U.S. Postal Service: Continued Challenges to Maintaining Improved
Performance (Testimony, 04/24/97, GAO/T-GGD-97-88).
GAO discussed: (1) the performance of the Postal Service (USPS) and the
need for improving internal controls and protecting revenue in an
organization that takes in and spends billions of dollars each year; (2)
key reform and oversight issues that continue to challenge USPS and
Congress as they consider how U.S. mail service will be provided in the
future; and (3) its ongoing work relating to labor-management relations
at USPS and other issues.
GAO noted that: (1) USPS reported that fiscal year (FY) 1996 represented
the second year in a row that its financial performance was profitable
and operational performance improved; (2) USPS's 1996 net income was
$1.6 billion and it delivered 91 percent of overnight mail on time; (3)
additionally, for FY 1996, USPS's volume exceeded 182 billion pieces of
mail and generated more than $56 billion in revenue; (4) while these
results are encouraging, other performance data suggest that some areas
warrant closer scrutiny; (5) last year's delivery of 2-day and 3-day
mail, at 80 and 83 percent respectively, did not score as high as
overnight delivery; (6) the concern among customers is that USPS's
emphasis on overnight delivery is at the expense of 2-day and 3-day
mail; (7) additionally, although its mail volume continues to grow, USPS
is concerned that customers increasingly are turning to its competitors
or alternative communications methods; (8) in 1996, mail volume
increased by about one-half of USPS's anticipated increase in volume;
(9) containing costs is another key challenge that GAO has reported on
previously; (10) GAO has also found several weaknesses in USPS's
internal controls that contributed to increased costs; (11) USPS's
continued success in both financial and operational performance will
depend heavily on controlling operating costs, strengthening internal
controls, and ensuring the integrity of its services; (12) the prospect
that pending postal legislation may place USPS in a more competitive
arena with its private sector counterparts has prompted congressional
consideration of some key reform issues; (13) these issues include how
proposed changes to the Private Express statutes may affect universal
mail service, postal revenues, and rates; (14) another reform issue is
the future role of USPS in an increasingly competitive, constantly
changing communications market; (15) congressional oversight remains a
key tool for improving the organizational performance of USPS; (16) one
of the most important areas for oversight is labor-management relations,
(17) despite the initiatives that have been established to address them,
the long-standing labor-management relations problems GAO identified in
1994 remain unresolved; (18) the Government Performance and Results Act
provides an important avenue for stakeholders in reaching a consensus
for addressing such problems; and (19) also, USPS's automation efforts *
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-GGD-97-88
TITLE: U.S. Postal Service: Continued Challenges to Maintaining
Improved Performance
DATE: 04/24/97
SUBJECT: Mail delivery problems
Privatization
Profits
Competition
Internal controls
Customer service
Postal rates
Labor-management relations
Mail transportation operations
Postal service
IDENTIFIER: USPS Express Mail Corporate Account
USPS Express Mail Program
USPS National Bulk Mail System
USPS National Change of Address Program
USPS Capital Investment Plan
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Cover
================================================================ COVER
Before the Subcommittee on the Postal Service,
House Committee on Government Reform and Oversight
For Release on Delivery
Expected at
1:00 p.m., EDT
Thursday
April 24, 1997
U.S. POSTAL SERVICE - CONTINUED
CHALLENGES TO MAINTAINING IMPROVED
PERFORMANCE
Statement of Michael E. Motley
Associate Director, Government Business
Operations Issues
GAO/T-GGD-97-88
GAO/GGD-97-88T
(240247)
Abbreviations
=============================================================== ABBREV
CPC - Canada Post Corporation
EMCA - Express Mail Corporate Account
GPRA - Government Performance and Results Act
NCOA - National Change of Address (program)
U.S. POSTAL SERVICE: CONTINUED
CHALLENGES TO MAINTAINING IMPROVED
PERFORMANCE
====================================================== Chapter Summary
GAO's testimony addresses the challenges that confront Congress and
the Postal Service as they consider how to sustain its performance
and maintain a competitive role in providing mail service to the
American public in the future.
