. When bringing data together from different organisations, particularly when those organisations are being merged, it is important to ensure y0u review and standardise the “Information Product Specification” so that everyone knows what the standard terms, business rules, and meaning of data are in the NEW organisation and ACROSS organisational boundaries. Something as simple as knowing who has to put a value in the DEBIT column and where the corresponding CREDIT needs to be put should be clearly defined. Operational Definitions of critical concepts are essential.
  2. When errors are found, there needs to be clear and open channels of communication that allow the errors to be logged, assessed, and acted on where they have a material or significant effect. Organisational cultures where internal politics or historic arrogance lead managers to assume that the issue isn’t there or isn’t their problem ultimately result in the issue becoming bigger and more difficult to deal with.
  3. Don’t shoot the messenger. Don’t blame the knowledge worker. But ensure that there are mechanisms by which people can take accountability and responsibility. And that starts at the the top.

Zero Entertainment in Norway

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This story comes from our Norwegian Correspondent, Mr. Arnt-Erik Hansen (former IAIDQ Director of Member Services). We let him tell his tale in his own words, with only minor editing….

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Norway is the only country in the world, as far as I know, with full transparency with regards to personal income, wealth and state tax. One of the big Autumnal Entertainments in Norway is the annual publication of the list of taxpayers, their incomes, and the amount of tax they have paid. . Here you can search for your neighbor, your friends, enemies, public companies or government officials to find what their income was, how much they contributed to the state and how wealthy they are. On October 20, 2010 the list was published on the internet

Newspapers, TV, and blogs (including this one) find this a great event to generate stories.  Every year there are stories about the person earning the least and the most. Not only that, they compare a person’s income to the average income in the country, according to your age. They will even go as far as determining the street in Norway with the lowest average income. This is business intelligence on real live data.

However the Norwegian tax authorities are not immune to data quality problems. Here are some of the stories I read in the newspapers today (all online of course [editor: Links to the stories will be posted here soon])

A polish citizen, address in Polen and with a modest Norwegian income is reported to have paid more than 119’000’000 Norwegian Kroner (approx US$20.4 million, or €14.6million ) in taxes for 2009. As a consequence he can claim to be the biggest contributor to the state coffers. Thanks Polen, I am sure that someone will be there to collect the money soon.

This is of course wrong and the reason is, most likely, that someone punched in the wrong number – a number with too many zeros. We’ll call this “The Fat Finger Zero Error“.

Apart from errors in the data itself, there appear to be errors in the actual interpretation of the data. For example, a lady working as a cleaner got a tax claim of no less than 84’005’501 Norwegian Kroner (€10.3million or US$14.4million). Her income for 2009 was reported by one newspaper to be 324’000 (US$55,600, or €39,818) so this is an obvious error. Another newspaper reported her income to be 240’000.

A key question is: What has happened here?

The answer from the tax authorities when asked to comment on this was simply – errors happen, unfortunately, and will be corrected immediately. However, the reason was, most likely, that someone punched in the wrong number – a number with too many zeros. Well, seems that someone has a problem with zeros.

There is another story to come about the “Fat Finger Zero” error.  But first we need to share some insight into the tax reporting and collection process in Norway works.

It’s not too different to any other country. Except in Norway the State sends you your forms filled in with the information the tax authorities have about you and you simply have to sign them and send them back.  And, like most tax authorities, they most likely know more about you than yourself.

For instance, banks in Norway send megabytes of data about all customers and their accounts to the tax authorities. Which leads us to our third IQTrainwreck example in this story…

This year two banks managed to put zeros behind the customer account balances instead of in front for 500 customers.  So €00000500 became €500,0000.

A possible root cause: the definition of the attributes in the file has gone astray.

But from two banks?

Or was the requirement wrong?

It  seems that Norway has a problem with zeros.

Oh, almost forgot to mention – today the Norwegian State Fund was valued above the 3’000 Billion mark for the first time. That’s 3’000’000’000’000 Norwegian Kroner (US$514,610,220,303).

I think I understand the problems with zeros. (But how much of that is due to tax collection errors? – the sting in the tail for Norwegian tax payers is that if there is an error in their tax calculations they have to pay the decided amount and then are refunded the amount of any error).

