The U.S. Postal Service Pricing department is responsible for compiling market dominant price adjustment proposals for the five market dominant classes of mail: First-Class Mail, Periodicals, Standard Mail, Package Services, and Special Services. These proposals are filed with the Postal Regulatory Commission (PRC) for approval.
The Postal Accountability and Enhancement Act (PAEA), enacted in 2006, limits the price increase for each market dominant class of mail to no more than the Consumer Price Index for All Urban Consumers. The PAEA also limits the PRC rate setting process to 45 days. To meet this requirement, the PRC allows 20 days for public comment and 14 days for its own ruling on whether a proposed price adjustment complies with applicable laws and regulations.
Our objective was to evaluate the Postal Service’s process for compiling market dominant price adjustment proposals filed with the PRC.
What The OIG Found
Opportunities exist for the Postal Service to improve the price adjustment process. The Pricing department did not have documented and repeatable processes to guide the preparation of price adjustment proposals. According to the Pricing manager, there has not been an opportunity to establish and
document the process because of other priorities. Without a comprehensive, documented process, the Pricing department is at increased risk of making errors, failing to meet PRC regulatory requirements and not gaining approval for price adjustments.
Specifically, the Pricing department did not always perform comprehensive internal reviews of supporting documentation for the January 2015 price adjustment proposal prior to filing it with the PRC. This occurred because of time constraints and no documented process for ensuring an internal review. The Postal Service moved the date for filing proposed price adjustments from February to January 2015 and some of the primary data needed for computing price adjustments were not available until late December 2014. Proposing complex mail classification changes during the short price adjustment period further complicated the preparation of the proposal and PRC’s review.
The PRC returned the price adjustment proposal to the Postal Service twice because the regulatory agency could not determine whether the proposal complied with applicable laws and regulations due to its complexity. Because of these two remands the Postal Service delayed implementing the price changes from April 26 to May 31, 2015, to provide 45 days advanced notice to the mailer community as required. Although the PRC approved price adjustments for Competitive Products, First-Class Mail, and Special Services, management also postponed price adjustments in favor of a single price change on May 31, 2015 to minimize the impact. As a result, the Postal Service has forgone $108 million in revenue for all mail products.
The Postal Service could have prevented errors the PRC identified in the proposal if it had performed comprehensive internal reviews prior to filing and limited the complexity of mail classification changes in the proposal.
What The OIG Recommended
We recommended the executive vice president, chief marketing and sales officer, establish a documented and repeatable process to guide the preparation of price adjustment proposals and to ensure comprehensive internal reviews of price adjustment proposals were performed prior to filing with the PRC; and establish and document internal procedures for filing complex mail classification changes separately from price adjustment filings.