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Parcel Return Service - Consolidator Payment and Refund Errors

Audit Reports

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    Parcel Return Service
Jan
09
2024
Report Number:
23-038-R24
Report Type:
Audit Reports
Category: Retail, Sales & Marketing

Parcel Return Service - Consolidator Payment and Refund Errors

Background

Consumers return about one-in-six online purchases. Despite growth in the returns market, the U.S. Postal Service’s Parcel Return Service (PRS) volume has declined in recent years. Introduced in 2003, the PRS product caters to private-sector consolidators that facilitate returns on behalf of merchants, generating $241.8 million in Postal Service revenue in fiscal year (FY) 2022 on 70.3 million packages. Growing the PRS product aligns with the Postal Service’s Delivering for America 10-year plan.

What We Did

Our objective was to evaluate the process for, cause of, and validity of refunds associated with the PRS product and examine the accuracy of manifested prices — the postage payments consolidators submit based on contractual rates. We conducted site visits and interviews and analyzed package data and consolidator refund requests.

What We Found

The Postal Service accepted 22.8 million PRS packages at the wrong price, resulting in $25 million in lost revenue between October 2020 and September 2023. Although USPS reviewed some aspects of manifested prices, it did not track the type of facility — processing plant or delivery unit — where packages were retrieved, a significant factor in determining price. Integrating this element into its verification process would help ensure the Postal Service consistently receives the correct postage.

Also, USPS did not always comply with contractual requirements to hold packages for at least 48 hours to give consolidators time to retrieve them. Those violations made 3.2 million packages eligible for refunds during our scope period. While robust procedures and training exist, employees sometimes failed to follow the process and management did not consistently hold them accountable. Without automation to reduce human error, the Postal Service risks losing business in the returns market. Finally, the Postal Service granted PRS refunds between November 2021 and September 2023 that may not have been warranted, due to a flawed refund verification process. The flaws exposed USPS to the risk that consolidators could request and receive refunds for additional packages that do not qualify.

Recommendations

We recommended management 1) strengthen the manifest verification process by incorporating facility type, 2) simplify the return delivery unit processes to improve compliance and enable better supervision, 3) conduct analysis on automating the process to align package handling with established PRS procedures or identifying alternatives to improve compliance, 4) develop and maintain an accurate list of active return delivery units, and 5) enhance the PRS refund review process to include an automated validation that refunds are warranted.

Report Recommendations

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

Strengthen the Parcel Return Service manifest verification process by incorporating the facility type as a required parameter.

Open $48,982,784 Agree
2

Simplify the return delivery unit processes to improve compliance and enable better supervision.

Closed $0 Agree
3

Align package handling with Parcel Return Service procedures by 1) conducting a cost, benefit, and feasibility analysis for establishing and implementing an automated process, or 2) identifying and implementing alternatives to improve compliance.

Open $0 Agree
4

Develop and maintain an accurate list of active return delivery units in the Facilities Database.

Open $0 Agree
5

Enhance the Parcel Return Service refund review process to include an automated validation to verify that refunds are warranted, including an assessment of whether the return delivery units that received the packages were active at the time of mailing.

Open $3,169,339 Agree