Report to Congressional Requesters

United States Government Accountability Office

GAO

July 2005 U.S. POSTAL 

SERVICE 

Improving Ratemaking 

Data Quality through 

Postal Service Actions 

and Postal Reform 

Legislation 

GAO-05-820 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-820.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Katherine 

Siggerud at (202) 512-2834 or 

siggerudk@gao.gov. 

Highlights of GAO-05-820, a report to 

congressional requesters 

July 2005

U.S. POSTAL SERVICE

Improving Ratemaking Data Quality 

through Postal Service Actions and 

Postal Reform Legislation 

USPS took several key actions that it reported were responsive to the 

Study’s findings. USPS reported that these actions increased the accuracy 

and precision of ratemaking data. First, USPS changed the In-Office Cost 

System to improve the quality of data on mail handled by postal employees 

and the activities they are performing. Personnel costs represent more than 

three-quarters of USPS costs; therefore, information on postal employees’ 

handling of mail is necessary for ratemaking purposes. USPS made similar 

changes to the Revenue, Pieces, and Weight System, which produces data on 

the revenue, volume, and weight of each type of mail. Second, replacing 

ratemaking data that had been collected in the 1980s, USPS conducted the 

City Carrier Street Time Study to gather more complete and consistent data 

on letter carrier activities. Third, to increase the precision of ratemaking 

data, USPS collected a larger quantity of data. Fourth, USPS revised 

documentation of the Transportation Cost System, which the Study had 

criticized as inadequate. 

Proposed postal reform legislation (H.R. 22 and S. 662) would create new 

oversight mechanisms and enhanced regulatory authority over the quality of 

ratemaking data. The legislation would transform the Postal Rate 

Commission into a new postal regulator that would prescribe what 

ratemaking data USPS must report annually, review these data, and 

determine whether USPS had complied with ratemaking requirements. The 

regulator could initiate proceedings to improve the quality of ratemaking 

data. To carry out its expanded duties, the regulator would have enhanced 

authority, including the authority to subpoena; the authority to order USPS 

to take actions to comply with laws and regulations; and the authority to 

impose sanctions for noncompliance. 

The legislation would address persistent problems under the existing 

ratemaking structure, which has enabled long-standing deficiencies in 

ratemaking data quality and unresolved methodological issues to persist. 

The legislation would eliminate key disincentives for ratemaking data 

quality, including the litigious ratemaking process, the break-even 

requirement that creates incentives to shift costs from one type of mail to 

another, and the lack of adequate oversight mechanisms to address data 

quality issues. Under the current structure, regulatory oversight is generally 

conducted during rate cases that only USPS can initiate. The legislation 

would provide mechanisms for regular oversight of ratemaking data and 

enhance the regulator’s authority so that the necessary transparency, 

oversight, and accountability could take place. Thus, the legislation would 

likely lead to improvements in the quality of ratemaking data over time and 

at some cost. However, if the legislation is enacted, the outcome would 

likely depend on how the regulator would use its discretion to define and 

implement the new ratemaking structure. Key implementation questions 

would remain, including what regulatory criteria and requirements would 

apply to ratemaking data. 

In 1999, the congressionally 

requested Data Quality Study (the 

Study) found opportunities to 

improve ratemaking data quality. 

The U.S. Postal Service (USPS) 

agreed to make improvements, but 

concerns remained that it is still 

unclear, from an overall 

perspective, what actions USPS has 

taken to improve data quality. 

Ratemaking data quality has also 

factored into congressional 

deliberations to reform postal laws. 

Thus, questions remain about 

USPS’s actions to improve 

ratemaking data quality and how 

proposed legislation will address 

long-standing issues in this area. 

GAO was asked to (1) describe key 

USPS actions that were responsive 

to the Study to improve the quality 

of ratemaking data and (2) discuss 

possible implications of postal 

reform legislation for ratemaking 

data quality. GAO did not assess 

the extent to which USPS’s actions 

affected data quality. 

In its comments, USPS disagreed 

with GAO’s finding on the need to 

reform the ratemaking structure. 

USPS also differed on GAO’s 

finding that the legislation would 

likely lead to improving ratemaking 

data quality. It said “breakthrough 

improvements” would be unlikely 

without a significant increase in 

costs. GAO believes reform of the 

ratemaking structure is needed, but 

the outcome would depend on its 

implementation. Further, the 

legislative changes would likely 

lead to data quality improvements 

over time and at some cost. 
Page i GAO-05-820 Postal Data Quality 

Letter 1

Results in Brief 4 

Background 6 

USPS Took Action to Improve the Quality of Ratemaking Data 11 

Proposed Statutory Changes Could Lead to Better Ratemaking 

Data 26 

Agency Comments and Our Evaluation 38 

Appendix I Objectives, Scope, and Methodology 43 

Appendix II Comments from the Postal Rate Commission 45 

Appendix III Selected Ratemaking Requirements in Proposed 

Postal Reform Legislation 51 

Tables 

Table 1: Proposed Requirements for USPS to Report Ratemaking 

Data 30 

Table 2: Proposed Statutory Requirements for the USPS Inspector 

General to Audit Ratemaking Data and Data Collection 

Systems 33 

Table 3: Proposed Compliance Review of USPS Annual Reports 34 

Table 4: Proposed Authorization for Regulatory Proceedings to 

Improve Data Quality 35 

Table 5: Proposed Authority for the New Postal Regulator and 

Related Provisions 36 

Figures 

Figure 1: USPS Data Collector Using a Laptop Computer and 

Digital Scale to Record Ratemaking Data at a Postal 

Facility 8 

Figure 2: USPS Letter Carrier Activities at Postal Facilities 13 

Figure 3: USPS Employees Handling and Sorting Mail in Postal 

Facilities 14 

Contents 
Page ii GAO-05-820 Postal Data Quality 

Figure 4: USPS Clerks Performing Retail Activities 14 

Figure 5: USPS Data Collector Gathering Ratemaking Data from a 

Letter Carrier Manually Sorting Mail into Pigeonholes for 

Delivery 16 

Figure 6: USPS Data Collector Gathering Ratemaking Data from a 

USPS Clerk Manually Sorting Mail at a Postal Facility 17 

Figure 7: Some Mail Piece Characteristics Used to Determine the 

Subclass of Mail 18 

Figure 8: Laptop Computer and Digital Scale Used to Record 

Ratemaking Data, Including Mail Piece Characteristics 21 

Figure 9: USPS City Carriers Performing Delivery Activities on the 

Street 22 

Figure 10: Long-distance Transportation of Mail Using Trucks and 

Airplanes 24 

Abbreviations 

CCSTS City Carrier Street Time Study 

IOCS In-Office Cost System 

MODS Management Operating Data System 

PRC Postal Rate Commission 

RPW Revenue, Pieces, and Weight 

TRACS Transportation Cost System 

USPS United States Postal Service 

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permission from GAO. However, because this work may contain copyrighted images or 

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Page 1 GAO-05-820 Postal Data Quality 

July 28, 2005 

The Honorable Tom Davis 

Chairman, Committee on Government Reform 

House of Representatives 

The Honorable John M. McHugh 

The Honorable Dan Burton 

House of Representatives 

The quality of data used to set postal rates has been a long-standing 

concern of Congress and postal stakeholders, including the U.S. Postal 

Service (USPS); the independent Postal Rate Commission (PRC), which 

reviews USPS proposals to change domestic postal rates; USPS 

competitors; and mailers, including businesses and the general public. 

Postal rates are critical to USPS’s financial viability because USPS is 

intended to be self-supporting from postal operations and is mandated to 

break even over time. Ratemaking data are the variety of data that are 

used to establish postal rates. A key statutory ratemaking requirement is 

that each class of mail1

 or type of service2 must bear the direct and indirect 

postal costs attributable to that class or type, plus that portion of all other 

USPS costs reasonably assignable to that class or type.3

 USPS accounting 

systems collect detailed data, but do not collect sufficient data for 

ratemaking purposes. For example, USPS accounting systems collect data 

on the sales of postage stamps, but do not track how stamps are used to 

send different subclasses of mail (e.g., stamped First-Class Letters and 

Sealed Parcels, or Parcel Post items). Similarly, USPS accounting systems 

track employee time and payroll costs, but do not track employee time and 

payroll costs spent on handling each subclass of mail (e.g., time spent 

 1

The four major classes of mail are: First-Class Mail (mainly bills, bill payments, 

correspondence, advertising, and Priority Mail); Standard Mail (mainly bulk advertising and 

direct mail solicitations); Periodicals (mainly magazines and local newspapers); and 

Package Services Mail (e.g., parcels, merchandise, catalogs, media mail, library mail, and 

books). Another class of mail is Expedited Mail (i.e., Express Mail). 

2

Postal services include such services as post office boxes, money orders, and delivery 

confirmation. 

3

39 U.S.C. §3622(b)(3). PRC has long interpreted this requirement to apply to subdivisions 

of mail classes called subclasses. For example, Parcel Post and Library Mail are subclasses 

of the Package Services class. 

United States Government Accountability Office

Washington, DC 20548 
Page 2 GAO-05-820 Postal Data Quality 

manually sorting mail into the order it is to be delivered). Thus, USPS has 

established data collection systems that gather additional data needed to 

compile data specific to each subclass of mail. These data collection 

systems are highly complex, in part because USPS uses many different 

postal operations and work methods, and in part because original data 

collection is expensive and difficult. Further, these data collection systems 

are highly controversial, in part because there are multiple options to 

collect and analyze the data, and in part because the current ratemaking 

process gives various stakeholders an incentive to disagree over options 

that produce somewhat different results—thereby affecting postal rates. 

The statutory ratemaking process requires PRC proceedings called rate 

cases, which enable any stakeholder to review and comment on USPS 

proposals, including the supporting data and analysis. PRC then is 

required to issue a decision with recommended rates, which generally has 

included PRC’s assessment of the supporting ratemaking data. 

In 1995, after the PRC Chairman and others raised concerns about the 

quality of ratemaking data in the 1994 rate case, the former House 

Subcommittee on the Postal Service, Committee on Government Reform 

and Oversight, requested a Data Quality Study (the Study). The Study’s 

report was issued in 1999 and found opportunities to improve the quality 

of ratemaking data.4

 USPS agreed to implement improvements and has 

released information on its follow-up actions. However, concerns 

remained that it is still not clear, from an overall perspective, what specific 

actions USPS has taken to improve ratemaking data quality. 

Further, the quality of ratemaking data has factored into ongoing 

congressional deliberations to reform the nation’s postal laws to enable 

USPS to better address its formidable financial, operational, and human 

capital challenges. Congress has considered comprehensive postal reform 

legislation over the past decade that, among other things, would provide 

USPS with more flexibility to establish postal rates. This flexibility would 

be balanced by enhanced regulatory authority and oversight to protect 

USPS customers and competitors, including new oversight mechanisms 

for the quality of ratemaking data. This legislation is being considered in 

the 109th Congress (H.R. 22 and S. 662, 109th Cong., 1st Sess., both of 

which are entitled the Postal Accountability and Enhancement Act), and 

was reported by USPS’s Senate oversight committee on July 14, 2005, and 

passed by the House on July 26, 2005, but has not yet been enacted. 

 4

A.T. Kearney, Inc., Data Quality Study (Alexandria, VA: Apr. 16, 1999). 
Page 3 GAO-05-820 Postal Data Quality 

Thus, important questions remain about USPS’s actions to improve the 

quality of ratemaking data and how proposed legislation will address longstanding issues in this area. Accordingly, as agreed with your staff, our 

objectives were to (1) describe key USPS actions that were responsive to 

the Study to improve the quality of ratemaking data and (2) discuss 

possible implications of postal reform legislation for ratemaking data 

quality. 

