DCAA Audits and Compliance Checklists: Focus First on Timekeeping.
The Defense Contract Audit Agency (DCAA) conducts several types of audits to evaluate various aspects of a contractor’s financial and operational compliance with federal regulations.
Each type of audit focuses on specific areas of concern, ensuring that contractors adhere to the principles of accountability and efficiency in their dealings with the government.
Briefly, here’s an overview for each DCAA audit type.
Pre-Contract Award Audit
Before the awarding of a contract, pre-contract award audits evaluate a contractor’s financial stability, capability, and the adequacy of their accounting system. This type of audit is crucial for assessing whether a contractor has the necessary financial resources and management practices in place to successfully complete a government contract.
“Because the complete checklist is so exhaustive, with hundreds of items spread across several different lists, here’s a streamlined version that highlights the fundamentals. Our advice is to focus first on your timekeeping — both your policies and practices as well as accurate daily collection and reporting — as labor costs are typically the cornerstone for all project types. ”
Evaluation of Employee Compensation
This type of audit scrutinizes the compensation and benefits provided to employees to ensure they are in line with industry standards and are appropriately charged to government contracts. It verifies that the compensation is fair, reasonable, and compliant with federal regulations, preventing any unjust enrichment at the government’s expense.
Incurred Cost Audit
Incurred cost audits examine the costs a contractor has charged to a government contract after these costs have been incurred. This type of audit assesses whether the reported costs are allowable, allocable, and reasonable under the terms of the contract and in accordance with Federal Acquisition Regulations (FAR). This ensures that the government is only billed for costs that are directly related to the performance of the contract.
Forward Pricing Audit
Forward pricing audits are conducted to examine the estimates of costs that a contractor proposes for a contract not yet awarded or for modifications to an existing contract. The aim is to ensure that the cost estimates are realistic, based on valid data, and reflect the contractor's ability to perform the contract at the proposed prices, thereby protecting the government’s interest in negotiating fair and reasonable contract prices.
Verification of Labor Billing Practices
Audits focusing on labor charges examine the accuracy and appropriateness of the time reported and billed to government contracts. They ensure that labor hours are properly recorded, authorized, and allocated, and that the rates charged are in accordance with the contract terms. This helps prevent overbilling and ensures that labor costs are directly related to contract work.
Contractor Purchase Systems Review (CPSR)
A CPSR audit assesses a contractor’s purchasing system to ensure that it is efficiently managing subcontractors and vendors, including the adequacy of subcontractor cost or pricing data. It verifies that the contractor’s system is effective in obtaining supplies and services at fair and reasonable prices and in compliance with the procurement regulations outlined by the FAR.
So, what is the DCAA Audit Checklist?
The DCAA audit checklist is a comprehensive framework designed to ensure that government contractors meet the stringent requirements for record-keeping and compliance. These audits, which may occur in person or remotely, delve deep into a contractor’s records to verify adherence to DCAA guidelines.
Because the complete checklist is so exhaustive, with hundreds of items spread across several different lists, here’s a streamlined version that highlights the fundamentals. Our advice is to focus first on your timekeeping — both your policies and practices as well as accurate daily collection and reporting — as labor costs are typically the cornerstone for all project types.
Accurate and Timely Timesheet Maintenance
● Daily and Precise Timesheet Entries: Employees must record their time accurately on a daily basis with a strict prohibition against forecasting direct project hours.
● Robust Timekeeping Solutions: Employ a reliable system that guarantees secure, tamper-proof timesheet records, offering real-time updates and remote access capabilities for constant compliance readiness.
Timesheet Compliance Enhancements
● Automated Reminders: Utilize software that prompts employees to update their hours regularly, fostering a culture of real-time awareness and compliance.
● Streamlined Time Approval: Implement an efficient process for timesheet verification, ensuring that each entry and correction is logged with a timestamp for audit trails, and that employee submissions receive managerial review and approval promptly.
Managerial Oversight and Reporting
● Direct Responsibility and Managerial Review: Assign the responsibility of time tracking to individual employees while mandating managerial oversight for approval, ensuring accountability at every level.
● Comprehensive Reporting Tools: Choose time-tracking tools that generate detailed reports on time submissions, approvals, and the individuals responsible for these actions; this enhances transparency and accountability.
Project Time Allocation and Transparency
● Project-Specific Time Tracking: Clearly delineate the time spent on various projects to facilitate detailed auditing and demonstrate comprehensive project management.
● Transparent and Accessible Records: Maintain a system that not only segregates time spent on different projects but also allows for the easy addition of new projects and grants employees access to this information for reference.
Overtime Management
● Accurate Overtime Accounting: Record all hours worked by salaried employees, including those qualifying as overtime, to align with "total time accounting" principles.
● Correct Overtime Calculation: Use software capable of accurately calculating overtime to avoid discrepancies in payroll, ensuring that your records will stand up to DCAA scrutiny.
