The Future of Grants Management: Auditing

Technological advancement will no doubt continue to shape the future of grants management. In the present, technology helps to streamline processes and create efficiencies for grants professionals. MITRE, a nonprofit research and development organization, has conducted  studies  to identify how blockchain technology can enhance security and improve transparency at the  Federal level. AmpliFund has worked with MITRE in a pilot project to better understand how blockchain can reduce administrative burden, specifically for grant management. Through this relationship, we have gained insight into the ways that blockchain technology could improve transparency in grant management, and insight into the things that it realistically may not have an impact on.  

I have previously discussed how financial information could be easily accessed on the blockchain by anyone who has the proper permissions to view it in the grant lifecycle. With  blockchain technology, because the ledger is distributed, a record of each transaction is recorded and updated at every point in the chain of users who are involved with a financial transaction. The history of these transactions can neither be modified nor deleted. They may only be added to and never edited. Due to this, many in the grant management space are expecting blockchain to fundamentally change how audits are conducted because of the permanency of the transaction record, the security blockchain affords, and the easy-to-access nature of the record with the correct permissions.

Blockchain technology definitely presents a new, more secure level of control that auditors will most likely appreciate, but it ultimately will not be a replacement for managing internal processes, testing grant performance, and financial spend.

Evaluation Criteria

There are many requirements of an audit according to the Office of Management and Budget’s Uniform Grant Guidance (UGG). During an audit, auditors are required by UGG to evaluate the following:

• Whether activities are allowed or unallowed 
• The legitimacy of an expense against what is allowable 
• The efficacy of your cash management practices  
• The gross income of your projects 
• Your overall programmatic performance (including outcomes) 
• The performance management system you have in place 
• Your subrecipient monitoring practices 

Overall, all organizations managing Federal funding are expected to establish a performance-driven grants management system that enables them to demonstrate proper spending. The way auditors verify this information is by evaluating the efficacy of internal processes and having direct access to individual payment records typically located in a case management system. These are aspects of grant management that cannot be adequately evaluated by access to payment records alone.

On the blockchain, auditors will see the movement of payment between parties, but not the process that enabled that transaction to come about in the first place. Those processes, internal controls, and performance measurements are partially, but not wholly, evaluated by financial records. This means that even though blockchain will provide a secure, accurate record of payments, it cannot be a substitute for your own internal grant management policies and reporting practices.

The Future of Auditing 

The future of auditing will most likely be very similar to how you prepare for an audit today. These practices include: 

• Developing an audit-focused grant management strategy. 
• Creating standard processes that drive best practices. 
• Potentially implementing technology to help drive efficiencies and create an audit trail. 
• Taking steps to standardize your performance measurement across your grant portfolio.  

In short, blockchain technology will likely streamline an auditor’s visibility into the controls that are in place for final approval, payment, and financial spend on a grant, but your day-to-day practices in the world of grants management are likely to remain consistent. 

The best thing you can do to prepare for the audits of the future is focus on your programmatic accountability today. 

Looking for more resources on how you can begin to centralize your grant management efforts to perform well in an audit? Check out our eBook here.