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If you’ve been around GovCon long enough, you’ve heard it: timekeeping is the fastest way to fail an audit.
That’s not because auditors expect perfection—it’s because labor is often the largest cost on Government contracts, and weak timekeeping controls create risk of labor mischarging. DCAA’s own contractor guidance emphasizes that your labor charging system must properly identify labor by cost objective and maintain controls and documentation to support compliance.
This post breaks down the most common timekeeping and labor compliance red flags that raise DCAA concern—and the practical fixes that keep your labor charging defensible.
Why timekeeping is such a big deal in DCAA audits
DCAA labor-focused audits (including MAAR 6 “floor checks”) are designed to evaluate timekeeping internal controls and the accuracy of labor charges to contracts.
What that means in plain English
Auditors want to see that:
- People charge time to the right cost objective
- Time is recorded timely and accurately
- Changes are controlled and documented
- Labor dollars trace cleanly: timekeeping → payroll → labor distribution → job cost → general ledger
Timekeeping & labor compliance red flags (and how to fix each one)
1) Late time entry or “reconstructed” timesheets
When employees enter time days later (or “fix it Friday”), accuracy becomes subjective—especially across multiple charge codes.
Red flag indicators
- Timesheets filled out weekly from calendars/emails
- Large blocks of time copied day-to-day
- “Catch-up” entries right before payroll approval
How to avoid it
- Require daily time entry (or a clearly documented cadence you enforce)
- Train supervisors to reject late timesheets (consistency matters)
- Run a monthly exception report: late entries, missing approvals, edits after approval
2) Timesheet corrections with no documentation (or edited by the wrong person)
DCAA expects controls that protect the integrity of labor charging and maintain documentation that supports compliance.
Red flag indicators
- Time changed without an explanation
- Admin edits employee time without employee confirmation
- Retroactive “cleanups” that conveniently move hours to funded CLINs
How to avoid it
- Require a time correction form/log with:
- what changed, why, who approved, and date
- Restrict edit permissions (role-based access)
- Require employee acknowledgment for corrections (especially in electronic systems)
3) Weak supervisor approvals (rubber-stamping)
Approvals only work if someone is actually reviewing for reasonableness and accuracy.
Red flag indicators
- Approvals done days/weeks late
- Approver has no knowledge of work performed
- No evidence of review beyond a checkbox
How to avoid it
- Define approval standards: what supervisors must check (codes, hours, leave)
- Enforce approval deadlines tied to payroll cutoff
- Spot-check approvals against project schedules and deliverables
4) Employees don’t understand charge codes or indirect time categories
MAAR 6/floor check activity includes interviewing employees and evaluating timekeeping internal control procedures.
Red flag indicators
- Different employees describe different rules
- Confusion about “overhead vs. G&A vs. admin”
- Employees ask “which code should I use?” after the fact
How to avoid it
- Create a one-page “How we charge time” guide with examples:
- direct contract work
- bid & proposal / business development (if applicable)
- training
- PTO/holiday
- meetings/admin
- Train at onboarding and refresh quarterly (short and practical)
5) Uncompensated overtime not addressed (where applicable)
For salaried employees, contractors need a consistent approach for handling overtime expectations and the relationship between hours worked and labor charging (this often intersects with labor distribution and rate calculations).
Red flag indicators
- Employees regularly work 50–60 hours but only record 40
- Overtime hours are tracked informally (Slack/email) but not in the time system
- Labor dollars don’t align with hours charged
How to avoid it
- Document your policy (and apply it consistently)
- Ensure labor distribution methodology matches your compensation practices
- Keep clear support showing how hours translate to labor costs in your system
6) Labor distribution doesn’t reconcile to payroll and the GL
This is one of the most “technical” issues that becomes a real audit problem fast. DCAA resources emphasize that labor distribution should reconcile to payroll and trace to/from the job cost ledger and the general ledger.
Red flag indicators
- Timekeeping report totals don’t match payroll hours/costs
- Labor distribution is “massaged” in spreadsheets
- Job cost doesn’t tie to the GL without manual rework
How to avoid it
- Monthly tie-out checklist:
- timekeeping hours → payroll registers
- payroll dollars → labor distribution
- labor distribution → job cost
- job cost → general ledger
- Save the tie-out evidence (not just the final report)
7) Charging patterns that look like funding management (instead of actual work)
Auditors get concerned when charging appears driven by funding status rather than actual labor performed.
Red flag indicators
- Sudden shifts near end of month or period of performance
- Frequent transfers between charge codes without narrative support
- High volume of “misc” or “holding” codes
How to avoid it
- Require narratives for transfers, especially between contracts
- Enforce charge code governance: who creates codes, who closes them, and why
- Keep project managers involved in validating coding logic
8) Floor check readiness gaps
DCAA describes floor checks (MAAR 6) as procedures that can include observing employees and interviewing them to verify employee existence, evaluate timekeeping controls, and evaluate accuracy of labor hour charges to contracts.
Red flag indicators
- No one knows where policies are stored
- Employees have never been trained on timekeeping rules
- Supervisors can’t explain correction/approval requirements
How to avoid it
- Keep a “Floor Check Ready” folder:
- timekeeping policy + training records
- correction log template + examples
- current org chart and project roster
- sample labor distribution tie-out package
- Do a quarterly “mock interview” with 3–5 employees (5 minutes each)
FAQs: Timekeeping & labor compliance (DCAA)
What is a DCAA floor check?
A floor check (MAAR 6) is a DCAA labor-related procedure that may involve observing employees and interviewing them to evaluate timekeeping controls and the accuracy of labor charges to contracts.
What’s the biggest timekeeping red flag?
Late or reconstructed time entries—especially when paired with undocumented corrections and weak approvals.
What should we keep as proof for labor compliance?
At minimum: timekeeping policy, training/acknowledgments, approved timesheets, correction logs, payroll registers, and reconciliation/tie-out support showing traceability to the GL.
Key takeaways
- DCAA scrutinizes timekeeping because labor is material—and MAAR 6 “floor checks” evaluate timekeeping controls and labor charge accuracy.
- The biggest red flags are late time entry, undocumented corrections, weak approvals, and poor employee training.
- Your labor system should trace cleanly: timekeeping → payroll → labor distribution → job cost → general ledger.
If you want to reduce audit risk and prevent timekeeping findings, VSINGH CPA can help you implement practical labor controls—policies, training, correction workflows, and reconciliation packages that hold up under DCAA scrutiny.
👉 Check out our YouTube Shorts for quick GovCon Essentials: https://youtube.com/shorts/RxPdv6gWD6E
What’s next in the DCAA Audit Readiness Series
✅ DCAA Audit Readiness Series #1: What Triggers a DCAA Audit? ✅
✅ DCAA Audit Readiness Series #2: Pre-Audit Readiness Checklist for GovCons ✅
✅ DCAA Audit Readiness Series #3: Common DCAA Findings (and How to Avoid Them) ✅
✅ DCAA Audit Readiness Series #4: Timekeeping & Labor Compliance Red Flags ✅
5️⃣ DCAA Audit Readiness Series #5: Indirect Rates Under Audit Scrutiny
6️⃣ DCAA Audit Readiness Series #6: How to Respond to DCAA Requests
7️⃣ DCAA Audit Readiness Series #7: Audit Outcomes: Pass, Deficiency, or Corrective Action
8️⃣ DCAA Audit Readiness Series #8: What Happens After the Audit?