How can blockchain help us deal with the COVID-19 pandemic?

One of the post-peak challenges, we will face with COVID-19 is to determine who is immune and who is not. Assuming that people can get immunity (and there are reasons to believe that this may not be the case), there needs to be a way to determine who is capable of being in "high contact" area.

In other words, how do we verify that you have the COVID-19 anti-bodies that would enable you to work at a restaurant, grocery store or drive a bus?

Now the infrastructure to deliver this type of testing is still not there. For example, in "Laredo, officials discovered the tests they received were woefully inadequate. The local health department found them to have a reliability of about 20 percent."

Assuming we can get a test that works, then we would need a way to certify that the person has achieved the desired immunity.

Think about how this process could work manually:

1. The walk-in or doctor/lab will process the test.
2. The person waits for the test results.
3. They will then need to produce the results to the government.
4. The government will need to issue some type of official certification. 

There could be an incentive to fake the certification. Well, let's rephrase. That there will be an incentive to doctor these things. Not just to get a job. But also to defy quarantine orders using fake certificates. Consider the people protesting the quarantine that blocked healthcare workers in Michigan:

And so that's where blockchain comes in.

To be a bit more specific, this is the permissioned blockchain (unlike bitcoin which is a public blockchain) that is implemented between trusted parties. As noted in the process described above, there are many parties involved - the doctor, the clinic and the government - all these parties would need to be on-boarded through a KYC process that would give each participant a private key that enables them to "sign" the "digital paperwork" at each phase of the process.

This would then allow "digital immunity certificates" to be issued instantaneously. No need to wait for test results. No need to get an official document from the government.

As it turns out, Vottun is working on some type of "Immunity Passport" that "can be verified at any time using cryptography by any mobile phone that can read a QR code". The company is working in Spain and is in discussion with Dr. Fauci of the CDC.

There are a lot of assumptions on how this could work. But it could be the killer app that helps saves lives.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else

What do the Sony Car and the Visa acquisition of Plaid have in common?

Visa announced in early that they were going to buy Plaid for $5.3 billion. Who is Plaid, and why are they worth so much? 

According to the CNBC article that published the announcement: 

“Plaid’s API software, often referred to as the “plumbing” behind fintech companies, lets start-ups connect to users’ bank accounts. It’s well-known among financial technology developers, but the average person interacting with it most likely wouldn’t recognize the name. High-profile Plaid customers include popular peer-to-peer payment app Venmo, mobile investing app Robinhood and cryptocurrency exchanges Coinbase and Gemini.”

The article went on to note that about 25% of American bank account holders have “connected” the company’s app. 

Meanwhile, at the Consumer Electronics Show (CES), Sony unveiled its electric concept car, the Vision-S, in Las Vegas earlier this month. 

The car is a novel way for Sony to market its various technologies within the automotive space. The approach is not dissimilar from what Microsoft did with the Surface Book: allowing each company to put their stake in the ground as to what they see as the ‘art of the possible.’ 

This TheVerge video does an excellent job of highlighting its features and showing what the car:

Although these two innovations occur in vastly different fields, they speak to a common reality: data. The concept of big data has been with us for a while, but what separates it from innovations like AI and blockchain is that its underlying elements can give us insights into how a particular innovation lies on the value spectrum:

• Cars are increasingly being “datafied.” According to Intel, autonomous vehicles will produce about 4 terabytes of data per day. So it should be no surprise that Sony’s concept car looks to harness the power of data. According to Time, the car has “33 sensors inside and outside the car” that help with ensuring the safety of passengers by detecting external threats and internal threats (e.g. falling asleep at the wheel). Coindesk takes this one step further, speculating that this type of move will help auto-makers more broadly make machine-to-machine cryptocurrency payments a reality. 
• Plaid and the value of verified data: The Plaid acquisition highlights the “4th V” that some use – veracity. Visa's purchase of Plaid illustrates how “boring data” that is of how quality can be worth billions of dollars. But such value proposition is not limited to the financial realm. Blockchain databases can offer a similar value proposition, as they force standardization and data quality standards. 

In future posts, we will test this model further to see how the four Vs: volume, variety, velocity and veracity help us understand the value of up-and-coming technologies and trends. 

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else

Are we too confident in Artificial Intelligence? A look at AI's "stupid problem"

In the rise of AI over the past few decades, the victory of IBM's Big Blue over Garry Kasparov is the stuff of legend. However, what may not be as well known is how the actual artificial intelligence alone didn't result in machine defeating man.

