What Do Auditors Expect From DCAA Compliant Time Tracking?

DCAA compliant time tracking software can help government contractors maintain accurate labor records, assign employee hours to appropriate cost objectives, document timesheet changes, and prepare records for review. However, software alone does not make a contractor DCAA compliant. DCAA evaluates the contractor’s overall accounting system, timekeeping procedures, internal controls, employee practices, and supporting records. DFARS 252.242-7006 requires an accounting system capable of identifying employee labor by cost objective and distributing direct and indirect labor to the appropriate cost objectives.

For contractors, the goal is therefore not simply to purchase “DCAA software.” It is to build a consistent timekeeping process in which employees record time accurately, labor is assigned correctly, corrections remain traceable, supervisors follow approval procedures, and records can be produced when auditors request them.

Key Takeaways

DCAA timekeeping compliance depends on reliable processes, accurate employee records, and controls that reduce the risk of labor mischarging.

• Employees should record their own time regularly and, under DCAA contractor guidance, on a daily basis.
• Work performed should determine the project, contract, task, or indirect account charged.
• Direct and indirect labor should be recorded separately and distributed to the appropriate cost objectives.
• Employees should certify their timesheets, with appropriate supervisor review and approval.
• Timesheet corrections should preserve the original charge, corrected charge, and documentation supporting the change.
• Timekeeping records should reconcile with attendance, payroll, labor distribution, and other accounting records where applicable.
• Contractors should train employees and supervisors on written timekeeping procedures.
• Electronic controls can make these requirements easier to apply consistently, but software does not replace contractor responsibility.

DCAA’s contractor guidance specifically discusses daily time entry, employee responsibility for timesheet preparation, project-number accuracy, documented corrections, and supervisor approval.

DCAA Compliance Timesheet Checklist

Managers can use this checklist to review whether their current DCAA compliance timesheets and timekeeping procedures are supporting audit readiness.

1. Confirm employees record their own time. Employees should normally prepare their own timesheets rather than relying on supervisors or administrators to reconstruct working hours.
2. Encourage daily time entry. DCAA guidance states that employees should record time on a daily basis. Where employees cannot access the normal system each day, such as certain remote or secure environments, contractors should establish procedures that reduce the risk of mischarging.
3. Review charge-code accuracy. Employees should have clear project numbers, contracts, tasks, or other cost-objective identifiers so they can charge hours according to the work actually performed.
4. Separate direct and indirect labor. Time charged directly to contracts should remain distinguishable from indirect activities such as administration, training, or other indirect cost objectives.
5. Review timesheet approval procedures. Employees should certify their records, and supervisors should review and approve timesheets according to established company procedures.
6. Check correction records. A changed timesheet should show the original information, corrected information, and supporting documentation rather than simply overwriting the original record.
7. Reconcile labor records. Periodically compare timekeeping records with attendance, payroll, labor distribution, billing, and accounting data to identify unexplained differences.
8. Test record retrieval. Managers should be able to produce historical timesheets, approvals, corrections, and related records without rebuilding them manually before an audit.

Running this checklist regularly can reveal process weaknesses before they become recurring timekeeping problems.

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DCAA Timekeeping Requirements for Government Contractors

DCAA timekeeping requirements are shaped by FAR, DFARS accounting-system criteria, contract clauses, and DCAA audit guidance. Contractors should maintain accurate employee labor records, assign hours to the correct cost objectives, separate direct and indirect labor, and preserve reliable supporting records.

1. Record Employee Time Accurately

Employees should record the hours they actually work and enter time consistently. Accurate records support labor distribution, payroll, billing, project costing, and audit readiness.

2. Track Labor by Cost Objective

Labor should be assigned to the correct contract, project, task, work authorization, or indirect account. Clear charge codes help employees record time based on the work actually performed.

3. Separate Direct and Indirect Labor

Direct contract work and indirect activities should be recorded separately. This helps ensure labor is distributed to the appropriate cost objectives.