To address these objectives, we identified key USPS actions taken that 

were responsive to the Study by reviewing the Study’s report that 

prioritized its findings; reviewing USPS and PRC documents, including 

USPS progress reports that prioritized actions and PRC documents that 

summarized concerns about data quality; and interviewing USPS officials 

responsible for collecting ratemaking data. We focused our work primarily 

on USPS’s key actions to enhance three of its five major data collection 

systems used for ratemaking because the Study’s report noted that these 

systems had opportunities for improvement. These three systems include 

the In-Office Cost System (IOCS), which produces data on the time postal 

employees spend handling each subclass of mail in postal facilities; the 

Revenue, Pieces, and Weight (RPW) system, which produces data on the 

revenue, volume, and weight of each subclass of mail; and the 

Transportation Cost System (TRACS), which produces data on longdistance transportation of mail subclasses using trucks, airplanes, and 

freight trains.5

 We also focused our work on another USPS key action to 

conduct a new special study to replace four USPS special studies because 

the Study’s report identified that the four special studies had opportunities 

for improvement. USPS’s new special study is called the City Carrier Street 

Time Study (CCSTS), which produced data on the activities of city 

carriers—that is, letter carriers who deliver mail in highly populated urban 

and suburban areas where most deliveries are made to the door, curbside 

mailboxes, centrally located mailboxes, or cluster boxes. To gain an 

understanding of how the ratemaking data are collected, we visited USPS 

facilities in the Capital Metro area to observe data collection operations 

and interviewed employees collecting the data, their supervisors, and 

management. We did not assess the extent to which USPS’s actions 

affected the quality of these ratemaking data. To discuss the implications 

of proposed legislation, we reviewed proposed postal reform legislation, 

 5

The Study identified only a few minor concerns regarding the other two major ratemaking 

data systems, which are the City Carrier Cost System and the Rural Carrier Cost System. 

These systems produce data on the volume of mail subclasses that are delivered and 

collected by carriers. 
Page 4 GAO-05-820 Postal Data Quality 

current postal laws and regulations, and other documents. See appendix I 

for more details on our objectives, scope, and methodology. 

We requested comments on a draft of this report from PRC and USPS. PRC 

provided written comments that are also discussed later in this report and 

reproduced as appendix II. USPS provided comments via e-mail that are 

discussed later in this report. We conducted our review at USPS 

headquarters in Washington, D.C., and the Capital Metro area from June 

2004 through July 2005 in accordance with generally accepted government 

auditing standards. 

USPS took several key actions that it reported were responsive to the 

Study’s findings. USPS reported that these actions increased the accuracy 

and precision of ratemaking data. First, USPS changed IOCS to improve 

the quality of data on the mail subclasses that are handled by postal 

employees and the activities they are performing. Personnel costs 

represent more than three-quarters of USPS costs; therefore, information 

on postal employees’ handling of mail is necessary to estimate the costs of 

handling each subclass of mail. Similarly, USPS made changes to RPW to 

improve the accuracy of data on the subclasses of mail in the postal 

system, including data on the revenue, volume, and weight of each 

subclass of mail. Second, USPS conducted CCSTS to replace ratemaking 

data that had previously been collected in the 1980s, using a different data 

collection approach to collect more complete and consistent data on 

carrier delivery activities. Data on city carrier delivery activities are 

needed for ratemaking because carriers typically deliver multiple 

subclasses of mail. Third, USPS substantially increased the quantity of 

data collected by RPW and TRACS to increase the precision of ratemaking 

data. Increasing data precision can be particularly beneficial to the quality 

of cost, revenue, and volume data for subclasses with smaller volumes. 

Fourth, USPS revised and expanded its documentation of TRACS, which 

the Study had criticized as inadequate. PRC commended the revised 

documentation, which USPS reported enhanced the transparency and 

administration of TRACS. 

Proposed postal reform legislation being considered in the 109th Congress 

(H.R. 22 and S. 662, 109th Cong., 1st Sess.) would create new oversight 

mechanisms and enhanced regulatory authority over the quality of 

ratemaking data. The proposed legislation would transform PRC into a 

new postal regulator with enhanced authority compared with that of the 

current PRC. The postal regulator would be required to issue regulations 

prescribing what ratemaking data USPS must report on an annual basis. 

Results in Brief 
Page 5 GAO-05-820 Postal Data Quality 

The postal regulator would be required to annually review USPS 

ratemaking reports in order to determine whether USPS had complied 

with the requirements of the new ratemaking structure. In addition, 

USPS’s Inspector General would be required to regularly audit the data 

collection systems and procedures used in collecting information and 

preparing the USPS annual reports. Further, the postal regulator would be 

provided with the authority to initiate proceedings to improve the quality 

of ratemaking data, including data on the attribution of costs and revenues 

to postal products. The postal regulator also would be provided with 

enhanced authority to carry out its expanded duties, including the 

authority to subpoena USPS documents and officials; the authority to 

order USPS to take appropriate actions to comply with laws and its 

regulations; and the authority to impose sanctions for noncompliance, 

including fines for deliberate noncompliance. The postal regulator could 

obtain court orders to enforce its subpoenas, orders, and sanctions. The 

proposed legislative changes would address persistent problems under the 

existing statutory ratemaking structure, which, as we have reported, has 

enabled long-standing deficiencies in ratemaking data quality and 

unresolved methodological issues to persist. The legislation would 

eliminate key disincentives for ratemaking data quality, including the 

litigious ratemaking process (which provides incentives for USPS and 

others to gain an advantage through the collection and analysis of 

ratemaking data), the break-even requirement that creates incentives to 

shift costs from one subclass of mail to another, and the lack of adequate 

oversight mechanisms to address data quality issues. Under the current 

structure, regulatory oversight is generally conducted during rate cases 

that only USPS can initiate, which has limited the frequency, scope, and 

depth of oversight of USPS ratemaking data and its data collection 

systems that generate these data. The legislation would provide 

mechanisms for regular oversight of ratemaking data and enhance the 

regulator’s authority so that the necessary transparency, oversight, and 

accountability could take place. Thus, the proposed legislative changes 

would likely lead to improvements in the quality of ratemaking data over 

time and at some cost. However, if postal reform legislation is enacted, the 

outcome would likely depend on how the postal regulator would use its 

discretion to define and implement the new ratemaking structure. Key 

implementation questions would remain, including what regulatory 

criteria and requirements would apply to ratemaking data. 

In commenting on the draft report, USPS disagreed with our findings on 

the ratemaking structure, stating the current process has worked 

“remarkably well” and that the proposed legislation is unlikely to lead to 

“breakthrough improvements” in the quality of its ratemaking data systems 
Page 6 GAO-05-820 Postal Data Quality 

without a significant increase in costs. In our view, for the reasons stated 

earlier, major changes are needed to the ratemaking structure. Further, the 

proposed legislative changes would likely lead to improvements in 

ratemaking data quality over time and at some cost. In our view, the 

extent of such improvements, and what the associated costs may be, 

would depend on how the legislation is implemented. 

USPS is an independent establishment of the executive branch mandated 

to provide postal services to bind the nation together through the 

personal, educational, literary, and business correspondence of the 

people. Established by the Postal Reorganization Act of 1970,6

 USPS is one 

of the largest organizations in the nation; in fiscal year 2004, USPS 

reported revenues of $69 billion and expenses of $66 billion. USPS handles 

more than 200 billion pieces of mail annually. 

The Postal Reorganization Act of 1970 shifted postal ratemaking authority 

from Congress to USPS and the independent PRC. When USPS wishes to 

change domestic postal rates and fees, it must submit its proposed 

changes and supporting material—including supporting ratemaking data 

on USPS costs, revenues, and mail volumes—to PRC. By law, PRC must 

hold a proceeding referred to as a “rate case.” Any interested party can 

participate in a rate case by filing a notice of intervention with PRC. The 

notice enables the party to submit material to PRC, as well as ask written 

questions of USPS. PRC also provides an opportunity for public hearings 

in which USPS witnesses appear and can be cross-examined by PRC and 

other interested parties. PRC generally must issue a recommended 

decision on postal rates and fees within 10 months of the inception of a 

rate case. USPS Governors may approve, allow under protest, reject, or 

modify PRC’s recommended decision. 

Proposed postal rates must be sufficient for USPS to meet its mandate to 

break even, which requires that postal rates and fees shall provide 

sufficient revenues so that USPS’s total estimated income and 

appropriations will equal as nearly as practicable USPS’s total estimated 

costs.7

 In addition, each class of mail or type of postal service is required 

 6

The Postal Reorganization Act of 1970 (Pub. L. No. 91-375) reorganized the former U.S. 

Post Office Department into the U.S. Postal Service and created the Postal Rate 

Commission. 

7

39 U.S.C. §3621. 

Background 
Page 7 GAO-05-820 Postal Data Quality 

by law to cover its direct and indirect costs (attributable costs), as well as 

make a reasonable contribution to covering overhead costs (institutional 

costs).8

 PRC has long interpreted this requirement to apply to subclasses 

of mail. 

USPS maintains data collection systems to help attribute USPS costs to 

various subclasses of mail, in part because USPS employees typically 

handle multiple subclasses of mail every workday. Such cost attribution is 

critical because USPS personnel costs represent more than three-quarters 

of USPS costs. In fiscal year 2004, USPS personnel costs included about 

$22 billion for clerks and mail handlers at mail processing and retail 

facilities, about $18 billion for carriers on city routes (predominantly in 

highly populated urban areas and their suburbs), about $5 billion for 

carriers on rural routes (predominantly in rural areas and suburbs not 

covered by city routes), and about $2 billion for postmasters, among other 

things. USPS also collects ratemaking data on the revenue, cost, and 

volume of each subclass of mail. 

About 900 USPS employees called data collectors gather ratemaking data 

on a full-time basis and about 2,000 USPS employees collect ratemaking 

data on a part-time basis in addition to their other duties. These personnel 

use laptop computers and digital scales to record ratemaking data at 

postal facilities located across the nation (see fig. 1). USPS has estimated 

that it budgeted about $73 million for the administration and collection of 

ratemaking data in fiscal year 2005.9

 8

39 U.S.C. §3622(b)(3). 

9

This estimate does not include associated overhead costs, such as travel, office space and 

related costs, and computer operations and support, which USPS reported could not easily 

be determined; costs associated with accounting and operational data collection systems 

that are also used in ratemaking; and other costs associated with collecting data on 

international mail. 
Page 8 GAO-05-820 Postal Data Quality 

Figure 1: USPS Data Collector Using a Laptop Computer and Digital Scale to 

Record Ratemaking Data at a Postal Facility 

Although the quality of ratemaking data has long been recognized as 

critical, as the Study’s report noted, there are no definitive quality 

standards for postal ratemaking data. The Study concluded that the quality 
Page 9 GAO-05-820 Postal Data Quality 

of data accepted by any given regulatory or antitrust entity is negotiated 

between the regulator and the company or companies subject to that 

regulation.10 According to the Study, data quality is a subjective issue that 

regulators judge in every rate review process, with the quality of data 

accepted by regulators depending on the availability of data, the 

cost/benefit of collecting additional data, and the seriousness of the issue 

under review. 

For the purpose of the Study, the criteria for the quality of ratemaking data 

were defined as having data that are “sufficiently complete” and 

“sufficiently accurate” for ratemaking, considering the costs involved in 

providing such data. Sufficiently complete data were defined as having 

enough of the necessary detail to enable the determination of each 

applicable rate. Sufficiently accurate data were defined as “free enough 

from error” to be used for this purpose. Error in this context referred to 

both “sampling error” (i.e., data precision associated with random error of 

data collected from randomly sampled employees or pieces of mail) and 

other sources of error (i.e., systematic error). 

