Why Does the DCAA Enforce Strict Timekeeping?
The DCAA’s primary role is to ensure that each and every taxpayer dollar is accounted for and spent wisely. Therefore, DCAA-compliant timekeeping rules exist to prevent fraud and maintain the integrity of all government projects.
These rules hold contractors accountable for every hour worked, creating transparency and demonstrating the organization’s reliability.
Non-compliance with DCAA timekeeping regulations 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.
Understanding FAR Timekeeping Requirements
The DCAA time tracking requirements come from the Federal Acquisition Regulation (FAR) timekeeping rules for government contractors.
FAR establishes all rules and requirements for government contracting, but it’s the DCAA that maintains compliance and performs checks and audits.
The relevant part of FAR regulations is 31.201-2:
“A contractor is responsible for accounting for costs appropriately and for maintaining records, including supporting documentation, adequate to demonstrate that costs claimed have been incurred, are allocable to the contract, and comply with applicable cost principles in this subpart and agency supplements.”
In layman’s terms, this means that to comply with accounting system requirements, contractors must keep accurate and complete records of all time and labor spent on federal contracts.
In summary, although the rules you follow are actually FAR timekeeping requirements, you will deal with the DCAA when it comes to oversight, monitoring, and enforcement.
The DCAA Timekeeping Requirements
DCAA-compliant time tracking is necessary for any government contractor working on cost-reimbursable, time and materials, or fixed-price contracts.
Here are all the DCAA timekeeping rules that you must abide by:
Total Time Accounting
Total Time Accounting (TTA) is one of the core rules for DCAA time tracking. This means you must track and record ALL hours worked by employees, including:
- Paid hours
- Unpaid hours (plus uncompensated overtime)
- Overtime hours
- Hours worked that are directly or indirectly related to government contracts
- All time off, including PTO
Record Overtime and Time Off
Overtime and time off must be recorded in detail.
For time off:
- Records must show the type of leave taken, whether it’s vacation, sick leave, or something else.
- Both paid time off and unpaid leave have to be tracked.
- Daily timesheets must display both work and absence hours to account for total daily hours.
- Where possible, time off should be scheduled in advance so it can be recorded.
- Unplanned time off can be retroactively added to timesheets and must be documented as such.
For overtime:
- All overtime must be tracked and recorded daily.
- Both compensated and uncompensated overtime have to be tracked and disclosed as such on the timesheet.
- Exempt staff must also track overtime.
If any timesheet corrections to overtime and leave entries are made, supporting documentation explaining what changed, why, and who made and authorized it must also be provided.
The DCAA treats undocumented overtime as a compliance risk and potential fraud, so don’t take shortcuts in this area.
Distinguish Direct vs. Indirect Labor
Direct and indirect labor must be clearly labeled as such. Anyone looking at the timesheets should easily tell the difference between the two.
- Direct labor refers to the hours that can be charged to the government contract. In other words, the employees who work directly on deliverables outlined in the government contract.
Direct labor would be an engineer, consultant, or specialist working on specific deliverables.
- Indirect labor refers to all other work that contributes to contract performance but is not chargeable to the contract.
Indirect labor includes roles such as HR, IT support, and accountancy.
Categorize All Time Entries
For DCAA compliance, timekeeping entries have to be coded to the correct contract and project.
This allows organizations to allocate charges to cost objectives and provide a clear overview of where money has been spent.
Part of this is categorizing work as direct or indirect labor, but the DCAA also wants to see:
- Project and task coding: Allocating time entries to the appropriate deliverables.
- Contract categorization: Link time entries to the correct contract.
Accurate Time Tracking and Timely Submission
DCAA-compliant timekeeping mandates that each employee is responsible for tracking their time and assigning it to the correct contract, project, or task.
Employees must track their time in real time and complete and submit their timesheets daily.
This matters because mistakes or omissions can lead to over- or underbilling the government for the work. When this happens, concerns get 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 all the information is present and correct before it is fully approved.
When a supervisor finds an error on a timesheet, they can't fix it themselves.
Instead, they must pass it back to the employee for corrections.
When this happens, the following process must be followed:
- The supervisor must approve the adjustments to confirm they’re 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.
Regular (Monthly) Reporting Requirements
Part of the federal contractor timekeeping requirements is to provide regular reports on labor and progress:
- Monthly labor cost reports: Generate internal reports of costs assigned to a contract to ensure all billable and non-billable expenses are properly tracked and classified.
- Monthly progress reports: Contractors must provide detailed reports that specify progress and billing updates (exact reporting obligations will be outlined in each contract agreement).
Separation of Duties and Internal Controls
The government-contracted organization is required to implement controls that detect errors in timekeeping.
These controls are also in place to detect and prevent fraudulent activities.
The aforementioned approval process is one set of controls, as is marking time as indirect or direct labor. But to go one step further, timekeeping responsibilities must be separated from payroll functions.
In other words, staff who manage payroll are not permitted to manage or alter time records.
It’s essential to implement formal procedures that keep these roles separate. For example, using time tracking software with user controls that prevent payroll from accessing timesheet editing.
