Federal Contractors are required to maintain a Materials Management and Accounting System that is compliant with DCAA standards. This should come as no surprise as the DCAA has an entire book of regulations that contractors must adhere to. Unfortunately your MMAS is no exception.

So, what can a contractor do to stay compliant and prepare for an MMAS audit? First, you must know the standards that your systems must meet. Second, you must know what an MMAS audit entails. Third, you must know the software available and capable of meeting regulations and providing security in these circumstances. So, let’s get started.

System Criteria

DFARS 252.242.7004 sets the criteria for your MMAS and states that it shall have adequate internal controls to ensure system and data integrity, and shall­–

(1) Have an adequate system description including policies, procedures, and operating instructions that comply with the FAR and Defense FAR Supplement; (7) Maintain a consistent, equitable, and unbiased logic for costing of material transactions as follows:

  • (i) The Contractor shall maintain and disclose written policies describing the transfer methodology and the loan/pay-back technique.
  • (ii) 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.
  • (iii) 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—
    • (A) Parts are paid back expeditiously;
    • (B) Procedures and controls are in place to correct any overbilling that might occur;
    • (C) Monthly, at a minimum, identification of the borrowing contract and the date the part was borrowed; and
    • (D) The cost of the replacement part is charged to the borrowing contract;
(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.

  • (i) 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.
  • (ii) If systems have accuracy levels below these, the Contractor shall provide adequate evidence that—
    • (A) There is no material harm to the Government due to lower accuracy levels; and
    • (B) 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; (8) Where allocations from common inventory accounts are used, have controls (in addition to those in paragraphs (e)(2) and (7) of this clause) to ensure that—

  • (i) Reallocations and any credit due are processed no less frequently than the routine billing cycle;
  • (ii) Inventories retained for requirements that are not under contract are not allocated to contracts; and
  • (iii) Algorithms are maintained based on valid and current data;
(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; (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—

  • (i) Physically commingled with other material; or
  • (ii) Used on commercial work; and
(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—

  • (i) There is no material harm to the Government due to lower accuracy levels; and
  • (ii) The cost to meet the accuracy goal is excessive in relation to the impact on the Government;
(10) Be subjected to periodic internal reviews to ensure compliance with established policies and procedures.
(6) Provide detailed descriptions of circumstances that will result in manual or system generated transfers of parts;

MMAS Audit

Traditionally the MMAS audit performed by the DCAA is not supposed to request data or information during the audit process. Alternatively the contractor is supposed to demonstrate its MMAS compliance by highlighting how they meet the 10 system requirements specified in DFARS 252.242.7004 within the activities they perform. The contractor must also provide documentation at the time of the presentation that supports their MMAS meets regulation standards.

Unlike most audits the MMAS audit is more of a presentation that both reflects the contractor’s compliance as well as the system’s. You can sort of view this type of audit as a two-birds-one-stone compliance test as it evaluates both the user and the system. While it is important to ensure the contractor is using their systems compliantly, most audits focus on the back end data and ensure the numbers and procedures check off all the boxes. Though recently, we have been seeing changes in how the DCAA is conducting their MMAS audits.

What’s New?

MMAS audits performed by the DCAA now resemble traditional audits more and more. Instead of evaluating the compliance of the contractor in a presentation-based audit, they are resorting to gathering data to review. While this may be a relief to many contractors it does raise a blaring question – Why the change?

The answer seems to rest in the competence and confidence of the DCAA itself. MMAS audits used to be conducted by local field audit offices, but have more recently been moved back under the umbrella of the DCAA Headquarters, and handed over to what they are calling the “Uber MMAS Audit Team”.

These audits can be tricky and require a certain level of expertise in the field that fewer and fewer seem to possess. So, the real question is, with all these changes, complications, and complexities in this audit process how can you escape unscathed?

Deltek’s DCAA Compliant Systems

Deltek’s Materials Management and Accounting Software is built compliant out of the box. For over 30 years Deltek has supported the federal community with systems that meets the government’s complex and high standards. Deltek software was built with DCAA audits in mind and has maintained it’s compliance without fail. If you are struggling to meet the MMAS requirements or are looking for compliant Materials Management and Accounting Systems there is only one provider that will give you the peace of mind and audit security that you desire. Here are just a few of the MMAS features that Deltek offers to keep you compliant: