The problem is indeed huge as Pope’s article makes clear: “Research by Crowe, a financial-advisory firm, and the University of Portsmouth, in England, suggests that fraud costs businesses and individuals across the world more than $5trn each year. That is nearly 60% of what the world spends annually on health care.”
Whilst whistleblowers undoubtedly have a part to play in the fight, the fact that the problem is so large indicates that they and others such as auditors and interested stakeholders need better tools.
Triple Entry Accounting (TEA) by Pacio is the answer. TEA replacing the 500 year old double entry accounting system makes it harder to commit fraud in the first place, then easier to detect if still perpetuated by inter party collusion, and finally makes it impossible for the criminals to hide the evidence, as TEA keeps an immutable third record of inter entity transactions on a scalable distributed ledger.
TEA can help to greatly (90%+) reduce the scourge of fraud, and we propose, in so doing will become the killer use case for DLT (distributed ledger technology) or blockchain technology.
Pacio sees introducing TEA as a better means of fighting fraud than encouraging more whistleblowers. With TEA, fewer whistleblowers would be needed, and where fraud does still happen and a whistleblower reveals it, the whistleblower would be able to provide clear cut, incontestable evidence in support of their exposure.
TEA is a central part of the Pacio Vision. The Pacio White Paper describes what TEA is, how it will be implemented, and how it will be scaled to become the new world standard for accounting and business management, hugely reducing fraud in the process, contributing towards $5 trillion in economic good for the world.
In recent years, traditional business bookkeeping methods have come into question because of their deficiencies. The advent of a concept of shared or distributed ledger systems offers a potentially better solution. However, shared ledger systems and their potential remain underresearched. Thankfully, and with Pacio’s input, this is changing.
Accounting and management researchers Ibañez, Bayer, Tasca, and Xu who are associated with the Centre for Blockchain Technologies at the University College of London, have created a landmark study on Triple Entry Accounting and Blockchain technology. Pacio’s CEO, David Hartley, contributed to the study regarding the company’s work on building the first scalable Triple Entry Accounting (TEA) solution.
The study recounts the invention of double-entry accounting in the 15th century and points out that accounting has continued this way since then. Says the study: “However, a second revolution took place between 1982 and 2008, and it has been rather overlooked. Shared ledger systems emerged as a fruit of this revolution. One prime example of these systems is triple-entry accounting, or TEA.“
“This is the first comprehensive study of its kind,“ says Pacio’s Hartley. “It puts the spotlight on the issue that accounting has not yet caught up with the needs of a rapidly changing economy.”
Double-entry, or legacy, accounting has three main problems:
It is easy to commit fraud since transactions can be altered or obfuscated. In 2018, there was an estimated $4 trillion in corporate fraud alone.
A complex and expensive system of ‘trusted’ regulators and auditors is required to try to keep things honest. Yet these systems often fail due to chance (sampling methods) and the lack of complete, verifiable detail.
The financial reporting systems built on double-entry accounting often offer little insight on how to make better business decisions, usually only delivering results long after the event.
Triple Entry Accounting solves these problems:
The financial transactions recorded in a distributed ledger, accessible on an as-needed basis to both parties involved and their auditors or regulator as required, are immutable. Once made, the transaction records cannot be altered. That makes fraud by alteration afterwards impossible. (Fraud by obfuscation where both parties are involved in the crime is not prevented, but that is made easier to find and expose.)
The availability of immutable records accessible to all interested parties dramatically reduces the need for trusted third parties. Auditing does not need to be a statistical process based on samples – it can be automated and involve 100% of transactions, providing far better confidence in the data.
The availability of all data, verified in real-time, allows active, intuitive reporting and systems to provide management help when it is needed – as things are happening.
There is one major hurdle to overcome for a global TEA solution. Until now, no technology could guarantee decentralized security for a distributed immutable transaction ledger system at the scale required to handle world needs of hundreds of thousands of transactions per second. That has made TEA a challenging undertaking for the global market.
“However, Pacio is developing a transactional system to overcome that limit of scale.” says Hartley. “We will ship that and supporting systems over the coming years and hope to make a good case for the global ascendancy of Triple Entry Accounting, to finally replace the five-century old double-entry accounting system.”
The world’s leading tourism corporation filed for liquidation after years of accounting malpractice. A new accounting technology might have prevented that.
