semiannual report

to congress

OFFICE OF INSPECTOR GENERAL

April 1 – September 30, 2005
 | Semiannual Report to Congress

Mission Statement

n Prevent and detect fraud, waste, and misconduct;

n Promote economy, efficiency, and effectiveness;

n Promote program integrity; and

n Keep the Governors, Congress, and Postal Service

management informed of problems, deficiencies, and

corresponding corrective actions.

The mission of the U.S. Postal Service Office of Inspector General

is to conduct and supervise objective and independent audits,

reviews, and investigations relating to Postal Service programs

and operations to:
April 1 – September 30, 2005 | 

After two years of reform and restructuring, the  U.S. Postal Service Office of Inspector General (OIG) has achieved a state of health and 

maturity as an organization. We have significant 

increases in the quality and volume of our audit 

and investigative work products. And we are 

nearing optimal production. 

In Fiscal Year (FY) 2005, we issued 378 audit 

reports, management advisories and other products. These efforts resulted in total monetary 

benefits of $386,288,465. We made 109 significant audit recommendations, of which 104 were 

accepted by the Postal Service. In addition, we 

closed 3,400 investigative cases and referred 

1,292 to management for administrative action, 

and made 376 arrests and indictments that 

resulted in nearly $66.5 million in fines, restitutions, and recoveries.

This is the year we began to fully implement the 

Inspector General Act (the Act) within our Office of 

Investigations.

As background, Congress’s 1996 amendment to 

the Inspector General Act establishing an independent OIG provided two operational imperatives for 

the Postal Service. The Act directs consolidation 

of audit and internal investigative functions within 

the OIG. The amending legislation specifically 

requires coordination and cooperation to avoid 

duplication of efforts by the U.S. Postal Inspection 

Service (USPIS) and the OIG. 

Additionally, a formal opinion by Department of 

Justice Office of Legal Counsel explains that “The 

Act’s mandate to consolidate audit and investigative functions, its prohibition of interference with 

the Inspector General’s performance of those 

functions, and the Senate Report’s warning 

against duplication of effort, combine to dictate 

extreme caution when assigning audit or investigative responsibilities to another agency official.” 

In hearings, Congress gave ample direction when 

it created the independent OIG. Congress told 

the Postal Service to stop investigating itself. It 

did not want the Postal Service’s chief law 

enforcement officer and member of postal management serving as its Inspector General. The 

Committee on Government Reform and Oversight, Activities of the House Committee on 

Government Reform and Oversight noted “the 

Chief Postal Inspector [is] to focus his energies 

on his duties of ensuring the security of postal 

facilities and employees, protecting the public 

from mail fraud schemes and other criminal 

usage of the mail, and enforcing the laws regarding revenue protection.” 

The Postmaster General announced in September 2004, “We are planning to move appropriate 

internal crimes work to the OIG to be consistent 

with Congressional intent. The USPIS will focus 

its efforts on areas of responsibility which congress has designated as within its exclusive 

jurisdiction.” 

Following the Postmaster General’s announcement, the OIG has prepared itself and is ready 

to assume the jurisdiction on internal matters. 

In closing, this semiannual report discusses the 

management challenges facing the Postal Service 

today, as determined by the OIG: cost control; 

revenue; human capital; preserve safety and 

security; and strategic direction. We are also continuing our exploration of ideas and concepts 

on postal operations and programs that may 

contribute to reduced costs, improve efficiencies, 

increase revenue, or introduce new ways of 

doing business.

October 1, 2004 – March 31, 2005 | 

A Message From The Inspector General
II | Semiannual Report to Congress

AUDIT

Reports issued .......................................................................................................................205

Significant recommendations issued........................................................................................60

Total reports with financial impact ............................................................................................81

Funds put to better use .....................................................................................$146,674,881

Questioned costs1 .............................................................................................. $58,230,112

Unrecoverable costs.............................................................................................$9,201,939

Potential additional revenue.................................................................................. $1,919,843

Potential additional expense......................................................................................$22,608

TOTAL2..................................................................................................................$216,049,383

INVESTIGATIONS3

Investigations completed......................................................................................................2,131

Arrests .................................................................................................................................... 101

Indictments/informations ..........................................................................................................81

Convictions/pretrial diversions4.................................................................................................57

Administrative actions.............................................................................................................986

Cost avoidance.........................................................................................................$25,730,568

Total fines, restitutions, and recoveries5 ....................................... $54,193,376

Amount to Postal Service (included in total figure above)6 ...................................$4,344,881

HOTLINE CONTACTS

Facsimile – FAX.......................................................................................................................284

E-mail................................................................................................................................... 3,765

Standard Mail .........................................................................................................................750

Voice mail messages ........................................................................................................... 1,458

Telephone calls..................................................................................................................18,387

TOTAL CONTACTS......................................................................................................... 24,644

Includes unsupported costs of $994,664.

The Postal Service agreed to recommendations or proposed alternative corrective actions that, if implemented, could result in more than $216 million in savings.

Statistics include joint investigations with the U.S. Postal Inspection Service and other law enforcement agencies.

Convictions reported in this frame may be related to arrests made in prior reporting periods. 

Some fines and recoveries were from the previous reporting period, but not previously reported.

Amount included in fines, restitution, and recoveries.

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Summary Of Performance

April 1 – September 30, 2005
April 1 – September 30, 2005 | 

FEATURE STORIES .....................................................................................................2

Disaster Preparedness..........................................................................................2

Mail Processing Operations ..................................................................................4

MANAGEMENT CHALLENGES...................................................................................7

Cost Control..........................................................................................................7

Revenue.............................................................................................................. 14

Human Capital .................................................................................................... 17

Preserve Integrity and Security ...........................................................................20

Strategic Direction...............................................................................................24

IDEAS WORTH EXPLORING.....................................................................................26

ORGANIZATIONAL CHART.......................................................................................32

MAP OF OFFICE LOCATIONS...................................................................................33

APPENDICES ............................................................................................................34

Appendix A – Reports with Quantifiable Potential Monetary Benefits ...............34

Report Listing .............................................................................40

Appendix B – Findings of Questioned Costs.....................................................45

Appendix C – Recommendations That Funds Be Put to Better Use.................47

Appendix D – Reports with Significant Recommendations Pending 

Corrective Actions ......................................................................48

Appendix E – Significant Management Decisions in Audit Resolution ..............50

Appendix F – Investigative Statistics..................................................................50

Appendix G – Summary of U.S. Postal Inspection Service Actions 

Under Title 39 USC § 3013......................................................... 51

Appendix H – Closed Congressional and Board of Governors Inquiries ...........52

Supplemental Information..............................................................................54

Investigative Case Highlights...............................................................................54

Freedom of Information Act.................................................................................56

Glossary..............................................................................................................57

Table Of Contents
 | Semiannual Report to Congress

Feature StorIES

This section has two separate feature 

stories. One focuses on the importance 

of disaster preparedness for the Postal 

Service, including the impact of Hurricane Katrina. The second describes mail 

processing operations. It begins with a 

primer on processing First-Class Mail and 

Standard Mail and ends with future plans 

for processing changes.

Disaster Preparedness

From anthrax and ricin attacks through 

the mail to recent hurricanes, the Postal 

Service is challenged with numerous 

disasters, both natural and man-made, 

which adversely impact mail delivery. 

These incidents led to a renewed emphasis on developing initiatives to more 

effectively secure the nation’s mail system. 

After terrorist attacks in September 

2001, the federal government began 

focusing attention on improving the 

safety and security of our nation’s critical infrastructures. Due to its sheer size 

and geographic dispersion, securing the 

nation’s mail system is a significant challenge. However, through innovation and 

focus on key vulnerabilities, the Postal 

Service made significant strides toward 

protecting the integrity of the mail stream 

by making its systems safer and more 

secure.

In August 2005, the Gulf Coast 

experienced a natural disaster of historic 

proportions. Damaging or destroying 

Postal Service facilities in three states, 

Hurricane Katrina seriously degraded the 

Postal Service’s ability to operate and 

secure mail along the coastline. To 

respond, the Postal Service had to rely 

on mobile mail processing units to service 

affected areas. In the days following the 

disaster, we responded by deploying 

more than 60 personnel to these areas to 

assist in recovery operations, locate 

employees, help assess damage to hundreds of post offices, and work with the 

U.S. Postal Inspection Service (USPIS) to 

ensure the security of Postal Service 

operations.

The Postal Service’s Office of Emergency 

Preparedness is making efforts to better 

manage incidents, implement protective 

measures, and better integrate processes. It is responding to the Homeland 

Security Presidential Directive 5 by implementing a comprehensive emergency 

management plan throughout the Postal 

Service. The Postal Service’s Integrated 

Emergency Management Plan (IEMP) has 

a goal to improve coordination of planning 

and response activities among functional 

areas. It should minimize duplication of 

planning efforts and establish a standardized emergency management process.

To support emergency preparedness 

initiatives, the USPIS implemented internal and external procedures to protect 

the Postal Service, and the public, from 

threats to homeland security. Postal 

inspectors are developing plans to enable 

the Postal Service to continue government functions, even during times of 

Two OIG special agents examine a stolen Postal Service Long Life Vehicle abandoned on I-10 near 

Canal Street in New Orleans.
April 1 – September 30, 2005 | 

Feature 

StorIES

crisis. Further, inspectors assist with 

implementing training for IEMP and 

Biohazard Detection Systems (BDS) for 

the Postal Service. This training provides 

Postal Service employees with procedures for handling emergencies and 

activations of the BDS.

In support of Postal Service security, we 

participate in the Mail Security Task Force 

and attend training relating to IEMP and 

Dangerous Mail Investigations. We are 

also a member of the President’s Council 

on Integrity and Efficiency (PCIE) Homeland Security Roundtable, which shares 

information on related security work 

performed by all OIGs. We have reviews 

planned related to natural disasters, and 

are currently conducting an extensive 

body of work related to Hurricane Katrina 

in coordination with the PCIE.

Hurricane Katrina’s Impact on 

Mail Processing Operations

While the Postal Service continues 

addressing inefficiencies and excess 

capacity in its vast processing and distribution network, some excess capacity 

in the network provides flexibility for the 

Postal Service to respond to various situations. This was evident after Hurricane 

Katrina, when mail processing operations 

were suspended at four key mail processing facilities and operations were severely 

constrained at other facilities along the 

Gulf Coast.

The Postal Service reacted by redirecting mail to other locations and quickly 

implementing procedures to restore mail 

processing operations. These measures 

included:

Moving some mail out of facilities in the 

path of the hurricane.

Relocating mail and equipment to 

higher elevations at facilities in the 

path of the hurricane before the storm 

arrived.

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Temporarily restricting Standard Mail 

delivery to storm-stricken areas.

Establishing alternative mail processing 

and delivery methods, including temporary mail distribution at facilities for 

evacuated residents.

Facilitating Change of Address procedures to provide mail services for 

displaced customers. More than 

100,000 changes of address were filed 

during the first three weeks after the 

hurricane.

Locating and leasing an existing warehouse building to serve as a temporary 

mail processing facility near New 

Orleans.

Restoring mail services and returning 

post offices to full or limited service as 

soon as possible.

The Postal Service mail processing 

operations were well prepared for the 

aftermath of Hurricane Katrina. We plan to 

continue working with the Postal Service 

to assess mail processing operations and 

recovery efforts in the wake of this natural 

disaster. 

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OIG special agents stop to survey local damage after just having assisted the Postal Service 

Human Resources team in recovering personnel files from the New Orleans District Office.
 | Semiannual Report to Congress

POST

OFFICE AIR MAIL 

CENTER

POST

OFFICE PROCESSING & 

DISTRIBUTION CENTER

LOCAL P&DC

US MAIL

POSTAL 

CARRIER

HOME

SORT

SEPARATE CANCEL

BARCODE

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Chart 1

First-Class Mail Processing

An example of First-Class Mail processing is a greeting card 

mailed from Alexandria, VA, to Los Angeles, CA. This card 

would be processed as follows (see Chart 1):

It is picked up from a mailbox by a carrier and brought to 

the local post office.

It is next transported to the Northern Virginia Processing 

and Distribution Center (P&DC) where:

First, it joins other letters and packages for separation by 

mail handlers with the assistance of a machine that separates the mail based on its size.

Next, a different machine applies the postmark and cancels the postage stamp.

Then, another machine, operated by a mail processing 

clerk, applies a barcode reflecting the proper destination.

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Last, the greeting card is subsequently sorted to the first 

three digits of the ZIP Code by the same machine that 

applied the barcode and then sent to its next destination. 

(Multiple sorts are required because of the high number 

of five-digit ZIP Codes.)

Next, the card is transported to the Washington-Dulles Air 

Mail Center (AMC) in Virginia and flown to the Worldway Air 

Transfer Office (ATO) in California.

After arriving at the Worldway ATO, mail is transferred to the 

Los Angeles P&DC where mail processing clerks again use 

the same type of machine to perform a final sort of the mail 

to its five-digit ZIP Code for the letter carrier.

Finally, the greeting card is transported to the local post 

office to be picked up by a letter carrier and delivered to the 

addressee.

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Mail Processing Operations

From the time of Benjamin Franklin, the nation’s first Postmaster 

General, through the middle of the 20th century, most mail was 

sorted by hand, one letter at a time. Today, the Postal Service 

relies on a sophisticated automation program to electronically 

read addresses, apply barcodes that represent the addresses, 

and then sort the mail. Mail prepared for automation bypasses 

manual processes resulting in less handling, lower costs, and 

quicker delivery. For the most part, all mail is processed in a 

similar fashion. 

Many large mailers also apply barcodes to their mail in-house to 

take advantage of automation discounts offered by the Postal 

Service.

The following sections describe typical mail flows for FirstClass Mail and Standard Mail at the Postal Service.
April 1 – September 30, 2005 | 

Feature 

StorIES

Automated Package Processing System (APPS)

The first automated package processing systems 

(APPS) were installed in the New York Metro Area 

in FY 2005.

Standard Mail Processing

An example of Standard Mail processing is a 

package mailed from Arlington, VA, to Dallas, 

TX, that takes the following steps (see Chart 2):

The package enters the mail stream via a 

Business Mail Entry Unit (BMEU) in Northern Virginia, a post office, or a detached 

mail unit (DMU) (an area in a mailer’s facility 

where postal employees perform mail verification, acceptance, dispatch, and other 

postal functions).

It is then transported to the Washington, 

DC, Bulk Mail Center (BMC) where it is processed by clerks and mail handlers. Unlike 

First-Class Mail, this mail generally does 

not need to be separated or have stamps 

cancelled because postage stamps are not 

used. Mailers apply other types of postage 

such as metered postage or permit imprint.

Next, various pieces of equipment sort the 

package to its three-digit ZIP Code for Dallas.

The package is then transported to the Dallas BMC for final sorting to its five-digit ZIP 

Code for the letter carrier.

Finally, the package is transported to the Dallas P&DC for dispatch to a post office where 

a letter carrier delivers it to the addressee.

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Chart 2

BMEU

OR DMU

LOCAL

BMC

POST

OFFICE

BULK MAIL CENTER

HOME

P&DC

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 | Semiannual Report to Congress

Changes to the Mail Processing 

Network

The Evolutionary Network Development 

(END) is the Postal Service’s network 

redesign strategy. The END initiative 

is to migrate to a flexible network that 

increases operational efficiency, reduces 

costs, and improves consistency of 

service. This future network will have 

Regional Distribution Centers, Local 

Processing Centers, and Destinating 

Processing Centers. Significant changes 

are also taking place in the mail processing operations at the network level. Some 

examples of processing changes are:

New automated equipment that is 

being developed will sequence flats 

(large envelopes, magazines, and 

publications) in delivery order. This will 

eliminate manual sorting and thereby 

achieve savings. The Postal Service 

plans to field test this equipment in 

April 2006 with deployment scheduled 

to begin early in 2008.

Other new equipment has been developed to further automate the parcel 

process and eliminate manual keying 

of addresses. These machines are currently being deployed in large plants to 

replace small parcel sorting machines.

Elimination of some outdated and 

labor-intensive mail bag sorting 

machines will increase efficiency in 

plants. Mail in trays is more efficient 

and easier to process.

The Postal Service is also making network infrastructure changes to improve 

efficiency and service, as well as reduce 

costs. Examples include:

Closing over 50 annexes that are temporary plants used for mail processing 

when space is limited.

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Closing over 38 Remote Encoding 

Centers that assign barcodes to mail 

pieces from out-of-town locations.

Converting BMCs that process and 

distribute bulk Standard Mail and parcels to Regional Distribution Centers to 

address redundancies in the network.

Converting Priority Mail Processing 

Centers that process only Priority Mail, 

to Logistics and Distribution Centers 

that process multiple types of mail.

Looking Toward the Future

The Postal Service and the OIG will 

continue working together to identify 

opportunities to improve operations and 

reduce costs. Some of the near-term 

challenges for the Postal Service in making END a reality include continuing to:

Transition to a new infrastructure that 

focuses on processing mail based on 

shape.

Streamline the processing network by 

implementing Area Mail Processing 

proposals.

Streamline the transportation network, 

including the Surface Transfer Centers 

(formerly called the Hub and Spoke 

Program) and AMCs.

Develop and deploy various types of 

new mail processing equipment.

Perform an analysis of trailer requirements and lease versus buy decisions 

to optimize vehicle management 

prior to the possible extension of the 

National Trailer Lease in 2006. 

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April 1 – September 30, 2005 | 

In this section, we identify and assess the 

status of the major management challenges confronting the Postal Service: 

cost control, revenue, human capital, preserve integrity and security, and strategic 

direction.

Cost Control

The Postal Service has made a significant infrastructure investment to meet its 

universal service obligation. Delivery now 

extends to more than 144 million delivery 

points involving more than 290,000 city 

and rural letter carriers, and approximately 7,100 box delivery highway route 

contractors. Based on these facts and 

our work in the areas of delivery, mail 

processing operations, transportation, 

and contracting, we believe cost control 

continues to be a significant issue for the 

Postal Service, and will likely remain so 

for some time. The greatest opportunities to reduce costs continue to be in the 

areas of optimizing the network to control 

delivery costs, increasing efficiencies of 

technology investments, and maximizing 

the cost-effectiveness of contracts.

As part of our ongoing initiative to add 

value to the Postal Service, we implemented the Value Proposition. Its aim is 

developing audit work that maximizes 

benefits to the Postal Service and assists 

top management in reaching their 

goals. Highlighted below are three Value 

Propositions for mail processing facilities, 

highway transportation routes, and city 

letter carrier operations.

Evaluation of 

Mail Processing Plants

The Postal Service spends more than 

$20 billion annually on the mail processing infrastructure. It continues to create 

a flexible logistics network that reduces 

Postal Service and customers’ costs, 

increases operational effectiveness, and 

improves operational efficiency.

In 2002, we developed a methodology 

to evaluate the efficiency of the Postal 

Service’s mail processing operations. 

During this reporting period, we identified 

opportunities to improve operations by 

reducing more than 300,000 workhours 

in four mail processing facilities.

We recommended that the Postal 

Service:

Improve efficiency and consolidate the 

network by reducing 202,000 work 

hours at the Canton P&DF. This work 

hour reduction could produce a cost 

avoidance of approximately $64 million 

in labor savings over 10 years.

Improve efficiency of operations at the 

Los Angeles International Service Center by reducing 85,000 work hours, 

producing a cost avoidance of $26 million over 10 years.

Improve efficiency of the Airmail 

Records Units at the Los Angeles and 

San Francisco International Service 

Centers by reducing 13,207 work 

hours, producing a monetary impact of 

about $4.4 million over 10 years.

Mail Evaluation, Readability, and 

Lookup INstrument

The Mail Evaluation, Readability, and 

Lookup INstrument (MERLIN) is designed 

to improve the quality of mail, automate 

acceptance, make verification consistent, 

and ensure appropriate revenue collection. Operationally, MERLIN machines 

determine whether individual mailings 

qualify for the discounts claimed by the 

mailer. The OIG issued a series of eight 

reports on MERLIN utilization focusing 

on specific BMEUs and detached mail 

units. Targets were established to measure MERLIN use based on the number 

of qualified mailings processed. We 

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MANAGEMENT CHALLENGES

MANAGE

MENT CHALLENGES
 | Semiannual Report to Congress

concluded that mail quality has improved 

and the appropriate revenues assessed 

were collected, although the Postal Service was not fully utilizing MERLIN by not 

achieving established targets for larger 

mailings.

