Major Management Challenges and Program Risks
U.S. Postal Service Gao ID: GAO-03-118 January 1, 2003In the 2001 Performance and Accountability report on the U.S. Postal Service (the Service), GAO identified financial, operational, and human capital challenges threatening the Service's ability to carry out its mission. Since then, these challenges have continued and its financial difficulties have increased, resulting in GAO's placing the Service's transformation efforts and long-term outlook on its high-risk list. The information in this report is intended to help focus attention and facilitate progress in addressing the key challenges facing the Service. This report is part of a special series on governmentwide and agency-specific issues.
The Service has made progress in addressing its challenges and has developed a Transformation Plan (the Plan) that contains steps to guide it in the future. Challenges remain, however, and leadership and sustained attention by the Service will be critical to carrying out its transformation. Implement the Transformation Plan and determine business model for the 21st century: The Service is struggling to fulfill its mission of providing affordable, high-quality, universal service while remaining self-supporting. The figure shows that despite multiple rate increases, net income has decreased. The Service's business model is at risk as mail volumes decline and competition and alternatives increase. Control costs and improve productivity under the Service's existing authority: The Service's ability to control costs and improve productivity is key to improving its financial situation. The Service historically has had difficulty in achieving cost savings related to two costly areas--its workforce and its expansive physical infrastructure. Address unresolved financial issues: The Service's cash flow from operations has not been sufficient to fund needed capital expenditures and reduce debt pressures. Furthermore, its liabilities continue to exceed its assets, and postretirement health obligations are increasing. Develop strategies to address human capital issues: Progress is needed in realigning the Service's workforce planning and performance systems with its business model. Cooperation between labor and management will be critical to achieving transformation goals. Provide complete and reliable financial and performance information in a timely and transparent manner: The Service has not provided sufficient public information to explain its changing financial condition, outlook, and progress toward meeting its goals.
GAO-03-118, Major Management Challenges and Program Risks: U.S. Postal Service
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Performance and Accountability Series:
January 2003:
Major Management Challenges and Program Risks:
U.S. Postal Service:
GAO-03-118:
A Glance at the Agency Covered in This Report:
A Glance at the U.S. Postal Service:
The U.S. Postal Service is an independent establishment of the
executive branch. It is the federal government‘s largest civilian
employer and had revenues of about $67 billion in fiscal year 2002.
The Service‘s overall mission is to:
* bind the nation together through correspondence of the people;
* provide access to postal services in all communities;
* offer prompt, reliable postal services at reasonable rates;
* be self-supporting from postal operations; and
* break even financially.
The U.S. Postal Service‘s Budgetary and Staff Resources:
[See PDF for image]
[a] Budgetary resources include new budget authority (BA) and
unobligated balances of previous BA. The Postal Service receives
minimal budgetary resources from the federal government and funds its
operations primarily from postal revenues.
[b] Budget and staff resources are actuals for FY 1998-2001. FY 2002
are estimates from the FY 2003 budget, which are the latest publicly
available figures on a consistent basis as of January 2003. Actuals
for FY 2002 will be contained in the President‘s FY 2004 budget to be
released in February 2003.
Source: Budget of the United States Government.
[End of figure]
This Series:
This report is part of a special GAO series, first issued in 1999
and updated in 2001, entitled the Performance and Accountability
Series: Major Management Challenges and Program Risks. The 2003
Performance and Accountability Series contains separate reports
covering each cabinet department, most major independent agencies,
and the U.S. Postal Service. The series also includes a governmentwide
perspective on transforming the way the government does business
in order to meet 21st century challenges and address long-term fiscal
needs. The companion 2003 High-Risk Series: An Update identifies areas
at high risk due to either their greater vulnerabilities to waste,
fraud, abuse, and mismanagement or major challenges associated with
their economy, efficiency, or effectiveness. A list of all of the
reports in this series is included at the end of this report.
[End of section]
GAO Highlights:
Highlights of GAO-03-118, a report to Congress included as part
of GAO‘s
Performance and Accountability Series
Why GAO Did This Report:
In the 2001 Performance and Accountability report on the U.S.
Postal Service
(the Service), GAO identified financial, operational, and human
capital
challenges threatening the Service‘s ability to carry out its
mission. Since
then, these challenges have continued and its financial difficulties
have
increased, resulting in GAO‘s placing the Service‘s transformation
efforts
and long-term outlook on its high-risk list. The information in
this report
is intended to help focus attention and facilitate progress in
addressing the
key challenges facing the Service. This report is part of a
special series on
governmentwide and agency-specific issues.
What GAO Found:
The Service has made progress in addressing its challenges and
has developed
a Transformation Plan (the Plan) that contains steps to guide
it in the future.
Challenges remain, however, and leadership and sustained
attention by the
Service will be critical to carrying out its transformation.
* Implement the Transformation Plan and determine business model
for the 21st
century. The Service is struggling to fulfill its mission of
providing affordable,
high-quality, universal service while remaining self-supporting.
The figure shows
that despite multiple rate increases, net income has decreased.
The Service‘s
business model is at risk as mail volumes decline and
competition and
alternatives increase.
[See PDF for image]
[End of figure]
* Control costs and improve productivity under the Service‘s
existing authority.
The Service‘s ability to control costs and improve
productivity is key to
improving its financial situation. The Service historically
has had difficulty
in achieving cost savings related to two costly areas”its
workforce and its
expansive physical infrastructure.
* Address unresolved financial issues. The Service‘s cash
flow from operations
has not been sufficient to fund needed capital expenditures
and reduce debt
pressures. Furthermore, its liabilities continue to exceed
its assets, and
postretirement health obligations are increasing.
* Develop strategies to address human capital issues.
Progress is needed in
realigning the Service‘s workforce planning and performance
systems with its
business model. Cooperation between labor and management
will be critical to
achieving transformation goals.
* Provide complete and reliable financial and performance
information in a timely
and transparent manner. The Service has not provided
sufficient public information
to explain its changing financial condition, outlook, and
progress toward meeting
its goals.
What Remains to be Done:
GAO believes the Service should:
* Work with Congress, the Presidential Commission, and
stakeholders to implement
the Plan and report on progress and financial impact of
actions taken to support
the Plan;
* Develop strategies to realign its infrastructure and
workforce, to support
its business model;
* Continue efforts to cut costs, improve productivity, and
address long-term
financial issues such as its debt and retirement-related
obligations;
* Improve transparency and timeliness of financial and
performance information.
www.gao.gov/cgi-bin/getrpt?GAO-03-118
To view the full report, click on the link above.
For more information, contact Bernard L. Ungar at (202) 512-2834
or ungarb@gao.gov
Transmittal Letter:
Major Performance and Accountability Challenges:
GAO Contacts:
Related GAO Products:
Performance and Accountability and High-Risk Series:
This is a work of the U.S. Government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. It may contain
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Transmittal Letter January 2003:
The President of the Senate
The Speaker of the House of Representatives:
This report addresses the major management challenges and program risks
facing the U.S. Postal Service (the Service) as it works to carry out
its mission. The report discusses the actions that the Service has
taken and that are under way to address the challenges GAO identified
in its Performance and Accountability Series 2 years ago, along with
major events that have occurred that significantly influence the
environment in which the Service carries out its mission. Also, the
report summarizes the challenges that remain, new ones that have
emerged, and further actions that we believe are needed.
This analysis should help the new Congress and the administration carry
out their responsibilities and improve government for the benefit of
the American people. For additional information about this report,
please contact Bernard L. Ungar, Director, Physical Infrastructure
Issues, at
(202) 512-2834 or at ungarb@gao.gov.
David M. Walker
Comptroller General
of the United States:
Signed by David M. Walker
[End of section]
Major Performance and Accountability Challenges:
As the federal government's largest civilian employer, with a
nationwide network that delivers more than 200 billion pieces of mail
each year, the Postal Service is a vital part of the nation's
communications network and the hub of a $900 billion mailing industry.