On June 9th 1841, Baptist priest Thomas Cook set out to walk from Market Harborough to Leicester (15 miles) to attend a Temperance Society meeting in the town. On route, an idea occurred to him:
“A thought flashed through my brain – what a glorious thing it would be if the newly developed powers of railways and locomotion could be made subservient to the promotion of temperance”
For the next abstinence rally, Cook shipped 500 teetotalers for the price of 1 shilling each to Leicester. Thus, professional tourism was born. For the next 170 odd years the company of the same name went the extra mile to find and claim the most exotic destinations. With that antecedent, the irony cannot be lost that Thomas Cook has now declared bankruptcy for not finding the truth in their accounting.
Company out of control
The largest British repatriation since Dunkirk in WW2 brought back 150,000 stranded tourists. They will find no quantum of solace in the afterthought of the UHY Hacker Young Manchester’s corporate finance partner Adnan Sajid: “It is obvious there has been no financial control in that company for some time. Looking at the books, you can see a litany of accounting failures.”
As Sajid told AccountingWEB: “This is a two-to-three-year problem, and they should have come to the experts a long time ago.”
While both shareholders and customers of Thomas Cook didn’t bank on the company’s financial failure, this does not come as a surprise for the Head of Financial Management at Berlin’s Steinbeis University Keith Cleland: “Today’s accounting does not deliver accountability. It never has – accounting was codified in the 15th Century to allow trade. The practice has never really changed while the economy is moving at an ever-increasing pace.”
Hard to cheat when everybody’s looking
On a technical level, current double entry accounting standards have two major drawbacks: The corporation’s finance department has complete control over its own accounting data until the day it is audited. This makes it easy to cook the books and difficult to audit. 84% of economic fraud perpetrators are employees and the companies are the victims. Even executives often have no insight into their own finances.
“All insights usually happen on an ex post facto basis,” explains Professor Keith Cleland. “Today’s business data methods cannot deliver real-time insights. The necessary metrics are usually not even collected. Executives are always at least a quarter and more often years behind.” This explains why, according to AccountingWEB, Thomas Cook tried to “secure a further £200m in funding” in “Eleventh-hour talks.” They just didn’t know until it hit them.
Immutability as the technology of the decade
However, there is a burgeoning new standard on the horizon in the form of Triple Entry Accounting (TEA). In regular accounting, an invoice exists in ACME Ltd’s book as credit and in Widget Corp’s as debit. Both books are private until audited which makes it difficult to check. Triple Entry Accounting adds a third book which is controlled by an independent third party. ACME adds her invoice to the third ledger and puts a timestamp on it that cannot be changed anymore. Widget acknowledges the invoice. The data is now immutable and thus very difficult to manipulate.
“The idea of TEA has been around for about 20 years,” says David Hartley, CEO of TEA-maker Pacio. “But only now does the technology exist to create a decentralized, secure, transparent and immutable ledger.” The technology in question started with Blockchain but has now moved on to securer, cheaper and faster protocols.
There has been no working TEA system in use until today. “We are now scaling the last mile: to have secure immutability and be able to handle the enormous amount of 500 billion global invoices per year,” explains Hartley.
How would that have helped Thomas Cook? “I imagine that the executives and auditors of Thomas Cook had an inkling that their finances went into the wrong direction,” concludes Professor Cleland. “With Triple Entry Accounting and following better metrics everybody would have seen the iceberg when there was still time for somebody to hit the alarm and change course.”
Before you finish this article, you will have fallen in love with double entry accounting, mourn its failing and rejoice with us in saving the world up to $4 Trillion in losses due to fraud.
The Notting Hill Carnival is one of London’s most colourful annual events with hundreds of dancers and many thousand spectators. It’s also a time of overboarding indulgence leading to 454 arrests for petty theft or public nuisance in 2016. But the biggest Carnival-related crime did not happen on the streets of Notting Hill. It was performed in the shadows of the organisers accounting books. Thirty-five-year-old Nadia Chase Ali, financial officer of the charity connected to the Carnival siphoned off £784,262.85 by creating a spectacular amount of 530 invoices and subsequent payments to her account. She was able to operate for three years before being detected. Considering that the charity has annual expenditures of only £1.7 Million she was able to steal a sixth of the overall business volume. Ali was caught and handed a six-year sentence but that is only one is about 25 fraud cases to be solved.
To understand how this could happen, remain undetected for so long and that we are one step away from the solution for this Trillion Dollar fraud industry, we have to go back in time. Way back.
