Timekeeping Compliance

Every other cost on a government contract leaves a paper trail generated by someone outside the company. Materials have a vendor invoice. Travel has an airline receipt. Subcontracts have a counterparty with its own records. Labor has a person typing a number into a field. It is the largest cost on most contracts and the one with the thinnest independent corroboration, and that asymmetry explains essentially everything about how the government approaches it.

Total Time Accounting

The foundational principle is that employees record all hours worked, not merely the hours billable to a contract. Time spent on proposals, on internal administration, on training, on paid leave — all of it is captured and coded to the appropriate cost objective, whether that objective is a contract, an indirect account, or an unallowable account.

The reason is arithmetic rather than philosophical. Indirect rates are ratios of pool to base. If an employee works fifty hours and records only the forty that were billable, the ten uncaptured hours do not simply disappear — they distort the labor distribution, which distorts the allocation base, which distorts every rate that base drives. A company with widespread uncompensated overtime that is not recorded is not merely undercharging its contracts. It is misstating its rate structure.

The Rules That Matter Daily

The recurring expectations are few and specific:

• The employee records their own time. Not an administrator, not a supervisor, not a program manager working from a schedule. The person who performed the work.
• Time is recorded contemporaneously. Daily. Not reconstructed at the end of the pay period from memory or from a calendar.
• Corrections are documented. A change requires a record of what changed, who changed it, and why. In a paper environment this means the original entry remains legible with the correction initialed; in an electronic system it means an audit trail that cannot be silently overwritten.
• Supervisors approve substantively. Approval represents knowledge that the employee performed the work as charged, not a bulk action taken on Friday afternoon across forty timesheets.
• Charge codes are controlled. Employees can only charge to cost objectives they are authorized for, and the authorization is maintained as assignments change.
• Everyone is trained, and it is documented. Including executives, who are frequently the least compliant population in the company.

What a Floor Check Is

A floor check is an unannounced visit in which an auditor selects employees and tests labor charging directly. The auditor may ask what contract the employee is working on right now, what charge code they are using, when they last recorded time, whether anyone has ever instructed them to charge to a particular code, and whether they understand the correction procedure.

This is a test of practice, not of policy. The written timekeeping policy is not the subject of the examination. What the auditor is establishing is whether the behavior described in the policy is the behavior actually occurring, and the gap between the two is the finding.

The failures that surface are consistent across companies:

• Employees who do not know which contract they are charging to
• Time filled in for the whole week on the last day
• A supervisor or administrator entering time on behalf of employees
• Corrections overwritten with no trail and no explanation
• Employees who report being told to charge available funding rather than the work performed
• Executives who do not complete timesheets at all, leaving their effort unallocated between direct, indirect, and unallowable

Remote and hybrid work has made this harder rather than easier, and the practical response has been more emphasis on system audit trails and documented supervisory review, since physical observation is no longer available as corroboration.

The Line Between a Finding and a Case

This deserves stating plainly, because it is the reason timekeeping is treated with more gravity than other control areas.

Sloppy timekeeping is a compliance deficiency. It produces findings, remediation requirements, and potentially system-level consequences including withholding under the DoD business systems framework.

Timekeeping that systematically charges labor to contracts where the work was not performed — charging to the contract that has funding rather than the contract that received the effort — is mischarging. Where it is knowing, it is not a compliance matter at all. It is false claims exposure, with civil and potentially criminal dimensions, and it attaches to individuals as well as to the company.

The distance between the two is smaller than contractors assume. A control environment that tolerates supervisor-entered time, undocumented corrections, and pressure to charge available funding has removed most of the barriers that keep the first from becoming the second. This is why auditors treat weak timekeeping controls as serious rather than administrative, and why boards should as well.

What This Costs in a Transaction

Buyers examine timekeeping controls for the same reason auditors do, with an additional concern: successor liability. False claims exposure arising from pre-closing conduct does not evaporate at closing, and the structuring around it — representations, specific indemnities, escrow, occasionally a shift from stock to asset purchase — is expensive and slow to negotiate.

Diligence will typically ask for the timekeeping policy, evidence of training completion, a sample of timesheets with correction trails, the most recent floor check results and any resulting corrective action, and evidence of executive compliance. A contractor that can produce all of that quickly is signaling something about its whole control environment. A contractor that produces a policy and nothing else is signaling something too.

The remediation is unglamorous and mostly free: implement a system with a real audit trail, train everyone including the executive team, require daily entry, make supervisory approval mean something, and run internal floor checks periodically so that the first unannounced test is not the government's. What it costs is management attention, applied consistently, which is exactly why it is so frequently deferred.