Over the past 2 years, the Service has experienced growing financial
difficulties and has struggled to fulfill its primary mission of
providing universal postal service at reasonable rates while remaining
self-supporting from postal revenues. The Service continues to operate
in an environment of growing financial, operational, and human capital
challenges, as well as uncertainty about its future role. The events of
September 11th and the subsequent use of the mail to transmit anthrax
have introduced new issues related to mail safety and security that
also must be addressed. These challenges require urgent attention to
ensure that the Service will be able to fulfill its mission in the 21st
century.
In April 2001, we placed the Service's transformation efforts and long-
term outlook on our high-risk list and recommended that it develop a
comprehensive plan to determine the actions needed to address its
financial, operational, and human capital challenges. This high-risk
designation resulted in the development of the Service's Transformation
Plan (the Plan)--a document that contains steps to guide the Service in
carrying out its future mission. The implementation of this plan is a
new challenge facing the Service, and thus we added it to our current
list of its major challenges. This challenge replaces two of the major
challenges we identified 2 years ago, because they are key parts of the
Plan: the Service's ability to remain self-supporting while providing
affordable, high-quality, universal service; and the need to address
legal and regulatory issues. Three challenges that we previously
identified still remain today: 1) controlling costs and improving
productivity under the Service's existing authority, 2) developing
strategies to address human capital issues, and 3) providing complete
and reliable financial and performance information in a timely and
transparent manner. Additionally, in response to the Service's
deteriorated financial condition, we added a new challenge--addressing
unresolved financial issues. The Service's cash flows from operations
have not been sufficient to fund needed capital expenditures and
significantly reduce debt pressures; its workers' compensation
liability and postretirement health benefit obligations are large and
increasing; and its liabilities exceed its assets. These underlying
factors driving the Service's financial condition cannot be ignored.
These key areas must be addressed because the Service is at a very
important crossroads. Its current business model, which relies on
increasing mail volumes to mitigate postal rate increases and cover the
Service's costs, is at risk in today's environment of greater
competition and communication alternatives. In fiscal years 2001 and
2002, despite multiple rate increases and significant cost-cutting
efforts, the Service still incurred deficits of $1.7 billion and $676
million, respectively, as its volumes declined by the most significant
amount since postal reorganization occurred over 30 years ago.
Furthermore, uncertainties such as the effects of a slowing economy,
the pace of diversion to electronic alternatives, and new measures
taken to enhance the safety and security of the mail have affected
postal finances during this time and may continue to do so in the
future.
[See PDF for image]
[End of figure]
Opportunities exist, however, that may help the Service address these
major management challenges and effectively carry out its
transformation. For example, the results of a recent financial analysis
may lead to a reduction in the Service's pension liability and related
annual payments if Congress takes legislative action in this area. This
action could lead to further improvements in the Service's financial
condition and outlook beyond the $600 million net income that was
budgeted for fiscal year 2003.
The additional "breathing room" could allow the Service to address
other financial challenges, such as its outstanding debt, substantial
postretirement health obligations, and current capital freeze. The
Service also faces a large number of upcoming retirements, which
provide an opportunity to realign its workforce and infrastructure to
meet its future operational needs. The Service will need to develop and
effectively implement strategies to address these five challenges in
order to carry out its mission in the 21st century. Although various
postal reform proposals addressing the Service's future role and
responsibilities have recently been debated in Congress, no consensus
has been reached among postal stakeholders on what the future of the
Service should be. The President recently established a commission to
make recommendations regarding the future of the Postal Service.
Committed leadership and sustained attention in addressing these
challenges will be important to achieve the results necessary for us to
reassess our inclusion of the Postal Service's transformation efforts
and long-term outlook on our high-risk list.
Implement Transformation Plan and Determine Business Model for the 21st
Century:
The key issues involved in implementing the Plan and determining a new
business model are as follows:
* Ability to carry out mission is at risk;
* Mail volumes have declined, and multiple rate increases have been
implemented;
* Growth in operating expenses has outpaced growth in operating
revenues;
* No consensus has been reached on the Service's future role and
mission;
* More public information is needed on transformation progress.
The Service has struggled to fulfill its core function of providing
affordable, high-quality, universal service while at the same time
remaining self-supporting. Decreasing mail volumes, along with total
expenses that are greater than total revenues, have led to the third
consecutive year of deficits despite multiple rate increases during
this period. Figure 1 shows that net income has decreased in 6 of the
past 8 fiscal years.
Figure 1: Net Income Has Been Declining, Even Though Rates Have Been
Increasing:
[See PDF for image]
[End of figure]
These financial difficulties are not a cyclical phenomenon that will
fade as the economy recovers. The Service's business model, which is
based on the premise that increases in mail volumes will cover rising
costs and mitigate rate increases, is at risk because of growing
competition from private companies, foreign postal operators, and
technological alternatives, such as cell phones and the Internet. Total
mail volume declined by 2.5 percent over the past 2 fiscal years.
Further, Figure 2 shows that growth in First-Class Mail and Standard
Mail has been, on average, declining since the 1980s. Declines in
volume growth for these two mail classes are particularly important
because the Service relies on them for approximately three-fourths of
its annual revenue.
Figure 2: Growth in First-Class Mail and Standard Mail Volumes Has Been
Declining:
[See PDF for image]
[End of figure]
In addition to this slowing growth rate, the changing composition of
the mail also affects the Service's revenue. First-Class Mail volume
declined in fiscal year 2002 for the first time in over 25 years, which
is particularly important because the revenue generated from First-
Class Mail is used to cover a significant portion of the Service's
overhead costs. In addition, the weight per mail piece--which is a key
factor in determining the rate charged and the revenue earned--across
most major mail categories is down. The Service's reliance on rate
increases to generate additional revenues is unlikely to reverse the
change in composition or promote the volume growth that is needed to
sustain financial viability. As volume growth in the major mail
categories has declined and mail composition has changed, growth in the
Service's operating revenue also has declined. Figure 3 shows that over
the past 3 fiscal years, on average, operating revenue growth has
dropped below that of operating expenses growth.
Figure 3: Operating Expense Growth Has Outpaced Operating Revenue
Growth:
[See PDF for image]
[End of figure]
Although the results of a new analysis by the Office of Personnel
Management (OPM) could significantly reduce the Service's annual Civil
Service Retirement System (CSRS) pension payments, the Postmaster
General (PMG) recently stated that this does not resolve the
fundamental flaws in the Service's business model. We agree, and
believe that the Service must address its key long-term challenges for
a successful transformation to a new business model. These challenges
include revisiting the Service's mission and determining the definition
of universal postal service; devising operational strategies to address
infrastructure and human capital matters; identifying actions needed to
enhance mail safety and security; addressing issues of future
governance and ratemaking structures; and determining proper
accountability mechanisms and needed legislative changes. Addressing
these challenges requires consensus among various stakeholders, which
has been very difficult to achieve, in part, because numerous
stakeholders have divergent needs and concerns. Since 1996, postal
reform legislation has been considered many times in Congress; however,
none of these reform proposals has been passed. As we noted in February
2002, a commission may be needed to address unresolved issues related
to the Service's transformation to a new business model and to develop
a comprehensive proposal for consideration by the Congress. On December
11, 2002, the President established a nine-member Commission on the
United States Postal Service to prepare and submit a report on a
proposed vision for the future of the Postal Service and recommend the
legislative and administrative reforms needed to ensure the viability
of postal services. The Commission is expected to submit its report to
the President by July 31, 2003.
In response to our April 2001 recommendation to address its unresolved
financial, operational, and human capital challenges, the Service
released its Transformation Plan in April 2002. In the Plan, the
Service outlined the steps, both current and long-term, it deemed
necessary to guide it in carrying out its mission in the future.
