Understanding the impact of data integrity issues in finance

Can you spot the wolf hiding among the sheep in Figure 1.1? In finance, the presence of data integrity issues can be compared to a wolf hiding among a flock of sheep. Much like the wolf presents a hidden threat to the sheep, a single data integrity issue can negatively impact the entire financial system’s reputation and stability.

Figure 1.1 – A wolf hidden among sheep

The wolf symbolizes the subtle yet potentially catastrophic effects of a data integrity breach. While data integrity issues such as corrupted financial records, inaccurate reporting, and duplicated transactions due to software bugs might initially go unnoticed, they might cause serious financial losses in the long term. That said, the inability to manage data integrity issues properly can lead to a wide range of implications on the integrity of financial transactions and systems. Let’s look at these in the following subsections.

Lack of trust in systems

In order to properly make informed business decisions based on reports and numbers, the financial data used for the reports needs to be as accurate as possible. When decision-makers encounter discrepancies in the reports generated using the data stored in an organization’s internal systems, they lose their trust and confidence in these systems and databases.

At the same time, when customers encounter inconsistencies in their financial statements, accounts, or transactions, they lose trust in the financial institution’s ability to manage their accounts and personal data effectively. This not only damages the institution’s reputation, but it also leads to the loss of customers. That said, taking care of the integrity of financial data is essential not only for internal decision-making but also for securing customers’ trust as well.

Damage to reputation

If not addressed, data integrity issues can significantly harm an organization’s reputation after an incident. Continuing the story where the bank’s customers were affected by erroneous duplicate transactions, even if the data integrity issue was resolved after a few days, there were a lot of social media posts from customers wanting to move their accounts to another bank.

Important note

Unfortunately, all it takes is a single incident to negatively impact the trust and confidence customers have in a company that it has worked hard to build over a long time.

Financial impact

Data integrity issues can lead to errors and discrepancies in financial reports and documents that detail an organization’s financial performance and position. This in turn could negatively impact the organization’s revenue and income.

Note

In Chapter 2, Avoiding Common Data Integrity Issues and Challenges in Finance Teams, we will discuss how a transaction coding error in one of the world’s biggest banks failed to capture the complete threshold transaction reports from its intelligent deposit machines (IDMs), which led to significant financial penalties for the company.

Compliance issues with laws and regulations

In addition to what has been discussed already, data integrity issues can lead to compliance issues with global laws and regulations that have been established to counter fraud and improve the reliability of financial reporting. Included in this list are the Sarbanes-Oxley Act (SOX), Basel III, and even the General Data Protection Regulation (GDPR), all of which mandate strict data management and protection standards to ensure integrity, transparency, and accountability in financial practices. Non-compliance with these regulations can result in significant financial penalties that can negatively impact an organization’s financial health and public image.

At this point, you should have a better appreciation of why financial data integrity management is important. In the next section, we’ll discuss various concepts relevant to data integrity management to prepare us for the succeeding chapters in this book.