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naraburns  nihil supernum  1yr ago (text post)   31670 thread views

Culture War Roundup for the week of December 5, 2022

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Because Discord and Slack messages are mutable after the fact, they do not create an auditable trail (depending on implementation).

Imagine an implementation that runs like this. When an expense is submitted a bot posts a summary of that expense in a Discord channel. The expense is authorized by some kind of emoji reply or react to the bots message. It would be trivial for anyone with administrator privileges on this discord (or even mere expense approver privileges) to commit fraud in this system, in a way that would be difficult to detect.

At some time t_0 our insider submits an expense they know is fraudulent. The bot posts the expense summary and the insider approves the expense. At some later time t_1 the actual disbursement of funds for the fraudulent expense occurs. Then at some later time t_2 the insider goes back and undoes their approval of the expense (they remove their react or delete their message or whatever). If the insider has admin permissions on the discord they could even delete the bots message perhaps wiping away any trace the expense existed. At some time t_3 the apparently unapproved disbursement is discovered. How do you reconstruct who approved the fraudulent disbursement?

There's a reason that software specifically for managing expenses exists. There's a reason that software records information like who submitted the expense, what the expense was for (often by line-item), and who approved. Crucially there's a reason why these expense records are immutable after they are approved and the funds disbursed.

I assumed that Slack/Discord would be used as interface, with bot archiving it to some persistent less mutable database.

Or channel being configured in way blocking editing - for example with bot reposting message.

Given that it was crypto and specifically FTX I assume that expense claim process was filled with fraud with bad implementation serving as smoke screen (deliberately or accidentally).

But I still do not see problem with emoji specifically

If the insider has admin permissions on the discord they could even delete the bots message perhaps wiping away any trace the expense existed.

That is possible also with software specifically for managing expenses, there someone with admin permissions also can tamper with database. It is also possible with paper.

It is also possible with paper.

Which is why you have two people who keep track of where the money are goin'. One of the joys (🙁) of my admin work is getting the year-end reconciliation of the petty cash dumped on me before we send the accounts off to the auditors. You have to match up receipts with expenses claimed, money out, money remaining, money drawn on to replenish imprest, etc.

I couldn't just print out a list of emojis and say "there you go, boss" as to who purchased what, where, when and for how much.

When I was keeping track of expenditure on a multi-million punt project back in the day, I certainly couldn't have got away with "here's the list of emojis by which we approved that £100,000 for buying equipment that time, dunno when exactly".

According to the Sequoia article, where the reporter was in the Bahamas sitting in on meetings and ordinary operations, this is the kind of money they were shifiting:

The next order of business is a round of belt-tightening. “In general, money is going to be tighter for everyone in our industry and other industries too—it’s not super-crypto-specific,” SBF says. “So, if you are thinking about expenses that are, say, above $100 million, we should have a chat about that,” he continues.

You really do want to be keeping a record of where even your sub-$100 million purchases are going and who approved it and who asked for it.

“So, if you are thinking about expenses that are, say, above $100 million, we should have a chat about that,”

that part is DEFINITELY insane

When I was keeping track of expenditure on a multi-million punt project back in the day, I certainly couldn't have got away with "here's the list of emojis by which we approved that £100,000 for buying equipment that time, dunno when exactly".

that is also insane - but not emoji part part - the "lol, we have not recorded what was actually approved by whom"

The bankruptcy filing is great reading because John Ray is very not happy one bit with the way things were done.

I have over 40 years of legal and restructuring experience. I have been the Chief Restructuring Officer or Chief Executive Officer in several of the largest corporate failures in history. I have supervised situations involving allegations of criminal activity and malfeasance (Enron). I have supervised situations involving novel financial structures (Enron and Residential Capital) and cross-border asset recovery and maximization (Nortel and Overseas Shipholding). Nearly every situation in which I have been involved has been characterized by defects of some sort in internal controls, regulatory compliance, human resources and systems integrity.

Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.

The FTX Group did not maintain centralized control of its cash. Cash management procedural failures included the absence of an accurate list of bank accounts and account signatories, as well as insufficient attention to the creditworthiness of banking partners around the world. Under my direction, the Debtors are establishing a centralized cash management system with proper controls and reporting mechanisms.

Because of historical cash management failures, the Debtors do not yet know the exact amount of cash that the FTX Group held as of the Petition Date. The Debtors are working with Alvarez & Marsal to verify all cash positions.

The Debtors have been in contact with banking institutions that they believe hold or may hold Debtor cash. These banking institutions have been instructed to freeze withdrawals and alerted not to accept instructions from Mr. Bankman-Fried or other signatories. Proper signature authority and reporting systems are expected to be arranged shortly.

The Debtors did not have the type of disbursement controls that I believe are appropriate for a business enterprise. For example, employees of the FTX Group submitted payment requests through an on-line ‘chat’ platform where a disparate group of supervisors approved disbursements by responding with personalized emojis.

In the Bahamas, I understand that corporate funds of the FTX Group were used to purchase homes and other personal items for employees and advisors. I understand that there does not appear to be documentation for certain of these transactions as loans, and that certain real estate was recorded in the personal name of these employees and advisors on the records of the Bahamas.

The Debtors now are implementing a centralized disbursement approval process that reports to me as Chief Executive Officer.

I have read it and I must say that I put more effort into oversight of my folder with funny images.

This is why neither of us will ever be billionaires feted as world saviours and global philanthropists, we're just too dang detail-oriented! 😁

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