CMO/Center approval of deviations to DCMA mandatory requirements is not authorized for this instruction.

1.  Receive an audit report.  When the ACO receives a DCAA audit report, the ACO shall determine whether the audit is a reportable audit (DoDI 7640.02). 

    1.1.  Reportable audits include the following types of contract audit reports if they included findings and recommendations:

        1.1.1.  Accounting and Management Systems Audits which include audits, follow-up audits, and flash estimating on a contractor’s Control Environment and Overall Accounting System; General IT System; Budget and Planning System; Purchasing System (including Contractor Purchasing System Review (CPSR)); Material System (including Material Management and Accounting System (MMAS); Compensation System; Labor System; Indirect and ODC System; Billing System; and Estimating System.  
        1.1.2.  Defective Pricing Audits 
        1.1.3.  CAS Noncompliance and CAS Cost Impact Audits
        1.1.4.  Earned Value Management Systems Audits

    1.2.  Reportable audits also include the following types of audit reports if the questioned cost or potential cost avoidance is $100,000 or more: 

        1.2.1. Claims and Equitable Adjustment Audits 
        1.2.2. Operations and Operations Follow-Up Audits
        1.2.3. Incurred Cost Audits (except for audits of audit-determined indirect rates where DCAA and contractor agree on all    questioned costs and there is no penalty identified) and Final Indirect Cost Rates
        1.2.4. Final Pricing Submissions
        1.2.5. Terminations Audits
        1.2.6. DCAA Insurance and Pension Audits

    1.3.  All supplemental audit reports that supersede or supplement a previously issued reportable audit report are reportable, regardless of whether the supplemental report includes findings, recommendation, questioned cost, or potential cost avoidance.
    1.4.  Non-reportable audits are any audit that is not listed in 1.1., 1.2., or 1.3.

2.  The ACO shall ensure all reportable audits are properly recorded in the CAFU eTool (DoDI 7640.02).  DCAA generally populates the list of reportable audits in the CAFU eTool on a monthly basis.  However, the ACO shall immediately add any missing reportable audits to the CAFU eTool (DoDI 7640.02).
3.  The ACO shall ensure that the information for each reportable audit, including status and remarks, in the CAFU eTool is current, accurate, and complete (DoDI 7640.02).

    3.1.  For reportable audit reports, the ACO shall ensure that the following information is current, accurate, and complete in the CAFU eTool (DoDI 7640.02):

        3.1.1.  Report number
        3.1.2.  Report date
        3.1.3.  Contractor name
        3.1.4.  DoD Activity Address Code (DODAAC)
        3.1.5.  Code for Type of Audit (see 3.4 below)
        3.1.6.  Questioned costs, potential cost avoidance, or recommended price adjustment
        3.1.7.  Questioned costs subject to penalty
        3.1.8.  Qualifications or unresolved costs (yes or no response)

    3.2.  A reportable audit is open until the ACO dispositions the audit report.  For open audit reports, the ACO shall also ensure the following information is current, accurate, and complete in the CAFU eTool (DoDI 7640.02):

        3.2.1.  Audit status (unresolved, resolved, litigation, investigation)
        3.2.2.  Target resolution date
        3.2.3.  Target disposition date
        3.2.4.  Actual resolution date
        3.2.5.  Armed Services Board of Contract Appeals (ASBCA) docket number or U.S. Court of Federal Claims case number
        3.2.6.  Original audit report date (only required for supplemental audit reports)

    3.3.  A reportable audit is closed if the ACO has dispositioned the audit report.  For closed audit reports, the ACO shall also ensure the following information is current, accurate, and complete in the CAFU eTool (DoDI 7640.02):

        3.3.1.  Disposition date
        3.3.2.  Questioned costs, potential cost avoidance, or recommended price adjustment sustained
        3.3.3.  Percentage of questioned costs or potential cost avoidance sustained
        3.3.4.  Penalty assessed
        3.3.5.  Original audit report date and/or supplemental audit report number

    3.4.  Code for Type of Audit. The ACO shall use the following audit type codes to designate the type of audit in the CAFU eTool (DoDI 7640.02):

        5.2.1.  The audit status is "resolved" when the CMO Contracts Director approves the ACO's written price negotiation objective (PNO) or memorandum to the contract file outlining the plan and target date to resolve the audit findings and recommendations.  The CMO Contracts Director may delegate authority to approve the action to a level no lower than the contract team supervisor/leader.   For a CAS noncompliance, the audit status is "resolved" when the ACO notifies DCAA that the ACO disagrees with the alleged noncompliance or issues a notice of potential noncompliance to the contractor and provides a copy of the notice to DCAA (FAR 30.605(b)(1)).  The CMO Contracts Director shall approve the ACO's notice to DCAA or the notice of potential noncompliance to the contractor before issuance.
        5.2.2.  The audit status is "dispositioned" when:
           