PS! If you look up my name you will find income 0, wealth 0 and taxes 0. The reason: I lived in Switzerland in 2009 and in that country you are invited to pay taxes and it is not a criminal offence if you don’t tell the state everything.

Bank overcharging in Ireland (again)

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In a taste of the change of emphasis that is seeping through the global financial services industry, the Irish Financial Services Regulatory Authority is pursuing 24 cases of overcharging by banks and insurance companies, according to this morning’s Irish Independent

Of course, stories of financial services overcharging and other information quality disasters in that industry are not new to the IQTrainwrecks reader. Over the years we’ve covered them here, here, here, here, here , here, here, and here (to select just a few).

We’ve also covered the growing “hard touch” trend in Financial Services that is bringing a clear “cost of non-quality” to bear on banking/financial services processes (see this post from August of last year).

Why is this now an IQTrainwreck again?

  • Regulators are adopting a tougher line with banks about overcharging/undercharging (a bit like the regulators did in my former industry – telecommunications).

The new chief of the Irish Financial Services regulator is concerned about the number of overcharging cases and recently said that:

It is clear from recent cases that change is needed in how firms handle charging and pricing issues.

  • Financial services companies, facing into severe cutbacks in budgets and man power are potentially increasingly exposed to the risks of manual work arounds in processes simply stopping, end-user computing controls not being run,  and ultimately inaccuracies and errors creeping into the information they hold about the money they hold for or have loaned to customers.

As the regulatory focus shifts from ‘light touch’ to ‘velvet fist’, those financial services companies who invest in appropriate strategies for managing the quality of information in a culture of quality will be best placed to avoid regulatory penalties.

Perhaps they should have checked their listings twice?

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The Irish Sunday Independent reports this past weekend that the Irish State Broadcaster RTE is facing legal action from its erstwhile privately owned competitor TV3  arising from what are described as “significant and egregious” errors in the listings published for TV3’s programmes over the Christmas period in the RTE owned listing’s magazine “The RTE Guide”. The errors affect listings over the core Christmas period and also the time of one movie which is due to be broadcast tonight at 9pm but which is listed incorrectly in the Guide.

In a wonderful example which highlights the potential downstream cost and revenue implications of poor quality information, TV3 says the error is so serious that it could have a fundamental impact on its Christmas viewing figures.

And, in TV-land, viewing figures translate into hard-to-come-by-in-a-recession advertising revenues.

TV3 have asked for RTE to pulp all copies of the RTE Guide still in shops and to replace them with reprints which show the correct listings. Failing this, they have asked RTE to give prime-time advertising coverage on TV and radio to TV3 programmes over the Festive Season, which would have the effect of reducing the prime-time advertising slots which RTE would have already sold over Christmas, hitting RTE’s revenue streams as well.

RTE, for their part, blame a 3rd party supplier for the errors.

Of course, this writer’s thoughts are with the ultimate information consumers here… the viewing public. If my house as a teenager was anything to go by, the RTE Guide will have been used as the basis for negotiations about who gets to see TV ‘live’ versus programming the video recorder.

A while ago, Daragh O Brien wrote on his blog about the likely rise in Information Quality litigation, particularly as studies have shown that people become more litigious during a recession. This looks like one of those cases and it seems 2010 will be an interesting year for Information Quality management principles in Ireland.

Did you check on the cheques we sent to County Jail?

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Courtesy of Keith Underdown comes yet another classic IQ Trainwreck  which he came across on the CBS News.

It seems that up to 3900 prisoners received cheques (or ‘checks’ to our North American readers) of US$250 each, despite the very low probability that they would be able to actually use them to stimulate the economy. Of the 3900, 2200 were, it seems, entitled to receive them as they had not been incarcerated in any one of the three months prior to the enactment of the Stimulus bill.

However, that still leaves 1700 prisoners who should not have received cheques who did. The root cause?

According to CBS News:

…government records didn’t accurately show they were in prison

A classic information quality problem… accuracy of master data being used in a process resulting in an unexpected or undesired outcome.

