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Timekeeping for Government ContractorsMike Mardesich & Brad TressMarch 28, 2017

The Fundamentals of Government Contracting Webinar Series


@DHG_GovCon

Brad TressDixon Hughes Goodman [email protected]

Mike MardesichDixon Hughes Goodman [email protected]

Your Presenters

mailto:[email protected]

mailto:[email protected]


@DHG_GovConFundamentals of Government

Contracting – Season 2 Subject Matter

• Season 2 topics will include:

– Year End Closing

– Contract Types and Associated Risks

– Indirect Rates

– Timekeeping

– Introduction to the Cost Accounting Standards

– Incurred Cost Submissions

– Unallowable Costs

– Contractor Compensation

– Labor Law Compliance

– Budgeting and Provisional Rates

– Accounting Systems

– Procurement Systems

– Estimating Systems


@DHG_GovConAgenda

• Review of rules and regulations that impact timekeeping practices

and accounting processes

• What is a timesheet?

• Overview of timekeeping roles and responsibilities

• Time accounting methods acceptable by the government audit

community

• DCAA floor check requirements and expectations

• Time reporting solutions – manual and electronic timekeeping

• FAQs of Labor Reporting

• Labor cost distribution

• Total-time-accounting and its impact on labor cost

• Direct versus indirect labor costing

• Training and self-assessments to determine the strength of your

controls over labor costs


@DHG_GovConWhy Is Timekeeping Moving into

the Forefront?

• For the past decade – DCAA has been

behind on Incurred Cost Audits

• In addition, DCAA did not perform real-time

employee interviews/floorchecks to validate:

– Employee attendance

– Employee performing assigned job classifications

– Time is charged to the proper cost objective

• DCAA issued a guidance memo 13-PPD-

012(R) to provide alternate procedures for

existence and allocability


@DHG_GovConRegulations Over Timekeeping

• None


@DHG_GovConGuidance over Timekeeping

• Standard Form 1408 – Pre-Award Survey of Contractor Accounting

System

e. A timekeeping system that identifies employee’s labor by

intermediate or final cost objective.

f. A labor distribution system that charges direct and indirect labor to

the appropriate cost objectives.

• Internal Control expectations

• FAR 31.201-2(d) & FAR 52.222-8 – Records

• DCAA Guidance

– Internal Control Questionnaire (ICQ)

– Contract Audit Manual – Ch 5. Sec 9

– Guidance for Contractors

– Audit Programs and Mandatory Annual Audit Requirements

• Contractor Risk Assessment Guide (CRAG)


@DHG_GovConCRAG - Controls Over Timekeeping

• CONTROL OBJECTIVE - Establish timekeeping and labor charging

practices which result in the accurate assignment of allowable and

allocable labor costs to U.S. Government Contracts.

• MAJOR CONTROLS

• Policies and Procedures. Provide adequate written policies and

procedures for instructing employees on the proper charging of

direct and indirect labor, and to reasonably assure the accuracy of

recorded time charges to cost objectives.

• Internal Controls. Provide for a system of internal controls to include:

– the maintenance of accurate labor cost data,

– the accumulation and recording of labor costs allocable to cost

objectives for the purpose of determining proper cost reimbursement on

government contracts,

– the verification of labor cost transfers, and

– the segregation of responsibilities for labor related activities.


@DHG_GovConGeneral Controls - Continued

• Orientation and Training: establish a labor charging awareness program

to train all employees, as appropriate, on proper labor charging

practices.

• Time card Preparation: assure that labor hours are accurately recorded

and that any corrections to timekeeping records are documented

including the appropriate authorizations and approvals.

• Allocation of Labor Costs to Cost Objectives: reasonably assure the

proper allocation of labor costs to cost objectives.

• Validation of Undistributed Labor: provide reasonable assurance that

labor transfers or adjustments of the labor distribution are documented

and approved.

• Internal Reviews: monitor the overall integrity of the labor/timekeeping

system.


@DHG_GovConAuditor Expectations - Controls

• Timekeeping Procedures described in DCAA Guidance for

Contractors.

• To be effective, DCAA expects internal controls over labor charging

to meet the following criteria:

– Should be a segregation of responsibilities for labor-related activities.

– Procedures must be evident, clear-cut, and reasonable so there is no

confusion.

– Maintenance of controls must be continually verified and violations must

be remedied through prompt and effective action.

– Individual employees must be constantly, although unobtrusively, made

aware of controls that act as an effective deterrent against violations.

Many businesses accomplish this by emphasizing the importance of

timesheet preparation in staff meetings, employee orientation, and

through the posting of signs throughout the workplace that remind

employees of the importance of accurate and current timesheets.


@DHG_GovConAuditor Expectations – Timesheet Preparation

• Detailed instructions for timesheet preparation should be

established through a timekeeping manual and/or company

procedure.

• Instructions should indicate that the employee is personally

responsible for:

– Recording his/her time on a daily basis.

– Recording time on the timesheet.

– The correct distribution of time by project numbers, contract

number or name, or other identifiers for a particular assignment.

To ensure accuracy, a listing of project numbers and their

descriptions should be provided to the employee and maintained

in the work authorization system electronically or in a hard copy

for the employee to refer to it as needed.


@DHG_GovConAuditor Expectations – Approval

• A supervisor should approve and cosign, all timesheets.

• A supervisor is prohibited from completing an employee's timesheet

unless the employee is absent for a prolonged period of time on

some form of authorized leave. If the employee is on travel status,

the supervisor for the employee may prepare a timesheet. Upon his

or her return, the employee should turn in his/her timesheet and

attach it to the one prepared by the supervisor.

