DCAA Timekeeping Requirements: What Auditors Actually Check and How to Pass

Timekeeping is the single most audited area for government contractors. DCAA conducts unannounced floor checks to verify your practices, and timekeeping deficiencies are among the most common audit findings. The requirements are well-defined but widely misunderstood.

This guide covers exactly what DCAA requires, how floor checks work, and what a compliant timekeeping system looks like — regardless of which software you use.

Why Timekeeping Gets So Much Scrutiny

Labor costs typically represent 60–80% of total contract value for professional services contractors. The accuracy of labor charges determines how much the government pays. If timekeeping is wrong, everything downstream — labor distribution, indirect rates, contract billing — is wrong too.

DCAA's timekeeping requirements exist to ensure one thing: that the hours recorded on timesheets accurately reflect work performed. Every specific requirement traces back to this principle. The detailed methodology auditors follow is documented in the DCAA Contract Audit Manual.

The Core Requirements

Daily Recording

Employees must record their time on the same day the work is performed. This is called contemporaneous recording, and it's one of the first things auditors verify.

They look at timestamps. If your system shows an employee recorded all 40 hours for the week on Friday at 4:55 PM, that's a finding — regardless of how accurate those hours might be. The concern is that hours recorded from memory days later are inherently less reliable than hours recorded in the moment.

Any compliant timekeeping system must capture when entries are created or modified. Manual timesheets (paper or Excel) inherently lack this — which is why system-based timekeeping is strongly preferred by auditors, even if it's not explicitly required.

Total Time Accounting

Employees must account for all hours in the workday — not just billable or direct hours. If an employee works 9 hours, the timesheet must show where all 9 went: 6 on Contract A, 1 in a company meeting (overhead), 1 on a proposal (B&P), 1 on administrative tasks (G&A).

Many commercial time tracking tools only capture billable hours. For DCAA compliance, total time accounting is non-negotiable. The hardest version of this rule shows up not in the policy itself, but in how it interacts with how people actually work.

What we've seen in practice "The hardest scenario is the multi-contract employee: one person working across two or three contracts at different bill rates, plus G&A time. You can't split it evenly. You have to know exactly how much time was spent where — and that starts with the timekeeping system."

— Jordan Glaze — Business Development Specialist/Accountant, Wendroff & Associates, CPA

Identification by Cost Objective

Every hour must be charged to a specific cost objective — either a contract (and within a contract, often a specific CLIN or task) or an indirect pool (Fringe, Overhead, G&A, B&P, IR&D).

Generic time entries don't satisfy DCAA. "Work on government project" isn't enough; the entry must specify which contract. "Meeting" isn't enough; was it a contract meeting (direct), a proposal meeting (B&P), or a company meeting (overhead)?

The cost objectives available to employees should match the company's chart of accounts and class structure. If a contract isn't set up in the system, employees can't charge to it — they shouldn't be able to.

Audit Trail for Changes

When an employee modifies an entry — changes hours, switches the cost objective, deletes a charge — the original entry must remain visible in the audit trail. A compliant system shows: original entry, who changed it, when, and what the new value is.

This is one of the most critical and most commonly missed requirements. Many time tracking tools simply overwrite the previous value. DCAA expects to see the history.

Supervisor Approval

Every timesheet must be reviewed and approved by a supervisor with direct knowledge of the employee's work. The approval must be documented — usually electronically, with a timestamp showing who approved and when.

This isn't a rubber-stamp exercise. The supervisor is certifying that the time recorded reasonably reflects the work performed. If an auditor asks the supervisor about a specific charge and the supervisor can't explain it, that's a finding.

Corrections Process

Errors happen. The question is how you handle them. When a correction is needed on a previously approved timesheet, the period must be formally reopened (documented), the employee makes the correction, the correction goes through the approval process again, the original entries remain in the audit trail.

If journal entries for that period were already posted to the general ledger, a reversing journal entry is required. You create a reversal of the original JE, then create a new JE with the correct amounts. The original is never deleted.

Written Timekeeping Policy

You need a written policy covering when employees must record time (daily), how corrections are handled, who approves timesheets, what time categories exist (direct contracts, overhead, G&A, PTO, etc.), and consequences for inaccurate recording.