The Postal Service reported that fiscal year 1996 represented the
second year in a row that its financial performance was profitable
and operational performance improved. The Postal Service's 1996 net
income was $1.6 billion and it delivered 91 percent of overnight mail
on time. Additionally, for fiscal year 1996, the Postal Service's
volume exceeded 182 billion pieces of mail and generated more than
$56 billion in revenue.
While these results are encouraging, other performance data suggest
that some areas warrant closer scrutiny. Last year's delivery of
2-day and 3-day mail--at 80 and 83 percent respectively--did not
score as high as overnight delivery. The concern among customers is
that the Postal Service's emphasis on overnight delivery is at the
expense of 2-day and 3-day mail. Additionally, although its mail
volume continues to grow, the Postal Service is concerned that
customers increasingly are turning to its competitors or alternative
communications methods. In 1996, mail volume increased by about
one-half of the Postal Service's anticipated increase in volume.
Containing costs is another key challenge that GAO has reported on
previously. For example, last year's operating expenses increased
4.7 percent compared to a 3.9 percent increase in operating revenues.
GAO has also found several weaknesses in the Postal Service's
internal controls that contributed to increased costs. The Postal
Service's continued success in both financial and operational
performance will depend heavily on controlling operating costs,
strengthening internal controls, and ensuring the integrity of its
services.
The prospect that pending postal legislation may place the Postal
Service in a more competitive arena with its private sector
counterparts has prompted congressional consideration of some key
reform issues. These issues include how proposed changes to the
Private Express Statutes may affect universal mail service, postal
revenues, and rates. Another reform issue is the future role of the
Postal Service in an increasingly competitive, constantly changing
communications market.
Congressional oversight remains a key tool for improving the
organizational performance of the Postal Service. One of the most
important areas for oversight is labor-management relations. Despite
the initiatives that have been established to address them, the
long-standing labor-management relations problems GAO identified in
1994 remain unresolved. The Government Performance and Results Act
provides an important avenue for stakeholders in reaching a consensus
for addressing such problems. Also, the Postal Service's automation
efforts will continue to require the attention of both the Postal
Service and Congress to ensure that increased productivity and an
adequate return on investments are realized.
U.S. POSTAL SERVICE: CONTINUED
CHALLENGES TO MAINTAINING IMPROVED
PERFORMANCE
==================================================== Chapter Statement
Mr. Chairman and Members of the Subcommittee:
We are pleased to be here today to participate in the Subcommittee's
oversight hearing on the U.S. Postal Service. My testimony will (1)
focus on the performance of the Postal Service and the need for
improving internal controls and protecting revenue in an organization
that takes in and spends billions of dollars each year and (2)
highlight some of the key reform and oversight issues that continue
to challenge the Postal Service and Congress as they consider how
U.S. mail service will be provided in the future. I will also
provide some observations from our ongoing work relating to
labor-management relations at the Postal Service and other areas. My
testimony is based on our ongoing work and work that we completed
over the past year.
IMPROVING INTERNAL CONTROLS
AND REVENUE PROTECTION
REMAINS A CONCERN
------------------------------------------------ Chapter Statement:0.1
First, I would like to discuss both the reported successes and some
of the remaining areas of concern related to the Postal Service's
performance. Last year, the Postal Service reported that it had
achieved outstanding financial and operational performance.
Financially, the Postal Service had the second most profitable year
in its history. According to the Postal Service's 1996 annual
report, its fiscal year 1996 net income was $1.6 billion. Similarly,
with regard to mail delivery service, the Postal Service continued to
meet or exceed its goals for on-time delivery of overnight mail.
Most recently, the Postmaster General announced that, during 1996,
the Postal Service delivered 91 percent of overnight local
residential mail on time or better. Additionally, during fiscal year
1996, the Postal Service's volume exceeded 182 billion pieces of mail
and generated more than $56 billion in revenue.
While these results are encouraging, other performance data suggest
that some areas of concern warrant closer scrutiny. For example,
last year's delivery of 2-day and 3-day mail--at 80 and 83 percent
respectively--did not score as high as overnight delivery. Such
performance has raised a concern among some customers that the Postal
Service's emphasis on overnight delivery is at the expense of 2-day
and 3-day mail. Additionally, although its mail volume continues to
grow, the Postal Service is concerned that customers increasingly are
turning to its competitors or alternative communications methods. In
1996, mail volume increased by about one-half of the Service's
anticipated increase in volume.
