Why government funds are flowing now more than ever — and how to manage them well

This time last year, one of the topics I suggested governments focus on in 2022 was the growing gap between the “haves” and the “have nots.” Why? Because, despite massive stimulus spending, inequality increased during the COVID-19 pandemic.

One year on, governments globally face even bigger environmental, economic and humanitarian challenges. In this blog, I’ll explain why huge amounts of money are still flowing within and between governments. I’ll then suggest some efficient and effective ways to make sure these reach the right people and deliver lasting results.

From free markets to faith in government

For 50 years, free market thinking has been a dominant force around the world. And other than stepping in to save economies during the 2008 global financial crisis, governments have taken a relatively backseat role.

The pandemic changed this dynamic. Around the world, governments funneled huge sums into helping businesses and individuals stay afloat and vaccinating their populations. As they did so, the pendulum of public and political opinion swung from a free market consensus toward a strengthened role for government. And it has yet to swing back.

There are two reasons for this:

1.??????A global cost of living crisis, driven by soaring inflation, interest rates and energy prices. Governments have responded with interventions such as raising the minimum wage, putting a cap on energy bills and subsidizing fuel prices at the pump. And we don’t yet know when the crisis will abate.

2.?????The need for grant and relief funding to deal with not only the health crisis but also the damage resulting from both current armed conflicts and climate change. Experts estimate that the reconstruction and recovery of Ukraine could cost US$349b. And COP27 in November 2022 ended with an agreement to provide “loss and damage” funding for countries hit hard by climate disasters. The cost is estimated to reach between US$1t and US$1.8t by 2050. That’s on top of the estimated US$4t to US$6t a year needed to transform into a low-carbon global economy.

Learning from the lessons of the pandemic

Citizens increasingly expect their governments to address these challenges, but they also expect them to spend the money well.

The stimulus example I gave at the start of this blog shows why governments need to learn from the recent past. The pandemic required them to provide grants and relief funding on a massive scale and at unprecedented speed. But doing so created substantial scope for fraud, waste and lack of impact: At least 4.5% of the US government’s largest pandemic stimulus program went to fraudsters. Cases like this are among the many reasons why, after an initial surge in May 2020, trust in government slumped as the pandemic progressed.

As trust is key to the legitimacy of governments, it’s vital they regain some of this ground — and efficient, effective management of financial flows is one way to do it. But traditional tools simply aren’t up to the job of monitoring the enormous amounts of money involved as they flow through complex provider ecosystems to the point of need.

Fortunately, next-level solutions are available that can help provide vital funds to the right people quickly and securely, with minimal fraud risk, maximum impact and full transparency. These also enable governments to sustain and expand on the digital gains made during the pandemic.

Here are three ways in which they can support governments in 2023:

1.????Make sure grants and relief fund processes are fit for purpose

Grants can be a versatile and powerful tool for governments to tackle a wide range of issues. To be effective, though, they require strong governance, compliance and transparency, together with effective program design and delivery; all of which can be challenging when you’re racing against the clock to support people in need.

This was the problem facing the Hawaii Department of Human Services (HDHS) during the pandemic, when its already over-stretched team received a US$80m federal aid grant for childcare providers. EY US designed and monitored a program to fast-track the administration of the grant, which included integrating technology that both childcare providers and HDHS team members could access. The state now has a comprehensive, compliant technology solution and support processes to help it manage similar programs in the future.

2.???Minimize fraud and waste

Blockchain technologies can help tackle fraud and waste by giving the originator of the funds full visibility of their money as it moves through the system. For example, a tool that EY prototyped for the International Monetary Fund helped to identify and reduce irregular payroll practices in transitioning states. It’s also possible to build a smart contract element into a blockchain solution, so funds are only dispersed when certain conditions are met.

AI-driven digital technologies can be helpful here too. The U.S. Department of the Treasury has been able to recoup money from suspected money-laundering through its AI system. And the Australian Taxation Office uses AI to flag deduction claims that are out of normal range. The system then “nudges” taxpayers to correct mistakes and file accurate returns.

3.???Save money, target resources better and improve the citizen experience

Digital technologies can make everyday functions more efficient and cost-effective. The US Bureau of the Fiscal Service found that digitally transforming its processes could save the US government US$1.4b to US$3b, for example. Research conducted for EY by Prysm Group suggests this is just the tip of the iceberg if we also take into consideration the opportunity to eliminate improper payments and redirect funds to higher-impact activities.

Meanwhile, blockchain technologies enable governments to use almost near-time information to make informed decisions about where to allocate resources. They can also track the outcomes and show taxpayers that their money is being spent well.

Finally, predictive analytics can help identify and target services at the most at-risk people. Through its work with Maidstone Borough Council, EY has helped reduce the risk of homelessness by 40%, while generating ￡2.5m in broader societal savings.

With the right support, governments can make the maximum impact

There’s no doubt that governments face huge challenges in 2023. But they also have two advantages: ongoing support for huge financial flows, and innovative solutions for managing them well. These put governments in a good position to make the maximum impact — by helping to build?a more equitable and sustainable world, with less poverty and better health.

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Find out more

·??????EY Grants and Relief Funds Management solution: www.ey.com/en_gl/managed-services/grants-relief-funds-management-solution

·??????EY OpsChain Public Finance Manager: www.ey.com/en_gl/government-public-sector/blockchain

·??????Digital and innovation in government: www.ey.com/en_uk/government-digital-innovation

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The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.