Timekeeping, Labor Distribution and Record Retention for Government Contractors
There is usually no argument that timekeeping and labor recording are the most important part of government contracting. We have written many blogs on the subject. One thing that is perhaps not clear is the retention of records relating to this labor recording. If you are using a manual timekeeping system, there is usually no issue with keeping timecards. I think most people have a hard time discarding paper records.
There are some instances, however, where the paper timecards have been discarded after the data was entered into the financial software. For a DCAA compliant system, this would be a mistake. You will need to keep the actual timecard records for possible audit, even after the data was approved and entered into the financial system. If you look at FAR Part 52.212-4 it is clear that the original timecard must be retained up until final payment. So when is the final payment on a contract? Let's look at an example. Let's say that a company is awarded a multi-year cost reimbursable type contract at the beginning of year 0. The contract runs for 3 years so it is complete in December of year 3. The Incurred Cost Report for the final year is not due until June of year 4. Given the current backlog of ICP audits (around 6 years), the Incurred Cost Report submitted by the company in year 4 may not be audited until year 10. At this time, the DCAA auditor may want to review labor records in year 0 of the contract or records that are 10 years old. I think you can quickly see the importance of keeping timekeeping records when doing government contracting.
The other issue that came up the other day is that of what the government terms "automated" or electronic timekeeping systems. The original record for these systems is kept as an electronic record. Let's use the same example as above but assume that the company used a commercial, cloud based, automated timekeeping system during years 0 through 3 for the contract (not an uncommon situation as there are many of thes providers out there, several you will find on our partner page). Now, we will assume that in year 5 the company had not had any further government contracts and decided to cancel the arrangement with the automated timekeeping system. Since the records for this system were stored under a "paid for memory" location on the provider's cloud server, this memory will most probably be cleaned off the server once the company discontinues service. This would destroy the original time record and make it unavailable for the audit in year 10 (or in any year after the cancellation for that matter). This would be a major audit finding. So a company in this instance should request that the cloud timekeeping provider give the company a printout of all timecards prior to canceling service. That way the company can still have a record of the actual timecards for an audit. You can see, it is always safe to error on the conservative side and make sure you have the records needed for any audit or other closeout process.