We conducted a MERLIN satisfaction 

survey of Postal Service employees who 

operate this equipment. Respondents 

generally indicated that MERLIN has 

improved mail quality and treats mailers 

in a fair and consistent manner. Survey 

respondents believed MERLIN provides 

excellent barcode readability analysis for 

mailings and verifies more aspects of a 

mailing than the previous manual process. However, they said that the process 

of verifying mailings with MERLIN took 

more time than the previous manual process, and that MERLIN requires regular 

maintenance.

In addition, the survey responses showed 

that the training provided for MERLIN did 

not always cover interpreting reports or 

verifying mailings. This survey provides 

a feedback mechanism that Postal 

Service managers can use to monitor 

and improve MERLIN, thereby aiding in 

controlling costs. Postal Service management generally agreed with the survey 

results.

Evaluation of BMC Highway 

Transportation Routes

The Postal Service spends more than 

$2.6 billion annually for contracted highway transportation to move mail across 

nationwide highway networks. A major 

component of the Postal Service’s highway transportation network is the BMC 

network. It services the nation’s 21 BMCs 

and other processing facilities. The BMC 

network transports magazines, advertising, and merchandise shipped by major 

mailers, such as publishers, catalog companies, and on-line retailers.

We signed a pilot Value Proposition 

agreement with the Vice President of 

Network Operations Management (NOM) 

in April 2005. Under this agreement, we 

committed to completing four audits on 

BMC highway transportation routes. We 

examined about 600 surface transportation contracts covering more than 5,400 

surface trips, issued four value proposition reports, recommended elimination of 

more than 140 scheduled surface trips, 

and identified potential savings exceeding 

$14 million.

The Postal Service agreed with close to 

99 percent of all trip reduction, elimination, or consolidation proposals. Our 

Value Proposition efforts helped Postal 

Service management to optimize its surface network that resulted in savings. We 

will continue our work under this agreement in FY 2006.

Dating back to September 2004, we 

issued 10 audit reports under our national 

audit project covering BMC Highway 

Transportation Routes. Working with 

Postal Service headquarters, area, and 

plant transportation officials, we identified 

351 bulk mail transportation trip eliminations, consolidations or modifications 

— potentially resulting in savings of more 

than $36 million over the life of the conWe identified 351 bulk mail transportation trip eliminations, consolidations or modifications 

— potentially resulting in savings of more than $36 million over the life of the contracts. 
April 1 – September 30, 2005 | 

MANAGE

MENT CHALLENGES

tracts. The Postal Service eliminated or 

modified most of these 351 trips without 

negatively affecting service or operational 

flexibility.

The transportation network is dynamic 

and fluid, and transportation requirements 

continually change. This was especially 

evident immediately after Hurricanes 

Katrina and Rita in August and September 2005, respectively, when all Postal 

Service areas were reassessing the transportation needs of the affected areas, 

redirecting transportation to locations 

such as Houston, and quickly implementing changes in surface transportation 

service. We will continue to work with 

the Postal Service to assess its changing 

transportation needs.

City Letter Carrier Operations

Controlling delivery costs is critical for 

the Postal Service because mail delivery requires a significant infrastructure 

investment, especially as delivery points 

increase each year with population 

growth.

Delivery operations are the Postal 

Service’s largest cost center, making up 

42 percent of the total labor hours in the 

FY 2006 Field Operating Budget. These 

are hours that the city and rural letter carriers expend casing mail in the office and 

delivering mail on routes. Salaries and 

benefits for city carriers are budgeted at 

more than $16 billion, which represents 

34 percent of the Postal Service’s salaries 

and benefits in the FY 2006 Field Operating Budget.

In FY 2004, the Postal Service began 

implementing early morning standard 

operating procedures (AMSOP), designed 

to assist the managers and postmasters 

in making better business decisions for 

city delivery operations (for example, estimating work hours accurately). The Vice 

President of Delivery & Retail established 

a goal of 100 percent implementation of 

AMSOP in FY 2005 at all facilities using 

the Delivery Operations Information System (DOIS) that was deployed in 2002.

At the end of FY 2005, 100 percent of the 

DOIS facilities (6,198) have implemented 

AMSOP. DOIS provides delivery supervisors and managers with data (such 

as workload status reports and carrier 

performance information) to improve 

daily delivery operational performance. 

The system also allows the supervisors 

and managers to determine the number 

of work hours required to deliver the 

mail on daily carrier routes. Managed 

Service Points (MSP), a part of DOIS, is 

a computerized tool designed to monitor 

consistency of delivery time and enhance 

street management.

Beginning in FY 2005, AMSOP was 

enhanced with standard delivery management practices called the Lean 

Enterprise. This new initiative will establish 

standard practices for managing all delivIn the office, letter carriers manually case (sort) mail. The majority of the letter mail, however, 

now comes in delivery sequence. It is presorted on automated equipment and does not require 

casing.
10 | Semiannual Report to Congress

ery and retail functions at the unit level 

and oversight responsibilities at each tier 

of management above the unit level. A 

key component of this standardization 

is identifying the “vital few” delivery units 

— those units with the largest opportunity 

for improvement that require specific 

management actions. In those units the 

AMSOP, rural delivery standard operating procedures, and customer service 

reviews will serve as tools to aid senior 

management in identifying problems and 

developing suitable remedies.

One of our initial Value Proposition 

Agreements is with the Vice President of 

Delivery & Retail to assess management 

of City Letter Carrier Operations. During 

this reporting period, we expanded our 

ongoing assessment of city letter carrier 

operations to the Pacific and Great Lakes 

Areas.

We assessed the management of city 

letter carrier operations in the Santa 

Ana, San Diego, and Chicago Districts 

in 18 delivery facilities (six per district). 

These audits showed that management 

can improve operations by adequately 

reviewing the daily mail volumes and data 

in DOIS when determining daily work 

hours for each carrier’s route to maintain efficiency and cost, using the MSP 

information, and documenting carriers’ 

unauthorized overtime occurrences.

Our audits determined that delivery unit 

supervisors and managers in these three 

districts did not adequately match work 

hours with workload (mail volume). We 

identified almost 216,000 unjustified work 

hours in these three districts valued at 

about $5.5 million total in unrecoverable 

costs for five-month periods in 2004 and 

2005. We are continuing to review city letter carrier operations in the Great Lakes 

Area, and plan to conduct additional 

audits in delivery operations to assist the 

Postal Service in reducing the cost of 

delivery.

Delivery Vehicles

The Postal Service supports its delivery 

network with a vehicle fleet of about 

212,000 vehicles. The fleet travels 1.19 

billion miles each year to an increasing 

number of delivery points. It also has 

a vehicle management infrastructure 

designed to ensure operational readiness, safety, and reliability. Approximately 

188,000 of its vehicles are used for mail 

delivery and collections.

In addition to these vehicles, the Postal 

Service augments its delivery fleet with 

leased vehicles obtained through local 

commercial sources or the General 

Services Administration (GSA). In 2004, 

the Postal Service spent $564 million on 

delivery vehicles ($184 million for vehicle 

purchasing, $48 million for leasing, and 

$332 million for parts and maintenance).

We assessed the utilization of GSA-leased 

vehicles used in support of delivery 

operations, and determined that management needs to more effectively use Postal 

Service-owned delivery vehicles. Of 

FY 2004 Vehicle 

Supplier Expense Analysis
April 1 – September 30, 2005 | 11

MANAGE

MENT CHALLENGES

nine Postal Service areas, seven leased 

GSA vehicles for delivery, even though 

Postal Service Headquarters identified a 

nationwide overage of 787 Postal Serviceowned vehicles.

Leasing excess GSA vehicles occurred 

primarily because management did not 

routinely enforce procedures for lease 

approvals and justifications, and did not 

evaluate existing leases to determine 

current vehicle requirements. Eliminating 

these GSA leases would save the Postal 

Service more than $1.7 million annually or 

more than $5.3 million over the next three 

years.

We plan to further assess the Postal 

Service’s ability to control costs through 

improved utilization, efficient use, and 

proper maintenance of delivery vehicles 

by conducting a nationwide audit on 

the utilization of delivery vehicles. Areas 

to be addressed include eliminating 

under-utilized Postal Service-owned or 

leased vehicles, using Postal Serviceowned vehicles instead of leasing (when 

available), and reducing maintenance 

expenses through timely preventive maintenance.

Voice Systems Cost Savings

The Postal Service is committed to providing a high-quality, secure, reliable, and 

cost-effective voice and data telecommunications environment to its nearly 

38,000 facilities nationwide. A robust telecommunications network is critical to the 

business needs of the Postal Service.

In FY 2004, the Postal Service spent more 

than $107 million for telecommunications 

services, including telephone and cable, 

telegrams, and other communication services. The Postal Service must constantly 

reassess its telecommunications network 

needs to ensure that optimal services 

are provided to meet its business needs, 

particularly as these needs change and 

technology becomes obsolete.

We conducted a pilot audit of Public 

Branch Exchange (PBX) security and telephone bill monitoring in a Southwest Area 

district, which has 1,668 local telephone 

lines. We found overpayments, duplicate 

billings, and unnecessary telephone 

lines, resulting in a total financial impact 

of approximately $361,716. Further, we 

estimated the district could save an additional $286,356 by reassessing telephone 

lines at facilities we did not visit during our 

audit. Management agreed to disconnect 

and suspend unnecessary telephone 

lines and to conduct quarterly reviews of 

the telephone lines in the district audited.

Subsequent to the pilot audit, we conducted a nationwide audit and found that 

the Postal Service could capture savings 

by performing a comprehensive inventory 

and assessment of local telephone line 

needs in accordance with existing policy. 

During the audit, we verified 677 local 

telephone lines at 100 randomly selected 

facilities and found that 29 percent of the 

lines were not needed. Additionally we 

verified 217 lines at 29 additional facilities 

The Postal Service must constantly reassess its 

telecommunications network needs to ensure that optimal 

services are provided to meet its business needs.
12 | Semiannual Report to Congress

and found 46 percent of the lines were 

not needed.

We commend the Postal Service for their 

support and proactive response to this 

audit. During our audit, some districts 

began to reassess their telephone needs 

and terminate unneeded lines. So far, 

four districts have identified 1,043 local 

telephone lines for termination. The total 

financial impact is approximately $9.8 million. Management agreed to strengthen 

internal controls and processes, and 

to establish a centralized control point 

to manage voice services. We have an 

additional telecommunications audit in 

progress, focusing on cost reduction.

Contract Issues

One of the OIG’s mandates is to investigate contract fraud. Our contract fraud 

investigations resulted in more than $58 

million in fines, restitutions, recoveries, 

and settlements in FY 2005. We continue 

to work with the Postal Service’s Supply 

Management team to suspend and debar 

suppliers from government contracting 

when warranted. We highlight results from 

these investigative efforts in this section.

Our Contract Fraud Investigations program and our Supply Management and 

Facilities audit teams provide oversight 

of the Postal Service’s active contracts, 

which totaled more than $24 billion in 

FY 2005. To assess the Postal Service’s 

management of acquisitions and contracts, we have various initiatives focusing 

on each of the following five Postal Service portfolios:

Services Portfolio. The Postal Service 

issued more than 4,000 contract actions 

for services with a commitment value of 

approximately $456 million during 

FY 2005. One of our initiatives includes 

proactive contract file reviews of all 

Vehicle Maintenance Facility (VMF) billing 

records to identify suspicious contract 

awards and unusual billing activity. The 

Postal Service has more than $250 million in active contracts supporting VMFs 

nationwide.

In a major services investigation, we 

determined that a California contractor 

billed the Postal Service for work it did 

not perform and for work the contract did 

not allow. The company was supposed 

to provide services for facilities in California and North Carolina, and eventually 

billed the Postal Service more than $21 

million. The review identified more than 

$1.1 million in fraudulent billing. As part of 

settlement negotiations in June 2005, the 

company agreed to pay all of this money 

back to the Postal Service.

Supplies Portfolio. The Postal Service 

issued more than 3,000 contract actions 

for supplies with a commitment value of 

more than $1.2 billion during FY 2005. 

As a result of our investigation, a Texas 

medical equipment company, and two 

of its former employees, were indicted 

for filing more than $1.4 million in false 

billing claims to the Postal Service. The 

company submitted excessive rental fees 

to the Department of Labor’s Office of 

Workers’ Compensation Programs for 

medical equipment. In one instance, the 

Postal Service rented a piece of equipment for $495 a week and eventually paid 

more than $500,000, when the purchase 

price of the unit was only $225.

Facilities Portfolio. The Postal Service 

issued more than 32,000 facilities-related 

contract actions with a commitment value 

of approximately $1.27 billion in FY 2005. 

In August 2005, Hurricane Katrina swept 

into the Gulf Coast region, causing an 

estimated $128 million in damages to the 

Postal Service’s infrastructure. More than 

$69 million of that amount will be attributed to the repair and replacement of 

damaged facilities. As a result, we established a task force comprised of auditors 
April 1 – September 30, 2005 | 13

MANAGE

MENT CHALLENGES

and investigators to identify potential 

fraud, waste, and abuse, especially in 

connection with contracts associated with 

the Gulf Coast recovery and rebuilding 

projects.

Transportation Portfolio. The Postal 

Service issued more than 5,000 transportation-related contract actions with a 

commitment value of approximately $851 

million in FY 2005. An OIG initiative in this 

area is focusing on potential fraud in highway contract route (HCR) contracts as 

well as other contracts for surface and air 

transportation assets. For example, one 

company failed to pass almost $1 million 

in fuel rebates to the Postal Service and 

cashed more than $170,000 in contract 

payments to which it was not entitled. The 

president of the company was indicted in 

April 2005, and the company itself was 

sold to another shipping company.

Mail Equipment Portfolio. The Postal 

Service issued more than 800 mail equipment contract actions with a commitment 

value of approximately $732 million in 

FY 2005. We monitor contractual activity involving mail sorting and processing 

equipment, address-recognition technology, and bioprotection. In FY 2005, our 

investigations were key factors in the 

debarment of eight companies and 14 

individuals, up from only two in FY 2004.

We also performed audits and reviews 

on Postal Service contracts. Contract 

reviews completed during the reporting 

period follow:

Contract-related audits. We issued 

11 contract-related audits during the 

reporting period. The audits evaluated 

cost proposals associated with the Universal Coding System, Automated Postal 

Center, Biohazard Detection System 

Dual Identifier, and Biohazard Detection 

System Consumable Replenishment. We 

also audited certified price adjustment 

claims, verified incurred costs, conducted 

a financial condition and capability review, 

and performed a limited scope review of a 

contractor’s purchasing system.

We considered most of the proposals acceptable for negotiating fair and 

reasonable rates; however, the claims 

were not considered acceptable as a 

basis for negotiation of a fair and reasonable settlement. We identified a total of 

$20 million as potential contract savings. 

Included in the $20 million was a review 

of an $84 million firm fixed-price proposal 

for the Universal Coding System. The 

audit disclosed more than $12 million 

in questioned costs and $988,651 in 

unsupported costs. The questioned costs 

consisted primarily of excessive proposed 

direct labor hours, unreasonable hedging 

costs and exchange rates, and indirect 

costs based on erroneously applied overhead, general, and administrative rates. 

Unsupported costs were primarily comprised of proposed warranty expenses 

that were based on the application of an 

arbitrary warranty rate.

Further, the audit results were qualified 

to the extent that additional costs may 

be questioned pending the contracting 

officer’s determination on the appropriateness of the continued use of a pricing 

agreement with the subcontractor for 

labor and travel costs.

Postal Automated Redirection

System’s Contract Incentives. We 

identified opportunities to improve 

management of the Postal Automated 

Redirection System’s (PARS) contract. 

Specifically, the PARS Phase 1 incentive 

pool structure allowed the contractor to 

earn all available performance incentives 

Hurricane Katrina swept into the Gulf Coast region causing an estimated 

$128 million in damages to the Postal Service’s infrastructure.
14 | Semiannual Report to Congress

without having met all key performance 

requirements.

Also, while not contractually obligated, 

Postal Service officials increased the contract value by more than $1.5 million and 

did not validate the PARS performance 

in accordance with contract provisions. 

Finally, we could not determine whether 

the adjustment for the contractor’s nonperformance was appropriate.

Postal Service management agreed with 

the report recommendations but did not 

agree with how these findings were presented. They believe performance testing 

throughout Phase 1 showed that the 

contractor exceeded PARS performance 

objectives. In addition, Postal Service 

management said the addition of $1.5 

million was to compensate the contractor for improved system performance, as 

measured by a cost model.

Contract Invoice Approval Procedures. Information Technology (IT) 

requested an OIG audit of the IT help 

desk contract. The results showed that 

the Postal Service needs to improve 

procedures for reviewing, certifying, and 

paying invoices. For example, Postal Service officials did not ensure that adequate 

data were captured and maintained to 

allow a comprehensive analysis of billed 

tickets. Lacking adequate data, the contracting officer’s representative certified 

invoices for payment without determining 

whether billed help desk tickets were payable in accordance with the contract.

The contract specifies that a contact to 

the help desk results in one ticket, yet the 

vendor often generated multiple tickets 

from one contact. As a result, we identified paid tickets that appeared to be billed 

outside of the contract terms.

Postal Service management reviewed 

the issue and has improved the process 

by establishing a report, which identifies 

each billable case. 

Revenue

A management challenge facing the 

Postal Service is increasing revenue while 

streamlining core services and providing greater value to its customers. We 

believe there are opportunities to increase 

revenue in the areas of establishing 

customized mail agreements, collecting 

package surcharges, and improving the 

management of vending equipment sales 

and service. We further believe the Postal 

Service could do more to ensure that all 

revenue is being collected, recorded, and 

reported accurately; and take appropriate 

steps to strengthen internal controls to 

minimize risks relating to financial transactions.

Customized Mail Agreements

To generate revenue, the Postal Service 

began using customer unique pricing 

techniques via its International Customized Mail (ICM) agreements in 1992. ICM 

agreements are contracts between the 

Postal Service and mailers for a period of 

one to two years. These agreements represent individually negotiated discounts 

with mailers within certain categories of 

outbound international mail in exchange 

for meeting prescribed annual minimum 

revenue or volume commitments.

In FY 2003, the Postal Service decided 

as a matter of public policy, to hold rates 

steady until FY 2006, realizing that as the 

costs of international products rose, the 

contribution levels for ICM agreements 

decreased. In response, Postal Service 

management made changes to the program that eliminated several international 

mail categories and reduced some ICM 

agreement terms.

During this reporting period, we issued 

a final report on ICM agreements stating that although the ICM program had 

made a positive contribution to the Postal 

Service, management controls could be 
April 1 – September 30, 2005 | 15

MANAGE

MENT CHALLENGES

further improved. We identified $905,438 

in additional revenue that Postal Service 

management could have collected by 

enforcing of guarantee clauses from mailers who did not meet their commitments. 

Postal Service management agreed with 

our recommendations and has initiatives planned or completed addressing 

the issues in the report, but they did not 

agree with our potential monetary benefits. Implementing our recommendations 

could help prevent the problem from 

recurring.

Collecting Package Surcharges

Each day, more than seven million Americans generate revenue for the Postal 

Service by visiting post offices, branches, 

and contract postal units to buy stamps, 

mail packages, and collect mail from 

their post office boxes. It is critical for the 

Postal Service to monitor retail operations 

to ensure that all revenue is being collected, recorded, and reported.

We initiated an audit to determine whether 

the Postal Service received the correct 

surcharge revenue for Priority Mail and 

Parcel Post Packages from retail sales 

during FY 2005, in the Philadelphia and 

Pittsburgh districts.

Our audit found neither district collected 

the correct revenue from surcharges on 

234 Priority Mail and Parcel Post packages during the period we reviewed. 

Although retail associates were trained to 

assess surcharges, the current training 

does not include hands-on demonstrations on how to properly measure 

packages. Further, retail associates 

infrequently handled packages requiring surcharges. As a result, the districts 

missed potential additional surcharge 

revenue of $24,600.

Resulting from our audit on parcel surcharges and discussions with Postal 

Service management, we benchmarked 

the Postal Service’s surcharge procedures with three private companies. Our 

joint efforts with the Postal Service identified options to ensure correct surcharge 

revenue is being received such as: (1) 

enhancing the Point of Service (POS) 

ONE system to prompt retail associates to enter package dimensions when 

assessing surcharges; and (2) revising the 

Postal Service Internet rate calculator to 

require the customer to enter the package 

dimensions to estimate the shipping cost.

