Allocation of Labor Expense (A.L.E.) is a set of PC and internet based software systems that work together to perform all tasks required for the accounting of labor costs.
Labor Cost Accounting is the process of gathering, tracking, allocating, recording and analyzing costs associated with the labor expense of an organization
Research organizations face unique labor accounting challenges.
Labor constitutes a large part of any research budget. Like any nonprofit, these expenses are allocated across grants. However, standard allocation tools don't quite fit the subject matter (see Distribution vs. Allocations).
NIH requirements like Time and Effort approval create additional overhead. Government regulations, private grant stipulations, and the shifting nature of labor complicates the subject matter.
A complete ALE installation can free up to a full FTE.
Although current process structure will affect actual savings, existing installs report an average savings of 1/4 to 1/2 FTE.
How many FTE's can you save?
Financial analysts, have the goal of discovering information about business that can help make strategic decisions. This information is called business intelligence.
The fodder of business intelligence is the raw data buried in your ledger. Effective reporting turns the raw fodder into concise, easily assimilated information.
ALE reports were molded by experienced end users: Reports that enable decision makers and empower the organization.
All reports fit on standard 8 1/2 by 11 paper and can be e-mailed as a PDF, analyzed as a spreadsheet, edited by a word processor or displayed as a web page. The report generator allows the user to filter down to just the information required. The Web Reporting System opens the ALE data up to the entire organization.
Labor expense comes from a variety of sources. In order to function at the highest level, ALE must speak with other systems.
In addition to payroll, many organizations have multiple benefits programs and perhaps manual systems.
To effectively interpret labor costs, ALE has to read account data and locate specific grant information.
Of course, most labor expense is ultimately traced back to the employee, which is likely stored in an HR system.
Using technologies like XML, SQL, JET and ODBC, ALE can read from almost any system. Additionally, ALE includes a data definition utility that allows the user to create "doors" to additional data.
Most organizations that install ALE already have an allocations module. So why not use the existing system? Well ALE Distribution is not your parent's allocation system.
Though they have overlapping functionality, allocation modules don't have the broad Data Awareness (knowledge of data in other systems), and tiered business rules required for the effective distribution of labor expense.
Allocations are driven by rules. For example, "put 1/2 of Joe's salary into grant1-account1 and half in grant2-account2".
While this simple rule will function without knowledge of other systems, what if the grant has expired? How about if the account number was transposed or it is not a valid posting account?
Hopefully, these errors would be caught before they reach your GL. However, at that point it is a manual process wasting time and opening the door to user error.
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This also introduces the possibility of data incongruities. If the user simply corrected the transposed account in the journal, the audit trail might be lost.
Here is another example: "distribute all overtime in lab1 to the overtime account using the fringe rate negotiated for this grant". This rule could not be applied unless we can read the payroll detail (to determine overtime), and grant detail (for the rate).
Ale's salary allocation rules are just one in a tiered series of business rules. This structure is required for complete automation of the payroll process.
To distribute labor expense, rules can be linked to the ledger, grants (every grant can carry unique rules), payroll code (wage, tax...), employee, geographic location (for example salary caps vary by region) and employee classification.
The bottom line is most allocation systems just don't quite fit. While they might be kludged into place, manual intervention is required and extensive resources are required for maintenance.
Fringe expense is a vital portion of employee overhead.
Fringe can be a static or dynamic: static fringe is a set percent of salary while dynamic fringe is actual dollars expended by employee.
Fringe rates and rules can be attached to a grant, employee, or employee group.
You can encumber fringe.
ALE performs the entire Gross to Net booking for you. Click here to see a sample booking and click here to see the analysis of that booking.
Not all labor data is available when processing a payroll.
Suppose an employee is participating in a project overseas. You are still responsible for his salary but he receives payment through the foreign payroll. Though you see no payroll entries, you still want to realize the expense in the current period.
