Labor accounts for a significant fraction of government contract costs, along with materials. Unlike materials, though, labor costs are difficult to track.
In light of this, the Defense Contract Audit Agency (DCAA) requires government contractors to follow certain guidelines when recording the labor used towards various cost objectives to ensure fair and accurate billing to the government.
This article aims to help government contractors better understand the intricacies of DCAA’s timekeeping requirements and provide tips for developing a DCAA-compliant timekeeping system.
Understanding the DCAA Timekeeping Requirements
Chapter 6 of the DCAA Contract Audit Manual (CAM) outlines the timekeeping requirements for government contractors.Subchapter 6-405.2 of the CAM explains timekeeping procedures acceptable for government contractors. These include:
- Government contractors must maintain accurate and reliable timekeeping systems. These systems should record the time spent by employees on each contract, including overtime and leave, in an easy-to-audit format.
- Employee attendance should be controlled via timesheets or other suitable means for monitoring and documenting employee early departures and late arrivals.
- Time records must be consistent with actual hours worked and be supported by documentation such as work orders or other production control documents.
- The timekeeping system should facilitate a systematic assignment of job numbers to tasks performed. Clear procedures must exist to inform the employees of their assigned job numbers. Also, any changes to the timesheet should be initialed by the employee who originally prepared the document and the approving supervisor.
- Hours documented on timesheets should be periodically reconciled with those recorded on attendance records and the total hours listed in payroll documents.
- The contractor must establish procedures for recording and coding idle time according to reasons such as waiting on materials, equipment breakdowns, or lack of work, and corrective action procedures must be implemented to eliminate nonproductive activities.
Key Components of DCAA-Compliant Timekeeping Systems
For a system to meet DCAA timekeeping requirements and pass a DCAA audit, it must exhibit the following features:
Accuracy: One of the DCAA’s core objectives is to ensure that taxpayer money is not wasted on overbilling. As such, timekeeping systems should be designed to prevent and detect errors, including those related to timesheet manipulation.- Automated timekeeping: Automated systems reduce errors associated with manual tracking of labor hours.
- Ease of Audit: TheDCAA should be able to easily verify timekeeping records to ensure that hours billed are accurate. Timekeeping systems should be organized to facilitate these evaluations.
- Transparency: The DCAA demands transparency in timekeeping. This includes clear procedures for recording and approving time and accurate records of idle time. A timekeeping system should facilitate this.
- Consistency: Proper timekeeping should span across all contracts and projects. Recording hours, assigning job numbers, and reconciling records should follow a standard and DCAA-compliant procedure.
- Secure access: TheDCAA requires that timekeeping systems have safeguards to prevent unauthorized access and manipulation of records.
Designing a DCAA-Compliant Timekeeping Protocol
Government contractors can follow these steps to design a DCAA-compliant timekeeping system:
Establishing Clear Policies
Being the challenging task that it is, timekeeping requires clear, written policies to guide employees. These policies should clearly outline requirements, expectations, and procedures for time recording and be consistent across all contracts, projects, and employees.
Adopting the Right Timekeeping Software
Manual timekeeping may be allowed by the DCAA and can be adequate for small businesses. However, it’s not recommended for contractors with multiple contracts.
Automation via timekeeping software, especially those integrated with accounting systems, significantly reduces the likelihood of errors, and saves time in reconciliation. These systems are also easily auditable.
Training Employees
Accounting software may automate certain aspects of timekeeping, but human input is still required. Note that employees are the ones recording their hours while supervisors approve them.
As such, all employees should be adequately trained in key areas such as timekeeping policies and procedures. They should also be trained in how to assign job numbers, reconcile records, document idle time, and calculate leave and overtime.
Utilizing Technology Solutions
Thanks to technology, many timekeeping systems now have a wide assortment of features to enhance DCAA compliance. These include:
- Biometric time clocks to prevent buddy punching.
- Mobile apps that enable employees to check in and out of work via their smartphones.
- Integration with accounting and payroll systems, making it easier for payroll personnel to accurately process labor costs.
- Real-time tracking and reporting for better labor cost management.
- Automated notifications for employee tardiness or missed punches.
- Audit trails that show changes made to time records.
Comprehensive timekeeping is one of several key elements of government contracting. To maintain compliance all areas impacted by DCAA audits, consider outsourcing your accounting to an experienced team of CPAs specializing in government contracting. Not only does this streamline your processes, but it also ensures adherence to ever changing laws and regulations.
Consult Diener & Associates for DCAA Timekeeping Experts
Diener & Associates can help government contractors design and implement compliant timekeeping systems or tailor their current systems to meet DCAA requirements.
Our team of experienced CPAs can also integrate timekeeping software with cost accounting systems to streamline labor cost tracking and prepare for DCAA audits. Contact Diener & Associates today for a customized DCAA timekeeping solution.