Containing costs is another key challenge that we reported on
previously. In the area of expenditures, the Postal Service's 1996
annual report showed that its 1996 operating expenses increased 4.7
percent compared to a 3.9 percent increase in operating revenues.
Labor costs, which include pay and benefits, continued to account for
almost 80 percent of the Postal Service's operating expenses, and the
Postal Service expects that its costs for compensation and benefits
will grow more than 6 percent in 1997. Moreover, controlling costs
will be critical with regard to capital investments in 1997, as the
Postal Service plans to commit $6 billion to capital improvements.
Over the next 5 years, the Service plans to devote more than $14
billion in capital investments to technology, infrastructure
improvements, and customer service and revenue initiatives.
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. However, we found several weaknesses in
the Postal Service's internal controls that contributed to
unnecessary increased costs.
We reported in October 1996\1 that internal controls over Express
Mail Corporate Accounts (EMCA) were weak or nonexistent, which
resulted in the potential for abuse and increasing revenue losses
over the past 3 fiscal years. Specifically, we found that some
mailers obtained express mail services using invalid EMCAs and that
the Postal Service did not collect the postage due. Consequently, in
fiscal year 1995, the Postal Service lost express mail revenue of
about $800,000 primarily because it had not verified EMCAs that were
later determined to be invalid.
Since our report was issued, the Postal Service has taken action or
developed plans to address these deficiencies. The Postal Service
revised its EMCA regulations to require an initial deposit of $250,
up from $100, to open an account. In addition, in a March 27, 1997,
letter to EMCA customers, the Postal Service stated that effective
immediately a minimum account balance of $250, or 4 weeks' worth of
average postage, whichever is higher, must be maintained. Prior to
this change, customers were required to maintain a balance of $50 in
their accounts. The Postal Service also recently issued a memorandum
requiring district managers to ensure that employees perform the
necessary express mail acceptance checks so that the correct postage
amounts can be collected. Finally, the Postal Service plans to
install terminals in mail processing plants to allow Express Mail
packages that are deposited in collection boxes or picked up at
customers' locations to be checked for valid EMCA numbers before they
are accepted into the mail system.
Similarly, we reported in June 1996\2 that weaknesses in the Postal
Service's controls for accepting bulk business mail prevented it from
having reasonable assurance that all significant amounts of postage
revenue due were received when mailers claimed presort/barcode
discounts. We reported that during fiscal year 1994, as much as 40
percent of required bulk mail verifications were not performed. Bulk
mail totaled almost one-half of the Postal Service's total revenue of
$47.7 billion in fiscal year 1994. At the same time, we found that
less than 50 percent of the required follow-up verifications to
determine the accuracy of the clerk's work were being performed by
the supervisors. In response to our recommendations, the Postal
Service is developing new and strengthening existing internal
controls to help prevent revenue losses in bulk mailings. For
example, the Postal Service plans to improve the processes used in
the verification of mail, including how units are staffed, how
verifications are performed, and how results of acceptance work are
reported and reviewed.
Another area of recent concern has been the overall integrity of the
Postal Service's acquisitions. We concluded, in our January 1996
report,\3 that the Postal Service did not follow required procedures
for seven real estate or equipment purchases. We estimated that
these seven purchases resulted in the Postal Service's expending
about $89 million on penalties, unusable, or marginally usable
property. Three of the seven purchases involved ethics violations
arising from the contracting officers' failure to correct situations
in which individuals had financial relationships with the Postal
Service and with certain offerors. We also pointed out that the
Office of Government Ethics was reviewing the Postal Service's ethics
program and reported that all areas of the program required
improvement. The Office of Government Ethics subsequently made a
number of recommendations designed to ensure that improvement of the
Postal Service's ethics program continues through more consistent
oversight and management support.
Since our January 1996 report, the Office of Government Ethics has
completed three reviews to follow up on its open recommendations.
Recently, the Postal Service developed guidance for avoiding
conflicts of interest and filing financial disclosure reports as well
as established procedures to ensure that the Office of Government
Ethics is notified about all conflict-of-interest violations that are
referred to the Department of Justice. As a result of these actions,
the Office of Government Ethics closed its remaining open
recommendations.
