If you’ve applied for a U.S. government contract, you’re up against 33.2 million small businesses. Chances of winning a contract are so slim that only less than 0.18% (60,000) of small businesses are lucky. If you want to gain a leg up on competitors, your company should comply with gov con requirements, such as DCAA compliance.
But what is DCAA compliance? If you’re unacquainted with this GovCon term, fret not. In this guide, we’ll discuss the intricacies of DCAA compliance. We’ll tell you what DCAA is, what it entails, what you should do to be compliant, and the benefits of doing so. Let’s dive in.
To better understand DCAA compliance, you should understand the agency and its mandate.
The Defense Contract Audit Agency (DCAA) is a United States Department of Defense (DoD). As the name suggests, the agency initially dealt with DoD contracts. However, it has become the go-to audit agency for labor and service contracts the government hands out to commercial suppliers.
Today, DCAA provides accounting and financial advisory services to agencies that acquire and administer government contracts. Its mandate is to conduct financial and contract audits on businesses applying for U.S. government contracts.
The agency conducts a series of audits, known as the Mandatory Annual Audit requirements (MAARs), to advise government agencies on contract negotiation, management, and settlement. The audits ensure government contractors are spending taxpayers’ money responsibly and ethically.
According to the DCAA, the two most common audits are:
You stand a better chance of winning a government contract after passing the DCAA audit: floor checks and material cost audits.
In this guide, we’ll focus on the nuanced MAARs 6 or floor check audits, which relate to labor costs, mainly timekeeping. They follow a wide range of guidelines and standards known as Generally Accepted Government Auditing Standards (GAGAS), which are stipulated and enforced by the Government Accountability Office (GAO).
One subtle trait of the floor checks is that they’re far-reaching. The audits dissect your timekeeping procedures and systems to determine whether you’re vigilant and honest about labor costs. They leave nothing to chance when determining the reliability and integrity of your time records.
An important thing to note is that DCAA auditors don’t necessarily have to provide prior notice to conduct the floor checks. DCAA auditors can show up at your office unannounced, pre-bid, or post-select. During the floor checks, the DCAA agents will:
The DCAA audits are multi-faceted and ambiguous. As such, achieving compliance is a painstaking process that sometimes requires the hand of a DCAA consultancy agency.
Regarding timekeeping, being DCAA compliant means:
We have compiled a nine-point checklist to help you toe to the DCAA regulations and boost your chances of winning U.S. government contracts. Our checklist aligns with DCAA labor costing requirements.
As we discuss the requirements, we’ll demonstrate how Timeero helps adhere to these requirements. Without further ado, here’s the checklist:
Internal controls and procedures form the backbone of DCAA requirements. A time-tracking policy can clarify when, how, and who should track and approve timesheets. This negates the confusion that often leads to timesheet errors and fraud.
Your DCAA time tracking policy should cover the following:
Don’t create a time-tracking policy for the sake of it. The DCAA requires that the “detailed instructions for timesheet preparation should be established through a timekeeping manual and/or company procedure.”
Another thing to note is that the DCAA says, “The key link in any sound labor time charging system is the individual employee.”
For that reason, the DCAA requires employees to clearly outline in the policy that the employee is personally responsible for:
When it comes to creating time-tracking procedures, there isn’t a one-size-fits-all formula. The procedures will vary from business to business. Still, one thing binds them together — federal and state regulations and other labor laws.
The DCAA requirement shouldn’t be the sole guidepost when creating a time-tracking policy. Instead, build a comprehensive timekeeping policy that aligns your procedures with relevant state and federal laws, such as the FLSA.
Once you have a time tracking policy, Timeero will help you enforce it. The app allows you to tweak work hours, schedule, GPS locations, employee roles and permissions, overtime, break, clocking notifications, etc., to ensure employees track time within the policy guidelines.
Don’t create a policy only to bury it in your cabinets or digital drawers. That is akin to hikers obtaining a trail map and leaving it behind — you know how that ends. Since the hikers aren’t familiar with the route, some will undoubtedly take the wrong turn.
Similarly, employees should be familiar with your time-tracking procedures to create DCAA-compliant timesheets.
To that end, train employees about the tracking procedure during their onboarding. In addition, add your policy to the internal knowledge base to make it accessible to all employees anytime, anywhere.
Most importantly, make procedures and tracking guidelines easy to understand. In this regard, the agency requires that the:
“Procedures must be evident, clear-cut, and reasonable so there is no confusion concerning the reason for controls or misunderstanding as to what is and what is not permissible.”
The agency aims to simplify instruction so every employee understands them like the back of their hand. This way, no employee would miss a step or intentionally violate the policy in the guise of ambiguity. Ultimately, that would enhance the accuracy of timesheets, precisely what the DCAA wants.
Another DCAA time tracking requirement is that employees should complete their timesheets daily. While doing so, they should record “all hours worked, including uncompensated overtime.” That’s a tall ask if your business relies on paper timesheets.
