Why Time Tracking and Billing Accuracy Is Crucial for Government Contractors

Time tracking isn’t just an HR or project management issue for government contractors, it’s a critical accounting function. Accurate timekeeping feeds directly into everything from billing and financial statements to compliance and audit readiness. Let’s explain why this matters for your business, especially through the accounting lens.

Essential for DCAA Audit Readiness

The Defense Contract Audit Agency (DCAA) places a high priority on labor charging systems. One of the most scrutinized areas in a DCAA audit is timekeeping. They expect to trace an hour from the general ledger all the way back to an employee’s individual timesheet and job assignment. Read our article, “Why is Timekeeping so Important and What do Auditors Expect,” for more information related to DCAA Timekeeping Audits.

From an accounting perspective, this means maintaining tight internal controls, reconciling labor distribution reports, and ensuring that time entries tie to payroll and billing. Lapses here can result in questioned costs, audit findings, or worse, a system review failure that risks your government business. Having an audit-ready timekeeping system is not just a best practice, it’s a business necessity.

Supports Compliant Billing and Revenue Recognition

For cost-reimbursable or time-and-materials contracts, billing is driven by labor. Invoices must be supported by auditable timesheet data. From an accounting perspective, any delay or discrepancy in time entry can cause significant billing issues. Rejected invoices mean delayed cash inflow and potential accounting issues later. Without accurate time data, revenue recognition becomes risky and error-prone. Your business needs detailed labor records to ensure revenue and billing align with contractual and regulatory requirements.

Foundation of Accurate Job Costing

In government contracting, job costing is everything. Accountants rely on precise labor data to assign direct costs to contracts. When time is misclassified or entered late, it distorts the actual cost of a project. This leads to inaccurate job profitability reports, complicates project management, and makes it difficult to make informed pricing decisions for future proposals.

Accurate time tracking ensures that labor costs are mapped to the correct job, enabling meaningful analysis and clean reporting in your P&L by job.

Drives Accurate Indirect Rate Calculations

Fringe, overhead, and general & administrative (G&A) rates are essential to every government contractor’s pricing structure. These rates are calculated based on labor cost pools and bases, which are only as accurate as the time entries behind them.

When employees miscode hours or charge indirect time incorrectly, it distorts your rate calculations. This can lead to under-recovery of overhead or overcharging the government, which can cause issues during an incurred cost submission or forward pricing audit.

Your business needs clean labor inputs to build reliable indirect rate models and maintain competitiveness in future bids.

How Outsourced Accountants Can Help

If you’re a government contractor juggling time tracking, billing, and compliance, you’re not alone. The good news? You don’t have to do it all in-house. Partnering with an outsourced accounting team that truly understands the ins and outs of government contracts can take a heavy burden off your plate.

Outsourced accountants don’t just handle the numbers, they become an extension of your team. They help:

• Set up systems that integrate your time tracking with your accounting software so everything runs more smoothly.
• Create and reinforce timekeeping policies that meet DCAA standards and make sense to your staff.
• Ensure labor is recorded accurately and consistently, connecting payroll, timesheets, and the general ledger.
• Build and maintain indirect rate models grounded in accurate labor data—so your proposals are always on point.
• Prepare you for audits with reconciled records, documentation, and support that instills confidence.

A great outsourced accountant brings clarity, accuracy, and peace of mind, so you can focus on growing your business and serving your government clients well.

Why Time Tracking Accuracy Matters for Your Company

For businesses in the government contracting space, accurate time tracking is non-negotiable. It impacts job costing, rate building, revenue recognition, billing accuracy, and audit compliance. A disciplined, transparent timekeeping process strengthens financial operations, supports compliance, and safeguards your ability to win and perform on federal contracts.

Strengthening Your Accounting Foundations for Compliance

Looking to improve your time tracking and labor reporting systems? Redstone Government Consulting, Inc. offers comprehensive accounting services designed to help government contractors align timekeeping, billing, and labor reporting with compliance expectations. Our team assists with integrating timekeeping and accounting systems, establishing DCAA-compliant labor policies, maintaining accurate labor distribution records, developing indirect rate models, and preparing for audits. By building strong accounting processes around accurate time data, we help contractors streamline financial operations, reduce compliance risks, and support long-term contract success.