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 the end of each fiscal year. The report analyzes costs, revenue, rates, and quality of service for all products and determines whether each product is covering its attributable costs, which are costs directly or indirectly caused by that product.
The Postal Service develops the cost segments report as part of the ACR filing. In fiscal year (FY) 2015, there were 17 active cost segments. One of them, Transportation, includes the cost of contracted air, highway, rail, and water.
Our objective was to assess whether the inputs into the Transportation Cost Segment were accurately calculated, recorded, and attributed to products in FY 2015. This is one in a series of cost segment audits based on its significance to the Postal Service.
What the OIG Found
The Postal Service correctly assigned expense accounts to the Transportation Cost Segment for FY 2015. However, opportunities exist to ensure transportation cost data is accurate and complete and enhance the documented process for preparing the Transportation Cost Segment.
The Postal Service did not accurately calculate attributable costs for the Transportation Cost Segment. An expense account from the attributable costs calculation was omitted, which resulted in an $814,000 understatement. The understatement was .014 percent of the total cost attributed to the Transportation Cost Segment.
Although the exception did not have a material impact on reporting the FY 2015 Transportation Cost Segment data, such errors increase the risk of inaccurate cost data reports.
During this audit, management took corrective action to update the formula for FY 2016 attributable costs calculation. Management indicated they will inform the PRC of the error when updating the FY 2016 ACR notes, which are due on December 29, 2016. As a result, we are not making a recommendation for this issue but will follow up to ensure corrective action was taken as described.
The Postal Service relied on current documented procedures and the experience and knowledge of postal personnel to prepare the Transportation Cost Segment calculations. However, the procedures could be improved by including a list of relevant and accessible studies to calculate transportation costs, steps to extract Postal Service accounting data to perform manual account adjustments, and documented changes that could affect the Transportation cost calculations. These improvements would likely have not prevented the error discussed previously because the error was mistakenly omitted and not directly tied to the procedures needed to prepare the cost segment calculations.
Well-defined and documented procedures would allow the Postal Service to prepare the Transportation Cost Segment in a consistent manner, preserve institutional knowledge, and have a training guide for new employees.
What the OIG Recommended
We recommended management enhance the current documented procedures for preparing the Transportation Cost Segment.