Innovation | Technology

Data governance is critical to any blockchain initiative, experts say

Everyone likes to tout the transparency of blockchain, because it theoretically removes the need for any third-party verification. But things aren’t so simple, according to those in the know

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Woman at computer in a room full of servers, checking data on screenData governance and well-designed systems and process controls are the cornerstone of an effective blockchain implementation (Shutterstock/Gorodenkoff)

It’s been a few years now since blockchain first burst onto the digital landscape as the underlying technology behind cryptocurrency. But today, the technology is making its mark far beyond the crypto world. It’s now being used in a wide range of applications, from tracing the origin and routing of leafy greens to recording factory employees’ answers to surveys about their well-being. And there is no sign of a slowdown anytime soon.

As Malik Datardina, CPA, a governance, risk and compliance strategist at Auvenir and a member of CPA Canada’s Audit Data Analytics Committee and Crypto-asset Auditing Working Group, points out, “If you look at the Gartner Hype Cycle—which is a measure of a technology’s maturity—it is just past the ‘peak of inflated expectations.’ ”

BLOCKCHAIN AND DATA GOVERANCE

Initially at least, much of the hype around blockchain had to do with its purported transparency and immutability—the fact that, as a distributed ledger where everyone could view all the transactions that have been recorded, it was inherently trustworthy and did away with the need for any third-party verification. 

But as uses expand, it is becoming increasingly apparent that blockchain still requires fundamental supporting controls. As Tejinder Basi, founder of Cyberium Consulting in Vancouver, B.C. and a former partner with Deloitte Canada, points out, “As with any system, blockchain is still susceptible to ‘garbage in, garbage out.’ If you enter erroneous data, such as a fraudulent record, unless there are proper controls in place, end users may end up relying on this information. Given the underlying expectation of reliability of information from the blockchain, data governance controls have become more important than ever.” 

“As with any system, blockchain is still susceptible to ‘garbage in, garbage out.’”

Data governance can be thought of as the proper management of data, from its initial capture to its protection, availability, usability and eventual archiving or destruction. It is a key area of focus in CPA Canada Foresight: Reimagining the Profession, a wide-ranging initiative that will result in a new strategic direction for the accounting profession. As the report, The Way Forward, from the initial phase of the initiative points out:

“In the digital age, data has become valuable in and of itself. [However], there is a global void: a lack of standards and frameworks to govern the integrity, security and application of such data.” 

The report also highlights that, with its legacy in assurance and standard setting, the CPA profession is well-placed to contribute to a much-needed set of initiatives that must ultimately develop around data governance. “In a world of fake news, there is no more valuable work than to ensure that decision makers can trust data,” it says. 

A DUAL ROLE

So what role can CPAs play in building a blockchain that is reliable from a data governance point of view? 

“The control principles are the same as any other system,” says Basi. “You need to ensure that the system is designed with appropriate controls and you need to be able verify that those controls are implemented and operating effectively. In the design phase, the CPA’s role would be to support the evaluation of the design of the system, with particular focus on ensuring that data input controls provide proper validation and audit trails, before data is entered [or hashed] to the blockchain.

The controls relating to the governance of the blockchain and related systems are equally important. These would include, for example, controls pertaining to the management of the system infrastructure, smart contracts and key management. CPAs should also assess broader business risks and how these would have shifted with changes to the overall business model.”

While blockchain is a relatively young technology, Basi notes that we are seeing the adoption of enterprise blockchain in mission-critical applications, such as land titles, supply chain or financial transaction processing. 

“To support effective regulatory or contractual compliance, many supply chain use cases make it possible for the evidence of compliance throughout the supply chain to be embedded in the blockchain,” he says. “For example, the evidence may demonstrate that the product being shipped meets the minimum quality requirement or a regulatory compliance requirement. This evidence is often digitally signed and stored on [or hashed to] the blockchain and relied upon as the primary source of evidence for completing transactions throughout the supply chain.”

CPAs can provide much-needed expertise in validating the implementation and operating effectiveness of controls, says Basi. “Some of the questions that will be important to address include: what are the new risks introduced by the changes to the business model? Do the blockchain system(s) and surrounding processes function the way they are meant to function? What controls enable the level of reliance that is expected? Are these controls operating effectively?”

Clearly, data governance and well-designed systems and process controls are the cornerstone of an effective blockchain implementation. As Basi puts it, “CPAs are a natural choice to assist organizations with assessing and mitigating their risk, and to support the development of standards as this technology matures and its application and adoption continue to evolve.” 

READ THE REPORT

Learn more about how blockchain, AI and other technologies are changing the business landscape and how this will affect the role of the accounting profession with the report, The Way Forward, from Phase 1 of CPA Canada’s Foresight: Reimagining the Profession—an initiative that will create a new strategic direction for the profession over the next 10 years.

For more information on blockchain, including a look at how CPAs are working with the technology today, visit nyctcmsga.info/blockchain.