DLT in the Public Sector: How Corda is Being Used to Revolutionize Grants Management
Federal grants are how state and local governments, universities, tribal nations, and community-based organizations have funding to pay for programs vital to their communities. Grants provide for everything from sustainability initiatives to basic social infrastructure, like education and healthcare.
US grant funding hit $1.3 trillion in 2021, but the systems used to manage distribution of that funding are burdensome and inefficient. According to research by the National Grants Management Association, grant managers spend around 35% of their time on compliance activity, while 50% still submit reports using manual data entry and email. These processes make decision-making and delivery difficult to trace, resulting in a lack of transparency and accountability. The same research highlights that, on average, 12% of the total value of grants received by organizations goes towards these administrative processes. This resource burden detracts from the impact of federal grants as a significant portion of funding never reaches the intended recipients.
Now, US government agencies face a December 31, 2022 deadline to submit implementation guidelines for streamlining grants management as required by the Grant Reporting Efficiency and Agreements Transparency (GREAT) Act. This mandate is a key opportunity to move the grants management process onto modern technology, the benefits of which will last well into the future.
MITRE, a non-profit public interest company, set out to test the ability of Distributed Ledger Technology (DLT) to modernize the grants management process in their Demonstrating the Future of Grants Management project. And their finding is: permissioned DLT works. They even laid out how, having done extensive use case and technical work with government and private sector partners, including R3. That work provides a playbook for the government to use in moving grants management processes onto Corda, enabling them to meet the December 2022 deadline and ensure that vital funding is spent where it is most needed.
More on the project
With the December 2022 deadline fast-approaching, MITRE set to work trying to understand the specific pain points experienced by stakeholders in federal grants management.
They found that, because funding often passes through multiple tiers before reaching recipients, agencies at the top often had very little visibility of the outcomes of federal funding. Meanwhile, grant recipients have to produce multiple financial and outcome reports for grant makers and auditors.
MITRE determined that the unique features of DLT provide a solution that can simultaneously address this need for increased transparency across multiple tiers, while reducing the burden of reporting and compliance.
This is because, with the appropriate DLT platform, information can be shared automatically with the stakeholders who have a need and a right to see it on a private and permissioned ledger. Moreover, once the information has been put on ledger, it is immutable and accessible to only authorized parties.
And it is more than just resources that are saved. With accurate and accessible reporting, funding and outcomes can be easily aligned and shared, making it easier for entities to obtain or retain a grant. Moreover, with the transparency afforded by DLT, errors, fraud, or misuse of grants can be identified immediately, ensuring public funds are spent where and how they were meant to be.
But, in order for these benefits to be realized, it became clear to MITRE that only a private and permissioned technology provided the necessary features and ensured the security expected by government agencies.
R3’s Corda was selected as the DLT platform for this project, and, since then, R3 has provided its technical expertise and guidance to help MITRE and all of the other partners on the project see the work through to completion.
Why Corda for grants management?
Firstly, when working with government agencies and public funds, security is the highest priority. Additionally, each participant must be able to trust that the other is who they say they are.
Corda was custom built to provide this trust, which is required in heavily regulated industries; these features are core to our offering. Corda operates with strict identity standards and ensures that access is granted only to authorized entities. For MITRE and the stakeholders in the grants management ecosystem they work with, this means that information can be kept secure without sacrificing the transparency afforded by DLT. It also means that project outcomes of institutions involved in sensitive work, such as with vulnerable groups, can be kept confidential.
Secondly, Corda is scalable, meaning that an entire network of grant makers, recipients, and auditors can interact without limits on numbers of transactions, while having maximum transparency and a single source of truth. Each participant can leverage Corda to share grant information easily with other authorized nodes. Corda can also seamlessly interact with each participant’s internal legacy systems. Ultimately, such a move to DLT would greatly reduce costs by providing one common solution for all grants management activity. Lastly, Corda enables the enforcement of business standards via smart contracts.
Looking ahead, smart contracts could also be used to automate grant payments. Smart contracts can be used to tie the payment of grants to certain conditions. For example, second-stage project funding can be automatically paid once the first stage is complete. Or funding can be withdrawn if an entity has failed to meet an obligation.
These features were crucial not only in enabling MITRE to develop their business operating model successfully, but also in demonstrating the longer-term benefits of integrating DLT into grants management.
Two use cases have now been successfully built and executed using Corda. In both, grants management systems (GMS) relied on Corda to share real-time information on grant awards and requests, financial and performance reports as well as audits and closeouts.
The project showed that many of the onerous reporting and compliance checks could be automated, as all participants have access to a complete and accurate set of shared information. Not only did this mean that the administrative burdens associated with grants management were greatly reduced, but that grant making entities also had better visibility of spending and performance reports, which improved decision-making and ensured appropriate financing.
With the help of R3 and using Corda as the underlying DLT platform, MITRE has laid the foundation for a DLT-based grants management solution, which allows for accountability, transparency, and more efficient delivery of essential funds.
With the December 31, 2022 deadline fast-approaching, it is now up to government agencies to leverage the findings of this project and incorporate them into their guidelines on streamlining grants management. DLT has now been shown to be an effective tool, which will help institutions modernize and improve their processes. Government agencies should continue working with technology providers like R3 to develop a clear strategy on incorporating DLT into grants management. Piloting the use of private, permissioned DLT platforms in wider grants management projects is an essential step to meet the requirements set by Congress and create a futureproof solution for administering over a trillion dollars of funding annually.
Ultimately, such a solution will reduce the administrative burden of federal grant making, ensuring resources are spent where they are most needed.