Does the supervisor at Step 3 have their own DocuSign account? I think they might need one to be able to receive an email notification when the customer declines - with an account they simply enable this option:
If they do not have a DocuSign account, then I believe you can still notify them on a Decline but you would have to write the logic in your integration. For instance, if the customer declines the envelope, then you detect that through code or through the return url, then you can manually send the supervisor an email letting them know which envelope has been declined.