The reverse situation might have a visiting scholar on your payroll. However, in this case you have to turn your payroll entry into a receivable. Research organizations can have similar relationships with doctoral students.
Do you pay 401k match quarterly but want to realize the expense with every payroll?
ALE Active Distributions handle all this and much more. While standard distribution rules allocate funds, Active Distributions create transactions.
Active Distributions can handle all the benefits needs at many institutions.
A byproduct of the ALE process is complete payroll detail in a very accessible format.
Recall that all labor expense passes through the ALE system. Also recall that ALE is linked to HR, grants, and your GL. ALE exploits this structure in its presentation of payroll data.
The user can drill down to complete salary detail from the grant, department, account or employee. This information is secure and not accessible from the GL.
In other words, ALE offers all the advantages of an in-house payroll solution to organizations that outsource.
Even if you do payroll in house, ALE might offer a superior data "vantage point".
NIH specific requirements automated by the ALE system.
Key Personnel
The Grant award comes with a stipulation that the PI devote a minimum percentage of effort to a the grant.
Salary Cap
Proven researchers can earn more than the NIH deems reasonable. In this case, the researcher's salary is split between the funding grant and an unrestricted fund.
Time and Effort Reporting
NIH requires PI certification of time and effort expended (see Effort Reporting System).
ALE automatically encumbers all salary expense. A byproduct of every automated posting is a simple adjustment to outstanding encumbrances.
It is as accurate as your payroll and current as of the last payroll.
Salary, fringe, COLA (Cost Of Living Adjustments) and anticipated merit increases can all be encumbered.
After the fact adjustments are a part of accounting.
The ease with which adjustments are executed have an impact on the resources required. If it takes 20 minutes to process an adjustment, and you post 10 a month, you will dedicate a week every year to adjustments.
Of course, a solid audit trail is required. Audit pain is exacerbated by poorly documented adjustments.
Retroactive adjustments are easy in ALE: simply enter a date range and overwrite the distribution rule that were in affect. Ale automatically creates rules to support the new distribution and posts appropriate reversing and adjusting entries.
ALE is a modular product that uses object oriented design tools. This means that many parts of the ALE system can be extracted and implemented as a standalone.
For example, suppose you keep your employee information in an HR system and ALE is set to use this system as the source for employee data. However, you still have to maintain the ALE specific salary allocation rules that are linked to the employee. In this case, we could extract just the part of ALE that maintains these rules. You could be working in the HR system, hit a key, and see the rules linked to this employee.
ALE allows definition of business rules on the following levels: payroll code; Active Distribution; employee group; date; grant, account string; and employee.
Each level carries a priority allowing these rules to interact.
While most of the complexity is invisible, this tiered rule approach imparts maximum flexibility.
ALE stores a copy of all the detail it imports and exports. Additionally, it maintains a permanent link between the transaction and all rules that affected the transaction.
Therefore, for all ALE ledger detail, you can review the data source, see the rules that were applied, and drill down to the results.
Did you ever look at a computer screen and say "Who did that?" (for example: "Who assigned George to the stem cell grant?"). Not any more. That is because ALE maintains full data edit history detail.
Before changes are written to the files, ALE takes a snapshot of the data as it existed before the edit. It stores this snapshot along with time of the edit and the user making the change.
At any given time you can review the entire edit history of record. This data is available interactively by record or via the Change Log Report by date and record type.
A primary ALE process is the distribution of valid wage expense between grants and GL cost centers. Distributions can be defined for a set amount or a percentage of salary. Business rules determine what is allocated. Salary Allocation Rules define the amount and cost center of the posting.
For a further discussion, see Distributions vs. Allocations.
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SALs tell the ALE system what to do with those expenses that are distributed across cost centers. These can be linked to grants or cost centers but are generally displayed by employee.
This is where the whole system comes together. Notice the first column allows us to implement an Active Distribution. Effort% is used by the Effort Approval & Reporting system. Distributions can be be adjusted or flagged as inactive. They can also indicate Key Personnel.