Material Management & Accounting System (MMAS) Requirements

The DFARS requires contractors to maintain compliant systems for Material Management and Accounting System (MMAS). This video and article will help you understand the requirements of a compliant Material Management and Accounting System.

This video and article will answer some questions related to the material management and accounting system. Defense Federal Acquisition Regulation Supplement, better known as DFARS, business systems have come into focus as DCAA and DCMA increased their audits of these business systems. Our most recent blog will help you understand the specific requirements of the material management accounting system (MMAS) and the difference in MMAS and other system reviews such as accounting system.

Project manufacturing has its own set of challenges. Many aerospace and defense contractors are not only subject to the requirements of the Federal Acquisition Regulation, better known as FAR, and cost accounting standards, known as CAS, related to materials management, but are also subject to the requirements of the DFARS materials management and accounting system requirements. The DFARS has six business system requirements, which MMAS is one of those business systems.

Now I'm going to answer some basic questions related to MMAS. The first one is -

What are the Requirements of the MMAS Business System?

The MMAS requirements are outlined in DFARS 252.242-704. The business system contains ten standards that a contractor is required to follow. The ten standard requirements focus on the following criteria.

• An adequate system description, including policies, procedures, and operating instructions that comply with the FAR and the DFARS.
• Ensuring that cost of purchase and fabricated material charged or allocated to a contract are based on valid time phase requirements.
• Providing audit trails and maintaining records necessary to evaluate system logic and to verify through transaction testing that the system is operating as desired.
• Establishing and maintaining adequate levels of record accuracy and include reconciliation of recorded inventory quantities to physical inventory by part number on a periodic basis.
• Providing detailed descriptions of circumstances that will result in manual or system generated transfer of parts.
• Maintaining a consistent, equitable, and unbiased logic for costing of materials.
• Periodic internal reviews to ensure compliance with established policies and procedures.

How is this Audit Different from an Accounting System Audit?

As an accounting system audit focus primarily on the appropriate controls related to how costs are accumulated and billed to the government in accordance with generally accepted accounting principles, or better known as GAAP, FAR Part 31 cost principles and cost accounting standards, the MMAS system audit focus specifically on areas related to planning and buying materials for manufactured products that are charged to government contracts.

Bill of Materials

MMAS specific areas of focus are billed materials. As aerospace and defense contractors are building highly complex parts that might not have a final design, there will be bill of material revisions due to changes and a contractor must be able to react to those changes properly.

Changes could be customer or engineer driven and will impact the cost of the build on the contract. Therefore, bill of material accuracy is crucial to ensure that engineering change orders are processed properly and how these changes affect the cost of the projects. The MMAS standard requires a 98% bill of material accuracy to ensure the correct parts are purchased based on the required contract deliverable.

Planning of Purchase Parts

The standard requires that purchase parts are based on time phase requirements as to the production need date. Therefore, lead times are a critical component of the planning process to understand how the material requirements process is working to ensure that material are received and charged to government contracts as close to the production need date as feasibly possible.

Also, the MRP process should ensure that there are appropriate actions taken to avoid any risk in potential delivery when a vendor changes their delivery schedules, or a customer changes their due dates. From a production standpoint, the focus is on how the production orders are planned and does the contractor have the capacity and resources to meet the customer demands. MMAS standard requires that a contractor maintain a master production schedule accuracy of 98%.

Inventory

Inventory is very interesting from a project manufacturing standpoint as not only does the contractor have to track inventory within the warehouse, but parts must be tracked to each project that owns that part which adds complexity to the process. One of the standards does allow for commingling of parts in the same location as long as parts are tagged to the project that owns those parts.

Secondly, there is a provision for borrowing parts from one project and loaning to another. This process is known in the standard as borrow and payback which have specific rules in which the loaning projects should not be impacted by loaning parts to other projects. MMAS requires an inventory accuracy of 95%.

When is a Contractor Subject to this MMAS Audit?

An MMAS audit is applicable to contractors who are manufacturing products for the Department of Defense under a cost reimbursable contract or a contract which has progress billing financing that is based on cost. Contractors who are covered by cost accounting standards are subject to MMAS and all other DFARS applicable business systems. If you have any specific questions related to your MMAS business systems, feel free to reach out to Redstone Government Consulting and we will be glad to assist you.