Timekeeping is an issue that is still receiving a lot of attention from important government contract regulators, such as the Defense Contract Audit Agency (DCAA). Proper timekeeping techniques are necessary to secure or maintain an adequate government contract accounting system.
The DCAA’s timekeeping regulations are incredibly stringent, require attention to detail and can therefore require a significant amount of time. They must also be executed regularly and with consistency. Unfortunately, contractors often fail DCAA accounting system audits due to poor timekeeping practices.
This article will provide a detailed look at the timekeeping requirements, methods, timesheet preparation steps, and DCAA policies which apply to government contractors.
What Is DCAA Compliance?
The DCAA offers audit and financial advising services to federal organizations, including the Department of Defense. When the DCAA conducts an audit on a federal contractor to check for compliance, they examine the firm’s conformity to the Federal Acquisition Regulations (FAR).
These regulations are part of the Federal Acquisition Regulation System, which sets forth the government’s procedures and specifications for purchasing products and services.
A contractor that fails to follow the FAR is one that is not complying with the DCAA. This can prevent the contractor from receiving future government contracts or dealing with other federal contractors.
The DCAA can go so far as to revoke a contractor’s compliance status while they fulfill a contract, in which case their agreement with the government would be void. Hence, DCAA compliance is vital for all federal contractors, regardless of size.
What Is DCAA Compliant Timekeeping?
During DCAA audits, the most frequently cited and commonly disregarded DCAA requirements are those about accurate timekeeping of DCAA-certified personnel. Timekeeping entails monitoring and recording employee work hours. A company must be able to correctly and consistently track the working hours of each employee to be DCAA compliant.
Failure to adhere to approved DCAA policies will negatively impact your company’s chances of being awarded future government contracts.
Timekeeping Procedures That Meet DCAA Requirements
Enclosure 2, Paragraph 4, section an of the DCAA Audit Manual No. 76410.90 contains the requirements of DCAA for timekeeping methods. The following are the main procedures:
- Payroll and timesheet recording
- Employee time charges should not be initiated by supervisors who are responsible for ensuring that budgets are met
- Small businesses may necessitate additional attention.
- Use discreet procedures while ensuring that there is no confusion about what is and is not allowed
- Handle consistently verified violations with a quick and effective solution
- Offer constant education to ensure employee awareness
There can be a significant shift for employees who aren’t used to documenting their time daily and breaking down each input by task and contract, depending on how they enter their time into the system.
DCAAM 76410.90, Enclosure 2, Paragraph 4, b is where you can find the timesheet preparation criteria:
- The Timekeeping Manual of Procedures must include instructions on how to complete timesheets.
- Employees clock in and out every day and keep track of their hours.
- Employees fill out worker timesheets.
- Distribute each entry appropriately for labor using Project Identifiers or other identifiers. (offer written instructions to personnel).
- Any changes to the timesheet must include the original time, the amended time and an explanation of why it was altered.
- Record every minute spent at work in full (whether paid or unpaid).
- At the end of each pay period, employees must confirm the time worked and the cost target (contract, grant or job).
DCAA Timekeeping Policies
You can find this policy in the DCAA Audit Manual (DCAAM) in Section 2, Enclosure 2, Paragraph 4c:
- All timesheets must be approved and signed by the supervisor.
- It is against company policy for supervisors to complete timesheets for their employees unless an employee has been absent for a long time.
- A compensated leave of absence has been granted to the employee.
- No contract funding or type of contract governs how much time is spent on a project.
- Each employee must ensure that the timesheet is filled out accurately.
Timekeeping Rules That Only Apply To Electronic Means
- The use of a password is essential. Changing passwords regularly (approximately every six months) is recommended.
- Project numbers, codes and names should only be available to personnel authorized to work on a specific project under a system of workforce protection. This is an optional feature, but it is a great way to keep the staff from accidentally billing the wrong accounts.
- It is necessary to include a timekeeping feature that records all transactions. Each employee’s information consists of the hours they’ve worked, pay dates, and project numbers. Corrective actions are logged, including who performed the change, when it was made, who approved it and what its purpose was. This is often referred to as an audit trail.
Timekeeping Requirements for SBIR/STTR Phase I and Phase II
- When many agencies stress the value of tracking your direct time while working on a Phase I contract or grant, it is crucial to remember that small businesses should monitor all employees’ time on all tasks.
- By measuring all employee hours (and on which tasks), a small business can develop and justify indirect rates for the Phase II proposal. This will allow the business to justify higher indirect rates than the safe or De minimis rates (the government will pay the larger share of your overhead costs).
The DCAA’s role is to guard against fraud and inefficiency. The avoidance of wasted or fabricated time is a concept that all businesses respect, but it can be challenging to implement across all projects.
Government contractors must abide by strict rules for tracking time. The proper accounting and timekeeping software can help integrate DCAA-compliant timekeeping into your processes.
Time monitoring that complies with DCAA regulations can be complex at first, but with patience and persistence, your company will be able to avoid costly fines.
Get In Touch With Our DCAA Compliance Experts Now!
Diener & Associates has decades of experience with federal contract accounting. We understand the need to adhere to DCAA and other government regulations regarding accounting practices and systems.
Our accounting practices are up to date and in line with all relevant regulations, with the help of our CPAs, you can rest assured that your business will be too. Book a consultation to get help with DCAA compliance and other DCAA outsourced accounting services now.