Mastering the Art of Timekeeping: Navigating Compliance in Government Contracting
By Jim Wesloh
U.S. government contracts account for over $700 billion annually, a significant portion of which hinges on the ability for contractors to “establish and maintain an acceptable accounting system” which includes “timekeeping” and “labor distribution.” Failure to maintain an acceptable accounting system may result in the withholding of payments from the government to a contractor.
Understanding and adhering to the diverse yet interconnected government requirements and regulations is not just about fulfilling a contractual obligation, but is central to maintaining the integrity and credibility of government contracting.
For government contractors, meticulous timekeeping is not just a practice but a mandate, governed by a complex web of regulations and guidelines. By delving deeply into each of these requirements and providing a detailed analysis and guidance on compliance, a comprehensive framework emerges, ensuring contractors’ compliance with federal standards and enhancing the transparency and accountability of government-funded projects.
The multifaceted requirements of timekeeping for government contractors is detailed in key documents, such as the Federal Acquisition Regulations (FAR), the Defense Federal Acquisition Regulation Supplement (DFARS), the Defense Contract Audit Agency’s (DCAA) Contract Audit Manual (CAM), among others.
At the heart of these requirements lies the necessity for precise and daily recording of labor hours. This foundational aspect, outlined by the CAM and DCAA’s Information for Contractors (Info), ensures that each hour worked is accurately captured and attributed to the correct cost objectives. The emphasis on daily recording of accurate data underpins the system’s integrity, minimizing the potential for errors or misrepresentations.
Equally critical is the implementation of robust work authorizations. These authorizations, including specific identifiers and detailed descriptions, must be clearly communicated to employees. This practice not only aligns with DCAA guidelines, but also establishes a clear linkage between the employee’s work and specific contract objectives, enhancing the traceability and accountability of labor charges.
The system’s integrity is further reinforced through strict authentication measures for timesheet access. As per CAM guidelines, each timesheet must be uniquely linked to an individual employee, prohibiting shared access and ensuring that the recorded time is reliably attributable to the correct person.
Changes to time entries are inevitable, yet they must be managed with a rigorous audit trail. This audit trail, as described by the CAM and DCAA Info, must capture all initial entries, subsequent changes and include detailed justifications for each alteration. This level of scrutiny ensures that any modifications to time records are transparent, verifiable and justifiable.
Employee certification and supervisor approval processes are pivotal in this ecosystem. Employees are required to certify that their timesheets accurately reflect the hours worked, aligning with the CAM and DCAA Info directives. Similarly, supervisor oversight is a critical check in the process, ensuring that the timesheets are thoroughly reviewed and cosigned, adding an additional layer of verification.
In scenarios where employees are absent or on travel, the guidelines provide clear directives for timesheet preparation and subsequent verification upon the employee’s return. This aspect underscores the system’s flexibility, while maintaining its rigor.
The integration of timekeeping data with the General Ledger, as stipulated by DFARS and the Standard Form 1408 Preaward Survey, ensures a seamless flow of information from time recording to financial reporting. This integration is vital for maintaining accurate and current project cost records, facilitating timely and accurate billing and financial management.
The system must also be equipped to withstand DCAA floor checks, demonstrating that time is charged appropriately, and adjusted entries are well-documented and approved, as outlined in DFARS. This readiness for audit and inspection is a testament to the system’s robustness and compliance orientation.
Finally, record retention policies, as detailed in FAR, dictate the preservation of payroll-related records both during and after the completion of work. This practice not only serves as a historical record, but also as a crucial resource for audits and reviews.
Let's now delve into the specific guidelines and practices that underpin timekeeping compliance and accountability in government contracting:
Timekeeping Mandate: This is underscored in the Defense Federal Acquisition Regulation Supplement (DFARS), the Defense Contract Audit Agency’s (DCAA) Contract Audit Manual (CAM) and Information for Contractors (Info), which provide detailed guidelines on timekeeping system requirements.
Work Authorizations: As per DCAA Info, each work authorization must include specific identifiers and detailed descriptions, ensuring clear communication to employees and alignment with contract objectives. This is crucial for maintaining the traceability and accountability of labor charges.
Authentication and Timesheet Integrity: CAM guidelines mandate that timesheet access be authenticated to a specific individual and not shared, thereby ensuring the reliability of time records. This is fundamental in minimizing risks of errors or misrepresentations.
Daily Recording of Labor: The CAM and DCAA Info state that labor hours should be recorded no less frequently than daily. Recording time less frequently than daily can lead to the inaccurate accumulation of labor costs as memories fade.
Audit Trails for Time Entries: The audit trail process, as outlined in CAM and DCAA Info, requires collection of all initial entries and subsequent changes, including detailed justifications for each alteration. This ensures transparency and verifiability of time record modifications.
Employee Certification and Supervisor Approval: Both CAM and DCAA Info require employees to certify their timesheets, reflecting the hours worked and cost objectives accurately at the end of each work period. Furthermore, supervisor approval and cosigning of all timesheets is mandated, adding an additional verification layer.
Supervisor Completion of Timesheets: DCAA Info directs that the supervisor is prohibited from completing an employee’s timesheet unless the employee is absent for a prolonged period of time on some form of authorized leave. If the employee is on travel status, the supervisor for the employee may prepare a timesheet. Upon his or her return, the employee should turn in his/her timesheet and attach it to the one prepared by the supervisor.
General Ledger Integration: DFARS and Standard Form 1408 Preaward Survey stipulate that costs associated with time must be recorded in the General Ledger of the Accounting System at least once per month. This integration is vital for maintaining accurate and current project cost records, crucial for billing and financial management.
DCAA Floor Checks: DCAA Info mandates readiness for DCAA floor checks to demonstrate timely and accurate time charging. Readiness for unannounced floor checks decreases the audit risk that time is not recorded in a timely manner.
Record Retention Policies: The Federal Acquisition Regulations (FAR) detail the requirements for the preservation of payroll-related records, both during the course of the work and for three years after project completion. This practice is essential for historical records and audit readiness.
Direct and Indirect Cost Segregation: DFARS and Standard Form 1408 outline the need for proper segregation of direct costs (costs associated with a project or contract) from indirect costs (costs not associated with a project or contract).
Cost Accounting and Unallowable Costs: The DFARS provisions also include guidelines on the identification and accumulation of direct costs by contract, segregation of unallowable costs from allowable costs, and the need to record cost accounting information, as required to readily calculate indirect cost rates. Indirect cost rates are used to allocate indirect costs to projects or contracts in a reasonable and equitable manner.
Government contracting timekeeping demands meticulous adherence to regulations and practices outlined in this guide. From work authorizations and authentication measures to audit trails, each component ensures compliance and accountability. Embracing these practices is essential for contractors to comply with federal standards and to be paid for their work. In this regulated environment, mastering timekeeping is fundamental for success.
About the Author
Jim Wesloh is the founder of PROCAS, LLC, a leading provider of financial solutions for government contractors. Wesloh is a University of Cincinnati alumnus.
About PROCAS
PROCAS has been a market leader in project accounting for government contractors for over 25 years. With its unparalleled expertise and innovative, customer-focused solutions, PROCAS remains committed to helping contractors seamlessly navigate the complexities of government contracting.
