Our objective was to assess the effectiveness of the U.S. Postal Service’s irregularity reporting process for highway contract routes (HCR) at the Chicago Network Distribution Center (NDC).
Each NDC reports HCR irregularities using the Yard Management System (YMS). The YMS automatically creates a Postal Service (PS) Form 5500, Contract Route Irregularity Report, when an irregularity occurs. A contract irregularity occurs when an HCR contractor does not satisfactorily perform a contracted service. The irregularity is either non-chargeable (the contractor is not at fault) or chargeable (the contractor is at fault).
In fiscal years (FY) 2016 and 2017, the Postal Service reported over 1.4 million irregularities nationwide (over 300,000 non-chargeable irregularities and over 1,100,000 chargeable irregularities). The Postal Service received over $49.2 million in reimbursements nationwide for the chargeable irregularities.
This is the second and final report in our series examining HCR irregularities.
What the OIG Found
We determined the Postal Service’s irregularity reporting process for the Chicago NDC was ineffective because the Chicago NDC did not submit reimbursement requests for chargeable irregularities or maintain all PS Forms 5500 for contract renewal reviews.
Chicago NDC administrative officials (AOs) did not submit any reimbursement requests for the more than 22,000 YMS chargeable irregularities they reported during FYs 2016 and FY 2017. This occurred because HCR contract terms and conditions did not align with PS Form 5500 requirements or the August 2017 AO training guidance.
The contract only allows reimbursement for missed trips; however, PS Form 5500 identifies late operations as a chargeable offense and the AO training identified missed trips, contractor failures resulting in the contractor being early or late, unacceptable equipment, and mechanical breakdowns as chargeable irregularities. We believe reconciling these inconsistencies should result in contractors complying with the delivery schedules.
We estimated the Postal Service, based on its contractor rates, incurred questioned costs of over $197,000 in FY 2016, and $691,000 in FY 2017, by not submitting the reimbursement requests for all chargeable irregularities.
We also identified 11 of 25 Chicago NDC HCR contracts costing over $22.8 million that AOs renewed without a complete review of chargeable irregularities. The Postal Service requires a review of HCR past performance, which includes a review of PS Form 5500 prior to contract renewal. Chicago NDC AOs reviewed PS Forms 5500 at the NDC prior to contract renewal, but said they did not have the forms for trips not originating at the NDC other than those sent from AOs at facilities where irregularities occurred.
Further, the Postal Service has a one-year retention policy, which does not allow for contract renewal review of all chargeable irregularities because HCR contract terms range from two to four years. We will not be making a recommendation about the retention policy because our previous report still has an open recommendation that covers this finding.
What the OIG Recommended
We recommended management:
Reconcile the differences between the Transportation and Contract Delivery Service Terms and Conditions and PS Form 5500 and the 2017 AO training requirements for chargeable irregularities and the inconsistency of what a contractor can charge the Postal Service compared to what the Postal Service can charge the contractor.
Ensure Postal Service Forms 5500 are forwarded to AOs managing the HCR in a specified timeframe when irregularities occur.