POS ONE is an electronic system that 

records sales and payment transactions 

at retail facilities. In FY 2006, we plan to 

review POS ONE and other major revenue components of Postal Service retail 

operations.

Vending Equipment Sales 

and Service

We assessed the accuracy of the Vending Equipment Sales and Service (VESS) 

System data in the Atlanta District. VESS 

is an online database that offers real-time 

tracking of product sales, miscellaneous 

costs, and maintenance and service for 

vending machines. Postal Service officials 

use VESS information to ensure they 

Our audit found two districts that did not collect the correct revenue from surcharges 

on 234 Priority Mail and Parcel Post packages during the period we reviewed.
16 | Semiannual Report to Congress

reach revenue goals and keep work hour 

costs within specified guidelines.

We found that the Atlanta District could 

improve the accuracy of VESS data. Specifically, Self-Service Vending Program 

managers did not adequately manage 

VESS data, and did not ensure sales and 

service information were accurate and 

transferred timely to the Postal Service 

financial systems during FYs 2003 and 

2004. As a result, during that time period, 

Atlanta District VESS sales data, when 

compared to the Postal Service Form 

8130, Vending Equipment Sales and 

Service Daily Report, was understated by 

approximately $1.31 million.

Financial Investigations

We also conduct financial investigations. They cover a wide range of 

activity, including embezzlement, theft, 

misconduct, falsification of records, 

and conversion and misuse of Postal 

Service property. Financial investigations 

frequently involve employees and contractors.

One case during the reporting period 

involved a postmaster who allegedly 

embezzled $147,000 in Postal Service funds and is now facing criminal 

indictment. Another case involved a 

maintenance supervisor who may have 

submitted more than $200,000 in fraudulent work repair invoices. The supervisor 

was arrested by investigators and the 

matter is pending prosecution.

We assessed the accuracy of the Vending Equipment Sales and Service (VESS) System data in the 

Atlanta District. 
April 1 – September 30, 2005 | 17

MANAGE

MENT CHALLENGES

Human Capital

Maximizing human capital resources by 

maintaining an efficient work force is the 

Postal Service’s keystone to capitalizing 

on performance and productivity. Adding to that challenge is creating a flexible 

workforce as part of the Evolutionary 

Network Development (END), particularly 

when more than 80,000 jobs have been 

eliminated through attrition over the past 

four years. Further, the Postal Service’s 

ability to resolve workforce and workplace 

issues, including addressing hostile work 

environment complaints and controlling 

costs associated with the Office of Workers’ Compensation Programs (OWCP), 

are critical to its success.

We conduct reviews after we receive 

complaints of a hostile work environment. 

In each location reviewed for hostile 

work environment issues, we found that 

improvements to the environment would 

be beneficial.

Our reviews also found that labor relations have improved. This is evidenced 

by the reduction in grievances, filed and 

backlogged, between the Postal Service 

and the four major unions (the American 

Postal Workers Union, the National Association of Letter Carriers, the National 

Postal Mail Handlers Union, and the 

National Rural Letter Carriers’ Union). 

While the Postal Service experienced a 

significant increase in known costs related 

to labor-management issues for FY 2003, 

costs decreased more than five percent 

in FY 2004. This decline in costs is 

expected to continue due to the reduction 

in the total number of grievances backlogged and filed, and by settling them 

at the lowest possible level. In addition 

to potential cost savings, relationships 

among Postal Service management, 

employees, and unions can be expected 

to improve.

Resolving Workforce and 

Workplace Issues

During this reporting period, we completed seven audits on complaints of 

hostile work environments at Postal 

Service facilities. We found hostile work 

environments did not exist at these 

facilities as a whole, but some employees 

believed the management style of some 

supervisors at these locations was offensive and perceived their actions as hostile 

in nature. We also found that Postal 

Service management, in general, quickly 

responded to employee complaints. They 

took the steps necessary to improve the 

environment, including training, holding stand-up talks for employees, and 

reassigning supervisors who acted inappropriately.

We also reviewed employee complaints of 

nepotism, favoritism, and mismanagement 

by Postal Service officials at Puerto Rico 

facilities located in the Caribbean District 

under the New York Metro Area. The audit 

found these managers did not always 

follow Postal Service policies and procedures regarding personnel practices. 

Area and district management initiated 

or agreed to initiate corrective actions to 

address the 18 issues identified.

We also reviewed filed and backlogged 

grievances from FY 1999 through 2004, 

and found significant reductions over the 

last few years. The grievance-arbitration process generally consists of three 

steps to resolve grievances. The process 

includes a fourth step, available at the 

national level, but it is used only when 

a case of contract interpretation is at 

issue. The process also allows appeals of 

unresolved grievances to go to arbitration, 

where the Postal Service and the union 

select an arbitrator who makes a binding 

decision.
18 | Semiannual Report to Congress

The review showed that the Postal Service experienced an overall 21 percent 

decrease in the number of grievances 

the four major unions filed from FYs 

1999 through 2004; with a 15 percent 

decrease occurring from FYs 2003 to 

2004 alone. Even more significant was 

the overall 83 percent decrease in the 

number of backlogged grievances from 

FYs 1999 to 2004, and the 66 percent 

decrease just from FYs 2003 to 2004.

We attribute the reduction in grievances largely to several initiatives the 

Postal Service and its four major unions 

successfully implemented to improve 

labor-management relations and the 

grievance-arbitration process. One 

initiative is a new performance-based 

pay system to evaluate and hold Postal 

Service managers and supervisors 

accountable for improving the labormanagement climate. Another is the joint 

development of manuals to provide all 

parties with a better understanding of the 

national labor relations agreements.

We plan to review the quality of operations at the six Grievance-Arbitration 

Processing Centers to determine whether 

they are operating cost-effectively. These 

centers log grievance appeals in the 

Grievance-Arbitration Tracking System 

and schedule arbitration hearings for the 

four major unions.

Controlling Costs Related to 

Office of Workers’ 

Compensation Programs

A significant cost continuing to impact 

the Postal Service is workers’ compensation expenses for injured workers. The 

sheer size of the workforce, and nature of 

work performed, are the primary factors 

that made the Postal Service the largest 

participant in the Department of Labor’s 

(DOL) OWCP in chargeback year (CBY) 

2005. OWCP’s Chargeback System is 

the mechanism by which the costs of 

compensation for work-related injuries 

and death are billed annually to employing agencies. The chargeback billing 

period is from July 1 of one year to June 

30 of the following year.

In FY 2005 the Occupational Safety 

and Health Administration (OSHA) injury 

and illness frequency rate for the Postal 

Service is 5.74 per 100 employees. This 

is down 12 percent from last year and 

equates to 5,646 fewer OSHA injuries 

and illnesses. In the past four years, 

the Postal Service has reduced the total 

number of OSHA injuries and illnesses by 

29,110, a 41 percent reduction.

The Postal Service represented about 

46 percent of the total federal workforce 

cases that participated in the OWCP. The 

Postal Service is also the largest payee to 

OWCP, with approximately $818 million in 

payments for the same year. This amount 

is more than 35 percent of the $2.3 billion 

A significant cost continuing to impact the Postal Service is workers’ 

compensation expenses for injured workers.
April 1 – September 30, 2005 | 19

MANAGE

MENT CHALLENGES

in total federal workers’ compensation 

payments. 

While Postal Service workers’ compensation payments decreased slightly over the 

last two years, they rose by approximately 

30 percent over the last five years — from 

$638 million in 2000 to $818 million in 

2005. Postal Service officials attributed 

the decreases to their safety program, 

increased payment accuracy, and antifraud work.

At the same time, the administrative fees 

that OWCP charges the Postal Service 

increased 33 percent, from $33 million in 

2000 to $44 million in 2005. Administrative fees represent the amount OWCP 

assesses for managing workers’ compensation claims. The amount paid in 2005 

is approximately five percent of the Postal 

Service’s total medical and compensation 

costs.

Finally, the Postal Service records, as 

a liability, the present value of all future 

payments it expects to make to those 

employees receiving workers’ compensation. At the end of FY 2004, the estimated 

total liability for future workers’ compensation costs is $7.5 billion. The estimated 

total claim costs are based upon the 

severity of the injury, the age of the injured 

employee, the assumed life expectancy 

of the employee, the trend of experience 

with such an injury, and other factors.

We examined a contract between the 

Postal Service and a preferred provider 

organization supplying injury compensation medical bill review services. 

The review determined, and verified, 

$2.2 million in cost savings claimed and 

realized by the Postal Service, due to the 

contractor’s billing reviews from March 

2001 through July 2004.

According to the preferred provider and 

Postal Service officials, the savings did 

not reach the anticipated level of $30 million annually because many providers 

bill the OWCP directly rather than the 

preferred provider. This occurred because 

there was no provision in the Memorandum of Understanding with the OWCP 

that medical bills can only be forwarded 

to the preferred provider. Postal Service 

management is working with the DOL 

and the preferred provider to remedy this 

issue, and they anticipate that this will 

substantially increase the realized savings.

We also reviewed the Postal Service’s 

schedule award costs in the Pacific 

Area, and found that the Postal Service 

was overcharged about $291,200 and 

undercharged about $251,200 in CBY 

2004. Schedule award compensation 

is payable to employees based on the 

severity of the impairment for the partial 

loss or loss of use of a certain member, 

organ, or function of the body due to an 

OWCP-accepted injury. The over- and 

under-charges represent 26 percent of 

the Pacific Area employees who received 

schedule award payments.

In addition, the Postal Service reviewed 

records of more than $173.5 million in 

billings to OWCP from January 1, 2000, 

to September 30, 2005 using a database 

that we developed to help identify potential fraudulent billing schemes. Since its 

implementation in July 2003, the Postal 

Service discovered more than $3 million 

in duplicate medical billings, of which 

$408,000 was credited back to the Postal 

Service.

We have several more audits planned 

relating to OWCP issues including reviews 

of the workers’ compensation claims 

adjudication process, the administrative 

fee formula, and the causes of DOL duplicate payments.

We also investigate allegations of workers’ compensation claimant and provider 

fraud. During this reporting period, we 

initiated more than 2,006 claimant and 
20 | Semiannual Report to Congress

provider fraud investigations. These 

healthcare fraud investigations resulted in 

more than $20 million in cost avoidances 

and approximately 169 administrative personnel actions, including removals, letters 

of warning, and claims terminations.

In April 2005, we spearheaded a Federal 

Workers’ Compensation (FWC) Forum to 

reduce costs and combat fraud related 

to the Federal Employees Compensation 

Act (FECA) across the federal government. To date, 18 federal OIGs have 

agreed to participate. The participating 

agencies annually spend more than 

$2 billion dollars in OWCP benefits, which 

is 90 percent of all government OWCP 

costs. The FWC Forum has the following 

objectives:

Adopt best business practices to 

effectively manage and reduce workers’ compensation costs.

Identify measures that may substantially reduce these costs.

Form an alliance with other OIGs to 

address potential fraud, waste, and 

mismanagement within the FECA 

program.

Representatives of this forum will present 

investigative best practices at upcoming 

President’s Council for Integrity and Efficiency and Executive Council for Integrity 

and Efficiency meetings.

n

n

n

Preserve Integrity 

and Security

A significant management challenge facing the Postal Service is preserving the 

integrity and security of the nation’s mail 

system and safeguarding its more than 

700,000 employees, nearly 38,000 facilities, and about 212 billion pieces of mail 

in FY 2005. The integrity of processes 

and personnel is an essential element 

for safeguarding Postal Service products, customers, services, and assets. 

This includes maintaining the integrity of 

payment processes. It also includes the 

security and privacy of electronic information maintained within the Postal Service’s 

network infrastructure and voice systems. 

Ultimately, this integrity helps maintain a 

stable and sound Postal Service.

IMPAC and Voyager Fleet Cards

In addition to acquiring goods and services through contracts, the Postal 

Service uses International Merchant Purchase Authorization Cards (IMPAC) and 

Voyager Fleet Cards. The IMPAC purchase card program processed 

transactions totaling approximately 

$405 million in FY 2005 and earned the 

Postal Service more than $2.8 million in 

refunds during 2005. The Voyager Fleet 

Card Program pays for the fuel, oil, repair, 

The Voyager Fleet Card Program pays for the fuel, oil, repair, 

maintenance, and washing of more than 220,000 Postal Service vehicles.
April 1 – September 30, 2005 | 21

MANAGE

MENT CHALLENGES

maintenance, and washing of more than 

220,000 Postal Service vehicles. It also 

pays for fuel-only purchases for more 

than 26,000 HCR contractor vehicles. In 

FY 2005, this program processed more 

than $332 million in purchases, with documented savings and cost avoidance to 

the Postal Service in excess of more than 

$35 million. 

In a Dallas area investigation, special 

agents identified and arrested several 

civilians and Postal Service employees 

allegedly using stolen Voyager accounts 

and personal identification numbers (PIN) 

to purchase fuel in exchange for cash. In 

another incident in New York, our investigators identified a gas station manager 

who processed more than $436,800 in 

fraudulent Voyager transactions. This 

manager admitted stealing Voyager 

account and PIN information to process 

fraudulent fuel purchases. He was eventually prosecuted in federal court and 

ordered to pay back the entire amount to 

the Postal Service as restitution.

Oversight of Investigative 

Activities

Under the Inspector General Act of 1978, 

as amended, we are required to provide 

oversight of the USPIS. To accomplish 

this statutory requirement, we conduct 

program audits and reviews of the USPIS. 

This work provides an independent 

assessment of USPIS programs, including related investigative and administrative 

processes. The team performing these 

reviews is supplemented by subject matter experts with extensive investigative 

experience. Our audits and reviews of the 

USPIS have resulted in recommendations 

to strengthen internal and management 

controls, including the quality, standards, 

and management oversight of investigative and related administrative processes.

Using a facility risk-rating model, the 

USPIS implemented several initiatives 

to identify potential vulnerabilities of 

Postal Service facilities through security 

reviews and observation of mail processing conditions. The OIG, in coordination 

with the USPIS, plans to assess security 

programs and report on the effectiveness 

of security in place for facility, employees, customers, and mail. Additionally, 

together we will continue reviewing new 

initiatives for detection and protection 

systems and the development, implementation, and coordination of emergency 

preparedness plans. We are reviewing the 

Postal Service’s and USPIS’s emergency 

management policies and training efforts 

to ensure that they are adequate and follow Department of Homeland Security 

and executive guidance.

We will continue reviewing USPIS 

programs and operations to ensure 

investigative and related administrative 

processes efficiently and effectively support their mission.

The OIG provides an independent assessment of USPIS programs, 

including related investigative and administrative processes. 
22 | Semiannual Report to Congress

Vulnerability of International Mail 

Transportation

Postal Service officials continue to be 

concerned with transportation security 

associated with Extraterritorial Offices of 

Exchange (ETOEs) operations. ETOEs are 

commercial businesses affiliated with foreign postal administrations that compete 

in the international shipping and delivery 

market with the Postal Service and commercial shippers not affiliated with foreign 

posts.

ETOEs operate in the United States, as 

permitted by international agreements 

intended to foster cooperation in the 

international mail market, and focus their 

business on high-dollar bulk shipments 

from large customers in major cities.

Postal Service officials believe ETOEs 

may engage in improper and unauthorized practices, adversely impacting 

legitimate competition and creating a 

security risk. Prior USPIS reviews found 

improper and unauthorized Postal Service equipment use by U.S.-based ETOEs 

to dispatch international shipments. The 

USPIS concluded that unauthorized use 

of Postal Service equipment had significant financial and security implications.

Due to these concerns, the Postmaster 

General asked us to examine ETOE operations. In response, we conducted an 

audit to determine whether practices or 

procedures used by ETOEs were unfair, 

improper, or unauthorized. Our audit was 

narrowly focused and neither examined 

the broader international competitiveness issues that gave rise to ETOEs nor 

sought to evaluate whether they should 

be allowed to continue to operate in the 

United States. However, we did conclude 

that some ETOE practices are improper 

or unauthorized and that ETOEs have a 

competitive advantage over the Postal 

Service.

During the audit, our staff joined a USPIS 

task force to interdict improper use of 

Postal Service equipment. The task force 

identified instances of unauthorized use 

of Postal Service equipment by ETOEs at 

international airports in New York, Newark, Chicago, Miami, Los Angeles, and 

San Francisco.

The task force concluded that ETOE use 

of Postal Service mail transport equipment disguises commercial shipments 

as mail and creates a significant security 

risk. The task force further found that 

freight shipments, contained in equipment bearing universally identifiable 

Postal Service logos or markings, are 

easily mistaken for mail and not afforded 

the same security screening as other 

freight. In addition, officials explained that 

the misidentification of ETOE freight as 

U.S. Mail could lead to increased airport 

mail security procedures and increased 

cost to the Postal Service.

We pointed out that to address these 

concerns, the Postal Service would need 

to continue working with the Departments of State, Justice, and Homeland 

Security; the Universal Postal Union; and 

foreign nations to properly regulate ETOE 

operations and ensure the security of 

international mail.

Security Vulnerability 

Assessments

Challenged with providing products 

and services to better meet customer 

needs, the Postal Service introduced 

new technologies. These technologies 

make customer access to services more 

convenient while balancing the need for 

the security and privacy of electronic 

information maintained within its network 

infrastructure. Last year, the Nielsen/

NetRatings named usps.com the number 

one brand among all U.S. government 
April 1 – September 30, 2005 | 23

MANAGE

MENT CHALLENGES

websites with more than 21 million transactions per month.

The Postal Service has an aggressive 

program to identify security issues using 

vulnerability assessment techniques. 

We support this initiative by identifying 

security weaknesses that could allow 

access to critical information that should 

not be available to casual users. Using 

state-of-the-art diagnostic software tools, 

we perform security assessments of the 

firewall, server, and database technologies that drive and protect critical Postal 

Service applications. These assessments 

provide the Postal Service with a comprehensive picture of the environment 

tested, as well as the technical information needed to enhance the high level of 

security Postal Service customers expect.

During this reporting period, we performed technical assessments on 

technologies that support the Web Bank 

Secrecy Act and Property and Equipment 

Accounting System financial applications, 

and we reviewed selected kiosks and 

servers that support the newly deployed 

Automated Postal Centers (APCs).

As technology moves forward and new 

applications are developed, the Postal 

Service also remains challenged to 

secure more than 245 legacy applications 

deployed prior to January 2003. We will 

play a major role in assessing this effort in 

FY 2006.

Vulnerability Issues – Security 

Controls and Voice Systems

The Postal Service is challenged with 

ensuring its voice systems have adequate 

security, minimize toll fraud, and provide 

continuous availability to users. In its 

first required Department of Homeland 

Security plan submission for the shipping 

sector, the Postal Service reported that 

the availability of voice systems was critical to its core mission. The Postal Service 

Information Security Services routinely 

performs tests to identify potential vulnerabilities.

In support of the Postal Service’s initiatives, we conduct assessments to ensure 

voice systems provide a level of security 

commensurate with the criticality of the 

system and the information it contains. 

We conducted a pilot audit of PBX 

security and telephone bill monitoring in 

the Louisiana District. In this review, we 

found the Postal Service does a good job 

detecting toll fraud on its PBX system, 

and noted areas that could be improved. 

The Postal Service was responsive to 

these findings. It implemented voice 

security standards and replaced and 

upgraded their administrative tools 

systems. They also outlined a plan to 

implement structured timelines and safety 

briefings for employees with access to 

information security computer rooms.

Providing Reliable and 

Transparent Information

The Postal Service requires accurate 

information to make decisions that affect 

day-to-day operations, to meet congressional reporting requirements, and to 

Last year, the Nielsen/NetRatings named usps.com the number one brand among all 

U.S. government websites with more than 21 million transactions per month.
24 | Semiannual Report to Congress

conduct long-term planning. To be effective, the information must also be timely, 

reliable, and available to those who need 

it, yet protected from those who do not.

We performed financial audits at Postal 

Service installations and accounting service centers. We also audited information 

systems of general and application controls in FY 2005, and plan similar audits 

in FY 2006. These audits provide insight 

into the reliability of, and security over, 

critical information systems.

The Postal Service posts quarterly 

reports on its financial condition and 

results on its public website, usps.com, 

as part of its strategy to increase reporting transparency. Implementation of the 

new general ledger in FY 2004, and the 

single repository of corporate data in 

the Enterprise Data Warehouse (EDW), 

further enhance the transparency of the 

Postal Service’s financial reporting by 

enabling monthly reporting capabilities.

