DCAA timekeeping requirements mandate that every employee on a government contract record their own time daily, classify hours by specific contract or indirect account, and submit timesheets for supervisory approval with a complete audit trail. The Defense Contract Audit Agency treats timekeeping as the single highest-risk area in contractor accounting systems. One deficiency here flags your entire labor billing for review.
A construction subcontractor in Virginia Beach lost $340,000 in billed labor costs after a DCAA floor check revealed employees were recording time weekly from memory. The timesheets looked complete. The charge codes were correct. But the entries were reconstructed every Friday afternoon, and the auditor proved it by comparing submission timestamps against the contractor’s own system logs.
Timekeeping failures are the most common audit finding DCAA reports, and they carry consequences far beyond questioned costs on a single contract. The regulatory framework is specific, the expectations are documented, and the penalties are real.
The Regulatory Foundation for DCAA Timekeeping
DCAA timekeeping requirements flow from three regulatory sources that work together. FAR 31.201-2 requires contractors to maintain records adequate to demonstrate that costs claimed are incurred, allocable, and comply with applicable cost accounting standards. DFARS 252.242-7006 establishes the accounting system adequacy criteria, including the requirement to identify employee labor by intermediate or final cost objectives and to maintain a labor distribution system that charges direct and indirect labor to the appropriate accounts.
The DCAA Contract Audit Manual (DCAM), Section 6-410, translates these regulations into specific timekeeping system requirements that auditors apply during fieldwork. DCAM 6-410 addresses how contractors must account for all hours worked (paid and unpaid), how labor costs must be distributed across cost objectives, and the controls required to protect data integrity.
These are not guidelines. They are the criteria DCAA uses to determine whether your accounting system is adequate. A system that fails these criteria receives an adverse opinion under DFARS 252.242-7006, which triggers withholding of payments and potential suspension from new awards [DFARS 252.242-7006].
The 8 Core DCAA Timekeeping Requirements
DCAA evaluates timekeeping systems against specific criteria. Missing any one of these creates an audit finding. Here are the eight DCAA timekeeping requirements your system must satisfy, ranked by the frequency with which auditors cite deficiencies.
1. Daily, Contemporaneous Recording
Employees must record time on the same day the work is performed. Weekly reconstruction from memory is the most common timekeeping violation DCAA identifies. “Contemporaneous” means at or near the time the work occurs, not at the end of the pay period.
2. Employee Self-Recording
Each employee records their own time. Supervisors, project managers, and administrative staff do not enter time on behalf of others. The person performing the work is the only person authorized to create the initial time entry.
3. Total Time Accounting
All hours must be recorded: paid, unpaid, overtime (compensated and uncompensated), and leave. DCAA labor recording rules require that total hours on the timesheet equal total hours in the pay period. Auditors specifically check whether uncompensated overtime is captured, because unreported hours distort indirect rate calculations and labor cost distributions.
4. Charge Code Accuracy
Time entries must reference the specific contract, task order, CLIN, or indirect account where the labor cost belongs. Generic charge codes like “overhead” or “admin” without further classification are insufficient. Each hour must trace to a final or intermediate cost objective.
5. Supervisory Review and Approval
A supervisor with direct knowledge of the employee’s work must review and approve each timesheet. Approval must occur within a reasonable timeframe, typically within one business day of submission. Blanket approvals without review, or approval by someone unfamiliar with the work performed, do not satisfy this requirement.
6. Documented Correction Procedures
Every correction to a timesheet must capture: what changed, who changed it, when the change occurred, why it was necessary, and who approved the correction. The original entry must remain visible. Overwriting, erasing, or deleting original time entries without preserving the history creates an immediate finding.
7. Segregation of Direct and Indirect Labor
The timekeeping system must distinguish between direct labor (charged to specific contracts) and indirect labor (overhead, G&A, B&P, IR&D). Employees who split time between direct and indirect work must record the split daily, not as a monthly percentage estimate.
8. Audit Trail Maintenance
The system must retain a complete, tamper-evident audit trail of all time entries, modifications, approvals, and corrections. This includes timestamps, user identification, and the full history of every record. DCAA auditors will pull the audit log during fieldwork and compare it against the approved timesheets.
