In the previous two articles in this series we looked at what is required for a DCAA timekeeping system and what types of systems will meet these requirements. Today I want to look at how the DCAA monitors these systems and what you, as a government contractor, might expect to do to be compliant. As labor is typically the largest expense in a government contract, it makes sense that they would focus on how it is recorded, how it is turned into a bill to the government and how the contractor assures its accuracy. The FAR Part 31.201 requires that all costs (including labor) are evaluated for allowability, reasonableness and allocability. The timekeeping system is a big part of that requirement. The DCAA Contract Audit Manual provides the DCAA auditor tools for evaluating the allowability and allocability in Para 5-901 and evaluation of the reasonableness in Para 5-800, 6-412 & 6-413.
I think you can fairly assume that any time the government comes to your facility to do an audit (pre-award audit, system audit, or even an un-announced floor check audit) that they will be interested in looking at your timekeeping system. The Floor Check Audit is where a DCAA auditor shows up at your facility unannounced and randomly samples a few employees and checks for their understanding of the system and how they fill out their timesheets. They have a detailed audit checklist that they follow from their Contract Audit Manual and it could be worth while to familiarize yourself with exactly what they might be looking for. They will be looking for standard stuff like is the employee actually at work, do they know what to charge their labor to, are they recording their labor times daily, do they know the company procedure for timekeeping and are they following it. There are also guidelines for the auditor to follow if you have remote employees or "work at home" employees. These two areas are possible areas of misuse and of keen interest to the auditor. You can be certain that if the auditor finds discrepancies that your contracting officer will hear about it. If you cannot resolve these findings with the auditor and/or contracting officer, there can be serious consequences, including a hold on payments, cancellation of contracts and even a ban from future contracts in severe cases. All the more reason to make sure your timekeeping system is a good system and you have trained employees to use it properly.
In a full accounting system audit, timekeeping will also be reviewed. It is customary for the auditor to ask for the backup documentation so records should be maintained meticulously. The actual timesheet or timecard should reconcile to the data in the general ledger system as well. Again, as the company size grows in the number of employees, it may be smart to invest in an automated time keeping system to minimize the chance for a manual data entry error. The DCAA has become less "forgiving" of discrepancies since the GAO audits of the DCAA audits in 2008 & 2009. Previous to the GAO audits it was not uncommon for an auditor to "overlook" a few minor time recording errors and note in the report that the contractor has agreed to fix these either with more training or better monitoring of the program. Those days are gone. Now the system either passes or fails. It is imperative that you set yourself up for success and plan to pass. Having a trusted consultant that you can rely on will provide you with this type of security. ReliAscent has been helping small to medium sized government contractors with just this type of security. Call us today to see how we can help you.