Specifically, the Plan presented actions to deal with transformation
issues (1) in the short term, under its current authority and through
moderate regulatory and legislative reforms, and (2) in the longer
term, through fundamental structural transformation. To achieve its
fundamental structural transformation, the Service proposed moving
toward a Commercial Government Enterprise business model. This model
differs slightly from its current model, and would allow flexible
pricing and retained earnings. Table 1 provides a more complete
comparison between the Service's proposed Commercial Government
Enterprise model and its current business model.
Table 1: Comparison between the Service's Current Model and Its
Proposed Future Model:
Key areas: Mission/Public policy; Current model: Provide affordable
universal service; Commercial Government Enterprise model: Provide
affordable universal service.
Key areas: Universal service obligation; Current model: All addresses,
6 days/week; Commercial Government Enterprise model: Negotiated with
regulator.
Key areas: Ownership; Current model: U.S. government; Commercial
Government Enterprise model: U.S. government.
Key areas: Corporate governance; Current model: Board of Governors;
Commercial Government Enterprise model: Board of Governors refocused on
fiduciary duties.
Key areas: Regulation; Current model: Postal Rate Commission;
Commercial Government Enterprise model: Postal Rate Commission.
Key areas: Monopoly; Current model: Letter and mailbox monopoly;
Commercial Government Enterprise model: Letter and mailbox monopoly.
Key areas: Product development; Current model: As the Service finds
appropriate and in the public interest; Commercial Government
Enterprise model: Market-based --cost/benefit model.
Key areas: Pricing; Current model: Rate setting includes public
hearings and divided authority between the Postal Rate Commission and
the Board of Governors.; Commercial Government Enterprise model:
Flexibility within broad parameters, complaint-based review.
Key areas: Human capital; Current model: Collective bargaining, third-
party arbitration, federal salary cap, and pay comparability;
Commercial Government Enterprise model: Collective bargaining,
Railroad Labor Act model, some private-sector laws, no salary cap.
Key areas: Financial requirement; Current model: Break-even mandate;
Commercial Government Enterprise model: Reasonable net income; retained
earnings.
Key areas: Ability to invest; Current model: Through U.S. Treasury;
Commercial Government Enterprise model: Business alliances.
Key areas: Access to capital; Current model: $15 billion debt ceiling;
Commercial Government Enterprise model: Legislated debt ceiling;
retained earnings.
Key areas: Earnings; Current model: Break-even mandate; Commercial
Government Enterprise model: Retained earnings to support Universal
Service Obligation and capital and business continuity; dividends
possible.
Key areas: Taxes; Current model: None; Commercial Government Enterprise
model: Determined through legislation.
Key areas: Security; Current model: Postal Inspection Service;
Commercial Government Enterprise model: Postal Inspection Service.
Source: Postal Service and GAO.
[End of table]
We have reported that the development of the Transformation Plan was a
good first step in raising key postal reform issues.[Footnote 1] Since
the Plan was issued, the Postmaster General has highlighted the
progress made in implementing initiatives set forth in the Plan,
including significant cost savings achievements; improvements in
service performance; efforts to improve the ratemaking process with
targeted pricing initiatives; enhancements to existing products with
the implementation of a new service, Confirm, that enables senders to
monitor the status of their mailings; and efficiency improvements to
the Service's automated processing of flat mail, such as magazines and
catalogs.
However, we feel that additional steps are needed to ensure effective
implementation of the Plan. Specifically, periodic public information
about the status of actions taken to implement the Plan should be
provided to Congress and other postal stakeholders, including postal
employees and customers. Little information has been made publicly
available on the status of these actions. Postal officials told us that
they have established accountability mechanisms, such as detailed
project plans with strategies and time frames for implementing them;
however, these documents are used for internal management purposes only
and are not available to the public. Providing periodic public
information on the status of actions taken to implement the Plan,
including priorities, time frames, progress, and estimated financial
impact, would be useful for congressional oversight purposes and for
giving stakeholders, whose business plans may be impacted by the
Service's planned actions, information on the Service's efforts. An
example of such useful information is the "progress report" provided by
the Service and the Mailing Industry Task Force,[Footnote 2] which
provides periodic updates on the implementation status of the Task
Force's recommendations to increase the effectiveness of the mail.
Further, effective leadership and sustained attention from the
Service's Board of Governors and the PMG will be key to ensuring the
successful implementation of its Plan. The role of the Board of
Governors in the Service's transformation includes such major areas as:
1) providing strategic advice to management; 2) assisting in managing
risk, including risk that is related to attempts to maximize current
value at the expense of mortgaging the future; and 3) holding
management accountable for results. In addition, the Service will need
to work with Congress, the Presidential Commission on the Postal
Service, and other stakeholders to implement legislative and
operational changes.
Control Costs and Improve Productivity under the Service's Existing
Authority:
Key issues in controlling costs and improving productivity include the
following:
* Difficulty in achieving cost savings and sustaining productivity
gains;
* High infrastructure and workforce costs;
* Unknown costs related to safety and security;
* Capital freeze that may increase future costs.
The ability to control costs and sustain productivity gains is a key
challenge to improving the Service's financial situation. The Service
made progress in cutting costs and improving productivity in fiscal
years 2001 and 2002, and costs for both years were below budgeted
amounts. Despite these short-term reduction efforts, the Service
continues to face significant challenges in sustaining long-term cost
savings and productivity gains, particularly in the workforce and
infrastructure areas, where costs are difficult to cut. Further, the
Service will be challenged to deal with unknown costs related to
enhancing mail safety and security. Although the Service's Plan
includes long-term strategies that could greatly impact its future
operational structure, a continuing emphasis on finding operating
efficiencies within the current structure is a more immediate priority
in order to mitigate postal rate increases.
The Service has made progress in the past 2 fiscal years in controlling
the growth in costs and improving productivity. Although total costs
increased by $2.8 billion in fiscal year 2001, those costs declined by
about $400 million in fiscal year 2002. The Service reduced its staff
by about 11,500 employees in fiscal year 2001 and by about 23,000 in
fiscal year 2002. These results were due in part to a reduced workload
from lower-than-planned mail volumes over the 2-year period, which
resulted in significant work-hour reductions. The Service increased its
productivity by 1.3 percent in fiscal year 2001 and 1.1 percent in
fiscal year 2002 from actions including the deployment of automation
and other operational and administrative efficiencies. Productivity is
the relationship between the Service's outputs--mail processing and
delivery to an expanding network--and the resources expended in
producing these outputs. The Service also postponed a number of program
expenditures and froze some capital spending during this time to
control expenses and improve its cash position. The above actions
helped offset cost increases for health care benefits, cost-of-living
adjustments, safety and security, fuel, transportation, unemployment
compensation, and workers compensation, as well as continued expansion
of its infrastructure and delivery network.
The Service plans to continue efforts to cut costs and increase
productivity in fiscal year 2003. Its budget calls for a $1 billion
cost reduction that includes a decrease of 12,000 employees by
attrition, deployment of automation equipment, and reduction in work
hours. Further progress in this area may face impediments, including
the following:
* Historically, the Service has had difficulty in sustaining cost
savings and productivity improvements, and numerous reports by us and
by the Postal Service's Inspector General have noted inefficiencies in
the postal system and difficulties challenging the Service in realizing
opportunities for savings over the long term.
* The Service has controlled the growth of its expenses over the past
year in areas such as reducing overtime and staff costs through
attrition, as mail volumes have declined. However, the Service will be
challenged to continue controlling and reducing its expenses if mail
volumes increase.
