Written by Zach Bronstein. Edited by Bruxa.

Financial Audits + Cryptocurrency + Nonprofit = Transparent Proof of Management

A Testament to Blockchain's Clarity

As a California-based nonprofit surpassing the $2 million mark in donations during our first full year of operations (FY2021), we embarked on a mandated third-party financial audit—a journey both challenging and illuminating. This process wasn't just a regulatory fulfillment for California; it was an opportunity to delve deep into the transparency and intricacy of blockchain technology, which played a pivotal role in our audit's success. The inherent openness of blockchain significantly eased the verification process, allowing auditors to confirm the authenticity of our data directly.

Educational Endeavors and Technological Trials

The audit unfolded over an extended period of time, primarily due to the educational efforts we had to invest in. Introducing our auditors to the nuanced world of cryptocurrency and our organization's specific ecosystem was no small feat. The concept of smart contracts that could take action without direct action from an Endaoment employee, in particular, required considerable explanation. Our complex ecosystem, powered by well over 1,000 smart contracts, demanded not just familiarity with crypto accounting but a deep understanding of these contracts' operational dynamics.

Our journey through the audit saw us collaborating with two different crypto accounting specialists on top of our work with Pilot, who provide controller and bookkeeping services for our fiat books. The first crypto accounting software provider faced challenges in adapting their methodologies to our comprehensive smart contract framework.  The second, Hyperion, was particularly well suited to meet our needs; not only was Hyperion a better platform and product, they grew along with us on this journey. This switch underscored the unique challenges presented by crypto and blockchain technologies in traditional financial auditing.

Internal Refinements and the Introduction of the '3Rs' Process

The audit was not just a means to satisfy external compliance; it was a mirror reflecting the areas within our organization that could benefit from refinement. The audit findings have prompted a thorough reevaluation of our internal operations and financial checks. Among the changes we're implementing is the establishment of a 3Rs process, where R stands for “review”. This initiative aims to enhance our financial reporting's clarity and auditability, streamlining the approval of monthly financials and journal entries, as well as de-risking future external audits, which we plan to complete on an annual cadence. It's a step forward in solidifying our commitment to transparency and accountability, ensuring our operations align with both our mission as well as  regulatory expectations.

Forward Together: Leveraging Technology for Transparency

This audit, while challenging, has been a transformative experience for our nonprofit. It has not only reinforced the importance of transparency in our operations but has also demonstrated the potential of blockchain technology as a tool for enhancing accountability. As we move forward, the lessons learned and the changes implemented will undoubtedly strengthen our foundation, allowing us to navigate the complexities of nonprofit finance with confidence. Our journey through this audit is a testament to our commitment to leveraging innovative technologies like blockchain to foster a culture of transparency and trust, setting a new standard for financial accountability in the nonprofit sector.

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