on Jul 25th, 2011
in Finances: Cost & Revenue
| 43 comments
The past few years have been tumultuous for the U.S. Postal Service. Mail volume has dropped 20 percent to 171 billion pieces from its peak in 2006, and over the last four years experienced unprecedented financial losses totaling $20 billion. In 2010 alone, the Postal Service experienced its largest 1-year net loss of $8.5 billion. Our Risk Analysis Research Center has published The Cost Structure of the Postal Service: Facts, Trends, and Policy Implications, which reviews the major components of the Postal Service’s 2010 cost structure and presents insights to the ongoing policy debate about the future of the Postal Service. Below are some of the paper’s key findings: 1.The mail business is labor intensive, and labor makes up 80 percent of Postal Service expenses. This means that in order to achieve real cost savings, the Postal Service has to cut labor costs. While ideally labor costs could be cut to match declines in volume, this is challenging because the Postal Service’s delivery network has significant fixed costs. 2.Since 1972, the total cost of benefits to the Postal Service has risen an astounding 448 percent above inflation, while the real amount spent on wages has declined by nearly 3 percent. This extraordinary increase in benefit costs is due to three factors: a general trend of higher benefit costs that has affected most U.S. companies, the gradual transfer of postal retiree benefit costs from the federal government to the Postal Service, and repeated overcharges for these retiree benefit costs. 3.Since 2000, cumulative unit costs for three of the four market dominant mail classes (Periodicals, Standard Mail, and Package Services) have far outpaced increases in the Consumer Price Index (CPI-U). 4.A continuing freeze in capital investment, while saving the Postal Service in the short term, may paradoxically lead to higher costs in the future. In particular, investing in rightsizing the physical network to meet decreasing demand is vital to the future viability of the Postal Service. We invite you to review the white paper and share your thoughts on reducing costs and the impact those cost reductions might have on the Postal Service here on our blog. This blog is hosted by the OIG’s Risk Analysis Research Center.
on Feb 14th, 2011
in Finances: Cost & Revenue
| 12 comments
[dropcap style="font-size: 60px; color: #9b9b9b;"] T [/dropcap]he Postal Accountability and Enhancement Act of 2006 requires the Postal Service to comply with specific sections of the Sarbanes Oxley Act of 2002 (SOX). Among other financial reporting requirements, SOX mandates internal control compliance – making sure that financial transactions are reasonably and fairly presented in the accounting records - and places the responsibility on postal management. A recent district-wide audit of 13 postal retail units found 80 internal control compliance issues related to stamp accountabilities, disbursements, and financial accounting and reporting. The cause for most of these issues was attributed to a lack of adequate training, the insufficient financial background of some unit managers, why they were placed in the position without receiving the necessary financial training, and an absence of oversight by the managers and supervisors responsible for implementing financial internal controls. Why do these managers lack the proper training and background to adequately supervise financial operations? One possibility is the amount of management turnover at retail units. The management turnover rate was high at some retail sites visited during the audit. For example, one retail unit had three different acting station managers in the last 18 months. Often, new or acting managers and supervisors come from different segments of the Postal Service and are placed in positions which require them to supervise financial operations. Is there a benefit for bringing in someone from a different segment to oversee the operations of a retail unit? How should they be trained? Please give your comments. The topic is hosted by the Office of Audit Field Financial – West team.
on Jan 31st, 2011
in Finances: Cost & Revenue
| 75 comments
In 1916, the Federal Employees’ Compensation Act (FECA) was enacted. FECA provides medical, compensation, death, and other benefits, such as vocational rehabilitation, and nursing services to federal employees who sustain injuries, including occupational diseases, as a result of their employment. All Postal Service employees are covered by FECA. The Department of Labor (DOL) administers FECA and makes all decisions regarding the eligibility of injured workers’ to receive workers’ compensation benefits. DOL provides direct compensation to medical providers, claimants, and beneficiaries. The Postal Service reimburses DOL for all workers’ compensation claims in addition to paying an administrative fee. In fiscal year 2009, the Postal Service workers’ compensation expense was approximately $2.2 billion, an 81 percent increase from $1.2 billion in FY 2008. These costs include $55 million in DOL administrative fees for FY 2009. About 72 percent ($718 million) was a non-cash charge related to changes in the estimated discount and inflation rates used to calculate the liability for future payments. At the end of FY 2009, the Postal Service estimated the total liability for future workers’ compensation cost was over $10 billion. One of the contributing factors to the high cost of workers’ compensation payments is that FECA does not mandate a cut-off age for workers’ compensation benefits. Thus, injured workers can continue to receive workers’ compensation benefits well past the legal retirement age of 65, and in some cases employees over the age of 90 are still receiving workers’ compensation benefits. Fraudulent workers’ compensation claims also result in higher overall costs. To combat workers’ compensation fraud the OIG launched its crime prevention and awareness campaign in September 2009 and a joint year-long initiative with the U.S. Postal Inspection Service in February 2010. The successful investigative efforts saved the Postal Service more than $400 million for fiscal years 2009 and 2010 combined. What can the Postal Service do to reduce workers’ compensation costs? This topic is hosted by the OIG’s Human Resources and Security Audit Team.
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