timekeeping for government contractors€¦ · • total-time-accounting and its impact on labor...
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1government contracting
Timekeeping for Government ContractorsMike Mardesich & Brad TressMarch 28, 2017
The Fundamentals of Government Contracting Webinar Series
2government contracting
@DHG_GovCon
Brad TressDixon Hughes Goodman [email protected]
Mike MardesichDixon Hughes Goodman [email protected]
Your Presenters
3government contracting
@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
4government contracting
@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
5government contracting
@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
7government contracting
@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)
8government contracting
@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.
9government contracting
@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.
10government contracting
@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.
11government contracting
@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.
12government contracting
@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.
13government contracting
@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
15government contracting
@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
16government contracting
@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
17government contracting
@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)
18government contracting
@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
19government contracting
@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
20government contracting
@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:
21government contracting
@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."
22government contracting
@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.
23government contracting
@DHG_GovConProposal Evaluations
• DCAA Guidance for Contractors
– FAR Table 15-2 Expectations
• Identification of Uncompensated Overtime
– FAR 52.237-10
24government contracting
@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
26government contracting
Join us next month for An Introduction to the Cost
Accounting Standards on Tuesday, April 25th
The Fundamentals of Government Contracting Webinar Series
27government contracting
@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!