Blockchain’s promise to eliminate financial fraud
According to estimates by the Association of Certified Fraud Examiners (ACFE), worldwide occupational fraud could cost businesses up to $3.7 trillion dollars annually.
This figure was based on the assumption that a typical organization loses five percent of its revenue each year due to fraud — a median estimate that researchers took from the study’s participating certified fraud examiners (CFEs).
The findings of the report suggest that the most common form of fraud is asset misappropriation (e.g., theft of company cash, false billing schemes, or inflated expense reports), which accounts for over 80 percent of offenses. This type of fraud, however, has the smallest impact with a median loss of $125,000 per scheme. On the other hand, financial statement fraud makes up only about 10 percent of the cases, but causes a hefty median loss of nearly $1 million per case.
Occupational fraud has long existed due to a lack of transparency between business owners and their employees, as well as businesses themselves and their regulatory agencies. However, blockchain technology’s promise to provide unrivaled transparency through an indelible and public record of transactions offers the potential to solve this trillion dollar problem.
With this problem in mind, Canadian startup PayPie has taken on the mission to bring more trust and transparency to the financial market by developing the world’s first risk score algorithm using blockchain accounting.
Risk score analysis is a crucial process for all financial activities, including: financing, compliance, auditing, credit insurance, and review. However, risk score analysis remains a challenging task, as fraud and discrepancies in financial data make it increasingly difficult for third party institutions to accurately assess the shape of a company. As a result, businesses may not secure the funding they need, and investors may experience losses.
PayPie’s solution to this problem was to put triple-entry accounting on the blockchain, which would guarantee that a company’s risk score is accurate and fraud-proof. Using its technology, companies can write their transactions directly into a joint register on the blockchain to create an interlocking system of accounting records. This data is then processed by PayPie’s algorithm, to obtain an objective score of a business’ credit health. Later, this information can be used by lenders, auditors, accountants, and insurance companies to accurately assess a company’s financial standing.
PayPie’s technology shows significant promise in solving the transparency issue in accounting even though it has yet to fully launch.
The company is set to begin raising funds for its platform via a token sale scheduled for October 15 which will last for one month until November 15. The sale will give the public the option to buy utility tokens, which can later be exchanged for the company’s services.
Ethereum is the only currency that will be accepted in the token sale, and the reserve tokens will be locked in a smart contract for one year and used for developing partnerships and future acquisitions for the platform to prevail as a market leader.
“We hope that the token crowdsale will gain us a core user and support base of thousands, ready for our full launch,” said Nick Chandi, PayPie’s CEO, adding “Once we are up and running we can then take on the accounting industry at full steam!”