The contractor that conducted the Study, A.T. Kearney, primarily focused 

on the five major data collection systems used for ratemaking, as well as 

some special studies used for this purpose. The Study found opportunities 

for improvement in three of the five data collection systems. The Study 

also reviewed the economic and statistical concepts that USPS uses for 

ratemaking and estimated the precision of key cost data for certain 

subclasses of mail, among other things. The Study specifically focused on 

data used to establish rates for subclasses of mail. The Study did not 

perform extensive field testing and data gathering, attempt to quantify the 

extent to which systematic error is present in ratemaking data, or review 

the ratemaking process. 

The Study’s report, issued in April 1999, concluded the following: 

“In general, within the scope of the Study, the quality of the data provided by the Postal 

Service for rate making has been sufficiently complete and accurate to calculate subclass 

costs, and thus, enable subclass rates to be based on reasonably reliable data, considering 

the costs to collect the data. This conclusion is based on the Study team’s assessment that 

 10The Study reviewed postal ratemaking in the United States; 10 industrialized countries 

with postal administrations that have operating processes similar to USPS; and some U.S. 

industries subject to regulation, such as local telecommunications, natural gas, and 

railroads. 
Page 10 GAO-05-820 Postal Data Quality 

the Postal Service asks the appropriate economic questions, uses the best available data, 

and applies an economically sound approach grounded in activity based concepts to 

calculate its subclass costs with reasonable statistical accuracy. This assessment is based 

on extensive economic, statistical and simulation analyses contained in the Study’s 

supporting Technical Reports.” 

At the same time, the Study’s report concluded that “improvements and 

enhancements can—and must—be made to ensure future data provided 

for rate making will be sufficiently complete and accurate.” The report 

stated that “The Study team has concerns regarding the quality of certain 

best available data used by the Postal Service to calculate its subclass 

costs. In some instances, these best available data were used regardless of 

their inherent level of error or their obsolescence.” Specifically, the report 

noted opportunities for improvement in three major data collection 

systems used for ratemaking as well as the need to replace ratemaking 

data from special studies that had been collected in the 1980s.11 USPS 

generally agreed with the Study’s findings. 

Over the past decade, Congress has debated comprehensive proposals to 

reform the nation’s postal laws that would, among other things, transform 

the ratemaking structure and mechanisms for oversight of ratemaking data 

quality. In the last session of Congress, proposed postal reform legislation 

was reported by USPS’s oversight committees (H.R. 4341 and S. 2468, 

108th Cong., 2nd Sess., which were both entitled the Postal Accountability 

and Enhancement Act), but no further action was taken. The legislation 

has been reintroduced in the current session (H.R. 22 and S. 662, which are 

both entitled the Postal Accountability and Enhancement Act) but has not 

yet been enacted. 

As we recently testified, comprehensive postal reform legislation 

continues to be needed in order to address the continuing financial, 

operational, governance, and human capital challenges that threaten 

USPS’s long-term ability to provide high-quality, universal postal service at 

affordable rates.12 USPS’s core business of First-Class Mail is declining; 

compensation and benefits costs are rising; and USPS is burdened with 

roughly $70 billion to $80 billion in financial liabilities and obligations, 

most of which are for unfunded retiree health benefits. We and the 

 11Kearney, Data Quality Study: Summary Report, pp. 5-7. 

12GAO, U.S. Postal Service: Despite Recent Progress, Postal Reform Legislation Is Still 

Needed, GAO-05-453T (Washington, D.C.: Apr. 14, 2005). 
Page 11 GAO-05-820 Postal Data Quality 

President’s Commission on the United States Postal Service (Presidential 

Commission)—which was established by President George W. Bush in 

2002 to examine the future of USPS and develop recommendations to 

ensure the viability of postal services in the United States—have reported 

that comprehensive postal reform legislation is needed to minimize the 

risk of a significant taxpayer bailout or dramatic rate increases.13 Because 

comprehensive postal reform legislation has not been enacted and USPS 

continues to face formidable competition, cost, and other challenges, its 

transformation efforts and long-term outlook remain on our High-Risk 

List. In this regard, we have reported that USPS progress is hindered by 

limited flexibility and incentives for success, including limited flexibility to 

establish postal rates and poor incentives for providing quality ratemaking 

data.14

USPS took several key actions that it reported were responsive to the 

Study’s findings. USPS reported that these actions increased the accuracy 

and precision of ratemaking data. These USPS actions are summarized 

below: 

• First, USPS made changes to IOCS and RPW to more accurately determine 

subclasses of mail in the postal system, including data on the revenue, 

volume, and weight of each subclass of mail, as well as to collect better 

information on the activities that postal employees are performing. 

• Second, USPS conducted CCSTS to replace ratemaking data that had 

previously been collected in the 1980s, using a different data collection 

approach to collect more complete and consistent data on carrier delivery 

activities. 

• Third, USPS substantially increased the quantity of data collected by RPW 

and TRACS to increase the precision of ratemaking data. 

 13GAO, U.S. Postal Service: Key Elements of Comprehensive Postal Reform, GAO-04-397T

(Washington, D.C.: Jan. 28, 2004); U.S. Postal Service: Bold Action Needed to Continue 

Progress on Postal Transformation, GAO-04-108T (Washington, D.C.: Nov. 5, 2003); 

President’s Commission on the United States Postal Service, Embracing the Future: 

Making the Tough Choices to Preserve Universal Mail Service (Washington, D.C.: July 31, 

2003). 

14GAO-04-397T and GAO-04-108T. 

USPS Took Action to 

Improve the Quality 

of Ratemaking Data 
Page 12 GAO-05-820 Postal Data Quality 

• Fourth, USPS revised and expanded its documentation of TRACS, which 

the Study had criticized as inadequate. 

USPS made changes to two major data collection systems used for 

ratemaking—IOCS and RPW—that USPS reported were responsive to the 

Study, in order to more accurately determine subclasses of mail in the 

postal system, including data on the revenue, volume, and weight of 

subclass of mail, as well as to collect better information on the activities 

that postal employees are performing. According to USPS, the changes to 

the data collection methods for IOCS and RPW were among the most 

significant since these data systems were established more than 30 years 

ago. To implement the changes, USPS undertook detailed pilot testing 

over a multiyear period, which required substantial efforts on the part of 

both USPS staff and contractors. 

IOCS and RPW data are critical to postal ratemaking because these data 

are needed to estimate the costs for USPS to handle each subclass of mail. 

Although USPS timekeeping systems record the amount of employee time 

spent in each operation or work center, those systems do not track the 

subclasses of mail that employees handle, and also do not track the 

activities they are performing. USPS employees typically handle multiple 

subclasses of mail each workday, such as letter carriers preparing their 

mail for delivery by manually sorting piles of mail into pigeonholes 

corresponding to each address on their route. USPS has reported that 

letter carriers spend 2 to 3 hours each workday in the office, with much of 

that time spent manually sorting mail (see fig. 2). For example, USPS has 

estimated that carriers manually sort about 44 billion flat-sized pieces of 

mail each year, including such mail as catalogs, magazines, and large 

envelopes.15 This activity incurs substantial costs because letter carriers 

represent about 4 in 10 USPS career employees. To understand how much 

time is required for letter carriers to manually sort each subclass of mail 

and perform other duties in the office, at randomly selected times 

throughout the year, IOCS records the characteristics of mail that 

randomly sampled carriers are handling and the activities these carriers 

are performing. IOCS uses similar procedures to collect data from postal 

employees working to sort and route mail at mail processing and other 

facilities (see fig. 3), as well as postal employees working to provide 

 15Carriers also sort some letter mail into the order it is to be delivered, although USPS 

automated equipment sorts most letter mail into delivery order. 

USPS Made Changes to 

IOCS and RPW to More 

Accurately Determine 

Subclasses of Mail 
Page 13 GAO-05-820 Postal Data Quality 

window service and perform other activities at post offices and other retail 

facilities (see fig. 4).16

Figure 2: USPS Letter Carrier Activities at Postal Facilities 

 16IOCS also provides data on employee time spent on some special services, such as 

window service, time spent with customers purchasing postal money orders, and delivery 

confirmation, among other things. 
Page 14 GAO-05-820 Postal Data Quality 

Figure 3: USPS Employees Handling and Sorting Mail in Postal Facilities 

Figure 4: USPS Clerks Performing Retail Activities 

Source: © 2005 USPS. Used with permission. All rights reserved.

Providing Express Mail service. Completing a sale. Providing stamp service.
Page 15 GAO-05-820 Postal Data Quality 

Once IOCS produces data on the time employees spend handling each 

subclass of mail in various postal operations, these data are combined 

with other data, such as data on employee wages and benefits, to yield 

cost data (i.e., the in-office personnel costs attributable to each subclass of 

mail). USPS incurred $28 billion in personnel costs in fiscal year 2004 for 

employees working in postal facilities (i.e., mail processing, retail, delivery 

unit, and other facilities), which represented more than one-third of USPS 

costs for the fiscal year. In addition, IOCS provides data for the calculation 

of some indirect costs that are related to mail handling activities, such as 

mail processing equipment costs. 

USPS data collectors gather IOCS data in person at USPS facilities across 

the country. These data collectors gather information from sampled USPS 

employees about their activities and about the mail that they are handling 

(see figs. 5 and 6). Some IOCS data are gathered by data collectors via 

telephone interviews, generally from smaller facilities where it would not 

be cost-effective to collect data in person. IOCS data collection is a major 

effort, with more than 750,000 observations/interviews conducted 

annually. USPS has reported that it budgeted nearly $15 million to collect 

IOCS data in fiscal year 2005. 
Page 16 GAO-05-820 Postal Data Quality 

Figure 5: USPS Data Collector Gathering Ratemaking Data from a Letter Carrier 

Manually Sorting Mail into Pigeonholes for Delivery 
Page 17 GAO-05-820 Postal Data Quality 

Figure 6: USPS Data Collector Gathering Ratemaking Data from a USPS Clerk 

Manually Sorting Mail at a Postal Facility 

The Study had concluded that opportunities existed to improve the quality 

of ratemaking data collected by IOCS, stating that such action should be a 

“first priority.” USPS reported that it was responsive to this finding by 

modifying the IOCS data collection instrument to more accurately record 

the subclasses of mail and to collect better information on the activities 

that postal employees are performing. In addition, according to USPS, the 

redesigned IOCS instrument better aligns clerk and mail handler activities 

with current postal operations, and thus improves the division of certain 

postal costs into cost pools.17 Formerly, the data collector recorded the 

mail subclass on the basis of observations of certain characteristics of 

each sampled mail piece, such as its shape, weight, and markings (see fig. 

7). This approach was revised so the data collector records detailed 

 17USPS costs are divided into cost pools that have common characteristics, so that, based 

on analysis of ratemaking data, each cost pool can be further divided into attributable and 

institutional costs. 
Page 18 GAO-05-820 Postal Data Quality 

characteristics of the mail piece, including its shape, weight, and markings. 

After IOCS data are collected, these data are uploaded to a mainframe 

computer. Then, USPS uses a computer program to analyze the combined 

IOCS data on mail piece characteristics and determine the subclass for 

each mail piece. 

Figure 7: Some Mail Piece Characteristics Used to Determine the Subclass of Mail 

Source: © 2005 USPS. Used with permission. All rights reserved.

