Understanding DCAA Compliance

The Defense Contract Audit Agency (DCAA) performs contract audits for the Department of Defense and provides accounting and financial advisory services regarding contracts and subcontracts. For government contractors, DCAA compliance isn't just recommended—it's mandatory for maintaining eligibility for government contracts.

The Foundation of DCAA Compliance

DCAA compliance rests on several fundamental principles that every government contractor must understand and implement:

• Accurate Time Recording: All labor hours must be recorded accurately and contemporaneously
• Proper Cost Allocation: Costs must be properly allocated to contracts, tasks, and cost objectives
• Audit Trail Maintenance: Complete documentation must be maintained for all transactions
• System Security: Time tracking systems must prevent unauthorized changes
• Regular Reviews: Periodic reviews and certifications of time records are required

The Daily Time Entry Requirement

The daily time entry requirement stems from Federal Acquisition Regulation (FAR) 52.222-2, which mandates that time must be recorded on the same day the work is performed. This ensures:

1. Accuracy of time records (memory fades quickly)
2. Prevention of time shifting between contracts
3. Real-time project cost monitoring
4. Reduced risk of fraud or unintentional errors

Key DCAA Requirements

What DCAA Auditors Actually Look For

During a DCAA audit, auditors focus on specific areas to ensure compliance. Understanding these focus areas helps contractors prepare effectively:

Special Considerations for 8(a) Contractors

Small disadvantaged businesses in the 8(a) program face unique challenges with DCAA compliance. While the requirements are the same, 8(a) contractors often have limited resources for compliance infrastructure.

Key Challenges for 8(a) Contractors:

• Limited administrative staff to manage compliance
• Rapid growth requiring scalable solutions
• Need for cost-effective compliance tools
• Requirement to maintain compliance during transition

Common Compliance Failures and Their Consequences

Most Common Failures:

1. Weekly Time Entry: Recording time weekly instead of daily
2. Supervisor Entry: Supervisors entering time for employees
3. No Audit Trail: Systems that don't track changes
4. Missing Approvals: Lack of documented supervisor review
5. Poor Documentation: Missing policies or training records

Best Practices for Maintaining Compliance

1. Choose the Right System

Select a timekeeping system specifically designed for DCAA compliance. Generic time tracking tools often lack critical features like proper audit trails and approval workflows.

2. Train Continuously

Conduct regular training sessions for all employees. Document attendance and maintain training materials. New employees should receive training before entering their first timesheet.

3. Monitor Daily

Implement daily monitoring of time entry compliance. Identify and address issues immediately rather than waiting for month-end reviews.

4. Document Everything

Maintain comprehensive documentation of all policies, procedures, training, and corrections. DCAA auditors will request this documentation.

5. Conduct Internal Audits

Regular internal audits help identify and correct issues before DCAA reviews. Use DCAA's own audit checklists as guides.

Preparing for a DCAA Audit

When DCAA schedules an audit, preparation is critical. Follow these steps:

1. Gather Documentation: Compile all policies, procedures, and training records
2. Review Recent Timesheets: Check for compliance issues in recent months
3. Test System Controls: Verify audit trails and approval workflows are functioning
4. Brief Employees: Remind staff of proper procedures and what to expect
5. Prepare Reports: Generate standard DCAA reports from your system
6. Designate Point of Contact: Assign knowledgeable staff to interface with auditors

Recommended Implementation Timeline