GITBOOK-1009: Gemma's Jun 27 changes update financial policy

Author: GemmaDakin

legal/policies-and-conditions/intersect-administration-policies/administration-financial-audit-policy.md

@@ -12,6 +12,8 @@
 
 **6. Policy sponsor:** Intersect Executive Director
 
+_Updated on 27th June 2025_
+
 ***
 
 **7. Purpose:**
@@ -24,34 +26,37 @@ This policy applies to the beneficiary, as defined below, who enters into contra
 
 **9. Principles:**
 
-This policy is founded on principles of openness, accountability, and the right to information, fostering trust among stakeholders/the community. It ensures a common understanding and example(s) of Constitutional financial auditing requirements for proposals. 
+This policy is founded on principles of openness, accountability, and the right to information, fostering trust among stakeholders/the community. It ensures a common understanding and example(s) of financial auditing requirements for proposals as expected by Intersect.
 
 **10. Definitions:**
 
-* **Audit:** An audit is an independently verifiable examination of financial information of any entity, whether profit-oriented or not, irrespective of its size or legal form.
 * **Beneficiary:** Individual or Company who will be receiving funds and/or entering into contractual relationships with Intersect or with CDH where Intersect is acting as its Administrator.
 * **Cardano Budget Proposal:** A request for funding from the Cardano Treasury that will be measured by milestone deliverables.
 * **Cardano Development Holdings (CDH):** CDH is a legal entity created to support the Cardano ecosystem by acting as the contracting counterparty for approved proposals by DReps.
 * **Cardano Treasury:** A treasury system is a community-controlled, decentralized collaborative decision-making mechanism for sustainable funding of the underlying blockchain development and maintenance.
-* **Compliance:** Adhering to the terms and conditions in the DRep approved funding allocated contract.
 * **Delegated Representatives (DReps):** A role introduced in the Age of Voltaire as part of the governance model proposed under CIP-1694. DReps, stake pool operators, and the Constitutional Committee are responsible for voting on governance actions. Any ada holder can register as a DRep.
 * **Ecosystem Risk:** Where the security, functionality, performance or long-term sustainability of the Cardano Blockchain may be affected.
-* **Financial audit:** Review of effective fund utilization, ensuring alignment with contract milestones approved by DReps.
-* **Periodic:** For each Statement of Work (SoW) term, a financial audit is required. Should an SoW extend beyond 12 months, a financial audit will be conducted annually.
-* **Oversight Committee:** Permissioned set of keys that provide checks and balances against Intersect’s administration.
+* **Financial Audit:** Review of effective fund disbursement and utilization, taking the format of basic, intermediate or full assurance depending on the tier of audit required, ensuring full alignment with contract milestones approved by DReps.
 * **Intersect:** Intersect serves as an Administrator within Cardano’s funding ecosystem, helping to operationalize community-approved proposals by coordinating due diligence, contracting, and on-chain disbursements. This role is grounded in the principles of transparency, decentralization, and adherence to the Cardano Constitution.
+* **Oversight Committee:** Group of individuals who hold permissioned set of keys that provide checks and balances against Intersect’s administration.
+* **Periodic/Periodically:** For each Statement of Work (SoW) term, a financial audit is required. Should an SoW extend beyond 12 months, a financial audit will be conducted annually.
+* **Tier Criteria:** The level of audit requirement expected in relation to the size of funding received.
 
