Highway contract routes (HCR) are the largest single group of contracts in the U.S. Postal Service, with about $3.5 billion spent in fiscal year (FY) 2018. HCR drivers move mail between post offices and other designated stops.
Given the large amount of money the Postal Service spends on HCR contracts, the program is one we regularly audit. In the past few years, we’ve looked at management of the HCR contracts, as well as risk mitigation in the diesel fuel program.
Recently, we audited a program USPS instituted a few years ago to reduce surface transportation costs by identifying, adjusting, and eliminating unnecessary HCR trips, or what is known as HCR Optimization.
The Postal Service sets the HCR cost-reduction goal annually based on total HCR costs. In FY 2017, USPS reported national savings of about $67 million for that year, exceeding its planned savings goal of $44.4 million by a full 50 percent.
However, our audit report found the methodology used to calculate the HCR optimization cost-savings was inconsistently followed, inadequate, and not documented. We analyzed the calculations, service-change requests, and HCR contract termination data files. We compared that data to the Postal Service’s reported savings and found that the methodology the Postal Service used for calculating savings included errors, ultimately overstating reported savings in some areas and understating them in others. We determined that this resulted in a net overstatement of $82 million for FY 2017.
We recommended management reevaluate the continuation of the HCR optimization cost-savings calculation. If the program is continued, USPS should develop standard operating procedures and automate the methodology for calculating and validating the savings calculation.
What opportunities do you see to reduce HCR costs?