August'22

Improve Auditability Using a Blockchain Platform

Auditability and transparency are considered the two main pillars of good corporate governance. Auditability enables an organization to comply with various internal processes and country/state-specific regulations, quantify its sources of revenue and cost, and adhere to an established code of conduct and transparency improves trust and performance. An auditor is appointed to check various sources of the transaction and the chain of events performed by multiple stakeholders to ensure compliance with established policies and processes.

Challenges Faced During Audit

As the organizations operate in silos and have disparate systems, the auditors face challenges in aggregating the information from various artifacts such as emails, document repositories, process manuals, quality check certifications, and various internal applications required for their analysis, ensuring compliance.

Challenges Faced During Inter-Organization Audit

In today's world, where multiple organizations are involved in the entire value chain, it increases the complexity while conducting the audit. All business entities/organizations across the value chain have their own processes, internal applications, and technologies, and information is not shared transparently with everyone. Getting access to various applications, emails, artifacts, and documents such as purchase orders, delivery receipts, invoices, payment confirmation, taxes paid, and other miscellaneous items is a herculean task, and there any many roadblocks in collecting information from a diverse group of business entities/organizations.

In case there is any dispute between organizations, the  challenge to resolve the dispute becomes even bigger as the assigned stakeholder (auditor) from each organization needs to collaborate, tons of emails, and document proofs are exchanged. Even after that, sometimes the disputes are left unresolved.

In addition, there is an increasing demand from government institutions / regulatory bodies, where they seek cooperation from all partner organizations to equip them with better reports and proof of transactions. Organizations spend a lot of time, money, and effort addressing an auditor's needs.

Example

Let us consider the business case of freight transportation (figure 1 below), where the buyer places an order, which a supplier fulfills, and a carrier delivers the goods at the desired location. Conventionally, each organization would have its internal auditor, internal technologies, applications, and audit results would be confined to actions performed by a specific organization. However, if there is a need to audit certain transactions across organizations, it is extremely difficult, given the  organizations and their systems are disjointed and not completely interoperable. In the above-stated situation, it is a huge task for any designated auditor to validate the entire transaction chain (right from raising an order to its fulfillment).

Figure 1

Blockchain Platform Solves the Complexity

Blockchain facilitates intercompany interaction and collaboration amongst stakeholders providing them a single consistent view. The inherent properties of a shared ledger, immutability, and transparency, enable a designated auditor to access a single application where a common repository for all artifacts produced by each organization is available, acting as a single source of truth (figure 2 below).

Now when an auditor (could be someone from a government institution as well) looks at such a platform, all data points, artifacts, actions, and events performed by each business entity/organization are available in a single place. This enables an auditor to provide valuable insights not only to a specific organization but to the entire group of organizations to improve efficiency, and remove bottlenecks, eventually helping to bring cumulative prosperity. The dispute resolution rate is much faster as compared to conventional dispute resolution, and eventually, it saves time, money, and effort across the value chain.

Figure 2

DL Asset Track™ is a permissioned blockchain platform with roles named internal auditor and external auditor, which allows the auditor to have a consolidated view of information across various instances, events, actions, and transactions between business entities/organizations.

Salient Aspects

• Create a user and provide basic information such as name, email, contact, address, preferred language.
• Configure whether the user would be an internal auditor or external auditor.
• Internal auditors can also help in dispute resolution amongst business entities/organizations.

Steps

Create an auditor user

1. Create an auditor user.
2. Select its type, i.e., internal auditor or external auditor.
3. Enter mandatory information such as name, email, contact, ID proof, address.
4. Save the information.
5. The user needs to verify the email to become active on the platform.

Please find more information here.