DCAA Timekeeping Requirements: What They Actually Are

Search the phrase and you get two kinds of answer. Vendors telling you their software is the solution, and consultants describing an audit process in language you would need a background in cost accounting to follow.

Neither tells you the thing you actually want to know: what has to change about how your people fill in their timesheets.

So that is what this is. It is a longer read than most things here, because it is meant to be the one page you come back to. The short version is that DCAA-compliant timekeeping is about eight or nine specific behaviors, most of which your system should enforce on its own once somebody sets it up. Your job is knowing what those behaviors are and making sure your team follows the two or three that software cannot do for them.

What does “DCAA-compliant timekeeping” actually mean?

It does not mean you bought the right product. There is no approved list, and any vendor implying otherwise is overselling. DCAA audits contractors, not software.

What it means is that your labor records can answer questions. Where did this hour go, who said so, when did they say it, and has anybody changed it since. That is a description of process and controls, not of a feature list.

The formal version of this sits in the accounting system clause that comes with most government contracts. It lists eighteen things your system should do. Two are about time.

If you are not sure whether that clause is even in your contract, which rules apply depends on your contract type, and that is worth checking first.

One piece of vocabulary and then we are done with the jargon. A cost objective is whatever an hour belongs to. A specific contract is one. So is a general bucket like admin. Criterion (c)(9) is asking that every hour lands on something named.

Where does every hour go?

Here is a full week for one person. Marcus is a senior engineer and he worked forty hours.

Thirty of those hours go on invoices. The other ten are the ones people forget, and they are the ones that make the first thirty defensible.

Your indirect rates are calculated from that bottom block. If Marcus records thirty hours and stops, his overhead looks like nothing, the rate is wrong, and every invoice built on that rate is wrong with it. Recording all forty is not extra admin. It is what makes the thirty mean something.

There is a second reason, and it catches salaried teams. If Marcus actually worked fifty hours and only recorded forty, the ten unpaid ones still affect your rates. They are called uncompensated overtime, and solicitations above the simplified acquisition threshold carry FAR 52.237-10 on disclosing them.

What counts as direct, and what counts as indirect?

This is the distinction everything else rests on, and it is simpler than it sounds.

Direct work can be pointed at one contract. Indirect work supports several contracts, or the business generally, so it cannot be pinned to any single one.

“Usually” is doing real work in that table. The same activity can fall either side depending on why it happened. An engineer fixing a bug on Contract A is direct. The same engineer improving an internal tool that all your projects use is indirect. The test is not the task, it is whether one contract can be said to have caused it.

Getting it wrong is a problem in both directions, and people generally only worry about one of them.

• Indirect work charged to a contract is the one everybody fears. You have billed the government for something it should not have paid for, and that is the finding that leads to money coming back
• Direct work parked in overhead feels safer and is not. You have understated what the contract cost, which inflates your overhead pool and distorts the rates on every other job you run. It is also the pattern that makes an auditor wonder what else is being smoothed

Both are fixed the same way: decide your categories once, before anyone charges time, and keep the list short enough that people pick correctly without asking.

Who fills in the timesheet, and who checks it?

Employees record their own time. This is the closest thing to a hard rule in the whole subject, and it is where most small contractors quietly get it wrong.

The pattern that fails looks reasonable from the inside. Friday afternoon, a manager goes around asking roughly what everyone worked on, and fills the timesheets in. It is efficient and everyone is doing their best. It also produces a record of what a manager remembers being told, which is not the same as a record of what happened.

DCAA’s guidance for contractors is direct about it. A supervisor should be prohibited from completing an employee’s timesheet. The one exception is a prolonged absence on authorized leave, and even then the employee submits their own when they return.

Approval is a separate job from entry, and it does not replace it. The employee says what they did. The supervisor confirms it happened and was charged to the right place. Two people, two different questions, and the control only works while they stay separate.

There is a related separation worth knowing. Whoever handles timekeeping should not also run payroll, and the manager who owns a contract’s budget should not be the one entering hours against it. Both come straight from DCAA’s audit procedures, and the second one exists because budget pressure is exactly the thing that bends a time record.

What a supervisor should be able to see

Approving a timesheet you cannot interrogate is a rubber stamp. Before signing off, a supervisor should be able to spot:

• Missing hours, or a week that does not add up
• Charges to a project the person is not authorized to work on
• An unusual pattern, like a sudden shift of hours between contracts
• Entries that have been changed since they were first made
• Timesheets that are late, and whose

What happens when someone charges the wrong thing?

People will charge the wrong project. It is not a compliance failure, it is a Tuesday. What matters is what the correction leaves behind.

An overwrite destroys the thing an auditor needs. If Contract A becomes Contract B and nothing records that it used to say Contract A, the record is now a claim with no history. DCAA asks that a change is documented with the original charge, the corrected charge, and evidence the employee agreed to it.

