In August of 2023, the Defense Contract Audit Agency (DCAA) changed what it called Mandatory Annual Audit Requirements (MAARS) 6 audits to Real-Time Audits of Labor. This change was to eliminate the mandatory part of the requirement and introduce greater flexibility based on the auditor’s risk assessment of the contractor.
For government contractors, Real-Time Audits of Labor are a crucial part of maintaining compliance, particularly in the area of labor verification. A vital component of these audit procedures is the floor check process, which is designed to ensure the accuracy and legitimacy of labor charges to government contracts. This article offers an in-depth look at what government contractors can expect during floor checks in a Real-Time Audit of Labor.
The Importance of Labor Verification
Labor costs are often a significant portion of government contracts, making accurate labor reporting a critical aspect of compliance. Real-Time Audits of Labor focus on verifying that labor charges are accurate and justified, ensuring that government funds are used appropriately.
Understanding Floor Checks
Floor checks are a vital tool used in Real-Time Audits of Labor to validate labor charges. In the past, these checks were typically unannounced and conducted by auditors to ensure that labor costs billed to the government were accurate and compliant. With the August 2023 changes made by DCAA, auditors can now work out a schedule for these checks to limit the disruption they can create for the contractor to ensure it has resources to support the audit effort.
Key Elements of Floor Checks
- Employee Interviews: Auditors may interview employees at random to verify their presence and understand their job functions and responsibilities. This helps ensure that labor charges align with actual work performed.
- Timekeeping Record Review: Auditors examine timekeeping practices and records. They assess whether the recorded time corresponds with the work done and whether the timekeeping system meets the required standards for accuracy and reliability.
- Labor Charging System Assessment: The audit includes an evaluation of the systems and processes used for charging labor to government contracts. This assessment ensures that the systems are robust, compliant, and capable of preventing and detecting errors or fraud.
Preparing for Floor Checks
Best Practices for Government Contractors
- Accurate Timekeeping: Maintain rigorous timekeeping practices. Ensure that all employees accurately record their time and understand the importance of compliance.
- Regular Training: Conduct regular training sessions for employees on proper timekeeping procedures and the importance of accurate labor charging.
- Internal Audits: Perform internal audits of labor charges and timekeeping practices to identify and correct discrepancies before a Real-Time Audit of Labor.
- Documentation and Record Keeping: Keep detailed and organized records of labor charges, including time sheets and project assignments, to facilitate quick and efficient verification during the audit.
During the Real-Time Audits of Labor
What to Expect
- Scheduled Visits: Coordinate with the auditor to ensure you have resources to support the floor checks.
- Remote Checks: DCAA allows for auditors to perform floor checks remotely by phone and video.
- Cooperation with Auditors: Ensure that all employees are aware of the possibility of floor checks and the importance of cooperating with auditors.
- Transparency and Responsiveness: Provide clear and accurate information to auditors. Promptly address any queries or requests for documentation.
What is the Best Way to Prepare for Real-Time Audits of Labor?
Understanding and preparing for the labor verification aspect of Real-Time Audits of Labor, particularly floor checks, is crucial for government contractors. By maintaining accurate timekeeping records, training employees, and conducting internal reviews, contractors can ensure compliance and demonstrate their commitment to ethical and accurate labor charging. Even if DCAA has risked away these procedures, it is a best practice to continue your own internal reviews as part of an adequate accounting system.
Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations and providing DCAA audit support. This includes assisting with accounting and timekeeping policies and procedures or training.
