Self-Audit: Timekeeping Compliance for SBIR and STTR Recipients

Introduction

For recipients of Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) grants, maintaining compliant timekeeping practices is critical to meeting federal regulations and ensuring continued funding eligibility. The US Small Business Administration (SBA) and federal agencies overseeing these programs, such as the National Science Foundation (NSF). Department of Defense (DoD) and National Institutes of Health (NIH) require strict adherence to timekeeping standards to verify proper use of grant funds. Regular self-audits of timekeeping practices help SBIR and STTR recipients identify and address compliance issues before they escalate into costly penalties or loss of funding.

This article explores the importance of timekeeping compliance, key regulatory requirements, and a step-by-step guide to performing a self-audit for SBIR and STTR recipients.

Why Timekeeping Compliance Matters

The SBIR and STTR programs provide critical funding for small businesses and research institutions to develop innovative technologies. However, these federal grants come with stringent oversight to ensure accountability. Timekeeping compliance is a cornerstone of this accountability, as it demonstrates that personnel costs, often the most significant expense in these grants, are accurately tracked and allocated to the funded project.

Non-compliance with timekeeping regulations can lead to serious consequences, including:

• Audit Failures: Federal agencies or third-party auditors may disallow costs, requiring repayment of misused funds.
• Loss of Funding: Persistent non-compliance can jeopardize current and future grant awards.
• Legal and Financial Penalties: Inaccurate timekeeping may trigger investigations for fraud, waste, or abuse under the False Claims Act.

By proactively self-auditing timekeeping practices, recipients can mitigate risks, maintain transparency, and build trust with funding agencies.

Key Timekeeping Requirements for SBIR and STTR Recipients

Federal regulations, including the Federal Acquisition Regulation (FAR) and agency-specific guidelines (DFARS, etc.), outline timekeeping requirements for SBIR and STTR recipients. Key requirements include:

1. Accurate Time Tracking:
   1. Employees must record all hours worked, including time spent on SBIR/STTR projects and other activities.
   1. To ensure accuracy, you must contemporaneously (daily or as work is performed) record your time worked.
2. Segregation of Costs:
   1. You must distinguish the time spent on SBIR/STTR projects from non-grant activities to avoid improper cost allocation.
   1. Costs must align with the approved budget and scope of work.
3. Employee Certification:
   1. Employees must certify their timesheets to confirm the accuracy of reported hours.
   1. Supervisors or project managers may need to review and approve timesheets.
4. System Reliability:
   1. Timekeeping systems (manual or electronic) must be reliable, secure, and capable of producing auditable records.
   1. Depending on the funding agency or program requirements, you must maintain records for at least three years, usually longer.
5. Compliance with Labor Laws:
   1. Timekeeping practices must comply with the Fair Labor Standards Act (FLSA) and other applicable labor laws to ensure proper employee classification (e.g., exempt vs. non-exempt).
6. Documentation and Audit Trails:
   1. Timesheets must include detailed work descriptions linked to specific project tasks.
   1. Records must be supported by documentation, such as project plans or progress reports, to justify the time charged.

Steps for Conducting a Self-Audit of Timekeeping Compliance

A self-audit is a proactive measure to evaluate and strengthen timekeeping practices. Below is a step-by-step guide tailored for SBIR and STTR recipients:

1: Review Timekeeping Policies and Procedures

• Action: Examine your organization’s written timekeeping policies to ensure they align with federal regulations (e.g., FAR Part 31) and agency-specific guidelines (e.g., NIH Grants Policy Statement).
• Checklist:
  • Does the policy require daily time recording?
  • Are employees trained on proper timekeeping practices?
  • Are procedures in place for supervisory review and approval?
• Tip: Update policies to address gaps and ensure all staff are aware of expectations through regular training.

2: Evaluate Timekeeping System

• Action: Assess the reliability and functionality of your timekeeping system (manual or electronic).
• Checklist:
  • Does the system capture all hours worked, including non-grant activities?
  • Are timesheets locked to prevent unauthorized changes after submission?
  • Can the system generate reports for audits?
• Tip: If using manual timesheets, consider transitioning to an electronic system to improve accuracy and auditability.

3: Sample Timesheet Records

• Action: Randomly select timesheets from the past 6–12 months to review for compliance.
• Checklist:
  • Are hours recorded daily and certified by employees?
  • Do timesheets include sufficient detail about tasks performed?
  • Are hours allocated correctly to SBIR/STTR projects versus other activities?
• Tip: Use a statistically significant sample size (e.g., 10–20% of timesheets) to identify patterns of non-compliance.

4: Verify Cost Allocation

• Action: Cross-reference timesheet data with payroll records and grant budgets.
• Checklist:
  • Do labor costs charged to the grant match the approved budget?
  • Are indirect costs (e.g., overhead) properly separated from direct project costs?
  • Are any unallowable costs (e.g., lobbying or entertainment) charged to the grant?
• Tip: Maintain a precise mapping of labor hours to specific grant tasks to streamline audits.

5: Assess Employee Training and Awareness

• Action: Confirm that employees and supervisors understand timekeeping requirements.
• Checklist:
  • Have all employees completed timekeeping training?
  • Are new hires provided with onboarding materials on compliance?
  • Are there mechanisms to address employee questions or errors?
• Tip: Schedule annual refresher training and document attendance to demonstrate compliance efforts.

6: Document Findings and Implement Corrective Actions

• Action: Compile a report summarizing audit findings, including areas of compliance and non-compliance.
• Checklist:
  • List specific issues (e.g., missing certifications, inconsistent time reporting).
  • Propose corrective actions, such as policy updates or system upgrades.
  • Set a timeline for implementing changes and re-auditing.
• Tip: Retain audit documentation to demonstrate due diligence to funding agencies.

7: Prepare for External Audits

• Action: Use self-audit findings to prepare for potential agency or third-party audits.
• Checklist:
  • Are all records organized and accessible?Have the identified issues been resolved and documented?
  • Can you demonstrate a commitment to ongoing compliance?
• Tip: To review your audit process, consult with a grants compliance specialist or accountant familiar with SBIR/STTR requirements.

Best Practices for Ongoing Compliance

To maintain timekeeping compliance beyond the self-audit, consider the following best practices:

• Automate Where Possible: Use DCAA-compliant electronic timekeeping systems with built-in features like audit trails and automated certification reminders.
• Conduct Regular Self-Audits: Schedule quarterly or semi-annual self-audits to catch issues early.
• Engage Leadership: Ensure management prioritizes compliance and allocates resources for training and system improvements.
• Stay Informed: Monitor updates to SBIR/STTR policies and federal regulations through agency websites or professional networks.
• Seek Expert Guidance: Work with consultants or legal advisors experienced in federal grants to address complex compliance questions.

Conclusion

Timekeeping compliance for SBIR/STTR recipients is a crucial component of responsible grant management and a regulatory requirement. By conducting regular self-audits, organizations can identify and correct issues, strengthen internal processes, and maintain eligibility for future funding. A proactive approach to timekeeping compliance demonstrates accountability and builds confidence among funding agencies, paving the way for continued innovation and success.

For additional resources, recipients can refer to the SBA’s SBIR/STTR Policy Directive, agency-specific grant guidelines, or consult compliance experts to ensure alignment with federal standards.