This week I was having a conversation with a new client about how to properly set-up and use an automated timekeeping system. Since this is one of the most important elements for many government contractors (and probably the number one DCAA audit finding related to labor recording and/or distribution) I thought it would be a good idea to share these ideas. While I was discussing the operation of an automated timekeeping (web based timekeeping) system this week, the same guidelines apply to a manual timekeeping system.
The first piece of advice on a timekeeping system is the timesheet reflects the proper work authorizations (authorizations issued by other than those performing the work). This could be by accomplished by limiting the number of different charges available to each employee. The next issue is related to the employee filling out the timesheet. The other requirements will not be covered here but I refer you to a previous blog for that information.
The first choice the employee must make is whether the work they just did was direct or indirect work. Direct work is work that can be associated with only one cost objective. This is usually work for a specific contract, or other special cases. The special cases include Independent Research & Development work (IR&D) or Bid & Proposal work (B&P). All of these instances should be recorded on the timecard as direct time.
The remainder of time would then, by default, be indirect time. The question is what account to charge the indirect time. Normally a company will have several areas (or pools) such as Fringe, Support Overhead and General & Administration (G&A). Most companies will list vacation, personal time off, holidays and similar occurrences in the Fringe pool. This doesn't make too much difference (which pool the charge ends up in) to the employee filling out the timecard as long as that employee has the availability to the charge code. The fringe pool charges are rather obvious and easy fo the employee to identify. Where it gets difficult is in separating G&A from Support Overhead. Generally I like to think that the G&A pool is for time spent on the overall management of the company. Charges associated with marketing, finance, HR, senior management duties, developing policies & procedures, etc would fall under this pool. Again, the set-up of the timekeeping system should automatically feed these types of charges to the proper pool within the accounting system so that the user doesn't have to decide too much. Finally, the Support Overhead pool should contain technical activities that support more than one final cost objective (or more than one project). Examples of this type of time would include business meetings, company planning, supervision, e-mails, phone calls and other activities that would support several projects within the company.
The more the individual filling out the timecard understands about the differences between the different labor types, the easier it will be to distribute the labor and the more likely the company is to pass a government audit. Please let me know if this doesn't make sense, I would be happy to explain further.