If You Only Have a Hammer Every Problem Looks Like a Nail!

by Frank Franiak

August 26, 2020


There is an aphorism that states “if you only have a hammer then every problem looks like a nail”.  Psychologists call this the Law of the Instrument1 which refers to the tendency to adapt a task to the tool at hand rather than finding the tool which is best suited for the task.

This is often seen in the business world with the use of spreadsheets.  Spreadsheets are very flexible and can be used for almost any task involving data. They are used for financial modeling, to store and sort data, track important information, develop budgets and create charts. The list is almost endless.

So it’s not surprising that many attorneys, professional trustees and even some trust organizations use spreadsheets to produce accounting reports for trusts. (The other tool that is frequently used is Quickbooks which we will cover in a future post.)

On a certain level this makes sense. Most people know how to use spreadsheets and they are already installed on almost every computer. There is little or no incremental cost in terms of time and money.  But ease of use comes with a less obvious cost in the form of risk for the trustee.

Trustees can incur significant legal and financial risk if their accounting is incorrect. The California Bar Association’s Handbook for Trustees2 cautions that “if you agree to hold money in trust, you take on a non-delegable, personal fiduciary responsibility to account for every penny as long as the funds remain in your possession.” It goes on to say, “Failure to live up to this responsibility can result in personal monetary liability, fee disputes, loss of clients and public discipline.”

If there are a small number of simple trusts a spreadsheet can be a viable solution – if the trustee has good quality control procedures. However, when there are many trusts or the trusts are more complex, spreadsheets are inefficient and possibly dangerous.

Typical problems include the following.

  • Most spreadsheets develop errors over time –  Numerous studies show that most complex spreadsheets are riddled with errors. Both KPMG and PwC have reported that roughly 90% of all spreadsheets used in business contain errors.  A study conducted by the University of Hawaii found that 88% of all spreadsheets contained errors.  The problem is so bad that the European Spreadsheet Risk Group3 (EuSpRIG) was founded to address the problem of spreadsheet integrity.
  • Not good for high volume – As the number of entities increases, spreadsheets become cumbersome and inefficient. We have spoken to several trustees who have difficulty getting reports out on time because of this inefficiency.
  • Need for frequent adjustments as things change – Whenever the trust has a significant change (i.e. – makes a loan), the spreadsheet needs to be altered to accommodate the new situation. This is one of the reasons why there are so many errors in spreadsheets and they often become a sort of Rube Goldberg contraption.
  • Transaction processing for marketable securities – If the trust is large and has many marketable securities, it is advisable to independently value the portfolio instead of relying on the statement from the broker or custodian. Spreadsheets are not designed for this task.
  • Version control can be a problem – If multiple people work on the file then version control can be a problem. This can also be problem when data is coming in from multiple sources at different times. Unless you are well organized you may not know which version has the most accurate and complete data.
  • Often only one person can operate the spreadsheet –  Spreadsheets can be idiosyncratic.  Frequently, the only person who understands the intricacies of a workbook is the person who created it. If that person is unavailable it creates problems for the trustee.

A better approach involves the use of a reliable accounting system designed for trusts.  While a trustee also needs experienced people and effective quality control procedures, a good trust accounting system will:

  • be free of embedded errors;
  • have the ability to handle volume;
  • be able to deal with complexity;
  • easily adapt to changes; and
  • accurately value securities transactions.

Most good accounting programs are updated automatically to accommodate industry developments in a systematic way. A change to the system is immediately rolled out to all users and accounts.  With spreadsheets, it is necessary to change each workbook. And version control is never an issue since the data in the system always reflects the most current (and only) version of the data.

Trust accounting systems are not idiosyncratic so while it takes longer to train an employee on a system, once trained they can use it for any trust.

Unfortunately, these benefits do not come without costs and challenges.  It takes time and effort to find the right system, systems cost money and require specialized training for your employees. There is a learning curve that must be climbed to acquire proficiency.  It’s possible your staff will never be proficient if they don’t have a strong accounting background.

A good alternative is to outsource the accounting to a firm that has the right systems and people. Along with all the other benefits of outsourcing, there is a good chance you can save money due to the efficiencies that come with scale. By spreading costs over many trusts, the expense of the systems and people per trust can be greatly reduced.

While spreadsheets can be a viable option for simple trusts at low volumes, they can be inefficient and risky for complex trusts or a large volume of accounts. A better approach is to employ an accounting system designed exclusively for trusts or to use an outsourced solution.


Frank Franiak is the President and CEO of TriPacta Financial Services LLC (tripacta.com), a Schaumburg, IL based firm that provides outsourced accounting and administration services to trustees, trust companies, individuals and family offices. He can be contacted at ffraniak@tripacta.com or (224) 212-9183.



  1. “The law of the instrument . . . is a cognitive bias that involves an over-reliance on a familiar tool. As Abraham Maslow said in 1966, “I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.” https://en.wikipedia.org/wiki/Law_of_the_instrument
  2. Handbook on Client Trust Accounting for California Attorneys. http://www.calbar.ca.gov/Portals/0/documents/ethics/Publications/Portals0documentsethicsPublicationsCTA-Handbook.pdf
  3. http://www.eusprig.org/index.htm