The Complete DCAA Compliance Timekeeping Guide for Federal Contractors
DCAA compliance timekeeping is an operational framework enforced by the Defense Contract Audit Agency requiring government contractors to maintain contemporaneous, employee-entered daily labor hours. It mandates the strict isolation of direct contract costs from indirect overhead and unallowable activities, multi-tier supervisory certifications, and unalterable audit trails detailing all historical timesheet adjustments. Review our foundational dcaa compliance time tracking glossary node for key terms.
The Regulatory Backbone: FAR & CAS Explained
The legal foundation governing federal contract cost accounting and auditing standards.
Federal Acquisition Regulation
FAR Subpart 31.2
Governs contract cost principles and procedures for commercial organizations. Dictates what labor and material costs are allowable, allocable, and reasonable on federal cost-reimbursable and Time & Materials (T&M) contracts.
Cost Accounting Standards
CAS 401 & 402
Requires contractors to maintain consistency in estimating, accumulating, and reporting costs. Direct labor incurred for identical tasks cannot be classified as direct on one contract and indirect on another.
DCAA Contract Audit Manual
DCAAM 7640.1
The internal field audit manual utilized by DCAA auditors during accounting system evaluations, labor floor checks, and provisional billing reviews.
7 Mandatory Timekeeping Internal Controls
Comprehensive operational controls required to maintain an inspection-ready labor accounting system.
Contemporaneous Daily Time Recording
Employees must record their time daily as work is performed. Leaving time entry until the end of the week or pay period is a primary finding in negative DCAA audit reports.
Direct Employee Entry (No Proxies)
Each employee must log in with unique, non-shareable credentials and record their own work hours. Supervisors or administrators are barred from submitting hours on behalf of staff.
Pre-Authorized Charge Code Access
Employees must be assigned exclusively to active, authorized Work Authorization Numbers (WANs). Unfunded projects or unauthorized charge codes must be locked against time entry.
Contemporaneous Reason-for-Change Audit Logging
Any modification to an existing time entry must trigger an automated prompt requiring the employee to document a detailed reason for the change, preserving the previous and new values.
Complete Total Hours Accounting
All hours worked must be recorded, including exempt salaried overtime, uncompensated overtime, and non-billable overhead, to prevent labor dilution.
Independent Supervisor Certification
Direct supervisors with personal knowledge of the work performed must review and approve employee timesheets prior to payroll or billing execution.
Periodic Unannounced Labor Floor Checks
Contractors must execute and document internal mock floor checks to ensure employees are actively working on the charge codes logged in the software.
Direct, Indirect & Unallowable Cost Segregation
Statutory cost categories under FAR Part 31 and their software enforcement mechanisms.
| Cost Allocation Category | Statutory Status | Typical Activity Examples | Software Enforcement Mechanism |
|---|---|---|---|
| Direct Contract Labor | 100% Allowable & Billable | Engineering design, contract coding, site construction. | Requires active project Work Authorization Number. |
| Indirect Overhead Labor | Allowable via Indirect Pools | Tooling maintenance, multi-project engineering QA. | Tracked in designated pool cost codes; not client-billed. |
| General & Administrative (G&A) | Allowable via G&A Rate | Executive management, central HR, corporate accounting. | Allocated to non-billable corporate overhead dimensions. |
| Unallowable Labor (FAR 31.205) | Strictly Non-Billable | Lobbying, advertising, proposal writing, golf events. | Segregated into locked unallowable accounts; excluded from billing. |
Surviving DCAA Surveillance & Floor Checks
What auditors look for during unannounced site inspections and digital spot checks.
- "What project are you on today?"
- "How do you log your time?"
- "Who gives you charge codes?"
- "When did you last edit a log?"
- Current day's timesheet status
- Timestamp of last saved log
- Audit log of historical edits
- Documented supervisor sign-offs
Digital Traceability in Remote and Hybrid Defense Workforces
In modern hybrid environments, DCAA auditors conduct virtual floor checks using video interviews and system access logs. If an employee states they are working on contract DOD-01, but their software timesheet is unlogged or shows an indirect task, the contractor receives an immediate systemic deficiency finding.
Standard Form 1408 (SF 1408) Audit Readiness Checklist
Pre-Award Accounting System Survey requirements and how automated software satisfies them.
| SF 1408 Item | Mandatory Internal Requirement | TimeTrackerOn Software Compliance Feature |
|---|---|---|
| Section II.1.a | Proper segregation of direct and indirect costs. | Enforces rigid project code categorization at time of capture. |
| Section II.1.b | Identification and accumulation of direct costs by contract. | Real-time WIP accumulation by project phase and task. |
| Section II.1.c | Logical and consistent allocation of indirect costs. | Integrated with Sage Intacct integration General Ledger dimensions. |
| Section II.1.e | Exclusion from costs of unallowable expenses. | Automated exclusion filters on unallowable charge codes. |
| Section II.1.g | A timekeeping system that identifies labor by contract. | Native architecture time tracking software and project timers. |
| Section II.1.h | A labor distribution system charging labor accurately. | Direct bi-directional synchronization with payroll and ERP. |
The Operational Danger of Using Spreadsheets on Federal Contracts
Tracking government contract labor on static biweekly timesheet templates or daily hourly logs is the most common cause of failed DCAA accounting surveys. When timesheets can be edited without cryptographic logs, auditors will deem the accounting system inadequate, withholding provisional payments and disqualifying the firm from Cost-Plus awards. TimeTrackerOn embeds strict FAR compliance directly into everyday timers, uniting time tracking with time and billing software and employee expense management.
- 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 + QuickBooks integration
Questions about DCAA compliance guide
What triggers a DCAA timekeeping audit?
Can an employee log time for a colleague under DCAA rules?
What is an unannounced DCAA floor check?
How does DCAA treat uncompensated overtime for salaried employees?
Deploy an Audit-Ready DCAA Timekeeping System Today
Avoid audit findings, pass your SF 1408 evaluation, and win federal contracts with TimeTrackerOn’s automated DCAA-compliant time and expense tracking platform.