As a CFO, it is imperative to be acutely aware that even minor lapses in compliance can lead to several significant repercussions, from contract termination to financial penalties and damaged client relationships.
Yet, understanding the many complexities of DCAA requirements—from total time accounting to accurate labor cost allocation—can feel overwhelming, especially when balancing the demands of a growing business.
To help CFOs at organizations of all sizes, this guide is designed to equip you with the insights and practical steps needed to build and maintain a strong DCAA-compliant timekeeping and labor cost system.
The Importance of DCAA Compliance
DCAA compliance establishes clear standards for tracking time and labor costs on government contracts. It requires accurate and transparent recording of all hours worked so that labor costs are properly allocated to the correct projects or indirect accounts.
Having this level of accountability in business operations provides the foundation for fair billing and the integrity of taxpayer-funded projects.
Compliance is essential in government contracting because it demonstrates your organization’s reliability and commitment to ethical practices. It assures agencies that funds are managed correctly and work aligns with contract terms.
Non-compliance can have significant repercussions, including contract termination, financial penalties, and exclusion from future opportunities, and it may also lead to costly audits or legal disputes. In the government contracting market, staying compliant protects the organization’s reputation and ability to compete.
Primary Components of DCAA-Compliant Timekeeping
DCAA-compliant timekeeping starts with Total Time Accounting (TTA), which requires tracking all hours worked, whether billable or not. Taking this approach helps to ensure that labor costs reflect actual hours worked, giving a transparent picture of project efforts and costs. TTA plays an important role in preventing billing errors and maintaining trust in your financial practices.
Differentiating between direct and indirect labor is another cornerstone of compliance. Direct labor relates to specific government contracts, while indirect labor covers general business operations or support tasks. Thankfully, properly categorizing these hours avoids mischarges and supports more accurate cost reporting.
Timely and accurate allocation of hours to the correct projects or accounts is essential, as any delays or misallocations can raise compliance concerns and trigger disruptive audits.
Supervisor approvals further validate timesheets, adding a layer of accountability, while detailed documentation provides the records needed for audits and internal reviews. Together, these practices build confidence in your timekeeping system.
Implementing Compliant Timekeeping Systems
Investing in an electronic timekeeping system makes maintaining compliance easier while contributing to your organization’s success. These systems offer accuracy, reliable audit trails, and efficient reporting capabilities that manual processes often lack.
Additionally, features like automated alerts and secure records also reduce errors and save time during audits. Educating your team about compliance requirements strengthens your overall timekeeping process.
Employees should understand how their timesheet entries impact project costs, compliance, and contract performance, and regular training helps reinforce proper procedures and reduces the risk of mistakes.
Clear, accessible policies act as a guide for employees and supervisors alike. Draft comprehensive procedures that outline expectations, record-keeping methods, and approval processes.
Having strong internal controls, such as restricted access to project codes and supervisor reviews, can help further improve your compliance efforts.
The Role of CFOs in Maintaining Compliance
As a CFO, you set the tone for implementing and maintaining DCAA-compliant systems within your organization. Leading the effort here means driving the adoption of accurate timekeeping processes, investing in reliable tools, knowing the current regulations, and making sure that your team has the training and resources needed to meet important compliance requirements.
Timekeeping isn’t just another operational task; it directly ties into your broader financial strategies. Aligning these practices with broader financial goals helps you avoid any errors, improves your overall audit readiness, and keeps your costs predictable.
Your role extends beyond systems and policy. Creating a company culture that prioritizes accountability and compliance builds trust across the organization.
Managing Labor Costs Under DCAA Guidelines
Accurate timekeeping directly impacts the precision of your labor cost allocation. When hours are recorded correctly and categorized appropriately, labor costs can be distributed to the right projects or accounts so that you can avoid costly errors or compliance concerns.
Reconciling labor distribution with the general ledger is an essential step in managing labor costs. Engaging in regular reconciliation ensures that your records match financial accounts and reduces discrepancies that could trigger audit findings or penalties.
Maintaining clear, organized records is fundamental for any audits and reviews, making it necessary to use a system that documents employee hours, project codes, and approvals in detail. Consistent internal checks and updates to your processes help keep records accurate and compliance-ready.
Simplify DCAA Compliance With Expert Support
DCAA compliance doesn’t have to be overwhelming—with the right tools, strategies, and guidance, your organization can build a reliable timekeeping and labor cost system that supports your government contracts.
Maintain DCAA compliance within your organization with the professional team of CPAs at Diener & Associates. From addressing ongoing compliance challenges to streamlining your existing processes, we bring the expertise that’s needed to keep your business audit-ready and competitive.
Book a consultation online or call us directly at 1.703.386.7864, and let Diener & Associates guide your organization to DCAA compliance success.