What is DCAA?
The Defense Contract Audit Agency(DCAA) is an agency that works for the Department of Defense that performs all the audits and acts as an accounting and financial advisory to the government agencies.
The DCAA conducts audits to ensure that appointed contractors or firms properly handle taxpayer funds. These government contracts can provide a stable source of income for firms on a long-term basis, but it comes with many strict rules and regulations.
How does DCAA works?
Before awarding a government contract to a firm, the DCAA reviews the firm’s financial stability to ensure whether it can complete the contract or not. Therefore, to achieve DCAA compliance and win government contracts, the firm should be ready with the financial statements and accounting reports.
These reports will help the government agencies evaluate the firm’s financial performance and get information about your debts.
In addition, the DCAA provides guidelines of rules and regulations to the contractors to help them understand the procedure of work with government agencies and DCAA auditors.
The DCAA auditors audit the work carried out by contractors regularly. Therefore, any failure to follow the DCAA regulations or procedures may exclude your firm from working further on government contracts and can also stop payment for the ongoing projects.
Requirements for DCAA Procedures
DCAA requirements are about implementing procedures for timekeeping (and accounting) in the organization to prevent fraudulent billing to the government.
Every organization under government contract has to ensure that all their employees tracks their time for each project and maintains the timesheet individually and each day. This means that the submitted timesheets become the company’s legal documents.
From the DCAA document DCAAP 7641.90, the primary area of emphasis includes:
- Internal control systems
- Management policies
- Accuracy and reasonableness of cost representations
- Adequacy and reliability of records and accounting systems
- Financial capability, and
- Contractor compliance with contractual provisions having accounting or economic significance, such as the Cost Principles
Timesheet is an integral part of DCAA compliance because information generated from timesheets is used for payroll, billing, project planning, cost accounting, and pricing.
DCAA Audit Procedures:
DCAA has set up a goal of doing unannounced floor checks yearly (and sometimes as often as twice a year) at the government contractor site or the vendor work site. The auditors check whether the guidelines provided by the DCAA are followed or not.
During these checks, DCAA may talk to the employees and look at whether the timesheets are completed daily (and not done backdated or in the future). In addition, if there is an edit done to the timesheet, they would like to see the reason for the revision.
Contractor-specific audits may occur either in the proposal stage (generally for fixed-price contracts) or in the project execution stage (for variable price contracts and Time and Labor contracts). These audits may cover accounting procedures, adequacy of the accounting systems, etc.
What is the Compliance Criteria?
According to research done by Microsoft, no silver bullet solution guarantees compliance with the DCAA. Instead, contractors need to invest in proper procedures using the guidelines of the DCAA and FAR procedures.0
Note that creating a proper procedure in your company is more important than buying an expensive system that claims to do most things for you. DCAA does not mandate the use of any timekeeping system for compliance.
Paper-based systems or Excel-based timesheets are equally good if they comply with the guidelines. The only problem with a proper paper-based or excel based system is that they are challenging to maintain and become more expensive in the long run.
Following are the general guidelines (but not limited to) for an accurate time capture system to comply with the DCAA audits:
- Fill up timesheets every day.
- Any edit in an already saved timesheet should also contain a reason.
- The supervisor must approve all timesheets and log all changes.
- An auditor may be able to see the history of all changes made to the timesheet.
- The system should be able to create various reports containing details about employees’ timesheets.
- Time charged against each charge code must be done accurately.
- Set up a proper workflow for the approval of timesheets.
- Regular submissions of timesheets by employees and approvals of timesheets after validation by managers are an integral part of the guidelines.
- No future logging of time is allowed.
- Save the supplemental documents so that the auditors can view them.
The entire organization, the managers and their employees need to be vigilant about time tracking, and maintaining records of costs incurred.
Consequences of Non-Compliance:
- Civil Penalty: The responsible contractor who has violated the regulations will risk paying up to three times the damage to the government.
- Criminal Penalty: This will lead to several years of imprisonment for contractors who signed the cost and pricing data certificate.
- Debarment: Being debarred from one government agency will cancel all government agencies’ contracts.
- Voided or terminated contracts: FAR gives the ability to cancel contracts if it is found that there is a conflict of interest, bribery, or disclosing of sensitive information about the contractor’s bid or proposal information.
How OfficeClip Timesheet handles DCAA requirements?
David Goldstein President of Inline Financials LLC says:
The most effective way to prepare for a DCAA audit is to standardize company accounting procedures and employ a comprehensive system for tracking and recording employee time long before the audit process initiates.
See how using a timekeeping system like OfficeClip Timesheet will ease the compliance procedure:
Recording time every day:
OfficeClip Timesheet has a DCAA feature. Once enabled, the Administrator can set an option for filling up timesheets on the same day, the next day, or in a week. The Manager can also create a report of all time recorded even though the timesheet is sent for approval every week.
Any Change must have a reason:
Any changes to the recorded time should automatically prompt the employee to write a reason code. The auditors can view these changes in the timekeeping history.
Timesheet allows approval by the supervisor, and each approval (or rejection) is recorded.
History of Changes:
When the DCAA mode is switched on, all changes to the timesheet are recorded. The recording shows the previous value (before change) and the new value (after change).
OfficeClip Timesheet has various reports, and it also contains one specific audit report to give auditors up-to-date timesheet status.
Accurate Charging time against charge code:
Each employee can only see the charge codes they are supposed to bill. It reduces some inadvertent billing against incorrect charge codes.
Manual or Electronic Signature:
In an adequately audited electronic system, the signature is equivalent to a user signing into the system using a password and the system storing all events in a non-editable format. OfficeClip follows this principle. Also, timesheets can be printed out and physically signed by the supervisor if needed.
Organizations can scan and save additional documents along with the timesheet for future reference.
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SK Dutta is a software architect and creator of OfficeClip Suite of products. He loves to design and develop software that makes people do their job better and more fun. He always explores ways to improve productivity for small businesses. He is also an avid reader in many areas, including psychology, productivity, and business.