For many government contractors, it can be slightly overwhelming to comprehend all of the requirements for timekeeping that are set by the DCAA.


However, it is incredibly important to ensure that timekeeping is performed within these established requirements. Failure to meet the DCAA expectations could result in consequences including refusal of future contracts, delayed payment, fines and even jail time.


So, what does the government require when it comes to contracts? Let’s take a closer look into the timekeeping requirements that are necessary to stay DCAA compliant.


What is the DCAA?

DCAA stands for the Defense Contract Audit Agency and this agency is part of the United States Department of Defense under the direction of the Under Secretary of Defense. The DCAA was created in 1965 to perform contract audits for the Department of Defense.


Although the agency originally only oversaw intelligence and military contracts, it expanded over the years and now covers many other kinds of service and labor contracts that the USA signs with commercial suppliers.


The agency provides standardized contract audit services, ensuring that all contracts meet the requirements. The requirements might change every year and they cover aspects of the contract including how time is approved, how time is entered and much more.


The goal of the DCAA is to ensure that government contracts meet a certain standard and that the taxpayer is getting good value for their money. They aim to prevent any fraudulent billing to the government. (Take note – this means that any submitted timesheets become the legal documents of the company.)


What Do the Rules Apply To?

If your company wins a government contract, the DCAA’s time tracking rules apply to everyone in the company. It doesn’t matter how large your operations are, it’s important that you are compliant. It’s your responsibility to ensure that you are compliant to the time tracking rules.


However, this doesn’t have to be too much of a complex undertaking. Boomr offers a time tracking app which makes it easy for employees to submit their time in a compliant way every day. This app was designed to help business-owners to manage payroll more effectively, while remaining DCAA compliant.


Consequences of Not Adhering to DCAA Requirements

The DCAA will do unannounced audits, sometimes as often as twice per year. During these checks, representatives from the DCAA will visit the workplace and talk to employees to make sure that timesheets are completed every day (rather than being backdated or in the future). They will also look closely at any changes made to timesheets and the reason for the change.


There are consequences for companies who do not adhere to these timekeeping requirements. Those who fall short of the standards will be disqualified from participating in government contracts.


Also, any fraudulent reporting of time sheets is a criminal offense according to the False Claims Act and anyone who does so is liable for criminal proceedings. The penalties for not following requirements (the DCAA calls it “labor mischarging”) could include five years in prison.


What are the Overall Basic Requirements?

There are a number of requirements to adhere to in regards to the DCAA, including:


  • All hours worked by all employees must be recorded. This includes indirect and direct work.


  • Proper job assignments must be made by different individuals than those who are performing the work.


  • Time must be charged accurately against each charge code.


  • The employee must record their own time in ink or in a timekeeping system, no less frequently than daily. Supervisors cannot record time on behalf of their employees, unless there is a good reason for doing so (such as when the employee is traveling for duty or sick).


  • Employees may not log time in advance of the work being done.


  • When the time sheet is accurately completed by the employee, the supervisor must sign and approve the information before the document is submitted for payment.


  • Only one timesheet or time card can be used per employee, per period.


  • Any corrections must be made to the contract in ink, including the description of the change, the initial change and the date and time of the change.


  • Any time a change is made to an already saved timesheet, a reason must be included for the change.


  • Employees and supervisors must review and approve all timesheets in order to verify the accuracy.


It is also required for a labor distribution to be maintained, documenting the hours and dollars by each employee and by project name. The government isn’t just interested in the amount of hours the employee spent at work, they want to know what project they were working on and how much time they spent on each project.


This labor distribution should be reconciled at least monthly and failure to do so will be a red flag to the DCAA. So, it is necessary to set up job codes within the time tracking system so that employees can allocate hours to different projects.


Special Requirements for Electronic Timekeeping

If your company opts to use an electronic timekeeping method, it will still be DCAA compliant. However, there are other special requirements that must be met when the timekeeping is being done electronically, such as:


  • Password protection must be required for logging into the electronic timekeeping system and passwords should be changed at least every 6 months.


  • Employees must maintain personal control over the timesheet, to ensure that no unapproved changes can be made by anyone else.


  • Employees must log the hours that they have worked daily, but must not make any entries in advance of working.


