What is a Floor Check Audit?
Labor is among the largest contract cost recorded to Government contracts. In many cases, they are the most significant; therefore, the Government invests significant efforts to monitoring these costs and auditing them.
A floor check is DCAA’s method of “…verifying the existence of employees…” and determining whether adequate timekeeping practices and controls related to timekeeping are in place and working properly. The purpose is to ensure that employees are at work, performing the assigned job classification and time (labor) charged to the proper cost objective.
Two Quick Ways to Fail
DCAA Timekeeping Requirements
The federal government is the biggest purchaser of goods and services, so it’s important that you have a good grip on your accounting practices. Inadequate recordkeeping can lead to low rankings in an audit or even worse: loss of contract.
It doesn’t matter what sector you specialize in, if there are any complications with compliance when they go for their yearly DCAA audit, then all bets are off! No written timekeeping policy and procedure is considered a significant timekeeping deficiency. If the policy and procedures are not in writing, it cannot be assumed that employees will comply.
DCAA will audit training content and documented attendance. DCAA’s position, as in other cost accounting practices, is that “if it isn’t documented, it didn’t happen.”
Are Floor Check Audits Going Virtual?
In the current environment with an increase in Work at Home (WAH) employees, will DCAA conduct virtual floor checks? It is possible, but this approach has its own set of challenges.
A virtual floor check, (or floor checks by phone), somewhat diminishes DCAA’s approach to floor checks. Floor checks are intended to be unannounced in order to interview an “uncoached” employee. Likely, virtual comprehensive floor check audits under the current increase in WAH activity, will be minimal.
However, even under normal floor check audit circumstances, DCAA provides guidance to auditors regarding remote employees. The guidance includes, among other things, a phone call to the off-site employee to verify existence. WAH occurrences do compel a contractor to develop additional documented timekeeping policies related particularly to WAH programs.
An adequate WAH policy and procedure includes, as a minimum:
- A contract between the employee and the contractor outlining expectations.
- Documented evidence of performed work and it’s documented review.
- The requirement for the employee and supervisor to meet periodically at the contractor work-site.
DCAA Floor Check Interview Objectives
There are many floor check questions that the DCAA auditor may ask an employee. The following are subject matter areas that represent critical timekeeping internal controls.
DCAA Timesheet Compliance
The timesheet compliance process is essential for any company to be able to produce and distribute accurate reports in a timely fashion. This will help ensure each client receives the correct billable hours from your business while also ensuring there are no issues with payments due.
Does the employee have sole control over the physical or digital timesheet and enter his or her own hours? The expectation is that no one besides the employee can enter or alter time worked on any charge code.
Employee timesheet changes are not prohibited. However, the expectation is that both the employee and the supervisor agree that the changes are appropriate. Timesheet changes should include a reason for the change and both the employee and supervisor’s signature authorizing the change.
Employee Awareness of Work Being Performed
Is the work being performed by the employee consistent with the charge code being used in the timekeeping system? Has the scope of work and related charge code has been fully conveyed to the employee?
Does the employee have the appropriate education and experience to meet contractual, or otherwise reasonable experience expectations? This background step can occur prior to floor checks or interviews.
Employees are expected to record time daily, if not more often, to avoid inaccurate time recording.
Total Time Accounting
This inquiry aims to determine how an employee records overtime, which will be evaluated for consistency in costs (overtime). It also helps the auditor to determine if Total Time Accounting is used. This approach dilutes an exempt employee’s labor rate in the accounting system when he or she worked in excess of 40 hours in a week.
This inquiry is intended to confirm that the employee has participated in timekeeping training.
Another Floor Check Consideration
DCAA instructs its auditors to have a contractor representative accompany them on a floor check. We recommend that this person is a subject matter expert (SME) for the department in which the employee works. The auditor will likely not allow the SME to engage in the conversation between the auditor and employee. However, a later conversation between the auditor and the SME may clarify items which may have been initially misunderstood.
It is important to educate employees on the basics of timekeeping, DCAA timekeeping requirements, and what to expect during a floor check. The policies and procedures of clocking in are critically important for employees to remember. The consequences can be fines or jail time if they’re not careful!
- What is the primary purpose of a DCAA floor check?
- Who is responsible for performing floor checks?
- When do floor checks typically occur?
- What common questions may be asked?
A basic overview of what to expect during a floor check can make a difference in the audit outcome.
Floor Check Cheat Sheet for Employees
The Top Frequently Asked Questions – Floor Check FAQs
DCAA compliance requirements, found in DCAA’s Audit Programs, are available in detail online along with the DCAA Contract Audit Manual (DCAAM). Additional timekeeping requirements are included in the Federal Acquisition Regulation (FAR), Defense Federal Acquisition Regulation Supplement (DFARS) and other agency supplements.
To ensure compliance and the best results from a floor check audit, employees need to have an understanding of the requirements.
What does DCAA stand for?
The Defense Contract Audit Agency (DCAA) is the audit arm for the U.S. Department of Defense and is also used by other government agencies.
What is the purpose of a floor check audit?
A floor check audit is DCAA’s primary method for validating the existence of employees. It also allows an auditor to confirm that adequate timekeeping practices are in place and operating properly and test the reliability of employee time entries. A floor check audit is not a DCAA rate check and does not result in DCAA approved labor rates.
When do floor checks typically occur?
Floor checks are unannounced and can occur at any time while a contractor is actively performing work on a Government contract.
What occurs during a DCAA floor check?
As part of a floor check, DCAA will:
- Review a Contractor’s timekeeping policy;
- Sample a list of employees from a Contractor provided roster;
- Interview sampled employees to ask questions relative to timekeeping practices and the nature of the work he/she performs; and
- Reconcile the information received against the contractor’s internal controls, policies and procedures, and labor distribution.
What is necessary to satisfy DCAA timekeeping requirements?
Adequate timekeeping practices involve multiple aspects of compliance. A few of the basic requirements include:
- A documented time tracking policy
- Daily recording of all hours worked (total time accounting)
- Employee input of his/her own hours
- Assignment to appropriate charge codes based on work performed
- Manager review prior to approving timesheets
- Employee training on timekeeping policies and procedures
What common questions may be asked?
- Have you participated in timekeeping training?
- Do you enter your own time in your electronic timekeeping system?
- Are all of your hours worked recorded?
- Describe the work you perform and the charge codes where your time is recorded.
Who may experience a floor check?
Government contractors of various sizes, including small businesses, may experience floor checks. Larger organizations, especially those with in-house DCAA auditors will likely experience a higher quantity of floor checks.
What happens if a government contractor fails a floor check audit?
Problems identified during a floor check can lead to additional audit activities. Timekeeping inadequacies can lead to the failure of a full accounting system audit and major issues for a contractor. Depending on the specific issue, penalties could range from withholds on invoice payments to debarment.
Understanding what to expect as an employee during DCAA timesheet compliance floor check can make a difference in the audit outcome.