Are you trying to chamfer the end of part at the cutoff (Groove #4)??, or trying to put an OD groove?
Without knowing, I assume you are cutting off. Check your nose radius for the cutoff tool, it's possible with a small chamfer less that the nose radius of the cutoff the tool makes the correct motions but doesn't actually remove material. Normally when cutting off with a chamfer, the tool plunges just past the amount of the chamfer then retracts in x, moves over machines the chamfer and continues towards centerline to cutoff part.
I think there is also a parameter related to how much the tool plunges initially into the work past the chamfer, but I'll have to double check.