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Could blockchain technology prevent a future ‘Steinhoff’?

How bad can Steinhoff’s record-keeping be?

As time drags on, Steinhoff dribbles unhelpful titbits of news to anxious shareholders, bondholders, investors, employees and pensioners. Apart from the apparent complex deals that the independent investigators, PwC, are finding challenging to unpack, how bad can Steinhoff’s record-keeping be?

The auditors are presumably scrutinising contracts, agreements, tracking transactions, sifting through emails, and ferreting out possible under-the-table deals with co-conspirators. Complex transactions can cut across borders, and flow through different jurisdictions in the flash of an eye. It is all very well being in possession of paper trails and documents, but have the auditors managed to obtain details of the deals that they don’t know exist, which can have an important bearing on establishing and verifying the real figures? And how do they go about identifying all those who have helped create this massive accounting scandal?

The auditors will also be banging their heads on their desks in frustration when a trail dies a sudden death. This can easily be accomplished by interposing special vehicles into a chain of transactions. These are for example trusts, partnerships, or entities with peculiar characteristics which create an impenetrable barrier to prying eyes.

An accounting system is based on various components that rely on checks and balances, for every debit there must be a credit. However, these need to be cross-checked with supporting documentation and evidence. There is a large reliance on human intervention to make original inputs, and process entries. Much can be done with journal entries. In my previous life as a tax auditor I was able to scrutinise printed ledgers, and it is surprising how anomalies pop up. Today an auditor’s job is more complex as they have to audit digital entries. This requires the necessity for a computer-literate auditor to check the integrity of the computer operating system to identify software tools that manipulate or hide data, for example sales suppression software.

Blockchain technology has the potential to change this, or at least, assist the auditor in tracking and verifying transactions.

With blockchain technology, all transactions, including contracts, payments, agreements, and records, will have a digital code which cannot be deleted or altered. These are held in an allegedly unhackable, decentralised database. The existence of assets will be verified before a transaction takes place. On a cynical note, hybrid and synthetic transactions will still take place. For example, where it appears that a company has sold an asset, but in substance it is merely out on loan. One would hope that these nuances will be contained in the digital footprint.

With blockchain transactions, entries receive a digital imprint and leave a digital footprint in every step. It will not be possible to change core information, and files will not be able to be manipulated. All transactions can be viewed and monitored in real time. All participants will have an identical copy. The cost saving for accountants will be enormous, particularly in areas of cross-checking, reconciliations and calculations.

Barclays initiated its first blockchain transaction in 2016, utilising a blockchain platform set up by Wave. Not only was the time taken to process the transaction significantly reduced, all the original documents were cryptographically sealed and transferred via the blockchain.

Many experts refer to blockchain technology as being disruptive. However, in an article published by the Harvard Business Review, The Truth About Blockchain, the authors Marco Iansiti and Karim R Lakhani advance the theory that “Blockchain is a foundational technology: It has the potential to create new foundations for our economic and social systems.”

In a world where technological change is increasing at an exponential pace, it is possible that widespread use of blockchain technology will be sooner rather than later.

While the audit of Steinhoff stumbles on at a snail’s pace, it is tempting to imagine a world where every transaction can be instantaneously verified at the gentle touch on a screen. Unfortunately though, blockchain technology will not be able to embed an ethical footprint into the dishonest who will find ways of manipulating the system.

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Thanks for the article. It’s worth pursuing Blockchain the potential linkage between Blockchain technology and the encouragement of ethical behaviour. Now that would be truly disruptive. Even foundational.

Get Marcus & Co to supply the “codes” needed to unravel this “Corruption”, if they don’t/can’t supply it, keep them in jail till it is sorted, check how fast they will “sing”

This part I don’t get, how will a company that owns all their resources be able to have decentralized databases. Blockchain has become a big buzzword, however its biggest dependency is having multiple proper decentralized databases, without that, all the benefits fall flat. So I’m curious how they are implementing this “These are held in an allegedly unhackable, decentralised database.”, that sounds like there is only one database, which is another flaw. The only reason things like Bitcoin work is because of all the “databases” that contain the blockchain and can verify every transaction. Without multiple decentralized copies of the data, there is no point in adapting blockchain.

So having one decentralized database that is controlled by the company, it would still be possible to build a new blockchain with the altered data and replace the original blockchain in the “decentralized database”, “unhackable” doesn’t mean no one has access to it.

For years auditors and regulators have been in search of a magic “fountain of probity” that will prevent fraud and protect the unwary.

For years they have failed and “caveat emptor” prevails.

Following Enron, the regulators went crazy yet we had Madoff, “2008”, the “PIGS” crises and “Steinhoff”. In a bid to plug the gap, regulators have vomited up a host of accounting and auditing standards yet — well let’s not anticipate SAICA’s and IRBA’s investigations into KPMG.

One could argue that the seeds of Corruptheid were sown during apartheid with crimes-against-humanity legislation & administration as well as sANCtions-busting but it really took off after 1994, admittedly with private sector greed attitudes imported.

As the beneficiaries of the Ratanang Trust, On Point Engineering, Tigron, Estina, Nkandla, Prasagate, Eskom, the coming Dubaigate etc have shown, skelm minds circumvent controls not matter how “watertight”. What is needed is a genuine moral revival, not a Zuma-Ramaphosa spin but a genuine change in SA’s materialistic attitudes, including the Communists and EFF who drive BMWs while preaching EWC and WMC.

Sadly the best defence is to diversify and maintain a skeptical attitude — caveat emptor (“if it looks to good to be true, it probably is). An educated electorate is also a longterm check.

Nice comment.

Yes Caveat Emptor (actually just a mind trained in critical thinking) is a better defence.

Not all the rules and regs. will be worth more than SBA to anybody other than greedy SAICA graduates. If rules and regs. were worth anything there would be no crime in the good ole USA.

All I can say about BLOCK CHAIN is take those responsible for this theft out in chains and put their heads on a block – cut them off as a lesson to others who try to perpetuate theft from shareholders and investors who invest in good faith against the information they assume is true.

I think that blockchain technology could prevent future ‘unethical banking and usury practices’ and could help bring back the ‘intrinsic money option’.

“Fiat money is a currency without intrinsic value established as money, often by government regulation. It has an assigned value only because the government uses its power to enforce the value of a fiat currency or because the exchanging parties agree to its value.[1] It was introduced as an alternative to commodity money and representative money. Commodity money is created from a good, often a precious metal such as gold or silver, which has uses other than as a medium of exchange (such a good is called a commodity). Representative money is similar to fiat money, but it represents a claim on a commodity (which can be redeemed to a greater or lesser extent).[2][3][note 1]

The first use of fiat money was recorded in China around 1000 AD. Since then, it has been used by various countries, usually concurrently with commodity currencies. Fiat money started to dominate in the 20th century. Since the decoupling of the US dollar to gold by Richard Nixon in 1971, a system of national fiat currencies has been used globally, with freely floating exchange rates between the nations currencies.”

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