(Editor’s Note. The following is a response to a DCAA draft report following a floor check audit of our client’s time keeping practices. We have decided to include a highly edited version of our response because it illustrates some common deficiencies DCAA is finding these days and it shows some effective responses where after receiving our response DCAA decided to rescind its report. We have changed a few facts and referred to our client as “Contractor” to prevent divulging their identity.)
DCAA states is has performed an attribute one-site sample of Contractor’s labor timekeeping practices. Within its parameters of risk, if more than two deficiencies are observed in any one area then that area is considered to be deficient. The four areas DCAA states are deficient are:
Timesheets are completed in advance.
Exempt employees are not recording all hours worked.
Employees are not aware of the DOD Hotline which is a non-compliance with FAR and DFARS
Employees were alerted by the supervisor of an office that DCAA was conducting floor checks, resulting in compromised results.
We disagree with most of DCAA’s assertions and its conclusions. The floor checks were conducted one year ago where some employees deemed noncompliant are no longer employed at Contractor but for those that could be contacted the following is based on their responses to DCAA’s observations as well as our response to DCAA’s conclusions.
Timesheet Completed in Advance
DCAA position
DCAA states that three employees improperly completed timesheets in advance which violated Contractor’s timekeeping policy.
Contractor Response
DCAA is factually incorrect with respect to their observation that the three employees failed to follow Contractor policy and inappropriately filled out their timesheets in advance. During the day of the floor check, two employees worked part of the day at the base where there is no computer access to their timecards. Rather then fail to meet the company policy of not completing timecards on a daily basis, they simply completed the timesheet for the additional time they would be working that day at the base. If the hours turned out to be inaccurate, which has not occurred in our experience, they are instructed to correct the timecards the following day where if a correction is made, there is a clear audit trail of any changes. Since their work at the base is for only one final cost objective and the remaining hours left to charge are clearly known, there is no risk of inappropriately charging the wrong project number. This approach is preferable than failing to complete their timecard in the day worked since such requirements are strictly enforced whereas estimates of time under these circumstances does not violate any Contractor policy.
Second, DCAA’s assertions that Contractor’s policies require completion of timecards at the end of the day is not quite correct. Based on Contractor’s policy, which is quoted by DCAA, Contractor employees have the option of completing their timesheets either at the end of the day or when the project is completed. The two employees’ practice of completing their timesheets for the base projects best meet these objectives in so far as (1) timesheets are completed in the day worked and (2) estimates of time to be worked on the project during the day is subject to so little inaccuracy as to be, in effect, completed at the end of the job. Any inaccuracy would be corrected the next day providing a full audit trail.
Third, though we were unable to locate the third person DCAA asserts did not comply with its Contractor procedure we find that unnecessary since with the recognition that the two employees’ timekeeping practice were prudent and did not violate Contractor policy, there would only be one person who did not adhere to the policy. Since the attribute sampling plan considers failure to occur only when “more than one” deficiency is observed, the result of their survey would indicate there is no attribute failure.
Exempt Employees are not Recorded all Hours worked
DCAA
DCAA states they found five employees who did not record total hours worked. Two of those employees are direct while the other three are 100% indirect. The audit report references FAR 52.237-10 which basically defines uncompensated overtime (UOT) and interprets FAR 31.201-4, allocability as requiring all hours worked. Since five employees have been found not to be in compliance with FAR 31.201-4Contractor is deemed to not be in compliance with this requirement.
Contractor Response
First, the DCAA audit report incorrectly asserts that the regulations require total time reporting. The issue has a long history but suffice it to say that DCAA, interestingly, has been a long time proponent of not requiring total time reporting. The DCAA guidance explicitly states that total time reporting is not required but “may be required” if UOT is material in which case auditors are instructed to recommend contractors record total time. As discussed below, UOT does not exist at Contractor so the effect of not reporting total time would be insignificant.
Second, we believe that the audit report fails to distinguish the relevance of the issue of UOT to Contractor’s direct versus indirect employees. This distinction is important because of the five employees singled out for not correctly identifying all hours, only two are direct and three are indirect.
Contractor's Direct Employees
Though Contractor does have a policy to have all direct employees record total time, such a policy is unnecessary to protect the government. That is because Contractor, unlike most companies, does not have any uncompensated overtime. A direct employee may work overtime only after approval is received where they may not work without such approval. When a direct employee does receive such approval, they are paid for the extra time worked, without exception. Accordingly, there is no uncompensated overtime that must be accounted for by following one of the three approved DCAA methods (e.g. adjustment of hourly rate, prorate allocation of salary to multiple projects or adjustment of indirect cost pools). Though it is possible an employee could work a small amount of time without recording it (a few minutes past the hour to complete a task), such occurrences would be rare and immaterial so as not to even require a policy for them. After all, an employee and the company is incentivized to record all time worked since they would be paid. If there is an immaterial amount of time worked on a project, in accordance with DCAA’s own policy, such time would not need to be recorded since it is immaterial. In addition, one employee unequivocally denied telling the auditor he worked overtime where we suspect the communication problem was a result of his heavy accent.