Additionally, strengthening program oversight is essential to
effective mail delivery. We found that the Postal Service did not
exercise adequate oversight of its National Change of Address (NCOA)
program.\4 We reported that the Postal Service took a positive step
toward dealing with the inefficiencies of processing misaddressed
mail. However, at the same time, we found that the NCOA program was
operating without clear procedures and sufficient oversight to ensure
that the program was operating in compliance with the privacy
provisions of federal laws. Accordingly, we recommended that the
Postal Service strengthen oversight of NCOA by developing and
implementing written oversight procedures. In response to our
recommendation, the Postal Service developed written oversight
procedures for the NCOA program.
Most recently, we issued a report\5 that describes how the Postal
Service closes post offices and provides information on the number
closed since 1970--over 3,900 post offices. We also provided
information on the number of appeals and their dispositions, as well
as some information about the communities where post offices were
closed in fiscal years 1995 and 1996. Generally, the Postal Service
initiated the closing process after a postmaster vacancy occurred
through retirement, transfer, or promotion or after the termination
of the post office building's lease. In each case, the Postal
Service proposed less costly alternative postal services to the
affected community, such as establishing a community post office
operated by a contractor or providing postal deliveries through rural
routes and cluster boxes.
--------------------
\1 U.S. Postal Service: Revenue Losses From Express Mail Accounts
Have Grown (GAO/GGD-97-3, Oct. 24, 1996).
\2 U.S Postal Service: Stronger Mail Acceptance Controls Could Help
Prevent Revenue Losses (GAO/GGD-96-126, June 25, 1996).
\3 Postal Service: Conditions Leading to Problems in Some Major
Purchases (GAO/GGD-96-59, Jan. 18, 1996).
\4 U.S. Postal Service: Improved Oversight Needed to Protect
Privacy of Address Changes (GAO/GGD-96-119, Aug. 13, 1996).
\5 U.S. Postal Service: Information on Post Office Closures,
Appeals, and Affected Communities (GAO/GGD-97-38BR, Mar. 11, 1997).
KEY REFORM ISSUES
------------------------------------------------ Chapter Statement:0.2
The second area I would like to discuss is the pending postal
legislation. This legislation, if enacted, might place the Postal
Service in a more competitive arena with its private sector
counterparts and has raised some key reform issues for consideration.
One such issue relates to proposed changes to the Private Express
Statutes. These Statutes were set up to ensure that the Postal
Service has enough revenue to provide universal access to postal
services to the general public and that certain mail, such as
First-Class, will bear a uniform rate. In our September 1996
report,\6 we emphasized the importance of recognizing the Statutes'
underlying purpose and determining how changes may affect universal
mail service and uniform rates. Most important among the potential
consequences is that relaxing the Statutes could open First-Class
mail services to additional competition, thus possibly affecting
postal revenues and rates and the Postal Service's ability to carry
out its public service mandates. However, at the same time, the
American public could benefit through improved service. It will be
important to take into account the possible consequences for all
stakeholders in deciding how mail services will be provided to the
American public in the future.
Another key reform issue is the future role of the Postal Service in
the constantly changing and increasingly competitive communications
market. For example, the use of alternative communications methods
such as electronic mail, faxes, and the Internet continues to grow at
phenomenal rates in the United States and is beginning to affect the
Postal Service markets. At the same time, the Postal Service's
competitors continue to challenge it for major shares of the
communications market. According to the Postmaster General, the
Postal Service has been losing market share in five of its six
product lines. It seems reasonable to assume that these alternative
communications methods are likely to be used more and more. In
addition, international mail has become an increasingly vital market
in which the Postal Service competes. In our March 1996 report,\7 we
pointed out that, although the Postal Service has more flexibility in
setting international rates, it still lost business to competitors
because rates were not competitive and delivery service was not
reliable. We also identified several issues surrounding the Postal
Service's role in the international mail arena that remain
unresolved. Chief among them is the appropriateness of the Postal
Service's pricing practices in setting rates for international mail
services.