4. Maintain Timesheet Approval Controls

Employees should be responsible for their own time entries, while supervisors should review and approve timesheets according to established procedures.

5. Document Timesheet Corrections

Corrections should preserve the original entry, corrected information, and supporting reason for the change rather than silently overwriting previous records.

6. Maintain a Complete Audit Trail

A reliable audit trail should show when entries or corrections occurred and who made or approved them. This supports internal reviews and responses to auditor questions.

What Should DCAA Compliant Timesheets Include?

A useful DCAA compliance timesheet needs enough information to connect employee labor with the work performed and the contractor’s accounting records. The exact fields can vary by contractor and contract, but the underlying records should make labor charges understandable and traceable.

1. Employee and Work Date

Each time record should identify the employee and the date on which the work was performed. Unique user accounts in an electronic system can also make it easier to determine who created or modified an entry.

2. Contract and Charge Codes

Timesheets should allow employees to charge time to the appropriate project, contract, task, work authorization, or indirect account. DCAA guidance recommends providing employees with project numbers and descriptions so time can be distributed accurately according to the work performed.

3. Direct and Indirect Hours

Direct contract labor and indirect activities should remain distinguishable. This allows the contractor’s labor distribution system to assign costs appropriately and supports the DFARS requirement to segregate direct and indirect costs.

4. Employee Entry and Supervisor Approval

The employee should normally prepare their own timesheet. DCAA guidance recommends employee certification and supervisor approval, helping establish accountability for both the original time record and the review process.

5. Timesheet Edit History

When a correction occurs, the system or supporting records should make it possible to understand:

• The original entry
• The corrected entry
• Who initiated or approved the change
• When the change occurred
• Why the correction was necessary
• The employee’s concurrence where applicable

Preserving correction history creates a stronger record than simply replacing the original value.

How Do DCAA Floor Checks Actually Work?

DCAA floor checks are used to verify that employee labor charges match the work actually being performed. Auditors may observe employees, conduct interviews, and compare responses with timekeeping and accounting records.

They may review:

• Current time records
• Project or charge codes
• Attendance information
• Payroll records
• Labor distribution data
• Company timekeeping procedures

Floor checks may be scheduled or unannounced. If an employee misses or enters time incorrectly, the contractor should follow its documented correction process, preserve the edit history, and record the reason for the change rather than reconstructing the entry without supporting documentation.

How to Build an Audit-Ready DCAA Timekeeping System

An audit-ready timekeeping system combines clear procedures, employee training, internal controls, reliable records, and software that supports consistent time entry and review.

1. Establish a Written Timekeeping Policy

Create clear procedures covering when employees enter time, which charge codes they use, how direct and indirect labor is recorded, who approves timesheets, and how corrections are handled.

2. Train Employees and Supervisors

Employees should understand how to record time accurately and select the correct charge codes. Supervisors should understand their responsibilities for reviewing timesheets, approvals, and corrections.

3. Use Role-Based Access Controls

Limit system access according to each user’s responsibilities. Employees should enter their own time, while supervisors and administrators should have separate permissions for review, approval, and system management.

4. Maintain Complete Audit Trails

Timekeeping software should preserve the history of entries, corrections, approvals, and important changes so contractors can provide supporting records when required.

5. Review Timekeeping Procedures Regularly

Regular internal reviews can help identify late entries, incorrect charge codes, missing approvals, repeated corrections, and other weaknesses before they become larger compliance issues.

How AYYES Supports DCAA Compliant Time Tracking

AYYES helps government contractors manage employee time through a structured electronic workflow instead of relying on disconnected spreadsheets or manual records.

The platform can support:

• Employee time entry
• Project and task-based labor tracking
• Timesheet review and approvals
• Access controls
• Correction history
• Reporting and record retention

These features can help contractors apply their internal DCAA timekeeping procedures more consistently and maintain clearer supporting records. AYYES does not automatically make a contractor DCAA compliant. Compliance still depends on proper system configuration, employee training, accounting controls, contract requirements, and consistent timekeeping practices.