* Despite heavy investments in automation over the past decade, postal
employee-related costs continue to account for over three-quarters of
total operating expenses. The Service reported that growth in salaries
and benefits has been driven by wage inflation, not by growth in work
hours. The Service's workforce included over 854,000 employees as of
the end of fiscal year 2002, of whom 753,000 were career employees (see
table 2).
Table 2: The Service's Workforce Composition in Fiscal Year 2002:
Career employees: [Empty].
Career employees: Clerks; 256,656.
Career employees: City delivery carriers; 233,639.
Career employees: Mail handlers; 59,259.
Career employees: Rural delivery carriers--full-time; 60,817.
Career employees: Building and equipment maintenance personnel; 42,275.
Career employees: Supervisors/managers; 37,829.
Career employees: Postmasters/installation heads; 25,771.
Career employees: Professional/administrative/ technical personnel;
9,661.
Career employees: Motor vehicle operators; 9,092.
Career employees: Headquarters-related; 5,560.
Career employees: Vehicle maintenance personnel; 5,513.
Career employees: Inspection Service (field); 3,875.
Career employees: Area offices and nurses; 2,280.
Career employees: Inspector General; 722.
Career employees: Total career employees; 752,949.
Career employees: Non-career employees[A]; 101,427.
Career employees: Total employees; 854,376.
Source: Postal Service.
[A] Noncareer employees include casuals, nonbargaining temporaries,
rural substitutes, evening relief/leave replacements, and transitional
employees.
[End of table]
* Some of the Service's employee-related costs, including those related
to postretirement health benefits and workers' compensation, are
expected to continue increasing for the foreseeable future. The Service
reported that its health benefit cost rose by 10 percent in fiscal year
2002 and is forecasted to rise 14 percent in fiscal year 2003. Workers'
compensation expenses increased by over $500 million to $1.5 billion in
fiscal year 2002 and are expected to increase approximately 5 percent
in fiscal year 2003.
* The Service has high costs related to its nationwide infrastructure
and transportation network, which delivers 6 days a week and to over
139 million addresses nationwide. This network grows by approximately
1.7 million new addresses annually. These costs are difficult to cut
when volumes decrease, as carriers must service every delivery unit
even if they have fewer letters to deliver. Furthermore, the Service
faces legal requirements and practical constraints that affect the size
of its infrastructure network, including a prohibition on closing small
post offices solely for operating at a deficit. Figure 4 shows the
various components of this network.
Figure 4: Overview of the Service's Infrastructure and Transportation
Network in Fiscal Year 2002:
[See PDF for image]
[End of figure]
* The Service faces significant investment decisions and operating
costs related to its efforts to improve the safety and security of the
mail as a result of the terrorist events and subsequent use of the mail
to transmit anthrax. The Service's Emergency Preparedness Plan has
projected costs for prevention, detection, and protection measures to
total almost $800 million in fiscal year 2003, and the Service has
submitted a fiscal year 2004 appropriations request to Congress of $350
million for emergency preparedness costs. We recently raised concerns
about whether the Service had conducted sufficient testing prior to
making additional investments for security-related equipment in this
area.[Footnote 3] Further, we are concerned that the Service has not
specified costs related to operating, maintaining, and replacing any of
this new equipment.
* In fiscal year 2002, the Service continued its freeze on capital
spending primarily for new facilities, and capital outlays amounted to
$1.2 billion less than those in fiscal year 2001. Freezing capital
spending may have detrimental financial and operational effects on the
Service. These delays may result in higher future capital costs,
operational delays, deteriorating infrastructure, deferred maintenance
costs and efficiency gains, and difficulty in meeting growth demands
for providing universal service.
* The Service may also incur costs associated with the implementation
of its Transformation Plan, but it has not specified its expected costs
or projected revenue increases for implementing various actions
included in the Plan.
The Service must continue exploring ways to control costs and improve
productivity, particularly in connection with the Service's nationwide
infrastructure and transportation network and the workforce that
supports it. The Service's nationwide network has developed piecemeal
over time and may not represent the most effective strategy to support
current postal operations. For example, the locations of some postal
facilities may have been based on operating strategies that are now
outdated, as the Service has moved from a manually oriented processing
and delivery environment to a highly automated environment. Further,
mailers are now performing more mail preparation and processing
functions that may bypass some of the Service's processing steps. Also,
alternatives are available that may be more cost-effective for the
Service and may increase customer convenience and accessibility. For
example, stamp purchases account for about 450 million transactions in
post offices each year. As Figure 5 shows, it costs less for the
Service to sell stamps at ATMs and through other retail alternatives
such as supermarkets, drugstores, and other large retail vendors than
it does at post office counters.
Figure 5: Cost per $1 to the Postal Service for Sale of Stamps at
Different Points of Service:
[See PDF for image]
[End of figure]
As part of its Transformation Plan, the Service has started to lay the
groundwork for addressing possible inefficiencies in its current
operating network. First, the Service is developing proposals for
implementing its Network Integration Alignment program to align mail-
processing infrastructure with its logistics and operational
strategies. On the retail side, the Service has also ended its self-
imposed moratorium on post office closings, and is examining
alternative methods to provide retail services in
a more cost-effective and customer-friendly manner.[Footnote 4] The
Service has recently launched a national advertising campaign to
promote the purchase of stamps at ATMs and other alternatives, such as
grocery stores. The Service is also pursuing other retail alternatives,
such as partnering with commercial retail outlets to sell postal
products and services.
These actions represent a good starting point to address possible
inefficiencies in its current operating network. The Service's ability
to control costs and improve productivity will help restrain postal
rate increases and improve its overall financial position. Looking to
the future, as the Service determines its business model and
incorporates measures to enhance security and safety, it will be
challenged to realign its infrastructure and workforce to support the
new business model.
Address Unresolved Financial Issues:
Key issues concerning unresolved financial issues include the
following:
* Insufficient cash flow has increased pressure to borrow;
* Outstanding debt remains high;
* Workers' compensation liability and postretirement health obligations
are increasing;
* Difficulties remain in generating sufficient revenues to cover
funding needs.
The Service's unresolved financial issues may have significant long-
term impacts on its financial condition and outlook. The Service's cash
flows from operations have not been sufficient to fund needed capital
expenditures and significantly reduce debt pressures; its workers'
compensation liability and postretirement health benefit obligations
are large and increasing; and its liabilities exceed its assets.
Furthermore, we recently reported that the Service should reassess the
accounting treatment of its pension and postretirement health
obligations, in part because of these financial challenges.[Footnote 5]
Considering the Service's current difficulties in generating sufficient
revenue and net income, concerns remain about how its obligations and
liabilities will be funded under the current rate process. The recent
discovery that the Service may be overfunding its pension liability may
provide an opportunity for the Service to address financial challenges,
such as its outstanding debt and postretirement health obligations. The
Service will need to take a leadership role and examine how best to
address these issues, both under its current authority and within the
context of a new business model.
Insufficient Cash from Operations to Finance Capital Expenditures
Necessitates Borrowing:
Over the past 2 years, the Service has had insufficient cash flow from
operations to cover needed capital expenditures. This decreasing cash
position has also increased pressure on borrowing as the Service has
approached its statutory debt limit of $15 billion. During fiscal years
2001 and 2002, the Service froze part of its capital program to improve
its cash position and limit borrowing. Specifically, in fiscal year
2001, the Service froze $1 billion in construction and renovation on
more than 800 postal projects. However, a slowing economy led to a
$1.68 billion net loss for fiscal year 2001, and a decreased cash
position necessitated a $2 billion increase in borrowing. As seen in
figure 6 below, this increase in outstanding debt put the Service
within $4 billion of its statutory debt limit.