So a correction should preserve five things:

• What it originally said
• What it says now
• Who made the change
• When they made it
• Why

This is the single clearest reason spreadsheets struggle here. A spreadsheet overwrites by design. Reconstructing what a cell used to contain, months later, is not a thing you can do.

How often should people enter their time?

Daily. DCAA’s own manual for contractors says employees record their time on a timesheet on a daily basis, and everything about how labor gets tested assumes it.

The reason is not bureaucratic. A record written on the day is evidence. A record written on Friday about Tuesday is a recollection, and when an auditor asks someone what they were working on and compares the answer to the timesheet, recollections are where the gaps appear.

There are people this is genuinely hard for. Staff at client sites, in secure facilities without their own devices, or somewhere with no connection. DCAA’s guidance accounts for that: those situations get documented procedures to cover the gap rather than an exemption. What it does not accept is a whole team reconstructing the week from memory because nobody set up a routine.

The practical version for a small firm: entry takes under a minute if the projects are already set up, so make it the last thing people do before they close their laptop, and have your system remind the ones who forget.

Do your timekeeping and accounting have to agree?

Yes, and this is where criterion (c)(10) earns its place. Recording time correctly is only half of it. The hours then have to arrive in your accounting system as costs, against the same contracts and the same indirect pools.

DCAA’s own reading of the clause is that the labor distribution system documents employee hours and dollars by employee, by project or job code, and by indirect account, and that those records reconcile to your cost accumulation records. In plain terms: what your timesheets say and what your books say should be the same story.

The failure mode is re-keying. Approved time lives in one place, somebody exports it, and somebody else types it into the accounting system at month end. Small errors creep in. The audit trail also breaks, because the figure in your ledger is no longer traceable to the entry anyone approved.

Connecting the two systems removes the retyping step, which removes both problems at once. TimeRewards syncs approved time and expenses into QuickBooks on every plan and Sage Intacct on Professional and above. Approval is the gate in both cases, so nothing unapproved moves.

What should your written timekeeping policy say?

Having a policy is part of what gets tested, and for a small contractor it is genuinely a one-page document. It should answer:

• Employee responsibilities. That accurate, complete and timely entry is theirs, and that careless preparation has consequences
• Supervisor responsibilities. What approval actually means, and what they are checking for
• How often time is entered, and what happens when someone is offsite or without access
• Corrections. Who can make one, what gets recorded, and that the employee agrees to it
• Missing timesheets. Who chases, how late entry is handled, who signs it off
• Direct and indirect codes. The list, in plain words, and who to ask when it is not obvious
• Leave and paid time off. Where it gets charged
• Separation of duties. Timekeeping apart from payroll, and budget owners away from entering time

Write it once, keep it to a page, and give it to people on their first day. A policy nobody has read is worth roughly what an unwritten one is.

What actually happens in a floor check?

This is the part that surprises people, because it involves an auditor and your staff rather than an auditor and your paperwork.

DCAA turns up unannounced, walks around, and talks to employees. They are establishing three things: that the person is actually at work, that they are doing the job classification they are booked as, and that their time is going to the right job or indirect account. Then they compare what they heard to what was charged.

Floor checks are performed at contractors working under cost-reimbursable, time-and-materials and labor-hour contracts. If all your work is firm-fixed-price, this is not on your horizon in the same way.

The question an employee gets is roughly “what are you working on right now?” Nothing about that is a trap. It only goes badly when the person has no idea what they are supposed to be charging, which is a training gap rather than a system one.

Remote staff are covered. Where someone selected for a floor check is working from home, the auditor interviews their supervisor first, looking for evidence of the work and of real supervisory control over the schedule. They then telephone the employee to talk about what they are doing and which codes they are using. If you have people working from home, you need a short written policy for it. It should cover how home working is approved, what tasks they are doing and when those are due, that they attend periodic meetings at the work site, and the core hours everyone agrees to. Home-based staff submit time through the same system as everyone else.

What should your timekeeping system be doing for you?

Most of the list above is not work you should be doing by hand. Judged against everything in this article, a system worth having should:

None of that is exotic. It is the ordinary shape of a timekeeping product built for this market, and the reason it matters is that every item on the list is something you would otherwise be doing manually, or not at all.

Common questions

The contractors who find this straightforward are not the ones with the most sophisticated setup. They are the ones who decided their categories early, told their team what to do in a single short email, and picked a system that keeps the history without anyone thinking about it. If you are still working out which of this reaches you, start with what changes when you win a federal contract. For the wider picture there is our DCAA compliance guide and the overview for government contractors, and if you are still counting split weeks by hand, a billable hours template will at least stop the arithmetic being the hard part.

This article explains published federal acquisition and audit guidance in plain terms, with the sources linked. It is not legal or accounting advice. What applies to your contract depends on its terms and clauses, and your contracting officer and accountant are the people to confirm it with.