Home Blockchain How Blockchain checks for financial fraud within companies

How Blockchain checks for financial fraud within companies

0
How Blockchain checks for financial fraud within companies

Over the past two decades, accounting scandals have cost businesses and investors billions of dollars. Enron scandal (2001), Lehman Brothers (2008), Satyam scandal and many others have caused huge losses to businesses and individuals.

According PWC Global Economic Crime and Fraud Investigations 2022, asset misappropriation – or insider fraud – was one of the top three financial frauds after cybercrime and customer fraud in a business. The larger the organization, the higher the risks of asset misappropriation.

The survey further showed that asset misappropriation accounted for about 24% of the three types of fraud in a company the size of a company with revenues between $1 billion and $10 billion. This type of fraud reaches 31% in companies whose turnover exceeds 10 billion dollars. In terms of sectors, the government and public sector account for approximately 33% of asset misappropriation cases, followed by retail and consumer (31%) and industrial manufacturing (28%).

Companies spend millions to secure the system against outside cyberattacks (32%), which is only 1% higher than insider fraud (31%), but have done relatively little to control fraud committed by outsiders. initiates.

It is very difficult to ensure that the data has not been modified, replaced or manipulated by a company or its employees. We often assume that data is accurate through techniques such as private keys and user permissions. However, we are unable to demonstrate formally or mathematically that the data included in a typical application database is absolutely tamper-proof. Our next, and perhaps most expensive, line of defense is audit.

How can we really protect a company from an insider attack?

Immutability: If you can’t change it, you can’t cheat it

Blockchains are designed to resist data modification by design. A blockchain can function effectively as an open, distributed ledger that can efficiently and permanently record transactions between two parties. Blockchain can also be used to verify transactions that have been flagged. Using the technology, auditors could simply confirm transactions on easily accessible blockchain ledgers rather than requesting bank statements from customers or contacting third parties for confirmation.

Blockchain technology achieves this immutability by matching cryptography with blockchain.

Each transaction that the blockchain network deems valid is timestamped, embedded in a “block” of data, and cryptographically secured by a hashing operation that links and integrates the hash of the previous block. This new transaction then joins the chain as the next chronological update progresses.

Metadata from the previous block’s hash output is always incorporated into the process of hashing a new block. Since subsequent blocks in the chain would reject any attempt to modify the data after they were authenticated and added to the blockchain (since their hashes would not be valid), this crucial step in the hashing process makes the chain “unbreakable”. In other words, the blockchain will crash if the data is tampered with, and the cause will be obvious.. Traditional databases do not have this functionality; there the data can be easily added, changed or deleted.

The blockchain essentially serves as a time-stamped record of facts. These Bitcoin statistics include details regarding transfers between addresses.

Blockchain-based ledgers can ensure that an application has a complete history and data trail because once a transaction is added to the blockchain, it remains there as a representation of the ledger until at this moment. By simply recalculating block hashes, the integrity of the chain can be verified at any time; if there is a mismatch between a block’s data and its corresponding hash, transactions are invalid. This allows businesses and industry authorities to quickly identify data manipulation.

Boon for audit companies

Currently, a low value transaction on the blockchain takes around 10 minutes to be verified as only one block verification is deemed necessary. Related transactions are more immutable further down the chain, or how many blocks must pass before a transaction is considered committed. Typically, verifying a high-value transaction takes about an hour (6 blocks).

Compare this to conventional financial transactions, where information clearing can take a month or more. The audit process can be impacted by this blockchain functionality for pseudo real-time verification. Auditing companies will be able to carry out continuous assessments online during the audited period rather than year-end or interim assessments.

This technology appears to be an infallible system that can permanently change the financial system and check for internal and external fraud.

LEAVE A REPLY

Please enter your comment!
Please enter your name here