• The guidance should state that the nature of the work determines

the proper distribution of time, not availability of funding, type of

contract, or other factors.

• The company policy should state that the accurate and complete

preparation of timesheet the employee's responsibility. Careless or

improper preparation may lead to disciplinary actions under

company policies, as well as applicable Federal statutes.


@DHG_GovConAuditor Expectations – Corrections

• Purpose of correcting timesheet is to document

the process of payroll correcting a timesheet error.

• Employee is responsible for accurate time

reporting.

• If an employee realizes a timesheet is not correct:

– Identify what needs to be corrected

– Correct the timesheet in accordance with established

practices

– Notify the manager a correction is needed


@DHG_GovConExamples of Timesheets


@DHG_GovConRoles in the World of Timekeeping

• Federal contractor

– Employee

– Supervisor

– Tone from the top!

• Federal Government

– Contracting Officers

– Department of Labor

– Auditor (Defense Contract Audit Agency – DCAA)

– Inspector General


@DHG_GovConFederal Contractor

• Employee

– Consistently follow established procedures

– Record time promptly and accurately

– Approve time charges

• Supervisor

– Monitor compliance

– Approve time charges

• Contractor

– Provide “Tone from the Top”

– Comply with applicable laws and contract requirements

– Maintain policies, systems, training

– Internal review or Internal audit


@DHG_GovConGovernment

• Procuring Contracting Officer

– Determines applicability of SCA

– Obtain certified payrolls for DBA

– Determines rates proposed are fair and reasonable

• Administrative Contracting Officer

– Review and approve contractor compensation policies

– Determines if rates paid are fair and reasonable

• Department of Labor

– Created to foster, promote and develop the welfare of workers, improve

working conditions, and enhance opportunities for profitable

employment

– Implements, administers and enforces labor laws

– Oversees compliance with FLSA and SCA in Federal contracts (FAR

Part 27)


@DHG_GovConAuditor (Defense Contract Audit Agency – DCAA)

• Created to perform contract audits for Department

of Defense

• Advisor to the Contracting Officer

• Timekeeping and Labor Audits – Floor checks

• Compensation

• Impact on DFARS Business System Rule

• Incurred cost audits

– Auditing labor costs

– Executive compensation audits

– Time & Materials audits


@DHG_GovConFloor Checks

• Only unannounced audit

• Floor Check Questionnaire

• Will ask about Ethics Program

• Will ask to see Timekeeping training records

• You need a Company Liaison

• Deliver a sample list from your data

• Pull the timesheet when they arrive

• Use documentation aids to help employees

pass


@DHG_GovConInspector General

– Personnel did not always record

employee direct labor correctly or

have adequate documentation to

support it.

– Supervisors did not always

segregate the timekeeping duties.

– Employees did not certify the time

they worked on projects.

– Supervisors did not always have

adequate oversight of contract labor

hours, which personnel did not

always record correctly.

– Production controllers did not track

material usage and did not consistently

order material against the correct

projects.

– Parts managers did not consistently

review orders with a Depot Overhaul

Factor of 0.00000 for accuracy.

– Journal voucher preparers did not

always have adequate or clearly

identified documentation to support cost

transfers between projects.

• Handbook of Fraud Indicators

• Reports on Programs Identified:


@DHG_GovConTotal Time Accounting

• DCAA Expectations:

– Recording all hours worked whether they are paid or not.

– Labor costs and associated overheads are affected by total hours worked, not just paid hours worked.

– Labor rate computations and labor overhead costs should reflect all hours worked.

– Unpaid hours worked are termed "uncompensated overtime."


@DHG_GovConUncompensated Overtime

• DCAA Accepted Methods

– Average Labor Rate Adjustment

– Percentage Allocation Method

– Estimated hourly rate and overhead adjustment

• Alternative Methods

– Other methods of accounting for excess hours worked by exempt

employees may be used by the contractor.

– Some of these are unacceptable and others require further evaluation to

determine acceptability such as:

• distributing salary cost to all cost objectives based on a labor rate predicated on an

8-hour day/40-hour week and crediting the excess amount distributed to overhead.

• determining a pro rata allocation of hours worked each day and distributing the daily

salary cost using the pro rata allocation (use of daily distribution increases the

possibility for "gaming").

– Evaluation should be made of the method to determine the significance of

any inequities which may result.


@DHG_GovConProposal Evaluations

• DCAA Guidance for Contractors

– FAR Table 15-2 Expectations

• Identification of Uncompensated Overtime

– FAR 52.237-10


@DHG_GovConAuditor Areas of Concern

• Total hours in timekeeping should reconcile to labor

distribution and payroll.

• Tracking of labor costs directly associated with

unallowable costs are recorded.

• Documenting and approving labor transfers.

• Audit trail of timekeeping documents.

• Risk Factors:

– Contract type mix

– Contracts in an overrun position

– Budgetary controls

– Similar scopes for cost type and fixed price contracts


@DHG_GovConQuestions?


Join us next month for An Introduction to the Cost

Accounting Standards on Tuesday, April 25th

The Fundamentals of Government Contracting Webinar Series


@DHG_GovCon22nd Annual Government Contracting Update

DHG’s 22nd Annual Government

Contracting Update:

shaping today’s challenges into

tomorrow’s success

When: May 4th, 2017

Where: The Hyatt Regency in

Tysons Corner, VA

CPE: 8 hours (pending approval)

Visit: www.dhgllp.com/govcon to

learn more!

http://www.dhgllp.com/govcon

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