This management alert presents issues the U.S. Postal Service Office of Inspector General (OIG) identified during the Channel Partner Visibility and Compliance audit (Project Number: 22-069). Our objective is to provide notification of these issues for accelerated attention and action. Specifically, we found material weaknesses in internal controls over the U.S. Postal Service’s Channel Partner programs.
In recent years, the Postal Service designed a strategy to address issues related to its relationships with Channel Partners. Most recently, the Postal Service issued termination letters for its Resellers’ contracts, effective September 30, 2022. The Postal Service established the USPS Connect eCommerce program in May 2022, to foster direct relationships with partners, including those that previously worked through Resellers. Although termination of the Resellers’ contracts addresses some of the issues we have identified, it does not mitigate other risks that could continue with implementation of the Connect eCommerce program.
See Appendix A for additional information about this management alert.
While the rapidly-growing ecommerce space is dominated by a handful of large online retailers, there are also thousands of smaller merchants that sell goods online and need to ship their items to consumers. To reach these smaller merchants, the Postal Service works with a variety of private sector partners. These partners, or “middlemen,” include PC Postage providers, Resellers, online marketplaces, shipping software providers, and ecommerce platforms, which the Postal Service collectively refers to as Channel Partners. This management alert will focus primarily on PC Postage providers and Resellers.
The Postal Service has authorized three PC Postage providers to facilitate online payment and printing of postage — via virtual postage meters — for Postal Service customers. Virtual postage meters, as opposed to physical postage meters, allow PC Postage providers to digitally link customers to specific postage rates and allow customers to print labels electronically. PC Postage providers also provide the back-end software integration that allows merchants to use the Postal Service as a shipping option on various online platforms. About $9.8 billion in revenue flowed through PC Postage in fiscal year (FY) 2021.
USPS Proposed Resolution
Modify Postal Service policy on PC Postage to include parameters surrounding the transfer of merchants to Channel Partner meters.
Enhance and implement internal controls that provide the Postal Service with visibility into merchant activity on Channel Partner meters.
Develop mechanisms to directly identify the end shipper for each package and enforce non-compliance.
Develop and formalize a technical process, which includes the detailed calculation of all chargeback opportunities for Channel Partners and a quality assurance process, and (2) consider retroactively calculating and invoicing Resellers for the correct chargeback amounts for previous periods.
Develop mechanisms to identify trends and risks in the composition of price tiers.