DCAA compliant timekeeping is essential to ensure that you are able to continue procuring government-issued contracts long-term and to avoid delayed payments, fines, and possibly legal trouble due to inaccurate or fraudulent timekeeping practices. By not following the timekeeping requirements the DCAA considers during an audit, you place your business and the contracts it has procured at significant risk.
What Is DCAA Compliant Timekeeping?
The Defense Contract Audit Agency (DCAA) is a government agency that is responsible for auditing the accounting and timekeeping systems of government contractors. This is done to ensure that the government agencies are utilizing U.S. tax dollars in the most efficient way possible.
Timekeeping refers to the manner in which a government contractor tracks their employees’ hours on the job while working on government-issued contracts and projects. DCAA compliant timekeeping refers to the ability to follow the timekeeping requirements that are in place for government contractors, specifically those that are established in the Federal Acquisition Regulation (FAR).
What Are The DCAA Timekeeping Requirements?
The DCAA follows the Federal Acquisition Regulation (FAR), which establishes the requirements that government contractors must follow to remain in government compliance. It is best to discuss the specific requirements that are most relevant for your business with a certified public accountant. However, the more general DCAA timekeeping requirements include the following:
- Indirect and direct work from your employees must be documented
- Each employee must record their own time
- Employees are not permitted to record time in advance of the work being completed
- Time must be documented against each charge code
- Those who perform the work are not allowed to document job assignments
- Any changes to any timesheet must be properly documented
- Supervisors should review all timesheets to ensure their accuracy
As mentioned, these are just some of the more notable requirements that government contractors should keep in mind when handling their timekeeping processes for government-issued contracts.
The Risks Of Not Having DCAA Compliant Timekeeping
The DCAA conducts unannounced audits that include a review of the contractor’s timekeeping processes. The audit process includes a visit to the facility to discuss timekeeping with the contractor and their employees to ensure that timesheets are filled out reliably each day and all additional requirements are fulfilled. If the contractor is found to not be in compliance with the DCAA timekeeping requirements, they may be subject to an inability to procure future government contracts, delayed payments, fines, or even legal trouble.
Inability To Procure Future Contracts
If the DCAA determines that you do not have a reliable timekeeping system in place, then you could be vulnerable to the loss of current contracts that you were awarded as well as the disqualification of participating in future government bids.
If there are issues with your timekeeping process that are discovered during a DCAA audit, it can take some time to clear the concerns. In the meantime, government agencies may not be obligated to release payments for your current contracts while the audit is taking place, which can lead to delayed payments for your goods and services.
Chapter 27 in the DCAA guidebook discusses fines and penalties that can be assessed if there is a failed audit. For example, if you are found to have unallowable costs related to your timekeeping, then you may be subject to fines that you are obligated to pay out of pocket.
According to the False Claims Act, fraudulent reporting of timesheets is a criminal offense that can land contractors in legal trouble; the DCAA refers to this as “labor mischarging”. The penalties for this violation can vary and carry up to a five-year prison sentence if the contractor is found guilty of fraudulent reporting. Needless to say, this means ensuring that the implementation of proper timekeeping and accounting systems is essential for government contractors.
How To Maintain DCAA Compliant Timekeeping
Once a proper timekeeping process is in place, the focus should shift toward maintaining DCAA compliant timekeeping. One of the best ways to do this is to work with reliable software that makes recording work time easy, preferably through an electronic system that can be integrated with your current accounting software. It is also important to ensure that all of your employees are fully aware of the role they play in timekeeping and what they must do to ensure you are following the proper processes and guidelines that the DCAA requires.
Of course, many government contractors are not well-versed in accounting technology and processes as this is simply not their profession, and it is often best to work with a certified public accountant that has an understanding of and experience with DCAA compliant timekeeping. They can review your current DCAA timekeeping system and recommend any necessary changes to avoid potential issues that may arise during a DCAA audit.