The Future of Grants Management: Blockchain

A common challenge when it comes to grant management is maintaining accountability and transparency around financial and performance reporting. Records of payment information can be redundantly replicated in several places leading to inefficiencies. Challenges with financial reporting can create a situation where there may not be a wholly accurate record of your performance against grant outcomes, which could impact your ability to retain funding, or secure future funding.

Presently, grants management software does an excellent job of streamlining and centralizing financial information related to your grant so you can measure and report on your performance to maintain compliance. There is new technology on the horizon that could even further improve your ability to reduce redundant reporting, improve payment efficiency through multiple tiers of recipients, as well as provide a verifiable, secure record of your financial expenditures so grant makers can see your performance and outcomes clearly.  

This technology is called blockchain, and it is poised to change the way that auditing and grant-related financial transactions operate to improve transparency in the grant management space. If you have heard of blockchain before, it is most likely in relation to cryptocurrencies like Bitcoin.

Blockchain in not synonymous with cryptocurrency, rather it is the technology that makes secure financial transactions - without a bank to mediate them - possible.

How does blockchain work?

Blockchain is a technology that records transactions into a digital, distributed ledger. Practically, what this means is that the record of a transaction and the information associated with it are not held at a single, central point, but instead are written to a decentralized ledger where anyone with access to the blockchain can see what Party A paid Party B, permanently. All transactions are grouped together in “blocks,” which are then chained to the previous block of information. Hence, the name blockchain.  Nothing added to the blockchain can ever be altered, or removed, creating a perpetual record of the information.

This is different than the way traditional record-keeping systems for financial transactions currently operate. Banks typically hold their own records of their client’s financial transactions that are separate from the client’s records. In the grant management space, you may keep your own record of each financial transaction for a grant in a spreadsheet, or in your grant management software. Traditionally, you must send all your records in relation to a grant to the Federal government for them to have their own record of your grant’s performance. This is why accurate data collection for reporting is so critical and labor intensive. The same is true for an audit. Here is a visual representation of the way that information is currently accessed.

Source:  MITRE Grants Management Blockchain Study Report

The layers of reporting that can sometimes exist between the Federal government’s records and a subrecipient’s Excel spreadsheets can create room for mistakes in accounting and payment reconciliation. In the worst cases, this multi-layered paper-driven reporting structure can create opportunities to conceal fraud, waste, or even abuse. Grant management systems already drive efficiencies in reporting practices and help to ensure that payment reconciliation is accurate and timely. Blockchain could help further streamline these processes in the future.

On the blockchain, if you post your grant financial records to a system integrated with the grants blockchain it can then be made visible to any other entity with the right permissions. With blockchain, a federal agency could review your expenses to process payment, or if you were being audited, you could simply grant the auditor access to your records; however, they could access them with any system that is tied to the grant’s blockchain. Here is the way information could be accessed in the future.

Source:  MITRE Grants Management Blockchain Study Report

Blockchain technology decentralizes the record of a transaction and distributes the information to anyone who has the permission to access 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 cannot be modified nor deleted. It can only be added to - not edited – which can help prevent fraudulent transactions, or transactions that have not been approved by all parties involved with a payment. With grant data being exchanged at multiple tiers across myriad users, having accurate financial transaction data is critical.

The accurate historical record-keeping and security of blockchain technology provides an avenue to better audit trails of a grant.

How will blockchain impact grants management?  

MITRE, a non-for-profit research and development organization, has conducted studies to identify how blockchain technology can enhance security and improve transparency at the Federal level. Here at AmpliFund, we have worked with MITRE in a pilot project to gain a better understanding of how blockchain can reduce administrative burden for grant makers and grant seekers so you can spend less time on paperwork and focus more on programs.

In the future, blockchain technology may be integrated with the grant management system that grant makers and grant seekers use to manage day-to-day operations, which will further help streamline and automate paper-heavy record-keeping processes and increase efficiencies.

When it comes to grants management, a more accurate and secure transmission of data, afforded by access to blockchain technology, will change the way that payment requests function and how auditing is approached.

Accountability throughout the entire grant ecosystem will be enhanced leading to greater transparency as well. This increased transparency will create more comprehensive, accurate data sets for the Federal government allowing for a more effective investment approach at the Federal level. 

In the coming weeks, we will be diving deeper into the ways that payments requests and audits can be impacted by blockchain technology, and how you can begin to adapt to a grants management world that is moving toward this future. In the meantime, we have more information on how you can begin to standardize for performance measurement or improve accountability now.

*Photo by Launchpresso on Unsplash