 **11. Policy statements:**
 
 * Constitutionally, all proposals are required to adhere to the following: Any governance action requesting ada from the Cardano Blockchain treasury shall require an allocation of ada as a part of such funding request to cover the cost of periodic independent audits and the implementation of oversight metrics as to the use of such ada. (Section 4, ARTICLE IV. THE CARDANO BLOCKCHAIN ECOSYSTEM BUDGET)
-  * As an administrator, Intersect will provide periodic reporting which demonstrates the use of any ada as far as distribution to vendors
-  * After the point of distribution by an administrator, should it be required, proposal vendors are required to periodically provide an assessment of the use of any such ada received from this point onward. 
-* Constitutionally, all administrators of treasury funds are required to adhere to the following; any ada received from a Cardano Blockchain treasury withdrawal, so long as such ada is being held directly or indirectly by an administrator prior to further disbursement, must be kept in one or more separate accounts that can be audited by the Cardano Community, and such accounts shall not be delegated to an SPO but must be delegated to the predefined auto-abstain voting option (Section 5, ARTICLE IV. THE CARDANO BLOCKCHAIN ECOSYSTEM BUDGET)
-  * As an administrator, Intersect will provide periodic reporting which demonstrates any ada received as part of a Cardano Blockchain treasury withdrawal is;
-    * Kept in one or more separate accounts
-    * Which can, as practically possible, be audited by the community or part thereof
-    * Not used for any delegation to an SPO, but delegated to the predefined auto-abstain, where practically possible.
-    * This does not replace Intersect's legal requirements for any business compliance, auditing or reporting needed as a registered entity. 
+  * After the point of distribution by an administrator, should it be required, beneficiaries are required to Periodically provide an assessment of the use of any such ada received from this point onward. 
+*   Constitutionally, all administrators of treasury funds are required to adhere to the following; any ada received from a Cardano Blockchain treasury withdrawal, so long as such ada is being held directly or indirectly by an administrator prior to further disbursement, must be kept in one or more separate accounts that can be audited by the Cardano Community, and such accounts shall not be delegated to an SPO but must be delegated to the predefined auto-abstain voting option (Section 5, ARTICLE IV. THE CARDANO BLOCKCHAIN ECOSYSTEM BUDGET)
+
+    * As an administrator, Intersect will provide periodic reporting which demonstrates any ada received as part of a Cardano Blockchain treasury withdrawal is;
+      * Kept in one or more separate accounts
+      * Which can, as practically possible, be audited by the community or part thereof
+      * Not used for any delegation to an SPO, but delegated to the predefined auto-abstain, where practically possible.
+      * This does not replace Intersect's legal requirements for any business compliance, auditing or reporting needed as a registered entity. 
+
+
+* As outlined in the Constitution, Financial Auditing is not intended to assess value, profit, or margin. Its sole purpose is to verify that treasury funds were used as approved, specifically for the intended proposal and its stated benefits.
+* This does not replace Intersect's legal requirements for any business compliance, auditing or reporting needed as a registered entity.
 
 **12. Roles and responsibilities:**
 
@@ -64,23 +69,22 @@ Intersect serves as an administrator, offering guidance. Intersect can advise bu
 * Offer audit coordination services, ensuring the initiation of necessary audits for each contract associated with the Cardano Treasury and providing support and guidance.
 * Ensure that all financial activities align with contractual agreements originally approved by the DReps. 
 * Put in place reporting mechanisms to ensure clear and timely communication, including conducting Delivery Assurance checks and promptly escalating any identified issues, discrepancies, or risks.
+* Provide Periodic reporting which demonstrates the use of any ada as far as distribution to beneficiaries. This requirement and the level of assessment are based on the beneficiaries’ tier.
 
 **Beneficiary**
 
 The Beneficiary holds a critical role in maintaining financial integrity and transparency:
 
 * Taking full accountability for the responsible use of received funds, ensuring alignment with approved proposals.
 * Upholding transparency in all financial dealings related to the funds.
-* Audit Cooperation: Collaborating completely with financial auditors, providing all requested documentation in a timely manner.
+* Audit Cooperation: Collaborating completely with independent reviewers where applicable, providing all requested documentation in a timely manner.
 * Responding promptly and thoroughly to all audit questions and inquiries.
 
 **13. Procedures:**
 
-This section outlines the step-by-step processes for planning, conducting, and finalizing financial audits of treasury-funded entities. These procedures ensure that all beneficiaries are held to appropriate standards of financial transparency. There are tiered audit expectations scaled by organizational size, funding level and/or economic risk.
-
-<table data-header-hidden><thead><tr><th width="125"></th><th></th><th></th><th></th></tr></thead><tbody><tr><td><strong>Audit tier</strong></td><td><strong>Tier criteria</strong></td><td><strong>Audit requirement level</strong> </td><td><strong>Examples</strong></td></tr><tr><td><strong>Tier 1 - Basic Assurance</strong></td><td><ul><li>Organization Size: Small.</li></ul><ul><li>Treasury Exposure: Low Proportion of Cardano Treasury Funding.</li></ul><ul><li>Economic Risk: Minimal or low-risk profile.</li></ul></td><td><p><strong>Basic Assurance</strong><br></p><ul><li>Provide basic, independently verifiable documentation or on-chain evidence showing that funds reached the intended recipients.</li><li>Self-attestation permitted (eg showing total funds received per individual via on-chain transactions).</li></ul></td><td><ul><li>Small development teams or individual contributors.</li></ul><ul><li>Low ecosystem risk: non-core functionality with minimal sustainability or market impact.</li></ul><ul><li>Treasury funds are small, easily refundable or recoverable.</li></ul><p><br></p></td></tr><tr><td><strong>Tier 2 - Intermediate Assurance</strong> </td><td><ul><li>Organization Size: Medium</li></ul><ul><li>Treasury Exposure: Moderate Proportion of Cardano Treasury Funding. </li></ul><ul><li>Economic Risk: Acceptable or moderate risk profile.</li></ul></td><td><p><strong>Intermediate Assurance</strong></p><p></p><ul><li>Supply clear, independently verifiable evidence that funds were used in line with the approved proposal.</li><li>Verification by a capable third-party auditor or detailed on-chain records that enable community-led audit (eg milestone-based transactions).</li><li>Maintain complete financial records and participate in milestone reviews.</li><li>Implement corrective action plans for any audit findings.</li></ul></td><td><ul><li>Mid-sized entities or multiple teams within established organisations.</li></ul><ul><li>Moderate ecosystem risk: projects delivering broadly useful functionality or serving specific user groups, with some potential market impact.</li></ul><ul><li>Treasury funds are moderate and may be harder to recover.</li></ul><p><br><br></p></td></tr><tr><td><strong>Tier 3 - Full Assurance</strong></td><td><ul><li>Organisation Size: Large</li></ul><ul><li>Treasury Exposure: High or significant proportion of Cardano Treasury Funding. </li></ul><ul><li>Economic Risk: Elevated or significant risk profile. </li></ul></td><td><p><strong>Full Assurance</strong></p><p></p><ul><li>Formal third-party audit engagement is mandatory.</li></ul><ul><li>An independent audit conducted by a qualified external auditor to verify proper use of treasury funds.</li><li>Auditors must provide formal assurance that funds were used strictly as approved in the proposal.</li></ul></td><td><ul><li>Large institutions or organisations responsible for critical ecosystem deliverables.</li></ul><ul><li>High ecosystem risk: single points of failure or unique solutions, with significant potential market impact.</li></ul><ul><li>Treasury funds are large and difficult to recover or reimburse.</li></ul><p><br></p></td></tr></tbody></table>
+This section outlines the step-by-step processes for planning, conducting, and finalizing financial audits of beneficiaries. These procedures ensure that all beneficiaries are held to appropriate standards of financial transparency. There are tiered audit expectations scaled by funding level and/or economic risk.
 
