Major Management Challenges and Program Risks: U.S. Postal Service
(Letter Report, 01/01/99, GAO/OCG-99-21).

As part of its Performance and Accountability Series, GAO provided
information on the major management challenges and program risks facing
the Postal Service (USPS).

GAO noted that: (1) USPS has been hampered by long-standing challenges
in labor-management relations that, in many instances, resulted from
autocratic management styles, adversarial attitudes of employees,
unions, and management, and an inappropriate and inadequate performance
management system; (2) USPS' continued success will depend heavily on
its ability to control operating costs, strengthen internal controls,
and ensure the integrity of its services; (3) the USPS has recognized
that it needs aggressive cost management and strong and effective
internal operating controls to avoid unwarranted costs; (4) however, GAO
has reported on the need to control costs and protect postal revenues in
several areas; (5) USPS has experienced cost overruns on a number of
major capital projects and failed to realize some opportunities to
achieve savings; (6) major mailers and the public remain concerned about
obtaining quality service at reasonable prices; (7) the USPS has
committed to developing reliable indicators of postal performance
corresponding to each of its performance goals so that it can track
progress and meet the requirements of the Results Act; (8) USPS faces a
major challenge in updating its computer systems to correctly identify
dates beginning in the year 2000 and thus avoid malfunctions that could
disrupt mail delivery; (9) USPS has made progress in addressing postal
labor-management relations; (10) in addition, GAO has reported that USPS
has made progress in implementing automation designed to improve the
efficiency of letter carriers, and USPS has also reported taking steps
to tighten internal controls over postal revenues and expenditures; (11)
in the area of providing quality service, USPS has reported taking steps
to improve mail service for several classes of mail, develop a more
complete set of performance measures, and safeguard the integrity of
performance data; and (12) USPS has stated that it is assigning a high
priority to addressing the year 2000 problem.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  OCG-99-21
     TITLE:  Major Management Challenges and Program Risks: U.S. Postal 
             Service
      DATE:  01/01/99
   SUBJECT:  Cost control
             Postal rates
             Mail delivery problems
             Productivity in government
             Industrial relations
             Performance measures
             Internal controls
             Risk management
             Financial management
             Accountability
IDENTIFIER:  Internet
             Y2K
             USPS Strategic Plan
             Performance and Accountability Series 1999
             
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Cover
================================================================ COVER


Performance and Accountability Series

January 1999

MAJOR MANAGEMENT CHALLENGES AND
PROGRAM RISKS - U.S.  POSTAL
SERVICE

GAO/OCG-99-21

U.S.  Postal Service Challenges


Abbreviations
=============================================================== ABBREV

  AIMD -
  GGD -
  GAO -

Letter
=============================================================== LETTER



January 1999

The President of the Senate
The Speaker of the House of Representatives

This report describes the major performance and management challenges
that need to be addressed if the U.S.  Postal Service is to sustain
performance and remain competitive into the 21st century, including
(1) long-standing challenges in labor-management relations, (2) the
continuing challenge of containing postal costs and protecting
revenues, (3) the need to implement reliable indicators of postal
performance, and (4) risks to the Postal Service from Year 2000
computer problems.  It also addresses corrective actions that the
Postal Service has taken or initiated on these challenges and further
actions that are needed.  Although the Postal Service has taken steps
to improve its financial position and delivery performance, it
expects that increasing competition will lead to declines in its core
business in the coming years.  This outlook has heightened the need
for the Postal Service to resolve long-standing issues in
labor-management relations, better control costs and protect postal
revenues, implement reliable indicators of postal performance, and
ensure that its systems are Year 2000 compliant. 

The Postal Service has made progress in addressing these challenges
and is continuing to make significant changes.  The Postmaster
General and his management team have assigned a high priority to
addressing these challenges; this top management attention is
critical and must be sustained in order to achieve real and lasting
progress.  Given the nature and extent of the challenges facing the
Postal Service, it will take time to implement and assess the impact
of major initiatives intended to address them.  While a number of
initiatives are well under way, others are under development or in
the early stages of implementation. 

This report is part of a special series entitled the Performance and
Accountability Series:  Major Management Challenges and Program
Risks.  The series contains separate reports on 20 agencies--one on
each of the cabinet departments and on most major independent
agencies as well as the U.  S.  Postal Service.  The series also
includes a governmentwide report that draws from the agency-specific
reports to identify the performance and management challenges
requiring attention across the federal government.  As a companion
volume to this series, GAO is issuing an update to those government
operations and programs that its work has identified as "high risk"
because of their greater vulnerabilities to waste, fraud, abuse, and
mismanagement.  High-risk government operations are also identified
and discussed in detail in the appropriate performance and
accountability series agency reports. 