Serving an average of 4,300 users and 

generating more than 100,000 reports 

per week, the EDW collects approximately 45,000 data files every month 

from 70 source systems. Design capabilities allow for data manipulation, deeper 

data analysis, and reporting across 

functional lines that can lead to reduced 

costs, additional revenue, and improved 

business practices.

Strategic Direction

A significant management challenge 

facing the Postal Service is balancing its 

public service obligation with the need to 

remain commercially viable. One of the 

tools the Postal Service used to meet this 

challenge was its April 2002 Transformation Plan. In September 2005, the Postal 

Service issued its Strategic Transformation Plan for FY 2006-2010 to build on 

the earlier plan and continue to meet 

the challenge of remaining commercially 

viable. As in the earlier plan, the Postal 

Service continues to find innovative solutions for customers to conduct business 

with the Postal Service.

Retail Strategy

The Automated Postal Center (APC) was 

one of several breakthroughs in expanding access to Postal Service products 

and services for customers that visit post 

offices each day. APCs are a state-of-theart, smart vending platforms providing 

convenient and reliable access to a 

broader range of services and information than traditional vending machines. 

These kiosks can provide customers with 

access to products and services 

24 hours-a-day, 7 days-a-week.

The 2002 Transformation Plan retail strategies were to:

Move simple transactions away from 

the post office counter;

Create new, low-cost retail alternatives;

Optimize the retail network; and

Develop new retail services that 

increase customer value and Postal 

Service revenue.

The APCs directly address the first two 

strategies and play a role in making the 

latter two possible.

n

n

n

n
April 1 – September 30, 2005 | 25

Since the deployment of the first 2,500 

APCs in 2004, the Postal Service generated revenue of more than $311 million as 

of September 30, 2005. Revenue has varied greatly depending on the area of the 

country, as shown in the following chart.

APC revenue performance, so far, 

achieved a major objective of the 2002 

Transformation Plan — to meet the Postal 

Service’s ever-increasing need for convenient access without relying exclusively on 

traditional, and costly, “brick and mortar” 

solutions. In March 2005, Postal Service 

officials identified potential facilities, 

nationwide, that could receive APCs during future deployments.

We reviewed the FY 2004 deployment 

strategy for APCs in the Central Florida 

District and found that Postal Service 

officials adequately placed APCs in these 

facilities. This assessment was based on 

the walk-in revenue associated with the 

self-service platform products; wait time 

in line; and facility type, size, and location. 

The 65 district facilities that received 67 

APCs increased revenue and decreased 

wait time in line.

In August 2005, Postal Service management considered redeploying up to 800 

of the original 2,500 APCs because they 

were underperforming compared to the 

monthly APC revenue goal. The Postal 

Service is evaluating the redeployment 

process while planning to redeploy the 

bottom 100 of the 800 underperforming 

APCs in November 2005. The underperforming machines will be reevaluated in 

January 2006 to determine redeployment 

of additional APCs. 

We are currently assessing whether the 

Postal Service is adequately redeploying 

the underperforming APCs (deployed in 

FY 2004) and properly planning for future 

placement of 3,000 new APCs at an estimated cost of $30 million.

MANAGE

MENT CHALLENGES

APCs can provide customers with access to products and 

services 24 hours-a-day, 7 days-a-week.

APC REVENUE

AS OF SEPTEMBER 30, 2005
26 | Semiannual Report to Congress

This section outlines concepts for improving Postal Service operations. The first 

four concepts are presented here for 

the first time, specifically: lobby of the 

future, expanding wireless service, selling 

advertising space, and Medicare Part D 

rebates. The last two concepts were presented in the March 31, 2005, semiannual 

report and evaluated during this reporting 

period. These concepts are commercialization of employee benefits programs 

and letter carrier models. Each concept 

is presented here for comment and not 

as a formal recommendation for action. 

We invite public comments to these ideas 

via the following website: http://www.uspsoig.gov/semiannual.aspx.

Lobby of the Future

The Postal Service looks to foster growth 

through customer value by providing 

convenient and efficient access to postal 

services through innovative and costeffective means. Its focus in this area 

involves managing expenses and improving customer service, in part through the 

use of advanced technology. Technology 

solutions introduced to date include vending machines and APC kiosks that move 

transactions away from the retail counter 

and allow customers convenient access 

to Postal Service products and services 

24 hours-a-day, 7 days-a-week in most 

locations, without the necessity of 24-

hour staffing. Customer wait time in line 

is reduced by diverting transactions such 

as mailing parcels up to 70 pounds, purchasing postage, looking up ZIP Codes, 

and tracking Delivery Confirmation from 

retail clerks to self-service operation. 

Building on this initial success, the Postal 

Service is considering the Next Generation Kiosk (NGK) to leverage the success 

of the APC. The NGK will sell stamps 

printed on demand, allow payment by 

cash, and enhance revenue-reporting 

capabilities for management. We believe 

the Postal Service could look beyond 

the NGK to a lobby of the future. This 

could consist of a lobby kiosk (LK) that 

can perform all post office transactions 

— purchasing stamps, mailing parcels, 

renting post office boxes, initiating retail 

sales transactions — 24 hours-a-day, 

7 days-a-week with payment by debit, 

credit, cash cards, and cash.

In a broader vein, the Postal Service 

could use the LK as an onsite portal to 

provide citizens increased access to government services, while simultaneously 

collecting additional revenue. Government 

agencies would pay the Postal Service a 

fee to have the LK provide access, similar 

to the reimbursement it already receives 

for passport processing from the Department of State. The LK could be used, for 

example, to access the services of the 

Department of Veterans Affairs or the 

Social Security Administration, file income 

taxes electronically, order Government 

Printing Office publications, and submit 

state unemployment applications.

IDEAS WORTH EXPLORING

The Postal Service looks to foster growth through customer value by providing convenient and efficient 

access to postal services through innovative and cost-effective means. 
April 1 – September 30, 2005 | 27

Finally, emerging wireless broadband 

technologies could enable the Postal 

Service to extend the lobby of the future 

to offsite locations while collecting fees 

from governmental agencies for extending the reach of their “field offices.” This 

would require placing additional wireless 

transmission towers on Postal Service 

premises. The Postal Service currently 

receives a small revenue stream from 

cellular phone companies for making a 

limited number of premises available for 

cellular tower placement.

In a lobby of the future, customers could:

Use the LK to purchase a book of 

stamps, mail a parcel, or purchase 

postage on demand (one stamp at a 

time).

Use the LK to complete all paperwork 

and payment needed to rent a post 

office box. An on-site sales and service 

associate would help the customer 

gain initial access to the post office 

box during regular business hours.

Purchase retail sales merchandise 

through an online shopping catalog. A 

sales and service associate could provide the merchandise to the purchaser 

at that location or mail it to them.

Customers in the lobby of the future might 

require face-to-face customer support 

when using the LK. In those instances, 

the Postal Service could provide faceto-face customer support via a two-way 

audio/video link. Employees stationed at 

remote, centralized service centers, or 

even working from home could provide 

customer support. This would offer a 

number of advantages for the Postal Service, including:

More effective communication to the 

customer support staff nationwide. 

Management could provide the same 

communication (such as an all-hands 

n

n

n

n

n

meeting to discuss new procedures or 

initiatives) to all customer support staff 

simultaneously, ensuring delivery of a 

consistent, clear message.

Meaningful employment for Postal Service employees who are injured and on 

extended light-duty service, after they 

receive LK customer service training.

These additional portal opportunities are 

an expansion of existing Postal Service 

policy to cooperate with federal agencies by providing facilities and non-postal 

services if the overall costs to government 

are reduced and there is no interference 

with postal operations. Additionally, the 

Postal Service can and does charge 

compensatory fees for services performed on behalf of other agencies when 

there is a significant or ongoing cost to 

the Postal Service.

We recognize that technology will not 

address all Postal Service customer 

needs and that on-site sales and service 

associates will still be required. However, 

due to the potential reduction of the 

number of sales and service associates, 

change in their work hours, and the use 

n

IDEAS WORTH

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XPLORING

Employees stationed at remote, centralized service centers, or even working from home could 

provide customer support.
28 | Semiannual Report to Congress

of customer support personnel for the 

LK, management would need to resolve 

the resulting labor relations issues.

Along with these issues, “brick and 

mortar” issues would also need to be 

addressed, given the probable redesign 

of existing and future post office locations 

to ensure maximum utilization of space 

and security. Finally, not all existing post 

office locations may be able to benefit 

from the LK pending an evaluation of 

sales volume and/or location.

Despite these obstacles, the LK could 

allow the Postal Service to make significant inroads in fostering growth by 

providing the customer convenient and 

efficient access to all postal services as 

the banking industry did in 1969 when 

the first automated teller machine (ATM) 

was installed in New York.

Today there are more than 384,000 ATMs 

installed in the United States. The Postal 

Service is significantly beyond the banking industry’s initial ATM step, yet it is not 

close to where the banking industry is in 

2005. As ATMs continue to evolve to provide new services unforeseen in 1969, the 

Postal Service could make similar evolutionary steps via the lobby of the future.

Expanding

Wireless Service

Wireless data communications are poised 

for a dramatic increase in capability that 

will transform how a mobile citizenry communicates. Presently, Wireless Fidelity 

(Wi-Fi) data communications are available 

for bandwidth-intensive users, although in 

relatively limited locations. Public access 

Wi-Fi networks, known as hotspots, are 

springing up in airports, coffee shops, 

bookstores, and other gathering spots to 

provide Internet connectivity to today’s 

mobile consumers. Wi-Fi hotspots allow 

connections within about a 50-foot radius 

of the access point, at speeds up to 54 

megabits per second.

Wi-Fi promises to become more pervasive and is beginning to support new 

types of cutting-edge services. In the 

future, Wi-Fi will be built into more types 

of devices, enabling new networking 

opportunities in the home and office. For 

example, Voice Over IP phone handsets, 

which greatly reduce or eliminate longdistance phone charges by using the 

Internet as a carrier, are already available.

Wi-Fi standards are evolving rapidly 

and, within the next two to three years, 

will offer a greater range of high-speed 

transmissions, depending upon the 

technology used. Transmission ranges 

will continue to increase, making it easier 

to connect to the local hotspot. Another 

long-distance technology being tested, 

known as WiMax, promises to deliver 

even greater reach than Wi-Fi, but will 

require outdoor transmission towers.

One complaint among current hotspot 

users is the inability to roam across many 

popular networks, requiring them to pay 

for day passes in areas that their monthly 

plan does not cover. To alleviate this, hotspot operators are aggressively adding 

new locations, which may provide revenue opportunities for the Postal Service.

Hotspot aggregators offer revenuesharing plans for those who make their 

premises available for Internet connectivity. The Postal Service could consider 

selling this hotspot service to grow 

revenue and assess whether it makes 

business sense to offer customers an 

Internet portal for additional government 

services.
April 1 – September 30, 2005 | 29

IDEAS WORTH

E

XPLORING

Selling

Advertising Space

The Postal Service could generate 

revenue by selling advertising space 

on its infrastructure as well as on its 

website, usps.com. Private companies 

and public municipalities already do this. 

Municipalities typically contract with a 

firm that handles the operational aspects 

of the project for a share of the revenue. 

Advertisements appear on city buses, 

bus shelters, and private trucks; and businesses set up billboards on their property. 

Given the Postal Service’s presence in 

every neighborhood in America, there 

are many possibilities. Delivery vehicles 

could carry ads for firms that ship using 

the Postal Service. Post offices could display flyers from local businesses. Postal 

Service facilities near major traffic arteries 

may have space for billboards.

This idea is not new. In 2000, businesses 

expressed a desire to advertise in the 

Postal Service’s nationwide employee 

publication, Postal Life, sent to all employees at their home addresses. Advertising 

revenue would have covered the cost 

of producing the 4-color, 32-page publication. However, the publication was 

discontinued before the proposed advertising policy could be tested.

In 2001, the Postal Service launched the 

Postal Ad Network to offer advertising 

space on delivery vehicles, collection 

boxes, Priority Mail and Express Mail 

packaging, stamp-booklet covers, 

websites, and within post office lobbies. 

Companies such as AOL Time-Warner, 

Kmart, and Pitney Bowes participated in 

the network or in earlier trials.

Although the Postal Ad Network raised 

less revenue than hoped and Postal Life

was discontinued, we believe the concept 

of selling advertising space deserves 

another look. The potential exists to raise 

revenue with little additional cost.

The Postal Service could analyze its earlier ventures for any lessons that would 

help it decide whether to try again. When 

making its decision, the Postal Service 

may wish to consider costs that may be 

difficult to measure, such as a possible 

loss of the Postal Service brand.

Medicare Part D 

Rebates

Eligible employees who retire from the 

Postal Service can continue participating in the Federal Employees Health 

Benefits (FEHB) program and the Postal 

Service is responsible for a portion of the 

premiums. FEHB premium costs have 

risen rapidly in recent years, due in part 

to an increase in the cost of prescription 

drugs. In 2004, Postal Service payments The Postal Service could generate revenue by selling advertising space on 

its infrastructure as well as on its website: usps.com. 
30 | Semiannual Report to Congress

for retiree and survivor health benefits 

totaled $1.3 billion.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 

(MMA) established a new voluntary prescription drug program (Part D). Effective 

January 1, 2006, Medicare participants 

will be able to purchase prescription drug 

coverage for an additional premium. To 

encourage employers to keep providing 

prescription drug coverage for retirees, 

MMA also includes a rebate provision. 

Qualified retiree plans can receive a 

rebate for each Medicare participant who 

chooses not to enroll in Part D. For 2006, 

the rebate equals 28 percent of a retiree’s 

prescription drug costs greater than $250 

and not greater than $5,000. The Centers 

for Medicare & Medicaid Services have 

estimated the rebate will average $668 

per covered retiree in 2006.

Government plans that meet the requirements, including FEHB plans, are eligible 

to receive the rebate, but the Office of 

Personnel Management has announced 

that the federal government will not 

request it. This decision makes sense for 

most federal agencies as taxpayers fund 

the prescription drug coverage through 

either Medicare or the FEHB program. 

However, unlike other federal agencies, 

the Postal Service provides the governmental contribution for its retirees’ health 

plans, and that contribution is funded by 

postal ratepayers.

Postal Service ratepayers may be entitled 

to the same relief available to privatesector companies. The Postal Service 

has estimated that, over time, the rebate 

could reduce its total future annuitant 

health benefit obligations by more than 

$6 billion. Moreover, taking advantage of 

the rebate provision would not require any 

changes to existing health coverage for 

Postal Service retirees or their survivors. 

In October, the Postal Service began the 

application process. We support these 

efforts.

Commercialization

of Employee Benefits

Programs

We evaluated the Postal Service’s participation in the DOL’s OWCP, and focused 

on whether the Postal Service could 

replace its current OWCP program with a 

less costly one.

On the positive side, savings would most 

likely occur if the Postal Service had its 

own workers’ compensation program. 

These savings would be in the areas of 

continuation of pay elimination and a 

three-day waiting period, reduced OWCP 

administrative fees and Postal Service 

third-party administrators, physician 

selection, buyout options, mandatory 

retirements, compensation limits, dependency status, and accountability controls.

Negative issues include potential resistance by the Postal Service’s four major 

employee unions, if employee compensation benefits are reduced, and the need 

for legislative action to separate the Postal 

Service from the existing OWCP.

Letter Carrier Models

City and rural carriers’ compensation systems are collectively bargained between 

the Postal Service and their associated 

unions. The Postal Service contracts with 

private individuals or firms for box delivery 

highway contract routes (HCR).

We examined issues pertaining to the 

city and rural carrier models. City carriers’ workweek is 40 hours per week, 

eight hours per day. Overtime is paid in 

the event city carriers work beyond eight 

hours in a day and 40 hours in a week, 

at 150 percent of the carrier’s regular rate 
April 1 – September 30, 2005 | 31

IDEAS WORTH

E

XPLORING

and at 200 percent beyond 10 hours on 

their scheduled work day or beyond 8 

hours on their non-scheduled work day.

Evaluated compensation is the basis for 

compensating rural carriers. This compensation is based on a route review that 

includes mail counts, route miles, evaluated time as determined by the office, 

and the route standard time. Evaluated 

compensation is generally based on rural 

carriers assigned to evaluated routes 

totaling 35 hours or more.

On evaluated routes, there is an incentive 

to complete the routes more efficiently; 

hourly routes do not have incentives to be 

efficient. Because city letter carriers are 

compensated hourly, there is little incentive for them to deliver the mail quickly; 

in fact, this compensation method could 

encourage slower delivery because of 

overtime compensation. 

The Postal Service has two methods at 

its disposal to achieve this lower cost 

— convert some existing city routes to 

rural routes or establish new growth as 

rural routes.

Conversion from city to rural routes 

presents the Postal Service with a challenging union and labor relations issue. 

Specifically, all changes to routes must be 

in accordance with applicable provisions 

of the city and rural letter carrier national 

labor agreements. Currently, the Postal 

Service has about 200 grievances relating 

to the conversion of deliveries from city 

service to rural delivery service.

Arbitration has generally been favorable to 

the unions. However, the obstacles that 

exist in converting city to rural routes do 

not exist for new growth delivery service. 

The Postal Service estimates an increase 

of 1.89 million delivery points in FY 2005. 

Establishing rural routes in new growth 

areas, to the maximum extent possible, 

would provide the best opportunity for 

reducing delivery costs.

City and rural carriers’ compensation systems are collectively bargained between the Postal Service and their associated unions. 
32 | Semiannual Report to Congress

U.s. postal service 

Office Of Inspector General 

Organizational Chart

As of September 30, 2005

Abbreviations

AIG Assistant Inspector General

CAATS Computer Assisted Assessment Techniques

CIO Chief Information Officer

FOIA Freedom of Information Act

IT Information Technology

HQ Headquarters

Inspector General

Deputy 

Inspector General

AIG 

Investigations

AIG

Audit

CAATS

Office of CIO

Application 

Development

IT Operations

Consolidated 

Security

Client Support/

Telecom

Deputy General 

Counsel

Office of 

General Counsel

Congressional, 

FOIA & Hotline

Legal Services

AIG

Mission Support

Director 

Mission Support

Human 

Resources

Administrative 

Services

Performance

Investments

Professional 

Development

Deputy AIG 

Headquarters

Investigative 

Operations

Special Inquiries

Strategic 

Enforcement

Deputy AIG 

Investigations East

Computer 

Crimes Unit

Boston Field Office

New York 

Field Office

Philadelphia 

Field Office

Washington

Field Office

Deputy AIG 

Investigations South

Atlanta

Field Office

Miami

Field Office

Dallas 

Field Office

Houston 

Field Office

Internal Affairs

Deputy AIG 

Investigations West

Chicago 

Field Office

Denver 

Field Office

San Francisco 

Field Office

St. Louis 

Field Office

Los Angeles 

Field Office

Audit Reporting

Deputy AIG 

Financial Operations

Information 

Systems

Field Financial West

Field Financial 

Central

Field Financial East

Financial 

Statements

Deputy AIG 

Core Operations

Evolutionary 

Network 

Development

Engineering

Transportation

Capital Investments

Network 

Processing

Delivery & Retail 

Deputy AIG 

HQ Operations

Facilities

Human Capital

Planning, Budgeting 

& Accountability

Marketing

Supply 

Management

Oversight of 

Investigative 

Activities
April 1 – September 30, 2005 | 33

Covington,KY

Charleston,WV

Field Offices

Field Offices (Investigations Only)

Audit & Investigations Offices

Investigations Only

Boston, MA

Springfield, MA

New Haven, CT

New York, NY

Philadelphia, PA

Washington, DC

Raleigh, NC

Greensboro, NC

New Orleans, LA Miami, FL

Atlanta, GA

Memphis,TN

Dallas,TX

Houston, TX

Seattle, WA

Chicago, IL

Detroit, MI

Pittsburgh, PA

Albany, NY

San Francisco, CA

San Diego, CA

Los Angeles, CA

Denver, CO

Phoenix, AZ

Kansas City,KS

St.Louis,MO

Cleveland, OH

Indianapolis,IN

Puerto Rico

Las Vegas, NV

Salt Lake City, UT

Birmingham, AL

Providence, RI

Baltimore, MD

Portland, ME

Jacksonville, FL

Columbia, SC

Des Moines, IA

Albuquerque,NM

Charleston, SC

Little Rock, AR

U.s. postal service 

Office Of Inspector General 

Office Locations

The OIG currently has more than 800 employees located 

in 13 field offices as well as other locations nationwide. 