The short answer is yes. Manual time tracking can be tedious: employees must record shift start and end times and compute hours worked, including breaks. Rather than chase employees around asking them to complete their timesheets, use Timeero - a GPS time tracking software.
The app user interface is so intuitive that using Timeero to track time is child’s play for workers, including the non-tech savvy. If employees forget to clock in or out, the Timeero notification system will be handy. The app sends mobile and email reminders to prompt employees to clock in or out, eliminating chances of missed time.
Moreover, you can set a work hours threshold and configure Timeero to clock out employees when they exceed the predefined number of hours. For example, if you configure an 8-hour threshold, the app will clock out employees when they work a maximum of 8 hours.
The good thing is that Timeero updates employee timesheets automatically when they clock in/out, take a break, or change tasks. This way, it creates daily timesheets for all employees, thus complying with DCAA time tracking requirements.
When an employee’s shift spans multiple days, the timesheet may contravene DCAA requirements if you count all hours as one day. For example, if an employee starts a shift an hour before midnight on Monday and ends on Tuesday, it’s against DCAA requirements to count all hours as Monday.
Thankfully, the ‘split time at midnight’ triggers a new timesheet when a new day starts. Take our previous example, for instance. Timeero creates a new timesheet at midnight. As a result, you’ll have two timesheets; for Monday and Tuesday.
According to the DCAA, “labor costs and associated overheads are affected by total hours worked, not just paid hours worked.”
For this reason, the agency requires GovCons to track all hours, including paid time and uncompensated overtime that isn’t attributed to a given project.
The term uncompensated overtime refers to all unpaid hours worked. In other words, besides employee-paid hours, you have to track other hours affecting your labor pool, such as unpaid breaks. In addition, you have to track work compensations such as holidays, sick time, bereavement, and vacations.
Remember that the DCAA’s goal is to ensure the responsible use of taxpayers’ money. So, why calculate uncompensated overtime? The principal reason is to curb labor accounting fraud. The rationale is that by tracking all hours, GovCons can compute the total overtime employees are putting in, whether employees are paid by the hour or not.
When an employee clocks in with Timeero, the app accurately tracks their time until they clock out. It ensures that no minute is unrecorded, and there’s more.
When it comes to recording break time, Timeero helps enforce federal and state rules while complying with DCAA requirements. For example, if your company has employees in Nebraska, you should give them 30 minutes off-premises lunch break for each 8-hour shift.
In this case, you need to turn off manual breaks and add an automatic lunch break in Timeero (read our automatic break deduction guide to learn more). Once you do that, the employee will not have to start or end the break manually.
Instead, Timeero will track time continuously, and when the employee exceeds the 8-hour threshold, the app deducts 30 minutes from their timesheet. This way, you’ll have tracked all hours, including unpaid breaks. And that’s it; you’ll be DCAA-compliant.
You can create as many paid or unpaid breaks as your state laws require. In addition, you can let the app remind employees to take breaks, ensuring they’re well-rested, and run break reports to see how breaks are used.
Timeero imprints a mug icon on employees’ timesheets to indicate the lunch break was deducted. This makes it easy to pinpoint timesheets with automatic break deductions.
The DCAA stipulates that GovCons should show “the correct distribution of time by project numbers, contract number or name, or other identifiers for a particular assignment.”
In other words, besides tracking how long employees spend on contracted projects, it should be easier to determine how much time your team spends on each project.
That means your timekeeping system should enable you to use job codes to track time by project. Fortunately, Timeero is apt when attributing time to respective projects.
Timeero enables you to create jobs with unique detail (or identifiers), hourly rates, names, and description. This paves the way for efficient project time tracking and labor distribution.
When an employee is clocking in, they must select the project they are working on. Timeero restricts employees from clocking in without picking their designated project, eliminating the chances of having unaccounted time on the employee timesheets.
Moreover, it’s easier for employees to switch between tasks. For example, employees can switch between flooring, roofing, or site clearing when working at a construction site. This eliminates labor and wage determination errors and further enables you to comply with DCAA distribution of time requirements.
Even though we’ve discussed timesheet accuracy, we’re yet to mention “labor mischarging.” This timesheet error emanates from time-tracking malpractices, such as off-site and buddy punching.
Labor mischarging or manipulation of labor charges attracts severe penalties. The DCAA states that “manipulation of charges to a contract may be subject to criminal charges under 18 United States Code (U.S.C.) 1001.”
If DCAA finds any form of labor mischarging, anyone who handled the timesheets in question will bear the brunt. Put differently, employees who filled out the timesheets, supervisors who approved them, and senior managers will be in hot soup. Your company will also likely lose the government contract.
Timeero helps GovCon end labor mischarging. Firstly, the app uses geofencing to curb off-site punching. It ensures employees are within their designated job site to clock in or out. If an employee tries to clock outside the geofence, Timeero blocks their attempt.