Amount of postage

Label indicating the subclass of mail

Weight of mail

Letter: Number of ounces

Parcel: Number of pounds and ounces

Shape of mail
Page 19 GAO-05-820 Postal Data Quality 

Because IOCS obtains information on postal employee activities using 

both in-person observation and interviewing and telephone interviewing, 

USPS redesigned the IOCS data collection instrument with a standard 

script to obtain information from postal employees in a more consistent 

manner. Previously, the IOCS data collection instrument listed the needed 

information but did not provide a script that asked questions in a 

standardized manner. Scripting questionnaires has long been considered a 

best practice and is the norm for surveys conducted by other 

organizations. 

On the basis of pilot tests, USPS officials told us that the new IOCS 

approach categorized mail pieces more accurately because it relies less on 

the data collector’s judgment and more on objective criteria built into the 

computer program that determines the mail subclass on the basis of the 

characteristics of each mail piece. USPS officials also said that pilot 

testing helped improve the script for IOCS data collection. These pilot 

tests18 are described below: 

• IOCS verification studies: USPS pilot tested new versions of the IOCS 

data collection instrument, recording characteristics of actual mail pieces 

that were being handled by sampled USPS employees. These mail pieces 

were photocopied and sent to a USPS contractor who checked to see if the 

mail subclasses could be correctly categorized according to the 

information that was recorded. USPS staff double-checked this work. The 

results were used to test three versions of the instrument in an iterative 

manner, with each version being tested and the accuracy improving each 

time. 

• IOCS comparison studies: USPS recorded mail piece characteristics from 

predeveloped examples (not actual mail) using different versions of the 

IOCS data collection instrument. USPS compared the results and reported 

that the final revised version of the instrument resulted in more accurate 

mail subclass determinations than the previous versions. 

In addition to changing IOCS, USPS made some similar changes to the 

RPW data collection instrument to better estimate the revenue, volume, 

 18USPS did not use data collected for pilot tests for ratemaking. 
Page 20 GAO-05-820 Postal Data Quality 

and weight of each subclass. Although USPS separately tracks postage 

revenues, postage stamps and postage meters can be used to send any 

subclass of mail. Therefore, data collectors observe sampled mail pieces at 

USPS facilities, and, for each mail piece, gather data on its characteristics, 

including the revenue (i.e., the amount of postage) and weight.19 RPW data 

are used to calculate the revenue, volume, and weight of each subclass of 

mail. 

As with IOCS, USPS modified RPW so that the subclass of mail could be 

determined more accurately through computerized analysis of detailed 

mail piece characteristics that are observed and recorded (see fig. 8). 

USPS pilot tested the new RPW approach, collecting RPW data in selected 

areas over a 1-year period using both the old and new data collection 

instruments. USPS compared the recorded data from these side-by-side 

tests and received feedback from field staff to refine the instrument, going 

through approximately 15 to 20 versions of the instrument. USPS has 

reported that this pilot testing method was the first of its kind for a major 

ratemaking data system. 

 19RPW data gathered by data collectors are merged with computerized data on business 

mailings, such as large mailings of bills, statements, catalogs, and magazines. These 

computerized data include information for each mailing on the subclass, revenue, volume, 

and weight. USPS refers to these combined data as RPW data. 
Page 21 GAO-05-820 Postal Data Quality 

Figure 8: Laptop Computer and Digital Scale Used to Record Ratemaking Data, 

Including Mail Piece Characteristics 

USPS conducted a new study called CCSTS to help attribute costs of city 

carriers—that is, letter carriers who deliver mail in highly populated urban 

and suburban areas where most deliveries are made to the door, curbside 

mailboxes, centrally located mailboxes, or cluster boxes. Data on city 

carrier delivery activities are needed for ratemaking because carriers 

typically deliver multiple subclasses of mail. USPS incurred about $13 

billion in employee costs for the street activities of city carriers in fiscal 

year 2004, which represented about one-fifth of USPS costs (see fig. 9). 

CCSTS replaced four special studies on city carrier street activities that 

had been conducted in the 1980s. The Study had criticized these special 

studies as outdated and imprecise. PRC and others had also criticized the 

age of the data collected by these special studies and the methodology of 

the studies. Recognizing the need for better data in this area, USPS 

conducted CCSTS in 2002. USPS has reported that CCSTS provided both 

more current and precise data, as well as a better methodological 

framework for analyzing city carrier costs than the four special studies 

that CCSTS replaced. USPS also has reported that CCSTS will be less 

costly to update than the four special studies that CCSTS replaced, 

thereby facilitating further updating of CCSTS in the future. 

USPS Conducted CCSTS to 

Replace Ratemaking Data 

That Had Been Collected 

in the 1980s 
Page 22 GAO-05-820 Postal Data Quality 

Figure 9: USPS City Carriers Performing Delivery Activities on the Street 

In developing CCSTS, USPS reported that it was mindful of several 

drawbacks of the four former special studies of city carrier street 

activities. First, USPS stated that the former special studies yielded 

inconsistent and incomplete data, explaining that they selectively 

reviewed different aspects of city carrier street activity, collected data at 

different times, and used different data collection methods. Therefore, 

USPS designed CCSTS as a single study to collect more complete and 

consistent data on all city carrier street activities. Second, the former 

special studies collected data that were not well suited for use with 

advanced data analysis techniques needed to produce ratemaking data. 

Therefore, USPS designed CCSTS to be compatible with advanced data 

analysis techniques. Third, the former special studies generated imprecise 

ratemaking data20 for the costs of certain mail subclasses, largely because 

 20Imprecise data are subject to a relatively high degree of random error, such as data that 

are imprecise because they are generated by data collected from a small random sample. 
Page 23 GAO-05-820 Postal Data Quality 

the expense of those studies had limited the quantity of data that was 

collected. Therefore, USPS designed CCSTS to collect a larger quantity of 

data so that its data would be more precise. 

To develop CCSTS, USPS conducted a pilot study that tested CCSTS on a 

smaller scale. USPS used the pilot study results to refine CCSTS, which 

was conducted in May and June 2002. CCSTS randomly sampled over 160 

ZIP Codes nationwide and recorded data during a 2-week period on the 

activities of more than 3,500 city carriers delivering mail to addresses in 

these ZIP Codes. USPS analyzed CCSTS data using advanced data analysis 

techniques involving econometric models and performing statistical tests 

to estimate how changes in mail volume affected city carrier street time 

and the associated costs. As a result of using CCSTS to replace the four 

former special studies, USPS reported that it attributed a somewhat higher 

percentage of city carrier street time costs to specific subclasses of mail 

(37 percent, up from 30 percent), thus diminishing the remaining 

institutional costs (63 percent, down from 70 percent). To understand why 

most carrier costs continue to be categorized as institutional, it is 

important to note that the universal service commitment to provide mail 

delivery requires carriers to traverse their routes each day, regardless of 

whether a particular subclass or volume of mail is being delivered. 

The Study had raised concerns about the precision of ratemaking data, 

which are affected by the quantity of data collected from randomly 

sampled postal employees and pieces of mail, as well as by the precision 

of data on city carrier delivery activities. USPS reported that it took 

responsive actions by increasing the quantity of ratemaking data collected 

by RPW and TRACS, which are two of the five major data collection 

systems used for ratemaking. TRACS randomly samples long-distance mail 

transportation segments, such as airplane flights, truck trips, and trips of 

freight trains that carry mail. Data collectors observe a random sample of 

mail for each segment and record its characteristics, including the 

subclass of mail. TRACS data are used to help attribute about $4 billion in 

USPS long-distance transportation costs (see fig. 10). According to USPS, 

the large increase in the quantity of RPW and TRACS data has improved 

the precision of ratemaking data. Increasing data precision can be 

particularly beneficial to the quality of cost, revenue, and volume data for 

subclasses of mail with smaller volumes. 

USPS Took Actions to 

Improve the Precision of 

Ratemaking Data 
Page 24 GAO-05-820 Postal Data Quality 

Figure 10: Long-distance Transportation of Mail Using Trucks and Airplanes 

First, USPS increased the number of RPW tests from about 56,000 in fiscal 

year 2003 to about 136,000 in fiscal year 2004—an increase of 142 

percent.21 USPS also revised the RPW sampling methodology, which 

according to USPS, resolved some technical issues identified by the Study 

and further contributed to data precision. According to USPS, these 

changes improved the precision of all RPW data as well as the precision of 

key ratemaking data for each subclass of mail. Second, USPS increased 

the number of transportation segments randomly sampled by TRACS each 

fiscal year from about 10,000 in fiscal year 2000 to about 17,000 in fiscal 

year 2004—an increase of 65 percent. USPS also reallocated the quantity 

of data collected for each mode of transportation (i.e., air, highway, and 

rail) to further increase the precision of subclass cost data. According to 

USPS, this change was responsive to the Study, which had found that the 

limited quantity of TRACS data collected for the highway transportation 

 21The increase in RPW sample size was enabled by USPS’s concurrently merging RPW with 

an operations-oriented data system called the Origin-Destination Information System, 

which also collected data from sampled pieces of mail. 
Page 25 GAO-05-820 Postal Data Quality 

mode resulted in less precise ratemaking cost data, particularly for some 

subclasses of mail, such as Regular Rate Periodicals (e.g., news 

magazines) and Parcel Post.22

In addition, as previously described, USPS designed CCSTS to yield more 

precise data by collecting a larger quantity of data than the data that 

CCSTS replaced. USPS noted that this change was responsive to the Study, 

which found that the four former special studies were highly imprecise. 

USPS revised, updated, and expanded the documentation for TRACS, 

which USPS reported was responsive to the Study and was an area that 

USPS recognized needed improvement. According to USPS, the revised 

TRACS documentation improved the transparency and administration of 

this data collection system. The Study’s report had found TRACS 

documentation to be deficient, particularly with respect to the 

documentation of TRACS sampling and estimation methodology. 

Consequently, the Study’s team reported that, within the Study’s time 

frame (June 1997 through April 1999), the team did not have the 

opportunity to understand some parts of the sampling design. The Study’s 

report observed that the availability of improved documentation of TRACS 

estimation procedures is important and noted the need for clear and 

complete documentation on the TRACS sample design. The report further 

noted that once the TRACS sample design is completed, USPS should 

evaluate and adjust the sample to improve the precision of TRACS data. 

USPS proceeded to expand TRACS sampling and estimation 

documentation and rewrote the handbook for TRACS data collection. The 

redone documentation was used in the 2000 rate proceedings, providing 

greater transparency of this data collection system, and was commended 

by PRC. USPS further revised TRACS documentation for the 2005 rate 

case. In addition, as previously described in this report, USPS also 

evaluated and adjusted the TRACS sample to improve the precision of 

TRACS data. Thus, USPS reported that the revised TRACS documentation 

enhanced the transparency and administration of this system. 

 22The reallocation plan was developed with the aid of a statistical model to estimate data 

precision. This model had originally been developed for the Study. 