April 1 – September 30, 2005 | 33
34 | Semiannual Report to Congress

Appendices

Appendix A

REPORTS ISSUED TO POSTAL SERVICE MANAGEMENT

For the period April 1 – September 30, 2005

OIG audit teams conduct performance and financial audits, evaluations, and other reviews to address the business of 

the Postal Service. Each team issues audit reports (AR) or management advisory reports (MA) in accordance with the 

identified needs of the project.

Summary

Following is a summary by principal area of reports issued to Postal Service management. The following pages list each 

issued report.

The Inspector General Act of 1978 requires 

semiannual reports on the immediately preceding six-month periods ending March 31 

and September 30. These reports are sent to 

Congress and made available to the public.

This report summarizes OIG activities and 

illustrates significant problems, abuses and 

deficiencies, along with recommendations 

and corrective actions related to the administration of U.S. Postal Service programs and 

operations during the reporting period. 

During the last six months, the Postal Service 

agreed with OIG recommendations that identified potential monetary benefits of more than 

$216 million.

The appendices on the following pages fulfill 

the requirements of the Act.

Definitions

Questioned Costs

A cost that is unnecessary, 

unreasonable, unsupported, 

or an alleged violation of law, 

regulation, contract, etc.

Unsupported Costs

A cost that is not supported 

by adequate documentation. 

Unsupported costs are included 

in Questioned Costs.

Funds Put to 

Better Use

Funds that could be used more 

efficiently by implementing 

recommended actions.

Potential Additional 

Revenue

Amounts from revenue 

generating functions such as 

retail sales, rent, leases, or 

fees that were underpaid or not 

realized. In addition, this category 

includes increased revenue from 

existing functions and generating 

revenue from new sources.

Potential Additional 

Expense

An expense that perhaps should 

not have been incurred.

Unrecoverable Costs

A cost that perhaps should not 

have been incurred and is not 

recoverable. 

Management 

Challenge

Number 

of Reports

Issued

Questioned 

Costs1

Unsupported 

Costs

Recommended

Funds Put to 

Better Use

Potential 

Additional 

Revenue

Potential 

Additional 

Expense

Unrecoverable 

Costs

Cost Control 165 $58,125,487 $994,664 $46,770,103 $989,805 — $9,137,875

Revenue 8 — — $98,128,848 $930,038 — —

Human Capital 9 1,295 — $544 — $22,608 $64,064

Preserve 

Integrity and 

Security

22 $103,330 — $1,775,386 — — —

Strategic 

Direction

1 — — — — — —

TOTAL 205 $58,230,112 $994,664 $146,674,881 $1,919,843 $22,608 $9,201,939

1 

Total includes unsupported costs of $994,664.
April 1 – September 30, 2005 | 35

appen

dix

A

Reports With Quantifiable Potential

Monetary Benefits

Report Title

Total

Questioned 

Costs

Unsupported 

Costs

Recommended

Funds Put to 

Better Use

Potential 

Additional 

Revenue

Potential 

Additional 

Expense

Unrecoverable 

Costs

COST CONTROL

DELIVERY AND RETAIL

City Letter Carrier Operations – Chicago District 

DR-AR-05-019; 9/29/2005 — — — — — $2,020,200

City Letter Carrier Operations – San Diego District 

DR-AR-05-014; 8/8/2005 — — — — — $1,423,935

City Letter Carrier Operations – Santa Ana District 

DR-AR-05-013; 8/8/2005 — — — — — $2,127,852

Delivery Vehicle Utilization – General Services 

Administration Leased Vehicles 

DR-AR-05-018; 9/29/2005 — — $5,374,077 — — —

ENGINEERING

Flats Identification Code Sort for Automated Flat 

Sorting Machine 100s 

DA-AR-05-001; 9/30/2005 $29,474,775 — $7,711,005 — — $3,551,291

FISCAL YEAR 2005 FINANCIAL INSTALLATION AUDITs

Atlanta Business Mail Entry Unit – Atlanta, GA 

FF-AR-05-166; 6/23/2005 — — — $2,200 — —

Beverly Business Mail Entry Unit – Beverly, MA 

FF-AR-05-187; 7/20/2005 — — — $2,298 — —

Bridgman Post Office – Bridgman, MI

FF-AR-05-160; 6/27/2005 — — — $2,430 — —

Cardiss Collins Postal Store – Chicago, IL

FF-AR-05-228; 9/23/2005 $70,641 — — $267,637 — —

Centereach Main Post Office – Centereach, NY 

FF-AR-05-163; 7/20/2005 — — — $775 — —

Champlain Business Mail Entry Unit – Champlain, NY 

FF-AR-05-224; 9/27/2005 — — — $7,278 — —

Colleyville Business Mail Entry Unit, Colleyville, TX 

FF-AR-05-134; 5/17/2005 — — — $1,444 — —

Dallas Business Mail Entry Unit – Dallas, TX 

FF-AR-05-167; 6/30/2005 — — — $59,501 — —

Dallas Main Post Office – Dallas, TX 

FF-AR-05-219; 9/13/2005 $44,548 — — $2,706 — —

Daytona Beach Business Mail Entry Unit – 

Daytona Beach, FL

FF-AR-05-140; 5/23/2005 — — — $1,838 — —

Enfield Business Mail Entry Unit – Enfield, CT

FF-AR-05-225; 9/20/2005 $8,832 — — $928 — —

Eugene Business Mail Entry Unit – Eugene, OR

FF-AR-05-155; 6/22/2005 — — — $2,197 — —

Fair Oaks Business Mail Entry Unit – Fair Oaks, CA 

FF-AR-05-206; 8/15/2005 — — — $624 — —

Gahanna Finance Station – Gahanna, OH 

FF-AR-05-198; 8/17/2005 — — — $24,552 — —
36 | Semiannual Report to Congress

Reports With Quantifiable Potential

Monetary Benefits

Report Title

Total

Questioned 

Costs

Unsupported 

Costs

Recommended

Funds Put to 

Better Use

Potential 

Additional 

Revenue

Potential 

Additional 

Expense

Unrecoverable 

Costs

Greenville Business Mail Entry Unit – Greenville, NC 

FF-AR-05-169; 6/27/2005 — — — $964 — —

Hartford Business Mail Entry Unit – Hartford, CT

FF-AR-05-142; 5/31/2005 — — — $234 — —

Hayward Business Mail Entry Unit – Hayward, CA 

FF-AR-05-204; 8/12/2005 — — — $6,770 — —

Highland Park Business Mail Entry Unit – 

Highland Park, IL

FF-AR-05-109; 4/7/2005 — — — $760 — —

Kaneohe Business Mail Entry Unit – Kaneohe, HI

FF-AR-05-193; 7/28/2005 — — — $481 — —

Kekaha Post Office – Kekaha, HI

FF-AR-05-189; 7/27/2005 — — — $1,506 — —

Klamath Falls Business Mail Entry Unit – 

Klamath Falls, OR

FF-AR-05-103; 4/4/2005 — — — $680 — —

Lancaster Business Mail Entry Unit – Lancaster, OH 

FF-AR-05-186; 7/26/2005 — — — $6,543 — —

Lebanon Business Mail Entry Unit – Lebanon, OH 

FF-AR-05-162; 6/21/2005 — — — $335,636 — —

Lodi Business Mail Entry Unit – Lodi, CA 

FF-AR-05-115; 4/20/2005 — — — $1,629 — —

Long Lake Business Mail Entry Unit – Long Lake, MN

FF-AR-05-197; 8/1/2005 — — — $1,612 — —

Maquoketa Business Mail Entry Unit – Maquoketa, IA 

FF-AR-05-209; 8/23/2005 — — — $409 — —

McAlester Business Mail Entry Unit – McAlester, OK 

FF-AR-05-145; 6/2/2005 — — — $6,085 — —

McLean Self-Service Postal Center – McLean, VA 

FF-AR-05-119; 4/25/2005 — — — — — $12,090

Niagara Business Mail Entry Unit – Niagara, NY 

FF-AR-05-136; 5/18/2005 — — — $9,543 — —

Pasadena Business Mail Entry Unit – Pasadena, CA 

FF-AR-05-192; 7/27/2005 $817 — — $17,482 — —

Placerville Post Office – Placerville, CA 

FF-AR-05-127; 5/6/2005 $2,128 $2,128 — — — —

Pontiac Main Post Office – Pontiac, MI

FF-AR-05-153; 6/15/2005 $1,309 $1,309 — — — —

Port Huron Business Mail Entry Unit – Port Huron, MI

FF-AR-05-211; 8/23/2005 — — — $1,336 — —

Reynoldsburg Finance Station – Reynoldsburg, OH 

FF-AR-05-179; 7/13/2005 — — — $2,025 — —

Rice Lake Post Office – Rice Lake, WI

FF-AR-05-129; 5/9/2005 — — — $2,213 — —

San Carlos Main Post Office – San Carlos, CA 

FF-AR-05-151; 6/9/2005 — — — — — $686

San Leandro Business Mail Entry Unit – 

San Leandro, CA 

FF-AR-05-133; 5/19/2005 $2,576 $2,576 — $1,217 — —
April 1 – September 30, 2005 | 37

Reports With Quantifiable Potential

Monetary Benefits

Report Title

Total

Questioned 

Costs

Unsupported 

Costs

Recommended

Funds Put to 

Better Use

Potential 

Additional 

Revenue

Potential 

Additional 

Expense

Unrecoverable 

Costs

Santa Ana Processing and Distribution Center Window 

Unit – Santa Ana, CA 

FF-AR-05-217; 9/26/2005 $29,149 — — $14,424 — —

South Padre Island Branch – South Padre Island, TX 

FF-AR-05-108; 4/7/2005 — — — $42,588 — —

Southside Station – Richmond, VA 

FF-AR-05-131; 5/10/2005 — — — $2,239 — —

Stockton Business Mail Entry Unit – Stockton, CA 

FF-AR-05-149; 6/8/2005 $882 — — $23,542 — —

Sykesville Post Office – Sykesville, MD 

FF-AR-05-117; 4/25/2005 — — — $523 — $1,821

Tampa Main Office Window Unit – Tampa, FL

FF-AR-05-229; 9/27/2005 — — — $9,114 — —

Thousand Oaks Main Post Office – 

Thousand Oaks, CA 

FF-AR-05-156; 6/24/2005 $5,306 — — $117,734 — —

Utica Business Mail Entry Unit – Utica, NY 

FF-AR-05-202; 8/17/2005 — — — $2,413 — —

Westport Business Mail Entry Unit – Westport, CT

FF-AR-05-191; 7/27/2005 $6,762 — — $3,695 — —

INFORMATION SYSTEMS

National Voice Services – Savings Opportunities 

IS-AR-05-016; 9/30/2005 — — $9,883,972 — — —

SUPPLY MANAGEMENT

Audit of Certified Price Adjustment Claim Submitted 

by Evergreen Aviation Ground Logistics Enterprises, 

Incorporated, Under Contract Number SNET-01-SER

CA-CAR-05-016; 4/6/2005 $864,898 — — — — —

Audit of Equitable Price Adjustment Claim Submitted 

by Advanced Construction Technologies, Ltd. Under 

Contract Number 362575-00-B-0399

CA-CAR-05-020; 6/15/2005 $1,780,367 — — — — —

Audit of Firm Fixed Price Proposal Submitted by Bowe 

Bell & Howell, Under Solicitation Number W52H09-

04-R-0133 

CA-CAR-05-025; 9/29/2005 $237,382 — — — — —

Audit of Firm Fixed Price Proposal Submitted by Bowe 

Bell & Howell, Under Solicitation Number W52H09-

04-R-0133 

CA-CAR-05-026; 9/29/2005 $267,488 — — — — —

Audit of Firm Fixed Price Proposal Submitted by 

International Business Machines, Global Services, 

Business Consulting Services – Federal, Under 

Proposal Number APC 035R3 

CA-CAR-05-017; 5/3/2005 $3,127,088 — — — — —

Audit of Firm Fixed Price Proposal Submitted by 

Northrop Grumman Corporation, Electronic Systems 

Company, Under Solicitation Number 3BMHRD-03-

Z5541

CA-CAR-05-022; 7/12/2005 $1,373,941 — — — — —

appen

dix

A
38 | Semiannual Report to Congress

Reports With Quantifiable Potential

Monetary Benefits

Report Title

Total

Questioned 

Costs

Unsupported 

Costs

Recommended

Funds Put to 

Better Use

Potential 

Additional 

Revenue

Potential 

Additional 

Expense

Unrecoverable 

Costs

Audit of Firm Fixed Price Proposal Submitted by 

Northrop Grumman Corporation, Electronic Systems, 

Company, Under Solicitation Number 3BMHRD-03-

Z5541 

CA-CAR-05-021; 6/27/2005 $131,899 — — — — —

Audit of Firm Fixed Price Proposal Submitted 

by Siemens Logistics and Assembly Systems 

Incorporated, Postal Automation Under Solicitation 

Number 3AAERD-05-A-1589 

CA-CAR-05-018; 5/19/2005 $12,151,394 $988,651 — — — —

Electronic Data Systems Contract Invoice 

Approval Procedures 

CA-AR-05-002; 5/13/2005 $980,682 — — — — —

TRANSPORTATION

Bulk Mail Center Highway Transportation Routes 

– Pacific Area

NL-AR-05-012; 9/21/2005 — — $3,123,562 — — —

Commercial Air Network Operations

NL-AR-05-015; 9/28/2005 $7,277,563 — $6,705,951 — — —

Mail Transport Equipment Service Center Network 

– Highway Transportation Routes – 

New York Metro Area 

NL-AR-05-014; 9/28/2005 $285,060 — $740,752 — — —

Surface Networks – Intermodal Rail and Highway 

Transportation Between the Pacific and 

Southeast Areas 

NL-AR-05-011; 9/19/2005 — — $1,261,308 — — —

Surface Transportation – Bulk Mail Center Highway 

Transportation Routes – Capital Metro Area 

NL-AR-05-009; 9/2/2005 — — $803,060 — — —

Surface Transportation – Bulk Mail Center Highway 

Transportation Routes – New York Metro Area 

NL-AR-05-007; 6/9/2005 — — $1,499,371 — — —

Surface Transportation – Bulk Mail Center Highway 

Transportation Routes – Northeast Area 

NL-AR-05-013; 9/26/2005 — — $2,491,133 — — —

Surface Transportation – Bulk Mail Center Highway 

Transportation Routes – Southwest Area 

NL-AR-05-008; 8/3/2005 — — $7,175,912 — — —

REVENUE

DELIVERY AND RETAIL

Balloon Rate and Parcel Surcharges

DR-AR-05-017; 9/29/2005 — — — $24,600 — —
April 1 – September 30, 2005 | 39

Reports With Quantifiable Potential

Monetary Benefits

Report Title

Total

Questioned 

Costs

Unsupported 

Costs

Recommended

Funds Put to 

Better Use

Potential 

Additional 

Revenue

Potential 

Additional 

Expense

Unrecoverable 

Costs

MARKETING

Expedited Packaging Supplies 

MS-AR-05-002; 9/28/2005 — — $4,000,000 — — —

International Customized Mail Agreements 

MS-AR-05-001; 8/16/2005 — — — $905,438 — —

NETWORK PROCESSING

Efficiency of the Airmail Records Unit at the Los 

Angeles International Service Center 

NO-AR-05-010; 4/28/2005 — — $1,847,858 — — —

Efficiency of the Airmail Records Unit at the San 

Francisco International Service Center 

NO-AR-05-012; 9/6/2005 — — $2,563,277 — — —

Efficiency of the Los Angeles International 

Service Center 

NO-AR-05-011; 6/17/2005 — — $26,100,000 — — —

Efficiency Review of the Canton, OH, Processing and 

Distribution Facility

NO-AR-05-013; 9/22/2005 — — $63,617,713 — — —

HUMAN CAPITAL

HUMAN CAPITAL

Office of Workers’ Compensation Programs’ Schedule 

Award Payments to Postal Service Employees in the 

Pacific Area – Report II

HM-AR-05-011; 9/29/2005 — — $544 — $22,608 $64,064

Verification of the Anticipated and Realized Medical 

Cost Savings Resulting From the Postal Service’s 

Contracts With First Health Group Corporation 

HM-AR-05-005; 5/9/2005 $1,295 — — — — —

FACILITIES

Environmental Remediation Project at the Pompano 

Beach Auxiliary Vehicle Maintenance Facility 

FA-MA-05-001; 4/28/2005 — — $25,000 — — —

INFORMATION SYSTEMS

Security Controls in Voice Systems – 

Louisiana District 

IS-AR-05-007; 4/18/2005 $103,330 — $258,386 — — —

OVERSIGHT OF INVESTIGATIVE ACTIVITIES

Postal Service Law Enforcement Vehicles 

SA-AR-05-002; 5/24/2005 — — $1,492,000 — — —

appen

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A
40 | Semiannual Report to Congress

report listing

The following complete listing of all OIG reports issued to Postal Service management. It is grouped first by management challenge, second by 

category of review and year, if applicable, and then alphabetically by title.

