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September 16, 2022

The 10 Key Elements of Material Management and Accounting System (MMAS) Compliance. (Part 3)

by Colin Quinn

In part two of our blog series "The 10 Key Elements of Material Management and Accounting System (MMAS) Compliance. (Part 2)" we covered numbers 4. - Audit trails, 5. - Physical inventories, and 6. - Material transfers of the ten MMAS standards and discussed how to ensure your project manufacturing business can reliably plan, control, and account for materials to remain compliant.

In part three, the final post of this series, we will complete our conversation with the final four MMAS Standards of the Key Elements of Material Management and Accounting System Compliance Audits.

We will highlight how to maintain consistent, accurate, and adequate controls to ensure your project manufacturing business can remain compliant. We will focus on:

7. - Borrow paybacks

8. - Common inventory 

9. - Comingled inventory 

10. - Compliance

11. - Bonus - The consequences of non-compliance

Lastly, we will showcase how Deltek Costpoint Project Manufacturing can support compliance with the MMAS standards.

As a leading consulting and solution provider, Kinetek understands the importance of manufacturing; specifically manufacturing for the government. We help our clients stay up to date with the latest industry trends and technology as well as industry requirements; serving as your accounting and government regulation compliance experts to ensure that your MMAS system adheres to systems criteria recently implemented by the Department of Defense (DOD), and aerospace and defense manufacturing agencies such as the National Aeronautics and Space Administration (NASA) and the Federal Aviation Administration (FAA).

Register for our session at Deltek ProjectCon!
Ten Key Elements of Material Management and Accounting System (MMAS) Compliance

Learn how to reliably and confidently ensure that your company has compliant planning, controlling, and accounting standards for materials in accordance with the elements of MMAS.


10 Key Elements of MMAS Compliance (7-10) + 1 Bonus*

If you're a government contractor whose main business is project manufacturing then you are governed by the same rules laid out in Defense Federal Acquisition Regulation Supplement (DFARS) Subpart 252.242-7004, Contractor Material Management and Accounting System. All federal government contractors—including subcontractors—must follow these standards. 

Let’s dive into the final four standards of the Key Elements of Material Management and Accounting System (MMAS) Compliance:

• Material Costing and Borrow Paybacks
• Inventory Allocation for Common Inventory 
• Commingled Inventory 
• Compliance
• BONUS* Consequences of Non-Compliance 

7.    Material Costing and Borrow/Payback    
MMAS Standard 7 requires you to maintain a consistent, equitable, and unbiased logic for costing material. 

For cost transfers, loans, and paybacks, these rules apply:
•    You must maintain and disclose written policies describing the transfer methodology and the loan/payback technique.
•    The costing methodology may be standard or actual cost or any of the inventory costing methods in 48 CFR 9904.411-50(b)
•    You must maintain consistency across all contract and customer types, and from the initial accounting period to the accounting period for initial charging and transfer charges.
•    Your system should transfer parts and associated costs within the same billing period. In the few instances where this may not be appropriate, you 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 with the contract. The procedures for the loan/pay-back technique must be approved by the administrative contracting officer. 
The costing of inventories is critical to the project manufacturer. Just as with any standard accounting rules, costing methodology of inventory must be consistent for all inventories and should not change from accounting period to accounting period. 

Valid costing methods include actual costing, moving average cost, weighted moving average cost, standard costing, first-in, first-out (FIFO), and last-in, first-out (LIFO). Transactions must be recorded in the accounting period in which they occur. Project transfers can add another layer of complexity. As with Standard 6, mentioned in part 2 of this series, material transfer procedures and circumstances need to be defined and adhered to. If an owning project “lends” a part to a borrowing project, the owning project must remain whole. Borrow/payback transactions ensure the owning project’s costs remain intact.

8.    Inventory Allocations: Common Inventory
MMAS Standard 8 requires that your system handle allocations of common inventory in a manner that precludes improper allocation and costing of allocations. 

Where allocations from common inventory accounts are used, you must 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 

Your auditor will review common inventory allocations for materiality. If common inventory allocations are material, a deeper analysis of how and when those allocations happen will be performed. 

Two important aspects will be considered: First, are there project requirements to support the allocations? Second, are the allocations time-phased appropriately?

9.    Inventory Allocations: Commingled Inventory
MMAS Standard 9 states that you must 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 first eight MMAS standards.

Government-furnished material must not be physically commingled with other material or used on commercial work.

Warehouse management can be challenging in general, but when you are procuring and stocking inventory for a project, the challenge broadens. Not only do you need to keep your stockroom in order, you now have to identify which project owns each part—and you have limited warehouse space! Commingling inventory requires stockroom personnel to know the physical location and ownership of each part in the warehouse at any time.