Many chalked up the win to Big Blue being superior technology that allowed the computer to defeat the chess champion. He narrowed down his defeat to a move that "was too sophisticated for a computer". 

What actually happened? 

It turns out that the specific move that Kasparov attributed the win too was executed by the computer. However, the chess move didn't come from the AI programming specific. It rather was more attributable to "technology controls" that there programmed into the system. The system was designed to conduct a random legal move if the system started going into an endless loop (go to 6:35 in this video to see the full story):

As noted in the video, the move through off Kasparov as the move made no sense. In the video, it insinuates that Kasparov put too much faith in the machine. However, according to Wired, he attributed the win to some type of human intervention. Either way the computer threw-off the chess championing; a factor that arguably contributed to his loss.

Enter Janelle Shane.

She did a Ted Talk entitled "The danger of AI is weirder than you think". In the talk, she notes how she applied machine learning to discover new ice-cream flavours based on 1,600 pre-existing flavours. The result:

Anyone want to hire this machine as their next culinary expert? Probably, not.

The example is illustrative of AI's "stupid problem".

As Shane notes, AI "has the approximate computing power of an earthworm, or maybe at most a single honeybee, and actually, probably maybe less. Like, we're constantly learning new things about brains that make it clear how much our AIs don't measure up to real brains."

The challenge with programming nuance into algorithms and AI more broadly speak to the classic accounting problem that goes with architecting proper incentives. We should not forget that the underlying equations that are built into such incentives are algorithms in their own right. For example, strictly profit-oriented incentives have incentivized management to look at short-term and forgo the long-run. This, in turn, resulted in more comprehensive incentive structures such as Kaplan's balanced-score-card. Putting the two together, if we programmed an algorithm to increase "shareholder value", what would happen? Would it launder money for drug cartels (i.e. because the benefit of the revenues outweighed the cost of the fine), clear-cut Amazon rainforests or outsource manufacturing to take advantage of low-cost labour in China, Bangladesh and elsewhere? As the links suggest, these are all practices that would be programmed into the sharehoder-maximizing algorithm. 

With this in mind, it requires risk and control specialists to approach AI like any system. They are ultimately programmed by regular human beings who make mistakes. If a system can throw off a reigning chess champion due to a coding flaw, we need to take heed.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else

If Artificial Intelligence can identify Shakespeare's linguistic signature, can similar techniques be used in audit?

Can AI help us identify who the real authors of classic literature?

According to MIT, the answer is yes. In a recent, article they noted how machine learning was used to identify how much a co-author helped fill in the banks for Shakespeare's Henry VIII. They had long suspected that John Fletcher was the individual but couldn't identify what passages he wrote into the play.

Petr Plecháč at the Czech Academy of Sciences in Prague trained the algorithms using plays that Fletcher that corresponded with the time that play was written because "because an author’s literary style can change throughout his or her lifetime, it is important to ensure that all works have the same style".

Based on his analysis, it appears half the play is written by Fletcher.

The experiment is a proof-of-concept that there is a certain linguistic signature to how people author things. In a sense, it means we have a unique pattern when it comes to how we construct sentences. With respect to the experiment run by Dr. Plecháč, the algorithm was able to detect what was written Fletcher because he "often writes ye instead of you, and ’em instead of them. He also tended to add the word sir or still or next to a standard pentameter line to create an extra sixth syllable."

Can this be used within an audit? 

A paper co-authored by Dr. Kevin Moffitt of Rutgers University entitled "Identification of Fraudulent Financial Statements Using Linguistic Credibility Analysis" found just that. In the paper, they explained how they used a "decision support system called Agent99 Analyzer" to  "test for linguistic differences between fraudulent and non-fraudulent MD&As". The decision support system was configured to identify linguistic cues that are used by "deceivers". The papers cites as examples of how deceivers when they speak "display elevated uncertainty, share fewer details, provide more spatio-temporal details, and use less diverse and less complex language than truthtellers".

The result?

The algorithm had "modest success in classification results demonstrates that linguistic models of deception are potentially useful in discriminating deception and managerial fraud in financial statements".

Results like these are a good indication of how the audit profession can move beyond the traditional audit procedures.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else

Larry and Sergei's Exit from Google: How did they get from 'Don't Be Evil' to 'Get Rich or Die Trying'?

Larry Page and Sergey Brin have left the building.