Direct vs. Indirect Labor Tracking for DCAA Compliance

Direct and indirect labor should be recorded separately because they affect contract costs, indirect rates, payroll records, and government billing.

Area	Direct Labor	Indirect Labor
Definition	Work directly linked to a specific contract, project, task, or final cost objective	Work supporting broader business operations or multiple cost objectives
Examples	Contract work, project-specific engineering, task-order activity	Administration, training, internal meetings, HR, general management
Time Entry	Record hours against the correct contract, project, or task code	Record hours against the appropriate indirect account or cost pool
Main Purpose	Accurate contract costing and billing	Accurate indirect cost allocation and rate calculation
Common Risk	Charging time to the wrong contract or project	Charging indirect work directly to a contract

DFARS 252.242-7006 requires contractors to properly segregate direct and indirect costs and distribute labor to the appropriate cost objectives. Employees should therefore use clear charge codes based on the work actually performed. For example, if an employee spends six hours on a government contract and two hours on an internal administrative activity, those hours should be recorded separately rather than placed under one project code. Labor records should also reconcile logically with payroll, billing, and accounting data to support accurate reporting and audit readiness.

How to Handle Timesheet Corrections for DCAA Compliance

Timesheet errors are not automatically evidence of a deficient system. What matters is whether the contractor has a controlled and documented process for correcting them. DCAA contractor guidance states that changes should identify the original time charge and corrected charge and include documentation showing the employee’s concurrence.

A good correction process should therefore:

1. Preserve the original entry.
2. Record the corrected entry.
3. Capture the reason for the correction.
4. Identify who made or requested the change.
5. Record when the correction occurred.
6. Obtain the required employee acknowledgement.
7. Apply supervisor review when required by company procedure.

A manager should not simply replace an employee’s hours without leaving evidence of what changed. Electronic systems make this easier because the edit history can remain connected directly to the time record. Contractors should also review patterns of repeated corrections. Frequent mistakes involving the same employee, charge code, or department may indicate unclear procedures or insufficient training.

Common DCAA Timekeeping Problems and Audit Findings

Many timekeeping problems arise because the contractor’s daily practices do not match its written procedures.

1. Late or Reconstructed Time Entries

Waiting until the end of the week to recreate several days of work increases the risk of inaccurate charging. DCAA contractor guidance recommends daily employee time recording. Businesses should make daily entry easy and have an established procedure for situations where employees temporarily cannot access the normal system.

2. Incorrect Charge Codes

Employees may choose an incorrect project or indirect account because the available codes are unclear. Provide understandable project numbers and descriptions and train employees to select codes based on the work performed rather than funding availability.

3. Missing Approval Records

A timesheet may contain accurate hours but still lack evidence of the company’s required review. Approval workflows should identify who reviewed the timesheet and when the approval occurred.

4. Undocumented Timesheet Changes

Replacing an original time entry without retaining the correction history creates unnecessary audit risk. Corrections should remain traceable and supported.

5. Weak Access Controls

Too many people having unrestricted authority to change employee records can weaken accountability. Access should be limited according to role, with employees, supervisors, payroll staff, and administrators receiving only the permissions necessary for their responsibilities.

Electronic vs. Manual DCAA Timekeeping Systems

DCAA does not require every contractor to use electronic timekeeping software. The key issue is whether the system produces accurate, controlled, and supportable labor records.

Area	Manual Timekeeping	Electronic Timekeeping
Time Entry	Employees record hours manually	Employees record time digitally through web, desktop, mobile, or kiosk tools
Daily Entries	Requires consistent employee discipline	Can support reminders and structured daily entry
Corrections	Changes may require manual notes and signatures	Corrections can be logged with timestamps and edit history
Approvals	Employee and supervisor signatures are handled manually	Approval workflows can be managed electronically
Charge Codes	Employees select project or cost codes manually	Approved project and charge codes can be built into the system
Audit Trail	Depends on preserved paper records and correction notes	Can automatically retain entry, correction, approval, and user history
Record Retention	Requires organised physical or digital storage	Historical records can be stored and retrieved electronically
Payroll Reconciliation	Often requires more manual comparison	Reports can simplify reconciliation with payroll and labor records
Access Controls	Relies heavily on physical procedures	Role-based permissions can restrict who can enter, edit, or approve records
Audit Readiness	Can work with strong procedures and documentation	Usually makes records easier to organise, review, and retrieve

Both manual and electronic systems can support DCAA timekeeping requirements when proper controls are in place. Electronic software can make approvals, audit trails, corrections, permissions, and reporting easier to manage consistently.

