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Sep
08
2016
Report Number:
CP-AR-16-010
Report Type:
Audit Reports
Category: Cost & Pricing

Postmaster Cost Segment

Background

The Postal Accountability and Enhancement Act of 2006 requires the U.S. Postal Service to file an Annual Compliance Report (ACR) with the Postal Regulatory Commission (PRC) within 90 days of each fiscal year end. The report analyzes cost, revenue, pricing, and quality of service for all products and determines whether each product is covering its attributable costs, which are the sum of volume variable plus product-specific costs.

The Postal Service develops the cost segments report as part of the ACR filing. In fiscal year (FY) 2014 there were 18 active cost segments and in FY 2015 there were 17 active cost segments. The Postmaster Cost Segment includes the accrued salaries, benefits, and related costs of postmasters.

Our objective was to assess whether inputs into the Postmaster Cost Segment are accurately calculated and recorded.

What the OIG Found

Opportunities exist for the Postal Service to improve the accuracy of Postmaster Cost Segment data. In FY 2014 we found seven of 87 accounts incorrectly assigned to the Postmaster Cost Segment, and in FY 2015 we found seven of 88 accounts incorrectly assigned to this cost segment. In addition, two expense accounts had erroneous account descriptions in each fiscal year. These issues occurred because there is no formal review and reconciliation conducted during the year-end account adjustment process. In addition, the administrative guidelines that address updating and correcting account information are silent on respective roles and responsibilities. During the course of this audit, management took corrective action to update the incorrectly assigned and mislabeled accounts identified.

Additionally, the Postal Service did not follow the stated procedures in the Summary Description of USPS Development of Costs by Segments and Components (CSC) report of using money order revenue data from the Revenue, Pieces, and Weight report to distribute attributable costs and, instead, used money order revenue data from the Cost Revenue and Analysis report, which includes interest earned. This has been a standing practice for management, resulting in using overstated interest revenue to distribute attributable costs.

Lastly, the postmaster variability study used to estimate volume variable costs has not been updated since 1984. In FY 2013, the Postal Service notified the PRC that it would initiate a new study in FY 2014. In November 2015, the PRC postponed the request to update the study pending implementation of the Post Office Structure Plan (POStPlan), which could materially impact the outcome of the study. POStPlan implementation was completed in February 2015, yet the study had not been updated as of June 2016.

Although the exceptions or overstated revenue did not have a material impact on reporting Postmaster Cost Segment data for FYs 2014 and 2015, ineffective internal controls increase the risk of reporting inaccurate attributable cost data for products.

What the OIG Recommended

We recommended management conduct an annual review and reconciliation process for expense account assignments and descriptions. We also recommended management follow or revise the procedures in the Summary Description of USPS Development of Costs by Segments and Components report related to distribution of volume variable costs, and create a timeline or approach for updating the postmaster variability study.

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Report Recommendations

# Recommendation Status Value Initial Management Response USPS Proposed Resolution OIG Response Final Resolution
1

Conduct an annual review and reconciliation of expense account assignment and descriptions, that includes revising applicable guidance for communicating roles and responsibilities.

Closed $0 Agree
2

Follow or revise procedures in the Summary Description of USPS Development of Costs by Segments and Components report related to distribution of volume variable costs to mail products and specials services.

Closed $0 Agree
3

Communicate to the Postal Regulatory Commission the status of the Post Office Structure Plan and develop a timeline and approach for updating the postmaster variability study.

Closed $0 Agree