MMAS (Material Management and Accounting System reviews are a very complex undertaking for both the company involved and auditors assigned. MMAS encompasses several areas, which by themselves can be difficult to grasp, but when combined into one overarching system can present issues often not encountered in other business system audits. DCAA auditors themselves usually do not have day-to-day exposure to most of the automated aspects of an MMAS such as with ERP systems, MRP, or grouping pegging and distribution. Through no fault of their own, the vast majority of auditors do not use or even understand the inner workings of these systems, do not use them in their review duties, and are not trained to properly address the various aspects of them. Sure, they may become exposed to them via the reviews of certain reports generated by ERP type systems, but in almost all cases, they do not understand the underlying computerized aspects of them. Most contractor personnel will have a more extensive knowledge of the various systems, but in actuality, most are only vaguely familiar with most areas other than the functional discipline they are assigned to.
This lack of knowledge by auditors doesn’t deter DCAA Management in believing that it’s auditors, who are highly trained with respect to the financial aspects of contract auditing, can effectively review these very complex systems. DCAA has long held an arrogant view that there is nothing it can’t do in an audit, and in almost all cases, refuses to solicit the assistance of true experts. Sure, the Agency assigns people to related positions that have little or no training or education with the automated aspects of MMAS (and even refers to them as “experts”), but logic would tell you that this can’t really be the case. How can a person be an expert with (at best) a couple of general system or programming courses, whose background is almost entirely financially oriented, and whose knowledge of things like grouping pegging and distribution ERP system intricacies comes from DCAA internal “audit alerts” or magazine articles?
There is no question that almost any DCAA auditor with a modicum of experience should be able to adequately address the MMAS criteria dealing with system monitoring, audit trails, and internal audits of policies and procedures. The auditor should also be able to verify the veracity of BOM (Bill of Material) and MPS (Master Production Schedule) metrics and inventory counts, read and understand a disclosure statement or accounting manual to determine the costing used for transfers, or the methodology used for commingled inventory. But how can this same auditor be expected to understand a complex concept such as grouping pegging and distribution, or how data is generated from ERP systems to develop the metrics used for BOM, MPS or inventory accuracy, and specifically the underlying automated internal controls over the data being relied upon? In most situations they can’t and shouldn’t be; but in all cases they are.
And how does this auditor, who lacks MMAS knowledge/experience, and is likely somewhat insecure (although they wouldn’t admit it), react? The auditor will likely be aggressive, pursue areas they know very little of, and report system deficiencies with expectations that the contracting officer will support the audit conclusions that may not be fully supported.
Knowing this, how should a contractor approach an MMAS demonstration? We think a contractor should handle this situation aggressively and proactively. Research and understand fully the government’s approach to a review of your system. Read and be well versed in DFARS 252.242-7004 Material Management and Accounting System (MMAS). Download DCAA’s MMAS audit program and appropriate sections of its Contract Audit Manual, read them thoroughly, and brief appropriate personnel on them. Identify and assess your overall MMAS system description; is it current and has it completely referenced all MMAS related policies and procedures in a manner which clearly maps to the system criteria DFARS 252.242-7004(e)? Are those policies and procedures current? Evaluate your BOM, MPS, and inventory accuracy metrics. Do the related policies and procedures adequately address the development and use of these statistics? Identify all activities used for monitoring the effectiveness of internal controls to include BOM, MPS, and inventory accuracy; the proper cost treatment of transfers; internal reviews performed by any internal group such as quality and those responsible for ISO compliance. Assign the most knowledgeable person in the Material Planning function, or whatever it’s called in your organization, to work in conjunction with government compliance to operate as the focal point for all MMAS review activities.
But what’s most important after addressing all of the above MMAS related issues and those not specifically referenced above? Be proactive; don’t wait until the government notice of review to prepare your system and be confident that your MMAS fully complies.
