First: DCAA does not approve timekeeping software
There is no DCAA-approved timekeeping product. DCAA's own small-business guidance explains that an accounting system is more than a software package: it also includes the contractor's accounting methods, procedures, and controls. A federal entity—not a software vendor—requests the audit used to evaluate whether a contractor's system is acceptable for the work in question.
That distinction matters. Software can enforce and document a process, but it cannot write an appropriate company policy, train employees, supervise their conduct, or make the rest of an accounting system adequate. Treat claims such as “DCAA approved” or “automatic DCAA compliance” as warning signs.
The 10-control DCAA timekeeping checklist
DCAA Manual 7641.90 describes the internal controls contractors should build around labor charging and timesheet preparation. In practical terms, a small contractor should be able to answer yes to each of these questions and produce evidence that the control works in daily operations.
- Written procedures explain how employees prepare timesheets, choose charge codes, make corrections, certify periods, and handle exceptions.
- Each employee records their own time at least daily, with defined procedures for offsite or secure locations where daily system access is not possible.
- The nature of the work performed—not available funding, contract type, or a desired budget result—determines where time is charged.
- Employees can refer to a current list of project, contract, and indirect identifiers and their descriptions.
- All hours worked are recorded, whether paid or unpaid, so labor and related indirect-cost calculations use complete time.
- A supervisor does not prepare an employee's timesheet except under a documented, limited absence procedure.
- Every correction identifies the original charge and corrected charge and documents the employee's concurrence.
- At the end of the period, the employee certifies the recorded hours and cost objectives, and the supervisor approves the timesheet.
- Responsibilities are separated where practicable, especially timekeeping from payroll and employee entry from budget-accountable supervision.
- Labor distribution records assign hours and dollars to the correct direct and indirect cost objectives and reconcile with payroll and cost-accumulation records.
1. Put the process in writing and train people on it
The DCAA manual calls for detailed timesheet-preparation instructions in a timekeeping manual or company procedure. The policy should be specific enough that an employee knows when to enter time, how to select a code, how to correct a mistake, what “all hours worked” means, and who reviews the finished period.
Training should cover the reason for each control as well as the clicks. Include timekeeping in onboarding, retain evidence of attendance, and provide refreshers when policies or systems change. A signed policy with no evidence of daily use is a weak control.
2. Make time entry daily and employee-owned
Employees should record their time on a daily basis. DCAA also makes the individual employee the key link in a sound labor-charging system. In normal circumstances, the employee—not a manager, administrator, or payroll clerk—should create the time charge.
Daily does not necessarily mean using a punch clock or entering time to the minute. It means the employee records the hours worked against the correct cost objectives while the work is current. If an employee cannot access the system daily because of an offsite, secure-facility, or similar constraint, document an alternate procedure that reduces mischarging risk.
3. Let the work performed determine the charge code
A labor-charging policy should say plainly that the work performed determines the proper distribution of time. Employees should never move time because a project is out of budget, a CLIN is nearly exhausted, or another code has more funding available.
Give employees a maintained list of project numbers, contract identifiers, and indirect codes with useful descriptions. Restricting each person to authorized codes is a helpful software control, but the official criterion is broader: employees need accurate work-authorization information and must charge the cost objective that reflects the work actually performed.
4. Record all hours worked
DCAA's contractor guidance says all hours worked should be recorded, whether paid or unpaid. Complete time matters because total hours affect labor-rate computations and the allocation of related overhead costs, including uncompensated overtime considerations.
A timesheet that captures only billable hours is therefore not enough for a labor-charging system. Employees need appropriate direct and indirect codes for the whole workday, and managers need a reliable way to identify incomplete days before a period closes.
5. Preserve corrections and employee concurrence
Corrections should not overwrite the original record without a trace. The procedure should identify the original time charge, the corrected charge, and evidence that the employee agrees with the change. For an electronic system, retaining the reason, actor, and timestamp creates a clearer audit trail around that official criterion.
A practical workflow routes a post-submission change back to the employee for recertification and then to the supervisor for reapproval. Period locking can help prevent silent edits after close, but a lock is a supporting control—not a substitute for a documented correction process.
6. Separate employee certification from supervisor approval
At the end of each work period, the employee should certify that the timesheet reflects the hours worked and the appropriate cost objectives. The supervisor should then approve and cosign it. These are two distinct attestations, even when both occur electronically.
Approval should confirm more than a total-hour number. The reviewer needs enough context to spot missing days, unusual charge codes, changes after submission, and work that does not align with the employee's authorization or assignment.
7. Reconcile time, payroll, and labor distribution
Timekeeping records hours. Labor distribution applies the related labor dollars to direct and indirect cost objectives. DCAA treats the two as interconnected: labor distribution should document hours and dollars by employee and job or indirect account, then reconcile to payroll and the contractor's cost-accumulation records.
This is why a clean timesheet application is only one part of an adequate accounting system. SF 1408 also addresses direct-versus-indirect cost segregation, general-ledger control, cost accumulation by contract, at-least-monthly posting, exclusion of unallowable costs, and other criteria outside the scope of timekeeping software.
8. Be ready to demonstrate the process during a floor check
A DCAA labor floor check may be unannounced. Auditors can observe employees, ask what they are working on and how they record time, review company procedures, trace labor charges to contract requirements, and reconcile observations with payroll records.
Prepare by testing the control before an auditor does. Select a few employees, compare today's work with today's charges and authorizations, ask them to explain the correction process, and trace a completed period through certification, approval, labor distribution, and payroll. Record gaps and corrective action rather than coaching employees to memorize scripted answers.
A practical rollout order for a small contractor
Do not wait for a floor check to discover whether the workflow works. A small contractor approaching its first cost-reimbursement, T&M, or labor-hour contract can stage the rollout while keeping the control objectives intact.
- Define direct and indirect codes and assign an owner for work authorization.
- Approve a written timekeeping and labor-charging policy.
- Train every employee and manager before the first live period.
- Require employee-owned daily entry and complete-time recording.
- Run employee certification and supervisor approval on a fixed cadence.
- Test corrections, including recertification and reapproval after a change.
- Reconcile the first labor distribution report with timesheets and payroll.
- Run a mock floor check and document the corrective actions.
What software should prove—and what it cannot prove
Useful software should help you retrieve the original timecard, correction history, employee certification, supervisor approval, work-code authorization, and labor-distribution evidence for a selected period. It should make a silent retroactive change difficult and an authorized correction visible.
Software cannot prove that employees recorded the work accurately, that managers enforced the policy, that your indirect-rate structure is appropriate, or that the complete accounting system satisfies every applicable contract term. Use the checklist as an operational starting point, then review your specific contracts and accounting design with qualified GovCon accounting or legal advisers where needed.