BACKGROUND:

U.S. Postal Service policy allows employees who are incapacitated due to serious health conditions to request and receive annual leave from other employees. The annual leave becomes known as donated leave upon transfer to the requestor. Employees may use donated leave for the duration of the incapacitation only and any unused donated leave is paid to that employee upon separation. The Postal Service is required to record this balance in its financial records.

Our objective was to determine whether the Postal Service properly established a process to record and account for the value of unused donated leave in the financial records.

During our fiscal year 2012 financial statements audit work, we observed the unused donated leave value was not included in the recording of the accumulated leave value. Accounting standards require future compensated absences, such as unused donated leave, to be recorded in the financial statements. To determine the financial impact, we reviewed the accounting of donated leave. As of September 30, 2012, active Postal Service employees used about 1.4 million donated leave hours with an estimated value of $37.8 million.

WHAT THE OIG FOUND:

The Postal Service did not properly account for the value of unused donated leave in its financial records. This occurred because procedures for recording the liability for leave did not include unused donated leave. In addition, the value of unused donated leave was not readily available to management through reports or other management tools. As a result, the leave liability balance was understated in the financial records by about $5.6 million as of September 30, 2012.

WHAT THE OIG RECOMMENDED:

Since management implemented a software change request to update the unused leave report on March 22, 2013, and plans to update Postal Service policies and procedures by April 30, 2013, we are not making any recommendations. We will continue to monitor the leave accountability process as part of our ongoing financial statement audit work.