The charging of direct labor attracts the greatest audit scrutiny and government auditors closely monitor how well contractors maintain a variety of "labor distribution" reports. The system you choose must accurately capture and report labor costs, provide reports that identify hours to be assigned to contracts, demonstrate that labor time entered via timekeeping is consistent with labor hours and costs that are assigned to contract cost reports and the system can demonstrate a consistent and accurate flow of information between timekeeping, job costs, the general ledger, subsidiary ledgers and financial statements.

Ask the vendor to demonstrate a short "mock audit" that traces a sample of an employee’s labor hours and costs from timekeeping, reports that reconcile timekeeping data and job cost records and trace job cost records to the general ledger, to the profit and loss statement and to a variety of standard reports that meet the labor charging requirements of the government.

The system should also provide contractors the ability to handle uncompensated overtime in accordance with the government’s acceptable methods of accounting for it. For example, effective rates by payroll period should be computed and charged to contracts if the contractor chooses to follow that methodology.

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