Lahore Real Estate Forum: Property News & Community Talk : ,

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Referring post 42048,,,

If such business association is setup, I would suggest a few things to make business process transparent and corruption-resistant.

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Some notes before starting,,,
1) This post is lengthy and contains some concepts which are not conventional, thus may be a bit difficult for some. So if you want you may skip this post.

2) At some places a concept ‘checksum’ is suggested for tamper-resistance or verifiability. For readers with non-IT background,,,,

On business side: publishing checksum of an electronic document is similar to sealing a traditional document with holographic lamination. Anyone can read the document, but no one can tamper it. If anyone ever attempts to tamper the document, it will be known.

On technical side: checksum or ‘Hash’ is an IT concept where a small fixed length checksum (usually anywhere between 8 to 32 characters) is calculated from any length data. It is calculated in such a way that it is almost impossible to change/alter/tamper that data without changing it’s checksum.

There are many algorithms of calculating checksum, some are strong and some are weak. The association may use some well-known standard algorithm like MD-5 or SHA-X, which are also used by US government (including US Department of Defense). The association may provide a facility of calculating checksums, but besides that, any shareholder may also calculate checksum from software available by independent big entities (like Microsoft), and that should result in exact same checksum as association’s checksum facility. This would verify the association's checksum is standard, strong and not manipulated.
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Now the suggestions,,,

• All accounting entries must be accessible to shareholders, preferably online.

• All entries must be verifiable in at least one way. Or in other words, there must be at least one existing or reachable evidence other than recorder's own discretion.

Wherever practical the entries should carry supporting evidence in electronic form (like scans, photographs, audio or video)

• Any shareholder or his/her nominee can visit site(s) to verify any entries/statements. Rules must facilitate such auditing visits rather than obstructing these. Preferably the association should publish a guide of things to check during such visit (but the shareholder can go beyond things described in auditing guide).

After that auditing visit the shareholder should be encouraged (but not required) to provide objective feedback by a pre-defined survey, and subjective feedback as text. Both of these feedbacks, no matter positive or negative, must be made available to other shareholders, preferably online.

• Details of recurring and current stakeholders should be maintained published,,, like of management, employees, and wherever appropriate suppliers and customers, so that shareholders can reach them to verify transactions and statements.

• At each smallest unit of closing period (say shift or day closing), a checksum of all entries of that period must also be published, so that no entry may be altered after that closing.

Shareholder having copy of published checksum means that if entries of that closing period are ever tampered, their checksum would no longer match with shareholders’ copy of checksum.

Checksums of bigger closing units (say week/month/quarter/year) may be calculated from checksums of smaller unit, and published. The bigger units checksums provide similar tamper-resistance guarantee, just at larger scale, thus give some convenience of not having to track and match many smaller unit checksums, instead only tracking and matching fewer bigger unit checksums.

If some unintentional mistake is discovered after checksum is published (i.e. after the record is sealed), that mistake should be explicitly adjusted in current on-going period. Wherever adjustments are made, those should be highlighted (like in red or bold) and a separate compiled list of adjustments should also be accessible to shareholders.

• There may be times when immediately exposing all details of some entries may not be in best interest of association,,, for example when buying/selling one-unit-of-a-series, where exposing nature/price of one unit may change market price unfavorably to association before the whole series is completed.

For such entries, some of their details may be temporarily masked, but still their checksum must be exposed immediately, along with a defined date of uncovering those masks. So that at their unmasking date the shareholders can calculate checksum by themselves and be certain the entry was not altered during masked period.

• Parallel to concept of balance sheet, practically record-able details of assets/liabilities should be maintained and accessible online. Each entry should consist of objective description of asset/liability and a subjective assessed value. The valuation assessments may be updated at discretion of management over time due to market fluctuations or depreciation. Such assessment updates history must be immediately published.

Any of management’s discretionary value assessment may be challenged within a certain duration, say 1 year, by any shareholder and that communication must be made available to all shareholders, preferably online.

• For reliable ownership register and transfers mechanism, details of owners and titles must be accessible online, except where owners choose privacy option.

If some owner/shareholder doesn’t want his/her details to be published, his/her personal details may be masked but the checksum should be published, so that the ownership is verifiable to himself/herself.

At time of entering ownership, the shareholder’s contact and identity must be recorded with optionally recorded video (which shouldn't be published) for enhanced identity verification at time of selling. After that shareholder should be provided a secure PIN and a currency-note associated with that title (with title number regarded same as serial number of currency-note).

Possession of this currency-note, provides guarantee of one and only ownership to that title, making anyone else’s claim on title without currency-note as doubtful. This would avoid corruption attempts in ownership or transfer.

At time of leaving ownership, the shareholder, besides identity verification with earlier record, the selling owner must also provide his/her PIN and the currency-note.

In cases someone looses either PIN or currency-note, the selling owner's (potentially fraudulent) identity is matched with record, after which he is asked to submit some security deposit (say 20% of asset's value) and his claim statement is recorded in his voice on high-resolution video. After that recording of claim a notice is sent at owners' contacts in file and same notice is published at shareholders common access area for sufficient duration (say at least one month). If no one disputes that claim the transfer is made and security deposit is returned. But if someone disputes his claim during this period, a criminal fraud case is registered with both claimants recorded video to find out which one attempted fraud, and then fraud attempting party's security deposit is forefeited and it is prosecuted with recorded video evidence to deter such attempts.

In any case, all title transfers must be immediately published for sufficient duration (say one year), preferably with details of involved parties if not private.

To discourage speculation in ownership, there should be a penalty (submitted in account of association) on shareholders leaving in less than a certain duration (say 6 months).

• For collective decision making, there should be an electronic voting mechanism. The shareholders may either vote directly or nominate their representatives for voting. If they want they can have multiple representatives each assigned with a percentage of their own voting weight. Voters can override or change their representatives whenever they want. Voting weights of representatives should be published, but detail of representatives' voters should be per voters' choice, who can choose to remain private or public.

Voting on anything may be pre-scheduled by constitution of association, or may be initiated by sufficient voting weight (say more than 5% of all).

For each voting, a sufficient duration notice of voting should be issued (say 14 days). Around half of that period should be reserved for discussion/debate on that issue.

After the debate half, and within limited time (say from 8th to 11th days) the representatives must publicly declare their vote, after which they can’t change their vote. Within rest of duration (say after 11th day), the voters may review and override their representative(s) to cast directly if they want, and they may cast privately if they want. For each private vote a checksum would be issued for verification against result-list.

After the duration is complete (say 14th day) the votes would be counted and result would be announced, with details to the level who voted what.

For those voters who chose to cast privately, their personal details in result-list would be masked instead their checksum showing up. That way private voters would be certain that their vote is counted and that no one else is assigned their checksum (otherwise the checksum would differ).

To make balloting further transparent, depending upon choice of voter and/or association, an unmasking date (say after X years) may be encouraged or required for private votes.


(I would be keen to know criticism, deficiencies, alternatives or additional suggestions)