DCAA Compliant Time Tracking Guide

If you hold federal government contracts, your timekeeping system is one of the first things DCAA auditors will examine. The Defense Contract Audit Agency reviews contractor billing practices to ensure taxpayer dollars are spent properly — and labor costs, tracked through your timekeeping system, are typically the largest expense on cost-reimbursable contracts.

Here is what DCAA compliance actually requires, where contractors most commonly fall short, and how to build a system that withstands scrutiny.

What is DCAA compliant time tracking?

What is the DCAA?

The Defense Contract Audit Agency is a Department of Defense agency that audits contractors working with the federal government. While "DCAA" refers specifically to defense contracts, the timekeeping standards it enforces align with the Federal Acquisition Regulation (FAR) and apply broadly to government contractors across agencies.

Why timekeeping matters for government contractors

Most government contracts — particularly cost-plus and time-and-materials contracts — reimburse contractors based on actual costs incurred. Labor is usually the largest cost category. The government pays you based on how your employees allocate their time across contracts.

If your timekeeping is inaccurate, the government overpays (fraud risk) or underpays (revenue loss). If your timekeeping system lacks proper controls, auditors cannot verify that your charges are accurate — and they will assume the worst.

What "DCAA compliant" actually means

This is the most important clarification in this entire guide: The DCAA does not certify or approve timekeeping software. No software product is "DCAA certified" or "DCAA approved." Any vendor claiming DCAA certification is misleading you.

DCAA compliance is a property of your timekeeping system — the combination of software, written policies, employee training, management oversight, and internal controls. The software is one component. You could use compliant software with non-compliant policies and fail an audit. You could use a basic tool with strong policies and processes and pass.

The question is not "is this software DCAA compliant?" It is "does my timekeeping system, including this software, meet DCAA requirements?"

DCAA timekeeping requirements

Daily time recording by the employee

Employees must record their own time daily, as work is performed. This means:

• No batch entry at the end of the week
• No supervisor recording time on behalf of employees
• No copying last week's time entries into this week
• Each employee is individually responsible for the accuracy of their own timesheet

The daily recording requirement is non-negotiable. Auditors test for it specifically, and "entering time every Friday for the whole week" will fail.

Accurate allocation to contracts and projects

Hours must be charged to the correct contract, task order, or indirect cost pool. The major cost categories include:

• Direct costs: Hours billed to a specific contract or task order
• Overhead: Indirect costs associated with running the business (rent, admin, IT)
• General and Administrative (G&A): Costs that benefit the entire organization
• Bid and Proposal (B&P): Time spent preparing proposals for new contracts
• Independent Research and Development (IR&D): Self-funded R&D efforts

Mischarging — even unintentional — is the single most common DCAA audit finding. An employee who works 4 hours on Contract A and 4 hours on Contract B but records all 8 hours to Contract A (because it is easier to track one charge code) has mischarged the government.

Supervisor review and approval

Timesheets must be reviewed and approved by a supervisor with knowledge of the work performed. The approval certifies that the hours recorded are reasonable given the work output. Requirements:

• Approvals must be documented (signed, electronically approved, or otherwise recorded)
• Approvals must be timely (within the same pay period or shortly after)
• The approver must have visibility into the actual work — rubber-stamping without review is insufficient

Audit trail and record retention

Every change to a time record must be logged with:

• The original entry
• The corrected entry
• The date and time of the correction
• The reason for the correction
• Who made the correction

Records must be retained for a minimum of 3 years after final payment on the contract (per FAR requirements). Many contractors retain records longer as a precaution.

Separation of direct and indirect costs

Time must be clearly and accurately allocated between direct charges (billable to specific contracts) and indirect charges (overhead, G&A, B&P, IR&D).

The preferred method is Total Time Accounting: all employee hours in a day are accounted for, not just billable hours. If an employee works 8 hours and charges 6 to a contract, the remaining 2 hours must be allocated to an indirect category — they cannot simply vanish.

Controls against unauthorized changes

The system must prevent unauthorized modifications to time records:

• Employees should not be able to alter timesheets after supervisor approval without a formal correction process
• Supervisors should not be able to change employee time entries without the employee's knowledge
• System access should be role-based (employees can enter time, supervisors can approve, administrators can configure)

Common DCAA audit findings

Floor checks

DCAA auditors conduct unannounced floor checks — visiting the work site to verify that employees present are working on the contracts they are charging time to. The auditor will compare what employees say they are working on against what their timesheets show.

For remote workers, floor checks may take the form of phone calls, video interviews, or review of activity data. Having a system that captures evidence of actual work (such as periodic screenshots or activity logs) strengthens your position.

Timekeeping system reviews

Auditors evaluate whether your timekeeping system supports all six requirements listed above. They look at:

• Software capabilities (daily entry, audit trail, approval workflow)
• Written policies and procedures
• Employee training records
• A sample of actual timesheets for completeness and accuracy
• Correction logs for proper documentation

Most common deficiencies

Based on published DCAA audit findings, the most frequent timekeeping problems are:

1. Batch time entry. Employees enter all time at the end of the week or month instead of daily.
2. Missing audit trails. Corrections are made without documenting the original entry, the change, or the reason.
3. No supervisor approval. Timesheets are submitted directly to payroll without management review.
4. Inadequate cost allocation. Time is not properly separated between direct contracts and indirect pools.
5. Time recorded by someone other than the employee. Supervisors or assistants enter time for employees.

