Wednesday, March 27, 2013

Floorchecks and Time and Material Contracts

Most Government contractors with cost-reimbursable contracts are very familiar with floorchecks - where auditors make surprise visits to contractor facilities to interview employees and assess the propriety of hours charged to Government contracts. On cost-reimbursable contracts, the objective is to ensure that employees charging the contract(s) are actually performing work in support of the contract(s).

For Time and Material (T&M) contracts and Labor-Hour (LH) contracts, the audit focus is a little different. The fixed hourly rates are already negotiated. The risk to the Government is that they are getting the skills they are paying for.

The procedures followed by DCAA auditors for floorchecking contractor employees charging T&M and LH contracts include:

  1. Obtain a list or roster of employees charging hours under T&M/LH contracts.
  2. Select employees to be floorchecked (can be a random or judgmental selection)
  3. Gather appropriate background data on the selected employees, such as ID number job classification or category, contractually required labor qualifications, nature of work performed by the employee, and his/her department or cost center prior to conducting the floorcheck.
  4. Prepare worksheets to use during the floorchecks to help guide the questioning and facilitate the recording of the employee's responses.
  5. Obtain a plant layout and note the selected employees' locations.
  6. Floorcheck the employees selected
    • Identify each selected employee by verifying the employee's ID number and name to the control list or roster.
    • Discuss the nature of the work being performed and observe the actual work performance to determine whether the employee is performing in the proper direct labor capacity (as specified in the contract) and whether the time is being charged correctly.
    • Discuss the employee's timekeeping procedures to determine compliance with internal controls.
    • Compare employee responses with previous data gathered. If inconsistent, ask appropriate follow-up questions.

Sometimes, with certain auditors, these questions take on an interrogation atmosphere. It is perfectly acceptable, if this happens, to call a time-out and allow things to cool down. Never underestimate the perceptive and intuitive skills of the auditors. Some of like to think and act like Columbo.

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