USPS Took Actions to 

Enhance TRACS 

Documentation 
Page 26 GAO-05-820 Postal Data Quality 

The Presidential Commission and we have found that major changes are 

needed to the ratemaking process. In particular, the Presidential 

Commission found that the current ratemaking process is far too 

cumbersome and time consuming, with rate changes taking as long as 18 

months.23 The Presidential Commission concluded that the current 

ratemaking process creates “an impossible situation for an institution 

charged with the responsibility of acting in a businesslike manner.”24 Our 

past work also reached a similar conclusion that “major changes are 

needed in this area,” and that improvements in the postal ratemaking 

structure will be a “fundamental component of a comprehensive 

transformation.”25

Proposed postal reform legislation being considered in the 109th Congress 

(H.R. 22 and S. 662, 109th Cong., 1st Sess.) would create new oversight 

mechanisms and enhanced regulatory authority over the quality of 

ratemaking data. The postal regulator would be required to prescribe what 

ratemaking data USPS must annually report and review that data in order 

to determine whether USPS had complied with the requirements of the 

new ratemaking structure. The postal regulator would be provided with 

the authority to initiate proceedings to improve the quality of ratemaking 

data; the authority to subpoena USPS documents and officials; the 

authority to order USPS to take appropriate actions to comply with laws 

and its regulations; and the authority to impose sanctions for 

noncompliance, including fines for deliberate noncompliance. The postal 

regulator could obtain court orders to enforce its subpoenas, orders, and 

sanctions. The proposed legislative changes would address persistent 

problems under the existing statutory ratemaking structure, which, as we 

have reported, has enabled long-standing deficiencies in ratemaking data 

quality and unresolved methodological issues to persist. Thus, the 

proposed legislative changes would likely lead to improvements in the 

quality of ratemaking data. However, if postal reform legislation is 

enacted, the outcome would likely depend on how the postal regulator 

would use its discretion to define and implement the new ratemaking 

 23The 18-month time frame for rate changes includes time for USPS to prepare its rate 

proposal, for PRC to review the proposal and issue its recommended decision (which the 

law generally limits to 10 months), and for USPS to consider PRC’s recommended decision 

and implement new postal rates. 

24President’s Commission on the United States Postal Service, Embracing the Future. 

25GAO-04-108T. 

Proposed Statutory 

Changes Could Lead 

to Better Ratemaking 

Data 
Page 27 GAO-05-820 Postal Data Quality 

structure. Key implementation questions would remain, including what 

regulatory criteria and requirements would apply to ratemaking data. 

The Presidential Commission concluded that for USPS to operate in a 

more businesslike fashion, its managers must have greater flexibility to 

manage and innovate, including in the ratemaking area. However, the 

Presidential Commission also stated that with this latitude comes the need 

for enhanced oversight from an independent postal regulator endowed 

with broad authority. Thus, the Presidential Commission concluded that 

the current ratemaking process should be abolished and replaced with a 

more streamlined structure that continues to impose rigorous ratemaking 

standards through independent regulatory oversight that would ensure 

that the outcome cannot be unduly influenced through the selective 

provision of information to the regulator. The Presidential Commission 

stated that the postal regulator must have access to the most reliable and 

current information possible to ensure financial transparency and enable 

the postal regulator to make fully informed determinations. To this end, 

the Presidential Commission recommended that the postal regulator have 

the authority to request accurate and complete financial information from 

USPS, including through the use of subpoena powers, if necessary. 

We have also reported on how the statutory structure has led to persistent 

problems and issues regarding the quality of ratemaking data. Specifically, 

we found that the current ratemaking structure has poor incentives that 

impede progress in improving data quality, including the incentives 

described below:26

• Poor incentives to provide quality data: Current law gives USPS 

opportunities to seek advantage in litigious rate cases by controlling what 

data are collected and how they are analyzed and reported. PRC cannot 

subpoena USPS or order USPS to collect or update data. For example, the 

Study found that key ratemaking data had not been updated for many 

years, but these data were used regardless of their obsolescence. 

• Poor incentives for resolving recurring issues: Statutory due process 

rules have enabled parties to repeatedly litigate complex data quality and 

cost attribution issues that have previously been considered. In addition, 

as we have reported, the zero-sum nature of the break-even requirement 

 26GAO-04-397T and GAO-04-108T. 

Major Changes Are Needed 

to the Ratemaking Process 
Page 28 GAO-05-820 Postal Data Quality 

provides powerful incentives for parties to repeatedly attempt to shift 

postal costs in ways that serve their self-interests.27 Specifically, we have 

reported that when USPS proposes changes to domestic postal rates and 

fees, USPS (1) projects its “revenue requirement” for the “test year” (a 

fiscal year representative of the period of time when the new rates will go 

into effect), based on the total estimated costs plus a provision for 

contingencies, and a provision, if applicable, for the recovery of prior 

years’ losses28 and (2) proposes rates and fees that are estimated to raise 

sufficient revenues to meet USPS’s revenue requirement. Thus, as the 

Institute of Public Administration reported more than a decade ago, “The 

current ratemaking structure is premised on the concept of a static pie, 

which represents the revenue requirement, and focuses on who is going to 

pay what share of the money (i.e., ratemaking is treated as a zero-sum 

game).”29 The institute further reported that various interest groups have 

been organized that represent certain classes of mail in rate cases. These 

groups typically advocate cost attribution methods that are in their 

immediate self-interest, such as alternative methods that would result in 

fewer costs attributed to the class of mail they represent. USPS and 

private delivery firms have taken opposing positions on cost attribution 

methods for subclasses of mail, such as Priority Mail and Parcel Post. As a 

result, the same cost attribution issues have been debated for many years. 

Cost attribution issues are often a key reason why rate cases are so 

lengthy and litigious because these issues are complex and their 

disposition can directly affect postal rates. Although cost attribution issues 

are central to postal ratemaking, we have reported that the need to 

address such issues in every rate proceeding is inconsistent with providing 

USPS with greater flexibility to change rates under a streamlined 

ratemaking process.30

Poor incentives to appropriate cost attribution: USPS has a disincentive 

to maximize the attribution of costs to specific subclasses of mail that 

must cover their costs because USPS loses pricing flexibility as more costs 

are attributed. Because ratemaking data and analyses of these data are 

 27GAO-04-108T, p. 23. 

28USPS did not include a provision for the recovery of prior years’ losses in the 2005 rate 

case because USPS had no such losses by the end of fiscal year 2004. 

29Institute of Public Administration, Report to the Board of Governors of the United States 

Postal Service: The Ratemaking Process for the United States Postal Service (New York, 

NY: Oct. 8, 1991), p. 55. 

30GAO-04-108T, p. 25. 
Page 29 GAO-05-820 Postal Data Quality 

necessary to attribute costs, the quality of ratemaking data can affect the 

degree of cost attribution. In this regard, the PRC Chairman recently 

testified that the proposed postal regulator should have the means to 

examine all of the costs currently treated as institutional to assure 

Congress, USPS, and the public that all costs that can be attributed, are 

attributed. He concluded that “I believe there is room for improvement 

and would welcome the responsibility and authority to achieve it.”31

Proposed postal reform legislation would transform PRC into a new postal 

regulator mandated to issue regulations for USPS to annually report 

ratemaking data that would be audited by the USPS Inspector General and 

then reviewed by the regulator. Key provisions include the following: 

The postal regulator would be required to issue regulations prescribing 

what ratemaking data USPS would be required to report (see table 1). 

Despite the quantity of material submitted in rate cases, PRC has reported 

that its ability to carry out its responsibilities has been hindered in some 

rate cases because of deficiencies in the completeness and accuracy of 

ratemaking data provided by USPS. For example, PRC reported that its 

ability to consider USPS proposed rates in the 1994 rate case was hindered 

because the supporting ratemaking data were deficient. PRC said USPS 

omitted data that had previously been provided in rate cases, such as new 

or updated studies of the sort that were necessary to develop rates for 

worksharing discounts that mailers receive in exchange for performing 

activities that are estimated to reduce USPS costs.32 As a result, PRC 

reported it was unable to develop worksharing discounts that tracked the 

associated USPS cost savings, which PRC reported should be based on 

current data to set appropriate discounts. PRC said that the absence of 

these studies was particularly significant because USPS operations had 

been in a state of major transition since the past rate case, but the former 

worksharing cost studies—and the worksharing discounts that had 

resulted—reflected former mail processing methods. In this regard, the 

proposed legislation would specifically require USPS to provide 

worksharing data on an annual basis—a requirement not included in 

 31Testimony of George Omas, Chairman, Postal Rate Commission, before the U.S. Senate 

Committee on Governmental Affairs (Washington, D.C.: Apr. 7, 2004), p. 10. 

32Mailer worksharing activities include barcoding mail, presorting mail by ZIP Code, and 

transporting mail so it is entered closer to the final destination. See GAO, U.S. Postal 

Service: A Primer on Postal Worksharing, GAO-03-927 (Washington, D.C.: July 31, 2003). 

Proposed Requirements 

for Reporting Ratemaking 

Data 

USPS Reporting 
Page 30 GAO-05-820 Postal Data Quality 

current law. Further, the proposed legislation would provide the postal 

regulator with enhanced authority to obtain these data if USPS does not 

initially provide them. Specifically, the postal regulator would be provided 

with subpoena power and the power to obtain court orders to compel 

USPS compliance with the reporting requirements—powers not provided 

to PRC by current law. The proposals for enhanced regulatory authority 

are discussed further later in this report. 

Table 1: Proposed Requirements for USPS to Report Ratemaking Data 

Citation Summary provision 

H.R. 22, Sec. 204, §3652; and S. 662, 

Sec. 204, §3652 

(similar provisions: differences noted in 

italics) 

USPS shall file annual reports with the Postal Regulatory Commission (the Commission) 

no later than 90 days after the end of each fiscal year that, for all permanent postal 

products: 

• analyze costs, revenues, and rates for all products using such methodologies as the 

Commission shall by regulation prescribe (House bill) in sufficient detail to demonstrate 

that the rates in effect for all products during such year complied with all applicable 

requirements; 

• provide product information (Senate bill) provide market information (House bill) and 

mail volumes, for each market-dominant product; and 

• provide for each worksharing discount to market-dominant products: (1) the per-item 

cost avoided by USPS by virtue of such discount, (2) the percentage of such per-item 

cost avoided that the per-item discount represents, and (3) the per-item contribution 

made to institutional costs. 

For experimental postal products in market tests (e.g., new products being tested), 

USPS’s annual report may include summary data on the costs, revenues, and quality of 

service by market test and service agreement (Senate bill) and such data as the 

Commission requires. 

The Commission shall, by regulation, prescribe the content and form of the annual reports, 

including any nonpublic annex and supporting matter, giving due consideration to 

• providing the public with timely (Senate bill) adequate information to assess the 

lawfulness of rates charged, 

• avoiding unnecessary or unwarranted administrative effort and expense by USPS, and 

• protecting the confidentiality of commercially sensitive information. 

The Commission shall have access, in accordance with such regulations as it shall 

prescribe, to the working papers and any other supporting matter of USPS and its 

Inspector General in connection with any information submitted in the above reports. 

Sources: H.R. 22 and S. 662, 109th Cong., 1st Sess. 

Another benefit of the proposed reporting requirements would likely be 

the end of a long-standing methodological dispute in which USPS prepares 

two sets of cost data for each regulatory proceeding—one according to its 

preferred methodology for analyzing mail processing costs, and one 
Page 31 GAO-05-820 Postal Data Quality 

according to PRC’s preferred methodology for analyzing these costs.33 The 

different methods produce different estimates for USPS savings resulting 

from worksharing discounts that currently apply to three-quarters of total 

mail volume, and thus the choice of analysis method could affect these 

discounts. The current statutory ratemaking structure allows this dispute 

to continue because it provides due process by enabling all interested 

parties to raise whatever issues they wish, regardless of how many times 

the same issues may have been considered in the past. USPS can 

repeatedly raise issues by building them into its initial proposals for 

changes to postal rates. For example, USPS has repeatedly submitted 

proposed rates based on its preferred analysis method for mail processing 

costs into its rate proposals, even though PRC has repeatedly rejected 

USPS’s method. In each rate proceeding, USPS also submitted parallel 

data using the PRC analysis method, and both sets of data were 

considered by PRC and other stakeholders participating in the rate cases. 