Perhaps the most important book of humanity
“Difficulty, efficiency and originality are considered to be the three ingredients of intellectual beauty. Double entry bookkeeping is found to have all three,” Yuri Ihri.
In 1497 two real Renaissance men lived together in Milan: the painter and inventor Leonardo da Vinci and the mathematician and monk Luca Pacioli. Although only Leonardo remains in our collective memory, it is actually Pacioli’s work on which our society rests today. Shortly before sharing a flat in Milan, Pacioli published the bestseller “Everything About Arithmetic, Geometry and Proportions”. It contains 36 chapters on double entry bookkeeping, a practice that was quite new to Italian merchants and enabled them to manage their increasingly complex businesses.
The time around 1500 is often viewed as a transition between the Middle Ages and the Modern Age. During this time, local, rural bartering was replaced by urban, money-driven trade in goods. Complex trade networks were established between Asia, Arabia and Europe and later the New World. The usual way of entering cash flows in simple lists was no longer viable.
“First there was single entry bookkeeping — just writing down what happened. Then came double entry — what happened has to be explained by reasoning by another account,” says accounting guru Yuji Ijiri. This new form was developed in several regions of the world at different times with the same purpose. Instead of one ledger, the accountant keeps two. One lists incoming, another outgoing payments (credit and debit).
“… bookkeeping is not just about keeping books, or recording profits and losses. It’s about the business’s own narrative. That narrative maintains the integrity of the business itself and its connection to the world. “Dan Palanza, rogue scholar.
From the perspective of the merchant, this new form of bookkeeping is both reformation and enlightenment: “I know therefore I can plan.” Who owns what? Why is money missing? Which deal was a good one? Which debts have not yet been paid? Only this knowledge enables credit and banking so that investments can be made and future economies built.
This achievement is called double entry accounting and it is the most despised subject at every business school today. Even the somewhat shopworn accounting author Charles M. von Cleve was stunned in 1913: “Aside from the so-called occult sciences, there is nothing which so tends to bewilder the mind and to dull the faculty of reason as the study of double entry bookkeeping.”
However, accounting is wrongly accused of being boring. Without it there would be no industrial revolution, no science and no economic globalisation. “What advantages does he derive from the system of bookkeeping by double entry! It is among the finest inventions of the human mind,” said Johann Wolfgang Goethe. The old romantic had to know it well.
Pacioli did not invent double entry bookkeeping, but he was the first to codify and publish it. It is no wonder that for almost 200 years his work was the only textbook in this field. It is amazing, however, that even today the exact same Pacioli method is used, whether by a family business or a multinational corporation.
“It is difficult to decide, however, whether in double entry bookkeeping capitalism provided itself with a tool to make it more effective, or whether capitalism derives from the ‘spirit’ of double entry bookkeeping,” Werner Sombart
Economy in crisis of trust
“Ubi non est ordo, ibi est confusio (Where there is no order, there is confusion),” Luca Pacioli
With a simple ledger, it’s easy for mistakes to sneak in. Even worse is that you cannot say whether it happens on purpose or by accident. The consequence ranges from tedious troubleshooting to mistrust. A simple cash book is only as trustworthy as the accountant behind it.
“The benefit of double entry accounting is that it’s easier to control than simple lists,” says David Hartley, digital accounting software pioneer. “If my invoice is included in my bookkeeping, then it must also be present in the accounting of the invoice recipient. If we examine this and there is no agreement, it is clear where the mistake was made.” Pacioli’s idea is that it records both where the money comes from and where it goes. It leaves verifiable trails.
“But now those systems are starting to show their age badly,” writes author Daniel Jeffries. “Take a company like Enron. They did all kinds of things to cook the books. They managed to hide billions in debt.”
Enron is the case that dwarfs the Notting Hill fraud to a blip. It is the benchmark on which all fraud can be measured. The company was able to hide Billions in debt due to institutionalised, systematic and creatively planned accounting fraud.
There is one thing Notting Hill Carnival and Enron have in common: they exploit the design shortcomings of our current accounting system. “All systems have an arms race between those who defend it and those who exploit it. That race is rigged.” explains David Hartley. “Fraudsters had 500 years of honing their skills while double entry accounting has not been improved in kind. Until now.”
If this was a game it’d be Fraudsters 1. Society 0. But it doesn’t have to be like this. But let’s summarise the pitfalls of double entry:
While accounting is done more or less in real time, auditing is done after the fact. This gives ample time to manipulate. Although accounting records should be immutable in fact they are not. That accounting is done completely in secret keeps the power of knowledge at the company or its defrauding employees and handicaps internal or external auditors. Any improved accounting system must solve that inequality.