Key Features of DCAA Compliant Time Tracking Software

When evaluating DCAA compliant software, contractors should focus on controls that support accurate labor charging and reliable records. Software should fit the contractor’s accounting procedures rather than forcing the organisation to create compliance processes around the limitations of the tool.

1. Daily Time Entry

The software should make it easy for employees to record time as part of their normal daily workflow.

Employees may enter their hours through web, desktop, mobile, or an employee kiosk, depending on how the workplace manages attendance and timekeeping. Reminders, entry controls, and clear timesheets can help support daily timekeeping habits.

2. Contract and Charge Code Tracking

Employees should be able to select approved projects, contracts, tasks, and indirect accounts. Clear charge-code descriptions reduce the risk of employees guessing which account to use.

3. Supervisor Approvals

The system should support a defined review process. Supervisors need visibility into employee records and a way to document approval separately from the employee’s original entry.

4. Timesheet Correction History

Corrections should not simply erase the previous value. A useful system retains the original information, corrected information, timestamps, user information, and supporting explanation.

5. Labor Distribution Reporting

Government contractors need to understand where employee hours are being charged. Reports should help businesses analyse direct and indirect labor by employee, project, contract, or other relevant cost objective.

6. Role-Based Permissions

Different users need different levels of access. Employees may enter their own time, supervisors may review assigned teams, and administrators may manage configuration and reporting. Role-based permissions help limit unnecessary changes to timekeeping records.

Why Choose AYYES for DCAA Time Tracking?

AYYES provides time tracking, projects, tasks, timesheets, reporting, and workforce-management capabilities that can support a contractor’s broader DCAA timekeeping process. The platform can help businesses replace disconnected spreadsheets and manual workflows with structured electronic records.

1. Accurate Employee Time Records

Employees can record their working hours in a central system rather than relying on separate spreadsheets, emails, or handwritten notes. Centralised records can make time easier to review, approve, report, and retain.

2. Project and Cost Tracking

AYYES allows working time to be connected with projects and tasks. For government contractors, structured project tracking can support the organisation of labor records around defined work activities and internal cost structures.

3. Timesheet Reporting

Managers can review recorded hours and generate reports instead of manually combining multiple employee files. These records can support internal review, reconciliation, labor analysis, and audit preparation.

4. Employee and Manager Controls

Different workflows can be configured for employees and managers, helping businesses separate time entry from review and administrative responsibilities. Clear permissions support stronger accountability over workforce records.

5. Audit-Ready Timekeeping Records

AYYES can help contractors maintain structured electronic time records and supporting history in one environment. Audit readiness still depends on the contractor’s complete accounting system, written procedures, training, contracts, configuration, and actual employee behaviour. AYYES should therefore be viewed as a tool that supports DCAA compliance processes rather than software that independently guarantees DCAA approval.

Start Building Audit-Ready Timesheets With AYYES

A reliable DCAA timekeeping process starts with accurate employee entries, clear charge codes, controlled corrections, consistent approvals, and records that can be retrieved when needed. AYYES gives contractors a central platform for managing employee time, projects, tasks, timesheets, and reporting while supporting stronger internal timekeeping controls. For growing teams, AYYES offers flexible pricing, with paid plans starting at $0.88 per user/month when billed annually or $0.99 per user/month with monthly billing. Teams can choose the plan that fits their size and timekeeping needs. Start using AYYES to create clearer, more consistent, and audit-ready employee time records for your government contracting workflow.

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