We also reviewed postal reform in other countries to learn about
their experiences. Recently, we issued a report\8 on Canada's
efforts since 1981 to reform its postal service, the Canada Post
Corporation (CPC). Although CPC retained basic letter mail services
at a uniform rate, it also reduced the frequency of mail delivery to
some businesses, as well as in urban and rural areas. CPC uses a
regulatory rate-making process that includes the opportunity for
public comment and government approval for basic domestic and
international single-piece letters. However, postage rates for other
mail services can be approved by CPC without issuing regulations or
obtaining government approval. Some of the key concerns that have
been raised by CPC customers include CPC's closure of rural post
offices and its conversion of others to private ownership. In
addition, CPC's competitors have expressed concern about whether CPC
is cross-subsidizing the prices of its courier services with monopoly
revenues. The Canadian government has responded to these concerns by
continuing its moratorium on post office closings and directing CPC
to discontinue delivery of unaddressed advertising mail. The
government is also considering a call for additional government
oversight of CPC.
Mr. Chairman, as you are aware, we also have a number of ongoing
reviews related to postal reform. For example, in concert with your
focus on the future role of the Postal Service, we are currently
reviewing the role and structure of the Postal Service's Board of
Governors in order to determine its strengths and weaknesses. The
Board of Governors is responsible for directing and controlling the
expenditures of the Postal Service, reviewing its practices,
participating in long-range planning, and setting policies on all
postal matters. In addition to obtaining the views of current and
former Board members, we plan to provide information on the role and
structure of Boards in other types of government-created
organizations. Another issue important to postal reform that we are
reviewing involves access to mailboxes. More specifically, we plan
to provide information on (1) public opinions on the issue of mailbox
restrictions; (2) views of the Postal Service and other major
stakeholders; and (3) this country's experience with mailbox security
and enforcement of related laws, compared with the experiences in
selected other countries.
--------------------
\6 Postal Service Reform: Issues Relevant to Changing Restrictions
on Private Letter Delivery (GAO/GGD-96-129A/B, Sept. 12, 1996).
\7 U.S. Postal Service: Unresolved Issues in the International Mail
Market (GAO/GGD-96-51, Mar. 11, 1996).
\8 Postal Reform in Canada: Canada Post Corporation's Universal
Service and Ratemaking (GAO/GGD-97-45BR, Mar. 5, 1997).
OVERSIGHT OF THE POSTAL
SERVICE REMAINS IMPORTANT
------------------------------------------------ Chapter Statement:0.3
Congressional oversight remains a key to improving the organizational
performance of the Postal Service. One of the most important areas
for oversight is labor-management relations. As the Postal Service
focuses on the significant challenges it faces to compete in today's
communications marketplace, unresolved labor-management relations
disputes continue to hinder efforts to improve productivity.
Generally, the long-standing labor-management problems we identified
in 1994 still remain unresolved, despite the initiatives that have
been established to address them.\9 For example, the number of
grievances requiring formal arbitration has increased almost 76
percent, from about 51,000 in fiscal year 1993 to over 90,000 in
fiscal year 1996. These difficulties continue to plague the Service
primarily because the major postal stakeholders (the Postal Service,
four major unions, and three management associations) cannot all
agree on common approaches for addressing their problems. We
continue to believe that until the major postal stakeholders develop
a framework agreement that would outline common objectives and
strategies, efforts to improve labor-management relations will likely
continue to be fragmented and difficult to sustain.
The Government Performance and Results Act (GPRA) provides a
mechanism that may be useful in focusing a dialogue that could lead
to a framework agreement. GPRA provides a legislatively based
mechanism for the major stakeholders, including Congress, to jointly
engage in discussions that focus on an agency's mission and on
establishing goals, measuring performance, and reporting on
mission-related accomplishments. GPRA can be instrumental to the
Postal Service's efforts to better define its current and future
role.
GPRA also emphasizes the need for stakeholders to recognize and
address key internal and external factors that could affect the
ability to achieve future goals. The GPRA consultation process
provides the major postal stakeholders and Congress with
opportunities to better understand the Service's mission, proposed
goals, and most importantly, the strategies to be used in attaining
these goals, especially those that relate to the long-standing
labor-management relations problems that challenge the Service.
Given these challenges, GPRA provides a forum for stakeholders to
participate in developing and reaching consensus on strategies for
attaining results-oriented goals.