The proposed requirements could resolve similar situations by mandating 

that the postal regulator issue regulations for how USPS cost, revenue, and 

rate data are to be analyzed in order to demonstrate compliance with 

ratemaking requirements, including newly proposed statutory 

requirements for worksharing discounts (see app. III for a listing of 

proposed ratemaking requirements). In this regard, the House bill is the 

most specific in that it requires the postal regulator to prescribe 

methodologies for analyzing ratemaking data. Further, both bills would 

eliminate current statutory rules for due process and stakeholder 

involvement in rate proceedings; the postal regulator would be given the 

flexibility to establish new rules in this area under its regulatory authority. 

The proposed legislation would require the USPS Inspector General to 

audit the ratemaking data included in the USPS annual reports (see table 

2). For example, under the House bill, the USPS Inspector General would 

be required to regularly audit USPS data collection systems and 

procedures used to prepare the annual reports. In contrast to the proposed 

requirements for regular Inspector General oversight of these USPS data 

collection systems, the current ratemaking structure relies on ad hoc 

regulatory oversight conducted during rate cases that only USPS can 

initiate. Specifically, since the Postal Reorganization Act of 1970 was 

 33As we have reported, USPS and PRC differ over the level of mail processing costs that 

should be attributed, which can affect postal rates, particularly for types of mail priced at 

cost (e.g., the Periodicals class that includes mailed magazines and newspapers). See 

GAO-04-108T, p. 32. 

Auditing by the Inspector 

General 
Page 32 GAO-05-820 Postal Data Quality 

enacted, USPS has initiated 13 rate cases in the past 34 years, including the 

2005 rate case. For example, the 2005 rate case was preceded by the 2001 

rate case that resulted in a negotiated settlement, which resulted in limited 

regulatory review of USPS ratemaking data and its data collection 

systems. When USPS filed the 2005 rate case, it requested expedited 

review to consider a proposed settlement, which, if accepted, could again 

result in limited regulatory review of USPS ratemaking data and data 

collection systems. 

Thus, the case-by-case approach to reviewing ratemaking data quality 

under the current ratemaking structure, combined with the infrequency of 

these reviews, has limited oversight of USPS ratemaking data and its data 

collection systems that generate these data. When oversight has occurred, 

the 10-month statutory deadline for rate cases, combined with the time 

and expense of litigating data quality issues, has limited the scope and 

depth of the data quality issues reviewed in rate cases. In our view, such 

limited external oversight is one reason why problems with the quality of 

ratemaking data have persisted. For example, in the 1994 rate case, PRC 

called for an examination of USPS costing systems used for ratemaking, 

especially IOCS, citing methodological concerns, reductions in the 

quantity of ratemaking data that USPS collected, and major changes in 

USPS operations, among other things. In spring 1995, then PRC Chairman 

Edward Gleiman testified before the former House Subcommittee on the 

Postal Service about his concerns regarding the quality of ratemaking data. 

This led to the Chairman of that Subcommittee, Representative John M. 

McHugh, requesting the Data Quality Study. The request for the Study, its 

progress, and USPS follow-up have been the subjects of continuing 

congressional oversight over the past decade. The Study validated the 

need for improving IOCS and other USPS data collection systems and 

special ratemaking studies. To USPS’s credit, USPS reports making major 

efforts that were responsive to the Study. However, the congressional 

oversight provided by the Study was not envisioned by the Postal 

Reorganization Act of 1970, which separated Congress from the 

ratemaking process.34 The Study was a unique event that required 

extraordinary involvement by Congress, USPS, PRC, and the contractor 

that conducted the Study. 

 34Congress directly established postal rates prior to enactment of the Postal Reorganization 

Act of 1970 (Pub. L. No. 91-375). 
Page 33 GAO-05-820 Postal Data Quality 

Table 2: Proposed Statutory Requirements for the USPS Inspector General to Audit Ratemaking Data and Data Collection 

Systems 

Citation Summary provision 

H.R. 22, Sec. 204, §3652(a) The USPS Inspector General (USPS IG) must regularly audit the data collection systems and 

procedures used in collecting information and preparing the USPS annual reports (described in 

table 1), including any annex to these reports and the required information relating to worksharing 

discounts included in the reports. The results of any such USPS IG audit shall be submitted to 

USPS and the Postal Regulatory Commission. 

S. 662, Sec. 204, §3652(a) Before submitting an annual report (described in table 1), including any annex to the report and the

required information relating to worksharing discounts, USPS shall have the information contained 

in such report and annex audited by the USPS IG. The results of any such audit shall be submitted 

along with the report to which it pertains. 

Sources: H.R. 22 and S. 662, 109th Cong., 1st Sess. 

Under the proposed legislation, the postal regulator would be required to 

annually review USPS ratemaking data reports and determine whether 

USPS had complied with the requirements of the new ratemaking 

structure (see table 3). In cases of noncompliance, the postal regulator 

would be required to order USPS to take appropriate action. Regulatory 

compliance reviews would be a critical element of the new ratemaking 

structure, which is intended to balance increased USPS ratemaking 

flexibility with enhanced transparency, oversight, and accountability. 

Specifically, under the proposed legislation, the postal regulator would be 

charged with developing a new, streamlined ratemaking process that 

provides USPS with additional flexibility. The mandated compliance 

reviews would (1) verify that USPS rates are in compliance with applicable 

requirements on an annual basis and (2) require regulatory action to 

correct any instances of noncompliance. For example, the proposed 

legislation would require each USPS competitive product (e.g., Express 

Mail and Priority Mail) to cover its attributable costs. In order for the 

postal regulator to verify compliance with this cost-coverage requirement, 

data would be needed on the attributable costs and revenues of each USPS 

competitive product. The quality of this ratemaking data would be vital 

because the regulator would be required to address instances of 

noncompliance through certain actions, such as ordering USPS to adjust 

the rate of a competitive product that was not covering its costs or even to 

discontinue providing the loss-making product. 

In contrast with current law, which depends on having USPS initiate rate 

cases for regulatory action to occur, the proposed compliance process 

triggers annual regulatory action based on actual results for each fiscal 

Compliance review 
Page 34 GAO-05-820 Postal Data Quality 

year. For example, under current law, the requirement that each subclass 

of mail cover its costs is addressed in rate cases—which can be years 

apart from each other. Because postal revenues and costs change over 

time, a subclass of mail may not cover its costs in some years between rate 

cases. This situation may not be addressed until the next rate case. As 

previously described, the proposed legislation specifies that if a subclass 

of mail fails to cover its annual costs as required, the postal regulator 

would be required to order USPS to take appropriate action to come into 

compliance. The postal regulator would have the specific authority to 

order USPS to change the postal rates for that subclass of mail so that its 

revenues would begin to cover its costs. 

Table 3: Proposed Compliance Review of USPS Annual Reports 

Citation Summary provision 

H.R. 22, Sec. 204, §3653; and S. 662, Sec. 

204, §3653 

(Similar provisions: differences noted 

in italics) 

After receiving the USPS annual reports with ratemaking data (see table 1), the Postal 

Regulatory Commission (the Commission) shall promptly provide an opportunity for 

comment on such reports by users of the mails, affected parties, and an officer of the 

Commission who must represent the interests of the general public. No later than 90 

days after receiving these reports, the Commission shall make a written determination as 

to whether any rates or fees in effect during the year (for products individually or 

collectively) were not in compliance with applicable laws or regulations. 

• If no instance of noncompliance is found, the written determination shall be to that 

effect. 

• If a timely written determination of noncompliance is made, the Commission shall take 

appropriate remedial (Senate version) action as if a complaint averring such 

noncompliance had been duly filed and found to be justified. (See table 5 for actions 

that would be available to the Commission.) 

Sources: H.R. 22 and S. 662, 109th Cong., 1st Sess. 

Proposed postal reform legislation would authorize the postal regulator to 

initiate proceedings to improve the quality of ratemaking data, including 

data on the attribution of costs and revenues to postal products (see table 

4). This mechanism would be needed because the legislation would 

abolish the current statutory ratemaking process, which has been the 

primary mechanism for oversight of data quality issues.35 Authorizing the 

postal regulator to initiate data quality proceedings as needed would shift 

 35Some data quality issues have also been considered during classification cases, which 

consider establishing or changing the groupings of mail that are subject to ratemaking 

requirements, as well as authorizing market tests of experimental products and negotiated 

service agreements (39 U.S.C. §3623 and 39 C.F.R. Part 3001, subpart C). Aside from rate 

and classification cases, USPS has opposed separate proceedings on issues of cost 

attribution methodology, and PRC has not conducted such proceedings. 

Proposed Requirements 

for Data Quality 

Proceedings 
Page 35 GAO-05-820 Postal Data Quality 

from reactive oversight in USPS-initiated rate proceedings to proactive 

oversight by the postal regulator. 

Table 4: Proposed Authorization for Regulatory Proceedings to Improve Data Quality 

Citation Summary provision 

H.R. 22, Sec. 204, §3652(e)(2); and 

S. 662, Sec. 204, §3652(e)(2) 

(same provision in both bills) 

The Postal Regulatory Commission (the Commission) may, on its own motion or on request of 

an interested party, initiate proceedings—to be conducted in accordance with regulations that 

the Commission shall prescribe—to improve the quality, accuracy, or completeness of USPS 

data required by the Commission in USPS’s annual reports (see table 1) whenever it shall 

appear that 

• the attribution of costs or revenues to products has become significantly inaccurate or can 

be significantly improved; 

• the quality of service data has become significantly inaccurate or can be significantly 

improved; or 

• such revisions are, in the judgment of the Commission, otherwise necessitated by the 

public interest. 

Sources: H.R. 22 and S. 662, 109th Cong., 1st Sess. 

The proposed statutory mechanism to consider data quality and related 

cost attribution issues has a number of potential benefits, including the 

following: 

• Providing a mechanism for considering data quality issues with 

adequate time and attention: In rate cases, PRC reviews comprehensive 

proposals, voluminous documents, and complex issues, leaving limited 

time to consider data quality and related cost attribution issues. As USPS’s 

General Counsel has acknowledged, it is difficult for rate case participants 

to handle cost attribution issues involving ratemaking data and other 

issues within the statutory 10-month time frame for rate cases. 

• Revisiting data quality issues as needed: Data quality is a moving target 

as postal operations, data needs, and data collection technologies evolve 

over time.36 Thus, it is natural for data quality issues and opportunities for 

improvement to arise over time. 

Providing the postal regulator with enhanced authority and enforcement 

powers is consistent with the overall intent of the proposed postal reform 

legislation to balance providing USPS with greater pricing flexibility with 

enhancing transparency, oversight, and accountability to protect USPS 

 36Kearney, Data Quality Study: Summary Report, p. 5. 

Proposed Enhancement of 

Regulatory Authority and 

Enforcement Powers 
Page 36 GAO-05-820 Postal Data Quality 

customers and competitors. Under the proposed postal legislation, the 

postal regulator would be provided with enhanced authority and 

enforcement powers compared with those of PRC. Specifically, the postal 

regulator would be provided with the authority to order USPS to take 

appropriate actions to comply with laws and its regulations and could 

impose sanctions for noncompliance, including fines for deliberate 

noncompliance (see table 5). 

Table 5: Proposed Authority for the New Postal Regulator and Related Provisions 

Citation Summary provision 

H.R. 22, Sec. 502; and S. 662, Sec. 602 

(same provision in both bills) 

Subpoena power: The Chairman of the Postal Regulatory Commission (the Commission), 

any of the Commissioners designated by the Chairman, and any administrative law judge 

appointed by the Commission could subpoena USPS officers, employees, contractors, 

and agents to require attendance, presentation of testimony and production of 

documents, and order depositions and responses to written interrogatories. Any 

subpoena would require the written concurrence of a majority of Commissioners then 

holding office in advance of its issuance. 

H.R. 22, Sec. 205, §3663-3664, Sec. 502; 

and S. 662, Sec. 205, §3663-3664, Sec. 