The two founders who built the information empire Alphabet Inc. have left Google. As they noted in their farewell post, Sundar Pichai will now become CEO of both Google and Alphabet Inc. They also pocketed a couple billion or so for their troubles.

I write this post with mixed feelings.

As someone who started at university the year the Internet became commercialized, I witnessed the rise of Google from a number of many search-engine to the only one that you use. And I've written previously about this experience.

But reality is reality: Google doesn't look like the company it used to be.

They began with their motto: "Don't be evil". As noted here the idea, per Paul Buchheit (Googler #23). was not to be evil like "those other companies":

"It just sort of occurred to me that “Don’t be evil” is kind of funny. It’s also a bit of a jab at a lot of the other companies, especially our competitors, who at the time, in our opinion, were kind of exploiting the users to some extent."

And now it's arguable that Google has become one of "those other companies".

In fact, they officially abandoned the "Don't be evil" motto to the less aspirational "do the right thing."

Sure, we could hypothesize that the legal, risk and other compliance experts advised Google to abandon this slogan due to risk aversion. But the problem with that theory is that Google has been raking up the fines, not in the millions but in the billions.  According to The Verge, "Google’s total EU antitrust bill now stands at €8.2 billion ($9.3 billion)". Not sure how that fits in with "doing the right thing". Perhaps it has more to do with "get rich or die trying".  It's no wonder politicians think they can get votes by promising to break up Google and the other tech giants. 

But the fines are just the tip of the iceberg. Google was one of Obama's top campaign contributors in the 2012 election. As noted in this article by the Intercept, the coziness between Google and the Whitehouse went beyond just the election. They visited the Whitehouse 128 times over Obama's tenure. More troubling:

"Most notably, Google has faced questions for years about exercising its market power to squash rivals, infringing on its users’ privacy rights, favoring its own business affiliates in search results, and using patent law to create barriers to competition. Even Republican senators like Orrin Hatch have called out Google for its practices.

In 2012, staff at the Federal Trade Commission recommended filing antitrust charges after determining that Google was engaging in anti-competitive tactics and abusing its monopoly. A staff report that was later leaked said Google’s conduct “has resulted — and will result — in real harm to consumers and to innovation in the online search and advertising markets.”

The Wall Street Journal noted that Google’s White House visits increased right around that time. And in 2013, the presidentially appointed commissioners of the FTC overrode their staff, voting unanimously not to file any charges.

Jeff Chester, executive director of the Center for Digital Democracy, said the administration “has been a huge help” to Google both by protecting it from attempts to limit its market power and by blocking privacy legislation. “Google has been able to thwart regulatory scrutiny in terms of anti-competitive practices, and has played a key role in ensuring that the United States doesn’t protect at all the privacy of its citizens and its consumers,” Chester said."

So now they are using their capital to subvert laws and investigations to maintain their dominance.

What happened? Why did Google take a taxi ride to the dark side? 

Tim Wu, a Columbia law professor, has a theory.

In The Master Switch, he calls this type of thing the Kronos Effect. The idea is that yesterday's scrappy start-up - who defeated the evil ogre's of their day - only to becomes today's evil ogre. For example, he explains how Adolph Zukor and the other avant-garde filmmakers of his day fought the tyrannical Motion Picture Patents Company, which required you to pay royalties for just using a camera. Who did they end up becoming? The major studios of today - who sue people for copyright infringement of their content. Similarly, we can see Google, who was able to defeat Yahoo, Microsoft and others, has become arguably the Microsoft of our times.

But I think Douglas Rushkoff, ironically in Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity, has a better theory. 

When start-ups that emerge from the "operating system of Capitalism" the end-up being defined by that system's code or DNA: growth, profits, market share and shareholder value - these are the only things matter. Capitalism doesn't pay attention to humanitarian values, moral values or spiritual values because, well, they don't add to the GDP. And at the end of the day, that's all that matters in a Capitalist society. 

I would never push anyone to adopt the motto "get rich or die trying". 

But as we can see, Google or otherwise, companies end up with this as their mantra when they want to get to the top. 

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else.

Applying Audit Concepts to Media: Why are we more worried about the shifty character on the street than the sugar in our cola?

An interesting thing happened to me earlier in the week. I was looking to get some data on death statistics around the major causes of death.

But I noticed a strange thing: the table from Statistics Canada looked different than it did a few days earlier.

Then I realized it had been just updated.

