Material Management and Accounting System (MMAS)

Written by: Jody Twining, Senior Marketing Manager

The Material Management and Accounting System (MMAS) is rooted in the requirements and best practices for managing materials and ensuring financial accountability, particularly in industries that deal with government contracts and large-scale projects.

An MMAS is a system used by contractors, particularly those working with the federal government, to plan, control, and account for the acquisition, use and disposition of materials. The primary goal of an MMAS is to ensure that materials are managed efficiently, inventory levels are appropriate, and costs are accurately allocated to the appropriate contracts. The system is designed to comply with federal regulations, specifically the Defense Federal Acquisition Regulation Supplement (DFARS).

If your business is manufacturing, your daily challenges include reacting quickly and efficiently to engineering changes, ensuring that you have the right parts and resources to meet customer demands and ensuring compliance with all government and industry rules and regulations.

One way the government checks on how contractors are spending money on materials is to ask the Defense Contract Audit Agency (DCAA) to perform MMAS audits.

What the DCAA Does

It is in the government's best interest—on ethical, practical and political levels—to ensure that funds are spent properly. One of the ways it ensures that contractors spend money appropriately is through audits.

These audits are meant to determine whether contract costs are allowable, allocable and reasonable. The DCAA performs contract auditing for the Department of Defense (DOD) and certain other federal agencies.

The scope of the DCAA's influence is significant. The agency provides definitive recommendations to contracting officers that affect negotiations with nearly 7,500 contractors in a typical year. Contracting officers are better able to negotiate prices and settle contracts for services and supplies using DCAA recommendations. The DCAA has no direct role in determining which companies are awarded defense contracts; instead, it provides recommendations to government officials who select contractors to perform government-funded work and negotiate prices for products and services.

The DCAA audits contractors only; it has no internal audit responsibilities for the DOD. Of most concern to manufacturers is the MMAS audit.

Mastering MMAS: Key Insights for Government Contractors

Learn the basics of MMAS audits and how the federal contracting side of your manufacturing business can stay compliant.

Get the Guide Now

The purpose of an MMAS audit is to verify that government contractors manage materials effectively and account for them accurately in government contracts.

Key aspects of an MMAS audit are:

• Properly accounting for materials and costs
• Ordering materials based on accurate requirements in a time-phased approach
• Implementing valid processes and procedures
• Using complete audit trails from part to project to customer delivery

For contractors working with the federal government, MMAS is crucial because it ensures compliance with government regulations, helps in maintaining efficient material management and supports accurate cost accounting. This system helps prevent the misuse of government funds, improves accountability and aids in effective contract management.

By adhering to MMAS standards, contractors can better manage their resources, meet contractual obligations, and maintain good standing with regulatory bodies, ultimately leading to more efficient operations and successful contract fulfillment.

There are MMAS standards established by the DFARS to ensure contractors properly manage and account for materials in government contracts. The ten key MMAS standards government contractors should be aware of are:

1. System Description: Contractors must provide an adequate system description, including policies, procedures, and operating instructions compliant with federal regulations.
2. Material Requirements: Material costs must be based on valid, time-phased requirements, and the Bill of Material (BOM) accuracy must be maintained at 98%.
3. System Monitoring: The system must identify, report, and resolve control weaknesses and manual overrides.
4. Cost Allocation: Material costs must be consistently and equitably allocated to appropriate contracts.
5. Inventory Management: Contractors must maintain a reliable inventory management system, ensuring physical inventory counts and records are accurate.
6. Audit Trail and Testing: The system must provide a complete audit trail for material transactions from procurement to use.
7. Physical Inventories: Procedures for receipts, returns, and physical counts of materials must be in place to ensure inventory accuracy.
8. Material Usage: The system must track and report material usage to avoid excess and obsolete inventory.
9. System Demonstration: Contractors must demonstrate that their MMAS complies with the standards, showing that policies and procedures are up-to-date and followed.
10. Internal Reviews: Periodic internal reviews are required to ensure ongoing compliance with established policies and procedures.

These standards help ensure that contractors manage materials efficiently and transparently, aligning with government expectations and regulatory requirements.

Noncompliance with the MMAS standards can have significant consequences for manufacturers, especially those engaged in government contracts. These consequences can affect both the operational and financial aspects of the business, as well as its reputation and future opportunities. Here are the primary repercussions:

1. Contractual Penalties and Financial Consequences

• Withholding of Payments: The government may withhold payments to the contractor if noncompliance is identified. This can severely impact the contractor’s cash flow and financial stability.
• Cost Disallowance: Costs associated with materials that are not managed or accounted for in compliance with MMAS standards may be disallowed. This means the contractor cannot claim these costs as part of the contract, leading to financial losses.
• Fines and Penalties: The government can impose fines and penalties for noncompliance, further increasing the contractor's financial burden.

2. Contract Termination

• Termination for Default: Persistent noncompliance can lead to the termination of the contract for default. This not only results in the immediate loss of the contract but can also damage the contractor’s ability to secure future contracts.
• Termination for Convenience: In some cases, the government may terminate the contract for convenience, which, while less damaging than termination for default, still results in the loss of the contract and associated revenue.

3. Reputation and Future Opportunities

• Loss of Trust: Noncompliance can lead to a loss of trust and credibility with the government and other clients. This can make it difficult for the contractor to win new contracts.
• Reduced Competitiveness: A history of noncompliance can be a significant disadvantage in competitive bidding processes, reducing the contractor’s chances of being awarded new contracts.

4. Increased Scrutiny and Oversight

• Enhanced Audits and Oversight: Contractors found to be noncompliant may be subject to more frequent and rigorous audits by the DCAA and other oversight bodies, increasing administrative burdens and costs.
• Corrective Action Plans: Contractors may be required to develop and implement corrective action plans to address noncompliance issues, which can be resource-intensive and disruptive to normal operations.

5. Operational Disruptions

• Inventory Management Issues: Noncompliance often stems from poor inventory management practices, which can lead to inefficiencies, production delays, and increased operational costs.
• Supply Chain Disruptions: Issues in material management can disrupt the supply chain, affecting the contractor’s ability to meet delivery schedules and fulfill contract requirements.

Manufacturers need a flexible and scalable project-based enterprise resource planning (ERP) environment for financial accounting, project tracking and invoicing, procurement, materials management and manufacturing processes.

Deltek Costpoint Manufacturing software is specifically designed to help customers address the unique regulatory and operational needs of discrete manufacturing firms. Only Costpoint Manufacturing solutions enable manufacturers with complex products or who are engineer-to-order, to keep all of the cost, compliance, traceability and business process management data in one repository that is connected by project, part number, revision and configuration.

Ready to Learn More about Deltek Costpoint Manufacturing?

Costpoint’s manufacturing ERP software for government contractors keeps pace with Industry 4.0 and meets Material Management & Accounting Systems requirements.

Explore ERP for Manufacturing