-**Note:** As outlined in the Constitution, financial auditing is not intended to assess value, profit, or margin. Its sole purpose is to verify that treasury funds were used as approved, specifically for the intended proposal and its stated benefits.
+<table data-header-hidden><thead><tr><th width="125"></th><th></th><th></th><th></th></tr></thead><tbody><tr><td><strong>Audit tier</strong></td><td><strong>Tier criteria</strong></td><td><strong>Audit requirement level</strong> </td><td><strong>Examples</strong></td></tr><tr><td><strong>Tier 1 - Basic Assurance</strong></td><td><p></p><ul><li>Treasury Exposure: Low Proportion of Cardano Treasury Funding.</li></ul><ul><li>Economic Risk: Minimal or low-risk profile.</li></ul></td><td><p><strong>Basic Assurance</strong><br></p><ul><li>Provide basic, independently verifiable documentation or on-chain evidence showing that funds reached the intended recipients.</li><li>Self-attestation permitted (eg showing total funds received per individual via on-chain transactions).</li></ul></td><td><p></p><ul><li>Low Ecosystem Risk: non-core functionality with minimal sustainability or market impact.</li></ul><ul><li>Treasury funds are small, easily refundable or recoverable.</li></ul><p><br></p></td></tr><tr><td><strong>Tier 2 - Intermediate Assurance</strong> </td><td><p></p><ul><li>Treasury Exposure: Moderate Proportion of Cardano Treasury Funding. </li></ul><ul><li>Economic Risk: Acceptable or moderate risk profile.</li></ul></td><td><p><strong>Intermediate Assurance</strong></p><p></p><ul><li>Supply clear, independently verifiable evidence that funds were used in line with the approved proposal.</li><li>Verification by a capable third-party auditor or detailed on-chain records that enable community-led audit (eg milestone-based transactions).</li><li>Maintain complete financial records and participate in milestone reviews.</li><li>Implement corrective action plans for any audit findings.</li></ul></td><td><p></p><ul><li>Moderate Ecosystem Risk: projects delivering broadly useful functionality or serving specific user groups, with some potential market impact.</li></ul><ul><li>Treasury funds are moderate and may be harder to recover.</li></ul><p><br><br></p></td></tr><tr><td><strong>Tier 3 - Full Assurance</strong></td><td><p></p><ul><li>Treasury Exposure: High or significant proportion of Cardano Treasury Funding. </li></ul><ul><li>Economic Risk: Elevated or significant risk profile. </li></ul></td><td><p><strong>Full Assurance</strong></p><p></p><ul><li>Formal third-party audit engagement is mandatory.</li></ul><ul><li>An independent audit conducted by a qualified external auditor to verify proper use of treasury funds.</li><li>Auditors must provide formal assurance that funds were used strictly as approved in the proposal.</li></ul></td><td><p></p><ul><li>High Ecosystem Risk: single points of failure or unique solutions, with significant potential market impact.</li></ul><ul><li>Treasury funds are large and difficult to recover or reimburse.</li></ul><p><br></p></td></tr></tbody></table>
 
 **14. Monitoring and compliance:**