Figure 6: The Service's Outstanding Debt Has Been Approaching Its
Statutory Debt Limit:
[See PDF for image]
[End of figure]
In fiscal year 2002, the Service continued its freeze on capital
spending primarily for new facilities, and capital outlays were $1.2
billion less than those in fiscal year 2001. This reduction in capital
expenditures, combined with additional revenues from a mid-year rate
increase and cost-cutting efforts, improved its cash flows from
operations and allowed the Service to reduce debt by $200 million. This
was the first debt reduction in the past 6 years. Despite these
improvements, the Service incurred a $676 million net loss for the
fiscal year. The Service is also planning on continuing its capital
freeze on new facilities in fiscal year 2003 and budgeting an $800
million debt reduction. While freezing capital expenses has helped to
keep the Service's borrowing below planned levels in the short term,
this action is not a viable long-term solution. As we stated earlier,
these delays may result in higher future capital costs, operational
delays, deteriorating infrastructure, deferred maintenance costs and
efficiency gains, and difficulty in meeting growth demands for
providing universal service.
Liabilities and Obligations:
As of the end of fiscal year 2002, the Service's liabilities (as
reported in the Service's annual financial statement) and obligations
were estimated at approximately $117 billion. Table 3 lists some of the
major expenses paid in fiscal year 2002 and the remaining liability and
obligation balances for key financial categories as of the end of
fiscal year 2002.
Table 3: Selected Service Expenses, Liabilities, and Obligations in
Fiscal Year 2002:
Retirement-related; Selected expenses in fiscal
year 2002: $9.1; Remaining liability balance as
of 9/30/02: $32.2; Remaining obligation balance
as of 9/30/02: n/a .
Retiree health insurance premiums; Selected
expenses in fiscal year 2002: 1.0; Remaining
liability balance as of 9/30/02: n/a ;
Remaining obligation balance as of 9/30/02: $45.0[A].
Subtotal, retirement-related; Selected expenses
in fiscal year 2002: 10.1; Remaining liability
balance as of 9/30/02: 32.2; Remaining
obligation balance as of 9/30/02: 45.0.
Compensation and benefits[B]; Selected expenses
in fiscal year 2002: 41.5; Remaining liability
balance as of 9/30/02: 2.0; Remaining
obligation balance as of 9/30/02: n/a .
Workers' compensation; Selected expenses in
fiscal year 2002: 1.5; Remaining liability
balance as of 9/30/02: 6.7; Remaining
obligation balance as of 9/30/02: n/a .
Outstanding debt; Selected expenses in fiscal
year 2002: 0.3[ C]; Remaining liability balance
as of 9/30/02: 11.1; Remaining obligation
balance as of 9/30/02: n/a .
Accumulated leave; Selected expenses in fiscal
year 2002: n/a; Remaining liability balance as
of 9/30/02: 2.1; Remaining obligation balance
as of 9/30/02: n/a .
Leases; Selected expenses in fiscal year 2002:
0.8; Remaining liability balance as of 9/30/02:
n/a ; Remaining obligation balance as of 9/30/
02: 9.6[ D].
Payables and accrued expenses; Selected
expenses in fiscal year 2002: n/a; Remaining
liability balance as of 9/30/02: 2.2; Remaining
obligation balance as of 9/30/02: n/a .
Other; Selected expenses in fiscal year 2002:
12.9[ E]; Remaining liability balance as of 9/
30/02: 5.7[ F]; Remaining obligation balance as
of 9/30/02: n/a .
Total; Selected expenses in fiscal year 2002:
$67.2; Remaining liability balance as of 9/30/
02: $62.0; Remaining obligation balance as of
9/30/02: $54.6.
Source: Postal Service.
n/a --not applicable.
[A] The Service's 2002 Annual Report estimated that its postretirement
health benefits obligation ranged from $40 billion to $50 billion.
Therefore, we used the midpoint of the range for an estimate of the
Service's postretirement health obligation.
[B] Excludes retirement and workers' compensation expenses, which have
been listed separately.
[C] Interest expense paid for the Service's borrowing.
[D] Future minimum lease payments for all noncancelable operating
leases.
[E] Includes transportation; emergency preparedness, net; and other
expenses.
[F] Includes estimated prepaid postage; prepaid box rentals and permit
and metered mail; outstanding postal money orders; and other
liabilities.
[End of table]
The Service's total liabilities exceeded its total assets by $3.0
billion at fiscal year's end 2002. Under the Service's current break-
even business model, ratepayers are responsible for these liabilities.
However, despite multiple rate increases, revenues have been
insufficient to fund both operating expenses and expenses related to
these liabilities, which continue to exceed total assets. As Figure 7
shows, this imbalance has been growing since fiscal year 1999.
Figure 7: The Imbalance between the Service's Assets and Liabilities
Has Been Increasing:
[See PDF for image]
[End of figure]
This imbalance could change in fiscal year 2003 if Congress takes
legislative action based upon recent OPM analysis of the Service's CSRS
pension liability.[Footnote 6] OPM's analysis showed that the Service
would overfund its pension liability if the current statutory funding
mechanism remains unchanged. Consequently, OPM proposed legislative
action that would change this mechanism and reduce the Service's annual
pension payments to OPM. Figure 8 compares the estimated future
payments under current law with the estimated future payments under the
OPM legislative proposal provided in November 2002. However, if
legislation is enacted that differs from this proposal, the Service's
estimated future payments could change.
Figure 8: Estimated Annual Payments Related to Current and Proposed
Pension Liability:
[See PDF for image]
[End of figure]
The potential for reduced future payments in this area offers
opportunities to address some of the Service's major financial
challenges. The Service has stated that it would use available cash
from these reductions in the future payments to further reduce debt in
2003 from $800 million to more than $3 billion. Another consideration
would be to fund the Service's significant obligation for retiree
health benefits, which ranges from $40 billion to $50 billion according
to the Service's 2002 Annual Report. The annual payments for these
retiree health benefits are currently calculated on a pay-as-you-go
basis and have been increasing at an average rate of 15 percent over
the past 2 years. Furthermore, uncertainties remain about the future
direction of mail volumes and revenues, and thus, any available cash
may have to be used to cover operating and capital expenditures.
Difficulty in Generating Sufficient Revenue and Funding the Service's
Needs:
Under the Service's current business model, sufficient revenues have
not been generated to cover all of its funding needs and obligations
(see Figure 9). This has resulted in an accumulated deficit of $6.0
billion as of the end of fiscal year 2002, which represents the amount
by which cumulative expenses have exceeded cumulative revenues since
the Service's inception.
Figure 9: Needs for Funds Outweigh Sources of Funds:
[See PDF for image]
[End of figure]
Opportunities may exist under the current rate-setting process to
generate additional revenues. Over the past year, the Service has
explored options within the current rate-setting process to generate
more volume and revenues, such as the use of Negotiated Service
Agreements (NSAs). NSAs, which are sometimes referred to as "contract
rates," provide an agreement between the Service and its customers that
the customers would perform specific activities to their mailings (for
example, improved address quality or mail preparation enhancements),
and that these mailings would exceed a preset volume threshold. In
exchange, the Service would provide discount rates and/or predetermined
services. The Service hopes that such agreements would result in
additional volume and revenue. Although an NSA was recently submitted
for approval, it is too early to tell whether additional net revenues
would result. Further, some mailers are concerned about whether NSAs
would ensure fair and equitable pricing among postal customers,
particularly among smaller mailers. Although much discussion remains
for these and other ratemaking alternatives, joint mailing industry-
Service efforts, such as the postal summits, provide an opportunity to
explore improvements to the ratemaking process that can be mutually
beneficial. Actions in this area need to be further explored; without
them, the Service is likely to experience difficulty in generating
sufficient revenues to cover its increasing funding needs and to carry
out its mission of providing universal service at reasonable rates.
Further, changes in the accounting treatment for future obligations,
including those for retiree health benefits, may impact the Service's
funding needs. We recently reported that the Service should consider
the potential accounting ramifications of its unique statutory
obligations and reassess how best to account for and disclose
them.[Footnote 7] Such fundamental funding issues raise many questions,
including:
* How will the Service's obligations be paid--from increased rates,
volume growth, or other revenue sources, such as federal
appropriations?
