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Who Enforces What? Quick Overview
In a nutshell, FAR sets the regulatory standards for government contracts, and the DCAA is the body that enforces them.
Internally, your timekeeping policy ensures workers are maintaining daily compliance with FAR.
Think of each of them like this:
- FAR: The law
- DCAA: The auditor who checks that you followed the law
- Timekeeping policy: The internal rulebook required to comply with the law
FAR: The Regulations
To go into more detail, the Federal Acquisition Regulation (FAR) is essentially a legal framework that governs all US federal contracts. It exists to ensure that all taxpayer money is accounted for and used responsibly.
There are 53 Parts to FAR, but the one that relates to costs is Part 31.201.
This defines:
- What is considered an allowable and reasonable cost
- How to determine allocability
- What is considered an unallowable cost
- Direct vs. indirect costs
Timekeeping directly relates to this because Part 31.201-2 maintains that allowable costs must be reasonable, allocable, and properly documented. To quote:
“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. The contracting officer may disallow all or part of a claimed cost that is inadequately supported.”
It doesn’t matter what type of government contract you have, which industry you work in, or the work carried out. FAR rules are universal to government contractors and must be followed no matter what.
DCAA: The Enforcer
The role of the Defense Contract Audit Agency (DCAA) is to prevent fraud and waste.
It performs several types of audits during all stages of the contract lifecycle. Therefore, you can expect:
- Pre-contract award: Checks to evaluate whether the accounting system, internal controls, and proposed costs are up to standard.
- Post-contract award: Checks to test that your organization is following what’s stipulated in the contract, FAR, and your own internal policies. Other audits can also take place mid-contract, including:
- Payment progress audit: To confirm that payments are accurate and in line with the contract.
- Incurred cost audit: Checks whether a contractor’s accounting system and billed costs follow FAR Part 31 by reviewing timesheets, cost details, overhead rates, and related records to confirm the expenses were real, allowable, and properly charged.
- Procurement system audit: Reviews everything that involves procurement and how it performs in each area, including selection, cost analysis, etc.
- Cost allowability audit: Evaluates whether all costs charged to the government are reasonable, allocable, and allowable.
- FPRPS audit: Forward pricing rate proposal reviews. These examine the accounting systems related to cost proposals.
- Closeout audits: Checks to confirm that final costs are accounted for and any discrepancies are resolved before closing the contract.
- Special investigations: These are targeted audits conducted when there’s any suspicion of non-compliance or fraud.
MAAR 6 audits
The DCAA uses a combination of announced audits and unannounced surprise floorchecks. That means you won’t always know when the DCAA is going to knock at your door.
Surprise floorchecks form part of the Mandatory Annual Audit Requirements (MAAR).
Known as MAAR 6, they typically fall under the incurred cost audits and aim to test whether day-to-day behavior matches internal policies (including timekeeping) and what’s written on paper (like employee roles and costs).
The DCAA maintains that the element of surprise is necessary to prevent organizations from covering up non-compliance. For example, fixing time entries after the fact rather than keeping contemporaneous records.
The DCAA and timekeeping
Beyond audits, the DCAA has expectations around how your organization tracks and records time. This is to ensure timetracking complies with FAR regulations.
Although it doesn’t mandate digital timekeeping software, it does recommend that you use this method because it’s better at producing compliant timesheets.
Additionally, these rules must be followed:
- Use total time accounting
- Submit daily timesheets
- Record all time off and overtime
- Define indirect vs. direct labor
- Categorize all time entries
- Check and verify all timesheets
- Provide monthly reports
- Keep payroll and timekeeping separate
- Keep records secure yet accessible
If you’d like to read the details surrounding these rules, you can check out our DCAA Timekeeping Requirements Guide.
Company Policy: Daily Compliance
Your company policies are what embed FAR and DCAA rules into daily operations.
That means every policy that’s tied to costs, accounting, and billing must be able to withstand DCAA scrutiny, including:
- Timekeeping policy: To ensure labor hours are real, accurate, and properly charged.
- Accounting policy: To maintain that costs are recorded, allocated, and reconciled correctly
- Allowable cost policy: To prevent unallowable FAR costs from being billed.
- Indirect rate/overhead policy: So shared costs like overheads are spread reasonably and consistently across projects.
- Billing policy: So all invoices match books, payroll, and contract terms.
- Procurement policy: To confirm that purchases are reasonable, allocable, and documented
- Travel and expense policy: To prevent unallowable or unsupported reimbursements.
- Labor distribution and job costing policy: To ensure that timesheets are connected to the general ledger and contract billing.
The importance of the timekeeping policy
Timekeeping often gets the spotlight shone on it because labor is usually the highest and riskiest cost.
Why is it risky?
Well, this is down to several reasons:
- Time is self-reported, which creates room for errors and guesswork
- Timesheets feed payroll and accounting, so if the time is wrong, the costs are also wrong
- Small mistakes add up fast. One incorrect hour multiplied across timesheets can translate to thousands of dollars.
- Timesheets are a common source of fraud or findings of non-compliance. The DCAA knows this, so they look closely.
As such, a robust timekeeping policy coupled with a strong system for actually recording time keeps everything transparent and documented.
If your organization is pulled up for an audit, then you will already have the defensible information to back up your timekeeping practices.
What Does This All Mean for Daily Timekeeping Compliance?
Your employees don’t necessarily need to understand FAR and the inner workings of DCAA. Nor are they expected to read the regulations or think like accountants.
What your workers do need is a clear understanding of the timekeeping policy and why it’s so important.
From an audit perspective, timekeeping is not just another admin task or a form of micromanagement. It serves as legal and financial evidence that supports every dollar billed to the government.
Therefore, it’s very important to realize that auditors do not hold individual workers accountable for regulatory compliance. If timekeeping is not compliant, the finding is issued to the organization, not the employee who filled out the timesheet incorrectly.
Essentially, this means that two truths simultaneously exist:
- Employees are responsible for following the policy
- Employers are responsible for everything else
Practically speaking, your organization is accountable for the written policies and training staff on how to apply them. It’s also down to the employer to enforce the rules consistently and monitor for any errors or blatant misuse.
So, the best way to maintain daily timekeeping compliance is to:
- Have the timekeeping policy readily available, and ensure that employees know how to access it.
- Provide regular training on timekeeping practices and embed training into the onboarding process.
- Opt for digital timetracking software that enforces compliance without any complicated administrative processes.
- Regularly conduct internal audits. Sample timesheets, review the entries, and remediate any discrepancies.
- Maintain accountability from leaders and workers. There should be strong mechanisms in place for reporting, reviewing, and resolving non-compliance.
Read more: DCAA Timetracking FAQs for Government Contractors
Final Thoughts
Building good timekeeping practices must begin before an audit even happens. Especially since you never know when the DCAA may turn up.
In the end, FAR and DCAA rules dictate that the employer is responsible and accountable for maintaining clear policies and implementing a solid time tracking process.
Do this, and you can ensure that compliance is built into everyday operations, not reconstructed after the fact.