Auditors will check to see if parts are properly tagged to the project they belong to. Your inventory system needs to be able to account for all parts, locations, and project ownership. 

Tracking government-furnished material (GFM) requires the same diligence as any other inventory item. The part should be tagged to the project for which it is to be used and given a stock location. Your inventory system should be able to provide stock and location status of all project inventories, including GFM.

10.    Compliance
MMAS Standard 10 requires that your system be subjected to periodic internal audits to ensure compliance with established policies and procedures. 

The auditor will evaluate your internal audit plan and completed audit schedules. It is critical that your policies, procedures, and operation instructions are compliant and implemented effectively.

11.    BONUS* Consequences of Noncompliance
The contracting officer has 30 days to provide to the contractor, in writing, the initial determination of any significant deficiencies identified by the auditor during the MMAS audit. As the contractor, you have 30 days to respond in writing to any disagreements. 

The contracting officer will evaluate your responses and notify you in writing of the final determination. At this point, if significant deficiencies still exist, you must correct the deficiencies or submit an acceptable corrective action plan showing milestones and actions to eliminate the deficiency within 45 days.

If the contracting officer disapproves of your materials management accounting system and the contract includes adherence to 252.242-7005, the contracting officer can decide to withhold payments in accordance with the contract.

Get and Remain Compliant with Costpoint Project Manufacturing 

Your project manufacturing business needs a strong, project-based enterprise resource planning (ERP) environment for financial accounting, project tracking and invoicing, procurement, materials management, and manufacturing.

Project manufacturing software is specifically designed to address the unique regulatory and operational needs of complex manufacturing firms. It provides significant advantages for running an agile and streamlined manufacturing operation. 

Costpoint Project Manufacturing takes you through each step of the process, from bid proposal through customer delivery and revenue recognition. Using historical procurement and manufacturing data, proposals are prepared to win new business. 

Once the new project is awarded, project manufacturing will help engineering and design prepare bills of materials and react to engineering changes quickly and efficiently.  

Materials planners utilize master production scheduling and materials requirements planning to evaluate project demand against part and capacity supply. With Costpoint Project Manufacturing tools, planners can easily react to changes in schedule, new and changing demands, engineering changes, and other challenges to meet the customer delivery date. 

From the early stages of planning and procurement, Costpoint inventory is segregated by project and remains tied to the project throughout the manufacturing process. Project ownership is key to passing your MMAS audits.

Costpoint’s Manufacturing Execution System (MES) provides online, real-time visibility onto the production floor. It streamlines the production process and eliminates waste using work plans, which include documentation, visualizations, work instructions, and routing information. Technicians follow these detailed work plans to ensure data collection is completed for serial and lot numbers, required parametric measurements, tooling requirements, and quality buy-offs. 

This type of system captures work order status throughout the manufacturing process and supports quality control and nonconformance findings and results as well as complete audit control over the manufacturing floor.

The Bottom Line:

Deltek Costpoint Project Manufacturing supports compliance with the MMAS standards with:
•    A closed-loop, fully-integrated system that captures all transactions in the database with time and date stamps
•    Complete audit trails for every aspect of each transaction, including project costing, manufacturing costs, inventory movements, quality and production history, and as-built/as-maintained configuration of end items being manufactured or maintained
•    Complete project visibility, from planning and procurement through production to customer delivery
•    Material requirements planning  to react quickly to engineering changes or scheduling changes, allowing planners to confirm, reschedule, cancel or update existing orders on a timely basis
•    The ability to transfer parts between projects using a straight transfer or borrow/payback transfer
•    Quality and discrepancy reporting, as well as root cause analysis to identify the causes of discrepancies and prevent reoccurrence

Need MMAS Help?

Our consulting capabilities for Deltek® Costpoint are diverse, with experts in materials management, accounting and finance, project costing and revenue recognition, and business intelligence designed specifically for this product. Our background is unparalleled, with each of our subject matter experts (SMEs) achieving the highest levels of consulting in their respective areas.

Are you looking to discuss how to ensure your project manufacturing business can reliably plan, control, and account for materials to remain compliant?

Then contact our Project Manufacturing SMEs today and let us help you remain compliant on your next project.

Contact Us

Additional Sources:

Blog - The 10 Key Elements of Material Management and Accounting System (MMAS) Compliance. (Part 2)

Blog - The 10 Key Elements of Material Management and Accounting System (MMAS) Compliance. (Part 1)

Webinar - How to Choose the Right ERP Option for your Project Manufacturing Business

Webinar - Costpoint Materials and Engineer to Order Manufacturing

Webinar - The Balancing Act: Materials & Finance

Solution - Kinetek Manufacturing Performance Analysis

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