Real-Time Labor Evaluations

"Real-time labor evaluations" is just a fancy name for floorchecks. Most Government contractors with cost-type contracts are intimately familiar with the term 'floorchecks'. For those not familiar with either term, they refer to unannounced visits by contract auditors to interview employees as a means of testing the validity of labor charges.

We last wrote about floorchecks (or real-time labor evaluations) in 2014 but that particular post is buried very deep in the blog archives so its time to revisit the subject - particularly when DCAA (Defense Contract Audit Agency) has increased and is increasing the number of resources dedicated to the practice area.

Real-time labor evaluations focus on four elements of timekeeping and labor distribution.

• Evaluation of a contractors timekeeping procedures and internal controls.
• Employee interviews which encompass a discussion of the nature of work performed and observations of the employee's workstation.
• Analysis of employee timekeeping practices. In other words, how well do employees comply with established timekeeping procedures.
• Reconciliation of labor charges with subsequent payroll and labor distribution reports.

Everyone of the foregoing audit objectives is important. But perhaps the most important is the existence of an adequate timekeeping system. Without that, everything else will fail because the auditor will have no assurance that labor charges to Government contracts are proper.

Many companies have moved to an online platform for tracking time charges. Some of these are more robust than others. For example, it is important to the Government that whatever 'electronic' system is used retains an audit trail and requires supervisory review and approval before charges are processed against Government contracts. These modern systems are excellent but if a contractor is not enforcing policies that require employees to record their time as least once per day, or implement procedures that prevent users from sharing login/password combinations, the system will be determined to be inadequate.

Employee interviews can stress out employees. But the auditor focus is to make certain that the work being performed corresponds to the charge number being used. There have been many documented cases where that wasn't the case.

The reconciliation step is important to ensure that the physical observations of work being performed corresponds to the charges made against the contract. If the auditor has verified that the work being performed corresponds to the charge number but subsequently, the charge number was changed, the contractor will have some explaining to do.

For more information about timekeeping and timekeeping systems, check out these previous posts:

• Timekeeping Systems - Regulatory Requirements
• Identifying "Holes" in Your Timekeeping System
• DCAA Approved Timekeeping Systems (Hint: there is no such thing).