The performance and accountability series was done at the request of
the Majority Leader of the House of Representatives, Dick Armey; the
Chairman of the House Government Reform Committee, Dan Burton; the
Chairman of the House Budget Committee, John Kasich; the Chairman of
the Senate Committee on Governmental Affairs, Fred Thompson; the
Chairman of the Senate Budget Committee, Pete Domenici; and Senator
Larry Craig.  The series was subsequently cosponsored by the Ranking
Minority Member of the House Government Reform Committee, Henry A. 
Waxman; the Ranking Minority Member, Subcommittee on Government
Management, Information and Technology, House Government Reform
Committee, Dennis J.  Kucinich; Senator Joseph I.  Lieberman; and
Senator Carl Levin. 

Copies of this report series are being sent to the President, the
congressional leadership, all other Members of the Congress, the
Director of the Office of Management and Budget, the Postmaster
General, and the heads of other major departments and agencies. 

David M.  Walker
Comptroller General of
the United States


OVERVIEW
============================================================ Chapter 0

The U.S.  Postal Service employs nearly one-third of the federal
civilian workforce, provides delivery services for 630 million pieces
of mail a day to over 130 million households and businesses, and
earned $60 billion in operating revenue in fiscal year 1998.  Both
the Congress and the public expect the Service to fulfill its primary
mission of providing universal postal service at reasonable rates
while remaining self-supporting from postal revenues.  In fiscal year
1998, the Postal Service ended another year of encouraging financial
performance, sustaining 4 years of net income that exceeded a total
of $5 billion.  With net income of $550 million in fiscal year 1998
and increasing on-time delivery scores, such as for First-Class Mail,
the Service has shown that it can maintain a high income level while
providing its customers with improved services.  The Postal Service
is facing growing competition from private delivery companies and
electronic communication alternatives such as the Internet.  In
recent years, we have reported on several long-standing performance
and management challenges that we believe need to be addressed if the
Postal Service is to sustain its positive performance and remain
competitive into the 21st century. 


   THE CHALLENGES
---------------------------------------------------------- Chapter 0:1


      LONG-STANDING CHALLENGES IN
      LABOR-MANAGEMENT RELATIONS
-------------------------------------------------------- Chapter 0:1.1

The Postal Service has been hampered by long-standing challenges in
labor-management relations that, in many instances, resulted from
autocratic management styles; adversarial attitudes of employees,
unions, and management; and an inappropriate and inadequate
performance management system.  Labor-management relations have been
exemplified by numerous unresolved employee grievances, disagreements
that have impaired initiatives to improve the efficiency of postal
operations such as disagreements over implementation of postal
automation between the Service and the labor union that represents
city letter carriers, and frequent reliance upon third-party
arbitration to settle contract negotiations.  In 1994, we recommended
that the parties establish a framework agreement that would outline
common goals and strategies to set the stage for improving the postal
work environment.  However, such an agreement has not been reached. 
Although achieving consensus does not come quickly or easily, we
believe that continued labor-management problems may lead to
escalating workplace difficulties and hamper efforts to achieve
desired improvements. 


      THE CONTINUING CHALLENGE OF
      CONTAINING POSTAL COSTS AND
      PROTECTING REVENUES
-------------------------------------------------------- Chapter 0:1.2

The Postal Service's continued success will depend heavily on its
ability to control operating costs, strengthen internal controls, and
ensure the integrity of its services.  The Service has recognized
that it needs aggressive cost management and strong and effective
internal operating controls to avoid unwarranted costs.  However, in
recent years, we have reported on the need to control costs and
protect postal revenues in several areas, such as its automation
program to improve the efficiency of letter carriers; its program to
receive postage due from bulk business mail, which accounted for
almost one-half of the Service's annual revenue; and prevention and
detection of fraudulent use of mechanical postage meters.  In
addition, we have reported that the Service has experienced cost
overruns on a number of major capital projects and failed to realize
some opportunities to achieve savings.  This situation has been
exacerbated by weak internal controls.  Finally, as competition grows
and places billions of dollars of postal revenues at risk, the Postal
Service has said that it will be challenged to find new revenue
sources.  Recent efforts by the Postal Service to introduce new
products and services have frequently met opposition and caused
controversy as competitors and others have questioned whether it is
appropriate for the Service, a government entity with monopoly
protection, to provide nontraditional products and services, such as
retail merchandise and new electronic initiatives, in competition
with the private sector. 


      THE NEED TO IMPLEMENT
      RELIABLE INDICATORS OF
      POSTAL PERFORMANCE
-------------------------------------------------------- Chapter 0:1.3

Major mailers and the public remain concerned about obtaining quality
service at reasonable prices.  The Postal Service has committed to
developing reliable indicators of postal performance corresponding to
each of its performance goals so that it can track progress and meet
the requirements of the Government Performance and Results Act of
1993 (the Results Act).  Recently, the Service has reported
improvements in delivery service, including record on-time delivery
of overnight First-Class Mail, which improved from 82 percent in
fiscal year 1994 to 93 percent in fiscal year 1998.  However, we have
reported on concerns that past achievements in overnight mail
delivery came at the expense of other mail service, such as 2-day and
3-day letter mail, advertising mail, and periodicals.  In addition,
the Service has acknowledged that some employees sought to undermine
the integrity of performance data on overnight mail delivery. 


