Accurate timekeeping remains a fundamental part of maintaining compliance under the Defense Contract Audit Agency’s oversight.
For organizations working with government contracts, keeping teams up to date on current requirements reduces risk, supports transparency, and helps maintain strong audit readiness. Clear processes and consistent training allow employees and supervisors to follow established rules with confidence, reducing the likelihood of costly errors or penalties.
Regular instruction also strengthens the link between daily time entry habits and the broader accounting framework, creating a culture of accountability that benefits the workforce and the organization’s long-term contract performance.
The Role of DCAA Timekeeping
The Defense Contract Audit Agency (DCAA) enforces strict standards for timekeeping in organizations that hold government contracts. Accurate and transparent time records are a central part of compliance because they help verify that public funds are used appropriately and that labor costs are assigned correctly.
The framework for these requirements comes from the DCAA Contract Audit Manual (DCAM) and the Federal Acquisition Regulation (FAR). Both employees and supervisors must understand the rules thoroughly, as auditors conduct detailed reviews to confirm adherence, including interviews and real-time checks known as floor checks.
Building a Strong Timekeeping Policy
A formal, documented timekeeping policy serves as the foundation for compliance. It should outline how labor hours are recorded, approved, and stored, and the specific roles and responsibilities of staff members at all levels. Every employee, whether directly involved in a government contract or not, must receive a copy of the policy.
Annual training should be scheduled to refresh knowledge, covering daily time entry requirements, correction procedures, and expectations for remote or secure work environments. During audits, team members may be questioned individually, so familiarity with the policy helps prevent missteps.
Daily Recording Requirements for Employees
Every employee must log hours daily in real time, covering both paid and unpaid work, including uncompensated overtime. Each time entry must be tied to the correct cost objective, and work must be charged to valid charge numbers issued by the organization.
FAR 52.237-10 requires disclosure of uncompensated overtime in certain circumstances, and the DCAA emphasizes the impact this can have on indirect rates. Supervisors may not complete timesheets on behalf of employees except in limited leave scenarios, and even then, the employee must certify the entry upon returning.
Recording accuracy and timeliness are essential because auditors can trace these records through labor distribution, payroll, and job cost ledgers.
Supervisor Oversight and Approval
Supervisors are responsible for reviewing timesheets promptly and independently. Each timesheet functions as a legal document, requiring proper sign-off before being finalized.
Approval processes must verify that recorded hours match assigned work, charge numbers are accurate, and any corrections have been documented according to policy. Direct changes by supervisors without employee concurrence are prohibited.
For organizations using electronic systems, automated reminders can support timely approvals, helping maintain compliance with audit expectations.
Managing Corrections and Audit Trails
In cases where an error in a timesheet is identified, the employee must make the correction personally, accompanied by a clear explanation for the change.
A compliant system keeps records of the original and modified entries, the editor’s identity, and when the update happened. Once recorded, this documentation becomes part of the formal record, which the DCAA can review to make sure that timekeeping remains compliant with applicable rules.
An absence of this documentation raises questions during audits and may lead to compliance issues.
Record Retention Requirements
Timekeeping records for government contracts must be preserved for specific periods outlined in FAR Subpart 4.7.
Time and attendance cards and labor cost distribution cards are generally retained for two years, while payroll registers are kept for four years. Timekeeping documentation may need to be stored for three years after a contract’s final payment, as recommended by the DCAA.
Organizations that use cloud-based systems for storage gain the advantage of centralized access and reduced risk of lost or misplaced records, which supports readiness for scheduled and unannounced audits.
Preparing for Floor Checks
DCAA auditors may conduct floor checks without prior notice, observing work in progress and questioning employees about their current tasks, charge numbers, and timekeeping practices. These checks verify that employees understand daily entry requirements, follow the correct charging procedures, and record all hours worked.
Auditors may also confirm that supervisors review and approve timesheets appropriately. Preparation for these checks involves regular training sessions, maintaining current charge number listings, and keeping work authorization documentation readily available.
Linking Timekeeping to Broader Accounting Functions
Timekeeping is not an isolated process; it directly connects to labor distribution, payroll, job costing, and general ledger reconciliations. DFARS criteria 9 and 10 require that hours recorded by cost objective be accurately moved into the appropriate direct and indirect accounts.
Monthly reconciliations between labor distribution and payroll, as well as between job cost ledgers and general ledger accounts, help maintain transparency and accuracy in reporting. This connection between accurate time entry and financial reporting strengthens the organization’s ability to maintain compliance over the long term.
Avoiding Common Compliance Pitfalls
Organizations often encounter recurring issues flagged by the DCAA during audits. These include employees failing to record time daily, missing explanations for timesheet changes, unrecorded uncompensated overtime, and labor distribution that does not reconcile with payroll or job cost records.
Announcing upcoming floor checks is another practice that undermines the audit process and can result in findings. Addressing these risks through proactive training, consistent policy enforcement, and systematic review processes helps maintain audit readiness and supports the organization’s standing as a reliable government contractor.
Strengthening Compliance Through Consistent Training
Maintaining alignment with DCAA timekeeping requirements depends on consistent employee education, clear internal processes, and reliable oversight. At Diener & Associates, decades of experience serving government contractors, nonprofits, and professional organizations have shown that well-trained teams build stronger compliance records and more efficient operations.
For guidance on implementing effective training programs, refining timekeeping policies, or addressing broader accounting needs, schedule a consultation online or call 1-(703)-386-7864 to connect with our professional CPA team.