Strategies for Underwater Market Dominant Products
Background
The Postal Accountability and Enhancement Act (PAEA) of 2006 requires “each class of mail or type of mail service bear the direct and indirect postal costs attributable to each class or type of mail service through reliably identified causal relationships…” To meet cost coverage, revenue generated from the product must be equal to or exceed 100 percent of the expected attributable cost incurred. The Postal Service considers products that fail to cover 100 percent of their attributable costs to be “underwater.”
Each year the Postal Regulatory Commission (PRC) reviews the cost coverage of each product, as reported in the U.S Postal Service’s Annual Compliance Report, and presents the results of its analysis in its Annual Compliance Determination report. When the PRC identifies noncompliance, it can instruct the Postal Service to take such action it deems appropriate to achieve compliance or remedy the effects of the noncompliance.
The PRC stated that “the problem of individual market dominant product revenues failing to cover either attributable or overhead costs was so pervasive in fiscal year (FY) 2009 that it has become a systemic problem” and required the Postal Service to “develop and present a plan explaining how the Postal Service expected to increase cost coverage.”
The objective of this audit was to evaluate whether the Postal Service has strategies in place for managing underwater products and whether those strategies were effective to meet desired goals.
What the OIG Found
The Postal Service does not have strategies in place to manage underwater products as a whole. While strategies exist to optimize efficiency and decrease costs, the strategies developed to specifically address attributable cost coverage lack a formal framework to accurately assess their effectiveness and achieve 100 percent cost coverage as required by the PAEA.
The net cost coverage shortfall related to five market dominant products was $1.2 billion for FY 2015 ? their 7th consecutive year of net shortfalls.
What the OIG Recommended
We recommended management develop and implement a formal strategic framework for underwater products as a whole to assess effectiveness of meeting goals.