Overview

EARS (Effort Allocation and Reporting Solution) is Labor Cost Accounting software. Originally developed as a compliance tool for federally funded institutions, EARS can serve any organization where labor constitutes a significant portion of total expense and these costs are allocated across shifting cost objectives or subject to manager approval.

Key features include complete labor expense distribution, encumbrance posting, integrated retroactive adjustments and the Time and Effort Certification system.

Basically, EARS reads or generates labor costs which it processes through a series of business rules, the most visible of which are the salary allocation rules. The final distribution process is similar to standard payroll or GL based allocations with expanded functionality.

EARS posts summary data (to obscure salaries) directly to the GL and functions as the subsidiary labor ledger. It logs labor effort and retains complete detail for comprehensive reporting, audit support and labor cost certification.

EARS generates useful labor cost metrics and documents all cost sharing. Perhaps the most valuable EARS feature is Effort Forecasting. EARS also calculates fringe expense, supports indirect costs and generates your labor budget. It can even post the payroll gross to net entry.

EARS was first released in 2001 and has evolved to meet a variety of related needs. Institutes that bill other organizations for labor effort use EARS to support the invoicing process. Real Time Allocations allow the user to create custom allocations on the fly. If selected employees use a time card system to clock in and out of projects, EARS can turn clock punches into auditable effort allocation rules.

EARS maintains a detailed edit history and every transaction has a complete audit trail. Because of its modular design, EARS can be molded to fit the distinct needs of any organization.

The EARS system increases compliance while saving resources and empowering the dialog between science and administration.

The Effort Allocation and Reporting Solution (E.A.R.S.) is a suite of PC and internet based software systems that work together to perform all tasks required for the accounting of labor expense at government sponsored institutions.

Labor Cost Accounting

Labor Cost Accounting is the process of gathering, allocating, recording and analyzing the direct and indirect costs associated with an organization's labor overhead. This includes the formal documentation of required controls. In EARS, this can include manager certification of labor expense but does not include payroll generation.

Labor Cost Distribution

A primary EARS process is the distribution of selected labor expense across grants and GL cost objectives.

EARS includes robust tools to maintain distribution profiles and support the allocation process. It reads data directly from your payroll provider and verifies information against your grants management system before posting to your general journal.

The EARS distribution process is superior to payroll or GL allocation tools. Tiered business rules determine what is allocated while salary allocation rules define the allocation.

EARS Distributions vs. Standard Allocations

Though they have overlapping functionality, most payroll or GL based allocation tools don't have the flexibility and data awareness required for the effective distribution of labor expense.

EARS uses layered business rules which support distinct allocation by type of expense. It allows flexible employee grouping for fringe generation and other transactions. The actual salary allocation rules link employees, grants, payrolls, dates, GL, and budgets. Many payroll, or ERP systems, cannot access this information. Also, most generic allocation tools do not maintain an auditable history.

Additionally, not all transactions are subject to pre-defined allocation rules. Process exceptions occur frequently yet every transaction must stand up to audit scrutiny. That is why every EARS transaction can be traced back to an auditable business rule.

Labor Accounting for Non Profits

Federally funded nonprofits face unique labor accounting challenges. Labor accounts for over one third of all federal awards. Grant recipients must distribute related expense between grants yet existing allocation tools are not suited for this application.

Every grant can have its own budget and distinct fiscal year. Many organizations struggle integrating these disparate budgets with the ever shifting labor pool.

Additionally, federally funded organizations must meet onerous compliance obligations and negotiate agreements for the reimbursement of fringe and indirect costs.

Conserve Resources

EARS saves resources. It includes powerful tools to ease allocation maintenance. It can extract detail directly from your payroll provider and post it to the ledger with a few mouse clicks. It allocates expenses, calculates fringe and automatically posts all gross to net entries.

A complete EARS installation can free up to a full FTE. Although current process structure will affect actual savings, existing clients report an average savings of 1/4 to 1/2 FTE.

Data Acquisition

Labor information comes from a variety of sources. Systems such as payroll, fringe benefits, position control, grants management, and HR might all contain a piece of the labor puzzle.

To effectively interpret labor costs, EARS must read directly from these systems. It integrates this information for expense acquisition, comprehensive edits, GL postings, analysis, and audit readiness.

Fringe

Fringe expense is a significant portion of labor expense. In EARS, fringe can be static (a set rate), dynamic (the actual fringe overhead), or linked to individual grant agreements.

Static fringe can be posted to a fringe over/under collected account for year-end reconciliation. Fringe rules can be attached to a grant, employee, or employee group. You should always encumber fringe.

Gross to Net

The Gross to Net entry is last part of the payroll booking process. It can include accruals as well as balancing entries and the net payroll entry. EARS can post the entire gross to net booking for you. Click here to see a sample entry and click here to see the analysis of that booking.

Active Distributions

Not all direct labor expense is accessible through payroll. In fact, it is common for a researcher on an external university payroll to receive compensation from an internal grant. That is why EARS includes Active Distributions.

Suppose employees are participating in a project overseas. They receive payment in foreign funds but the foreign institute will invoice you for salary reimbursement. Though you see no payroll entries, you still want to realize the expense.

EARS can automatically book this as a payable in the current period. This expense will appear on all reports just like any other salary expense.

While standard distribution rules allocate imported expense, Active Distributions create transactions.

