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Ensuring compliance with DCAA (Defense Contract Audit Agency) timekeeping regulations is essential for government contractors. Accurate and auditable timekeeping not only fulfills regulatory obligations but also safeguards your business from penalties, maintains project integrity, and builds credibility with government clientele. 

This guide will walk you through the key elements of DCAA-compliant timekeeping, its importance in contracting environments, and actionable insights on implementing proper systems aligned with regulation standards.  

What is DCAA Timekeeping Compliance?  

The DCAA oversees and audits government contracts to ensure that contractors’ accounting and operational systems comply with federal regulations such as the Federal Acquisition Regulation (FAR) and Cost Accounting Standards (CAS). Timekeeping is a crucial aspect of these regulations, as labor costs often make up a significant portion of government contracts. DCAA compliance ensures that all time worked is properly recorded, allocated, and traceable to specific projects or cost objectives. Non-compliance can lead to repercussions such as rejected invoices, contract penalties, failed audits, or even disqualification from future contracts.  

Key Features of DCAA-Compliant Timekeeping  

Adhering to DCAA regulations requires a thorough understanding of what constitutes a compliant timekeeping system. Here are the must-have features for your organization’s processes and tools: 

1. Accurate Time Tracking Daily 

Employees must record their time daily, as tasks are performed. This ensures accurate allocation of labor costs across various direct, indirect, and unallowable categories.  

2. Allocation of Labor to Cost Objectives 

Labor must be assigned to specific cost objectives, including billable hours, indirect costs (e.g., training or administrative work), unallowable costs, and other categories outlined by FAR or CAS.  

3. Proper Corrections with Documentation 

Errors in timesheets should be corrected immediately, with a detailed explanation of the error, correction, and the approval of the revised timesheet.  

4. Regular Sign-offs for Audit Readiness 

Employees must sign their timesheets at the end of each reporting period, certifying their accuracy. Supervisors should approve all subordinate timesheets, confirming they align with project requirements.  

5. Policies Against Fraudulent Practices 

Policies must strictly prohibit practices such as pre-filling timesheets or instructing employees not to track specific hours worked. These behaviors are strictly non-compliant and unethical.  

6. Secure and Reliable Systems 

Whether you’re using paper-based systems or electronic software, ensure your timekeeping tools are tamper-proof and secure. Many modern systems now integrate DCAA compliance checks as standard, offering additional security and ease of use.

Benefits of DCAA-Compliant Timekeeping  

Implementing a timekeeping policy that aligns with DCAA regulations extends beyond compliance. Here are the core benefits of building robust timekeeping systems for government contracts: 

1. Operational Transparency

Clear, auditable systems strengthen your organization’s reputation with government agencies and prime contractors.

2. Avoiding Financial Penalties

Proper timekeeping reduces risks of overcharging or underbilling that could lead to penalties or contract disputes.

3. Enhanced Resource Management

Allocating labor to specific cost objectives provides better visibility into resource utilization, helping you optimize workforce efficiency.

4. Simplifying Audit Preparation

A proper system ensures data is readily available and organized, reducing effort during DCAA audits or contract evaluations.

Example of a DCAA-Compliant Timekeeping Policy  

Creating and enforcing a compliant timekeeping policy is key to staying audit ready. Below is a simplified example based on general requirements of DCAA compliance.  

Sample Timekeeping Policy

Purpose:  

To ensure all employees accurately track hours worked and allocate them to appropriate cost objectives in compliance with federal regulations.  

Policy Highlights:  

• Employees must record all hours worked daily, aligned with tasks performed. 

• Example: Direct costs for client projects, indirect administrative time, and unallowable hours must be distinguished. 

• Corrections to timesheets must include proper documentation and supervisor approval. 

• Supervisors are responsible for ensuring subordinate timesheets are reviewed for accuracy before approvals. 

• Employees must sign timesheets at the end of each pay period to certify accuracy. 

• Any deviation from the policy must be reported immediately to management or compliance officers. 

For a full downloadable example of a timekeeping policy, click here.

How to Develop DCAA-Compliant Timekeeping Processes  

Follow these actionable steps to establish a timekeeping system that meets DCAA standards.  

Step 1. Train Employees Effectively  

Ensure all employees understand the purpose and importance of DCAA compliance. Provide training on accessing, completing, and submitting compliant timesheets.  

Step 2. Choose the Right Software  

Invest in electronic timekeeping systems with built-in compliance features. Look for tools offering daily time-entry reminders, audit trails, and secured approvals.  

Step 3. Conduct Internal Audits  

Periodically review time entries and supporting documentation to identify discrepancies and maintain strong compliance practices.  

Step 4. Enforce Accountability  

Hold both employees and supervisors accountable for non-compliance. Implement robust mechanisms for reporting, reviewing, and resolving violations.  

Step 5. Maintain Open Reporting Channels  

Encourage employees to speak up about violations of compliance policies. Anonymous reporting channels can enhance transparency while protecting whistleblowers. 

Frequently Asked Questions About DCAA Timekeeping  

What is the purpose of DCAA timekeeping?  

DCAA timekeeping ensures accurate labor cost allocation for government contracts, which helps establish accountability and maintain financial integrity.  

How often should employees record their time?  

Employees must record hours as work is performed. Timesheets should be updated daily to ensure precision and adherence to regulations.  

Can timesheets be completed in advance?  

No. Pre-filling or estimating time entries is strictly prohibited under DCAA regulations.  

What happens if errors are found on a timesheet?  

Errors should be corrected immediately with a full explanation and supervisor approval. All changes must be documented to maintain audit integrity.  

What are common red flags during DCAA audits?  

Frequent mistakes include missing timesheet approvals, insufficient documentation for corrections, and inaccurate allocations of time to cost objectives.  

Preparing Your Business for DCAA Compliance  

Implementing a DCAA-compliant timekeeping system is critical for any organization entering the world of government contracting. Robust timekeeping ensures project success, financial accountability, and positive audit outcomes.  

If you’re ready to take the first step toward audit-proof timekeeping, download our free DCAA-Compliant Timekeeping Policy Template today. Remember, compliance is not just about passing audits; it’s about building trust and credibility with your clients, employees, and stakeholders.