My first reaction was to sigh as I would have to update my research to reflect the revised work. But then another thing occurred to me: where's the fanfare around this? I didn't recall "hearing" about this, but then again I don't listen to the radio. So I did some quick research around the major newspapers to see if it was front-page news.

The only mention I could find was a Spanish article on the topic published by CBC, which I found through Google News.

What's this got to do with financial auditing?

It has to do with the portability of concepts we have around accounting, particularly those that relate to assessing the reliability of financial information. These concepts are portable to other domains - such as assessing the value of information technology. Richard Hunter and George Westerman note in Real Business of IT: How CIOs Create and Communicate Value that one of ways an IT organization can create value is to "improve decision making by improving information quality or timeliness".

This is not limited to the world of business but can also be ported to the societally relevant information. In other words, the collective media system. 

Facebook's Media Misgivings versus the Original Sin of Sensationalism 
As it is widely known now, Facebook has been accused of allowing its service to be used to manipulate the 2016 elections in the US. The topic is much larger but the point is that the issue of decision usefulness of the news spread came to light: how society decides about key issues can be impacted by the spread of "materially misstated" information.

However, the problem is not limited to Facebook. 

Before Trump popularized the term "fake news", Noam Chomsky and Edward Herman put together the book Manufacturing Consent. The latter was a scholarly work, that looked at the issue of media bias in a much broader sense than Trump's characterization of the press. 

But as we know as auditors, the harder objective to test is the one of "completeness". For example, to test whether the company had any undisclosed liabilities at year-end an auditor may test disbursements made after year-end to see if management paid off something that should be recorded in the financials as a liability. 

And that's where we get to the statistics of death and the media's lack of interest in reporting them. 

Media focuses on the sensational stories of "human on human" violence. But do you know how many people died from such causes in 2018? 

According to Statistics Canada, the total number of people that died due to homicide was 373 people - down from 459 the previous year. It is the 25th leading cause of death (22nd in 2017). 

The top killer of Canadian was malignant neoplasms cancer at ~79,000 and heart disease was ~53,000. As Statscan puts it:

"Cancer (malignant neoplasms) and heart diseases remained the first- and second- leading causes of death in 2018, accounting for 46.8 % of all deaths. This was a slight drop from 2017, where these two causes accounted for 48.0% of all deaths..."

But what we are more afraid of:

(A) The shifty-looking character walking behind us at 10 pm at night, or

(B) that sugar infested donut being offered to us at the office?

With respect to the latter (which is why I was looking at these stats in the first place), a big cause of this epidemic is the food that we are being fed. A CBC documentary, “The Secrets of Sugar”, linked sugar to chronic diseases:

“Emerging science is connecting the high consumption of sugar in North American diets with the rapid spread of chronic diseases such as cancer, heart disease and Alzheimer’s.”

The documentary also features Dr. Robert Lustig who blames diabetes and childhood obesity on sugar in the following lecture:

If we add diabetes (per Dr. Lustig) and Alzheimer's (per CBC) to the deaths caused by cancer and heart disease, then we are accounting for more than half of the 283,000 deaths that occurred in 2018 or 51.4%.

No one is saying there are easy answers to get the bottom of these deaths. But how can we get there if don't even know what questions to ask? A media system that gives incomplete information about our society is not providing reliable information to assess what we can do about these life-and-death issues. And so we will probably continue to worry about that shifty character, instead of our sugary diets.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else.

G7 Report on Cryptocurrency: Big Banks worried that Big Tech will eat their lunch?

A few days ago the BIS published "Investigating the impactof global stablecoins". The report was authored by the G7 Working Group on Stablecoins.

What are stablecoins? 

The report defines stablecoins as follows:

"Stablecoins have many of the features of cryptoassets but seek to stabilise the price of the “coin” by linking its value to that of a pool of assets."

Previously, I had noted that the US could possibly use stablecoins, such as Facebook's Libre, to support its foreign policy against China. In the post I noted that:

"The US government could leverage Facebook's offering. As noted in Paul Vigna's and Michael Casey's Age of Cryptocurrency:

"Things really get interesting when the U.S. government issues a digital dollar. The dollar is already the world’s primary reserve and commercial currency, but this would give it an even bigger edge. That’s because people in countries whose currencies aren’t trusted or who are barred or restricted from buying foreign currencies—think China, Argentina, Russia—could now easily obtain the one currency that has long symbolized international stability. Whereas the international movement of paper dollars can be (somewhat) controlled with physical checks at border crossings and regulation of bank transfers, digital dollars would be far more footloose. They would invade other jurisdictions’ currency zones. If citizens of other countries can easily acquire dollars—by far the most sought-after currency in the world—and use them to buy almost anything, why would they need renminbi or pesos or rubles? In this scenario, other currencies become less sought after, the dollar more powerful. It is the ultimate expression of U.S. hegemony, and, for other governments, undermines their nation-state sovereignty."

