The What, How and When of the Material Management and Accounting System (MMAS)

Defense Federal Acquisition Regulations Supplement (DFARS) Business Systems have come into focus as DCAA and DCMA increase their audits of these business systems. This blog will help to provide the specific requirements of the Material Management Accounting System (MMAS) and the difference in MMAS and other business system reviews.

Project Manufacturing has its own set of challenges. Many Aerospace and Defense (A&D) Contractors are not only subject to the requirements of the Federal Acquisition Regulation (FAR) and Cost Accounting Standards (CAS) related to materials management but are also subject to the requirements of the DFARS Material Management and Accounting System (MMAS) requirements. The DFARS has six business system requirements, in which MMAS is one of those business systems.

What are the requirements of the Material Management and Accounting System (MMAS) Business System?

The MMAS requirements are outlined at DFARS.252.242-7004. The MMAS Business System contains 10 standards that a contractor is required to follow. The 10 Standards requirements focus on the following criteria:

• An adequate system description including policies, procedures, and operating instructions that comply with the FAR and DFARS.
• Ensuring that costs of purchased and fabricated material charged or allocated to a contract are based on valid time-phased 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 transfers of parts.
• Maintaining a consistent, equitable, and unbiased logic for costing of material; and
• Periodic internal reviews to ensure compliance with established policies and procedures.

How is the Material Management and Accounting System (MMAS) Audit Different from the Other Business System Audits?

If we look at an example of the difference between an accounting system audit and MMAS audit, we note that the accounting system audit’s focus is primarily on the appropriate controls related to how costs are accumulated and billed to the government in accordance with Generally Accepted Accounting Principles (GAAP), FAR Part 31 Cost Principles, and Cost Accounting Standards (CAS). MMAS system audit focuses more specifically on areas related to planning and buying materials for manufactured products that are charged to government contracts. MMAS specific areas of focus are:

Bill of Materials (BOM)

As A&D Contractors are building highly complex parts that might not have a final design, there will be BOM 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 build and costs 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 costs of the project. The MMAS standard requires a 98% BOM Accuracy to ensure the correct parts are purchased based on the required contract deliverable.

Planning of Purchased Parts

The Standards require that purchased parts are based on a time-phased requirement as to 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 materials are received and charged to government contracts as close to the production need date as feasibly possible. Also, the Material Requirement Planning (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 customers change 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 does require that a contractor maintain a Master Production Schedule Accuracy of 95%.

Inventory

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

Secondly, there is provision for borrowing parts from one project and loaning to another. This process is known in the standard as borrow and pay back which have specific rules in which the loaning projects costs should not be impacted by loaning parts to other projects.

MMAS requires an inventory accuracy of 95%.

System Demonstration

The DFARs also requires a system demonstration by the contractor of how they are compliant with the noted requirements above. The MMAS system description should be the guide for this demonstration. The company will need to identify and assess the MMAS system description to determine:

• Is it current and has it completely referenced all MMAS related policies and procedures in a manner which clearly maps to the DFARS MMAS criteria?
• Are the policies and procedures current?
• Does the system description adequately describe the current flow of actions that encompass the control objectives?
• Do the policies and procedures adequately address the development and use of accuracy metrics?
• Are the actual accuracy metrics being performed in accordance with the policies and procedures reference in the system description?
• If accuracy metrics are not being met, how is the company determining there is no material harm to the government?
• Are internal reviews being performed?

A contractor should be proactive in addressing the issues noted above and not wait until the government notice of a review of their MMAS to prepare the system.

When is a Contractor Subject to this 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 costs.   Contractors who are covered by CAS are subject to MMAS and all other applicable DFARS Business Systems audits.

Redstone GCI has a team of consultants with extensive experience with assisting contractors with establishing an adequate MMAS system, as well as performing internal audits as required by MMAS Standard 10 to ensure that the MMAS system is designed and operating in accordance with the MMAS DFARs requirements. Our team would be happy to discuss any potential assistance that we can provide in required to MMAS compliance.