What’s in This Article:
Why DCAA Compliant Timekeeping Matters
Manual Timekeeping Requirements
Electronic Timekeeping Requirements
The Risks of Inaccurate Timekeeping
Steps to Improve Your Timekeeping Process
Why DCAA Compliant Timekeeping Matters
One would think timekeeping would be a simple process. An employee is paid for 40 hours a week, so how difficult can it be? Not so fast.
The Defense Contract Audit Agency (DCAA) focuses on the labor charging process just as much as, if not more than, the end result. DCAA takes a company’s internal controls for labor charges very seriously. While other expenses can often be supported by third-party documentation or physical proof, labor time relies heavily on accurate employee records.
Time is recorded by employees through timesheets, time clocks, computer programs, and other systems. Some are more susceptible to errors or manipulation than others. This is why it is critical for government contractors and subcontractors to maintain appropriate timekeeping policies and procedures.
The Federal Acquisition Regulation (FAR) establishes requirements for government contract accounting, but contractors may need additional guidance on timekeeping practices. One helpful resource is DCAA’s Information for Contractors, which discusses labor charging and timekeeping controls.
Manual Timekeeping Requirements
DCAA’s guidance emphasizes several important practices for maintaining accurate employee timesheets:
- Employees should record their own time each day.
- All hours worked should be recorded, whether paid or unpaid.
- Time should be charged to the correct contract, project, or indirect cost objective.
- Employees should have access to the appropriate project and charge codes.
- Timesheet corrections should identify the original entry, the corrected entry, and the employee’s agreement with the change.
- Employees should certify that their timesheets accurately reflect the work performed.
- Supervisors should review and approve employee timesheets.
For manual systems, corrections should be clearly documented rather than simply erased or overwritten. These practices help establish accountability and support accurate labor charges.
Electronic Timekeeping Requirements
The same basic principles apply to electronic timekeeping systems.
Employees should be able to enter their own time, and the system should maintain appropriate controls over access, approvals, and corrections.
Electronic systems should also preserve an audit trail showing who entered or changed information, what was changed, and when. This helps support the accuracy of labor records during a government audit.
Keep in mind that purchasing timekeeping software does not automatically make a contractor DCAA compliant. The company’s policies, procedures, employee training, and actual practices are just as important.
The Risks of Inaccurate Timekeeping
DCAA takes falsification of payroll and labor records very seriously. Knowingly submitting false labor charges can expose contractors and subcontractors to serious consequences, including potential liability under federal fraud and false claims laws.
Employees, supervisors, managers, and company officials may all have responsibilities when preparing, reviewing, and approving timekeeping records.
Inaccurate timekeeping can also lead to questioned costs, billing adjustments, audit findings, and problems with existing or future government contracts.
Steps to Improve Your Timekeeping Process
Set aside some time to follow through on these suggestions.
First, evaluate your company’s timekeeping system, including any outsourced timekeeping services. Take questions and concerns to your accountant or contracting officer, as appropriate.
Second, make sure your company has a written timekeeping policy and that it is up to date. The policy should explain daily time entry, proper charge codes, corrections, and approval procedures.
Third, train your employees. Just because they have read the company policies does not mean they understand how to implement them.
Fourth, schedule time annually to revisit the timekeeping process. You can also have your CPA conduct a mock floor check or timesheet review.
Taking these proactive steps can help prevent costly timekeeping errors, strengthen internal controls, and improve readiness for a DCAA audit.
At Cheryl Jefferson & Associates, we help government contractors evaluate accounting systems and prepare for compliance reviews. Learn more about our Government Contract Consulting services or contact CJA to discuss your needs.
Frequently Asked Questions
Does DCAA require employees to complete timesheets daily?
DCAA’s contractor guidance calls for employees to record their time daily and charge it to the appropriate project or cost objective.
Can government contractors use electronic timesheets?
Yes. Electronic timekeeping systems can support DCAA expectations when appropriate controls, approvals, and audit trails are maintained.
Does DCAA approve timekeeping software?
No. Using a particular software product does not guarantee compliance. DCAA evaluates the contractor’s accounting practices and internal controls, not simply the software selected.