  • The electronic system should include an audit trail feature that documents all transactions within the timekeeping system. This includes all dates, time charges, employees, project numbers, approvals and time stamped submissions. It should record all changes made for corrections, as well as the employee who made the change, approvals, reason for change, etc.


  • The system must have a feature that automatically prompts the employee to write a reason whenever any change is made to a timesheet. This reason must be recorded in the history of the timesheet.


  • The electronic timekeeping system should allow for additional documents to be stored and scanned alongside the timesheet to provide additional information.


What About Overtime?

Do you have salaried employees working for your organization? If so, it is important to ensure that you are tracking all overtime employees are putting in, even if they are not paid by the hour. (This is also known as Total Time Accounting).


This is crucial because there is a difference between “Uncompensated Overtime” and “Unpaid Overtime.” Uncompensated Overtime is when employees are paid the same amount no matter how much they work, such as the case of salaried employees. So, any overtime is considered “uncompensated.”


Unpaid Overtime refers to overtime that should be paid to the employee, according to the overtime rules of the Fair Labor Standards Act. (Unless that employee meets the overtime exceptions.)


So, it is important to track all hours employees are putting in because the average hourly rate of an employee can be different depending on the number of hours they work in that pay period (due to overtime).


What About Paid Time Off?

Does the DCAA require a record of other unworked compensation that employees receive, such as paid time off?


The answer is yes. You will need to track this compensation, including holidays, sick pay, bereavement pay, vacation days, etc. The calculations include this to reduce the risk of labor accounting fraud, so make sure that this is included in your timekeeping calculations.


Creating Written Policies to Ensure Compliance

The larger your company is and the more employees you have, the more challenging it becomes to stay consistent and ensure that everyone is complying with the guidelines. This is why it is important to ensure that written policies on timekeeping procedures are clear and are known by all employees.


Make sure that your company has clearly written policies that relate to the preparation of timesheets and that your employees are fully trained in their use. It is necessary to have a policy regarding time change codes, which are the codes that employees can use to designate the time to be billed for a specific government contract. These are the basis to be used for calculating the total labor cost on the project.


As well as the written policies, it is also essential to perform regular audits and floor checks to make sure that all employees are adhering to time keeping procedures as specified by the DCAA. The middle manager is the most important person to ensure that all correct procedures are being followed, as they have a direct relationship with the employees who are filling out the timesheet.


Ask yourself:


  • Does everyone in the company, down to the last employee, understand how to submit their time correctly?


  • Are you making it as easy as possible for them to keep an accurate record of their hours?


  • Is it simple for supervisors to approve the time logged by employees?


The Benefits of an Electronic System

A DCAA compliant timekeeping system is essential for ensuring that all timekeeping done on the job meets the guidelines laid out by the DCAA. Companies have a choice – they can log time worked via the traditional method of paper time sheets, or use a cloud-based, electronic system.


There are a number of benefits offered by an electronic timekeeping system:


  • If employees are working off-site or traveling for duty, they don’t need to return to the job site at the end of the day to log their hours, they can do so via their smartphone.


  • When timesheets are entered electronically they are always legible and there is no chance of misinterpretation.


  • There is no need for a large amount of hours to be spent on data entry.


  • The chance of errors from human hands is reduced, as the data is transmitted electronically.


  • The system can provide employees with a choice of available indirect and direct labor charges, which can improve the quality and accuracy of tracking.


  • The electronic system can integrate with accounting software (such as QuickBooks or Xero).


  • The electronic system can have features that remind employees to track their time every day, so that they don’t forget.


  • When the timesheet records are stored online securely, they can be updated at any time from anywhere.


In the case of an audit, an electronic system will be able to generate a full report of every timesheet submitted, as well as any change made to those timesheets. This is incredibly valuable information that the DCAA will be able to study to ensure that your workplace is compliant.


DCAA Compliance is Necessary

If the DCAA were to arrive to audit your company tomorrow, would you be ready? It is important to always be prepared for a DCAA audit, as you never know when it will happen.


It might seem like DCAA requirements for timekeeping are complex and strict – and they are in a way. However, the DCAA takes their role seriously and their goal is to prevent misuse of tax dollars. If your company wants to be involved with government contracts, this administrative compliance is necessary to be in the game.


Want to learn even more? Get all the details you need by downloading our white paper on Time Tracking and DCAA Compliance.