What is Contract Audit Follow-up (CAFU) - Part 1?

The Contract Audit Follow-up System or CAFU  (pronounced 'ka fu'), is a Defense Department tracking system, administered by the Department's Office of Inspector General (OIG) to monitor the resolution of contract audit reports (usually those issued by DCAA but also those issued by Independent Public Accountants (IPAs) hired by DoD to conduct contract audits.

Contract auditors perform audits, write reports, and send them to the contracting officer to resolve whatever findings have been reported. Contractors may think that the Government's position is a unified position but that is rarely the case. Contract auditors tend to be more aggressive in challenging costs or reporting on internal control deficiencies or recommending more efficient ways of doing things than are contracting officers though we can think of a few exceptions where contracting officers have taken more aggressive positions than contract auditors.

When contracting officers do not sustain audit findings, auditors tend to get upset. Back before the CAFU system was initiated (mid-80s, we believe), contracting officers were able to, and often did, dispense with audit findings with nary a thought to justifying their rationale. After all, they were the contracting officers and they made the final decisions.

The DoD OIG was probably the most instrumental in bringing changes to the wild west of audit finding resolutions. The OIG looked at audit reports and traced them to negotiation and resolution and found that often times, there was no documentation or the documentation was not sufficient to ascertain whether the 'right' decision had been made. Additionally, the OIG found that in many cases, audit reports 'slipped through the cracks' so that there was never a resolution - the reports just died.

The Contract Audit Follow-Up (CAFU) system (see DoD Instruction 7640.02) was designed to serve two purposes. First, it required that audits be tracked to ensure that none fall though the cracks any longer. DCAA (Defense Contract Audit Agency) is the Agency responsible for identifying reportable audit reports. Second, the CAFU system put some accountability back into contracting officer decisions when those decisions run counter to the audit report recommendations.

Tomorrow we will discuss the types of audit reports that are reportable under the CAFU system and why contractors should care.