“It’s tough to lie when everybody is watching”
This almost mythical phrase comes from Ian Grigg, who found a logical solution to the crisis of confidence in 2005: Accounting should no longer be completely private. He developed the idea of a self-auditing accounting, which is best explained in this simple graphic:
Bob writes Alice an invoice for rendered services, but we never learn what they were. In conventional double entry accounting, the bill exists in both books — Bob’s credit, Alice’s debit. Griggs idea introduces a third, public ledger. Bob writes his invoice and puts it in the public ledger. Alice accepts the invoice. Although Bob could still try to conceal it, at the latest when filing the tax return a comparison with the public book will bring the “error” to light.
The Notting Hill Carnival’s financial officer Nadia Chase Ali wrote false invoices from real companies and sent the money to her private account. The cursory glances on the financial statements did not reveal the blunder for three years. This could not have happened with a public self-auditing ledger because the invoices need the acceptance of the other party.
But how do you implement such a public book technically?
Wouldn’t it be great if there was a possibility of a public database that is encrypted, trustless (as in no trusted third party required), decentralised and immutable? And which is not controlled by any state or single entity? You, dear readers, of course guessed the answer: Blockchain.
“This self-auditing accounting ledger is probably the most conclusive application for Blockchain after Bitcoin,” David Hartley is sure. In the in-crowd, this first revision of Pacioli’s principles is unsurprisingly called triple entry accounting. Hartley has built a company called Pacio to accompany this idea. The proximity to Pacioli is quite deliberate.
“There are a number of projects that are trying triple entry accounting,” explains Hartley. “They all face fundamentally the same hurdles: scaling and network effects.” On the one hand, decentralisation and the many distributed copies of a blockchain limit the number of transactions per second. A single company hardly reaches this performance limit. But the self-auditing ledgers only develop their potential if they are used by many or even all companies.
“It’s the same problem as the first telephone,” explains David Hartley. “It only makes sense if there are enough others.”Pacio wants to solve the problem of scaling networks like this:
• Global digital identity, allowing companies to participate in a triple entry accounting solution.
• A semantic standard to describe data. This allows entities from any region of the world to link with the accounting solution.
• An application platform in which many software developers offer their apps based on the Pacio standard and thus provide a network effect.
• An advanced blockchain framework with realistic scaling based on the Cosmos Blockchain.
Follow the money or “it’s triple entry accounting, stupid!”
The benefits are obvious to Pacio. “Especially multinational companies will save a lot of time and money when creating audit documents. The audit itself is also accelerated,” explains David Hartley. “Last but not least, with triple entry accounting, for the very first time, we can seamlessly follow the world’s money.”
It certainly would make the schemes of the Chase Ali’s of this world a lot more difficult.
What makes David Hartley an expert on triple entry accounting?I became interested in digital accounting in the mid 1970s and had the pleasure of being founder of one of the first companies developing and supplying software for professional accountants. We dominated that vertical market for years. After companies in 8 countries and agents in more, the last company was sold to Sage in the UK in 1999. Their prime professional accounting market software is still based on my company’s system.I have been pondering and working towards a standardised semantic approach to business data since then. With blockchain I had my private Eureka moment. Its attributes of a trusted system without a middleman allows accounting to enter a new era.What’s different from double to triple? Triple entry accounting (TEA) adds a public ledger to the existing private double entry (debit/credit) ledgers. One party puts the invoice in the public ledger, and the other party acknowledges it. Thanks to the immutability of a blockchain, it audits itself. It’s the first time in history that we can follow the money around the globe. Internal processes become more efficient, opportunities for fraud are greatly reduced.
Double entry accounting has been around for over 500 years. Why will triple entry be implemented now?
We all agree that currently practiced accounting is no moat against fraud. Companies including SMEs suffer billions in losses to fraud annually. KPMG has estimated the figure to be £193 billion in 2016 in the UK alone, with only a mere 0.5% of that, or £1.1 billion, ending up in court.
Much of this fraud remains hidden until a company fails.
Even audited companies are not safe. The Association of Certified Fraud Examiners has estimated that auditors picked up only 4% of occupational fraud in 2017.
Triple entry accounting will not fix conman or ponzi scheme type frauds, but it can drastically reduce many inter entity frauds, while simplifying and reducing the cost of audits.
