Improvising Grant Management Process with Blockchain- U.S Treasury Department leads the way

The U.S Treasury Department recently announced that it would engage in a six- month project utilizing Blockchain in order to streamline the agencies’ financial processes – this is a huge step towards the adoption of the technology and the use case that we have been talking about!

Why is it a big deal?

As widely known, Blockchain is a technology that’s associated with three key advantages – transparency, immutability, and trustworthiness. Blockchain’s ability to track the provenance of transactions, and assets in a decentralized environment makes it a perfect fit for what the department is probably trying to achieve – transparency in payment tracking. The Blockchain for Grant Payments project that has been initiated by the Bureau of the Fiscal Services Office Financial Innovation and Transformation will utilize Blockchain technology to explore its implication on operations and legal aspects to track grant payment-related activities. This project is a continuation of the effort that started back in 2017 focusing on how the grant recipients could use blockchain technology to transfer, and redeem grant payments. The benefits would include “increased transparency, reduced financial and labor burden, and enhanced internal controls.”

With Blockchain technology, there is a higher possibility of making reporting less burdensome, and timely payments for recipients, and for the entities, auditors, and public, it will bring in transparency, and timely approvals of grants and performance information.

So what could have possibly led the agency to explore Blockchain in the first place?

Clearly there are pain points for the two major stakeholders here – Grant Recipients and Grantmaking agencies, Auditors/IGs, and the public. The grant recipients experience burdensome and redundant reporting and payment processing while the latter group experience lack of transparency, and timeliness in grants financial and performance information sharing.

Existing Grants Management Business Operating Model, Image Courtesy: MITRE

Let’s highlight some of the major challenges of the grant management system often faced by federal agencies and grantees

• Accurate measurement of grantee performance – For the federal government project performance is absolutely more relevant than simply monitoring compliance with regulations. According to a Government Business Council (GBC) that conducted a research study of public sector employees involved in agencies’ grant programs, only 58% of the agencies successfully track the grantees’ achievements. The ability to accurately measure the performances has another advantage. It would help agencies to close out grants at the end of the performance period of the grantee so unused funds can be redirected or returned.
• Streamlining the process – Existing processes that duplicative, burdensome, and conflicting require additional resources which can be an additional burden on grants recipients.
• Transparency in the process and system – The Office of Management and Budget, the Department of the Treasury and other federal agencies have to adhere to the requirement of the Digital Accountability and Transparency Act of 2014 (DATA Act) requiring information on spending and grants be available. While there has been progress in standardizing and reported data being more available, but there is still inconsistencies and incompleteness in the quality of the data and information as per the Government Accountability Office (GAO).
• Information sharing and collaboration – Collaborating through information sharing is a critical factor to ensure an effective grants management process. The GAO found there was inadequate communication with grantees that could affect the implementation and prioritization of programs and initiatives.
• Lowering costs – Duplication and overlapping among grants awarding can end up increasing costs considerably. Processes and systems that can avoid this could help in saving these costs and increase efficiency in grant programs.

With Blockchain technology, there is a higher possibility of making reporting less burdensome, and timely payments for recipients, and for the entities, auditors, and public, it will bring in transparency, and timely approvals of grants and performance information.

Desired Future Grants Management Business Operating Model
Image Courtesy: MITRE

Thus improvements in grants management are absolutely possible if some key areas are addressed –

PII and sensitive/proprietary information – Control and access to and protection

Effective information usage – through the application of artificial intelligence and analytics.

Responsibilities and accountabilities – clearly defined through changes in regulations, policies, and processes.

Fund flowing and appropriation – Identifying centralized grant management solutions and laws that pose as barriers because of the requirement of funds flowing through state treasury, and appropriated by state legislation before awarding.

U.S Treasury’s engagement with Blockchain technology is a clear sign that the public sector is steering towards an efficient functioning of the processes and systems that has a larger positive effect on the broader federal community. The agency evidently wants to achieve clarity in the grants management process by way of tracking –

Peer- to – peer asset transfers via a digital representation of assets on the blockchain

System resiliency and close to real-time transparency in the event of a transfer of assets between parties.

Earlier The Treasury Department finished testing blockchain-based letter of credit as a push to explore the capability of the technology in streamlining operations. In another small PoC project, the department initially forayed into the technology to track mobile devices. The latest PoC will build on all the previous ones where some elements are related and will enable grant recipients to harness blockchain to digitally represent, transfer, and redeem grant payments. The project is expected to be reviewed based on it ability to impact the reporting burden associated with federal grant funding, particularly at the subgrantee level.

It will be an interesting use case to watch out for especially as far as the acceptance of the technology and whether it would be able to add value for the agencies as well as beneficiaries. Based on feedback, the agency will enhance the blockchain-backed grant payment application and post-completion a go / no go decision is expected to be made about the next phase.

Want to learn more about other use cases of Blockchain in government and public sector?

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GAO Source : https://www.gao.gov/assets/660/654039.pdf

~M.C

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