602 

(same provision in both bills) 

Appellate review: Within 30 days after the Commission issues a final order or decision, 

parties that are adversely affected or aggrieved may appeal to the U.S. Court of Appeals 

for the District of Columbia. 

Enforcement of orders: U.S. district courts have jurisdiction to enforce, enjoin, and restrain 

USPS from violating any order issued by the Commission. 

Enforcement of subpoenas: In case of contumacy or failure to obey a subpoena, upon 

application of the Commission, the district court of the United States for the district in 

which the person to whom the subpoena is addressed resides or is served may issue an 

order requiring such person to appear at any designated place or provide documentary or 

other evidence. Any failure to obey the court may be punished by the court as a contempt 

thereof. 

H.R. 22, Sec. 205, §3662; and S. 662, 

Sec. 205, §3662 

(same provision in both bills) 

Regulatory authority for rate and service complaints: When the Commission finds that rate 

and service complaints (which also can submitted by an officer of the Commission 

representing the interests of the general public) are justified, it shall order USPS to take 

such action as the Commission considers appropriate in order to achieve compliance with 

the applicable requirements and to remedy the effects of any noncompliance, such as 

ordering unlawful rates to be adjusted to lawful levels, ordering the cancellation of market 

tests, ordering USPS to discontinue providing loss-making products, or requiring USPS to 

make up for revenue shortfalls in competitive products. 

Regulatory authority to impose fines: In cases of deliberate USPS noncompliance with 

regulatory requirements, the Commission may order, based on the nature, circumstances, 

extent, and seriousness of the noncompliance, a fine (in the amount specified by the 

Commission) for each incidence of noncompliance. Fines resulting from the provision of 

competitive products shall be paid out of the USPS Competitive Products Fund.

a

 All 

receipts from fines imposed shall be deposited in the general fund of the U.S. Treasury. 

Sources: H.R. 22 and S. 662, 109th Cong., 1st Sess. 

a

The Competitive Products Fund would fund the costs related to USPS’s competitive products (H.R. 

22, Sec. 301; and S. 662, Sec. 401). For a list of these competitive products, see H.R. 22, Sec. 202, 

§3631; and S. 622, Sec. 202, §3631. 
Page 37 GAO-05-820 Postal Data Quality 

Regulatory orders could result from the required annual compliance 

reviews of ratemaking data conducted by the postal regulator, previously 

discussed, or from complaints that could be initiated by the regulator or 

any interested party. The federal courts would enforce the postal 

regulator’s orders and sanctions. The postal regulator would be provided 

with subpoena power. The regulator’s subpoenas would be enforced by 

federal courts, which could punish noncompliance as a contempt of court. 

In contrast to the proposed legislation, PRC has limited authority and 

enforcement powers under the current statutory structure. PRC cannot 

unilaterally order USPS to take actions to comply with its regulations, 

cannot fine USPS, and does not have subpoena power to compel USPS to 

provide PRC with documents and data or to compel the testimony of USPS 

officials. Absent such explicit statutory authority, PRC has resorted to 

repeatedly requesting that USPS take action to improve the quality of 

ratemaking data, but its efforts have been met with mixed results. As PRC 

Chairman George Omas recently testified: 

“Past Postal Rate Commission decisions have frequently contained requests for additional 

data and analysis in specific areas. Sometimes these requests were honored but all too 

often they have been ignored. Under the existing statute the Commission does not have the 

authority to compel USPS to collect specific data or perform needed studies.”37

The proposed legislative changes previously described would address 

persistent problems under the existing statutory structure, which, as we 

have reported, has enabled long-standing deficiencies in ratemaking data 

quality and unresolved methodological issues to persist.38 Under the 

current structure, regulatory oversight is conducted during rate cases that 

only USPS can initiate, which has limited the frequency, scope, and depth 

of oversight of USPS ratemaking data and its data collection systems that 

generate these data. The legislation would eliminate key disincentives for 

ratemaking data quality, including the litigious ratemaking process (which 

provides incentives for USPS and others to gain an advantage through the 

collection and analysis of ratemaking data), the break-even requirement 

that creates incentives to shift costs from one subclass of mail to another, 

and the lack of adequate oversight mechanisms to address data quality 

 37Testimony of George Omas, Chairman, Postal Rate Commission, before the U.S. Senate 

Committee on Governmental Affairs (Washington, D.C.: Apr. 7, 2004), p. 9. 

38GAO-04-108T and GAO-04-397T. 

Possible Implications of 

Proposed Postal Reform 

Legislation for the Quality 

of Ratemaking Data 
Page 38 GAO-05-820 Postal Data Quality 

issues. The legislation also would enhance regulatory authority so that the 

necessary transparency, oversight, and accountability can take place 

regarding ratemaking data quality. Thus, the proposed legislative changes 

would likely lead to improvements in the quality of ratemaking data over 

time and at some cost. 

However, if postal reform legislation is enacted, the outcome would likely 

depend on how the postal regulator would use its discretion to define and 

implement the new ratemaking structure. Key implementation questions 

would remain, including what regulatory criteria and requirements would 

apply to ratemaking data. Should the legislation be enacted, 

implementation will be critical to achieving the intended results because 

the legislation would provide the postal regulator with great flexibility to 

establish the new ratemaking structure and implement provisions relating 

to data quality. This flexibility would enable the postal regulator to deal 

with changing circumstances, but it also creates substantial uncertainty 

and risks. Key implementation questions might include the following: 

• What criteria would the new postal regulator use for evaluating the quality, 

completeness, and accuracy of ratemaking data? 

• To what extent can USPS costs be rationally attributed to postal products 

and services, in accordance with sound economic principles? 

• How would the postal regulator balance the need for high-quality 

ratemaking data with the time and expense involved in obtaining the data? 

• How would any proceedings to improve the quality of ratemaking data be 

structured by the postal regulator? How could USPS and other 

stakeholders participate in such proceedings? 

• Could the postal regulator use its enhanced authority over ratemaking 

data to require USPS to collect and/or update specific ratemaking data? If 

so, would that include regulatory authority over the quantity of data 

collected and the methods of data collection (e.g., in-person data 

collection v. telephone data collection)? 

We received written comments on a draft of this report from the Chairman 

of the Postal Rate Commission in a letter dated July 18, 2003, and the 

Controller and Vice President of the U.S. Postal Service via e-mail on the 

same date. Their comments are summarized below, and the PRC 

Chairman’s comments are reproduced as appendix II. In addition, PRC and 

Agency Comments 

and Our Evaluation 
Page 39 GAO-05-820 Postal Data Quality 

USPS officials provided technical and clarifying comments, which were 

incorporated where appropriate. 

USPS’s Controller did not comment on the draft report’s findings in the 

section on key USPS actions to improve the quality of ratemaking data, but 

she noted that USPS has a long history of working to improve data quality. 

She explained that USPS has worked to develop and improve its data 

systems in ways that have been beneficial to improving the overall quality 

and reliability of ratemaking data. However, she made some comments 

that disagree with the draft report’s findings in the section on the possible 

implications of postal reform legislation for ratemaking data quality. First, 

she said that: “The Postal Service considers that its current ratemaking 

process has worked remarkably well for the past 30 years, since the Postal 

Service’s first postal rate change” under the Postal Reorganization Act of 

1970. Second, she said that USPS ratemaking data systems produce data of 

“world-class quality,” explaining that “no other postal system’s rates are 

better or more extensively supported by reliable and objective financial 

and operations data.” Third, she concluded that: 

“In light of the record of success under the current system, the proposed legislation relating 

to the requirements for reporting ratemaking data in practice is not likely to lead to the 

breakthrough improvements in the quality of the ratemaking data systems without a 

significant increase in costs to the stakeholders. [USPS is] concerned, furthermore, that the 

proposed legislative changes may sacrifice the checks and balances and the effective 

process of data review and refinement that have evolved under the current system.” 

We disagree with USPS’s first comment that the current ratemaking 

process has worked “remarkably well” since postal reorganization. We 

continue to believe that major changes are needed to the ratemaking 

structure. As described in our report, the current ratemaking structure 

has enabled long-standing deficiencies in ratemaking data quality to 

persist. Further, we have reported that the ratemaking process is a 

litigious, costly, and lengthy process that can delay needed new revenues. 

In this regard, USPS’s comments appear to be inconsistent with the April 

14, 2005, testimony of the Postmaster General that “today’s ratemaking 

process is both costly and time consuming” and needs major change, as 

well as the numerous criticisms that USPS has made of the ratemaking 

process over the years. We continue to believe that comprehensive postal 

reform legislation is urgently needed, including improvements to the 

regulation and oversight of postal rates. Second, we believe the need for 

reform is not diminished by comparisons of ratemaking data quality with 

that of foreign postal administrations, which have different regulatory 

environments. Indeed, some foreign countries that are implementing 
Page 40 GAO-05-820 Postal Data Quality 

postal reform are grappling with the need to improve ratemaking data 

quality. In our view, it is more appropriate to consider what level of 

ratemaking data quality is appropriate for the United States. 

Third, regarding USPS’s views about achieving “breakthrough 

improvements” in ratemaking data quality, in our view, the proposed 

legislative changes would likely lead to improvements in the quality of 

ratemaking data over time and at some cost. The extent of such 

improvements, and what the associated costs may be, would depend on 

how the legislation is implemented. In our view, enhanced regulatory 

authority over ratemaking data would enable the necessary transparency, 

oversight, and accountability in this area. Ratemaking data are 

fundamental to setting postal rates that touch the lives of all Americans 

and affect the financial viability of USPS and the mailing industry. These 

data are essential to establishing fair and equitable rates. 

In comments on our draft report, the PRC Chairman said that the report 

had clearly presented USPS actions taken with respect to the Study 

recommendations. He commended USPS for taking steps to improve its 

ratemaking data systems and the data upon which postal rates are based. 

At the same time, he expressed concerns about ratemaking data quality 

and said that USPS can and should be taking more action to improve the 

quality of ratemaking data. He also said that the report aptly summarizes 

the potential of postal reform legislation to improve ratemaking data 

quality. 

The PRC Chairman said USPS had not addressed many significant 

potential sources of systematic error in its ratemaking data systems, 

including IOCS. He explained that USPS had not addressed issues of 

systematic error in IOCS data that have been a major concern in prior rate 

cases. He also said that IOCS data had become less precise due to 

reductions in the quantity of IOCS data implemented prior to the Study. He 

also expressed concerns regarding the precision of TRACS data, while 

complimenting USPS for improving the precision of RPW data. On another 

matter, he expressed concerns regarding the quality of mail processing 

data produced by the Management Operating Data System (MODS) that 

the Study did not assess. Regarding postal reform, he said that the 

proposed legislation reflects a consensus within the postal community that 

new tools are needed to increase USPS’s financial transparency. He 

concluded that PRC agreed that the proposed legislative changes would 

likely lead to improvement in the quality of ratemaking data. 
Page 41 GAO-05-820 Postal Data Quality 

To put PRC comments about the IOCS data precision into context, the 

Study found that the reductions in IOCS sample size resulted in a 

minimally lower level of precision in overall subclass cost estimates and 

made no recommendations on the quantity of IOCS data that should be 

collected in the future. However, the Study did raise concerns about the 

precision of some ratemaking data, and USPS’s responsive actions are 

described in our report. Looking ahead, we encourage USPS and PRC to 

work together—as they did during the Study—to better understand 

technical issues regarding data precision, using a statistical model that the 

Study developed to assess data precision that USPS is working to refine. 

