The question that I am asking is how do you properly audit/assess material for utilization? We have conducted a consumption assessment and we thought that should be sufficient. However it has raised some flag on how one should assess utilization as it pertains to material? According to the FAR 52.245-1 (f)(1)(viii)(A), "the contractor shall utilize, consume, move, and store Government Property only as authorized under this contract. The Contractor shall promptly disclose and report Government property in its possession that is excess to contract performance. This clause has raised some questions on whether this is a utilization issue or contract closeout issue. This being that samples are on contracts that are essentially excess to contract performance because the contract has been physically complete.
Utilization is probably the most misunderstood and difficult outcomes to audit. I applaud you for reaching out for clarification. I will state upfront that there is no one right way to audit any of the outcomes including Consumption simply because it depends on the Contractor’s Property Management System and written procedures. However, I can give you some good information to help you determine the right path forward.
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First Question: How do you properly audit/assess material for utilization? A contractors consumption processes are driven by the type of work they perform such as: research and development, production, overhaul and maintenance, destructive testing, etc. A good resource for determining the best path forward is in the Guidebook for Contract Property Administration Dec 2014. https://www.dau.mil/tools/t/Guidebook-for-Contract-Property-Administration
Another great resource (which provides more detailed information) is the old DoD Manual 4161.2-M Appendix C. Although this manual is obsolete it contains a consumption analysis worksheet and step by step instructions for auditing consumption.
Determining excess is not a closeout specific activity. The identification of excess is a process that is required be accomplished throughout the performance of the contract. For example, as the contractor performs and completes phases of a contract, items used may no longer be needed such as tooling, special test equipment, and excess material. The contractor should have a written procedure describing how they will screen for excess during the lifecycle of the contract; both during performance and at final delivery. The procedure that is published by the contractor is what the Property Administrator (PA) should be auditing. First, the PA will determine if the documented processes within the procedure are adequate in accordance with FAR 52.245-1(f)(1)(viii). If so, the PA will then perform the analysis to determine if the contractor is identifying and reporting excess in accordance with their procedures. The Government requires the contractor to identify and report excess items in order to obtain the most return or utilization of the items as possible, not to mention reduce the administrative costs of inventory, maintenance, storage, etc.
You also mention that you identified items on contracts that are physically complete and were part of your selected samples. If you are auditing identification of excess, you are correct to include them in the population. Screening happens during and the end of a contract so you would simply review to see if the contractor screened the items within the timeframe identified in the procedures for closeout. Unless there is written authorization for use, the items accountable to the closed contracts should be in storage, not on the floor where they are vulnerable to unauthorized use. For the process of authorized use, I would suggest pulling a separate sample of items accountable to active contracts. This would make your review of use more effective.