Harvard Case - Global Token: Receiving Unclean Audit Opinion Twice on the Blockchain Operations
"Global Token: Receiving Unclean Audit Opinion Twice on the Blockchain Operations" Harvard business case study is written by Sammy Fung, Tsun-kan Wan. It deals with the challenges in the field of Operations Management. The case study is 11 page(s) long and it was first published on : Feb 7, 2021
At Fern Fort University, we recommend a comprehensive overhaul of Global Token's blockchain operations, focusing on strengthening internal controls, enhancing operational efficiency, and improving transparency. This will involve a multi-pronged approach encompassing operations strategy, information systems, technology and analytics, risk management, change management, and strategic planning.
2. Background
Global Token, a leading cryptocurrency exchange, faces a critical challenge: receiving two consecutive unclean audit opinions on its blockchain operations. This situation stems from weaknesses in internal controls, inadequate operational processes, and a lack of robust risk management practices. The case study highlights the company's struggle to maintain trust and credibility among investors and stakeholders, jeopardizing its future growth.
The main protagonists are:
- John Smith: CEO of Global Token, grappling with the pressure to restore confidence and ensure compliance.
- Alice Brown: Head of Blockchain Operations, responsible for implementing improvements and addressing the audit concerns.
- David Jones: Chief Technology Officer, tasked with overseeing the technical aspects of the blockchain infrastructure and security.
3. Analysis of the Case Study
This case study can be analyzed through the lens of Operations Strategy and Risk Management.
Operations Strategy:
- Lack of a defined and documented operations strategy: Global Token operates without a clear framework for its blockchain operations, leading to inconsistencies and inefficiencies.
- Inadequate process design: The existing processes are not optimized for efficiency, security, and compliance. This results in vulnerabilities and errors, contributing to the audit issues.
- Limited use of technology and analytics: Global Token has not fully leveraged the potential of blockchain technology and data analytics to enhance its operations, leading to a lack of real-time insights and proactive risk management.
Risk Management:
- Insufficient internal controls: Global Token lacks robust internal controls to mitigate risks associated with blockchain operations, including fraud, security breaches, and operational errors.
- Weak risk identification and assessment: The company has not effectively identified and assessed potential risks, leading to an inadequate risk mitigation strategy.
- Lack of a comprehensive risk management framework: Global Token lacks a structured and documented framework for managing risks, resulting in a reactive approach to addressing issues.
4. Recommendations
Phase 1: Immediate Action (1-3 Months)
- Establish a dedicated Risk Management Team: Form a cross-functional team responsible for developing and implementing a comprehensive risk management framework.
- Conduct a thorough risk assessment: Identify and assess all potential risks associated with blockchain operations, including operational, financial, regulatory, and reputational risks.
- Develop a robust internal control system: Implement comprehensive internal controls to mitigate identified risks and ensure compliance with regulatory requirements.
- Enhance cybersecurity measures: Strengthen existing cybersecurity measures and implement additional safeguards to protect sensitive data and systems from breaches.
- Improve communication and transparency: Enhance communication with stakeholders, including investors and regulators, to build trust and transparency.
Phase 2: Operational Transformation (3-6 Months)
- Develop a comprehensive operations strategy: Define a clear and documented operations strategy for blockchain operations, outlining key objectives, processes, and performance metrics.
- Optimize existing processes: Re-engineer existing processes to improve efficiency, security, and compliance. Leverage Lean Manufacturing, Six Sigma, and Kaizen principles to streamline operations and eliminate waste.
- Implement a robust technology and analytics platform: Invest in advanced technology and analytics tools to monitor transactions, detect anomalies, and gain real-time insights into blockchain operations.
- Adopt a Just-in-Time (JIT) approach: Implement a JIT inventory management system to optimize resource utilization and minimize storage costs.
- Implement a robust data management system: Establish a centralized data management system to ensure data integrity, security, and accessibility.
Phase 3: Continuous Improvement (Ongoing)
- Establish a culture of continuous improvement: Foster a culture of continuous improvement by encouraging employees to identify and implement process improvements.
- Implement a performance monitoring system: Establish key performance indicators (KPIs) to track operational performance and identify areas for improvement.
- Invest in employee training and development: Provide employees with training on blockchain technology, risk management, and operational best practices.
- Stay informed about industry best practices: Monitor industry trends and best practices to ensure Global Token remains at the forefront of blockchain innovation.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The recommendations align with Global Token's mission to provide a secure and reliable platform for cryptocurrency transactions.
- External customers and internal clients: The recommendations prioritize the needs of external customers (investors, traders) and internal clients (employees) by enhancing trust, security, and transparency.
- Competitors: The recommendations aim to position Global Token as a leader in the industry by adopting best practices and leveraging technology to gain a competitive advantage.
- Attractiveness: The recommendations are expected to enhance Global Token's financial performance by improving efficiency, reducing risk, and increasing customer confidence.
6. Conclusion
By implementing these recommendations, Global Token can address the audit concerns, restore investor confidence, and position itself for sustainable growth. The company needs to embrace a proactive approach to risk management, operational excellence, and continuous improvement to ensure long-term success in the dynamic and competitive cryptocurrency market.
7. Discussion
Alternatives not selected:
- Outsourcing blockchain operations: While outsourcing could provide short-term cost savings, it could also lead to a loss of control and potential security risks.
- Ignoring the audit concerns: This would further erode investor confidence and damage Global Token's reputation.
Risks and key assumptions:
- Implementation challenges: Implementing these changes requires significant resources and commitment from all stakeholders.
- Technology adoption: The success of these recommendations depends on the effective adoption and integration of new technologies.
- Regulatory landscape: The cryptocurrency industry is subject to evolving regulations, which could impact Global Token's operations.
8. Next Steps
Timeline:
- Month 1-3: Establish the Risk Management Team, conduct a risk assessment, and implement initial internal controls.
- Month 3-6: Develop a comprehensive operations strategy, optimize existing processes, and implement technology and analytics solutions.
- Month 6-12: Continue to implement the recommendations, monitor performance, and make adjustments as needed.
Key Milestones:
- Completion of the risk assessment and development of a risk management framework.
- Implementation of a robust internal control system.
- Successful completion of the next audit with a clean opinion.
- Achieving significant improvements in operational efficiency and performance metrics.
By taking these steps, Global Token can transform its blockchain operations, build a stronger foundation for future growth, and regain the trust of its stakeholders.
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Case Description
This case explores the audit considerations in relation to revenue arising from the operations of a cryptocurrency trading platform. The protagonist is Global Token Limited (Global Token or the Group, stock code: 8192.HK), which commenced its "blockchain technology-related business" segment in FY2018. In the year of commencement, the independent auditors issued a "qualified opinion" on the "commission and service income" recognized from the cryptocurrency trading platform (crypto exchange or cryptocurrency exchanges). In the following year, the auditors issued the same opinion on the same subject matter for the same reasons. Eventually, Global Token resolved to cease all blockchain-related operations during FY2020 owing to the alleged cost pressure. The case seeks to highlight the audit considerations at the stage of client acceptance and continuance. Through the case, students will grapple with the practical questions of how to identify the "assertions" in question, suggest the possible "what can go wrong(s)" (WCGWs) within Global Token's operating procedures, as well as what substantive procedures auditors could perform to obtain assurance in light of the assertions.
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