In the 1993 OSCAR® winning animation, The Wrong Trousers [Aardman Animations/BBC], the serial inventor (Wallace) is woken, tipped from his bed through a trap door, into his dining room chair via his waiting trousers, is dressed in situ by a series of robots and is served toast and jam by an impeccably timed pop-up toaster and jam catapult system. Inevitably, one day the toaster fails to pop and the jam hits Wallace square in the face. This exemplifies, in a humorous way, the limitations of non-adaptive automation – processes working independently of each other that cannot adapt to something going wrong somewhere along the line.
It is better therefore to seek to deploy adaptive automation wherever possible, where the steps in the process workflow change depending on circumstances arising. In the world of grant management, adaptive automation is potentially the ideal vehicle for delivering transformation to managing risk. This blog explores how it can help deliver dynamic risk assurance for grants, and the importance of doing so.
It’s risk management, but not as we know it
In the preceding grant management blogs, my colleagues explored how becoming modern, trusted and agile can help governments achieve better outcomes from their investment in grant programs. The blogs explored how becoming customer-centric can help all levels of government (and the eco system it depends on) to become more effective, and we discussed the types of technologies available, and the role they can play in achieving better outcomes for citizens.
This article will explore how technology, combined with risk-based process innovation, can transform the processes around grant and contribution administration and can help the entire grant program to be much more agile to risk and results, and significantly more trusted.
The exciting work KPMG firms are doing with grant programs globally is helping them to look at risk in a different way. It is helping them move from a reactive model of financial stewardship, towards a proactive model of outcome stewardship. It is helping them move from a model of risk management through layers of manual intervention, towards a model of having dynamic risk management built into the end-to-end process itself.
If the cornerstone of trust around grants is assurance, then the cornerstone of assurance is having the duality of efficient and effective risk monitoring for grants, combined with an ability to measure results.
This is increasingly important as governments put pressure on departments to demonstrate that taxpayers’ money is delivering results. For example, from the Government of Canada Federal Budget 2022 – “This requires ongoing review to ensure Canadians’ tax dollars are being used effectively and to ensure that government programs deliver the intended results.” [Source: www.budget.gc.ca/2022 - chapter 9.2, section 2.]
The value of a dynamic risk framework
The earlier blogs highlighted often a disconnect in grant management between ambition and capability. They also highlighted that a disproportionate amount of effort is spent on managing the application process (both by public servants and by third party providers who could be spending their time on higher value tasks). KPMG professionals put forward the case for transformation, and for automation.
Managing grants can be a complex business, this is why many grant programs have layers upon layers of process and manual intervention. Therefore, to transform the risk management process, you should start with a dynamic risk framework.
A dynamic risk framework sets out to solve two major issues:
- To provide a process that changes based on risk and
- To provide a process that monitors and measures both outcome stewardship (i.e., results) and financial stewardship.
Being dynamic means that the framework gains an understanding of the level of financial and outcome stewardship risk (high/medium/low) at a program, project and recipient level, based on key, client defined risk attributes. These risk attributes may include: materiality, complexity, sensitivity, alignment, program delivery, results measurement.
Having a dynamic risk framework, and a technology solution to manage it can help ensure that risk is integrated into the process and can dynamically change the process through the three lines of defence.
Adaptive automation across lines of defense
When implementing an adaptive risk management solution, consideration should be given to the different risk attributes to account for, and what needs adapting (and at what stage/line of defense), depending on the risk profile.
There should be three lines of dynamic defense to help ensure financial and results stewardship:
1st - Operational, e.g., the amount of due diligence to perform on a recipient to initiate and monitor funding and results.
2nd - Internal monitoring, e.g., the extent of management monitoring that needs to happen at a program (multiple projects and grants) and/or project (grant levels).
3rd - Independent monitoring and governance, e.g., extent/scope of independent oversight, audit and evaluation required.
If a program or project is regarded as low risk at levels 1 and/or 2, then there is likely little need for intensive independent monitoring at level 3.
At a basic level, this approach helps eliminate some of the ‘process for process’s sake’, such as post-payment verification on all payments including lower risk or lower value transactions. Why spend $5 per transaction on verification when the transaction value, and related risk is below a certain threshold? Reduced verification through sampling would be a more cost-effective approach.
Grant management article series
In this short series of grant management blogs, senior leaders from KPMG firms’ global government advisory team provide insights into how governments can drive change, get more from their investment in grants, and deliver better outcomes for citizens.
This, the last in a series of four, focuses on how modern risk management techniques and solutions can help ensure that grants programs offer better value for money, as well as helping to measure and improve outcomes.
Throughout this series, ‘grants’ refer to the various mechanisms that transfer funds from governments to third parties for the delivery of public support, relief, or services either as a one off or ongoing.
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However, complex grants (i.e., varied type, geography, innovation, amount, etc.) may need every line of defense to increase the likelihood they deliver on results. Handing out large or multiple grants to firms to tackle their carbon footprint may result in having thousands of varied recipients, investing in quite different solutions who need to be vetted from result delivery and financial perspectives.
Of the six example risk attributes outlined earlier, a program of grants such as this at the very least makes delivery carry a higher risk, let alone being able to measure results or monitor proper use of funds. Therefore, the workflows and case management activities in the grant platform can dynamically modify and will likely be a reflection on how the program is performing overall, and where risks are currently being identified. With this level of risk assessment being required, only automation can deliver a scalable solution. Throwing people at it is simply not sustainable or affordable.
The end user does not need to make these complex decisions, an adaptive, risk-based system presents to them options (where options apply) based on the risk levels identified, and the contract in place. An example of this is within the funding arrangements, where the automated workflow only offers up funding options commensurate with the level of currently identified risk for that project, across the six risk attributes.
By taking away end user biases, the risk management process can achieve a much higher level of consistency in the application of risk principles to the resulting grant processes.
The bigger picture, supported by data-led insights
From this series of blogs, it was shown that transforming grant management overall can help governments to deliver more with the resources they have by becoming more efficient. It can also help them, and their partners, to deliver better outcomes for citizens by collectively becoming more effective. Without change, government departments are left vulnerable to not achieving the things they need to achieve. Without integration, grant programs are vulnerable to high risk and cost.
Having access to trusted data is key. A modern risk management solution generates insights that support the measurement of results, allows the automation of the assessment of risk, and makes financial reporting much more straightforward (e.g., around financial flows and budget variances). It also creates more opportunities for streamlining stakeholder management by aiming to reduce duplication of effort and duplication of reporting.
Because KPMG firms’ risk framework is modular, it can work alongside legacy grant management platforms, helping to build agility and elevate trust into existing grant management operations.
In the quest for governments to become modern, trusted and agile, we believe that deploying adaptive automation for risk management in grants has a large part to play.
What next?
This article is a part of a mini-series. To learn more about how governments can achieve better outcomes from their investments in grant management programs, explore the related articles below.