* Who will pay these obligations--current ratepayers, future
ratepayers, or taxpayers?
* When will these obligations be paid--now, later, or incrementally
over time?
Develop Strategies to Address Human Capital Issues:
Key issues for developing such strategies are as follows:
* Workforce planning needs to support transformation;
* Pay comparability and performance-based pay issues are unresolved;
* Labor-management cooperation is needed to support transformation.
The Service has the second largest civilian workforce in the nation,
with over 854,000 employees, and its personnel-related costs make up
over three-quarters of its total annual operating expenses.
Consequently, the Service faces major human capital challenges,
including (1) planning for the appropriate workforce, (2) addressing
unresolved pay and compensation issues, and (3) enhancing labor-
management relations. The Service faces major transitions in each of
these areas, as it is increasingly affected by a large number of
upcoming retirements and by rising costs associated with these
retirements that are difficult to control. The strategies developed to
address these issues will have significant financial and operational
impacts in the future. The Service will be challenged to align its
human capital strategies with its transformational goals. It will need
to work together with its major unions and management associations to
find common ground to achieve progress in addressing these long-
standing issues.
Workforce Planning Needs to Support Transformation:
Current Service workforce planning generally focuses on the short term-
-up to 3 years--and supports operations in the current environment.
However, the Transformation Plan is outlining changes to the postal
operating environment, and the Service needs to align its workforce to
correspond with these changes. For example, under its current
authority, the Service has already taken actions to increase its
operational efficiency by examining alternatives to traditional postal
facilities, increasing its use of automation and information
technology, consolidating operating shifts, and offering new products
and services. These actions require a different mix in the number,
skills, and deployment of its employees, and they may involve
repositioning, retraining, outsourcing, and reducing the workforce.
Developing strategies to determine the appropriate workforce to support
the Service's operations structure will be challenging. The Service has
an opportunity, however, with its large number of impending retirements
to gain resource flexibility to aid realignment. As shown in figure 10,
the Service has projected that from fiscal year 2003 through fiscal
year 2010, 75 percent of its executives, 51 percent of its managers/
supervisors/ postmasters, and 38 percent of its carriers, clerks, and
other bargaining employees will reach eligibility for regular
retirement.
Figure 10: A Large Percentage of the Service's Workforce Will Soon Be
Retirement-Eligible:
[See PDF for image]
[End of figure]
Note: Percentages may not add due to rounding.
The decisions regarding these retirements (that is, whether or not to
fill these slots, and if so, when, with whom, and where) may have
significant financial and operational impacts. For example, we have
reported that the Service faces potentially serious succession problems
in its managerial ranks.[Footnote 8] As of late 2001, the Service's
Senior Vice President for Human Resources estimated that the Service
had qualified staff to replace about three-quarters of its current
leadership positions, and some of these replacement staff members were
themselves approaching retirement eligibility. The Service will be
challenged to ensure that it has a sufficient number of managers with
the competencies to lead its workforce.
As part of its long-term planning, the Service will be challenged to
realign its workforce to support its new business model. Specifically,
legislative or regulatory changes that would address restrictions on
closing or consolidating postal facilities, change the universal
service obligation, or modify the postal monopoly provision could also
affect the appropriate number, skills, and deployment of the postal
workforce. Regardless of the time frame, the Service needs mechanisms
and milestones, along with the flexibility to align its workforce with
its goals. These mechanisms and milestones would provide the measures
to assess progress and make necessary adjustments to effectively
implement changes to its large workforce and vast operations network.
Resolve Pay Comparability and Performance-Based Pay Issues:
A significant portion of the Service's personnel-related expenses is
used for employee salaries and benefits. Properly aligning these pay
systems with the Service's transformation goals would contribute to the
Service's ability to attract, motivate, and retain high-performing
employees and help focus the workforce's efforts toward achieving
organization goals. The Service will be challenged to develop
strategies that align these systems to its goals because of long-
standing issues, including (1) developing performance-based pay systems
for all employees, and (2) other pay issues, including disagreements
related to private-sector pay comparability and statutory pay caps for
selected positions, which may hinder recruitment and retention for
these positions.
Recent events in the Service's performance-based pay system have
brought needed attention to this area. The Service initiated a
performance-based pay system for its executives, managers, postmasters,
supervisors, and other nonbargaining employees in fiscal year 1995 that
was intended to align rewards with measured results. Concerns were
raised among some postal stakeholders about the effectiveness of the
incentives in this system, and the Service recently announced that it
discontinued this system in fiscal year 2002 and is in the process of
revising it. As the Service develops strategies to enhance its
performance-based compensation system, some key factors to consider
include (1) the basis on which payments are made, and (2) whether the
incentives provided in the system would actually reduce costs and
support organizational goals. Furthermore, the Service's performance-
based pay system covered only certain segments of the Service's
workforce; namely, postal management. The Service's bargaining unit
employees (union), who make up most of its workforce, have generally
opposed performance-based compensation systems.
Other pay issues also challenge the Service, some of which are
statutorily set. First, the Service is required by law to maintain
employee compensation and benefits on a standard comparable to the
compensation and benefits paid for comparable levels of work in the
private sector. The Service and its major employee unions, however,
have often disagreed with the way in which the comparability standard
should be applied and have frequently relied on third-party arbitration
to settle compensation-related disputes. Studies have been completed
that support both sides of the argument, and disagreements continue as
to the appropriate level of compensation and benefits (pension, retiree
health, and so forth) for postal employees. Furthermore, other
statutorily set pay-related issues are also challenging the Service,
such as the salary cap on postal executive salaries. Postal officials
believe that this cap constrains its ability to provide compensation
that is comparable to that in the private sector for selected
managerial, executive, and officer-level positions, thus making it more
difficult for the Service to retain and recruit key talent. In today's
environment of increased competition and uncertain financial
conditions, the Service will be challenged to develop strategies to
enhance its performance-based system so that employee performance is
effectively aligned with organizational goals.
Labor-Management Cooperation Is Needed to Support Transformation:
As we have often reported, the Service has long-standing adversarial
labor-management relations. In human capital areas, including workforce
deployment, work rules, and pay comparability, disagreements between
the two sides have existed for quite some time and, in many cases, were
resolved by third-party arbitration. Disagreements between these groups
can have major financial, operational, and human capital implications,
because personnel-related costs represent the largest single element of
the Service's annual expenses, and they are the primary determinant of
prices and the key factor in the Service's overall financial viability.
The Service will also be challenged to develop strategies to improve
this relationship and to effectively plan and carry out the changes
needed to implement the Transformation Plan.
Recent actions between the Service and its unions have shown that these
parties can work together and achieve positive results. Following the
terrorist attacks, the Service worked closely with its unions and
management associations to develop strategies to protect the mail,
customers, and postal employees. The Service and some of its unions
also worked together to implement the first negotiated rate settlement
in fiscal year 2002, which expedited the rate process and generated
additional revenues that enabled the Service to address financial
difficulties caused by the terrorist events and the slowing economy.
More recently, the Service and the leaders of its largest union, the
American Postal Workers Union (APWU), proposed a 2-year extension of
the current negotiated contract.
Furthermore, movement toward transformation provides an opportunity for
the Service and unions to make continued progress that can be
beneficial to both parties. With the Service's leadership, these groups
will need to address other issues that will also impact transformation,
including: (1) developing a new business model; (2) determining
processes to make operational changes, including changes to its
infrastructure (such as facility closings) to support the new model;
(3) realigning and restructuring the workforce--particularly in light
of the large number of impending retirements--through prevailing
collective bargaining agreements and other available means; and (4)
reaching agreement on and improving the collective bargaining process.
