In government contracting, a contractor’s survival and success depend heavily on its regulatory compliance. According to the Defense Contract Audit Agency (DCAA) regulations, contract eligibility depends on a contractor’s ability to adhere to strict accounting principles and maintain accurate records.
One of the most common areas contractors struggle with is accounting for labor due to its fluid nature. Government contractors can handle this challenging task by implementing and maintaining robust timekeeping systems and filling out DCAA-compliant timesheets.
What Is a DCAA-Compliant Timekeeping System?
A DCAA-compliant timekeeping system adheres to the guidelines set by the DCAA for contractors’ labor accounting. It should accurately track and record an employee’s time on a project or task. This covers regular work hours, overtime, sick leave, vacation time, and other types of leave.
Importance of a DCAA-Compliant Timekeeping System
A DCAA-compliant timekeeping system ensures that contractors’ labor costs are properly accounted for and allocated to cost objectives or contracts. This allows for accurate cost reporting and billing to the government, which directly affects a contractor’s cost recovery and contract eligibility.
A DCAA-compliant timekeeping system also allows contractors to build and sustain relationships with relevant government agencies. Lack of a DCAA-compliant timekeeping system often results in disallowed costs, penalties, and, sometimes, the loss of contracts.
DCAA Requirements for Timekeeping Systems
Timekeeping systems must meet the following requirements to be DCAA-compliant:
Have Internal Controls to Prevent Manipulation of Labor Records
The DCAA requires contractors to establish internal controls that deter deceptive practices in labor accounting. Contractors must implement procedures and processes that ensure complete transparency in labor recording and reporting. These include:
Requiring employees to submit their timesheets directly to a supervisor for review and approval- Limiting access to the timekeeping system
- Maintaining an audit trail of all changes made to employee timekeeping records
- Regularly checking and verifying to ensure compliance with established procedures
- Recording time in decimal format rather than hours and minutes for easier calculations and generation of reports
Be Accurate, Verifiable, and Consistent
The DCAA requires contractors to accurately record the time an employee starts and finishes work, as well as any breaks or interruptions during work hours. The timekeeping system should generate reports to validate hours charged to a contract or task.
Under Subchapter 6-405.2 of the CAM, the DCAA requires time records to be consistent with the actual hours worked. There should be supporting documentation, including work orders, job tickets, or other production control documents that provide a tangible link between an employee’s recorded time and the tasks performed.
In addition, timekeeping systems should capture all relevant information, including employee names, job title or position, and task details. The system should be able to produce consistent results; any discrepancies or inconsistencies can raise red flags during government audits.
How to Establish a Robust Timekeeping System for DCAA Compliance
Establishing a robust, DCAA-compliant timekeeping system requires careful consideration of the agency’s requirements and industry best practices.
Here are some key steps to follow:
- Understand DCAA Requirements: The DCAA’s timekeeping requirements vary for different contracts, industries, and organizations. It is essential for government contractors to understand these requirements and tailor their timekeeping systems accordingly. The DCAA has resources on its website to assist contractors in identifying requirements applicable to their contracts.
- Choose a Reliable Timekeeping System: Contractors should choose a suitable system based on the identified requirements. The system should be user-friendly to mitigate errors. Large organizations can develop their own system or modify older systems. Smaller businesses often outsource their timekeeping requirements to government contracting experts proficient with the DCAA.
- Establish Internal Controls: A timekeeping system should be complemented by fraud prevention procedures such as separation of timekeeping from payroll.
- Train Employees: Employees must be trained to use the timekeeping system and comply with DCAA requirements and internal controls.
- Regularly Review and Update: DCAA compliance is usually a continuous process with regulations subject to change. The agency also audits contractors’ timekeeping systems regularly. Contractors should periodically review their system for compliance and adjust it accordingly.
Rely on Diener & Associates for Accounting Compliance
Because of the complexities of labor accounting, particularly for indirect costs, contractors need sophisticated timekeeping systems to ensure DCAA compliance.
Off-the-shelf software may not be up to the task due to the unique business practices of contractors. It is better to outsource labor accounting to DCAA policy experts who can provide contractors with comprehensive and customized solutions.
Diener & Associates has a team of DCAA-specialized CPAs with extensive knowledge and experience in establishing, managing, and auditing timekeeping systems for government contractors.
Our team stays current on evolving DCAA requirements and can tailor solutions to meet contractors’ needs to ensure compliance. Contact Diener & Associates today for DCAA-compliant timekeeping solutions.