Manual vs. Electronic Timekeeping Systems
DCAA timekeeping requirements do not mandate electronic systems. Paper timesheets remain technically compliant if they satisfy all eight criteria above. But the practical reality is different from the regulatory minimum.
| Criteria | Paper/Spreadsheet System | Electronic Timekeeping System |
|---|---|---|
| Daily recording enforcement | Honor system only; no technical control | System timestamps prove daily entry; locks out backdating |
| Audit trail | Relies on physical correction marks (cross-outs, initials) | Automatic change logs with user ID, timestamp, and reason fields |
| Supervisory approval | Wet signature; approval date often missing | Digital approval workflow with timestamped sign-off |
| Correction documentation | Manual notation; easily missed or incomplete | System-enforced correction workflow requiring reason codes |
| Fraud prevention | Low; entries are modifiable without detection | High; system-level controls prevent unauthorized changes |
| Floor check readiness | Requires physical access to paper files | Instant retrieval of any employee’s records |
| DCAA auditor preference | Accepted but generates more questions | Preferred; reduces audit scope and duration |
A 15-person security contractor using Excel timesheets faces a fundamentally different audit than one using an electronic system with built-in controls. The spreadsheet requires you to prove timestamps are accurate and that cells were not modified after approval. The electronic system proves it automatically.
For contractors with more than 10 employees or any cost-reimbursement contract over $750,000, the calculation is straightforward. A DCAA-compliant timekeeping system costs $5 to $15 per employee per month. A single adverse timekeeping finding costs six figures.
DCAA Floor Checks: The Unannounced Audit
Floor checks are DCAA’s primary tool for verifying that timekeeping for government contractors matches the actual work being performed. Auditors arrive unannounced at your work site, observe who is present, and compare what they see against what your timesheets report for that day and time. No advance notice. No preparation window.
During a floor check, the auditor performs three specific evaluations:
- Physical presence verification. The auditor confirms that employees listed as working on-site are physically present at the facility. Employees charged to a specific contract must be performing work related to that contract.
- Employee interviews. The auditor asks employees what project they are working on, what charge code they used today, and whether they recorded their time. Employees who cannot answer, or whose answers conflict with their timesheet entries, trigger findings.
- Timesheet comparison. The auditor pulls the day’s timesheets and compares them against physical observations and interview responses. Discrepancies between what the employee said, what the timesheet shows, and what the auditor observed create documented findings.
The most dangerous floor check outcome is not a single discrepancy. A pattern of discrepancies causes DCAA to expand the audit scope from a spot check to a full labor system evaluation. That expansion turns a one-day visit into a months-long investigation.
What Happens When Timekeeping Fails an Audit
A failure to meet DCAA timekeeping requirements does not stay contained. It spreads across every contract in your accounting system because labor costs flow into indirect rate pools, and indirect rates touch every billable dollar. Here is the cascade.
| Consequence | Impact | Timeline |
|---|---|---|
| Questioned costs | All labor charges during the deficiency period become questioned. A 6-month deficiency on a $2M contract creates $500K+ in questioned costs. | Immediate upon finding |
| Payment withholding | The contracting officer withholds 5-10% of future invoices pending resolution. Cash flow drops without warning. | 30-60 days after finding |
| Indirect rate suspension | DCAA suspends your provisional billing rates until the system deficiency is corrected and verified. All cost-type billing stops. | 60-90 days after finding |
| Accounting system inadequacy | An inadequacy determination under DFARS 252.242-7006 goes on record, visible to every contracting officer evaluating your proposals. | 90-180 days after finding |
| Disbarment from new awards | Contractors with unresolved system inadequacies are ineligible for new cost-type contract awards until the deficiency is corrected. | Until resolved |
A janitorial services contractor with 40 employees and $3.5M in government revenue lost provisional billing rates for four months after a timekeeping finding. The cash flow gap forced a line of credit at 12% interest to cover payroll while the corrective action plan worked through DCAA review.
Fixing the finding is not the hardest part. Regaining DCAA’s confidence takes 6 to 18 months of demonstrated compliance. During that period, expect increased audit frequency and heightened scrutiny on every invoice.
Common Timekeeping Violations (and How to Prevent Them)
Timekeeping violations consistently rank in the top three categories of DCAA’s annual audit report to Congress. These are the specific violations that appear most often.
| Violation | What DCAA Finds | Prevention |
|---|---|---|
| Weekly time reconstruction | System logs show all entries submitted on Friday for the full week | Configure system to require daily submission; lock out entries older than 24 hours without supervisor override |
| Supervisor-entered time | Audit trail shows a manager’s credentials creating entries for direct reports | Role-based access controls; employees create entries, supervisors approve only |
| Missing uncompensated overtime | Salaried employees consistently log exactly 40 hours, but email and badge records show 50+ hour weeks | Policy requiring all hours worked to be recorded; training on total time accounting |
| Undocumented corrections | Timesheet values differ from original entries with no correction trail | System-enforced correction workflow requiring reason, re-approval, and preserved original |
| Cross-charging | Employee works on Contract A but charges time to Contract B (often to protect a contract nearing its funding ceiling) | Monthly labor distribution review by project managers; comparison of charged hours to contract staffing plans |
| Rounding hours | Entries consistently show exact half-hour or hour increments across all employees | Record actual time worked; train employees that rounding is non-compliant |
Cross-charging deserves special attention. Unlike other violations that stem from sloppy processes, cross-charging raises fraud concerns and triggers referral to the Office of Inspector General. The difference between a corrective action plan and a criminal referral comes down to whether the cross-charging was systemic and whether management was aware.