      POSTAL SERVICE AT RISK OF
      YEAR 2000 PROBLEMS
-------------------------------------------------------- Chapter 0:1.4

The Postal Service faces a major challenge in updating its computer
systems to correctly identify dates beginning in the year 2000 and
thus avoid malfunctions that could disrupt mail delivery.  The Postal
Service has a special responsibility to correct its computers to
avoid Year 2000 problems because a number of private sector and
government groups may need to use the Postal Service as a backup
delivery system if their computers malfunction.  For this reason, the
Postal Service is concerned about the prospect of a mail surge in
January 2000.  An early assessment by the Postal Service's Office of
Inspector General showed that the Service was slow to recognize the
scope of the challenge and take necessary actions to ensure that its
computer systems were Year 2000 compliant.  The Service has estimated
that the total cost of fixing its Year 2000 problem could be as much
as $500 million to $700 million. 


   PROGRESS AND NEXT STEPS
---------------------------------------------------------- Chapter 0:2

The Postal Service has made progress in addressing postal
labor-management relations.  For example, the Postmaster General has
emphasized labor-management relations by Service and union
initiatives to reduce employee grievances.  In addition, the Service
recently sponsored a national commission to study violence in the
postal workplace.  Further, the Service recently negotiated wage
agreements in contract talks with some of its major labor unions. 
Such agreements, when ratified, avoid binding arbitration, which has
been used since 1978 to resolve contract disputes between the Service
and most of its major labor unions.  However, the Service has yet to
reach a framework agreement of common goals and approaches with its
major postal labor unions and management associations, settle most
outstanding grievances, and resolve issues that impair both postal
efficiency and the quality of life for the postal workforce. 

In addition, we have reported that the Service has made progress in
implementing automation designed to improve the efficiency of letter
carriers, and the Service has also reported taking steps to tighten
internal controls over postal revenues and expenditures. 
Nevertheless, the Service will need to further strengthen controls
over costs and revenues in order to operate in a businesslike manner. 
Furthermore, recently introduced postal reform legislation in the
Congress includes proposals that would more clearly define how the
Postal Service would be allowed to compete in nonpostal-related
markets. 

In the area of providing quality service, the Service has reported
taking steps to improve mail service for several classes of mail,
develop a more complete set of performance measures, and safeguard
the integrity of performance data.  As the Service proceeds with its
implementation of the Results Act, it will need to fulfill its
commitment to implement reliable indicators of postal performance,
including measures covering major classes of mail. 

Finally, the Service has stated that it is assigning a high priority
to addressing the Year 2000 problem.  The Postal Service quarterly
report to the Office of Management and Budget in November 1998 on the
state of Year 2000 efforts indicated progress in meeting this
challenge.  The Service's remaining challenges include completing the
adjustment of its computers so that they are Year 2000 complaint,
fully testing computer systems, and preparing contingency plans to
help ensure continuity of core business operations. 


      KEY CONTACT
-------------------------------------------------------- Chapter 0:2.1

Bernard L.  Ungar, Director
 Government Business Operations Issues
General Government Division
(202) 512-8387
[email protected]


MAJOR PERFORMANCE AND MANAGEMENT
ISSUES
============================================================ Chapter 1

The Postal Service, the single largest federal civilian agency, has a
mission vital to the nation's communication and commerce.  As an
independent establishment of the executive branch, the Postal Service
is charged with providing postal services to bind the nation together
through the personal, educational, literary, and business
correspondence of the people.  The Service has an 11-member Board of
Governors, and the Governors, by law, are to be chosen to represent
the public interest.  The Service has a statutory monopoly that
restricts the private delivery of letters to enable the Service to
fulfill its mandates to provide fair and reasonable rates, uniform
rates for at least one class of letter mail, ready access to postal
retail services, and delivery of letter mail to patrons in all
communities. 

To carry out its mission, the Postal Service has nearly 900,000
employees and maintains a national network of over 38,000 post
offices and postal facilities.  The Service funds its operations
largely through postal revenues.  In fiscal year 1998, the Service's
operating revenue was $60 billion, and its net income was $550
million.  Since fiscal year 1995, the Service's net income has
exceeded $5 billion.  However, the Service still has nearly $4
billion in accumulated losses from deficits in past years.  Overall,
postal labor costs accounted for about 80 percent of the Service's
expenses in fiscal year 1997, and growth in postal productivity
lagged behind the private sector in fiscal years 1994 through 1997. 
In meeting its requirement to break even, the Service operates much
like a business in that it provides products and services in an
increasingly competitive communications environment.  In its 1997
annual report, the Service noted that its revenues have exceeded the
revenues of all but nine U.S.  companies. 

When the Postal Service was created out of the U.S.  Post Office
Department by the 1970 Postal Reorganization Act, it faced little
direct competition.  Today, in contrast, the Service faces growing
competition from private delivery firms and electronic communication
alternatives that have placed much of the Service's letter mail
revenue at risk.  Despite improvements in the Service's financial
position, the Service expects its core business to decline in the
coming years.  This outlook has heightened the need for the Postal
Service to resolve long-standing issues in labor-management
relations, better control costs and protect postal revenues,
implement reliable indicators of postal performance, and ensure that
its systems are Year 2000 compliant.  This report summarizes our
recent findings in these areas, including the Service's progress and
how the Service has begun to implement the Results Act. 