Compliance

In 2015 the government released the Uniform Guidance which changed the federal grant compliance landscape. Now every federally funded organization must maintain a “stringent system of internal controls” to support the allocation of labor expense.

EARS was built to be just such a system of internal control and meets all federal guidelines. It also includes reports designed to support the audit process and tools that monitor related elements such as key personnel and the NIH salary cap.

Additionally, philanthropic funding can come with unique diligence. That is why EARS can incorporate special process based on funding source.

Encumbrances

Encumbrances represent a posted commitment to pay future obligations such as next month's salaries. Organizations that encumber goods but not labor do not realize the benefits of encumbrances such as a budget checking.

Budget adherence can be challenging at grant funded organizations that maintain independent budgets for each grant– many with their own fiscal year.

Current, accurate labor encumbrances are a natural extension of the EARS process. Salary, fringe, COLA and anticipated merit increases can all be encumbered.

Adjustments

All accounting systems must support adjustments. At federally funded organizations, the retroactive movement of posted expense between grants (cost transfer) is subject to audit scrutiny.

The EARS retro process is easy: simply define a date range and edit the allocation rules. The system calculates the adjustment and automatically posts it to the correct period. The adjustment is self-documenting and has a comprehensive audit trail. Importantly, all transfers are linked to the certification conversation that may have initiated the adjustment. Users can also attach additional documentation.

Rule Heirarchy

EARS obtains maximum flexibility through the use of tiered business rules. Unique rules can be attached to a specific type of pay detail, an employee, a group of employees, grant, date range, or a GL cost objective. If rules cannot be defined for a particular pay detail, Real Time Allocations allow for rule definition during the payroll posting process.

Audit Trail

EARS has been through numerous internal audits. Every EARS transaction can be traced back to immutable business rules which themselves contain a full edit history. It also stores a copy of all detail it reads from (or writes to) other systems.

The full audit trail is always accessible. At any time the auditor can trace a GL transaction, to the rules that created that transaction, to the source of the funds on which the rule was applied.

EARS also contains reports, some designed by experienced auditors, to support the external audit process.

Data History

Did you ever ask "Who did that?" (for example: "Who assigned George to the stem cell grant?"). Not any more. That is because EARS maintains full data edit history detail.

Before any changes are written to the file, EARS logs a snapshot of the original data along with time of the edit and the user making the change. No information is ever lost. This edit history is always accessible via reports or manual lookup. You can even filter reports based on last edit date.

Salary Allocation Rules

Salary Allocation Rules (SALs) define standard allocations. They link employees to grants, effort approvers and GL cost objectives by date. Sals can allocate actual expense or labor effort as a separate entity. Expense can be allocated as a set amount or a percentage of wage/time. Sals can also log Key Personnel and other information.

Sals generate a variety of transactions including distributions, adjustments, encumbrances, certification reports, and Active Distributions.

Time and Effort Certification

Effort certification is a formal verification that wages charged to federal grants are reasonable and in line with institutional commitments.

Documentation requirements are codified in the Uniform Guidance which defines the guidelines for a stringent system of internal control to support the distribution of employee expense. Auditors must test these controls as part of the new audit requirements (see the feature summary for more detail).

EARS includes a labor effort certification system built around personnel activity reports. This system is easy to use and incorporates robust delegation.

Effort Forecasting

Effort Forecasting is one of the most useful features of the EARS system. It combines cost projections with posted history in an innovative calendar format (sample report). This planning tool bridges the barrier between administration and science.

Effort forecasting integrates a clear vision of pending labor expense with the historical spend. It supplies actionable information in a useful format and is more accurate than encumbrances and budgets.

Organizations that adapt this feature report an accurate grant spend-down, decreased cost transfers, and easy budgeting.

Real Time Allocations

The EARS Real Time Allocations feature allows the user to decide how to allocate specific detail during the payroll posting process. This allows for the formation of custom allocation rules on the fly.

For example, if overtime is only approved in special situations the manager that approved the overtime can dictate where to post the expense.

Cost Sharing

Most institutes share labor expense with the government. In fact, some awards are granted with the understanding that the organization will contribute effort. Institutes that attract top talent with generous compensation must fund all expense above the NIH salary cap. This mandatory cost sharing must be documented as part of the official record. Many organizations use institutional funds to supplement funded research or mentor promising researchers. It is a good practice to document this voluntary cost sharing as well.

It is understood that a PI has administrative responsibilities and does not spend 100% of his/her time on research. Organizations can use EARS to sub-allocate some of these institutional costs as administrative expense that factor into indirect cost calculations thereby increasing compliance with less institutional investment.

Metrics

Statistical metrics allow us to measure institutional efficacy and compare it to like organizations. When discussing labor costs at nonprofits, useful metrics include a breakdown of funding sources (internal, philanthropic, federal...) and the analysis of administrative overhead. EARS integrates these figures into many reports.

Of special interests to aggressive research institutions is the percent of institutional funding by lab. These institutes might absorb the overhead of promising researchers with the hope that that they attract external funding as their reputation grows. The Institutional Support Report exposes long-term trends and supports informed decisions in the "Publish or Perish" world.

Labor Effort

Labor effort is the amount of time devoted to a project independent of compensation. In EARS, effort is expressed as a percentage of gross time.

Effort is usually the same as the salary allocation. In other words, if someone spent 25% of their time (effort) on a project, than 25% of their salary is allocated to that project. However, sometimes salary % and effort % vary. This is how EARS documents cost sharing.