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The objectives of a timekeeping system are to ensure that labor costs are accurately and timely identified as either direct or indirect in the accounting system.  For certain contract types (e.g. cost-type), these accumulated labor costs are reported and billed to the customer.  It is the contractor’s responsibility to ensure that the labor costs posted in the timekeeping system are proper and reliable. 

Timekeeping Policies

Timekeeping policies should be in place to ensure employees are informed of their responsibility when it comes to entering time each day.  The individual employee is the critical element for proper labor charging.  Internal controls should be in place to mitigate risk of fraud and waste in labor charging.  Audit of a company timekeeping procedures and practices is essential, whether the audit is performed internally or externally by DCAA.  Other elements such as materials, other direct costs, and subcontracts are supported by external “third party” documentation to determine and to support the billed amount to customers.  In contrast, contractor labor is only supported by internally (contractor) generated records.  Since there is a risk to the customer, timekeeping is a focus of DCAA.  Floor checks are DCAA’s method for “real-time” audit testing.  The purpose is to ensure employees are at work, employees perform the assigned job classification, and time (labor) is charged to the proper cost objective.   

The Floor Check

Before DCAA begins the Floor Check, the contractor’s timekeeping policy will be reviewed by the auditor.  A contractor’s timekeeping policy should have proper segregation of responsibilities for labor-related activities.  Clear instructions for timesheet preparation should be included in the policy.  Once the policy is reviewed, the auditor performs an analysis to determine risk indicators for potential mischarging.  An evaluation of the contractor’s government contract mix and recent labor distribution/payrolls are analyzed to determine high risk indicators.  DCAA expectations for a timekeeping system provided in the Information for Contractors are the following:

  • Identifies employees’ labor by intermediate or final cost objectives – the timekeeping system should have the ability to track employees’ time spent on each work activity;
  • A labor distribution system that charges direct and indirect labor to the appropriate cost objective – once an employee’s time is segregated the cost must be allocated to the appropriate cost objective.

DCAA will perform unannounced floor checks to determine the accuracy of the timekeeping system for reimbursement of labor under flexibly priced contracts such as cost reimbursable, time and material (T&M), and labor hour contracts.  Generally during a labor floor check the auditor will interview a randomly selected employee.  This employee will be asked a series of questions regarding timekeeping charging, such as:

  • What is your job title? 
  • What contract or task do you work on? 
  • How do you charge your time?
  • Were you given policies and procedures?  Do you have instructions on how to input time/fill out a timesheet?  Can I see your procedure?
  • Do you prepare your own timesheet?
  • Does anyone ever prepare your timesheet for you?
  • How often do you prepare your timesheet?
  • Have you been given timekeeping training?
  • Who approves your time cards?  Does your supervisor sign your timecard?
  • When are timecards submitted?
  • Are you an exempt or hourly employee? Do you work on salary?
  • Are you paid overtime?
  • Do you record your time in excess of 40 hours?
  • Do you record all your time?

Post Floor Check

After the floor-check interviews are complete, the auditor will compare their notes from the interview to the employee’s timesheet on the following payroll records to ensure labor costs were recorded accurately.  It is critical that employees are aware of the timekeeping policy and procedures to be prepared for DCAA floor check.  Mischarging time is illegal and could be considered fraud (violation of the False Claims Act).  The penalties for labor mischarging are fines and jail time.  Examples of mischarging are the following:

  • Employees who fill in and sign the timesheets with false information;
  • Supervisors who approve any timesheets with the knowledge that they contain false information;
  • Managers and officers who know those facts and make the claim anyway by submitting the invoice based on the false timesheet;
  • The company, in a case where the falsification is known by individuals who submit, or who have authority to submit, or disapprove the submission of invoices, or who are of a sufficiently high enough level in the company that the court will impute their knowledge to the corporation.

The manipulation of charges to a contract may be subject to criminal charges under 18 United States Code (USC) 1001.


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Written by Kimberly Basden

Kimberly Basden Kimberly is a Managing Consultant with Redstone Government Consulting, Inc. based in our Huntsville, Alabama office. Her areas of expertise include working with government contract accounting and contracting issues and audit. Kimberly specializes in assisting government contractors in the unique accounting, pricing, proposal preparation, and compliance requirements of the U.S. Government. Professional Experience Kimberly’s experience includes preparation of complex incurred cost submissions, compliant accounting infrastructure, preparation and evaluation of policies and procedures, contract closeout process, developing provisional indirect rate budgets, monitoring actual indirect rates, and providing audit support to government contractors. Her primary focus is working pro-actively in preparing small contractors for government contract challenges as well as resolving DCAA issues. Kimberly has almost ten years of experience assisting clients with Federal Acquisition Regulations (FAR) and Cost Accounting Standards (CAS) best practices and compliance. She works with government contractors to comply with critical Federal Acquisition Regulations (FAR) requirements related to cost accounting and proposals. Her sundry experience with various government contract issues and successful resolutions provides insight that benefits our clients. Prior to joining Redstone Government Consulting, Inc., Kimberly specialized in assurance and advisory services with a regional firm (Jackson Thornton), working as a staff accountant conducting compilations and reviews, auditing financial statements and assisting with litigations. Education Kimberly earned a Bachelor of Science degree in Commerce and Business Administration from The University of Alabama in 2007. Affiliations National Contract Management Association Women in Defense

About Redstone GCI

Redstone Government Consultants are a team of the most senior industry veterans and the brightest new talent in the industry. Many have held senior government positions including leadership roles in the DCAA. Our new talents bring significant accounting and software experience along with fresh perspectives, inspiration and energy to our team. Through our leadership and combined experience, we provide a unique perspective, bringing both government and contractor proficiencies to bear and ensuring rock-solid government compliance for our clients.

Topics: Compliant Accounting Infrastructure, Small Business Compliance, Contracts Administration, Defense Contractors, Government Compliance Training, DCAA Audit Support, Human Resources