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:
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.