This sounds like a reporting bug to me. Would you be able to open a service request for it?

Ok I will open a ticket and let you know what they say

this is what support told me:

MC_SYSTEM is the parent client for policy based replication

MC_SYSTEM are not supposed to be backed up

Instead MC_SYSTEM should be activated and in a group but be disabled for backups.

I see by standard it is part of the Default group.

so I just disabled the backups (which it was not doing anyway)

and I added a comment to the edit properties (in administration window) so that it says do not backup.

this way when we run the Unprotected report we know we can ignore the fact it is on the report.