            5.2.2.1.  The CMO Contracts Director approves the ACO’s price negotiation memorandum (PNM).
            5.2.2.2.  The ACO renders a decision on the audit findings and recommendations for accounting and management system audits and notifies the contractor in writing.  The CMO Contracts Director shall approve the ACO's written notice before the ACO releases the decision to the contractor.
            5.2.2.3.  The ACO issues a final decision pursuant to the disputes clause and 90 days have elapsed without contractor appeal to the ASBCA.  The CMO Contracts Director shall approve the ACO's final decision before the ACO issues the final decision to the contractor.  The ACO and the reviewing CMO Contracts Director shall ensure that, in preparing Contracting Officer Final Decisions, advice is obtained from assigned legal counsel, the Contract Disputes Resolution Center (“CDRC”) and other advisors in accordance with DCMA Instruction “Contract Claims and Disputes” and FAR 33.211.  In addition, if the contractor subsequently appeals the final decision to the U.S. Court of Federal Claims, the ACO must reopen the audit record in the CAFU eTool.            
            5.2.2.4.  For CAS noncompliance audits, the ACO makes a written determination of compliance or noncompliance and notifies the contractor and DCAA of the determination and the basis for the determination (FAR 30.605(b)(3)).  The CMO Contracts Director shall approve the ACO's determination of compliance or noncompliance before the ACO issues the determination to the contractor.  In addition, if the contractor subsequently appeals the final decision to the ASBCA or U.S. Court of Federal Claims, the ACO must reopen the audit record in the CAFU eTool.
            5.2.2.5.  The ASBCA or U.S. Court of Federal Claims renders a decision on the claim, the contractor makes all corrective actions directed by the Board or Court, and any associated contractual documents are executed.
            5.2.2.6.  DCAA issues a supplemental report that supersede or supplements a previously issued reportable audit. 
            5.2.2.7.  For CAS cost impact audits, the ACO executes a bilateral modification that resolves the cost impact or issues a final decision and unilaterally adjusts the contracts in accordance with FAR 30.606.  The ACO shall provide a copy of the PNM to DCAA and any affected contracting officers (FAR 30.605(b)).  The CMO Contracts Director shall approve either action in advance.
            5.2.2.8.  The CMO Contracts Director makes a written determination that all corrective actions have been taken and no further actions can reasonably be anticipated.

        5.2.3.  The audit status is "litigation” when any of the audit issues are under review by a court or the ASBCA.
        5.2.4.  The audit status is "investigation” when an investigative agency of the U.S. Government is reviewing any of the audit issues.
        5.2.5.  For any reportable audit that has not been “resolved” or “dispositioned” and is not in “litigation” or “investigation,” the audit status is “unresolved.”

    5.3.  The ACO shall promptly and accurately report questioned costs sustained in the CAFU eTool  (DoDI 7640.02).

        5.3.1.  Questioned costs sustained include DCAA questioned amounts that are agreed to by the contractor during the course of the audit (except for audits of audit-determined indirect rates where DCAA and the contractor agree on all questioned costs and there is no penalty identified, agreed to by the contractor during negotiations, and questioned costs the contractor does not agree with when the ACO issues a final decision or makes a written determination that the costs are unallowable.
        5.3.2.  If DCAA issues a supplemental report on the reportable audit, report zero questioned costs sustained on the original reportable audit.  The questioned costs sustained will be reported on the supplemental audit report which is a reportable audit.

6.  Resolve the Reportable Audit.  The ACO shall resolve all reportable audits within six months of the date the audit report was issued (DoDI 7640.02).  If the ACO is unable to resolve the reportable audit within six months, the ACO shall document why the reportable audit could not be resolved in the six month period in the contract file and “remarks” section of the CAFU eTool and document the actions taken to achieve resolution at least monthly (DoDI 7640.02).  

    6.1.  The ACO shall not report the audit status of a reportable audit as “resolved” in the CAFU eTool until the ACO has documented the following in a PNO or memorandum to the contract file, and obtained the CMO Contracts Director's approval required by paragraph 5.2.1. and any required Contract Management Board or Review (BoR):

        7.1.1.  Affirmative statement that the ACO agreed or disagreed with each audit finding and recommendation.
        7.1.2.  Sound rationale for dispositioning each audit finding and recommendation (including penalties and interest).  The rationale must demonstrate that the ACO has considered all appropriate FAR, DFARS, and DCMA Instructions related to the issue raised or questioned by DCAA, e.g., CAS noncompliance, inadequate Accounting and Management Systems, unallowable terminations costs.

    7.2.  For reportable incurred cost audits (DoDI 7640.02):

8.  CAFU records must be retained for 6 years and three months, after payment of the last contract affected by the audit (DoDI 7640.02).  Retention of the file documentation and copies of the actual audit reports from DCAA are the responsibility of the ACO and CMO Contracts Directors.  The electronic CAFU eTool records are kept indefinitely and can be retrieved from archives by opening a Help Desk ticket, requesting the record.
    
9.  CAFU Quality Assurance 

• Standard Performance Element for Contract Audit Follow-Up (CAFU)  (INFORMATION)

• The ACO will be certified in accordance with the Defense Acquisition Workforce Improvement ACT (DAWIA) for the position held.
• The ACO will be a warranted contracting officer of the United States Government under Department of Defense.

• DoDI 7640.02, DoD Instruction for Follow-up on Contract Audit Reports  
• OMB Circular A- 50 , Audit Follow-up
• FAR 42.7, Assessing Penalties on Unallowable Cost  

• Process Indicator/s:
  • CAFU Overage Audits
  • CAFU Overage Audit Aging
  • CAFU Reportable Audit Disposition
• Workload Indicator/s
  • TBD
• Resource Indicator/s:or/s:
  • TBD
• Supplier Indicator/s:
  • N/A

• PLAS Process code:  052

• For the purpose of this DCMA Instruction, ACO means ACO, DACO, CACO, or TCO.
• CAFU manual - CAFU 3.5 eTool
• CAFU Training Slides - April 2009  
• How to navigate CAFU eTool – Media/audio instruction under Resources on CAFU eTool Training Page
• MRT CAFU Assessment Guide

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