In other words, China, China, China.

That is, Facebook's deployment of the cryptocurrency gives the US government plausible deniability that the US is working to undermine the Chinese from a currency perspective. As I noted in this post, I cited the Wall Street Journal in explaining China's concern regarding cryptocurrency.

"Virtual currencies in theory allow holders to bypass China’s traditional banking system to move money outside its capital-controlled borders. That could make it more difficult for Chinese regulators to maintain a tight grip on the yuan."

The G7 report in another evidence to support this hypothesis as China is not included in the working group, despite the fact it is a leader in mobile payment technology. 

That being said, the bigger takeaway from the report is that the Big Banks seem to be sensing how Facebook and other Big Tech Companies (Annex B of the report analyzes the capabilities of Facebook, Amazon and others to transmit payments) could be encroaching on their turf. What Annex B doesn't mention, is that "the largest corporate stockpiles are all in the tech sector: the top five hold a collective $601 billion."

Tech companies in Canada, like Rogers, have already been granted a banking license. In other words,  it is a matter of legislators pen to grant such licenses to big tech, who can turn the billions in cash into trillions of loans through fractional reserve banking.

Finally, we should always keep in mind that the rentier economy is more lucrative than actually making products or delivering services. Perhaps the biggest illustration of this is how Sony makes 63% of its operating profits from finance with “[l]ife insurance has been its biggest moneymaker over the last decade, earning the company 933 billion yen ($9.07 billion)”.

Where are the Big Banks especially vulnerable?  

In the report, the Working Group notes that "cross-border payments remain slow, expensive and opaque, especially for retail payments such as remittances. Moreover, there are 1.7 billion people globally who are unbanked or underserved with respect to financial services" and more specifically "Recent stablecoin initiatives have highlighted these shortcomings and emphasised the importance of improving the access to financial services and cross-border retail payments. In principle, retail stablecoins could enable a wide range of payments and serve as a gateway to other financial services. In doing so, they could replicate the role of transaction accounts, which are a stepping stone to broader financial inclusion. Stablecoin initiatives also have the potential to increase competition by challenging the market dominance of incumbent financial institutions." [Emphasis Added]

What about regulation? 
Regulation is inescapable, but not an insurmountable task. That being said, the emphasis in the report on the need for regulation needs to be viewed with a bit of skepticism when it comes to competition. Andrew Hilton, director of the Centre for the Study of Financial Innovation, told that Guardian that "Big banks like regulation. Regulation is a fixed cost, so the bigger you are, the more clout you have to amortise [spread] it over. It favours the big over the small, and is another row of bricks in the wall that keeps competition out."

Furthermore, when HSBC skirted AML regulation they got a $1.9 billion fine, but that works out to be 5 weeks worth of profit.

What about bitcoin? 
The report does attack bitcoin as well noting that:
"The first wave of cryptoassets, of which Bitcoin is the best known, have so far failed to provide a reliable and attractive means of payment or store of value. They have suffered from highly volatile prices, limits to scalability, complicated user interfaces and issues in governance and regulation, among other challenges. Thus, cryptoassets have served more as a highly speculative asset class for certain investors and those engaged in illicit activities rather than as a means to make payments."

Although they are a key proponent of the status quo, there is some truth to this claim. The average small-business owner cannot deal with such volatility when it comes to a medium of exchange.

Even proponents of Bitcoin, such as Andreas Antonopoulos, readily admit that the currency is in a bubble. But he also points out that it is a mechanism for people to control the currency instead of corporations or governments. (As noted in this post, he dismisses Facebook's foray into cryptocurrency)



Antonopoulos hits on a greater truth: whether Big Tech wins or the Big Bank continue their reign, the consumer ultimately loses. Alphabet Inc. (aka Google), who dropped its motto "do no evil", has been accused of destroying its competitors through their monopoly power. For example, Foundem (a price comparison site) accused Google of demoting its result because it is a competitor. That being said, there will be some gains that will accrue to the consumers until one emerges dominant.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else