The Postal Service’s system to estimate the cost of products has not been fundamentally changed in many years, though significant inputs are updated annually. There have been calls for an examination of the accuracy and relevance of the system and for specific changes to be made.

In order to inform the dialogue and debate, the OIG published A Primer on Postal Costing Issues, a discussion of postal costing, including the most salient of the concerns that have been raised by the Postal Service and its customers. The main issues that have been raised are:

• 1. Should the Postal Service use fully distributed costing to evaluate the financial performance of products?
• 2. How should the system be adapted to reflect the excess capacity currently present in the postal network?
• 3. Should the Postal Service move toward bottom-up costs?
• 4. How should the new postal data sources be used in the costing system to improve accuracy and reduce costs?
• 5. What can be done to improve the timeliness of cost studies?

The white paper also discusses the need for the Postal Service to develop a vision for what cost data it will need in the future to support management decisions and develop an implementation plan to move toward this vision.

Click here to view the report in its entirety.

When the Postal Service considers consolidating area mail processing (AMP) facilities, it conducts a study to analyze the feasibility of relocating mail processing operations from one location to another to improve capacity, efficiency, and service. Between fiscal years 2004 and 2011, the Postal Service initiated 418 studies, 103 of which were implemented, 66 were halted, and 249 are in various stages of approval.

During that same period, the OIG performed 32 audits on AMP consolidations. We found a valid business case existed for 31 of the consolidations reviewed. The business cases were supported by adequate capacity, increased efficiency, reduced work hours, and mail processing costs, and improved service standards. However, four of the 31 AMP consolidations supported by a valid business case were poorly executed. And, in the consolidation we reviewed in which a valid business case was not supported, the consolidation would have resulted in inadequate machine and facility capacity. Otherwise, the proposed consolidation could have resulted in a cost savings.

Lastly, since conducting its first study, the Postal Service has improved the AMP consolidation process by updating criteria for creating feasibility studies and stakeholder communications. However, in light of these improvements, we believe the AMP consolidation process could be further enhanced if the Postal Service improves the timeliness of its Post Implementation Reviews (PIRs), as well as its stakeholder communications. Management agreed with our audit findings and recommendations and plan to revise AMP communications and are taking steps to ensure PIRs are completed timely.

Click here to read the report in its entirety.

By law, the Postal Service’s finances are separate from the rest of the federal budget, but efforts to solve the Postal Service’s financial problems continue to be caught up in budget scoring considerations. (Budget scoring is a required process that evaluates proposed legislation for its effect on the federal deficit.) Even today, budget scoring is making it difficult to fix what everyone agrees is overfunding of the Postal Service’s Federal Employees’ Retirement System (FERS) obligations.

The U.S. Postal Service Office of Inspector General (OIG) explored these obstacles in an August 2009 white paper entitled Federal Budget Treatment of the Postal Service. The paper pointed out the limited advantages conferred by the way the Postal Service’s off-budget status is currently implemented. The OIG argued that the Postal Service as a self-financing entity should be entirely off budget and suggested that the Postal Service take further steps to reduce its entanglement with federal budget issues. Such a treatment is in keeping with the intention of Congress in the Postal Reorganization Act of 1970 to make the Postal Service’s finances independent from the federal government’s.

In our recently released white paper, Budget Enforcement Procedures and the Postal Service, the OIG updates budget events since the 2009 paper and describes the current budget process. Until Postal Service finances and the federal budget can be disentangled, it is important for the Postal Service and its stakeholders to understand the current budget landscape.

Click here to read Budget Enforcement Procedures and the Postal Service.

Click here to read Federal Budget Treatment of the Postal Service.

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