This change has been a long time coming. Now thanks to blockchain technology we can have a public yet secure audit trail.
And all that is without even considering the viewpoint of OECD Governments re tax fraud as they see it, or tax minimisation as business people see it!
What technical elements will triple entry accounting need?
A scalable blockchain ecosystem, a new universal data standard for the storage and processing of accounting data, a blockchain solution dedicated to triple entry accounting, a universal identity solution and a good implementation strategy.
Let’s break it down: the blockchain ecosystem?
It starts with the blockchain – the public ledger. First we need the equivalent of an operating system or platform on which companies can build accounting apps. There are hundreds of different systems out there and they all battle with the problem of scale. Today none of the major blockchains can process the number of transactions per second needed for universal triple entry accounting, but that is changing with new so called 3rdgeneration blockchains arriving on the block. There are at least twenty five 3rdgeneration blockchain in development around the world (Ælf, Æternity, Aion, AlphaPoint, Apla, Blockstack, Cardano, Cosmos, Credits, Devcash, EOS, Genaro, Hyperledger, Icon, Komodo, Metaverse, Multichain, Multiversum, NEO, Red Belly, SophiaTX, Tezos, Universa, Wanchain, and Zilliqa), with some beginningto enter service eg EOS which launched in June 2018. I personally favour Cosmos because of its flexibility, its ability scale, its inter operability with other blockchains, security (via the Tendermint Byzantine Fault Tolerance system), and its good governance system. Governance is key in trustless systems.
Then the data standard. Don’t we already have one?
Well, there is XBRL (eXtensible Business Reporting Language) which is in use around the world for financial reporting – a great feat considering it has developed from the work of a single person. Plus it has a reporting not a storage focus so does not actually define how the raw or original accounting data should be stored to make it comparable across entities let alone jurisdictions and accounting standards. XBRL’s very extensibiliy has allowed entities and organisations to invent their own definitions, resulting in incompatibility.
Nor does XBRL cater for triple entry accounting.
There are other contenders eg UBL or International Standard ISO/IEC 19845 which specifies the OASIS Universal Business Language (UBL), Open EDI, RDF or Resource Description Framework, and Ocean which is a Decentralised Data Exchange Protocol.
However in our view none of these “standards’ or the proprietary formats of current accounting suppliers, fully meet the bill for the new blockchain era with triple entry accounting.
We need a new standard that makes accounting between Albania and Zimbabwe compatible, which can cope with all storage and reporting needs.
The current lack of such a system is very expensive – an IFAC reportsays that International regulatory divergence costs $780 Billion annually – more than the GDP of Switzerland.
That’s where our company Pacio comes in. We are currently working on a standardised semantic data standard called SSIM which fixes all of the issues described above, while maintaining backwards compatibility.
Then the dedicated public ledger and the identity solution?
This can be built within the best blockchain ecosystem. It should follow a universal data standard, preferably SSIM. Logically it consists of the invoice, its meta data and both the issuer and recipient. Here we come to the identity solution. We have to make sure that the parties are known to the system and can be verified to be who they claim they are. There are several projects in the blockchain world that already tackle the identity issue, for businesses as well as people, using the same attributes that make triple entry accounting possible.
How to implement it globally?
It comes down to incentives, the benefits, the network effect, and ultimately a bit of gentle or not so gentle (for the stragglers) coercion. Pacio’s plan is to make it easy for app developers to incorporate SSIM and TEA in their apps.
Take off will come as major commercial software developers and uses such as Amazon, Alibaba, Apple or Google jump on board. Such companies will require their suppliers to use the system, just as they currently force them to use EDI or similar standards. At some point, national tax authorities will make triple entry accounting mandatory, and in time SSIM too, we trust, as a better option than XBRL.
Who are the players and who will win the triple entry accounting race?
Ecosystem: I see Cosmos, EOS, Zilliqa as front runners. I don’t see Ethereum there because they can’t scaleyet, though many developers are working on trying to scale Ethereum.
I am fully aware that I am being immodest, but we will propose that Pacio’s SSIM become the universal data standard. As for the public ledger, there are a few contenders. Ledgerium is one, but they plan to operate on Ethereum. I don’t see that working in the short run. Pacio will certainly throw its hat into the ring for triple entry accounting, via its Cosmos based Pacio Blockchain plus decentralised data storage. Likewise with a global identity solution, although as mentioned there are a few very good projects already, among them uport.
