DCAA Compliant Timekeeping
Federal government auditors and analysts (by any job title) perform reviews with many different objectives. Because labor usually costs the most, the processes leading to recording and billing labor attracts the most time and energy. A company signature on a GovCon award encompasses certification that general ledger and billed labor results from DCAA compliant timekeeping.
Timekeeping – or what project benefits from work for the recorded amount of time – is a first and crucial step in DCAA compliant timekeeping. Recorded time results in customer-billed labor dollars. Often labor hours or dollars also result in customer-billed fringe benefits, payroll taxes, and other indirect expenses related to labor. A one-hour mischarge to the wrong contract can wind up overcharging the customer by hundreds of dollars.
Each employee certifies recorded time worked on every project (or contract or indirect pool). The employee certification means that the employee takes responsibility for the erroneous record if an error is found. Ignorance is not a defense.
Each electronic or other timecard is approved by someone that has first-hand knowledge of the reasonable accuracy of the charges recorded. This segregation of duties – employee certification plus supervisor approval – minimizes errors. Because the contractor certifies each customer billing, the “check and balance” of two separate people under the control of the contractor better protects the contractor from certifying erroneous – or fraudulent – billings.
The company requesting federal government funding adds vital protection against certifying erroneous billings by implementing DCAA compliant timekeeping. If DCAA or other federal government agencies find errors, abuse, or fraud – management efforts to prevent over-billing substantially impact the consequences. Evidence of robust internal controls, such as the segregation of duties in creating each timecard, mitigates the consequences of agency findings.
Likewise, a person that:
- Enters new employees
- Archives terminated employees
- Records pay raises
in the payroll (or general ledger) system is not a person who calculates or creates paychecks or pay deposits. This segregation of duties minimizes the opportunity to:
- Create a fictitious employee
- Create a second paycheck for the amount of a fictitious raise
- Continue pay issuance, with a new destination, for a terminated employee
Again, strong internal controls mitigate the consequences of agency findings. Segregation of duties also lowers the risk for the company before an erroneous payment is made.
We recommend management formalize and document sample-verifications of timecard reasonableness and paycheck calculations. These (after the fact) internal controls add protection. If warranted, internal audits that include the destination and recipients of pay further strengthen payroll-fraud controls. Due to relative dollars, labor – and how it gets to a billing – shines as a high priority for federal government reviews. Both the contractor and the customer benefit from DCAA compliant timekeeping.