Landing a government contract is a great business opportunity, but it also comes with the responsibility of ensuring compliance with many important regulations.
Because government contracts are paid for with taxpayer dollars, the government wants to ensure that this money is not being spent wastefully.
All businesses that sell services to the government must be familiar with the relevant regulations to avoid negative consequences and continue doing business with the government.
One important area of compliance pertains to timekeeping. Unlike other types of costs, labor is not generally supported by physical evidence or indisputable documentation like receipts.
Therefore, timekeeping is often scrutinized in audits to ensure the proper procedures are being followed.
What Is DCAA-Compliant Timekeeping?
DCAA, or the Defense Contract Audit Agency, is responsible for carrying out contract audits for the Department of Defense and other governmental agencies.
They are tasked with ensuring that taxpayer funds are spent properly by carrying out audits and a large part of their effort is devoted to timekeeping.
For timekeeping to be considered DCAA-compliant, it must follow the procedures established by DCAA and use an approved timekeeping system.
There are two main types of compliant timekeeping systems that may be used: a manual system designed according to DCAA requirements and automated systems that can be attached to popular accounting software packages.
What Are the Requirements of DCAA-Compliant Timekeeping?
Employees who work for a contractor are personally responsible for accurately recording their working time on a daily basis.
Some of the requirements include the following:
- Each employee must have possession of their time card or unique access to the contractor’s labor charging system.
- Each employee can only have one time card.
- Employees must track their own time; managers and supervisors should not do it for them.
- Corrections must be made in ink, with a description of the change, initials, the date of the change, and authorization.
- Employees must attribute their hours to specific projects or jobs.
- Employees and supervisors must review and approve time sheets to ensure that they are accurate.
- The payroll accountant and time sheet administrator cannot be the same person.
- Employees should be prepared for unannounced inspections known as floor checks in which the DCAA visits to check if employees are actually at work, whether they are working on the correct projects, how familiar they are with procedures, and whether their time records are accurate.
Why Is Timekeeping Important for DCAA Compliance?
The main purpose of DCAA is to prevent taxpayer dollars from being misused, and proper DCAA timekeeping prevents fraud and waste.
The top issues identified in DCAA audits are related to timekeeping procedures, so contractors can expect this aspect of business to be scrutinized thoroughly.
How Can I Ensure DCAA-Compliant Timekeeping?
DCAA regulations are very clear about how FAR adherence will be audited, and much of it follows the DCAA Contract Audit Manual, or CAM.
This instruction book outlines how to plan for audits, along with the auditing and cost accounting standards and information about obtaining audit reports.
Many contractors use technological solutions that automate the processes of reporting contract-specific data and providing supporting documentation.
Defense contractors must use labor systems that have specific internal controls, including an effective means of monitoring the system’s overall integrity, procedures for labor cost accounting and approvals, and an employee awareness training program.
Many contractors will use DCAA accounting firms to ensure they are operating by the book.
Outsourced accountants who focus on DCAA have the knowledge and experience needed to make sure a contractor’s timekeeping procedures are acceptable, freeing up valuable time that contractors can focus on carrying out their main role.
What Happens If My Organization Is Not Compliant?
Each contractor must remain compliant with all the rules and regulations established by the government that apply to their contract.
Those who fail to do so may be exposed by various means including an audit, investigation, whistle-blower or Freedom of Information Act request.
Improper or careless time card preparation can lead to disciplinary actions under a company’s policies as well as the relevant federal statutes.
Some consequences of noncompliance include debarment, terminated or voided contracts, suspensions, a listing in the Excluded Parties List System, or even criminal and civil penalties.
The civil penalties for noncompliance are calculated per violation as well as per invoice.
The federal government can recoup the money, and the contractor may have to pay the government as much as three times the damage.
The criminal penalties are very serious and can include up to five years in prison for the person who signed the certificate of cost and pricing data.