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Five Steps to DCAA Timesheet Compliance for Government Contractors

Written by Hobie Frady on May 12, 2020

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Do your timekeeping procedures meet DCAA audit requirements?

Timekeeping is an integral part of a DCAA audit, including the DCAA Pre-Award survey. This survey is carried out before the award of a cost-reimbursement contract and assesses whether your accounting system can accumulate costs in accordance with contract terms. If you fail the survey, then you could miss out on the contract.

Given that labor represents a large component of contract cost, it’s critical that you can account for labor costs accurately. Because labor cost is calculated based on timesheets, you must have an adequate timekeeping system to achieve DCAA audit compliance.

There are detailed rules around timekeeping, and government contractors can sometimes unintentionally fall foul of requirements. Here are five steps to help you achieve timesheet compliance.

1. Having the Right Set Up

While DCAA permits time tracking to be done manually with paper documentation, their preference is to see electronic timecards. An electronic timekeeping system can be much easier for employees to manage and offers a detailed audit trail of timesheets from submission to approval.

If you use QuickBooks as your accounting system and run a timekeeping system that can be fully integrated with it, then you can easily sync information like labor hours, project codes, service items and payroll items. This reduces manual entry, increases efficiency and allows you to maintain DCAA compliance by running your labor distribution from timesheets in your accounting system.

Of course, if you only have a few employees and are properly documenting your daily labor costs by paper timesheets, that’s acceptable too. However, bear in mind that time tracking can become cumbersome as your business and headcount grow. Since there are inexpensive time-keeping products that will integrate with QuickBooks, it might be worth considering an electronic system to avoid problems and provide efficiencies later on.

Whether you operate electronic or manual timekeeping, you’ll need to configure your system to identify each employee’s labor by contract or by project. This means setting up job codes for your timekeeping system to allow hours to be allocated to different jobs. You’ll also have to establish user and authorization levels.

2. Establishing a Timekeeping Policy

Government contractors can sometimes struggle with having an adequate—and properly documented—timekeeping policy. Your policy should describe what your timekeeping practices are and demonstrate how they enable DCAA rules to be followed.

Below are some areas your policy should cover and their associated DCAA requirements:

  • When time needs to be recorded – All employees should record hours worked and complete their time daily. Time should not be charged in advance of work being done.
  • Who fills in the timesheet – Only employees should fill in the timesheet unless they are unable to do so for good reason (for example, if they are sick).
  • How your authorizations are set up – The employee should sign the timesheet upon completion of the timekeeping period and then the supervisor needs to approve the timesheet at the end of the timekeeping period.
  • How much time to record – Time must be recorded based on actual time worked by the employee and not by any other criteria. Uncompensated overtime should be included.
  • Which charge code to use – Time should be charged accurately against the appropriate charge code.

Additionally, your policy should highlight how your timekeeping practices are implemented and the controls you have in place to ensure adherence.

3. Implementing Policy and Controls

To support its implementation, your timekeeping policy needs to be documented in writing and made available to employees. Staff members should also be given adequate periodic training to reinforce their awareness of timekeeping rules.

Government contractors can fall short of DCAA timesheet compliance because they lack sufficient controls to ensure rules are being followed and that people are charging to the right contracts and labor categories. Such controls can include floor checks, regular management monitoring of accumulated costs against contract price and reviews of delinquent timesheets.

For a manual timekeeping system, supervisory observations of employee arrival and departure can ensure proper clock-in/clock-out and using job cards with pre-coded data could help employees record their time more accurately.

4. Tracking Changes

DCAA requires tracking of changes made to timesheets after their submission. If you have an automated timekeeping system, then you’ll likely have access to an audit log that provides details like who made changes and when. However, you’ll need to ensure reasons are also included.

More effort is required in a manual system. The original information will need to be crossed out with ink; the person editing the document will need to provide their initials, reason for the change and the time and date.

5. Integrating Timesheets and QuickBooks

There are numerous timekeeping software applications that serve as an add-on component to QuickBooks for DCAA timesheet compliance. Many of them offer the ability to sync data between the timekeeping software and QuickBooks. You can sync timesheet data, as well as information like employee details, job codes and service items.

It’s worth noting that electronic timekeeping is subject to additional DCAA rules. Your system must:

  • Require a unique password for all users to access their timesheets, and require that the password be changed at least every six months;
  • Produce an audit trail for all transactions/changes made;
  • Automatically prompt users to provide reasons whenever changes are made to a timesheet;
  • Have an approval system so timesheets can be authorized by the right people; and
  • Be configured to prevent employees from charging time to job codes not relevant to them.

In terms of QuickBooks setup, a good tip is to ensure you enable time tracking for payroll employees and in company preferences, to make relevant reports available.

If you select “first day of work week” in Company Settings to coincide with the day when weekly timesheets begin, then payroll periods and timesheet periods will be the same, which is a great way to simplify accounting and reporting processes.

Learn More about DCAA Timesheet Compliance

Timekeeping is essential for DCAA audit compliance. As your labor cost information is a critical component of your direct cost and indirect rate estimates, it impacts your competitiveness too. For tailored advice to ensure you achieve DCAA timesheet compliance, our experts at Warren Averett can help. With extensive experience in the Government Contracting industry, we can help you set up an accounting system that’s compliant and works for you to meet your business goals.

Guide: DCAA Compliance - A Comprehensive Guide for Government Contractors

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