How to build a DCAA compliant timekeeping system

Establish written timekeeping policies

The written policy is what auditors review first. It should cover:

• How and when employees record time (daily, by the individual)
• Charge code structure and how to select the correct code
• Supervisor approval process and timeline
• How to correct errors (formal process with documentation)
• Training requirements (annual refresher recommended)
• Consequences for non-compliance

Choose software that supports DCAA requirements

The software should provide:

• Daily time entry with date stamps showing when entries were made
• Project and task allocation allowing employees to split time across multiple charge codes
• Supervisor approval workflow with documented approvals
• Complete audit trail logging all entries, changes, and approvals with timestamps
• Access controls separating employee, supervisor, and administrator roles
• Reporting for audit preparation and incurred cost submissions

Train employees on proper timekeeping

Annual training is a best practice that many successful contractors follow. Training should cover:

• How to record time daily (not weekly)
• How to allocate time correctly across charge codes
• The correction process when errors occur
• What happens during a DCAA audit (floor checks, timesheet sampling)
• Consequences of mischarging

Conduct internal reviews

Periodic self-audits catch problems before the DCAA does. Review a sample of timesheets for:

• Daily entry compliance (are entries made each day or batched?)
• Proper charge code allocation
• Timely supervisor approvals
• Correct handling of corrections
• Completeness (all hours accounted for, including indirect time)

How HiveDesk supports DCAA timekeeping requirements

HiveDesk provides the time tracking infrastructure that supports a DCAA-compliant system. Here is how the features map to requirements:

The screenshot feature deserves special mention. For remote government contractors, periodic screenshots serve as a digital equivalent of a floor check — providing evidence that the employee was working on the charged project during the recorded hours.

Important: HiveDesk provides the time tracking tool. A compliant system also requires written policies, employee training, management oversight, and internal controls. No software alone makes you DCAA compliant.

HiveDesk vs. specialized government contractor tools

If you are evaluating time tracking for DCAA compliance, you should know the landscape:

Full government contractor ERP systems like Unanet, Deltek Costpoint, and JAMIS Prime provide integrated timekeeping, accounting, project management, and contract management. They are purpose-built for government contractors and include features like incurred cost submission preparation, indirect rate management, and contract billing.

These systems typically cost $50-$150+ per user per month and require significant implementation effort. They are the right choice for mid-size to large contractors who need the full cost accounting and contract management stack.

HiveDesk is a focused time tracking tool at $5/user/month. It provides the timekeeping layer — daily time recording, project allocation, approvals, screenshots, and reporting — without the full ERP.

HiveDesk is best suited for:

• Small government contractors (under 50 employees) who need compliant timekeeping without the overhead of enterprise software
• Subcontractors who need to track and report time to a prime contractor
• Companies where the primary DCAA concern is timekeeping accuracy (not full cost accounting or indirect rate management)

If you need cost accounting, contract billing, and indirect rate management in addition to timekeeping, evaluate the purpose-built tools. If you need solid, auditable time tracking at a fraction of the cost, HiveDesk is worth considering.

Frequently asked questions

Does the DCAA approve specific timekeeping software?

No. The DCAA does not certify, approve, or endorse any timekeeping software. Compliance depends on your entire system — software, policies, training, and controls. Any vendor claiming "DCAA certified" status is misleading you.

Can I use spreadsheets for DCAA timekeeping?

Technically yes, but it is risky. Spreadsheets can meet DCAA requirements if they include daily entries, proper cost allocation, supervisor approvals, and audit trails. In practice, spreadsheets lack the access controls, automatic audit logging, and workflow enforcement that dedicated software provides. Most DCAA auditors will scrutinize spreadsheet-based systems more closely.

How often do DCAA audits happen?

Frequency varies by contract value, contractor risk profile, and agency. Floor checks can happen at any time without advance notice. Full timekeeping system reviews typically occur during incurred cost audits, which may happen annually or less frequently. New contractors or those with prior audit findings receive more attention.

What happens if I fail a DCAA timekeeping audit?

Consequences range from questioned costs (the government refuses to pay for improperly tracked hours) to suspension or debarment (you lose the ability to hold government contracts). The severity depends on whether the deficiency was systematic, intentional, or a minor procedural gap. Most first-time findings result in corrective action requirements rather than contract termination, but the disruption and cost of remediation are significant.

Do subcontractors need DCAA compliant timekeeping?

If you are a subcontractor on a cost-reimbursable government contract, your timekeeping is subject to DCAA review. Prime contractors are responsible for ensuring their subcontractors' costs are properly supported, and DCAA can audit subcontractors directly. The same requirements apply.

DCAA compliance is not just about software — it is about building a system of policies, training, and controls that ensures every hour is accurately recorded and properly allocated. The software is the tool that makes it practical.

HiveDesk provides the time tracking foundation at $5/user/month, with all features included. Start a 14-day free trial or request a demo to see how it works for government contractor timekeeping.