   LONG-STANDING CHALLENGES IN
   LABOR-MANAGEMENT RELATIONS
---------------------------------------------------------- Chapter 1:1

Our work has shown that the poor state of labor-management relations
within the Postal Service represents one of its most significant
internal operational and managerial challenges.  We have reported
that relationships between postal management and national and local
union leadership have generally been characterized by (1) a continued
reliance by three of the four major unions on arbitration to settle
their contract negotiation impasses with the Service and (2) a
significant rise not only in the number of grievances appealed to
higher levels, but also in the number of grievances awaiting
arbitration.  We have identified multiple causes of the Service's
poor labor-management relations, including autocratic management
styles; adversarial employee, union, and management attitudes; and an
inappropriate and inadequate performance management system.  Poor
labor-management relations have been exemplified by numerous
unresolved grievances that totaled almost 90,000 in fiscal year 1996
and by persistent disagreements that have adversely affected
initiatives to improve the efficiency of postal operations.  We have
reported that the effects of such problems are multiple and include
poor work life quality for postal employees and higher mail
processing and delivery costs for the Service. 

We reported in October 1997 that progress had been made in improving
the long-standing labor-management relations problems.  Various
postal, union, and management association officials whom we
interviewed said that the leaders of these organizations have been
unable to agree on common approaches to addressing labor-management
issues.  As a result, our 1994 recommendations for establishing a
national framework agreement of common goals and approaches have not
been implemented.  Further, in April 1998, we reported that the
Postal Service had not realized the full benefits of ongoing efforts
to improve the efficiency of letter carriers, in part because of
disagreements over program implementation between the Service and the
labor union that represents city letter carriers. 

In June 1998, we testified that there had been progress made in the
parties' efforts to address labor-management relations problems.  The
Postal Service, its unions, and management associations attended
summit meetings starting in late October 1997 to try to address
labor-management problems.  While the parties have not yet been able
to reach a framework agreement that would outline common goals and
approaches to set the stage for improving the postal work
environment, the new Postmaster General has made improving
labor-management relations a high priority, particularly with respect
to negotiating contracts with major labor unions.  The Service
recently negotiated wage agreements in contract talks with some of
its major labor unions.  Such agreements, when ratified, avoid
binding arbitration, which has been used since 1978 to resolve
contract disputes between the Service and most of its major labor
unions.  The Service also has reported reaching individual agreements
with major labor unions that focus on reducing conflict in the
workplace, identifying and eliminating root causes of labor disputes,
and improving the effectiveness of grievance arbitration procedures. 
Further, the Service has reported to the Congress that it has made
progress in reducing the number of unresolved grievances appealed to
higher levels.  Moreover, the Service has established a national
commission to study the problem of violence in the postal workplace. 

Despite recent progress, improving labor-management relations at the
Postal Service continues to be an enormous challenge and a major
concern for the Service and its unions and management associations. 
With the significant future challenges it faces to compete in a
dynamic communications marketplace, the Service can ill afford to be
burdened with long-standing labor-management relations issues.  We
continue to believe that, in order for any improvement efforts to
achieve their maximum intended benefits, it is important for the
affected parties to agree on common approaches for addressing
labor-management relations problems.  Although progress in this area
may be difficult to come by, the Postal Service and its unions and
management associations need to work together to resolve their
differences and thereby achieve tangible results in improving the
postal work environment. 


   THE CONTINUING CHALLENGE OF
   CONTAINING POSTAL COSTS AND
   PROTECTING REVENUES
---------------------------------------------------------- Chapter 1:2

The Postal Service's continued success in both operational and
financial performance will depend heavily on its ability to control
operating costs, strengthen internal controls, and ensure the
integrity of its services.  The Service's strategic plan stated that
significant revenue growth must be matched by aggressive cost
management to guarantee the success of the Service in mitigating
historic cost trends that drive price increases.  Further, the
Service has recognized that it must have strong and effective
internal operating controls to avoid unwarranted costs.  However, in
recent years, we have reported on the need to control costs and
protect postal revenues in several areas.  For example, the Service
has experienced substantial cost overruns on major capital projects,
failed to realize some opportunities to achieve savings, and had
difficulty in protecting postal revenues.  We have reported that a
number of these situations were exacerbated by weak internal
controls, which the Service has taken action to remedy or plans to
address.  The following are examples of the types of performance and
management challenges we have reported on. 

In April 1998, we reported that the Postal Service did not achieve
all of the savings in carrier work hours that it had originally
projected from its automation program to improve the efficiency of
letter carriers.  The Service reported that this program saved 22.5
million carrier work hours during fiscal years 1994 through 1997 out
of the originally projected savings of 27.2 million work hours.  We
reported that operational and labor-management relations issues had
affected the Service's ability to maximize program savings. 