Indirect Employees
Though direct employees do not work unless given permission, this is not true for indirect employees. The three other employees singled out during the audit are indirect employees who are 100% indirect whose time is charged exclusively to their cost centers, home office, IT and Finance, respectively. They may work UOT to accomplish certain tasks but such uncompensated overtime does not affect charges or billings of contracts or projects that DCAA correctly states is the only rationale for properly treating UOT. It matters how many salary dollars are charged to their cost center, not how many hours. Since they do not charge any direct projects nor any other indirect cost centers that may affect how these costs are allocated to indirect cost pools, it does not matter how man hours they work. That is why it is not Contractor’s policy to require total time reporting for 100%indirect employees and why it should not be of concern to the government. These points were repeatedly expressed during the floor check but we received no response.
Employees not Aware of the DOD Hotline
DCAA Position
DCAA has apparently interviewed employees to determine whether they are aware of Contractor’s DOD Hotline posters and found that four employees stated they were not. The DCAA report goes on to state such a condition “may” be the result of poor training and conclude that such apparent lack of “this information” is a violation of FAR 52.203-14 and DFARS 252-203-7002. DCAA goes on to
recommend Contractor “re-emphasize its employee training to effectively increase the awareness of the DOD Hotline.”
Contractor Response
First, the regulations cited address proper posting of the hotline posters. It does not address whether or not an employee may or may not be aware of such posters.
Second, as you can see from our photos which we attached, the requirements of the cited regulations were clearly met. Namely, the hotline posters are displayed in common areas at all company facilities. We believe the meeting of this requirement, not what was in the head or awareness of an employee, is the proper inquiry to make.
Third, the auditor has apparently taken it upon himself to impose a different criteria to determine whether the two cited regulations are complied with – whether the employee is aware of the postings. We have no way to verify the accuracy of the auditor’s assertions about the awareness or lack of awareness on the part of the employees but such an area of inquiry is irrelevant to determining whether the regulations were complied with i.e. whether the hotline posters were displayed properly.
Fourth, as for DCAA’s recommendation to “reemphasize” the hotline policy in its training, we are in agreement that should be done though we disagree with any statement (which is not asserted by DCAA)that it is not done.
Employees were Alerted by their Supervisor that DCAA was conducting floor checks, resulting in Compromised Results
DCAA Position
DCAA expresses the opinion that for an effective floor check to occur, “the element of surprise is an important criteria when conducting unannounced labor floor checks” where if announced, “it provides the opportunity to complete or update current timecards and also to review labor policies in order to answer questions correctly.” The audit report states it found an email from a supervisor warning employees to update their timecards where DCAA asserts that such communications “compromised” the floor checks of eleven employees.” Quoting the employee handbook stressing ethical and honest behavior must be the cornerstone of Contractor practices it made the startling statement its practices were “unethical” and “dishonest.”
Contractor Response
We disagree with DCAA’s characterization of the email, believe ensuring floor checks are not compromised lies with DCAA actions, not contractors, and most significantly, we strongly object to the insinuation that Contractor’s actions are “unethical” and not “honest.” We find such a statement to be, quite frankly, reckless and irresponsible.
First, as for Contractor communications with employees about floor checks. It is true Contractor personnel communicate constantly with each other about a large variety of issues including the need to properly complete their timesheets and warns employees that the government performs unannounced floor checks to ensure compliance. Such a warning is considered by Contractor, as well as most other companies, a significant inducement to encourage proper timekeeping.
Second, with respect to the email in question, DCAA had been conducting floor checks at Contractor facilities for about a month and though no date for future floor checks was indicated it did inform employees DCAA was conducting floor checks and reminded employees to follow company procedures. During this era of immediate electronic communications (e.g. email, texts, twitter, etc.) an expectation that employees will not inform others about floor checks or any other event, for that matter,is unreasonable. If it was the intention of the government to prohibit such communication it could have done so through regulations and Contractor would have incorporated such prohibitions in its policies but there is no such regulation. Real time communications between employees on just about any issue is simply a fact of life that DCAA and government contractors must live with.
Third, though we sympathize with the desire of DCAA to conduct surprise floor checks we disagree with DCAA putting the burden of “compromising” its floor check on Contractor rather than itself. It is the role of DCAA to carefully plan and execute its floor checks so as to minimize inevitable communications between a contractors’ employees where conducting floor checks over a period of a month is hardly conducive to effective, surprised floor checks. However, to blame contractor employee communications rather than DCAA’s lack of adequate planning and execution is totally inappropriate.
Fourth, and most disturbing, is the egregious assertion that Contractor’s actions are unethical and dishonest. DCAA alludes to general statements in its employee manual, which it attempts to strictly enforce, and then uses those statement as “evidence” of unethical behavior. We stand by our opinion that DCAA’s assertion of unethical behavior is reckless and irresponsible.
We look forward to seeing a revision of the floor check report in light of our response.
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