When will we have the accounting of the 21stcentury?
Given how long we have had double entry accounting, I’d rather speak of the accounting of the third millennium. It’s important to realize that it won’t necessarily be the first solution that wins but the first one to solve the major issues. The one that will make onboarding easy and that can create the necessary network effect.
Where are the Quickbooks, Sages, and Xeros of the world in all of this?
In the beginning for sure they will have their place as triple accounting will more or less support the single company´s ledger system that they supply now, but in the long run we will probably see a new and changed accounting and auditing world built on blockchain technology. But we have just started to explore the possibilities of the new technology.
Triple entry accounting should greatly reduce auditing efforts. So are the Big Four Accounting/Auditing/Consulting firms friend or foe?
For sure the trust mechanism of Blockchain technology and triple entry accounting will change the role of external auditing. The third party verification (debtors/creditors) steps will be eliminated for all TEA using entities, and that has been a large part of traditional auditing.
However, the Big Four are already far more consultants than accountants or auditors, with something of the order of 75% of their profits coming from their consulting activities. Blockchain triple entry accounting will just continue the evolution of the Big 4 and other accounting firms. That will be good for them, and the businesses they serve = friend, not foe.
How a simple accounting principle in combination with the blockchain could solve the global tax-evasion crisis
Pacio is creating a decentralised semantic data application platform and will produce the first Semantic Business Web on the blockchain.
“A deal is only a good deal when you convince the Internal Revenue Service that it wasn’t a good deal.” I don’t know who said that but I put it in quotes so it wasn’t me, dear tax authorities. But seriously, this quote contains a lesson. To know if you made a good deal, you need to keep a book. And if you want to evade taxes you need a second book, cooked beyond recognition.
This is no theoretical thought. According to estimates, governments lose USD 3.1 trillionannually due to tax fraud. That money could finance healthcare, education, culture, and security. Technology is here to save us. Here is how:
Did you also watch your mum keep a ledger with the household expenses, written in neat columns? Including the most important column, the one with your pocket money? In doing so, your mum followed a tradition that goes back 5,000 years, passing by the Romans, the Egyptians well down to the Sumerians. The method that ledger used is called single entry accounting: one line for every expense.
As it kept our household afloat, it also kept empires in balance. A feat that became very difficult with increasingly complex economies. There is a problem with using single lines. While you know where the money went, you don’t know where it came from. It could be a bank transaction, a cash deposit, a PayPal or even a Bitcoin account. With single entry accounting, you can’t follow the money.
That became possible with the invention of double entry accounting. The kind of bookkeeping we still use today was established all the way back in the 14th century. Nations came and went, languages changed but our economy still runs on the same principles.
A double entry ledger adds a line that specifies where the money is coming from. It looks like this:
USD 15,000 from customer 1 to a bank account
USD 5,000 from bank account to a tax attorney
It thus gives us the information that the bank account now holds USD 10,000 and the tax attorney holds 5,000. We can now look at the bank account and compare it with the ledger. If the numbers are different, then we have a problem with the book.
Double entry bookkeeping gave us banking, accounting, credits, and lending. It led to the Fugger banking empire, the East India Trading Company and modern global corporations like General Motors and Apple. The credit system financed inventions like artificial fertilizers, the steam machine, the computer and the Internet. Let’s say it together: Thank you, double entry accounting!
Thank you and goodbye. We had a great time but yours is over. Cooking the books has become an art of illusion. The best corporations make profits do a David Copperfield and vanish in front of the authorities.
Show me the money!
Take double entry accounting and put the record on the blockchain. Voila, you’ve got yourself triple entry accounting (TEA). We mutter the blockchain mantra: immutable, incorruptible. Why is it so easy to manipulate your own accounting? Because it is neither linked with the corresponding invoices of your customers nor with those of your supplier. Blimey, you still can’t follow the money.
Put a transaction between two entities on the blockchain and you can. The money you get from your customer is on the blockchain. You pass the money on to your supplier for the next order of materials. The supplier passes the money on to his contractors. Those pay the rent for their office with it. When we store every record on the blockchain, we get perfect traceability – the money is connected by links in a chain.
The advantage? It is so much harder to manipulate when your transactions are a link in a long chain. If you break the link it becomes visible. If you can’t break the link, then the tax money is going into the authorities’ coffers instead of an account in Switzerland, Cyprus or the Caimans.
In a next article, we will discuss how to make sense of business data that comes in 5,000 languages.