In January 1998, we reported that the Service estimated that it could
save about $13 million to $17 million annually through centralized
uniform procurement but had delayed plans to implement the program
pending further discussions with the affected unions.  Postal
officials told us that they did not anticipate any movement toward
implementation before 1999 at the earliest. 

We reported in October 1997 on $133 million in cost overruns that
occurred in the construction of the new Chicago Main Post Office and
that appeared to be due primarily to inadequate planning.  In
response, the Service implemented procedures aimed at reducing the
likelihood of similar cost overruns in the future. 

In 1996, we reported that weaknesses in the Postal Service's controls
for accepting bulk business mail prevented the Service from having
reasonable assurance that all significant amounts of postage due were
received when mailers claimed presort or barcode discounts.  Our
report noted that bulk mail accounted for almost one-half of the
Service's annual revenue.  In response to our recommendations, the
Service reported taking steps to prevent revenue losses in bulk
mailings, including strengthening internal controls and bulk mail
acceptance procedures, as well as improving employee training.  In
addition, in November 1998, the Service reported to the Congress that
it is continuing to develop controls that will ensure a risk-based
verification process. 

Another area of concern has been the overall integrity of the Postal
Service's acquisitions.  In 1996, we reported that the Postal Service
had expended about $89 million on penalties to compensate injured
parties and to pay for unusable and marginally usable property
because of poor judgment and decisions to circumvent existing
internal controls to meet perceived operational exigencies.  We found
that the Postal Service could improve its purchasing organization and
methods to help safeguard against similar losses in the future.  The
Service said that, to avoid a recurrence of these problems, it has
improved its management of major acquisitions and strengthened
internal controls. 

Finally, we reported in 1994 that the Postal Service had an
ineffective system of controls for preventing and identifying the
fraudulent use of mechanical postage meters.  Weak controls, combined
with the vulnerability of mechanical meters, thus exposed the Service
to widespread meter fraud.  The Postal Service has reported that it
has developed centralized data management systems for the postage
meter program and is in the process of phasing out mechanical meters,
which are being replaced with electronic meters.  The Service also
has developed standards for new markings to be placed on envelopes,
in order to remedy the Service's inability to detect counterfeit
postage meter imprints.  However, systems for postage that
incorporate these new envelope markings are still in the testing
phase, and the Postal Service anticipates that it will need to refine
system specifications as it gains experience. 

As the foregoing examples illustrate, the Postal Service has not
always had effective controls to protect its revenue or control its
costs.  The Service's Five-Year Strategic Plan for fiscal years 1998
through 2002 stated that the Service is aggressively pursuing a
variety of programs to improve the efficiency of its revenue
assurance and internal control processes to ensure that the Service
collects all the revenues that it should be paid.  Although the
Service has recently instituted actions to improve its controls in
several areas, we have not evaluated these recent actions and are not
in a position to report on their effectiveness.  Not only is it
important for the Service to ensure that its recent improvements are
effective, but it is also vital that the Service ensure that controls
are adequate in new programs and initiatives it undertakes in the
future.  With respect to the Service's automation program, we have
reported that the Service has made progress in implementing
automation designed to improve the efficiency of letter carriers. 
Given the Service's plans to spend billions of dollars on automation
projects over the next few years, the Service will need to ensure
that it is prepared to meet the critical challenges of implementing
automation projects, obtaining the planned savings on schedule, and
improving overall productivity. 

As competition grows, thus placing billions of dollars of postal
revenues at risk, the Postal Service has said it will need to find
new revenue sources in order to remain self-supporting.  In its
strategic plan, the Service reported that the growth rate for
First-Class Mail for fiscal years 1991 through 1996 was about 1.5
percent annually and that First-Class Mail revenues of about $6
billion are at risk from electronic diversion.  The Service reported
that its share of the correspondence and transactions communications
market, a growing market that is the Service's largest business
segment, decreased from 77 percent in 1988 to about 59 percent in
1996. 

Currently, the statutory and regulatory authorities governing the
Postal Service provide the Service broad latitude to develop and
market a wide variety of new products, including both postal and
nonpostal products.  Some private sector companies and some Members
of Congress have raised concerns that the Postal Service could use
its governmental status and monopoly protection to an unfair
advantage when introducing nonpostal products that compete with those
of private sector companies.  Legislation has been proposed that
would restrict the Service's introduction of new, nonpostal products. 
In response to these and other concerns, the Service has discontinued
or restricted several new nonpostal products.  Although a recent
legislative postal reform proposal would provide the Service with
broader latitude to test market experimental postal products for
limited periods of time, it would also require that new nonpostal
products be introduced through a separate for-profit corporation
created and owned by the Postal Service. 

We recently issued a report that provides information on new products
that the Postal Service marketed or had under development during
fiscal years 1995 through 1997.  It also discussed the potential
impact that the recently proposed reform legislation would have on
the Service's ability to introduce new products.  The Service
reported total revenues and expenses for these new products, from
inception through fiscal year 1997, as $148.8 million and $233.5
million, respectively.  In this regard, we reported that it may not
be reasonable to expect all new products to become profitable in
their early years, because new products generally take several years
to become established and recover their start-up costs.  In order to
develop new sources of revenue, the Postal Service will need to work
with the Congress and other postal stakeholders to address questions
concerning what types of new nonpostal products would be appropriate
for the Service to provide. 