For the period of April 1, 2005, through September 30, 2005

Caribbean District 

FF-AR-05-199; 8/4/2005

Central PA District 

FF-AR-05-195; 7/29/2005

Colorado/Wyoming District 

FF-AR-05-171; 6/29/2005

Dallas District 

FF-AR-05-118; 4/25/2005

Erie District 

FF-AR-05-126; 5/6/2005

Richmond District 

FF-AR-05-203; 8/10/2005

Triboro District, John F. Kennedy Air Mail Facility 

FF-AR-05-146; 6/3/2005

Cost control

AUDIT OF STATISTICAL TESTS FOR FISCAL YEAR 2005 COST AND REVENUE ANALYSIS

Benchmarking of Parcel Surcharges 

DR-MA-05-001; 9/30/2005

City Letter Carrier Operations – Chicago District 

DR-AR-05-019; 9/29/2005

City Letter Carrier Operations – 

San Diego District 

DR-AR-05-014; 8/8/2005

City Letter Carrier Operations – 

Santa Ana District 

DR-AR-05-013; 8/8/2005

Delivery Vehicle Utilization – General Services 

Administration Leased Vehicles 

DR-AR-05-018; 9/29/2005

Self-Service Vending Program 

DR-AR-05-012; 4/11/2005

DELIVERY AND RETAIL

Flats Identification Code Sort for Automated Flat 

Sorting Machine 100s 

DA-AR-05-001; 9/30/2005

ENGINEERING

Maintenance Offices’ Acceptance of Facilities 

Repair and Alterations Projects in the 

Southeast Area 

FA-AR-05-001; 9/29/2005

FACILITIES

Independent Report on Withholdings and 

Contributions for Health Benefits, Life Insurance, 

Retirement, and Employee Headcount Data 

FT-AR-05-010; 9/26/2005

Reporting Salary Overpayments to the Internal 

Revenue Service 

FT-MA-05-002; 9/28/2005

FINANCIAL STATEMENT

fiscal year 2005 FINANCIAL installation audits

Advance Business Mail Entry Unit – Advance, NC 

FF-AR-05-120; 4/29/2005 

Apex Business Mail Entry Unit – Apex, NC 

FF-AR-05-218; 9/8/2005

Arcadia Post Office – Arcadia, WI

FF-AR-05-150; 6/9/2005

Atlanta Business Mail Entry Unit – Atlanta, GA 

FF-AR-05-166; 6/23/2005

Austin Downtown Station – Austin, TX 

FF-AR-05-102; 4/6/2005

Bainbridge Business Mail Entry Unit – 

Bainbridge, GA 

FF-AR-05-176; 7/6/2005

Beaufort Marine Corps Air Station Branch Post 

Office – Beaufort, SC

FF-AR-05-111; 4/11/2005

Bedford Business Mail Entry Unit – 

Bedford, IN 

FF-AR-05-170; 6/27/2005

Beverly Business Mail Entry Unit – Beverly, MA 

FF-AR-05-187; 7/20/2005

Blair Business Mail Entry Unit – Blair, NE

FF-AR-05-154; 6/13/2005
April 1 – September 30, 2005 | 41

Boise Business Mail Entry Unit – Boise, ID 

FF-AR-05-212; 8/25/2005

Bonne Terre Post Office – Bonne Terre, MO 

FF-AR-05-175; 7/5/2005

Bridgman Post Office – Bridgman, MI

FF-AR-05-160; 6/27/2005

Buena Park Station – Buena Park, CA 

FF-AR-05-196; 8/1/2005

Buzzards Bay Business Mail Entry Unit – 

Bourne, MA 

FF-AR-05-106; 4/7/2005

Califon Post Office – Califon, New Jersey 

FF-AR-05-200; 8/17/2005

Camino Media Station Automated Postal Center 

– Bakersfield, CA 

FF-AR-05-190; 7/27/2005

Canandaigua Post Office – Canandaigua, NY 

FF-AR-05-214; 9/7/2005

Cardiss Collins Postal Store – Chicago, IL

FF-AR-05-228; 9/23/2005

Centereach Main Post Office – Centereach, NY 

FF-AR-05-163; 7/20/2005

Champaign Post Office – Champaign, IL

FF-AR-05-112; 4/20/2005

Champlain Business Mail Entry Unit – 

Champlain, NY 

FF-AR-05-224; 9/27/2005

Colleyville Business Mail Entry Unit, 

Colleyville, TX 

FF-AR-05-134; 5/17/2005

Coloma Post Office – Coloma, MI

FF-AR-05-177; 7/5/2005

Conroe Business Mail Entry Unit – Conroe, TX 

FF-AR-05-121; 4/29/2005

Council Post Office – Council, ID 

FF-AR-05-215; 9/7/2005 

Curwensville Post Office – Curwensville, PA 

FF-AR-05-104; 4/6/2005

Dallas Business Mail Entry Unit – Dallas, TX 

FF-AR-05-167; 6/30/2005 

Dallas Main Post Office – Dallas, TX 

FF-AR-05-219; 9/13/2005

Daytona Beach Business Mail Entry Unit – 

Daytona Beach, FL

FF-AR-05-140; 5/23/2005

Deep River Business Mail Entry Unit – 

Deep River, CT

FF-AR-05-201; 8/17/2005

Eastside Station – Lake Charles, LA 

FF-AR-05-125; 5/4/2005

Edgerton Business Mail Entry Unit – Edgerton, WI

FF-AR-05-152; 6/13/2005

Enfield Business Mail Entry Unit – Enfield, CT

FF-AR-05-225; 9/20/2005

Eugene Business Mail Entry Unit – Eugene, OR

FF-AR-05-155; 6/22/2005

Evanston South Station, Evanston, IL

FF-AR-05-210; 8/24/2005

Fair Oaks Business Mail Entry Unit – 

Fair Oaks, CA 

FF-AR-05-206; 8/15/2005

Fiscal Year 2005 Financial Installation Audit – 

Olympic Valley Post Office – Olympic Valley, CA 

FF-AR-05-223; 9/15/2005

Fortuna Business Mail Entry Unit – Fortuna, CA 

FF-AR-05-161; 6/20/2005

Fowler Post Office – Fowler, IL

FF-AR-05-124; 5/4/2005

Franklin Mills Station – Philadelphia, PA 

FF-AR-05-205; 8/15/2005

Gahanna Finance Station – Gahanna, OH 

FF-AR-05-198; 8/17/2005

Gainesville Business Mail Entry Unit – 

Gainesville, FL

FF-AR-05-143; 6/1/2005

Galena Post Office – Galena, OH 

FF-AR-05-144; 6/1/2005

Galesburg Automated Postal Center – 

Galesburg, IL

FF-AR-05-165; 6/23/2005

Greenville Business Mail Entry Unit – 

Greenville, NC 

FF-AR-05-169; 6/27/2005

Harriman Main Post Office – Harriman, NY 

FF-AR-05-105; 4/6/2005

Hartford Business Mail Entry Unit – Hartford, CT

FF-AR-05-142; 5/31/2005

Hartford Main Post Office – Hartford, CT

FF-AR-05-172; 7/11/2005

Hartsville Business Mail Entry Unit – 

Hartsville, SC 

FF-AR-05-135; 5/17/2005

Hayward Business Mail Entry Unit – Hayward, CA 

FF-AR-05-204; 8/12/2005

Highland Park Business Mail Entry Unit – 

Highland Park, IL

FF-AR-05-109; 4/7/2005

Highlands Ranch Branch – Littleton, CO

FF-AR-05-114; 4/19/2005

Hope Mills Post Office – Hope Mills, NC 

FF-AR-05-157; 6/22/2005

Julian Post Office – Julian, CA 

FF-AR-05-107; 4/7/2005

Kaneohe Business Mail Entry Unit – Kaneohe, HI

FF-AR-05-193; 7/28/2005

Kekaha Post Office – Kekaha, HI

FF-AR-05-189; 7/27/2005

Klamath Falls Business Mail Entry Unit – 

Klamath Falls, OR

FF-AR-05-103; 4/4/2005

Lake Park Automated Postal Center – 

Lake Park, FL

FF-AR-05-113; 4/19/2005

Lancaster Business Mail Entry Unit – 

Lancaster, OH 

FF-AR-05-186; 7/26/2005

Landing Main Post Office – Landing, NJ 

FF-AR-05-208; 8/17/2005

Lebanon Business Mail Entry Unit – Lebanon, OH 

FF-AR-05-162; 6/21/2005

Liberty Post Office – Liberty, NC 

FF-AR-05-139; 5/23/2005

Lodi Business Mail Entry Unit – Lodi, CA 

FF-AR-05-115; 4/20/2005

Long Lake Business Mail Entry Unit – 

Long Lake, MN

FF-AR-05-197; 8/1/2005

Lowell Post Office – Lowell, OH 

FF-AR-05-183; 7/21/2005

Magnolia Finance Station Automated Postal 

Center – Riverside, CA 

FF-AR-05-148; 6/7/2005

Manistee Post Office – Manistee, MI

FF-AR-05-207; 8/16/2005

Maquoketa Business Mail Entry Unit – 

Maquoketa, IA 

FF-AR-05-209; 8/23/2005

Marshalltown Business Mail Entry Unit – 

Marshalltown, IA 

FF-AR-05-174; 6/30/2005

Marysville Business Mail Entry Unit – 

Marysville, KS 

FF-AR-05-164; 6/22/2005

Mason City Self-Service Postal Center – 

Mason City, IA 

FF-AR-05-221; 9/13/2005

McAlester Business Mail Entry Unit – 

McAlester, OK 

FF-AR-05-145; 6/2/2005

McLean Self-Service Postal Center – 

McLean, VA 

FF-AR-05-119; 4/25/2005

Mebane Post Office – Mebane, NC 

FF-AR-05-182; 7/18/2005

Mobile Post Office – Mobile, AL

FF-AR-05-132; 5/11/2005

appen

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A
42 | Semiannual Report to Congress

Moulton Post Office – Moulton, TX 

FF-AR-05-173; 6/30/2005

Mount Vernon Business Mail Entry Unit – 

Mount Vernon, IN 

FF-AR-05-130; 5/10/2005

Mountain Road Branch – Glen Allen, VA 

FF-AR-05-147; 6/6/2005

New Monmouth Branch – Middletown, NJ 

FF-AR-05-185; 7/21/2005

Newburyport Business Mail Entry Unit – 

Newburyport, MA 

FF-AR-05-158; 6/21/2005

Niagara Business Mail Entry Unit – Niagara, NY 

FF-AR-05-136; 5/18/2005

Norfolk Business Mail Entry Unit – Norfolk, NE

FF-AR-05-227; 9/22/2005

North Branford Business Mail Entry Unit – 

North Branford, CT

FF-AR-05-220; 9/14/2005

Omaha Business Mail Entry Unit – Omaha, NE

FF-AR-05-213; 8/31/2005

Orting Post Office – Orting, WA

FF-AR-05-137; 5/20/2005

Pasadena Business Mail Entry Unit – 

Pasadena, CA 

FF-AR-05-192; 7/27/2005

Peoria Station Automated Postal Center – 

Peoria, AZ 

FF-AR-05-188; 7/27/2005

Placerville Post Office – Placerville, CA 

FF-AR-05-127; 5/6/2005

Plainville Post Office – Plainville, CT

FF-AR-05-222; 9/21/2005

Plaza Vending Self-Service Postal Center – 

Pasadena, CA 

FF-AR-05-181; 7/13/2005

Pleasant Hill Post Office – Pleasant Hill, IL

FF-AR-05-123; 5/2/2005

Pontiac Main Post Office – Pontiac, MI

FF-AR-05-153; 6/15/2005

Port Huron Business Mail Entry Unit – 

Port Huron, MI

FF-AR-05-211; 8/23/2005

Punta Gorda Post Office – Punta Gorda, FL

FF-AR-05-184; 7/20/2005

Quincy Business Mail Entry Unit – Quincy, FL

FF-AR-05-141; 5/31/2005

Reynoldsburg Finance Station – 

Reynoldsburg, OH 

FF-AR-05-179; 7/13/2005

Rice Lake Post Office – Rice Lake, WI

FF-AR-05-129; 5/9/2005

Ripley Post Office – Ripley, TN 

FF-AR-05-178; 7/7/2005

Rockland Business Mail Entry Unit – 

Rockland, ME

FF-AR-05-216; 9/7/2005

Salisbury Business Mail Entry Unit – 

Salisbury, MD 

FF-AR-05-159; 6/20/2005

San Carlos Main Post Office – San Carlos, CA 

FF-AR-05-151; 6/9/2005

San Leandro Business Mail Entry Unit – 

San Leandro, CA 

FF-AR-05-133; 5/19/2005

Sandy Creek Station Automated Postal Center – 

El Paso, TX 

FF-AR-05-122; 5/2/2005

Santa Ana Processing and Distribution Center 

Window Unit – Santa Ana, CA 

FF-AR-05-217; 9/26/2005

South Padre Island Branch – 

South Padre Island, TX 

FF-AR-05-108; 4/7/2005 

Southside Station – Richmond, VA 

FF-AR-05-131; 5/10/2005

Spokane Business Mail Entry Unit – Spokane, WA

FF-AR-05-194; 7/28/2005

Stockton Business Mail Entry Unit – Stockton, CA 

FF-AR-05-149; 6/8/2005

Sykesville Post Office – Sykesville, MD 

FF-AR-05-117; 4/25/2005 

Tampa Main Office Window Unit – Tampa, FL

FF-AR-05-229; 9/27/2005

Thousand Oaks Main Post Office – 

Thousand Oaks, CA 

FF-AR-05-156; 6/24/2005

Truro Post Office – Truro, MA 

FF-AR-05-128; 5/10/2005

Tuscaloosa Automated Postal Center – 

Tuscaloosa, AL

FF-AR-05-116; 4/21/2005 

Tuscaloosa Business Mail Entry Unit – 

Tuscaloosa, AL

FF-AR-05-168; 7/13/2005

Utica Business Mail Entry Unit – Utica, NY 

FF-AR-05-202; 8/17/2005

Walls Business Mail Entry Unit – Walls, MI

FF-AR-05-110; 4/11/2005

Westfield Business Mail Entry Unit – 

Westfield, MA 

FF-AR-05-138; 5/31/2005

Westport Business Mail Entry Unit – 

Westport, CT

FF-AR-05-191; 7/27/2005

Westwood Main Post Office – Westwood, NJ 

FF-AR-05-180; 7/27/2005

Williston Business Mail Entry Unit – Williston, NC

FF-AR-05-226; 9/20/2005

National Voice Services – Savings Opportunities 

IS-AR-05-016; 9/30/2005

INFORMATION SYSTEMS

Mail Evaluation, Readability and Lookup 

INstrument (MERLIN) Internal User 

Satisfaction Survey 

NO-MA-05-002; 7/27/2005

NETWORK PROCESSING
April 1 – September 30, 2005 | 43

Audit of Certified Price Adjustment Claim 

Submitted by Evergreen Aviation Ground Logistics 

Enterprises, Incorporated, Under Contract 

Number SNET-01-SER

CA-CAR-05-016; 4/6/2005

Audit of Equitable Price Adjustment Claim 

Submitted by Advanced Construction 

Technologies, Ltd. Under Contract Number 

362575-00-B-0399 

CA-CAR-05-020; 6/15/2005

Audit of Firm Fixed Price Proposal Submitted by 

Bowe Bell & Howell, Under Solicitation Number 

W52H09-04-R-0133 

CA-CAR-05-025; 9/29/2005

Audit of Firm Fixed Price Proposal Submitted by 

Bowe Bell & Howell, Under Solicitation Number 

W52H09-04-R-0133 

CA-CAR-05-026; 9/29/2005

Audit of Firm Fixed Price Proposal Submitted by 

International Business Machines, Global Services, 

Business Consulting Services – Federal, Under 

Proposal Number APC 035R3 

CA-CAR-05-017; 5/3/2005

Audit of Firm Fixed Price Proposal Submitted 

by Northrop Grumman Corporation, Electronic 

Systems Company, Under Solicitation Number 

3BMHRD-03-Z5541

CA-CAR-05-022; 7/12/2005

Audit of Firm Fixed Price Proposal Submitted 

by Northrop Grumman Corporation, Electronic 

Systems, Company, Under Solicitation Number 

3BMHRD-03-Z5541 

CA-CAR-05-021; 6/27/2005

Audit of Firm Fixed Price Proposal Submitted 

by Siemens Logistics and Assembly Systems 

Incorporated, Postal Automation Under 

Solicitation Number 3AAERD-05-A-1589 

CA-CAR-05-018; 5/19/2005

Audit of Fiscal Year 2000 Incurred Costs 

Submitted by New Breed Corporations 

CA-CAR-05-019; 5/20/2005

Electronic Data Systems Contract Invoice 

Approval Procedures 

CA-AR-05-002; 5/13/2005

Estimated Fiscal Year 2005 Supply Chain 

Management Impact Associated With National 

Office Supply Contract 

CA-OT-05-003; 8/19/2005

Estimated Supply Chain Management Impact 

Associated With National Office Supply Contract 

CA-MA-05-002; 9/7/2005

Financial Condition and Capability of American 

Bank Note Company 

CA-CAR-05-023; 8/25/2005

Limited Scope Review of Purchasing System 

at Siemens Logistics and Assembly Systems, 

Incorporated, Postal Automation 

CA-CAR-05-024; 8/29/2005

Postal Automated Redirection System’s Contract 

Incentives 

CA-AR-05-003; 8/15/2005

SUPPLY MANAGEMENT

Bulk Mail Center Highway Transportation Routes 

– Pacific Area 

NL-AR-05-012; 9/21/2005

Commercial Air Network Operations 

NL-AR-05-015; 9/28/2005

Mail Transport Equipment Service Center 

Network – Highway Transportation Routes – New 

York Metro Area 

NL-AR-05-014; 9/28/2005

Surface Networks – Intermodal Rail and 

Highway Transportation Between the Pacific and 

Southeast Areas 

NL-AR-05-011; 9/19/2005

Surface Transportation – Bulk Mail Center 

Highway Transportation Routes – Capital Metro 

Area 

NL-AR-05-009; 9/2/2005

Surface Transportation – Bulk Mail Center 

Highway Transportation Routes – New York 

Metro Area 

NL-AR-05-007; 6/9/2005

Surface Transportation – Bulk Mail Center 

Highway Transportation Routes – Northeast Area

NL-AR-05-013; 9/26/2005

Surface Transportation – Bulk Mail Center 

Highway Transportation Routes – Southwest Area

NL-AR-05-008; 8/3/2005

Vehicle Management – National Trailer Lease 

– Unresolved Audit Recommendations 

NL-MA-05-001; 4/21/2005

TRANSPORTATION

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REVENUE

DELIVERY AND RETAIL

Balloon Rate and Parcel Surcharges 

DR-AR-05-017; 9/29/2005

Vending Equipment Sales and Service Data 

– Atlanta District 

DR-AR-05-016; 9/26/2005

Expedited Packaging Supplies 

MS-AR-05-002; 9/28/2005

International Customized Mail Agreements 

MS-AR-05-001; 8/16/2005

MARKETING

Efficiency of the Airmail Records Unit at the Los 

Angeles International Service Center 

NO-AR-05-010; 4/28/2005 

Efficiency of the Airmail Records Unit at the San 

Francisco International Service Center 

NO-AR-05-012; 9/6/2005

Efficiency of the Los Angeles International 

Service Center 

NO-AR-05-011; 6/17/2005

Efficiency Review of the Canton, OH, Processing 

and Distribution Facility 

NO-AR-05-013; 9/22/2005

NETWORK PROCESSING
44 | Semiannual Report to Congress

Assessment of Patch Management Practices 

IS-AR-05-011; 6/30/2005

CA-ACF2 Controls at the Eagan, MN, and 

San Mateo, CA Information Technology and 

Accounting Service Centers 

IS-AR-05-014; 8/17/2005

Evaluation of Postal Service Information Security 

Program for Fiscal Year 2004 

IS-MA-05-001; 4/25/2005

Human Capital Enterprise SAP Human Resources 

Project 

IS-AR-05-015; 9/15/2005

Integrated Database Management System 

Controls at the Eagan, MN, Information 

Technology and Accounting Service Center 

IS-AR-05-008; 5/12/2005

Mainframe and Midrange Software Controls at 

the Eagan, MN, and San Mateo, CA Information 

Technology and Accounting Service Centers 

IS-AR-05-013; 8/17/2005

Physical Security Controls at the Eagan, MN; 

San Mateo, CA; and St. Louis, MO, Information 

Technology and Accounting Service Centers 

IS-AR-05-012; 7/26/2005 

Security Assessment Summary Report 

IS-AR-05-010; 6/3/2005

Security Controls in Voice Systems – Louisiana 

District 

IS-AR-05-007; 4/18/2005 

Security Vulnerability Assessment of Automated 

Postal Centers 

IS-CS-05-005; 9/23/2005

Security Vulnerability Assessment of Selected 

Financial Systems at the Host Computing 

Services Center, Eagan, MN

IS-CS-05-004; 8/17/2005

Security Vulnerability Assessment of the 

Advanced Computing Environment Phase II

IS-CS-05-003; 5/20/2005

Software Monitor Controls at the Eagan, 

Minnesota, and San Mateo, CA, Information 

Technology and Accounting Service Centers 

IS-AR-05-009; 5/31/2005

INFORMATION SYSTEMS

Organizational Efficiency and Program 

Performance of the Postal Inspection Service 

SA-OT-05-001; 8/19/2005

Postal Inspection Service’s Controls Over 

Firearms 

SA-AR-05-003; 5/4/2005

Postal Service Law Enforcement Vehicles 

SA-AR-05-002; 5/24/2005

Postal Service Practices with Regard to Handling 

Suspicious Mail 

SA-OT-05-002; 5/20/2005

Qualitative Assessment Review – Postal 

Inspection Service’s Houston Division 

QAR-QA-05-007; 8/2/2005

OVERSIGHT OF INVESTIGATIVE ACTIVITIES

Air Transportation Networks International Mail 

– Extra Territorial Offices of Exchange 

NL-AR-05-010; 9/9/2005

TRANSPORTATION

Strategic Direction

DELIVERY AND RETAIL

Automated Deployment Strategy 

DR-AR-05-015; 9/7/2005

PRESERVE INTEGRITY AND SECURITY

ENGINEERING

Responses to Incidents Involving Suspicious Mail 

and Unknown Powders and Substances

DA-MA-05-001; 5/27/2005

Data Integrity and Reliability of the Facilities 

Single Source Provider System 

FA-MA-05-002; 8/11/2005

Environmental Remediation Project at the 

Pompano Beach Auxiliary Vehicle Maintenance 

Facility 

FA-MA-05-001; 4/28/2005

FACILITIES

Action Taken By Pacific Area Regarding 

Complaints of a Hostile Work Environment in the 

Sacramento District 

HM-AR-05-010; 8/11/2005

Complaints of a Hostile Work Environment at a 

Bay Valley District Processing and Distribution 

Center 

HM-AR-05-008; 6/8/2005

Complaints of a Hostile Work Environment at a 

Rio Grande District Processing and Distribution 

Center 

HM-AR-05-006; 5/17/2005

Complaints of a Hostile Work Environment at an 

Alabama District Post Office 

HM-AR-05-007; 5/31/2005

Complaints of a Hostile Work Environment at 

Five Houston District Post Offices 

HM-AR-05-004; 4/29/2005

Complaints of a Hostile Work Environment in the 

Santa Ana District 

HM-AR-05-003; 4/22/2005

Complaints Regarding Personnel Issues in the 

Caribbean District 

HM-AR-05-009; 7/22/2005

Office of Workers’ Compensation Programs’ 

Schedule Award Payments to Postal Service 

Employees in the Pacific Area – Report II

HM-AR-05-011; 9/29/2005

Verification of the Anticipated and Realized 

Medical Cost Savings Resulting From the Postal 

Service’s Contracts With First Health Group 

Corporation 

HM-AR-05-005; 5/9/2005

White Paper on the Nature of Grievances and the 

Initiatives Taken to Reduce and Prevent Them 

HM-OT-05-001; 9/30/2005

HUMAN CAPITAL

HUMAN CAPITAL
April 1 – September 30, 2005 | 45

Appendix B

FINDINGS OF QUESTIONED COSTS

For the period April 1 – September 30, 2005

Questioned Costs: A cost that is unnecessary, unreasonable, unsupported, or an alleged violation of law, regulation, or contract. 

