Organizational Transparency and Trust
Last updated
Last updated
Financial management is of utmost importance to social organizations. A social organization's agreed governance protocols stipulate the methods and channels by which revenue is received as well as the budget for various organizational expenses, but a high number of transactions across multiple income channels does not allow the overall financial situation to be easily understood. Therefore, we need to bind relevant auditable information to each financial transaction occurring within a social organization so that financial behavior is transparent and trust can be established.
This protocol aims to develop a set of standards for auditable information and rules to govern transactions and asset binding that are based on blockchain transaction management. These protocols will lend social organizations more transparency, give a high degree of internal control, enhance trust, and optimize organizational operation efficiency.
A need for financial auditing is due to the following factors:
To Ensure the Accuracy of Financial Statements: Any organization needs to generate financial statements that it can share with stakeholders, investors, creditors, suppliers, customers, and other relevant parties. A financial audit examines and evaluates an organization's statements and general financial operations to determine whether the statements accurately reflect the actual financial conditions. This ensures that those stakeholders receive accurate and reliable financial information.
To Improve Internal Controls: During a financial audit, the auditor also evaluates the organization's internal financial control systems to determine whether they are working effectively and to identify potential weaknesses or risks, which allows the organization to control or improve its risk management and governance processes.
To Enhance Trust: An independent financial audit provides confidence to stakeholders that the financial statements provided by the organization are reliable and accurate. This can aid in obtaining funding, reducing loan costs, and building credibility with customers or suppliers.
To Detect and Prevent Fraud: Financial audits can reveal instances of fraud or other improper financial practices, allowing organizations to take timely measures to eliminate risk areas and prevent future fraud.
To Optimize Business Operations: Through the recommendations and findings outlined in the audit, organizations can optimize their financial management practices and business operations to increase profitability and efficiency.
To summarize, financial auditing is an important tool to ensure financial transparency and accountability, increase stakeholder confidence, and improve operational efficiency.
Below is an example of a simple financial model for a social organization. On the left, a social organization's various sources of income are shown, and on the right, a social organization's various expenses.
Asset Royalties
Staked Assets
Advertising Income
Membership Fees
Product Sales
Consulting Services
Investment Income
Organizational Costs
Staff Salaries
Community Activities
Revenue Sharing
Utilities
Purchase of Goods and Services
Expenditures can be considered either fixed expenditures, where the exact expense amount is determined by the governance agreement, or flexible expenditures, where the exact expense amount is not determined by the governance agreement. Any expense that can be determined by the governance agreement can be managed and distributed using smart contracts, ensuring that financial outlays are open, transparent, and fair.
A social organization may receive income from or make payments to another social organization. Social organizations operating on our protocols need to follow measures that ensure the transparency of their auditable information and the efficiency of their organization. These measures help to increase external stakeholders' confidence in the financial health of the organization and promote accountability in their own internal management. By adhering to the principles of public auditable information, social organizations can ensure compliance in their organizational operations and maintain a good public image and reputation, thereby further developing their complex social network.
Cooperation between social organizations and their income sources is of utmost importance. To establish a cooperative relationship, both parties may negotiate details of their business contracts through offline means, later recording that information in a secure database. This promotes efficient, human-friendly cooperation while ensuring the accuracy and traceability of associated data.
More importantly, all relevant auditable information should be expressly linked to the transaction record and disclosed to all applicable platforms and parties. This allows all transaction information to be easily accessed by any relevant parties, ensuring full transparency of a social organization's income.
Through transparent transaction recording, social organizations ensure they are trusted by the public and uphold an image of integrity across the wider social network to which they belong, while also laying a solid foundation for continued development and revenue growth.
For any one transaction or any series of transactions, providing detailed auditable information is the key to ensuring the transparency and traceability of that transaction. This information carries the specific details of the transaction and some fields are required for all transactions. The following explains each associated field in detail:
senderSEI
string
receiverSEI
string
Receiver's SEI
paymentPeriod
string
Detailed Information regarding the payment timeline
paymentDesc
string
Payment Reason, for example:
Ads, Cloud, Financial, Tech, Services, Goods
relatedInfo
[]object
signature
string
Information that can be included in the relatedInfo field:
type
string
Type
tx
contract
socialElement
desc
string
Descriptive information
txHash
string
Hash of the related transaction
contractAddress
string
Address of the related contract
relatedSEI
string
SEI of the related social element
The initiator of a transaction may need to add complex background information to describe the reason this transaction is taking place. These reasons may include a refund of a previous transaction or that the transaction is occurring due to the execution of another contract or transaction, among other reasons. Transaction information should be supplemented with these reasons and related auditable information to ensure the integrity and transparency of all data generated from that specific transaction.
When recording the auditable information of related transactions, the initiating party should consider all circumstances surrounding those related activities and provide all necessary auditable information. This information may include additional transaction details, execution details of related contracts, specific reasons behind the transaction, and more. Including this information ensures that all financial activity is bound to a sufficient explanation, which also allows the auditing party to conduct an easier and more transparent financial audit.
The following is a specific example incorporating related information:
The payment receiver must clearly specify all data fields that need to be transmitted to the contract's payment method, which allows the sending party to accurately transmit all needed data to the contract and store it as calldata. This process optimizes data transmission while guaranteeing the accuracy and efficiency of the contract's execution. The payment receiver also has the right to add a trigger that allows real-time notification of transactions to be sent to observing or auditing parties or the application on which it is hosted.
When the payment receiver adds this notification trigger, all applications and parties that have an interest in the contract immediately receive notifications as to the relevant status of the contract's execution, ensuring the related information synchronizes across the entire chain and returns responses in real time (for example, from verifying parties). These protocols allow us to ensure smoother contract interactions and a better information flow within the entire Clover ecosystem.
The payment recipient may be individuals or social organizations that are not comfortable disclosing their identity information to others and wish to add a layer of privacy protection to their transactions. When this is the case, encryption is used during the transaction process to ensure the security and privacy of private auditable information. This adds a layer of informational security to all parties in a transaction and protects their sensitive information from outside viewers.
During the encryption process, all parties to the contract can agree on the private keys to be used for encryption using a pre-signed encryption contract. This allows for relevant information to be decrypted by the recipient, and only by the recipient, who may then safely obtain and view the auditable information. This ensures that the security and reliability of the transaction process is not compromised by privacy concerns.
The following chart contains examples of encrypted auditable information fields. These fields aim to provide secure transactions between all parties to a contract and create a secure transaction environment for social organizations and the individuals within.
auditInfo
string
Encrypted auditable information
signature
string
Furthermore, organizations may not want to disclose the sender, receiver, or amount of a transaction to the public, only allowing them to be accessible to organization members or designated personnel. This can be achieved by operating on a blockchain that supports Confidential Transactions (CTs), such as Liquid Network, Monero, or Zcash.
Sender's
The sender attaches information related to the transaction. For example, related transactions, contracts, or
The signature field is signed by the sender. The identity of the sender also needs to be verified to prove that they are indeed the claimed sending party. Please see for more details.
The signature field is signed by the sender. The identity of the sender also needs to be verified to prove that they are indeed the claimed sending party. Please see for more details.