   THE NEED TO IMPLEMENT RELIABLE
   INDICATORS OF POSTAL
   PERFORMANCE
---------------------------------------------------------- Chapter 1:3

The Postal Service is required by law to provide prompt, reliable,
and efficient services to patrons in all areas.  Major mailers and
the public remain concerned about obtaining quality service at
reasonable prices.  The Service's measures of mail delivery are key
to its efforts to improve and sustain service performance.  However,
questions have been raised concerning the integrity of data used to
measure the timeliness of overnight First-Class Mail delivery.  In
addition, the Service has not yet implemented quantifiable,
results-oriented measures for all of its performance goals
established to meet the requirements of the Results Act.  The Service
will need such measures to be able to fully assess progress toward
meeting its goals. 

Concerns about the Postal Service's ability to deliver the mail in a
timely and consistent manner have prompted close scrutiny of postal
performance by the Congress, mailers, and customers.  Although the
Service recently reported improvements in the delivery of overnight
First-Class Mail in 1997, the delivery scores of 2-day and 3-day mail
for fiscal year 1997 declined from levels previously reported for
fiscal years 1995 and 1996.  We testified that such declines may have
reinforced concerns previously expressed by some postal customers
that the Service's emphasis on overnight mail delivery has been at
the expense of 2-day and 3-day mail delivery efforts.  However, the
Service recently reported achieving improvements in delivery of both
overnight mail and 2-day and 3-day mail.  The Service reported that
on-time delivery of overnight mail reached a record level of 93
percent in fiscal year 1998, up from 92 percent in fiscal year 1997
and 89 percent in fiscal year 1996.  On-time delivery of 2-day mail
improved to a record level of 83 percent in fiscal year 1998,
compared with 76 percent in fiscal year 1997 and 79 percent in fiscal
year 1996.  In addition, on-time delivery of 3-day mail reached a
record level of 81 percent in fiscal year 1998, compared with 77
percent in fiscal year 1997 and 80 percent in fiscal year 1996. 

In addition to these concerns, mailers and postal customers have also
expressed concern regarding the delivery service for advertising mail
and periodicals.  Under the new Postmaster General, the Service has
acknowledged that it has experienced problems in delivering these
types of mail and said it would do a better job of delivering
catalogs and other advertising mail during the 1998 holiday season. 
In addition, the Service has said that it is taking several actions
to improve the delivery of periodicals and stressed that senior
postal management will continue to place emphasis on the timely
delivery of periodicals.  The Service has also committed to
developing performance measures for additional classes of mail, such
as advertising mail and periodicals. 

The Service has also responded to the concerns of external
stakeholders regarding the credibility of performance data.  The
Postal Service Inspector General identified several weaknesses that
had the potential to compromise the validity of the Service's
reporting system.  The Service has acknowledged that some of its
employees attempted to undermine the integrity of the Service's data
on the timeliness of overnight First-Class Mail.  In response, the
Service reported that it has made changes to prevent manipulation of
the data. 

As the Service proceeds with its implementation of the Results Act,
it will be important for it to develop results-oriented measures for
its critical functions and program areas.  The Service will also need
to take steps to ensure that it uses reliable data to report on its
performance, as required by the Results Act.  Specifically, the
Service has not yet implemented (1) indicators related to improving
labor-management relations, (2) indicators related to improving the
consistency and accuracy of mail delivery, and (3) four of seven
indicators meant to measure employee proficiency.  The Service has
said that it intends to use a phased approach to develop performance
measures for all of its products and services as soon as possible. 


   POSTAL SERVICE AT RISK OF YEAR
   2000 PROBLEMS
---------------------------------------------------------- Chapter 1:4

Like other federal agencies, the Postal Service is at risk of
experiencing Year 2000 computer problems that, if uncorrected, could
disrupt postal operations.  Because of the way computers have
recorded and computed dates, on January 1, 2000, computer systems
worldwide could malfunction or produce inaccurate information. 
Software and systems experts nationwide are concerned that, unless
corrected, the Year 2000 problem could cause computer systems to
malfunction in unforeseen ways, or to fail completely.  The Service
has a special responsibility to correct its computers to avoid Year
2000 problems because a number of private sector and government
groups may need to use the Service as a backup delivery system if
their computers malfunction.  For this reason, the Service is
concerned about the prospect of a mail surge in January 2000.  With
respect to its own computer systems, the Service has been making
necessary corrections so that the Year 2000 problem will not affect
its ability to deliver the mail.  In this regard, a March 1998 report
by the Service's Inspector General found that correcting the Year
2000 problem would be a challenge because the Service was slow to
recognize the extent of the problem and did not have sufficient
planning and corporatewide involvement to allow for the most
effective approach to solving the problem.  The Service concurred
with this assessment and agreed to take corrective actions. 