OFFICE OF INSPECTOR GENERAL AND U.S. POSTAL INSPECTION SERVICE

As required by the IG Act, the following pages show the total number of audit reports and the total dollar value of questioned costs in audit reports.

Description Number of Reports

Total 

Questioned 

Costs

Unsupported Costs

Included in Questioned 

Costs

Reports for which no management decision was made at the beginning of the 

reporting period. 21 $77,105,693 $6,716,428

Reports requiring management decision that were issued during the reporting 

period. 25 $58,230,112 $994,664

TOTAL 46 $135,335,805 $7,711,092

Reports for which a management decision was made during the reporting period 

(i+ii). 25 $53,487,736 $193,284

(i) Dollar value of disallowed cost $49,021,092 $193,284

(ii) Dollar value of cost not disallowed $4,466,644 —

Reports for which no management decision was made by the end of the 

reporting period. Negotiations are ongoing. 21 $81,848,069 $7,517,808

Reports for which no management decision was made within six months of 

issuance (See Note 1 for a list of individual reports). 2 $997,943 —

Reports for which no management decision was made within one year of 

issuance (See Note 2 for a list of individual reports). 7 $61,735,596 $6,529,157 

Note 1 - Reports for which no management decision was made within six months of issuance:

Subject Report Number Report Date

Total Questioned 

Costs

Unsupported Costs 

Included in Questioned 

Costs

Audit of Incurred Cost Price Adjustment Proposal and Reformation 

Proposal Submitted by Matheson Flight Extenders, Incorporated 

Under Contract Number SNET-01-WR CA-CAR-05-004 12/1/2004 $975,451 —

Audit of Firm Fixed Price Base Proposal Submitted by Lockheed 

Martin Systems Integration – Owego, Under 

Solicitation Number 3AAERD-04-Z-6397 CA-CAR-05-012 2/3/2005 $22,492 —

OFFICE OF INSPECTOR GENERAL TOTAL $997,943 —

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46 | Semiannual Report to Congress

Subject Report Number Report Date

Total Questioned

Costs

Unsupported Costs Included 

In Questioned Costs

Contract Audit – M.E.S. Incorporated CA-CAR-02-045 6/28/2002 $1,053,263 $134,340 

Contract Audit – Bell & Howell Mail and Messaging 

Technologies CA-CAR-03-002 10/16/2002 $343,759 —

Contract Audit – D. L. Kaufman, Incorporated CA-CAR-03-011 2/11/2003 $4,028,935 —

Audit of Termination for Convenience Price 

Adjustment Claim Submitted by Abcon Associates, 

Incorporated CA-CAR-04-022 6/16/2004 $4,478,385 $2,702,465 

Vehicle Management – Delivery Vehicles – Buy vs. 

Lease NL-AR-04-005 9/30/2004 $42,751,032

Vehicle Management – Trailer RequirementsNortheast Area NL-AR-04-006 9/30/2004 $2,016,475 $2,016,475

OFFICE OF INSPECTOR GENERAL TOTAL $54,671,849 $4,853,280 

Contract Audit; 181-1294644- AC(1) 11/17/99 $7,063,747 $1,675,877

POSTAL INSPECTION SERVICE TOTAL $7,063,747 $1,675,877

COMBINED TOTAL $61,735,596 $6,529,157

Appendix B

FINDINGS OF QUESTIONED COSTS

For the period April 1 – September 30, 2005

Questioned Costs: A cost that is unnecessary, unreasonable, unsupported, or an alleged violation of law, regulation, or contract. 

Note 2 - Reports for which no management decision was made within one year of issuance:
April 1 – September 30, 2005 | 47

OFFICE OF INSPECTOR GENERAL 

Description Number of Reports Dollar Value

Reports for which no management decision was made at the beginning of the reporting period. 9 $162,288,441 

Reports requiring management decision that were issued during the reporting period. 20 $146,674,881

TOTAL 29 $308,963,322

Reports for which a management decision was made during the report period (I + ii). 20 $218,882,214

(i) Value of recommendations agreed to by management $125,824,314

(ii) Value of recommendations that management did not agree to $93,057,900

Reports for which no management decision was made by the end of the reporting period.1 9 $90,081,108

Reports for which no management decision was made within six months of issuance.

(See Note 1 for a list of individual reports.) —

Reports for which no management decision was made within one year of issuance.

(See Note 2 for a list of individual reports.) 4 $71,175,672

Note 1 - There were no reports for which no management decision was made within six months of issuance.

Note 2 - Reports for which no management decision was made within one year of issuance:

Subject Report Number Report Date

Recommend Funds Put to 

Better Use

Bulk Fuel Purchase Plan TR-AR-01-004 7/27/2001 $15,918,035

Vehicle Management – Trailer Requirements – Northeast Area NL-AR-04-006 9/30/2004 $7,300,150

Vehicle Management – Delivery Vehicles – Buy vs. Lease NL-AR-04-005 9/30/2004 $40,296,954

Bulk Mail Center Highway Transportation Routes – Great Lakes Area NL-AR-04-004 9/29/2004 $7,660,533

TOTAL $71,175,672

Included are amounts where management agreed to take the recommended corrective action but could not comment on some of the potential savings until analyses were completed. The 

majority of identified savings were agreed to and decisions were reflected in a prior reporting period. 

1�

APPENDIX C

Recommendations That Funds Be Put to Better Use

For the period April 1 – September 30, 2005

Funds Put to Better Use: Funds that could be used more efficiently by implementing recommended actions.

As required by the IG Act, the following pages show the total number of audit reports and the total dollar value recommendations for funds that management can put 

to better use.

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48 | Semiannual Report to Congress

APPENDIX D

Reports with Significant Recommendations Pending

Corrective Actions

For the period April 1 – September 30, 2005

As required by the IG Act, the following pages include a list of each audit report for which no management decision was made by the end of the reporting 

period.

OFFICE OF INSPECTOR GENERAL

Issue

Date

Number of 

Recommendations* Report Title

 Report

 Number

7/27/2001 5 Bulk Fuel Purchase Plan TR-AR-01-004

2/22/2002 3 Review of the Facilities Management System for Windows IS-AR-02-003

3/29/2002 1 Review of Contracts Associated with Biohazard Threat CQ-MA-02-002

5/8/2002 1

Southwest Area’s Efforts in Obtaining Appropriate Chargeback Credits for Identified Wage Compensation Overpayments and Refundable Disbursements LH-AR-02-003

7/9/2002 4 Review of eBusiness Agreements EM-AR-02-012

9/3/2002 2 Postal Service’s Corporate Succession Planning Process LH-AR-02-004

9/26/2002 1 Utility Payments to Commonwealth Edison FT-AR-02-015

9/27/2002 3 Effectiveness of the Postal Service’s Asset Locator FT-AR-02-017

9/30/2002 2 Associate Supervisor Program in the Great Lakes Area LH-AR-02-005

1/30/2003 1

Fiscal Year 2002 Postal Service Financial Statements Audit – St. Louis Information Technology and 

Accounting Service Center FT-AR-03-008

3/28/2003 2

Work Performed by Business Mail Entry Employees in the Seattle, Minneapolis, and Des Moines Bulk 

Mail Centers CQ-AR-03-001

6/13/2003 1 Postal Inspection Service Tracking of Investigative Workhours and Activity SA-AR-03-003

8/21/2003 2 Propriety of Postal Service Utility Payments FT-AR-03-011

9/25/2003 2

Efficiency of Work Performed by Business Mail Entry Clerks in the San Francisco Business Mail Entry 

Unit AO-AR-03-002

9/29/2003 1 Enhanced Carrier Route Standard Mail Worksharing Discounts AC-AR-03-006

9/30/2003 8 General Controls at the Engineering Research and Development Center IS-AR-03-008

9/30/2003 3 Postal Service and Union Labor Relations LH-AR-03-012

3/10/2004 1 Information Systems Disaster Recovery Process IS-AR-04-004

3/30/2004 2 Compliance with the Bank Secrecy Act FF-AR-04-100

3/31/2004 1

Efficiency of the San Francisco International Service Center and the General Services Administration 

Facility NO-AR-04-006

3/31/2004 1 Efficiency of the Oakland International Service Facility and the Regatta Facility NO-AR-04-007

4/21/2004 1 Postal Inspection Service’s Postal Police Officers SA-AR-04-001

6/8/2004 2

Follow-up of the Network Security and Security Testing of Load Balancers at the San Mateo Host 

Computing Services IS-AR-04-006

9/24/2004 1 Technology Acquisition Management DA-AR-04-003

9/24/2004 1 Efficiency of the New York International Service Center NO-AR-04-009

9/29/2004 3 Bulk Mail Center Highway Transportation Routes – Great Lakes Area NL-AR-04-004

9/29/2004 3 Vehicle Management – Trailer Requirements – Northeast Area NL-AR-04-006

9/30/2004 1 Fiscal Year 2003 Supply Chain Management Savings CA-AR-04-003

* Pending corrective action
April 1 – September 30, 2005 | 49

Issue

Date

Number of 

Recommendations* Report Title

 Report

 Number

9/30/2004 1 Advanced Facer Canceler System Improvements DA-AR-04-004

9/30/2004 2 Postal Service’s Business Partner Connectivity IS-AR-04-014

9/30/2004 5 Vehicle Management – Delivery Vehicles – Buy vs. Lease NL-AR-04-005

10/25/2004 1 Reports Distribution IS-AR-05-001

10/27/2004 2 Self-Service Vending Program – Pacific Area DR-AR-05-006

12/10/2004 2 Self-Service Vending Program – Southwest Area DR-AR-05-010

12/21/2004 1 Automated Postal Center Program Management CA-AR-05-001

1/10/2005 2

Fiscal Year 2004 Postal Service Financial Statements Audit – Eagan Information Technology and 

Accounting Service Center FT-AR-05-005

1/25/2005 2

Mail Transport Equipment Service Center Network – Network Realignment – Pittsburgh, Detroit, 

Cleveland NL-AR-05-001

2/1/2005 2 Self-Service Vending Program – Northeast Area DR-AR-05-011

3/15/2005 1

Fiscal Year 2004 Postal Service Financial Statements Audit – St. Louis Information Technology and 

Accounting Service Center FT-AR-05-009

3/17/2005 2 Surface Transportation – Bulk Mail Center Highway Transportation Routes – Eastern Area NL-AR-05-003

3/18/2005 1 Surface Transportation – Bulk Mail Center Highway Transportation Routes – Southeast Area NL-AR-05-005

3/29/2005 1 Efficiency Review of the Akron, OH, Processing and Distribution Center NO-AR-05-009

4/18/2005 3 Security Controls in Voice Systems – Louisiana District IS-AR-05-007

4/21/2005 2 Vehicle Management – National Trailer Lease – Unresolved Audit Recommendations NL-MA-05-001

6/3/2005 4 Security Assessment Summary Report IS-AR-05-010

6/9/2005 1 Surface Transportation – Bulk Mail Center Highway Transportation Routes – New York Metro Area NL-AR-05-007

6/17/2005 1 Efficiency of the Los Angeles International Service Center NO-AR-05-011

7/22/2005 5 Complaints Regarding Personnel Issues in the Caribbean District HM-AR-05-009

7/26/2005 1

Physical Security Controls at the Eagan, MN; San Mateo, CA; and St. Louis, MO, Information Technology 

and Accounting Service Centers IS-AR-05-012

8/3/2005 2 Surface Transportation – Bulk Mail Center Highway Transportation Routes – Southwest Area NL-AR-05-008

8/11/2005 1

Action Taken by Pacific Area Regarding Complaints of a Hostile Work 

Environment in the Sacramento District HM-AR-05-010

9/21/2005 3 Surface Transportation – Bulk Mail Center Highway Transportation Routes – Pacific Area NL-AR-05-012

9/23/2005 1 Fiscal Year 2005 Financial Installation Audit – Cardiss Collins Postal Store – Chicago, IL FF-AR-05-228

9/26/2005 2 Surface Transportation – Bulk Mail Center Highway Transportation Routes – Northeast Area NL-AR-05-013

9/28/2005 1

Mail Transport Equipment Service Center Network – Highway Transportation Routes – New York Metro 

Area NL-AR-05-014

9/28/2005 3 Commercial Air Network Operations NL-AR-05-015

9/29/2005 1 Balloon Rate and Parcel Surcharges DR-AR-05-017

9/29/2005 3 Delivery Vehicle Utilization – General Services Administration Leased Vehicles DR-AR-05-018

9/30/2005 1 Flats Identification Code Sort for Automated Flats Sorting Machine 100s DA-AR-05-001

9/30/2005 3 National Voice Services – Savings Opportunities IS-AR-05-016

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* Pending corrective action
50 | Semiannual Report to Congress

APPENDIX E

Significant Management Decisions In Audit Resolution

For the period April 1 – September 30, 2005

As required by the IG Act, the following page discusses information concerning any significant management decision with which the Inspector General 

disagrees and is currently in audit resolution.

OFFICE OF INSPECTOR GENERAL 

The OIG has no significant management decisions in audit resolution as of September 30, 2005.

Appendix F

INVESTIGATIVE STATISTICS1

For the period April 1, 2005, through September 30, 2005 

Misconduct Statistics

Employee Mail 

Theft Statistics4

Investigations completed 2,131 1,157

Arrests/Information/Indictments 81 607

Convictions/Pretrial diversions2 57 354

Administrative actions: 306 621

Cost avoidance $25,730,568 —

Fines, restitution, and recoveries $54,193,376 —

Amount to Postal Service3 $4,344,881 —

Statistics include joint investigations with the U.S. Postal Inspection Service and other law enforcement agencies.

Convictions reported in this frame may be related to arrests made in prior reporting periods. 

Amount included in fines, restitution, and recoveries.

Cases worked solely by the Postal Inspection Service.

1�

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April 1 – September 30, 2005 | 51

Subpoenas

Case # Date Issued Scheme

05-001 4/13/2005 Sweepstakes

05-002 4/13/2005 Sweepstakes

05-003 4/13/2005 Sweepstakes

05-004 4/5/2005 False representations

05-005 6/3/2005 Solicitations in the guise of an invoice

05-006 6/8/2005 False representations

05-007 6/8/2005 False representations

05-008 6/29/2005 Work-at-home scheme

05-009 7/13/2005 False representations

Type of Scheme

Complaints 

Filed

Consent 

Agreements

False 

Representation 

Orders

Cease & 

Desist 

Orders

Advance fee 4 2 1 4

False billings 17 2 5 6

Internet auction 1 1 0 1

Merchandise:

Failure to furnish 2 2 1 3

Misrepresentation 3 1 0 2

Telemarketing 1 0 1 3

Work at home 33 24 10 28

TOTAL 61 32 18 47

OTHER ADMINISTRATIVE ACTIONS

Administrative action requests 66

Temporary restraining orders requested 3

Temporary restraining orders issued 3

Civil injunctions (Section 1345) requested 0

Civil injunctions (Section 1345) issued 0

Cases using direct purchase authority 2

Civil penalties imposed $60,000

Expenditures incurred for:

Test purchases $53

Withholding mail orders issued 24

Voluntary discontinuances 19

Investigative Expenses

Type Dollar Amount

Personnel $165,685,399 

Non personnel 47,338,486

Total $213,023,885

Capital obligations $33,332,370 

APPENDIX G

SUMMARY OF U.S. POSTAL INSPECTION SERVICE ACTIONS 

UNDER 39 USC 3013

For the period April 1 – September 30, 2005

The Postal Reorganization Act requires the Postmaster General to furnish information on the investigative activities of the Postal Service by the U.S. Postal Inspection Service on 

a semiannual basis. With passage of the Deceptive Mail Prevention and Enforcement Act in December 1999, the Postal Service’s reporting obligations were changed. The Act 

requires the Postal Service to submit its semiannual report on investigative activities to the Office of Inspector General rather than to the Board of Governors, expands the subject 

matter that must be reported, and revises the reporting schedule to coordinate with the OIG Semiannual Report to Congress. The information in the report includes actions directed 

at combating crimes involving the mail; costs and expenditures devoted to Postal Service investigative activities; use of subpoena power; and any additional information the OIG

may require.

The following information summarizes the administrative and judicial actions initiated and resolved during the reporting period. These actions include the issuance of 

cease and desist orders directed to mailers, actions to intercept payments fraudulently induced, and orders seeking to intercept fraudulent mailings.

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52 | Semiannual Report to Congress

Appendix H

CLOSED CONGRESSIONAL AND BOARD OF GOVERNORS INQUIRIES

For the period April 1 – September 30, 2005

This appendix lists the 27 Congressional and Governors inquiries the OIG closed during this reporting period. The OIG reviewed these inquiries to help identify 

systemic issues and to determine the need for future Postal Service-wide audits.

COST CONTROL

Requestor Allegations/Concerns Closure Date

Representative, Texas Referral of allegations of employees working off-the-clock and falsifying time sheets. 4/18/2005

Representative, Illinois

Response to complaint of uncompensated overtime work by manager and declination to reexamine 

closed investigation into falsification of time. 5/10/2005

Representative, Alabama Review of demand for back pay following expiration of Workman’s Compensation. 5/11/2005

Senator, West Virginia Referral of complaint of delay in establishing cluster-box delivery of mail to new community. 9/21/2005

Representative, California Referral of complaint of late delivery of mail. 9/22/2005

REVENUE

Requestor Allegations/Concerns Closure Date

Representative, California

Review of employee complaint of non-payment for a submission under the IDEA program and referral 

to payroll office. 5/10/2005

HUMAN CAPITAL

Requestor Allegations/Concerns Closure Date

Representative, Illinois

Audit and investigative inquiry into 18 issues related to employee complaints of inappropriate 

personnel actions and mismanagement in Puerto Rico facilities. 7/29/2005

Representative, California Workplace climate review, Bay Valley. 6/23/2005

Representative, Virginia

Declination of request for renewed investigation of alleged false accusations, investigation, and 

defamation by Postal Service officials. 4/6/2005

Senator, California

Declination of further review of allegations of inappropriate new job postings and misreported work 

hours in order to increase performance ratings. 4/4/2005

Representative, Texas Referral of allegation of non-compliance with Americans with Disabilities Act at a Texas post office. 4/4/2005

Senator, Virginia Request for investigatory records; treated as a FOIA request. 5/17/2005

Representative, Alabama Referral of demand to return to work and receive back pay following medical absence. 5/18/2005

Senator, Alaska

Review of allegations of unfair hiring practices and preferential treatment already addressed by 

management. 6/29/2005

Representative, Mississippi

Review of complaint of personnel infractions and systematic discrimination in the Mississippi District 

and referral to Area office. 9/2/2005

PRESERVE INTEGRITY AND SECURITY

Requestor Allegations/Concerns Closure Date

Senator, California Review safety inspection certifications and scheduling of San Francisco stations. 4/25/2005

Representative, Michigan Review of steps needed to safeguard post office facility from improper entry. 4/8/2005

Representative, Florida

Review of allegations by former employee that a “suspicious” letter was pulled from a Postal Service 

machine three weeks prior to 9/11/01 and not properly reviewed. 6/16/2005

Senator, Virginia Referral of complaint of threatening mail. 6/6/2005
April 1 – September 30, 2005 | 53

Requestor Allegations/Concerns Closure Date

Senator, Virginia Referral of mail fraud and identity theft request for assistance. 6/28/2005

Representative, Texas Referral of complaint of threatening hate mail. 7/8/2005

Representative, California

Review of allegations stemming from an incident during surveillance conducted by the Postal 

Inspection Service. 8/10/2005

Representative, Alabama Referral of complaint of stolen mail and efforts to address it. 7/26/2005

Senator, Virginia Referral of complaint of a stolen check. 8/4/2005

Representative, Florida Request for investigatory records; treated as a FOIA request. 9/9/2005

STRATEGIC DIRECTION

Requestor Allegations/Concerns Closure Date

Senator, Iowa

Request for audit determinations of whether postal rate increases are properly supported by data 

systems. 6/22/2005

Representative, Virginia

Referral of complaint objecting to revised Postal Service procurement regulations and failure to 

negotiate fairly. 6/30/2005

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54 | Semiannual Report to Congress

supplemental information

Investigative case highlights

For the period April 1 – September 30, 2005

Computer Security Company to Repay Postal Service $1.1 Million

A Redwood City, CA,-based contractor agreed to repay the Postal 

Service $1.1 million on June 20, 2005, to settle allegations of billing 

for computer network security services it did not perform and for 

work not reimbursable under its contract. 