Secondly, the Timeero Kiosk app has a facial recognition feature to thwart buddy punching. When you turn on “require for users to clock in,” the app will take a photo of each employee when they attempt to clock in. If the photo doesn’t match what’s in employee profiles, the app notifies the admin and flags the time entry.
When you eliminate off-site and buddy punching, you eliminate one facet of labor mischarging. You can rest assured that employees won’t submit falsified timesheets to claim a higher reimbursement.
However, it’s good to note that fighting labor mischarging requires more than DCAA-compliant timesheet software. As mentioned, the employee is the most critical link in a solid labor charging system. Of course, you can have the right system. But if your employees decide to track time for the wrong projects, you’ll still be found culpable.
To be safe, invest in employee training on time-tracking best practices. It would help if you emphasized the need for honesty and transparency when tracking time. In addition, make sure your policy outlines what employees should do to avoid mischarging and predefine the penalties for violating such guidelines.
DCAA also requires governments to have an approval process with clearly defined roles for different partakers. The employee is solely responsible for tracking time and certifying the timesheets are error-free before submitting them for approval.
On the other hand, the supervisor’s roles begin where the employee’s duties end. In other words, a supervisor should review timesheets to catch errors employees missed. After weeding out all errors, the supervisor should approve and cosign the timesheets.
The approval process sounds familiar to many businesses. However, there’s one caveat when it comes to DCAA compliance. Employee and supervisor roles don’t cross over; employees can’t approve timesheets, and supervisors can’t generate employee timesheets.
There’s one exception, though.
The supervisor is only allowed to fill out timesheets for employees who are absent for prolonged periods, such as when on travel status. Still, the employee must hand in their version of the timesheet when they return.
For the approval workflow to be straightforward, two things are critical. First, employee roles should be clearly defined, and the procedures clearly outlined. Of course, employees should be familiar with the rules depending on their roles.
When setting the procedures in #1, outline what happens when employees track time. Timeero tracks time daily, but supervisors don’t necessarily have to approve them on the same day. You’re at liberty to define the approval period.
With procedures in place, Timeero helps you create groups and assign different roles to group members. A group can be a department or a team working on a specific project. Only managers and admin can approve timesheets, so assign one group member manager role.
Here’s what the Timeero approval process would look like:
One thing about timesheet approval is that changes are bound to happen. DCAA doesn’t frown upon changes; in fact, it encourages changes as one of the measures to boost timesheet accuracy.
However, DCAA requires GovCon to keep an accurate audit trail to imbue transparency and mitigate timesheet fraud. You have to put measures in place to: “identify the original time charge, the corrected time charge, and documentation from the employee indicating his/her concurrence with the change.”
Tracking changes is arguably the most intricate DCAA requirement. To get it right, you should have a policy outlining timesheet editing guidelines and best practices. Most importantly, you should require employees to leave an explanation of why they changed their time entries.
Timeero has the features you need to maintain a DCAA-compliant audit trail. As mentioned, employees can’t edit their timesheets, but supervisors can. If an employee has an issue with a timesheet, they can notify their supervisor or manager.
Managers can review requested changes to approve or reject. If the manager approves and implements the changes, the magic happens. Timeero keeps a detailed audit log of all changes in the “activity history.”
You can see who made a change when it was made (date and time) and even read the notes documenting employee concurrence with the change. Most importantly, Timeero displays the original time entry and the edited entry — precisely what the DCAA wants.
Last, DCAA wants proper segregation of timesheets and payroll processing duties. The agency states that “the responsibility for timekeeping and payroll accounting should be separated.” It adds that supervisors meeting contract budgets should refrain from initiating employee timesheets.
This requirement isn’t written in stone, particularly for small businesses. The DCAA acknowledges that segregation of duties may be difficult for small businesses where one person has to wear many hats to keep operations ticking along.
However, medium and large businesses ought to meet this requirement. Just bear in mind that segregation relates to employees and not the systems. You can integrate your time-tracking system with your go-to payroll or accounting system.
Fortunately, Timeero integrates with various payroll systems and accounting software to improve remuneration and accounting, such as:
The most significant benefit of being DCAA-compliant is that it significantly boosts your chances of getting a government contract. In addition, complying with DCAA timekeeping requirements offers other benefits, including:
As mentioned earlier, internal controls and procedures are the lifeblood of DCAA-compliant businesses. If you want to gain an edge over other companies eyeing government contracts, you should create a solid time tracking policy — outline all the do’s and don’ts.
Most importantly, you have to use DCAA-compliant time-tracking software. There are many timekeeping software out there, but only a few can help you adhere to DCAA timekeeping requirements. One such solution is Timeero.
Timeero is arguably the best DCAA-compliant time-tracking software for small, medium, and large businesses. It helps employees track time on a daily basis, track uncompensated overtime, attribute time to different projects, and maintain a good audit trail.
Start a free trial today to get a first-hand feel for Timeero features, risk-free for 14 days.