Can Blockchain Technology Address Longstanding Pain Points in Federal Grants Management?

June 2019
Topics: Economic and Cost Analysis
From Head Start initiatives and food assistance programs to disaster relief, grants are the main source of federal aid to state and local governments, tribal nations, universities, and many community-based service organizations.
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Federal grants are the lifeblood for thousands of programs. Moreover, there are billions of dollars at stake, spread over 900 grant programs offered by 26 federal grantmaking agencies, and all parties feel burdened by the process.

MITRE tackled this problem by exploring how blockchain might be applied to enable grantees and grantors alike to streamline business processes and reduce the burden of reporting financial and performance results.

“The administrative burden of monitoring and reporting on federal grants has been a long-standing problem for federal agencies and grantees alike,” explains Karen Lee, MITRE government administration and judiciary portfolio director and former chief of the Office of Federal Financial Management in the Office of Management and Budget (OMB). “OMB and the federal grantmaking agencies led the charge to revise long-standing regulatory requirements and streamline reporting burden.  But there remain opportunities to design how grantees interface with the federal government, which can reduce their administrative costs and target more grant dollars to achieving real outcomes.”

The need to solve this problem was called out in the President’s Management Agenda (PMA) published in March 2018. It established Cross Agency Priority (CAP) Goal #8, Results Oriented Accountability for Grants. The goal seeks to “improve data collection in ways that will increase efficiency, promote evaluation, reduce reporting burden, and benefit the American taxpayer.” 

In October 2018, MITRE, which operates the Center for Enterprise Modernization (CEM)—the U.S. Treasury Department’s federally funded research and development center—began working with a number of government agencies to assess the potential to improve grants management by using blockchain technology. These agencies include the Departments of Education, Health and Human Services, and Housing and Urban Development, along with the National Science Foundation, Office of Management and Budget, and Treasury Department's Bureau of Fiscal Service.

“We knew that achieving the PMA goal would require changes to the current grants management business operating model and new technologies that enable the changes,” says Jasmine Faubert, MITRE portfolio manager for Government Administration and Finance. 

One Possible Solution: Blockchain. 

Blockchain has become one of the latest technology buzzwords—along with artificial intelligence (AI) and robotic process automation (RPA) —that are transforming business operations. It's a way of recording transactions, typically financial transactions, into an electronic ledger that's managed de-centrally and physically replicated among the blockchain participants (“nodes”). 

Decentralized grant processing and information creation is already inherent in the grants management ecosystem of federal agencies, state and local governments, tribal nations, universities, and community-based service organizations. On the surface, it would seem blockchain technology’s characteristics are well suited to improving grants management.

As Dave Powner, director of Strategic Engagement and Partnership and former Government Accountability Office official, notes, "With any new technology, there will be those who are looking for hammer and nail solutions. 

“What is important is to not only determine if blockchain is an appropriate technology solution for the government’s needs, but also what business, organizational, operational, programmatic, and economic aspects need to be considered to ensure the solution can fully address the government’s needs and be sustainable in the long run. 

“Technology is an enabler and rarely a solution all by itself."

Getting to the Heart of the Problem

To ensure the analysis was thorough, objective, and free from competing federal, public, and industry interests, MITRE designed, conducted, and funded this study without financial support from the federal government or any other entity involved in the grants or financial management processes or vendors of blockchain technologies. 

Our expertise is in “systems of systems” thinking and the relationship between technology and people. For this effort, we brought expertise in grants and financial management, blockchain technologies, and human and organizational systems, with experience researching and designing actionable strategies that consider the human aspects of any system or transformational initiative.

Getting to the right recommendations involved gathering detailed information from both agencies (who give the grants) and recipients (who receive and distribute the money). That meant interviewing agency managers and other personnel who work in grants management, financial management, and Inspector General offices. 

We also interviewed grant recipients in the public and private sectors, including state government agencies, public and private universities, community-based service organizations, and a tribal nation.

Additionally, we gathered insights from experts from all sectors and aspects of the grants and financial management processes. Interviewees ranged from subject matter experts in grants management and payment processing to specialists in blockchain solution design and implementation.

A Better Way to Manage Federal Grants

The study results support the hypothesis that blockchain technology can improve grants management for both federal agencies and grant recipients. 

The primary benefit to federal agencies? Improved decision making through enhanced transparency, quality, and timeliness of grant financial and performance information. The primary benefit for recipients? Reduced redundant reporting to multiple grantmaking entities and auditors. Payment efficiency is a secondary, though still important, benefit. 

Combining Blockchain with Other Technologies Is Crucial 

"What we learned from the interviews and our own independent analyses is that it's not an easy task," Faubert says. "Achieving these benefits will require addressing a list of actions identified when talking with people on all sides of the grants management equation."

Based on the study findings and analyses, MITRE researchers developed recommendations should the federal government implement the proposed grants management business operating model and a Distributed Grants Ledger solution based on blockchain technology. 

One recommendation is for the federal government to set up a grants management blockchain demonstration project, or proof of concept. A demonstration project would test a subset of benefits; further explore a subset of actions needed, challenges, and mitigation actions; and engage industry and a consortium of federal, public, and private sector grantmaking and grant recipient entities to evaluate the results.

"Using blockchain technology alone will not solve the grants management problem," Faubert says. "But it's a start. When combined with other technologies that address information security, privacy, analytics, and document management—and the programmatic, organizational, and economic activities that enable successful adoption—blockchain technology can be an enabler for the changes needed in the grants management business operating model. 

“These changes could reduce burden and make sure money is getting to the many programs and people who could benefit from it." 

—by Jennifer Lang

 

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