More generally, we encourage USPS and PRC to use every opportunity to 

maximize progress on improving the quality of ratemaking data, such as 

working to improve data quality outside the ratemaking process. As the 

Study concluded: “Providing sufficiently complete and accurate data for 

ratemaking is an evolutionary process that requires the Postal Service to 

continually improve the quality of its ratemaking data and related data 

systems.” 

Regarding PRC’s comments on MODS data issues, they were outside the 

scope of our report, which focused on ratemaking data systems, city 

carrier cost data, documentation, and data precision that were assessed by 

the Study. These issues are part of a broader set of mail processing cost 

issues that PRC and USPS have long disagreed over. Current law allows 

this disagreement and others to continue by enabling all interested parties 

to raise whatever issues they wish in rate cases, regardless of how many 

times the same issues may have been considered in the past. However, as 

previously discussed, the legislation would likely lead to resolution of this 

long-standing methodological dispute. 

We are sending copies of this report to the Ranking Minority Member of 

the House Committee on Government Reform, the Chairman and Ranking 

Minority Member of the Senate Committee on Homeland Security and 

Governmental Affairs, Senator Thomas R. Carper, the Postmaster General, 

the Chairman of the Postal Rate Commission, and other interested parties. 

We will make copies available to others on request. This report will also be 

available on our Web site at no charge at http://www.gao.gov. 

If you have any questions about this report, please contact me at (202) 

512-2834 or at siggerudk@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. Key contributors to this report included Gerald P. Barnes, 
Page 42 GAO-05-820 Postal Data Quality 

Assistant Director; Kenneth E. John; Anna Bonelli; Kevin Bailey; Jay 

Cherlow; Karen O’Conor; Richard Rockburn; and Walter Vance. 

Katherine A. Siggerud 

Director, Physical Infrastructure Issues 
Appendix I: Objectives, Scope, and 

Methodology 

Page 43 GAO-05-820 Postal Data Quality 

Our objectives were to (1) describe key U.S. Postal Service (USPS) actions 

that were responsive to the 1999 Data Quality Study (the Study) to 

improve the quality of ratemaking data and (2) discuss possible 

implications of postal reform legislation for ratemaking data quality. 

To address the first objective, we identified key USPS actions taken that 

USPS reported were responsive to the Study by reviewing the Study’s 

report that prioritized its findings; reviewing USPS and Postal Rate 

Commission (PRC) documents, including USPS progress reports that 

prioritized actions and PRC documents that summarized concerns about 

data quality; and interviewing USPS officials responsible for collecting 

ratemaking data. We focused our work primarily on USPS’s key actions to 

enhance three of its five major data collection systems used for 

ratemaking because the Study’s report noted that these systems had 

opportunities for improvement. The three systems include the In-Office 

Cost System (IOCS), which produces data on the time that postal 

employees spend handling each subclass of mail in postal facilities; the 

Revenue, Pieces, and Weight (RPW) system, which produces data on the 

revenue, volume, and weight of each subclass of mail; and the 

Transportation Cost System (TRACS), which produces data on longdistance transportation of mail subclasses using trucks, airplanes, and 

freight trains.1

 To put IOCS into context, as previously noted, in fiscal year 

2004, USPS incurred about $28 billion in personnel costs for employees 

working in postal facilities (mail processing, retail, delivery unit, and other 

facilities), which comprised more than one-third of USPS costs of about 

$66 billion for the fiscal year. To put TRACS into context, TRACS was used 

to help attribute about $4 billion in fiscal year 2004 costs for long-distance 

transportation of mail using trucks, airplanes, and freight trains. We also 

focused our work on another USPS key action to conduct a new special 

study to replace four USPS special studies because the Study’s report 

found that data collected by these studies needed improvement. USPS’s 

new special study is called the City Carrier Street Time Study (CCSTS), 

which produced data on the activities of city carriers—that is, letter 

carriers who deliver mail in highly populated urban and suburban areas 

where most deliveries are made to the door, curbside mailboxes, centrally 

located mailboxes, or cluster boxes. We did not assess the extent to which 

USPS’s actions affected the quality of these ratemaking data. Aside from 

 1

The Study identified relatively minor concerns regarding the other two major data 

collection systems used for ratemaking, which are the City Carrier Cost System and the 

Rural Carrier Cost System. These systems produce data on the volumes of mail subclasses 

that are delivered and collected by carriers. 

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology 

Page 44 GAO-05-820 Postal Data Quality 

these ratemaking data, we included some USPS data in this report for 

background purposes, such as audited USPS accounting data on total 

USPS costs and revenues for fiscal year 2004, data on USPS personnel 

costs, and USPS estimates of budgeted costs for collecting ratemaking 

data in fiscal year 2005. 

We obtained information to describe the key actions taken by USPS by 

reviewing relevant documents, including USPS documents previously 

listed and additional USPS documents not submitted in rate cases, such as 

documentation of IOCS changes that were implemented in October 2004. 

We also requested and received USPS documentation of many of the 

reported improvements made to IOCS, RPW, and TRACS as well as 

interviewed USPS officials responsible for these systems. To gain an 

understanding of how the ratemaking data are collected, we visited some 

USPS mail processing facilities and post offices located in the Washington, 

D.C., area to observe the collection of ratemaking data, including IOCS, 

RPW, and TRACS data. These locations were judgmentally selected on the 

basis of the availability of USPS data collection personnel and their 

geographic proximity to our headquarters in Washington, D.C. Further, at 

post offices, we observed activities of letter carriers picking up their mail 

and organizing it for delivery, as well as delivering the mail on the street. 

To address the second objective, we reviewed proposed postal reform 

legislation, current postal laws and regulations, and other documents. 

Specifically, we drew from our past work in this area, reviewed the 

proposed legislation (H.R. 22 and S. 662, 109th Cong., 1st Sess., both 

entitled the Postal Accountability and Enhancement Act) and documents 

pertinent to legislative intent, such as records of hearings and past 

versions of the legislation with accompanying committee reports. We 

reviewed current federal postal laws and regulations, including USPS and 

PRC regulations pertinent to ratemaking data quality, and other relevant 

documents, including documents submitted in past rate cases and other 

PRC proceedings on data quality issues. We also reviewed the report of the 

President’s Commission on the United States Postal Service, past studies 

of the ratemaking process by other organizations, and books and articles 

on ratemaking data quality issues. 

We conducted our review at USPS headquarters, in Washington, D.C., and 

the Capital Metro area from June 2004 through July 2005. 
Appendix II: Comments from the Postal Rate 

Commission 

Page 45 GAO-05-820 Postal Data Quality 

Appendix II: Comments from the Postal Rate 

Commission 
Appendix II: Comments from the Postal Rate 

Commission 

Page 46 GAO-05-820 Postal Data Quality 
Appendix II: Comments from the Postal Rate 

Commission 

Page 47 GAO-05-820 Postal Data Quality 
Appendix II: Comments from the Postal Rate 

Commission 

Page 48 GAO-05-820 Postal Data Quality 
Appendix II: Comments from the Postal Rate 

Commission 

Page 49 GAO-05-820 Postal Data Quality 
Appendix II: Comments from the Postal Rate 

Commission 

Page 50 GAO-05-820 Postal Data Quality 
Appendix III: Selected Ratemaking 

Requirements in Proposed Postal Reform 

Legislation 

Page 51 GAO-05-820 Postal Data Quality 

Citation Summary provision 

H.R. 22, Sec. 202, §3633; and S. 662, 

Sec. 202, §3633 

(similar provisions) 

Competitive products: The Postal Regulatory Commission (the Commission) shall issue 

regulations for competitive products (such as Priority Mail and Express Mail) to prohibit 

the subsidization of competitive products by market-dominant products, ensure that each 

competitive product covers its attributable costs, and ensure that all competitive products 

collectively make a reasonable contribution to USPS institutional costs. 

H.R. 22, Sec. 201, §3622; and S. 662, 

Sec. 201, §3622 

(somewhat different provisions) 

Market-dominant products: The Commission shall by regulation establish a modern 

system for regulating rates and classes for market-dominant products (such as First-Class 

Mail, Standard Mail, Periodicals, and Special Services (such as post office boxes, money 

orders, and delivery confirmation). 

House version: In establishing this system, the Commission must take various factors into 

account, including the attributable costs for each class of mail or type of mail service, plus 

that portion of institutional costs reasonably assignable to such class or type. The average 

rate of any subclass of mail cannot increase at an annual rate greater than the 

comparable increase in the Consumer Price Index for All Urban Consumers (CPI-U), 

unless the Commission has, after notice and opportunity for a public hearing and 

comment, determined that such increase is reasonable and equitable and necessary to 

enable USPS, under best practices of honest, efficient, and economical management, to 

maintain and continue the development of postal services of the kind and quality adapted 

to the needs of the United States. 

Senate version: In establishing this system, the Commission must take into various factors 

into account, including the requirement that each class of mail or type of mail service 

cover its attributable costs, plus that portion of institutional costs reasonably assignable to 

such class or type. The regulatory system for market-dominant products shall (1) require 

the Commission to set annual limitations on the percentage changes in rates based on the 

CPI-U unadjusted for seasonal variation over the 12-month period preceding the date 

USPS proposes to increase rates and (2) establish procedures whereby rates may be 

adjusted on an expedited basis due to unexpected and extraordinary circumstances. 

H.R. 22, Sec. 203, §3641; and S. 662, 

Sec. 203, §3641 

(same provision in both bills) 

Market tests: USPS may conduct market tests of experimental products provided that the 

product is, from the viewpoint of the mail users, significantly different from all products 

offered by USPS within the 2-year period preceding the start of the test; the introduction or 

continued offering of the product will not create an unfair or otherwise inappropriate 

competitive advantage for USPS or any mailer, particularly in regard to small business 

concerns; total revenues anticipated, or in fact received, by the tested product do not 

exceed $10 milliona

 in any year, unless the Commission has increased the limit to $50 

million;a

 and the market test does not exceed 24 months, unless the Commission has 

approved an extension of its total duration up to 36 months. 

Appendix III: Selected Ratemaking 

Requirements in Proposed Postal Reform 

Legislation 
Appendix III: Selected Ratemaking 

Requirements in Proposed Postal Reform 

Legislation 

Page 52 GAO-05-820 Postal Data Quality 

Citation Summary provision 

H.R. 22, Sec. 206, §3687; and S. 662, 

Sec. 201, §3622(e) 

(same provision in both bills) 

Worksharing discounts: The Commission shall establish rules for worksharing discounts 

as part of its regulations for regulating market-dominant products that shall ensure that 

discounts do not exceed the cost that USPS avoids as a result of worksharing activity, 

unless 

• the discount is (1) associated with a new postal service, a change to an existing postal 

service, or a new workshare initiative related to an existing postal service and (2) 

necessary to induce mailer behavior that furthers the economically efficient operation of 

the Postal Service and the portion of the discount in excess of the cost that the Postal 

Service avoids as a result of the workshare activity will be phased out over a limited 

period of time; 

• a reduction in the discount would (1) lead to a loss of volume in the affected category or 

subclass of mail and reduce the aggregate contribution to the institutional costs of the 

Postal Service from the category or subclass subject to the discount below what it 

otherwise would have been if the discount had not been reduced to costs avoided, (2) 

result in a further increase in the rates paid by mailers not able to take advantage of the 

discount, or (3) impede the efficient operation of the Postal Service; 

• the amount of the discount above costs avoided (1) is necessary to mitigate rate shock 

and (2) will be phased out over time; or 

• the discount is provided in connection with subclasses of mail consisting exclusively of 

mail matter of educational, cultural, scientific, or informational value. 

Sources: H.R. 22 and S. 662, 109th Cong., 1st Sess. 

a

Limits for market tests would be annually adjusted for inflation according to the change in the 

Consumer Price Index. 

(545042) 
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