While most prisons have intercepted and returned the cheques, there will now need to be a process to identify,  for each prisoner, whether the Recovery payment was actually due. Again, a necessary manual check (no pun intended) at this stage but one which will add to the cost and time involved in processing the Recovery cheques.

Of course, we’ve already written here about the problem with Stimulus cheques being sent to deceased people.

These cases highlight the fact that an Information Quality problem doesn’t have to be massively impacting on your bottom line or impact significant numbers of people to have an impact on your reputation.

Double Debits – directly. (Another banking IQTrainwreck)

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Courtesy of our Irish colleagues over on Tuppenceworth.ie comes yet another tale of poor quality information in financial services. Although this time it is at the lower end of the scale, at least on a per customer basis. However, the impacts on a customer are still irksome and problematic. And the solution the bank has put in place is a classic example of why inspecting defects out of a process is never an exact or value adding science.

It seems that Bank of Ireland has recently introduced some new software. Unfortunately, a bug in the software has resulted in certain transactions (deductions) being posted multiple times to accounts, resulting in cash-strapped Irish people being more strapped for cash than they’d expected.

Simon McGarr, (one of the authors over at Tuppenceworth) sums up the story and the reason why this is an IQTrainwreck:

I spotted a double charge on my account, for a pretty significant sum of money (is there any other kind?).

When I rang up to query it, I was told Bank of Ireland have changed their computer systems recently (Two weeks or so).

As a result, some transactions are being applied to accounts twice if they were processed through Laser [a debit card system in Ireland — ed.], or if they were a Pass machine [what the Irish call ATMs –ed.] withdrawal.

They say that if you spot the double charge, and ring them up to complain, they’ll send an email to their programmers to reverse the second charge.

I suggested to the polite customer services person that the bank might want to warn their clients to be alert for these double charges, as they could suffer additional charges (from appearing to breach their overdraft limits, for example) unless they spotted the bank’s mistake.

(Emphasis is added by this author)

Simon goes on to add (in a comment) that he has been without the benefit of his hard earned cash for 10 days (and counting).

Continue reading →

Microsoft Ex-Hell?

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Techcrunch, via The Register, tells us of an information quality error by a small software company based in Redmond, Washington called Microsoft. You may have heard of them.

It would seem that Microsoft has written to some of the former employees it recently made redundant to inform them that they’ve had too much money paid to them in their severance lump sum and demanding the money back.

Commenters over on The Register have  speculated as to the root cause, with a calculation error in Excel being flagged as the likely culprit. In  their letter, Microsoft blame the whole kerfuffle on “an administrative error”.  What’s that software that administrators use to make calculations on rows and columns of data on a computer? Continue reading →

Economic impact of Information Quality

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First off – an apology for not posting a bit more regularly. It’s not that there aren’t any IQ Trainwrecks, it’s just that there have been so many recently we’ve been spoiled for choice for the ones to use and we haven’t had time to edit and compile them all.

However, one that jumped out of the headlines this morning is the news that Her Majesty’s Revenue and Customs in the UK has shelved it’s home sales statistics report until September , “adding to concerns over the quality of official data which help inform interest rate policy at a time when the economy is teetering on the edge of recession” (according the the Irish Times).

Just what you need in a time of economic crisis – inaccurate and unreliable information to support planning or even measure how good or bad things are. According to the report:

City economists and even the Bank of England have been questioning the reliability of several official date series including trade, growth and retail sales.

Apparently, inconsistencies were found between statistics to published this month (August) and last month. According to the HMRC spokesperson quoted in the article:

“All months in the statistical series are affected, with the differences showing falls in some months and increases in others. We are working to understand the reason for these differences so that a reliable set of statistics can be produced.”

Interestingly, from an Information Quality perspective, one of the main groups that ‘consume’ this information don’t seem to be surprised by the existence of errors but rather by the fact that the report has been withdrawn.

The article highlights a possible root cause of error:

“The ONS, which is also replacing its main measure of wages because it was found it did not capture the true picture, relocated from London to Newport in Wales this year in a move to cut down on costs – leading to a large number of staff changes “

Why is this an IQ trainwreck?Absence of timely and reliable information about economic performance affects the ability of the government to plan and manage economic policy to manage the impacts of an economic down turn and avoid more serious difficulties for individuals.