Staff Training and Education
All staff must receive adequate DCAA timekeeping training on how to track and record their time, why it’s so important, and who is responsible for what. Therefore:
- Implement training sessions that go over the time tracking requirements and responsibilities.
- Include thorough training on your chosen time tracking method or software.
- Add all related training to your onboarding process so all new starters are informed.
- Create clear documentation for time tracking processes and policies, and make it easily accessible for all workers.
- Provide points of contact for questions and queries.
Information Security
All staff timekeeping records must be kept securely with strong access controls around who can and can’t access and edit data. Additionally, data must be kept secure from cyber threats and breaches.
To keep data secure:
- Only allow authorized personnel access to timekeeping systems and records.
- Assign unique user credentials to each employee to maintain security.
- Change all passwords at least once every six months.
- Include segregation of duties so no single person has control over all aspects of the process.
- Implement a secure backup system and disaster recovery plan.
- Have written policies outlining security protocols and provide training on them.
- Have documented plans and reporting mechanisms in place for data breach response.
- Periodically test systems and procedures to identify and close any security gaps.
Timesheet Record Retention (3-6 Years)
All records must be retained for the minimum required length of time:
- Most records, including timesheets, must be retained for at least three years after the final payment of the contract has been made.
- All payroll and administration records must be retained for at least four years.
- Any records involved in litigation, claims, or audits have to be retained until the issue is resolved.
- Freedom of Information Act request denials must be kept for six years.
To prevent any problems in this area, it’s best to keep all records for at least six years. This conservative practice will cover any overlapping audits or investigations.
Audit Readiness and DCAA Surprise Floor Checks
Being DCAA audit-ready means making sure all actions around timekeeping are documented, clear, organized, and accessible at all times.
In other words, a clear audit trail of everything must be retained.
Surprise floor checks (mini audits) and planned audits can take place at any time, so organizations must, without fail, remain audit-ready.
Most time-tracking software keep an audit log and timesheet change log for exactly this purpose.
Auditors may also request to see historical records, so they must remain organized and accessible.
Use DCAA Recommended Time Tracking Methods
While it’s permitted to use manual time-tracking systems, it’s widely recognized that electronic versions are better at providing DCAA-compliant time tracking.
Timekeeping software has several advantages over manual processes, including accurate data recording, audit trails, and user access controls.
This is why the DCAA strongly recommends using an electronic time-tracking system.
My Hours for DCAA Compliant Timekeeping Software
For DCAA compliance, timekeeping should be as straightforward as possible. When it’s complicated or labor-intensive, that’s when mistakes are made.
My Hours removes labor-intensive manual processes and replaces them with a simple solution.
It provides all the necessary features to follow DCAA guidelines, simplifying compliance.
Tips to Ensure DCAA-Compliant Timekeeping
Choose the Right Timekeeping Software
Manual time-tracking can work, but it’s time-consuming and prone to errors.
Digital time-tracking software is affordable, can automate much of the process, and most 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 track time properly.
But don’t just give your staff a manual or document. Instead, run thorough training and offer refresher sessions throughout the year.
On top of that, adding a short test can confirm that everyone knows the rules.
Set Clear Policies
Make sure your internal policies are clear and easily understood. Write them in plain English so there’s no doubt about what they mean.
Store them where employees can access them anytime, so there’s no confusion about expectations.
Consider Consulting with Experts
If you’re unsure about any part of compliance, consider hiring a government contract expert. They can spot potential issues and help you stay on track, even if you think you’ve got everything covered.
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 Time Tracking Glossary of Terms
DCAA Time Tracking Frequently Asked Questions (FAQs)
Do DCAA requirements apply to all government contractors?
Not always. DCAA compliance is typically required for cost-reimbursable and time-and-materials contracts. However, it is considered best practice even for fixed-price contracts to follow the standards.
Does DCAA time tracking permit employees to round their hours?
No, DCAA-compliant timekeeping does not permit the rounding of time. All hours and minutes must be recorded accurately, reflecting actual time worked, and cannot be rounded up or down.
What happens during a DCAA floor check?
DCAA floor checks can take place at any time and include the following:
- 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 DCAA timekeeping records be retained?
Part of government contractor timekeeping is retaining timekeeping records for at least three years after the final contract payment. Some industries require longer retention periods, so check yours to be certain.
It is considered best practice to retain records for at least six years.
Do timesheets have to be submitted daily?
Yes, daily submission is a core DCAA timesheet requirement, since 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?
A DCAA audit can happen at any time and without notice, so always be prepared.
However, you can generally 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 DCAA compliance and audits, regardless of the size of the organization.
Final Thoughts
Following DCAA timekeeping rules doesn't have to be complicated. When in doubt, review the requirements or ask an expert for guidance.
The easiest way to stay compliant? Use digital time-tracking software like My Hours that's built with DCAA standards in mind.
To find out more about My Hours and how it fulfills DCAA timekeeping requirements, sign up for a 30-day free trial today.
