Defense Contractor Material Management and Accounting Systems

GAO discussed its evaluation of the Department of Defense (DOD) and industry agreement for resolving problems with contractor Materiel Requirements Planning (MRP) systems. GAO noted that MRP system deficiencies have caused: (1) inaccurate contract charges and government billings; (2) improper payment requests; and (3) defective pricing. GAO also noted that the DOD and industry agreement requires MRP systems that: (1) are completely documented and auditable; (2) have adequate internal accounting and administrative controls; (3) have no inherent biases or preferences for certain contract types; and (4) have no significant differences between cost transfers into and out of a contract. GAO found that the: (1) Defense Contract Audit Agency believes that the agreement will significantly improve MRP systems; (2) agreement does not change existing regulations, except that it encourages the commingling of government and commercial inventory as long as the government's interests are protected; and (3) agreement needs additional clarification regarding audit procedures, implementation guidance, application to small contractors, and the implications of proposed legislation to protect the government's interests.