Business System Requirements - MMAS

We continue our series on identifying the elements that DoD believes must be present in various business systems in order for the systems' to be considered "adequate" for Government contracting purposes. Today we discuss Material Management Accounting Systems (MMAS). MMAS applies primarily to manufacturing environments. Contractors that provide labor services or engaged in construction, do not have to be concerned with this particular business system.

While contractors are required to conform to MMAS sandards on all cost reimburseable and fixed price prime contracts that exceed the simplified acquisition threshold ($100 thousand), only contractors that have had $40 million in sales under those types of contracts in the preceeding year, are subject to review by the Government.

DoD policy stipulates that all contractors must ahve an MMAS that reasonably forecasts material requirements, assures proper charging and allocation of purchased and fabricated material (baased on valid time-phased requirements), and maintains a consistent, equitable, and unbiased logic for costing of material transactions. More specifically, the MMAS must have adequate internal accounting and administrative controls to assure system and data integrity and must comply with ten specific MMAS standards. Those ten standards include:

1. Have an adequate system description including policies, procedures, and operating instructions that comply with the FAR and Defense FAR Supplement;
2. Ensure that costs of purchased and fabricated material charged or allocated to a contract are based on valid time-phased requirements as impacted by minimum/economic order quantity restrictions.
• A 98 percent bill of material accuracy and a 95 percent master production schedule accuracy are desirable as a goal in order to ensure that requirements are both valid and appropriately time-phased.
• If systems have accuracy levels below these, the Contractor shall provide adequate evidence that—
• There is no material harm to the Government due to lower accuracy levels; and
• The cost to meet the accuracy goals is excessive in relation to the impact on the Government;
3. Provide a mechanism to identify, report, and resolve system control weaknesses and manual override. Systems should identify operational exceptions such as excess/residual inventory as soon as known;
4. Provide audit trails and maintain records (manual and those in machine readable form) necessary to evaluate system logic and to verify through transaction testing that the system is operating as desired;
5. Establish and maintain adequate levels of record accuracy, and include reconciliation of recorded inventory quantities to physical inventory by part number on a periodic basis. A 95 percent accuracy level is desirable. If systems have an accuracy level below 95 percent, the Contractor shall provide adequate evidence that—
• There is no material harm to the Government due to lower accuracy levels; and
• The cost to meet the accuracy goal is excessive in relation to the impact on the Government;
6. Provide detailed descriptions of circumstances that will result in manual or system generated transfers of parts;
7. Maintain a consistent, equitable, and unbiased logic for costing of material transactions as follows:
• The Contractor shall maintain and disclose written policies describing the transfer methodology and the loan/pay-back technique.
• The costing methodology may be standard or actual cost, or any of the inventory costing methods in 48 CFR 9904.411-50(b). The Contractor shall maintain consistency across all contract and customer types, and from accounting period to accounting period for initial charging and transfer charging.
• The system should transfer parts and associated costs within the same billing period. In the few instances where this may not be appropriate, the Contractor may accomplish the material transaction using a loan/pay-back technique. The “loan/pay-back technique” means that the physical part is moved temporarily from the contract, but the cost of the part remains on the contract. The procedures for the loan/pay-back technique must be approved by the ACO. When the technique is used, the Contractor shall have controls to ensure—
• Parts are paid back expeditiously;
• Procedures and controls are in place to correct any overbilling that might occur;
• Monthly, at a minimum, identification of the borrowing contract and the date the part was borrowed; and
• The cost of the replacement part is charged to the borrowing contract;
8. Where allocations from common inventory accounts are used, have controls to ensure that—
• Reallocations and any credit due are processed no less frequently than the routine billing cycle;
• Inventories retained for requirements that are not under contract are not allocated to contracts; and
• Algorithms are maintained based on valid and current data;
9. Have adequate controls to ensure that physically commingled inventories that may include material for which costs are charged or allocated to fixed-price, cost-reimbursement, and commercial contracts do not compromise requirements of any of the standards in paragraphs (e)(1) through (8) of this clause. Government-furnished material shall not be—
• Physically commingled with other material; or
• Used on commercial work; and
10. Be subjected to periodic internal reviews to ensure compliance with established policies and procedures.