Skip to content

Timekeeping Is a High Risk Area

For most contractors, direct labor costs are usually the most significant expense charged to government contracts and usually make up the base, or largest, element used to allocate indirect costs.

It is often appropriate to use historical expenses to estimate hours and costs for follow-on contracts or for government contracts that require goods or services similar to those provided under previous contracts. Unlike other cost items, however, labor charges are not supported by such third-party documentation as invoices, purchase orders or receipts. In addition, company personnel have complete control over the documents and the devices used to enter the original data, whether they consist of manually prepared time cards, electronic media or some other means.

The responsibility for accurate time recording is spread throughout your entire organization. In addition, electronic or manual time cards can easily be altered or controlled by individuals other than the person who actually performed the work. Consequently, from the perspective of the government, when it comes to labor, there are significant risks associated with accurate recording, distribution and payment.

If auditors from the Defense Contract Audit Agency (DCAA) note significant deficiencies in a timekeeping system, they will expand the scope of their audit. Ultimately, suspected irregular conduct may be reported to government investigative agencies, particularly if the problems have gone undetected for a long period. On the other hand, if auditors assess that the control risk of a company’s labor-accounting system is low, they are likely to reduce the frequency, scope and even number of audits.

As a government contractor, your organization is expected to maintain a labor timekeeping, accumulation and distribution system that includes appropriate internal controls such as training employees about their independent responsibilities for accurately recording time charges. This is the single most important feature managers can emphasize to demonstrate their commitment to owners, creditors and customers to guard against fraud and waste in this area.

Keep in mind that your company and its individual employees are legally responsible for ensuring compliance. The manipulation of labor costs to a contract can bring about criminal charges that can result in fines, imprisonment or both.

Tip: Create a mandatory timekeeping training plan for employees. This should include:

  • Orientation for new hires, and
  • Annual refresher courses for all employees.

Tip: Create a compliance monitoring plan that

  • Includes surprise internal floor checks to ensure that employees know and are following procedures, and
  • Generates such compliance reports as information on employees’ timekeeping habits when electronic media are used.

If you have any questions regarding the information provided, please contact our office at 703.385.8888 or .

© 2016


Information provided on this web site “Site” by Thompson Greenspon is intended for reference only. The information contained herein is designed solely to provide guidance to the user, and is not intended to be a substitute for the user seeking personalized professional advice based on specific factual situations. This Site may contain references to certain laws and regulations which may change over time and should be interpreted only in light of particular circumstances. As such, information on this Site does NOT constitute professional accounting, tax or legal advice and should not be interpreted as such.

Although Thompson Greenspon has made every reasonable effort to ensure that the information provided is accurate, Thompson Greenspon, and its shareholders, managers and staff, make no warranties, expressed or implied, on the information provided on this Site, or about any other website which you may access through this Site. The user accepts the information as is and assumes all responsibility for the use of such information. Thompson Greenspon also does not warrant that this Site, various services provided through this Site, and any information, software or other material downloaded from this Site, will be uninterrupted, error-free, omission-free or free of viruses or other harmful components.

Information contained on this Site is protected by copyright and may not be reproduced in any form without the expressed, written consent of Thompson Greenspon. All rights are reserved.

Share: