What Is DCAA Compliance in Time Tracking?Definition, Rules & Requirements
DCAA compliance in time tracking refers to the operational and accounting standards enforced by the Defense Contract Audit Agency (under FAR 9.104-1 and 31.201-2) requiring government contractors to maintain contemporaneous, employee-entered daily labor records, segregated direct and indirect costs, multi-level supervisor sign-offs, and immutable audit trails detailing every historical timesheet modification. Learn more about core what is a timesheet definitions.
The 5 Pillars of DCAA Timekeeping Integrity
Core internal controls required to pass federal cost-reimbursement audits.
1. Contemporaneous Daily Entry
Employees must personally record their hours worked daily before the end of their shift, logging start/stop times and work distribution against authorized job numbers.
2. Strict Segregation of Costs
Labor must be explicitly isolated between direct billable contract activities, indirect general overhead, business development, and unallowable costs.
3. Immutable Revision Audit Logs
Any modification made after initial entry must automatically preserve the original entry, new value, identity of the modifier, timestamp, and a mandatory written reason for the change.
4. Independent Approvals
Employees must certify their own timecards, followed by direct supervisor review and sign-off prior to payroll or customer invoicing.
5. Periodic Floor Checks
Contractors must maintain records showing that physical or electronic verification checks confirm employees are working on the projects to which their hours are being charged.
Direct vs. Indirect Labor Accounting Breakdown
Federal cost classification standards under FAR Subpart 31.2.
| Labor Classification | Regulatory Definition (FAR 31.201) | Examples in TimeTrackerOn | Audit Compliance Standard |
|---|---|---|---|
| Direct Contract Labor | Costs identified specifically with a particular final contract deliverable or milestone. | Engineering design, contract fabrication, software coding, on-site testing. | Requires unique Work Authorization Numbers (WAN) and phase tags. |
| Indirect Overhead Labor | Costs incurred for common or joint objectives benefiting multiple contracts. | Quality assurance across projects, maintenance staff, operations managers. | Allocated via formal indirect rate pools without direct client billing. |
| General & Administrative (G&A) | Expenses related to the management and executive administration of the overall business. | Corporate HR, financial accounting, executive leadership, legal counsel. | Monitored in separate overhead cost centers; never billed to direct contracts. |
| Unallowable Labor | Expenses that federal regulations expressly state cannot be reimbursed by the government. | Business development, proposal drafting, marketing, political lobbying. | Strictly segregated; tracked on timesheets but excluded from all billings. |
DCAA Pre-Award & Post-Award Audit Checklist
Official agency audit requirements mapped directly to software execution rules.
| DCAA Audit Requirement | Official Agency Standard | TimeTrackerOn Software Enforcement Rule |
|---|---|---|
| Individual Employee Control | Only the employee may record their own time. | Password-protected unique user logins; proxy time logging is prohibited. |
| Daily Logging Discipline | Entries must be completed by the end of each working day. | Automated daily submission reminders; flags entries submitted past 24 hours. |
| Work Authorization Alignment | Employees can only charge against active, funded task codes. | System restricts time entry exclusively to assigned, open contract charge codes. |
| Reason-for-Change Enforcement | Any edit must provide an auditable explanation. | Mandatory text modal triggered on every historical edit before changes save. |
| Supervisor Certification | Supervisors must verify hours against actual work performed. | Multi-tier approval routing prevents supervisors from altering employee numbers directly. |
| Audit Log Immutability | Database records must resist retroactive modification. | Append-only database ledger; historical records cannot be deleted or overwritten. |
| Overtime Premium Allocation | Overtime wages must be distributed equitably across jobs. | Automated FLSA and prevailing wage calculation with contract rate logic. |
How Automated Software Protects Government Contractors
Cryptographically signed audit trails that satisfy Defense Contract Audit Agency inspectors.
Failing a DCAA labor audit can result in withheld payments, contract termination, and suspension from future federal procurement bids. By utilizing specialized architecture time tracking software or compliant project accounting tools, defense contractors replace fallible manual spreadsheets with cryptographically signed, append-only labor ledgers.
Move from Fragile Manual Logs to Audit-Ready Cloud Automation
While early-stage subcontractors sometimes attempt to track government project hours on biweekly timesheet templates or daily hourly logs, doing so during a Cost-Plus or Time & Materials (T&M) federal audit carries severe liability. TimeTrackerOn provides defense contractors and architectural engineering firms with out-of-the-box DCAA compliance, connecting daily labor records to our time and billing software and employee expense management engines.
- Retroactive edits leave no log
- Proxy typing by supervisors
- Mixing direct & indirect hours
- Unapproved late time entries
- Audit failure penalty risk
- Cryptographic reason-for-change logs
- Unique individual credentials
- Hard segregation of cost codes
- Automated daily prompt rules
- 100% inspection-ready records + Sage Intacct integration
Questions about DCAA compliance
Does the DCAA certify time tracking software?
What are the core timekeeping requirements for DCAA compliance?
Why is an audit trail with a "reason for change" mandatory under DCAA rules?
How does DCAA compliance apply to subcontractors?
Ensure Your Timekeeping Is 100% DCAA Audit-Ready
Protect your government contracts, eliminate unallowable cost leakage, and pass defense audits with TimeTrackerOn’s automated DCAA-compliant time and expense tracking platform.