Compliant Timekeeping and Labor Accounting

Timekeeping continues to be a hot item for key government contract regulators including DCAA Compliance. Adequate timekeeping practices are crucial to successfully securing or maintaining an adequate government contract accounting system. Often deficient timekeeping is the reason for contractors’ failing DCAA accounting system audits.
I often make assessments of timekeeping systems and practices, develop compliant timekeeping policies and procedures and have even assisted software developers in validating DCAA compliant timekeeping attributes are incorporated into their products. Small businesses commonly do not know what the time keeping system requirements are or are provided incorrect information. I am providing below the key requirements for compliant timekeeping systems and practices. Both manual and electronic timekeeping systems are acceptable provided the key requirements are followed.

  • The timekeeping system or procedures must be documented in a timekeeping policy or procedure provided to all employees. All of the key elements of an adequate time keeping system must be addressed.
  • Every employee must record their time daily. Under manual systems time must be recorded in ink. Recording time in advance or days after the fact such as at the end of the week is not acceptable.
  • Time must be charged by day and by project and/or indirect accounts. Employees must record all time worked on projects to the proper job numbers and codes. Employees must record all indirect time not identifiable to a given project to proper indirect cost accounts.
  • Employees must record all vacation, sick, holiday and other leave time to the proper accounts.
  • Employees must account for all hours worked.
  • All project names or job codes that appear in the system should be initiated by finance or the system administrator. Project names or codes must be provided to employees authorized to work on a given project.
  • All employee time must be approved by the employee’s supervisor.
  • Corrections to time entries should only be made by the employee. Corrections are approved by the employee’s supervisor. Under unusual circumstances where the employee cannot make the changes to time sheets then accounting or the administrator may make such changes with the employee’s consent. This exception only applies in rare situations. The correct method to make corrections for manual timesheets is by single line item cross-out initialed and dated by the employee.
  • All time charges must be the employee’s own. All time must be recorded properly based on work completed, irrespective of whether the time is billable or recoverable. Under no circumstance may personnel work on one project and record time to a different project. Under no circumstance may personnel work on indirect tasks and record time as direct costs to a project or vice versa.
  • All employees should be provided at least annual documented time keeping training awareness whether by formal or informal means.
  • Time sheets and all corrections must be maintained for a period of at least 2 years. However, project records under a government contract must be maintained for audit purposes for a period of three years after final payment. The requirements for record retention are contained in FAR Subpart 4.7.
  • Periodic monitoring of compliance with time keeping requirements should be conducted by audit or floor checks.

Special Rules for Electronic Timekeeping

  • Password protection must be required. Passwords should be changed periodically not less frequent than 6 months.
  • Workforce protection should be initiated to limit access to project numbers, names and codes to employees approved to work on a given project. This is an optional item, but an excellent preventative measure to minimize employees from inadvertently charging the wrong accounts.
  • Use of an audit trail feature documenting all transactions in the timekeeping system is required. This includes all employees, time charges, dates, project numbers, time stamped submission and approvals. For corrections, it records changes made, employees involved including who made the change, date, approvals, reason for change etc.

Labor Distribution

To secure an adequate accounting system, a labor distribution must be maintained documenting hours and dollars by employee, by project name or job code and indirect accounts. This labor distribution should be reconciled not less often than monthly to general ledger labor accounts. Failure to pass this test is a guaranteed DCAA red-flag. In most cases your accounting system will not pass government scrutiny for failure to maintain an accurate labor distribution compatible with the general ledger.
Should you seek additional help with your timekeeping system and DCAA Compliance please contact me .