The Postal Service has numerous computer systems that it must assess,
correct, and verify to ensure Year 2000 compliance.  As of October
1998, the Service had identified about 150 business applications that
were rated as mission-critical, about 350 as important but not
mission-critical, and about 50 systems that were to be retired. 
Overall, the Service has estimated that it has over 100,000 pieces of
hardware and software to assess and correct when necessary, including
mainframe computers, personal computers, networks, and operating
systems.  For example, the Service has identified 50 different
components used in mail processing equipment, 41 of which were
classified as mission-critical.  Of the remainder, three were
classified as important but not critical, and six were to be retired
or replaced.  The Service reported having almost 1,300 people
assigned to work on the Year 2000 problem in October 1998, of which
about one-third were Postal Service staff and two-thirds were
contract personnel.  The Service has estimated that the total cost of
fixing its Year 2000 problem could be as much as $500 million to $700
million. 

In addition to correcting its own computer systems, the Postal
Service has said that it is heavily dependent on suppliers and
therefore needs to ensure that key supplier systems are Year 2000
compliant.  The Service has identified about 15,000 suppliers,
although it reported that only a few hundred are considered critical
to its mission.  The mission-critical suppliers include companies
such as the airlines, information technology companies, financial
institutions, and manufacturers of postal meters.  Furthermore, the
Service also exchanges data with numerous suppliers and customers. 
The Service has said that it is engaged in a dialogue with critical
interface partners regarding actions that will be necessary to ensure
that data exchanges are not interrupted by the Year 2000 problem. 

In preparing for the year 2000, the Postal Service has experienced
difficulties in managing and correcting the Year 2000 problem,
according to reports by the Service's Inspector General and by us. 
Examples of such difficulties include the following. 

On September 29, 1998, the Service's Inspector General reported that
the Postal Service could not provide reasonable assurance that all
computer applications classified as mission-critical would be
independently verified as corrected before the year 2000.  The report
noted that the Service was not using a timely and efficient process
to verify applications and included recommendations intended to help
the Service identify application systems problems before a serious
date-related failure occurred.  The report also found that few postal
applications had been verified as corrected as of July 1998.  The
Postal Service concurred with the report's findings and
recommendations, and the Service's Inspector General agreed that
planned corrective actions, when fully implemented, should be an
adequate response. 

In October 1998, we reported that, according to the Postal Service,
in its efforts to address the Year 2000 problem, retaining skilled
in-house personnel resources needed for remediation and testing has
been a challenge exacerbated by a limited labor pool.  In addition,
the Service reported that retaining skilled contractor staff
continues to be a challenge. 

The Postal Service reported that it is giving high priority to
addressing the Year 2000 problem and said that it has made progress
in overcoming early difficulties.  In October 1998, the Deputy
Postmaster General said that "the Year 2000 Initiative is a most
critical project for the Postal Service and will require continuous
senior management engagement .  .  .  ." The Service also reported at
that time that it was generally on schedule to fix its computer
systems.  The Service's remaining challenges include completing
fixing its computers so that they are Year 2000 compliant, fully
testing computer systems, and preparing contingency plans to help
ensure continuity of core business operations.  Given the importance
of the Postal Service's mission, close oversight will be needed to
ensure that its Year 2000 program stays on track.  We are working
with the Inspector General to assess and monitor the Service's
progress. 


RELATED GAO PRODUCTS
============================================================ Chapter 2


   LABOR-MANAGEMENT RELATIONS
---------------------------------------------------------- Chapter 2:1

U.S.  Postal Service:  Performance Progress Has Been Made, but
Continued Attention to Challenges Is Needed (GAO/T-GGD-98-142, June
10, 1998). 

U.S.  Postal Service:  Little Progress Made in Addressing Persistent
Labor-Management Problems (GAO/GGD-98-1, Oct.  1, 1997). 

U.S.  Postal Service:  Challenges in Improving Performance and
Meeting Competition (GAO/T-GGD-96-90, Mar.  13, 1996). 

D.C.  Area Mail Delivery Service:  Resolving Labor-Relations and
Operational Problems Key to Service Improvement (GAO/GGD-95-77, Feb. 
23, 1995). 

U.S.  Postal Service:  Labor-Management Problems Persist on the
Workroom Floor (GAO/GGD-94-201A/B, Sept.  29, 1994). 


   CONTROLLING COSTS AND
   PROTECTING REVENUES
---------------------------------------------------------- Chapter 2:2

U.S.  Postal Service:  Progress Made in Implementing Automated Letter
Sequencing, but Some Issues Remain (GAO/GGD-98-73, Apr.  17, 1998). 

U.S.  Postal Service:  Information on Centralized Procurement of
Uniforms (GAO/GGD-98-58R, Jan.  28, 1998). 

U.S.  Postal Service:  Chicago Main Post Office Cost Overruns and
Graceland Station Mail Service (GAO/GGD-98-11, Oct.  31, 1997). 

