Introduction
Organizations and firms perform periodic auditing of their account to ensure that finances are being handled correctly. No matter how large or small their size, auditing helps to keep finances in proper check. If there are inappropriate expenditures or undocumented receipts, an auditing team would make reports and ask questions. The finances of each organization need to be balanced and that is an important work of auditors.
Every organization has their time frame for performing periodic audits. Some do so bi-monthly, quarterly or bi-annually. While audits help to correct irregularities, there are huge finance problems that could be avoided if audits are performed as soon as transactions are completed. This is known as real-time auditing.
Real-time auditing is super expensive and that is why many organizations go for periodic audits. To adopt a real-time audit in traditional sectors, an organization will more or less always have auditors as part of the team. I think very few organizations would have that deep pocket to finance the continuous auditing project. But then, there are benefits, which is why blockchain technology could be adopted to reduce the cost of real-time auditing. First of all, consider the benefits of real-time auditing.
Real-time auditing is crucial
There are many reasons an organization would consider real-time auditing. take a look at the following two:
- Identifying finance anomaly as they happen: One thing about periodic audits is that issues are detected after the damage has been done. A real-time-time would allow time for financial damages to happen. Each each could be singled out immediately after some financial transaction has been concluded.
Consider for example the issue of embezzlement of public funds. It happens gradually. Perhaps with each purchase, remitting or other transactions, funds could be diverted into personal account. Such a situation might exist for a long time and go undetected until an audit is performed. A real-time audit would not allow the thief time to perpetuate his actions. Each transaction is audited immediately after it happens and any irregularities would be identified and appropriate quarters would answer for such.
A lot of huge financial wrongdoing would be stopped in its tracks if audits happen in real-time. Embezzlements, inflated figures, receipts, undocumented spending, missing funds and many other financial irregularities would be picked up transaction by transaction.
- Efficient risk handling: Once issues are identified as they happen, it helps the management to take appropriate steps in future transactions to prevent the occurrence of situations that led to some financial loss or risk. Real-time auditing promotes prompt action on the part of all the parties involved.
When a situation is identified after a transaction and audit, the team or management springs into action to determine what really transpired. After isolating the issue, they proffer solutions to it. That solution might mean changing personnel that is not efficient, changing the way funds are managed or even replacing partners that are making the finances go wrong. These are things that happens promptly and prevents future occurrences of the same issues.
The above are just two advantages of letting audits work in real time. Of course there are many other benefits such as having a regular watchdog to ensure that finances are handled correctly at all times. So how could blockchains help to implement a real-time auditing strategy?
Blockchain features for real-time auditing
The blockchain, an aspect of web3 has many features that really suits the job of auditing in real-time. Consider how some of the following features would enhance the job of auditors in real-time:
1. Blockchain transactions happen in real-time
One of the problems of auditing in real time is how to get the financial records in real-time. It is nearing difficult to assemble all finance and purchasing records from all the departments of an organization each time a transaction happens. This is the reason most organization prefer periodic audits. But with blockchain technology, this is very possible.
Blockchain transactions are recorded immediately they happen. So that means auditors would have all the finance documents, records or transactions needed to do their job. They can even work remotely as the blockchain is powered by the internet. So each time a transaction is pinged on the network, auditors are alerted and they spring into action. This way, they wont struggle to gather finance records as they are available online, in real-time.
2. Integrity of records with blockchain immutability
Another important issue when audits are done is the authenticity of financial records. If there are bad actors in a system, they try to manipulate records and figures to cover their tracks. If auditors rely on fraudulent records to do their work, they result will really not reflect the finances status of the organization. But with blockchain records, there are no such fears.
The blockchain is an immutable ledger of records worthy of trust. By design, any data stored on the blockchain cannot be removed or edited in any way. There is this consistent feeling that blockchain records are usually an absolute source of truth. All an organization needs do is to move their transactions to a blockchain platform. All original records are directly entered or stored on the blockchain, making it difficult for any manipulators to try their tricks.
So if an organization wants to main an authentic record of all finances, they need to move all transactions to the blockchain. This way, auditors would have reliable finance data to work with in real-time.
3. Blockchain transparency is great for auditing
One amazing feature of blockchains built for auditing is transparency. All transactions are open to everyone on a public blockchain. For real-time auditing, that is an awesome tool. Auditors could see how and when transactions are done and the parties that are involved. For them, it is an opportunity to identify trends and irregularities. And since they do not have loads of data to work on, it would be far more easier to spot irregularities once they happen.
For example, if there is a regular payment that suddenly had a higher figure, that could easily be questioned. Or if a strange transaction which should not be there sprung up, that could easily be dealt with.
For users or teams in the organization, the open blockchain should be their first deterrent for criminality. When transactions are not made public, it is easier for bad actors to do fraudulent transactions and later cover their tracks. But when everything is open in a blockchain, everyone is very careful because their actions are being watched by all and verifiable too.
Even if someone in the organization wants to do anything illegal, they will remember that it is open to the public for scrutiny. That will push them back against taking such steps. So the transparency of the blockchain makes the job of real-time auditing easier and efficient.
Finally
Organizations and teams need to adopt a proactive step towards finances. Damages should be limited to the barest minimum if not eliminated. Real-time auditing makes it possible to spot irregularities in financial transactions and address them before it is too late.
For traditional systems, real-time auditing might prove more expensive than could be sustained. But with a blockchain-based auditing tool, an organization could leverage the features described above to ensure that finances are checked as they happen.