Fundamentals of Compliant Timekeeping: DCAA Challenges and Business Benefits.
Timekeeping is a major focus of Defense Contract Audit Agency (DCAA) compliance, the standards used to ensure that all contracts comply with government standards and protect taxpayer dollars by detecting fraudulent billing. There are many reasons why a business interested in contracting with the government should take DCAA compliance seriously.
First, and most importantly, failure to achieve (and maintain) DCAA compliance resulting either in the loss of a contract, or even the inability to receive future awards. On the other hand, by demonstrating that you take DCAA requirements seriously, businesses can improve your credibility and reputation in the government contracting sector, paving the way for long-term success.
In addition to the obvious compliance benefits, DCAA compliance helps reduce fraud and waste, improves managerial oversight, and delivers several important business benefits, which we’ll explore below.
What Is the Defense Contract Audit Agency (DCAA)?
Created in 1965, the DCAA was founded to provide auditing and defense contract services to the Department of Defense (DoD) contracts. Since its inception, the DCAA has expanded its scope to auditing contracts with other government and non-government entities, including NASA, the Department of Energy (DOE), and the Environmental Protection Agency (EPA).
Along with other federal regulations, such as the Generally Accepted Accounting Principles (GAAP) to the Federal Acquisition Regulation (FAR) and the Cost Accounting Standards (CAS), complying with DCAA standards is requisite for success as a contractor with the Federal government.
The Challenges of DCAA Timekeeping Requirements
Compliance with the DCAA timekeeping requirements presents serious challenges for contractors working with the Department of Defense (DoD) and other federal entities, especially those that are new to working with the government.
The main challenge is the meticulous standards for record keeping. DCAA requires strict observation of rigorous end-to-end accounting standards, and businesses that have never worked in the government contracting (GovCon) space can find themselves overwhelmed by those standards.
Businesses still relying on manual or paper-based bookkeeping processes amplify those challenges and will struggle to maintain accurate and compliant records. Manual timekeeping process increases the risk of error, complicates the audit process, and makes it much more difficult to prove compliance with evolving DCAA mandates.
With recent initiatives, the DCAA intended to bolster data accuracy and productivity with its movement to electronic submissions, but it’s also added another layer of operational complexity for contractors who don’t have the technology in place to take advantage of that opportunity.
“First, and most importantly, failure to achieve (and maintain) DCAA compliance resulting either in the loss of a contract, or even the inability to receive future awards. On the other hand, by demonstrating that you take DCAA requirements seriously, businesses can improve your credibility and reputation in the government contracting sector, paving the way for long-term success.”
Here are some of the most important DCAA compliance timekeeping requirements:
Clarify Expectations for Every Employee
Organizations should draft detailed timekeeping procedures with clear expectations for employees. These guidelines should be straightforward and easy enough to understand that your entire team can adhere to them without second guessing. The aim is to eliminate ambiguity and reduce the risk of non-compliance that could arise from a simple misunderstanding about your time-tracking responsibilities.
Regular Verification and Reporting
To maintain adherence to timekeeping protocols, companies must engage in regular verification of their accounting practices. This means reviewing timekeeping records and procedures (ideally monthly) to confirm their consistency and compliance. Publishing a report on those verifications will document your company’s commitment to maintaining stringent timekeeping standards and help identify and rectify any discrepancies or violations promptly.
Department-Specific Time Recording
The DCAA mandates that work hours be recorded with precision on a departmental basis. This requirement ensures that the allocation of labor costs is accurate and reflects the actual effort expended on various projects. For example, the hours worked by employees in the human resources department must be recorded distinct from those in accounting, enabling a clear overview of labor distribution and facilitating accurate project costing.
Exclusion of Payroll from Time Recording
A key DCAA stipulation is that the payroll department should not be involved in recording work hours. This rule is designed to uphold the integrity of labor charging by removing potential conflicts of interest. The temptation to adjust work hours to fit within budget constraints, whether for efficiency or error correction, could compromise the accuracy of labor cost reporting. By excluding the payroll department from the time-recording process, organizations can prevent inadvertent or deliberate misreporting of work hours, thereby fostering a higher level of accountability and transparency in labor charges.
The Business Benefits of DCAA-Compliant Time Keeping
As mentioned above, fulfilling DCAA compliance requirements with careful timekeeping offers a range of benefits for organizations that go far beyond DCAA compliance. Let’s take a deeper look.
Greater Workforce Productivity
Rigorous timekeeping contributes to increased productivity by enabling managers to track time spent on various tasks and projects. This data-driven approach helps to identify processes that could be streamlined or automated, promoting a more efficient allocation of resources.
Strategic Oversight and Informed Decision Making
Comprehensive time records give management valuable insights into your operations, including project durations, departmental workloads, and individual performance metrics. That oversight supports better strategic decision making and helps to align staffing with organizational goals and priorities.
Enhanced Project Management and Client Billing
Accurate timekeeping plays a crucial role in project management and client billing processes. By tracking the time spent on specific projects or tasks, organizations can ensure fair and transparent billing, leading to greater client trust and satisfaction. This accuracy also helps you create better cost projections, helping you refine estimates for future projects based on historical data.
Legal Protection and Dispute Resolution
Maintaining detailed time records provides a layer of legal protections for your organization. In the event of disputes over wages, overtime, or contractual obligations, comprehensive time-keeping records serve as evidence to support the organization's stance. This documentation can be critical in avoiding legal complications and resolving disputes efficiently.
