DCAA Timekeeping Requirements - Part 2
Last week we looked at the DCAA requirements for Timekeeping on a government contract and this week I want to explore the different types of systems. The DCAA Contract Audit Manual describes two types of acceptable timekeeping systems:
- Para 5120 5-909.1: Manual Timekeeping Systems
- Supervisory observation of employee arrival and departure to prevent improper clockin/clock-out.
- Employee possession of timecard/timesheet.
- Employees prepare their timecards in ink, as work is performed.
- Only one card/sheet is prepared per employee per period; cards/sheets are preprinted with employee name and identification number; and cards/sheets are turned in to the designated timekeeping office or collected by an authorized person.
- Precoded data is printed on the job cards for identification purposes.
- Direct labor employees record their time no less often than daily. Sufficient formal subsidiary records are maintained, if necessary, to assure accurate time recording and allocating of labor costs to intermediate and final cost objectives when multiple jobs are worked in a day.
- Corrections are made in ink, initialed by the employee, properly authorized, and provide a sufficient and relevant explanation for the correction.
- Employees and supervisors sign the timecards/timesheets in accordance with procedures, verifying the accuracy of the recorded effort.
- Para 5120 5-909.2: Automated Timekeeping Systems
- Provide for the accurate and current recording (e.g., no less than daily) of labor hours by authorized employees.
- Appropriate controls to ensure corrections to labor charges are accurate and authorized.
- Only the employee uses their labor charging instrument to access the labor system.
- Employee badge issuance is sufficiently controlled so that no number is duplicated and badges are not issued to unauthorized persons.
- Procedures are in place which require the employee to report lost badges promptly.
- Changes are initialed, authorized, and dated by the employee and supervisor and include a description of the reason for the change. This may be done electronically.
- A verifiable audit trail process is in place that collects all initial entries and subsequent changes.
For small companies, a manual timekeeping system is probably sufficient and cost effective. The requirements of the manual system are described above. The DCAA Manual also requires that labor costs are properly recorded to cost objectives and reconcilled between compensated and uncompensated hours worked. All hours worked must be recorded. There should be policies and procedures for identification and segregation of unallowable labor costs as well as overtime authorizations, segregation of duties, verification of labor accuracy and proper records retention among other reviews. In a manual system, the labor hours must be entered into the general ledger system which may provide another possible chance for error and reconcilliation.
As the company size grows, it makes not only economic sense but procedural sense to move to a more automated system. So what is the difference? The basic requirements of both types of systems are the same. Daily recording, correct charge codes used, corrections having a complete audit trail, approval cycles, etc. are required of both types of systems. We have seen some companies get into trouble by setting up an "electronic" timekeeping system based in a spreadsheet software like Microsoft's Excel. Excel lacks several key ingredients like the change control/audit trail & approval processes that the DCAA needs to see. The audit trail needs to include the original entry, a description of the change, initialed, authorized and dated by both the employee and the supervisor. Automated systems also must insure that only the employee can access their specific record (nobody else can record time on another employees timesheet). Of course, the supervisor must also have access to the employee's time record for monitoring and for approval. There are many timekeeping software packages on the market today but only a select few have DCAA approved packages and you usually have to ask specifically for the DCAA approved package. ReliAscent has worked with many of these and we know the pro's and con's for most of them. While there is no one simple answer (there are lots of variables, lots of extra features and certainly costs to weigh) we can usually help steer clients to the most cost effective solution on an automated system to meet each company's specific needs. Timekeeping is a key ingredient to effective government contracting and meeting DCAA requirements. It is probably the number 1 audit finding by the DCAA. You need to make sure and get this one right.