Why Are Timekeeping Controls Important?

One of the most important ways the government seeks to prevent fraud and loss in their Government Contracts is by ensuring contractor’s understand the requirements to implement and maintain timekeeping controls. Learn how to here.

It is the contractor’s responsibility to ensure that all amounts billed to their government contracts are proper. Labor costs billed must be allowable, allocable, and reasonable.  They must be directly related to the contract being billed. 

To do this, PWCPA recommends contractors take the following steps: 

1. Segregate labor-related responsibilities.  To mitigate the risk of fraud, more than one person should handle the responsibilities of timekeeping, payroll, management, etc. 
2. Ensure labor controls are consistent, easy to understand, and distributed to all employees via established company policies -- violations of controls must have clear-cut consequences that all employees understand.
3. Train employees – they must be aware of timesheet controls and know how to avoid violations.
4. Timesheets must be completed properly** by employees including time, date, and location (those working directly on projects need to understand and record specific contract efforts to specific project codes). 
5. Document changes to approved timesheets - along with the original hours, the revised hours and/or project to be billed, and the reason for the change needs to be written and approved. 
6. Record all hours worked, whether paid or not.  Uncompensated overtime work may become important in determining final contract prices.
7. Hours worked should be certified on each timesheet by the employee that worked them. 
8. Supervisors should review, approve, and co-sign all timesheets before labor costs are billed.
9. Discuss expectations with your government customer to ensure there are no misunderstandings.

**The Defense Contract Auditors may perform a “Labor Floor Check” on labor hour contracts and time and material (T&M) contracts. These are unannounced on-site visits by federal auditors to see if work is actually being performed if the jobs workers are performing are in the correct classification, and to see if time is being recorded daily and charged appropriately.  Auditors may also perform interviews with some of the employees to discuss what they are currently and have worked on recently, to determine the risk of fraud occurring with the number of hours being charged.  

Manipulating charges to a contract may be subject to criminal charges under 18 United States Code (U.S.C.) 1001 - and those who may be held liable for this fraud are the employee themselves, their supervisor, their manager, and their company. There does not have to be a direct contractual relationship between the government and the employee for the employee to be held liable. 

Got government contract accounting questions? Need expert help? Call Peter Witts CPA PC. With 20+ years of experience, we've got you covered!

I’m Kristin, the PWCPA PC Customer Success Specialist. For more information about this topic, or any other, you can always reach me through our customer ticketing system.