Every employee must receive this policy and acknowledge it. During audits, employees may be asked if they're aware of the policy and can describe its basics.

What Happens During a Floor Check

Floor checks are unannounced. An auditor arrives at your office (or contacts remote workers) without warning. Understanding the process removes the anxiety.

They compare timesheets to actual work. The auditor looks at what employees have charged for the current day and verifies it matches reality. If a timesheet shows 4 hours on Contract A but the employee is in an all-company meeting, that's a discrepancy.

They interview employees. Typical questions include: "When did you fill in your timesheet today?" (Correct: "this morning" or "throughout the day." Incorrect: "I do it on Fridays.") "How do you decide which contract to charge?" (Correct: references specific task assignments. Incorrect: "I charge everything to the same one.") "What happens if you make an error?" (Correct: describes the correction process. Incorrect: "I just change it.") "Are you familiar with the timekeeping policy?" (Correct: can describe the basics.)

They review the system. The auditor wants to see how time is recorded, how the audit trail works, and how approvals are documented. A live demonstration of the complete flow is typically what they're looking for.

Labor Distribution: From Hours to Dollars

Timekeeping captures hours. Labor distribution turns those hours into costs charged to contracts and indirect pools. The two are tightly linked — labor distribution is only as accurate as the timekeeping it's based on.

The process: take approved hours for each employee, calculate their hourly rate (salary for the period ÷ total hours worked), multiply hours per cost objective by the rate, and record the results as journal entries in the general ledger.

The math must be penny-precise. When rates don't divide evenly across cost objectives, you need a documented rounding methodology. The total distributed must equal total payroll for the period — no more, no less. Auditors reconcile these totals.

Subcontractor Compliance Posture

Many small contractors operate primarily as subcontractors on cost-type prime contracts. The compliance pressure on subs is often misunderstood: while DCAA rarely audits subcontractors directly, the prime's compliance flows down.

What we've seen in practice "Direct DCAA audits on subcontractors are rare. But the moment your prime is required to be compliant, that requirement flows to you. The right posture is to have the system in place before anyone asks — playing catchup once the request lands is far more expensive than being ready in advance."

— Jordan Glaze — Business Development Specialist/Accountant, Wendroff & Associates, CPA

Software Considerations

DCAA doesn't mandate specific timekeeping software. They evaluate capabilities. The minimum required: contemporaneous recording (timestamps), supervisor approval workflow, audit trail for all changes, identification by cost objective, and integration with payroll/accounting for labor distribution.

Spreadsheet/paper timekeeping: Lacks audit trail and timestamp enforcement. Not recommended for cost-type contracts.

Commercial time trackers (Harvest, Toggl, Clockify): Good for time recording but generally lack DCAA-specific features — immutable audit trails, supervisor approval workflows, labor distribution integration.

DCAA-specific tools (WiseCost, Hour Timesheet, Procas, ICAT): Purpose-built for government contractor timekeeping. Include audit trails, approval workflows, and integration with accounting software for labor distribution.

Enterprise ERPs (Deltek, Unanet): Include timekeeping as part of a comprehensive GovCon platform. Best for larger contractors who need the full suite.

The right choice depends on your size, contract complexity, and how much you're willing to invest. The minimum viable approach for a cost-type contract is a system that timestamps entries, supports approval, and maintains an audit trail. Everything above that is operational efficiency.

Building a Floor-Check-Ready Culture

The contractors who dread floor checks are the ones running on discipline alone. The contractors who don't think twice about them are the ones whose systems enforce compliance by design.

The difference is mechanical. When your system timestamps entries automatically, when timesheets can't be finalized without approval, when the audit log can't be edited — compliance isn't something employees have to remember. It's just how the system works.

Train your team, document your policies, run your system consistently, and a floor check becomes a non-event: the auditor verifies what you already know is in order.

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Want to check whether your timekeeping would survive a floor check? Take our free DCAA Readiness Self-Assessment — 9 questions including the exact timekeeping criteria auditors test.

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Reviewed by Jordan Glaze — Business Development Specialist/Accountant, Wendroff & Associates, CPA.

This guide is part of WiseCost's resource library for government contractors. Visit usewisecost.com →