Postal Service Controls Over Postage Meters (GAO/GGD-96-194R, Sept. 
26, 1996). 

U.S.  Postal Service:  Stronger Mail Acceptance Controls Could Help
Prevent Revenue Losses (GAO/GGD-96-126, June 25, 1996). 

Postal Service:  Conditions Leading to Problems in Some Major
Purchases (GAO/GGD-96-59, Jan.  18, 1996). 

Postal Service:  Automation Is Taking Longer and Producing Less Than
Expected (GAO/GGD-95-89BR, Feb.  22, 1995). 

Postage Meters:  Risk of Significant Financial Loss but Controls Are
Being Strengthened (GAO/GGD-94-148, May 26, 1994). 


   OPERATING IN A COMPETITIVE
   ENVIRONMENT
---------------------------------------------------------- Chapter 2:3

U.S.  Postal Service:  Development and Inventory of New Products
(GAO/GGD-99-15, Nov.  24, 1998). 

U.S.  Postal Service:  Competitive Concerns About Global Package Link
Service (GAO/GGD-98-104, June 5, 1998). 

U.S.  Postal Service:  Continued Challenges to Maintaining Improved
Performance (GAO/T-GGD-97-88, Apr.  24, 1997). 

U.S.  Postal Service Reform:  Issues Relevant to Changing
Restrictions on Private Letter Delivery (GAO/GGD-96-129A/B, Sept. 
12, 1996). 

U.S.  Postal Service:  Unresolved Issues in the International Mail
Market (GAO/GGD-96-51, Mar.  11, 1996). 


   INDICATORS OF POSTAL
   PERFORMANCE
---------------------------------------------------------- Chapter 2:4

The Results Act:  Observations on the Postal Service's Preliminary
Annual Performance Plan (GAO/GGD-98-144, July 10, 1998). 

The Results Act:  Observations on the Postal Service's June 1997
Draft Strategic Plan (GAO/GGD-97-163R, July 31, 1997). 

U.S.  Postal Service:  New Focus on Improving Service Quality and
Customer Satisfaction (GAO/GGD-96-30, Dec.  20, 1995). 


   YEAR 2000 ISSUES
---------------------------------------------------------- Chapter 2:5

Year 2000 Computing Crisis:  Status of Efforts to Deal With Personnel
Issues (GAO/AIMD/GGD-99-14, Oct.  22, 1998). 

Year 2000 Computing Crisis:  Actions Needed on Electronic Data
Exchanges (GAO/AIMD-98-124, July 1, 1998). 

Year 2000 Computing Crisis:  Actions Must Be Taken Now to Address
Slow Pace of Federal Progress (GAO/T-AIMD-98-205, June 10, 1998). 


PERFORMANCE AND ACCOUNTABILITY
SERIES
============================================================ Chapter 3

Major Management Challenges and Program Risks:  A Governmentwide
Perspective (GAO/OCG-99-1)

Major Management Challenges and Program Risks:  Department of
Agriculture (GAO/OCG-99-2)

Major Management Challenges and Program Risks:  Department of
Commerce (GAO/OCG-99-3)

Major Management Challenges and Program Risks:  Department of Defense
(GAO/OCG-99-4)

Major Management Challenges and Program Risks:  Department of
Education (GAO/OCG-99-5)

Major Management Challenges and Program Risks:  Department of Energy
(GAO/OCG-99-6)

Major Management Challenges and Program Risks:  Department of Health
and Human Services (GAO/OCG-99-7)

Major Management Challenges and Program Risks:  Department of Housing
and Urban Development (GAO/OCG-99-8)

Major Management Challenges and Program Risks:  Department of the
Interior (GAO/OCG-99-9)

Major Management Challenges and Program Risks:  Department of Justice
(GAO/OCG-99-10)

Major Management Challenges and Program Risks:  Department of Labor
(GAO/OCG-99-11)

Major Management Challenges and Program Risks:  Department of State
(GAO/OCG-99-12)

Major Management Challenges and Program Risks:  Department of
Transportation (GAO/OCG-99-13)

Major Management Challenges and Program Risks:  Department of the
Treasury (GAO/OCG-99-14)

Major Management Challenges and Program Risks:  Department of
Veterans Affairs (GAO/OCG-99-15)

Major Management Challenges and Program Risks:  Agency for
International Development (GAO/OCG-99-16)

Major Management Challenges and Program Risks:  Environmental
Protection Agency (GAO/OCG-99-17)

Major Management Challenges and Program Risks:  National Aeronautics
and Space Administration (GAO/OCG-99-18)

Major Management Challenges and Program Risks:  Nuclear Regulatory
Commission (GAO/OCG-99-19)

Major Management Challenges and Program Risks:  Social Security
Administration (GAO/OCG-99-20)

Major Management Challenges and Program Risks:  U.S.  Postal Service
(GAO/OCG-99-21)

High-Risk Series:  An Update (GAO/HR-99-1)





The entire series of 21 performance and accountability reports and
the high-risk series update can be ordered by using the order number
GAO/OCG-99-22SET. 

*** End of document. ***