Wednesday, May 29, 2019

What is Contract Audit Follow-Up (CAFU) - Part 2?

Yesterday we began a short series on the CAFU (Contract Audit Follow-Up) System with a description of what the system does and the authority by which it was established. If you missed Part 1, read it here.

Contract audit reports, those issued by DCAA (Defense Contract Audit Agency), and to a lesser extent by the OIG (DoD Office of Inspector General) often deal with significant problems or controversial situations. At times, differences of opinion between the auditor and the contracting officer may arise during the settlement of such audit issues.

The Contract Audit Follow-Up system was established to ensure that the contracting officer had all pertinent evidential materials to assist in resolving the issues, that the resolution was documented and, in certain cases, approved by higher management, and that audit findings were timely acted upon so that the findings didn't become 'stale' or the audit report was misplaced or buried.

The governing document, DoD Instruction 7640.02 lists nine types of audit reports that are subject to CAFU tracking (ten, if you count the category called 'other'). The list includes:

  • Business system audits
  • Claims and equitable adjustments
  • Defective pricing
  • Cost accounting standards (non compliance with cost accounting standards, adequacy of CAS disclosure statements, and cost impact statements)
  • Operations audits (those reports dealing with efficiency, effectiveness, and economy of operations)
  • Incurred cost audits and settlement of final rates
  • Preaward accounting system reviews.
  • Contract terminations
  • Earned Value Management Systems (EVMS)

Notice what is not included in this list:

  • Audits of forward pricing proposal
  • Forward pricing indirect rates
  • Provisional billing rates

For an audit to be reported under the CAFU system, the report must contain material (i.e. significant) findings. There is a certain amount of judgment involved in determining whether a finding is significant but in today's environment, any reported finding is by definition, significant.

Tomorrow, in Part 3, we will include some final thoughts on DoD's CAFU system.

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