The Service and the National Association of Letter Carriers announced
in September 2002 the formation of a joint task force to address
transformation issues. Also, the Service and the APWU announced that
they will establish a joint task force to explore methods of
repositioning the workforce, with the goals of minimizing employee
dislocation, maximizing customer service, and maintaining efficient
operations. Although disagreements still exist between the Service and
these groups, including concerns about some aspects of the
Transformation Plan, we believe that these parties have taken steps in
the right direction and need to continue communication and cooperation.
Provide Complete and Reliable Financial and Performance Information in
a Timely and Transparent Manner:
Key issues to address in providing financial and performance
information include the following:
* Greater transparency is needed in quarterly financial information;
* Accounting and disclosure of long-term obligations and liabilities
need reassessment;
* Performance information could be improved.
Given the vital role of the nation's postal system and the importance
of its financial viability, it is imperative that the Service, its
stakeholders, and the public have adequate information available to
them to understand the Service's changing financial situation and
assess its progress toward meeting its performance goals and future
plans. The Service has made some improvements in its financial
information since 2001; however, we continue to have concerns about the
transparency of its financial and performance information. Although the
Service has traditionally provided detailed financial data to
stakeholders throughout the fiscal year, its periodic financial reports
have not clearly explained changes in its financial condition and
outlook or results of operations, and they have not always been readily
available to the public. Further, we believe that the Service should
reassess its accounting treatment and disclosure of some of its long-
term obligations, including its pension and postretirement health
obligations. The Service has also made mixed progress in implementing
our recommendations relating to improved reporting on its new products
and services and enhanced performance plans and reports. Improved
transparency is necessary to reflect economic reality and to enhance
accountability and decisionmaking for the Service.
Greater Transparency Is Needed in Quarterly Financial Information:
Despite the fact that the Service publicly releases periodic financial
information, significant changes in its financial outlook over the past
2 years were not evident from this information and came as a surprise
to many stakeholders. We have raised concerns and made recommendations
regarding the lack of transparent, timely, and readily accessible
periodic information necessary to explain changes in the Service's
financial situation and expected outlook. In response to our
recommendations, the Service committed to providing quarterly financial
statements similar to those provided by publicly traded enterprises,
and posting them to its Web site. However, we recently reviewed the
Service's quarterly financial reports and reported that they provided
only limited analysis and explanation to help stakeholders understand
what had changed, why it had changed, and how the changes affected its
financial condition, operating results, and expected outlook.[Footnote
9] Additionally, the quarterly reports were neither consistent in their
format and content nor readily available to the public. Consistency in
the format and content, as well as availability of recent and past
reports, is necessary for stakeholders to assess the Service's
performance over time. Since the issuance of our report, the Service
released a first-quarter report for fiscal year 2003 that was an
improvement over its previous quarterly reports because it contained
more information.
Accounting and Disclosure of Long-Term Obligations and Liabilities Need
Reassessment:
The magnitude of the Service's annual revenues and the importance of
its financial situation to the mailing industry, its ongoing
transformation efforts, and both Congress's and the public's calls for
more information and additional transparency regarding financial
reporting matters in general have focused attention on the Service's
reporting of some of its major long-term obligations and liabilities.
We recently reported that because of these factors and the potential
effects on current and future ratepayers, the Service should reassess
the accounting treatment of its pension and postretirement health
obligations.[Footnote 10] Further, we also reported that the Service
should disclose its estimated postretirement health obligations in its
financial statements. We believe that decisionmakers' ability to fully
consider the impact of these obligations is hindered by the current
lack of recognition and disclosure. Accounting and reporting should
reflect economic reality to provide stakeholders with a clear
understanding of the Service's true financial condition, so that
decisions can be made about what funds will be needed and how to
address these liabilities and obligations in the future.
Performance Information Could Be Improved:
Over the past 2 years, we have reported concerns about the quality and
transparency of the Service's performance information--information
that is critical for effective management, as well as for communication
with customers, Congress, and other stakeholders. For example, we
reported concerns that the Service did not include important net income
and delivery scores in its preliminary fiscal year 2002 performance
plan.[Footnote 11] We continue to have concerns in this area. The
Service's fiscal year 2003 Performance Plan included targets for all
four quarters only for one service category--First-Class overnight
mail. In addition, as we reported in our January 2001 report on the
Service's major management challenges, a number of issues have been
raised relating to the reliability and credibility of the data the
Service uses for ratemaking.[Footnote 12] The Service's progress in
this area continues to be a concern for congressional oversight.
Furthermore, we have also raised concerns that the Service's
information related to its e-commerce and other new products and
services was not complete, accurate, and consistent. We recommended
that the Service provide Congress and the Postal Rate Commission (PRC)
with an annual report that includes information on revenues and
expenses for all its new products and services. The Service issued its
first report in May 2002; however, the report provided information only
on selected new products and services. We are concerned that without
complete and consistent information, the Service will not be able to
assess its progress toward meeting overall performance goals, and
Congress, the PRC, and other interested parties will not have
sufficient information for oversight purposes.
[End of section]
GAO Contacts:
Subjects covered in this report: Implementing the Transformation Plan
and determining a business model for the 21st century; ; Financial
condition and outlook; ; Human capital issues; ; Transparency and
timeliness of financial and performance
information; Contact person: Bernard L. Ungar, Director; Physical
Infrastructure Issues; (202) 512-2834; ungarb@gao.gov.
Subjects covered in this report: Unresolved long-term financial issues;
; Retirement-related obligations; ; Outstanding debt; Contact person:
Linda Calbom, Director; Financial Management and Assurance; (202) 512-
8341; calboml@gao.gov.
Subjects covered in this report: Mail safety and security; Contact
person: Keith A. Rhodes, Chief Technologist; Applied Research and
Methods; (202) 512-6412; rhodesk@gao.gov.
[End of section]
Related GAO Products:
Transformation:
U.S. Postal Service: Moving Forward on Financial and Transformation
Challenges. GAO-02-694T. Washington, D.C.: May 13, 2002.
U.S. Postal Service: Deteriorating Financial Outlook Increases Need for
Transformation. GAO-02-355. Washington, D.C.: Feb. 28, 2002.
U.S. Postal Service: Financial Outlook and Transformation Challenges.
GAO-01-733T. Washington, D.C.: May 15, 2001.
U.S. Postal Service: Transformation Challenges Present Significant
Risks. GAO-01-598T. Washington, D.C.: Apr. 4, 2001.
U.S. Postal Service: Sustained Attention to Challenges Remains
Critical. GAO/T-GGD-00-206. Washington, D.C.: Sept. 19, 2000.
Cost Cutting, Productivity, Security, and Financial Issues:
Contract Management: Postal Service's National Office Supply Contract
Has Not Been Effectively Implemented. GAO-03-230. Washingon, D.C.:
Jan. 17, 2003.
U.S. Postal Service: More Consistent Implementation of Policies and
Procedures for Cash Security Needed. GAO-03-267. Washington, D.C.: Nov.
15, 2002.
United States Postal Service: Opportunities to Strengthen IT Investment
Management Capabilities. GAO-03-3. Washington, D.C.: Oct. 15, 2002.
Diffuse Security Threats: USPS Air Filtration Systems Need More Testing
and Cost Benefit Analysis before Implementation. GAO-02-838.
Washington, D.C.: Aug. 22, 2002.
Diffuse Security Threats: Technologies for Mail Sanitization Exist, but
Challenges Remain. GAO-02-365. Washington, D.C.: Apr. 23, 2002.
Highlights of GAO's Conference on Options to Enhance Mail Safety and
Postal Operations. GAO-02-315SP. Washington, D.C.: Dec. 20, 2001.
