Winning a government contract can be a big victory for any business, and bring in exciting revenue opportunities. It can also bring added complexity, because it could mean working with The Defense Contract Audit Agency (DCAA) and following their timekeeping requirements.
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If you're considering government contracts, it's helpful to familiarize yourself with some of the requirements in advance so that you can get the right policies and tools in place. In this article, we'll talk a bit about the DCAA, and dive into some of the rules around timekeeping to help you get started.
What is the DCAA?
The DCAA is part of the United States Department of Defense (DoD), under the direction of the Under Secretary of Defense. When it was first established, the agency exclusively oversaw intelligence and military contracts. However, its scope has expanded since then, and the DCAA now covers many other kinds of service and labor contracts that the U.S. government signs with commercial suppliers.
The DCAA performs contract audits for the DoD and provides accounting and financial advisory services regarding those contracts. Audits involve ensuring that government contractors adhere to a set of time tracking and accounting rules, among other requirements. Since taxpayer money is allocated to DoD projects, the DCAA works to catch any attempts to defraud the government. Ultimately the agency wants to make sure that government contracts meet a certain standard while seeing that pricing agreements are fair and deliver a good return on investment.
Requirements for DCAA Timekeeping Compliance
DCAA-compliant contracts require daily time entry, meticulous records with an audit trail of changes, considerable reporting, supervisor approvals of daily time entries, and both employee and supervisor approvals of any time entry revisions, among other requirements. This can seem pretty overwhelming, so let's break it down.
Firstly, the DCAA requires daily time entry. This means that all employees working on government contracts should meticulously track their time, every day, without fail. You'll need to create a written timekeeping policy that documents timekeeping procedures, and the policy should be provided to all employees and supervisors. Make sure to note that all hours need to be tracked — even unpaid hours. In many time tracking solutions, like Justworks Hours, you can create a separate pay code with a $0 for unpaid and idle hours.
It's also crucial that employees allocate the time they spend to a specific project or category of work for accounting and auditing purposes.
The DCAA requires an audit trail that documents all transactions and provides a complete record of entries and corrections.
Some other key requirements of DCAA compliance have to do with record keeping and approvals. As a government contractor, your labor distribution system must accurately document the employee labor hours (from timesheets) and dollars (from payroll records) by employee, by project name or job code, and indirect accounts. In addition, there needs to be a division of responsibility between who prepares the time and attendance records and who distributes payroll. In other words, the person who approves shifts in your time tracking system and the person who approves payroll need to be different people.
Of course, this is just an overview of some of the requirements you'll need to know to stay DCAA compliant. Their website has a helpful section of checklists and tools you can explore for more detailed information.
Consequences of Not Being DCAA Compliant
Clearly, there are many important rules to follow when it comes to the DCAA. But what can happen if you don't adhere to the timekeeping requirements? Let's just say you don't want to get it wrong, because the consequences of noncompliance can be serious. Depending on the actual violation, you could face suspension, terminated or voided contracts, or being added to the Excluded Parties List System (EPLS) — which would prevent you from ever getting government contracts again. In some cases, contractors can even face civil or criminal charges for not being DCAA compliant.
Making sure that you and your team are familiar with the DCAA's policies and procedures ahead of any government contract work will help you avoid these consequences. And of course, it's crucial to have timekeeping and payroll systems in place that can help you meet the requirements.
Benefits of an Electronic Timekeeping System
Using an electronic or cloud-based timekeeping solution can be a great strategy to help you meet the requirements for DCAA timekeeping compliance. For example, in Justworks Hours, you can set the Manual shifts preference to "Off" to have your employees clock in and out. This means they will have to enter time daily, per the DCAA requirement. A timekeeping solution with a mobile app is also beneficial, since employees who may work off-site can track their time from their mobile device.
In the case of an audit, an electronic system will be able to generate the required reports of timesheets submitted, as well as any change made to those timesheets. This is incredibly valuable information that the DCAA will be able to review to ensure that your workplace is compliant.
Software for DCAA Compliant Timekeeping
If you decide to pursue a government contract, then DCAA compliant timekeeping is essential. While DCAA compliance is complex, with the right tools, processes, and software, it's nothing your business can't handle.
A time tracking solution like Justworks Hours can help make it easier for you to meet key requirements for DCAA timekeeping compliance. Visit our Support Center for tips on setting up your Justworks Hours account to comply with DCAA requirements.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.