Why Does the DCAA Require Strict Time-Tracking?
The DCAA’s primary role is to ensure that each and every taxpayer dollar is accounted for and spent wisely. Therefore, these rules are in place to prevent fraud and maintain the integrity of all government projects.
The idea behind it is to ensure that all contractors are held accountable for their worked hours. This ensures transparency but also demonstrates the reliability of the organization.
Non-compliance with DCAA timekeeping standards can result in:
- Fines: Penalties can be incurred for inaccurate reporting.
- Disallowed costs: Costs can be denied if billing discrepancies are found.
Contract termination: Loss of contracts happens due to significant breaches of compliance.
The DCAA Timekeeping Requirements
First, let’s go into what the time-tracking requirements actually are.
The process is essential for any government contractor working on cost-reimbursable, time and materials, or fixed-price contracts. Here’s what the DCAA requires:
Total Time Accounting
One of the core rules around time tracking is that ALL hours worked by employees must be tracked and recorded.
This includes the following:
- Paid hours
- Unpaid hours (including uncompensated overtime)
- Overtime hours
- Hours worked that are directly or indirectly related to government contracts
- All time off, including vacation and sick leave, emergency leave, etc.
In regards to time off, each leave type has to be clearly documented (vacation, sick, etc.) and where possible, time off should be scheduled in advance so it can be recorded.
Unplanned time off can be retroactively added to timesheets.
Distinguish Direct and Indirect Labor
Direct and indirect labor must be clearly labeled as such. It should be easy to differentiate between the two when looking at the timesheets.
- Direct labor refers to the hours that are chargeable to the government contract. In other words, the employees who work directly on deliverables outlined in the government contract.
- Indirect labor refers to all other work that contributes to contract performance but is not chargeable to the contract.
For example:
- Direct labor would be an engineer, consultant, or specialist working on specific deliverables.
- Indirect labor includes roles such as HR, IT support, and accountancy.
Accurate Time Tracking and Timely Submission
DCAA-compliant time tracking mandates that each employee is responsible for tracking their time and assigning it to the correct contract, project, or task.
Employees must also track their time in real time and complete and submit their timesheets daily.
This is essential because mistakes or omissions can lead to over or underbilling the government for the work. When this happens, concerns will be raised and the organization will likely end up facing an audit. At worst, it could lose the contract altogether.
Timesheet Approval
Timesheets must be reviewed and verified by a supervisor. Their job is to ensure that all the information on the timesheets is present and correct before it is fully approved.
If an error is noticed on a timesheet then the supervisor cannot rectify it themselves. Instead, they must pass it back to the employee who must make the changes.
When this happens, this process must be followed:
- The supervisor must approve the adjustments to ensure the changes are valid and justified.
- A valid reason for the adjustment must be documented alongside it.
- All timesheet adjustments must be tracked for transparency.
- Once the adjustments have been made, the timesheet is resubmitted for approval.
Although not mandated by the DCAA, it is recommended to place a time limit on how far back time entries can be adjusted.
Electronic Time Tracking Systems
While it’s permitted to use manual time-tracking systems, it’s widely recognized that electronic versions are more accurate and complete.
Therefore, the DCAA strongly recommends that you use an electronic time-tracking system for this purpose.
Timekeeping software has several advantages over manual processes, such as:
Audit Readiness and Document Retention
All actions and documentation around timekeeping must be clear, organized, and easily accessible at all times.
Surprise floor checks (mini audits) and planned audits can take place at any time, so organizations must, without fail, remain audit-ready.
If time-tracking software is used, most keep an audit log for exactly this purpose.
Additionally, all government contractors are required to retain historical records for a specified length of time. This can be up to six years depending on the industry and work carried out.
Auditors may also request to see historical records, so they must remain organized and accessible.
Internal Controls
The government-contracted organization is required to implement controls that detect errors around timekeeping. It must also develop processes for detecting fraudulent activities and put measures in place to help prevent them from occurring.
Staff Training and Education
Lastly, all staff must receive adequate training on how to track and record their time and why it’s so important:
- Implement training sessions that go over the requirements.
- If you use time-tracking software, make sure staff are trained on how to use it.
- Have documentation on processes easily available.
- Provide points of contact for employees to direct questions and queries to.
Information Security
All staff timekeeping records must be kept securely.
If time-tracking software is used, you must:
- Only allow authorized personnel access to timekeeping systems and records.
- Assign unique user credentials to each employee to maintain security.
Ensure that all passwords are changed at least once every six months.
Tips to Ensure DCAA-Compliant Timekeeping
Choose the Right Timekeeping Software
Manual processes may seem like they’re doing the job, but the truth is they take up a lot more time, are difficult to oversee, and are prone to errors.
Digital time-tracking software is affordable and will automate many of the processes for you. Plus, most apps adhere to DCAA timekeeping compliance.
Train Your Employees Properly
The more your employees understand how important DCAA compliance is, the more likely they will take it seriously and ensure they track time properly.
Don’t just give your staff a manual or document. Run thorough training and offer refresher sessions throughout the year.
It can help to add an assessment that employees must pass. This ensures they have the required level of knowledge.
Set Clear Policies
Make sure your internal policies are clear and easily understood. Write them in plain English so there can be no doubt about what they mean.
Place policies in an accessible place for employees to refer to whenever they need to.
Consider Consulting with Experts
It’s completely possible to enlist the advice of a government contract compliance expert and you should do this if you are unsure of anything.
Even if you think you have grasped it all, an expert can spot areas where you may risk falling short of compliance.
Stay Updated
Like every government-mandated regulation, DCAA timekeeping is not set in stone. This means the rules can change from year to year and not always with sufficient notice.
Don’t run the risk of breaching compliance. Regularly take a look at the rules to see if anything has changed.
DCAA Timetracking Glossary of Terms
DCAA Timetracking Frequently Asked Questions (FAQs)
Do DCAA requirements apply to all government contractors?
Actually, no. DCAA compliance is generally required for contractors working on cost-reimbursable and time-and-materials contracts.
However, it is considered best practice even for fixed-price contracts to adhere to the standards
Are employees permitted to round their hours?
No, hours and minutes must be recorded accurately, reflecting actual time worked without rounding.
What happens during a DCAA floor check?
- An evaluation of all organizational timekeeping procedures and internal controls.
- Employee interviews.
- A timekeeping practices audit.
- A reconciliation of labor charges with payroll and labor distribution records.
How long should timekeeping records be retained?
It is generally required that contractors keep records for at least three years after the final contract payment. Some industries require longer retainment periods, so check yours to be certain.
Do timesheets have to be submitted daily?
Yes, timesheets have to be submitted daily because this is considered the best way to ensure the highest accuracy.
Timesheets submitted at longer intervals (weekly, etc.) are in breach of compliance.
What triggers a DCAA audit?
Audits can happen at any time and without notice, so always be prepared. You can expect an audit when you are awarded a contract or if you modify an existing one. Going over budget or receiving complaints and allegations will also trigger an audit.
There’s only me in my company, will I still be audited?
Yes. All government contractors are subject to audits, regardless of the size of the organization.
Final Thoughts
We hope this has served as a useful guide and has helped you maintain compliance within your organization.
If you’re ever in doubt, refresh yourself on the rules and consult with an expert if necessary. Additionally, using digital time-tracking software will ensure you’re meeting your obligations while providing a convenient way to track time.