Building a DCAA-Compliant Timekeeping System
Meeting DCAA timekeeping requirements is a system problem, not a tool problem. Buying software labeled “DCAA-compliant” does not make your timekeeping compliant. The software provides the platform. Your policies, training, and enforcement make it work.
A compliant timekeeping system has four layers:
- Written timekeeping policy. Document your requirements for daily recording, charge code assignment, supervisory approval, corrections, and record retention. DCAA expects this policy to exist before the first audit, not as a corrective action after a finding. Reference FAR 31.201-2 and your specific contract clauses.
- Technical controls. Configure your timekeeping software to enforce daily entry deadlines, prevent backdating without supervisor override, maintain change logs automatically, and restrict access based on employee roles. The system must enforce compliance, not rely on employee discipline alone.
- Employee training. Every employee who records time must understand what they are recording, why it matters, and what happens when they get it wrong. Annual training is the minimum. New hire training within the first week is non-negotiable. Cover the DoD Hotline reporting requirements, as employee awareness of the hotline is a specific DCAA checklist item [FAR 52.203-13].
- Management oversight. Supervisors must review timesheets with enough knowledge to verify accuracy, not rubber-stamp approvals. Monthly labor distribution reviews comparing charged hours to contract staffing plans catch problems before DCAA does. Internal audits using DCAA’s own evaluation criteria (DCAM 6-410) identify gaps while they are still fixable.
Record retention rounds out the system. Maintain all timesheets, corrections, and supporting documentation for a minimum of three years after final contract payment [FAR 4.703]. Experienced GovCon contractors retain records for six years as a buffer against delayed audits.
Key Takeaways
- Daily recording is the line in the sand. Weekly reconstruction is the #1 timekeeping finding DCAA reports. If your employees are not recording time the same day they perform the work, stop everything else and fix this first.
- Electronic timekeeping systems reduce audit risk by an order of magnitude. At $5-15 per employee per month, the cost is insignificant compared to a single questioned cost finding that runs into six figures.
- Floor checks test your culture, not your software. When an auditor asks your field employee what charge code they used today, the answer must match the timesheet. That requires training, not technology.
- Timekeeping failures cascade. An adverse finding does not stay in one contract. It spreads to indirect rates, provisional billing, and eligibility for future awards. Prevention costs a fraction of remediation.
- Retain records for six years. The regulatory minimum is three years after final payment [FAR 4.703], but delayed audits and contract close-out timelines make six years the practical standard.
Frequently Asked Questions
What are the basic DCAA timekeeping requirements?
DCAA requires employees to record their own time daily, classify hours by specific contract or indirect account, obtain supervisory approval on every timesheet, maintain a complete audit trail of all entries and corrections, and account for total hours worked including uncompensated overtime [FAR 31.201-2, DFARS 252.242-7006].
Does DCAA require electronic timekeeping software?
No. DCAA accepts paper timesheets and spreadsheets if they satisfy all compliance criteria, including daily recording, audit trails, and documented corrections. Electronic systems are strongly preferred because they enforce controls automatically and produce reliable audit trails that paper systems struggle to match.
How often does DCAA perform floor checks?
DCAA performs floor checks on an unannounced, periodic basis. Frequency varies by office and contract type, but contractors with cost-reimbursement and time-and-materials contracts face the highest floor check rates. DCAA follows no set schedule and provides no advance notice before arriving at your facility.
What happens if an employee forgets to record time for a day?
The employee must record the missed time as soon as possible and document it as a late entry, not a same-day entry. The correction must include the reason for the late submission and supervisory approval. Repeated late entries across your workforce signal a systemic control weakness that DCAA will cite as a finding.
Do salaried employees need to track hours on government contracts?
Yes. Salaried (exempt) employees must record all hours worked, including uncompensated overtime. DCAA specifically checks whether exempt employees consistently log exactly 40 hours per week despite evidence of additional work. Unreported hours distort indirect rate calculations and labor cost allocations across all contracts.
How long must timekeeping records be retained?
FAR 4.703 requires retention of records for three years after final contract payment. Because DCAA audits often lag behind contract performance by several years, experienced government contractors retain all timekeeping records for six years. Destroying records before audit completion creates a presumption against the contractor.
Protect Your Timekeeping Before DCAA Tests It
Most timekeeping deficiencies are straightforward to fix when caught early. They become expensive when DCAA catches them first. Take the Compliance Readiness Check to see where your system stands today, or book a discovery call for a CPA-level review of your timekeeping practices and DCAA compliance posture.