One such opportunity for obtaining stakeholder participation is by
inviting input on proposed goals and strategies. The Service
recently issued a notice for public comment in the Federal Register
asking for comments by June 1, 1997, on how the Service can best
achieve the three major goals identified in the Federal Register
notice. This comment period provides an opportunity for those who
might be affected by decisions relating to the future of the Postal
Service to voice their views on the strategies to be used by the
Postal Service. Other forums may also be appropriate to further
discuss issues that may be pertinent to specific stakeholders during
this stage of the implementation process.
As results-oriented goals are established, the related discussions
can also provide a foundation for the stakeholders to reach consensus
on a framework agreement. Successful labor-management relations will
be critical to achieving the Postal Service's goals. The Postal
Service and Congress will need results-oriented goals and sound
performance information to most effectively address some of the
policy issues that surround the Postal Service's performance in a
dynamic communications market. Recognizing that the changes
envisioned by GPRA do not come quickly or easily, sustained oversight
by the Postal Service and Congress will be necessary.
Finally, several other areas will likely continue to require the
attention of both the Postal Service and Congress. One such area is
the Postal Service's automation efforts. The Postal Service has
spent billions of dollars to ensure that an increase in productivity
and an adequate return on planned investments are realized. Another
area is the Postal Service's 5-year capital investment plan for
1997-2001. It calls for investing $14.3 billion, of which $3.6
billion is designated for technology investments. Also included is
$6.6 billion for planned infrastructure improvements such as
maintaining and improving over 35,000 postal facilities and upgrading
the vehicle fleet of more than 200,000 vehicles. In addition,
customer satisfaction at both the residential and business levels
will continue to be a critical area as the Postal Service strives to
improve customer service in order to remain competitive.
The Postal Service has made considerable progress in improving its
financial and operational performance. Sustaining this progress will
be dependent upon ensuring that the key issues we identified, such as
controlling costs, protecting revenues, and clarifying the role of
the Postal Service in an increasingly competitive communications
market, are effectively addressed by the Postal Service and Congress.
--------------------
\9 U.S. Postal Service: Labor-Management Problems Persist on the
Workroom Floor (GAO/GGD-94-201A/B, Sept. 29, 1994).
------------------------------------------------ Chapter Statement:0.4
Mr. Chairman, this concludes my prepared statement. I have attached
a list of our Postal Service products issued since January 1996. I
would be pleased to respond to any questions you or members of the
Subcommittee may have.
================================================== Appendix Attachment
GAO POSTAL-RELATED PRODUCTS
ISSUED SINCE JANUARY 1, 1996
---------------------------------------------- Appendix Attachment:0.1
U.S. Postal Service: Information on Emergency Suspensions of
Operations at Post Offices (GAO/GGD-97-70R, April 23, 1997).
U.S. Postal Service: Information on Post Office Closures, Appeals,
and Affected Communities (GAO/GGD-97-38BR, Mar. 11, 1997).
Postal Reform in Canada: Canada Post Corporation's Universal Service
and Ratemaking (GAO/GGD-97-45BR, Mar. 5, 1997).
U.S. Postal Service: Revenue Losses From Express Mail Accounts Have
Grown (GAO/GGD-97-3, Oct. 24, 1996).
Postal Service: Controls Over Postage Meters (GAO/GGD-96-194R, Sept.
26, 1996).
Inspector General: Comparison of Certain Activities of the Postal IG
and Other IGs (GAO/AIMD-96-150, Sept. 20, 1996).
Postal Service Reform: Issues Relevant to Changing Restrictions on
Private Letter Delivery (GAO/GGD-96-129A/B, Sept. 12, 1996).
U.S. Postal Service: Improved Oversight Needed to Protect Privacy
of Address Changes (GAO/GGD-96-119, Aug. 13, 1996).
U.S. Postal Service: Stronger Mail Acceptance Controls Could Help
Prevent Revenue Losses (GAO/GGD-96-126, June 25, 1996).
U.S. Postal Service: Unresolved Issues in the International Mail
Market (GAO/GGD-96-51, Mar. 11, 1996).
Postal Service: Conditions Leading to Problems in Some Major
Purchases (GAO/GGD-96-59, Jan. 18, 1996).
*** End of document. ***