Breast Cancer Research Stamp: Millions Raised for Research, but Better
Cost Recovery Criteria Needed. GAO/GGD-00-80. Washington, D.C.: Apr.
28, 2000.
U.S. Postal Service: Changes Made to Improve Acceptance Controls for
Business Mail. GAO/GGD-00-31. Washington, D.C.: Nov. 9, 1999.
U.S. Postal Service: Stronger Mail Acceptance Controls Could Help
Prevent Revenue Losses. GAO/GGD-96-126. Washington, D.C.: June 25,
1996.
Human Capital:
U.S. Postal Service: Diversity in District Management-Level Positions.
GAO/GGD-00-142. Washington, D.C.: June 30, 2000.
U.S. Postal Service: Diversity in the Postal Career Executive Service.
GAO/GGD-00-76. Washington, D.C.: Mar. 30, 2000.
Equal Employment Opportunity: The Postal Service Needs to Better Ensure
the Quality of EEO Complaint Data. GAO/GGD-99-167. Washington, D.C.:
Sept. 28, 1999.
U.S. Postal Service: Diversity in High-Level EAS Positions.
GAO/GGD-99-26. Washington, D.C.: Feb. 26, 1999.
U.S. Postal Service: Little Progress Made in Addressing Persistent
Labor-Management Problems. GAO/GGD-98-1. Washington, D.C.: Oct. 1,
1997.
U.S. Postal Service: Labor-Management Problems Persist on the Workroom
Floor. GAO/GGD-94-201A/B. Washington, D.C.: Sept. 29, 1994.
Financial and Performance Transparency:
Postal Service Employee Workers' Compensation Claims Not Always
Processed Timely, but Problems Hamper Complete Measurement.
GAO-03-158R. Washington, D.C.: Dec. 20, 2002.
U.S. Postal Service: Actions to Improve Its Financial Reporting.
GAO-03-26R. Washington, D.C.: Nov. 13, 2002.
U.S. Postal Service: Accounting for Postretirement Benefits.
GAO-02-916R. Washington, D.C.: Sept. 12, 2002.
United States Postal Service: Information on Retirement Plans.
GAO-02-170. Washington, D.C.: Dec. 31, 2001.
U.S. Postal Service: Update on E-Commerce Activities and Privacy
Protections. GAO-02-79. Washington, D.C.: Dec. 21, 2001.
U.S. Postal Service: Enhancements Needed in Performance Planning and
Reporting. GAO/GGD-00-207. Washington, D.C.: Sept. 19, 2000.
U.S. Postal Service: Postal Activities and Laws Related to Electronic
Commerce. GAO/GGD-00-188. Washington, D.C.: Sept. 7, 2000.
U.S. Postal Service: Challenges to Sustaining Performance Improvements
Remain Formidable on the Brink of the 21st Century. GAO/T-GGD-00-2.
Washington, D.C.: Oct. 21, 1999.
The Results Act: Observations on the Postal Service's Preliminary
Performance Plan for Fiscal Year 2000. GAO/GGD-99-72R. Washington,
D.C.: Apr. 30, 1999.
U.S. Postal Service: Development and Inventory of New Products. GAO/
GGD-99-15. Washington, D.C.: Nov. 24, 1998.
Financial Reporting: Accounting for the Postal Service's Postretirement
Health Care Costs. GAO/AFMD-92-32. Washington, D.C.: May 20, 1992.
[End of section]
Performance and Accountability and High-Risk Series:
Major Management Challenges and Program Risks: A Governmentwide
Perspective. GAO-03-95.
Major Management Challenges and Program Risks: Department of
Agriculture. GAO-03-96.
Major Management Challenges and Program Risks: Department of Commerce.
GAO-03-97.
Major Management Challenges and Program Risks: Department of Defense.
GAO-03-98.
Major Management Challenges and Program Risks: Department of Education.
GAO-03-99.
Major Management Challenges and Program Risks: Department of Energy.
GAO-03-100.
Major Management Challenges and Program Risks: Department of Health and
Human Services. GAO-03-101.
Major Management Challenges and Program Risks: Department of Homeland
Security. GAO-03-102.
Major Management Challenges and Program Risks: Department of Housing
and Urban Development. GAO-03-103.
Major Management Challenges and Program Risks: Department of the
Interior. GAO-03-104.
Major Management Challenges and Program Risks: Department of Justice.
GAO-03-105.
Major Management Challenges and Program Risks: Department of Labor.
GAO-03-106.
Major Management Challenges and Program Risks: Department of State.
GAO-03-107.
Major Management Challenges and Program Risks: Department of
Transportation. GAO-03-108.
Major Management Challenges and Program Risks: Department of the
Treasury. GAO-03-109.
Major Management Challenges and Program Risks: Department of Veterans
Affairs. GAO-03-110.
Major Management Challenges and Program Risks: U.S. Agency for
International Development. GAO-03-111.
Major Management Challenges and Program Risks: Environmental Protection
Agency. GAO-03-112.
Major Management Challenges and Program Risks: Federal Emergency
Management Agency. GAO-03-113.
Major Management Challenges and Program Risks: National Aeronautics and
Space Administration. GAO-03-114.
Major Management Challenges and Program Risks: Office of Personnel
Management. GAO-03-115.
Major Management Challenges and Program Risks: Small Business
Administration. GAO-03-116.
Major Management Challenges and Program Risks: Social Security
Administration. GAO-03-117.
Major Management Challenges and Program Risks: U.S. Postal Service.
GAO-03-118.
High-Risk Series: An Update. GAO-03-119.
High-Risk Series: Strategic Human Capital Management. GAO-03-120.
High-Risk Series: Protecting Information Systems Supporting the Federal
Government and the Nation's Critical Infrastructures. GAO-03-121.
High-Risk Series: Federal Real Property. GAO-03-122.
FOOTNOTES
[1] U.S. General Accounting Office, U.S. Postal Service: Moving Forward
on Financial and Transformation Challenges, GAO-02-694T (Washington,
D.C.: May 13, 2002).
[2] The Mailing Industry Task Force is a committee that includes
Service management and various industry representatives. This Task
Force assesses the current role and value of mail in business and
consumer communication, evaluates the competitive environment
affecting the postal industry's future, and identifies opportunities
for future growth.
[3] U.S. General Accounting Office, Diffuse Security Threats: USPS Air
Filtration Systems Need More Testing and Cost Benefit Analysis before
Implementation, GAO-02-838 (Washington, D.C.: Aug. 22, 2002).
[4] Lifting the moratorium on closing post offices, the Postmaster
General stated that the Service would restart the process of closing
those post offices that have been "suspended" or effectively closed. He
stated that alternative services were provided for postal customers in
these communities (that is, contract stations, community post offices,
and so forth).
[5] U.S. General Accounting Office, U.S. Postal Service: Accounting for
Postretirement Benefits, GAO-02-916R (Washington, D.C.: Sept. 12,
2002).
[6] As part of a separate review, we asked OPM to estimate how much of
the underfunded CSRS pension liability is attributable to the Service
and to estimate the Service's postretirement health obligations.
[7] GAO-02-916R.
[8] U.S. General Accounting Office, U.S. Postal Service: Deteriorating
Financial Outlook Increases Need for Transformation, GAO-02-355
(Washington, D.C.: Feb. 28, 2002).
[9] U.S. General Accounting Office, U.S. Postal Service Actions to
Improve Its Financial Reporting, GAO-03-26R (Washington, D.C.: Nov. 13,
2002).
[10] GAO-02-916R.
[11] U.S. General Accounting Office, U.S. Postal Service: Financial
Outlook and Transformation Challenges, GAO-01-733T (Washington, D.C.:
May 15, 2001).
[12] U.S. General Accounting Office, Major Management Challenges and
Program Risks: U.S. Postal Service, GAO-01-262 (Washington, D.C.: Jan.
2001).
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