As background, in 1998 the Postal Service awarded the firm a 

$5 million contract, which it later expanded to $25 million. From 

1998 to 2002, the firm billed the Postal Service more than $21 million 

under the contract. Our investigation of the firm was prompted by a 

qui tam complaint made to the Hotline. The negotiated settlement 

resulted when the U.S. Attorney’s Office in San Francisco intervened 

in the qui tam action. The settlement released the contractor 

from all claims against it once it made final payment to the Postal 

Service. The company stopped active business operations during 

our investigation. 

Confronted About a $147,780 Shortage, NJ Postmaster Retires

On August 4, 2005, South Jersey District managers interviewed a New 

Jersey postmaster who denied embezzling missing Postal Service 

funds but opted to retire and repay the shortage of $147,780. 

As background, the South Jersey District Internal Working Group 

identified problems with the stamp vending machine accountabilities 

at the New Jersey post office in January 2005. The group reported 

the problems to the postmaster, who failed to correct the problems. 

The group then reported the problems to the OIG. Our special agents 

identified the shortage in the stamp vending machine accountabilities 

on July 19, 2005, and tried to interview the postmaster, who 

requested legal representation. Postal Service management placed 

the postmaster on administrative leave pending completion of the 

ongoing investigation. 

Court Issues Judgment Against Permit Mailer for Submitting 

NSF Checks 

The U.S. Attorney’s Office in Los Angeles obtained a default judgment 

against a California permit mailer on August 1, 2005, for giving the 

Postal Service nonsufficient checks.

As background, in FY 2004, the Eagan Accounting Service Center, 

which provides nonsufficient funds (NSF) check information to 

the Postal Service, received 135,000 returned checks totaling 

approximately $27 million from Postal Service districts nationwide. 

One California company, a permit mailer, had submitted 36 NSF 

checks totaling $107,737 to the Postal Service. This company 

was one of many permit mailers submitting multiple NSF checks to 

the Postal Service, while ignoring requests to pay off the returned 

checks. During FY 2004, the company sent one payment of $2,000 

toward the returned checks, leaving a debt of $106,637 — including 

collection fees of $25 per check — to the Postal Service. 

Firm Pays Back $1,919,742 for False Claims and Statements 

The U.S. Postal Service received more than $1.9 million from the 

Department of Justice (DOJ) on September 15, 2005, which acted on 

its behalf in a settlement negotiation with a New York management 

consulting firm. The firm allegedly submitted false claims for travel 

expenses incurred under contracts with the Postal Service and other 

U.S. government agencies, and also allegedly submitted inflated and 

false invoices for travel rebates it had received. 

From 1990 through 2003, the firm sought reimbursement from 

government agencies for nearly $24 million in discounts and rebates 

it had received and was supposed to turn back to the government. 

In 2001, we determined that the Postal Service had awarded the 

New York firm 157 contracts, 31 of which were still active. Losses 

to the Postal Service amounted to $1,424,875 in false claims and 

statements, $275,323 in investigative costs, and $219,544 in 

interest. 

Gas Station Manager Jailed for Stealing Postal Service Funds 

A New York City U.S. District Court judge sentenced a gas station 

manager on April 15, 2005, to 18 months imprisonment, three 

years supervised release, and payment of $436,800 in restitution 

for numerous charges, including stealing government funds 

and mail fraud. The manager admitted stealing and using Postal 

Service Voyager account and Personal Identification Number (PIN) 

information to process phantom fuel purchases over the past five 

years. He acquired PINs by watching postal employees enter them 

when purchasing fuel. After making fake fuel purchases with the 

stolen PINs, the manager then withdrew cash from his drawer 

equaling the bogus charges. 

Michigan Relief Postmaster Indicted on 61 Counts of 

Embezzlement and Theft 

Our special agents learned that from October 2003 to March 

2005, a Michigan relief postmaster embezzled $143,741 via 321 

fraudulent money order transactions. The relief postmaster admitted 

embezzling approximately $100,000 in Postal Service money orders. 

She was indicted on 61 counts of embezzlement and theft of public 

money and Postal Service money orders. The postmaster resigned 

from the Postal Service on May 10, 2005 and surrendered to U.S. 

marshals on August 18, 2005.

As background, we opened an investigation stemming from a 

discovery made by the Internal Control Working Group for the Greater 

Michigan District, which found $126,000 in money orders had 

been cashed but not remitted at a local post office. The USPIS had 

also been investigating reports of missing money orders from the 

same Michigan post office. One money order, which appeared to 

be improperly issued, had been written for $990 and cashed by the 

relief postmaster.

New Jersey Contractor Admits Overcharging Postal Service 

$184,356

A Postal Service contractor pleaded guilty on June 8, 2005, to 

charges of postal fund theft. The contractor, who owned a car 

repair shop and mobile car wash business, billed at least 10 New 

Jersey Postal Service facilities for excessive services and repairs 

between October 1998 and November 2003. Using the Postal 

Service credit card system to misappropriate money, the contractor 

billed for services not performed, performed at an inflated price, or 

performed unnecessarily. He also admitted giving supervisory postal 

employees and their family members benefits in the form of cash, 

free repair services, and used cars. The loss to the Postal Service 

was $184,356. This ongoing investigation was prompted by an OIG

Hotline complaint alleging excessive vehicle maintenance costs and 

related manager misconduct. 

Postal Plant Supervisor Arrested for Misappropriation of Postal 

Funds

A Westchester, NY, Postal Service maintenance supervisor created 

a fictitious company to defraud the Postal Service. Beginning in 

October 2004, he submitted approximately 25 fraudulent invoices 

to his “company” for various services, including pump repairs and 
April 1 – September 30, 2005 | 55

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equipment purchases. Another plant maintenance supervisor determined 

that pump repairs had not been made as claimed. 

On August 11, 2005, the maintenance supervisor admitted to special 

agents that he billed the Postal Service for fraudulent repairs totaling about 

$20,616 and deposited the Postal Service checks into his personal bank 

account. The total loss to the Postal Service was approximately $200,000. 

The Postal Service suspended the maintenance supervisor with pay on 

August 11, 2005. He was arrested on the same day for misappropriation 

of Postal Service funds. 

President of New York Construction Company Falsified Payrolls 

The president and owner of a New York-based construction company 

pleaded guilty to mail fraud in U.S. District Court in Brooklyn, NY, on April 

21, 2005, by submitting and mailing fraudulent certified payroll records to 

the Postal Service. The owner also made restitution of $96,000 for a wage 

violation. He was arrested with the company vice president on December 

14, 2004. 

The firm was a subcontractor on a $7 million contract the Postal Service 

awarded for renovations at the John F. Kennedy International Airport Post 

Office in Jamaica, NY. The subcontractor received about $470,000 for 

services it performed at the post office from October 7, 2001 through 

May 13, 2002. An investigation revealed the president and vice president 

gave false statements to the Postal Service by underreporting the number 

of employees and over-reporting what the company paid them. We 

conducted this investigation jointly with the Department of Labor OIG and 

the New York City Department of Investigation. 

$704 Million Global Settlement Reached in Health Care Fraud Case

On October 17, 2005, an overseas drug company and its U.S. subsidiaries 

agreed to a $704 million settlement to resolve criminal charges and civil 

liabilities from illegal schemes to promote and sell their AIDS drug. Under 

the terms of the settlement, the third largest involving health care fraud 

in the United States, the firms will pay $136.9 million in criminal fines 

and more than $567 million to settle federal civil liabilities under the False 

Claims Act. One of the U.S. subsidiaries will be excluded from all federal 

health care programs for at least five years.

Since April 2002, we have been participating in a multi-agency 

investigation, which was prompted by a qui tam lawsuit. Our involvement 

is based on the alleged fraud of the Federal Employee Health Benefits 

Program — as the Postal Service is the second largest contributor.

The case involved executives who allegedly falsified multiple health claims 

and drug-approval documentation to increase sales of an AIDS drug that 

the Food and Drug Administration conditionally approved. The defendants 

also allegedly improperly offered inducements to physicians, causing 

overbillings to the U.S. government. Four former drug company executives 

were indicted in April 2005 in U.S. District Court in Boston on multiple 

counts of false claims, kickbacks, and conspiracy. Two other individuals 

pleaded guilty to conspiracy and kickback charges and are awaiting 

sentencing. 

Texas Medical Equipment Company Indicted for Overcharging Postal 

Service

A Dallas federal grand jury returned a 27-count indictment against a 

Dallas-area medical business and two of its employees on August 8, 2005. 

The grand jury indicted the employees and the business with one count 

each of conspiracy to commit mail fraud and health-care fraud and 26 

counts of health care fraud. 

According to the indictment, the two employees and the parent company 

conspired to defraud health care benefit programs by submitting false 

and fraudulent reimbursement claims to state and federal workers’ 

compensation insurance carriers from late 1999 to mid-2003. 

We initiated the investigation and were later joined by the USPIS; U.S. 

Department of Labor OIG; Texas Workers’ Compensation Commission; and 

Texas Mutual Insurance Company. The total identified loss to the Postal 

Service was approximately $1.2 million, and total fraudulent activity to 

other federal agencies and private insurance companies was about $2.2 

million. 

Trucking Contractor Subverts More Than $1.4 Million in Postal 

Service Funds

On behalf of the Postal Service, the DOJ filed a civil complaint on September 

30, 2005, against a trucking company owner for violations of the Civil False 

Claims Act. The DOJ is seeking more than $4.2 million in damages and 

penalties. The owner had pleaded not guilty on April 20, 2005, to charges 

of embezzlement, theft, and making false statements. 

The owner, whose companies provided mail transport services to the 

Postal Service, illegally accepted $902,772 in fuel rebates and $170,237 

in contract payments to which he was not entitled. While managing the 

companies, the owner subverted fuel-purchase discounts to personal use 

rather than pass them to the Postal Service, as his contracts required. He 

also cashed contract payments the Postal Service mistakenly provided to 

him. 

Waste Recycler to Reimburse Postal Service $133,000

The DOJ and an Arizona waste management company reached a 

$133,000 settlement agreement on May 5, 2005, stemming from our 

investigation into the company’s practices. A postal manager prompted 

the investigation, alleging the recycling company had overbilled the Postal 

Service. Investigators determined the company improperly charged the 

Postal Service $33,280 for services related to the removal of recycling 

materials and $2,280 for other unidentified services from 1998 through 

2001. The company also failed to reimburse the Postal Service $81,335 

in recycling rebates.
56 | Semiannual Report to Congress

supplemental information

Freedom Of Information Act

Activities

For the period April 1 – September 30, 2005

Requests Number of Requests

Carryover from prior period 5

Received during period 103

Total on hand during the period 108

OIG actions Number of Requests

TOTAL Processed during the period 99

Request released in full 11

Request partially granted 23

Request not granted 14

Request referred to another agency 17

No records 32

Not a proper FOIA request 2

Balance Number of Days

Requests pending at the end of the period 9

PROCESSING DAYS Number of Days

Median processing days to respond to a FOIA request 9 
April 1 – September 30, 2005 | 57

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supplemental information

Glossary

Advance fee scheme – Obtaining fees purporting to secure buyers or 

obtain loans.

AMC – An Air Mail Center is a postal facility at an airport that 

receives, concentrates, transfers, dispatches, and distributes mail 

transported by air.

AMSOP – Early morning standard operating procedures that assist the 

managers and postmasters in making better business decisions for 

city delivery operations.

APC – Automated Postal Center, a kiosk that dispenses postage and 

provides several mailing services. APC’s allow customers to weigh, 

calculate, apply exact postage, and ship Express Mail and Priority Mail 

items, packages, and First-Class letters right at the kiosks. They also 

provide easy access to postal products and services.

ATO – Air Transfer Office only supports core airport operations such 

as tender and receipt of mail and ramp activities.

Bargaining unit employee – A Postal Service employee who is 

represented by a labor organization (union) that negotiates with the 

Postal Service for the wages, hours and other terms and conditions 

of employment. These employees include city carriers, clerks, mail 

handlers, rural carriers, special delivery messengers, maintenance 

employees, and motor vehicle operators.

BDS – See Biohazard Detection System.

BMC – Bulk Mail Center, where packages and standard mail are 

processed.

BMEU – See Business mail entry unit.

Bulk mail – Mail that is rated for postage partly by weight and partly 

by the number of pieces in the mailing. The term is generally used to 

refer to Standard Mail (A).

Business mail entry unit (BMEU) – The area of a postal facility 

where mailers present bulk, presorted, and permit mail for acceptance. The BMEU includes dedicated platform space, office space and 

a staging area on the workroom floor.

Biohazard Detection System – The Biohazard Detection System 

(BDS) detects the presence of harmful bio-agents that may exist in 

mailpieces that are processed in Processing and Distribution Centers 

(P&DCs) operated by the Postal Service. 

Click-N-Ship – Click-N-Ship is an online, self-service mailing application that allows customers to enter a delivery address and weight, 

choose a service shipping option, method of payment, and then print 

out postage-paid shipping labels.

DOIS – Delivery Operations Information System, deployed in 2002, 

provides delivery supervisors and managers with data (such as 

workload status reports and carrier performance information) to 

improve daily delivery operational performance.

END initiative – The Evolutionary Network Development (END) initiative is the next step in the Postal Service’s efforts to create a flexible 

logistics network to reduce costs, increase overall effectiveness, and 

improve consistency of service.

ETOEs – Extraterritorial Offices of Exchange (ETOEs) are commercial 

businesses affiliated with foreign postal administrations that compete 

in the international shipping and delivery market with the Postal 

Service and commercial shippers not affiliated with foreign posts.

Express Mail Service – A mail class that provides expedited delivery 

service for mailable matter subject to certain standards. It is available 

in five basic domestic service offerings (Same Day Airport Service, 

Custom Designed Service, Next Day Service, Second Day Service, 

and Military Service). Express Mail International Service is available 

between the United States and most foreign countries. Express Mail 

is a Postal Service trademark.

False billings scheme – Mailing solicitations in the guise of billings.

FECA – Postal Service employees injured while performing their 

duties may be eligible for compensation under the Federal Employee’s 

Compensation Act (FECA).

FEHB – The Federal Employees Health Benefits (FEHB) program helps 

federal employees, retirees, and their survivors meet health care 

needs through a wide selection of health plans across the country. 

First-Class Mail – A class of mail that includes all matter wholly or 

partly in writing or typewriting, all actual and personal correspondence, all bills and statements of account, and all matter sealed or 

otherwise closed against inspection. First-Class Mail comprises three 

subclasses: postcards, letters and sealed parcels, and Priority Mail. 

Any mailable matter may be sent as First-Class Mail. First-Class Mail 

is a Postal Service trademark.

Flat-size mail – A mailpiece that exceeds one of the dimensions 

for letter-size mail (11-1/2 inches long, 6-1/8 inches high, 1/4 inch 

thick) but that does not exceed the maximum dimension for the mail 

processing category (15 inches long, 12 inches high, 3/4-inch thick). 

Dimensions are different for automation rate flat-size mail eligibility. 

Flat-size mail may be unwrapped, sleeved, wrapped, or enveloped.

Fraud internet schemes – Fraudulent schemes using the Internet 

with a connection to the mail.

FY – Fiscal Year.

FWC Forum – Federal Workers’ Compensation (FWC) Forum consists 

of more than 18 IG offices who work together to reduce costs and 

combat fraud related to the Federal Employee’s Compensation Act 

(FECA) across the federal government.

Highway contract transportation routes – A route served by a postal 

contractor to carry mail by highway between designated points.

ICM – International Customized Mail agreements are contracts 

between the Postal Service and mailers for a period of one to two 

years. These agreements represent individually negotiated discounts 

with mailers within certain categories of outbound international mail 

in exchange for meeting prescribed annual minimum revenue or 

volume commitments. 

IEMP – The Postal Service’s Integrated Emergency Management Plan 

that improves coordination or planning and response activities among 

functional areas in the event of an emergency.

IMPAC – The International Merchant Purchase Authorization Cards 

(IMPAC) are how the Postal Service acquires goods and services, in 

addition to contracts.

LK – A lobby kiosk (LK) can perform all post office transactions 

— purchasing stamps, mailing parcels, renting post office boxes, 

initiating retail sales transactions — 24 hours-a-day, 7 days-a-week 

with payment by debit, credit, cash cards, and cash.
58 | Semiannual Report to Congress

Logistical support network – Activities or programs that support 

the transportation of mail, such as fuel procurement, mail transport 

equipment procurement and management, and vehicle management 

and maintenance.

Lottery scheme – Advertisements seeking money or property by mail 

for participation in schemes to win prizes through chance.

Merchandise failure to pay scheme – Mail order merchandise 

acquired without providing payment.

Merchandise misrepresentation scheme – Mail order merchandise 

or services that are materially misrepresented in advertising.

MERLIN –Mail Evaluation, Readability, and Lookup INstrument 

determines whether individual mailings qualify for the discounts 

claimed by the mailer.

Negotiated Service Agreement (NSA) – A contractual agreement 

between the Postal Service and customers that gives pricing 

incentives in exchange for a shift in customer behavior that benefits 

the Postal Service.

NGK – Next Generation Kiosk (NGK) that could be designed to 

leverage the success of the APC. The NGK could sell stamps printed 

on demand, allow payment by cash, and enhance revenue-reporting 

capabilities for management. 

OWCP – Administered by the U.S. Department of Labor, the Office of 

Workers’ Compensation Programs (OWCP) provides direct compensation to providers, claimants, and beneficiaries.

PARS – Postal Automated Redirection System.

PCIE / ECIE – The President’s Council on Integrity and Efficiency 

Executive Council on Integrity and Efficiency address integrity, economy, 

and effectiveness issues that transcend individual government agencies. This organization also seeks to increase the professionalism and 

effectiveness of IG personnel throughout the government. 

POS ONE – Point of Service (POS) ONE is an electronic system that 

records sales and payment transactions at retail facilities.

Postal Rate Commission (PRC) – An independent federal agency 

that makes recommendations on Postal Service requests for changes 

in postal rates and mail classifications. The five commissioners are 

nominated by the President and approved by the U.S. Senate.

Postal Reorganization Act – The statute that requires postal rates 

and fees to “provide sufficient revenues so that the total estimated 

income and appropriations...will equal as nearly as practicable total 

estimated costs.” (Public Law 91-375, signed August 12, 1970.)

Priority Mail – First-Class Mail that weighs more than 13 ounces and, 

at the mailer’s option, any other mail matter weighing 13 ounces or 

less. Priority Mail provides expedited delivery.

Processing and Distribution Center/Facility (P&DC/F) – A central 

mail facility that processes and dispatches part or all of both incoming 

mail and outgoing mail for a designated service area. It also provides 

instructions on the preparation of collection mail, dispatch schedules, 

and sorting plan requirements to mailers.

Remote Encoding Centers – When all computer-based means of 

resolving address information have been exhausted at a mail facility, 

an image of an address is sent to a remote encoding center (REC), 

where operators use video display terminals and keyboards to process 

the address information. The results of this encoding are sent back 

electronically to the facility that has the mailpiece, thereby keeping 

the mailpiece in the automated mailstream.

Retail facility – A postal unit of a Post Office and its subordinate units 

as well as military Post Offices that sell postage stamps and provides 

other postal retail services to customers. The subordinate units are 

within the service area of a main post office and include post office 

stations, post office branches, contract postal units, and nonpersonnel units.

Standard Mail – A class of mail consisting of mailable matter that 

is not required to be mailed as First-Class Mail or is not mailed as 

Periodicals.

Unsupported costs – Costs that are questioned because of inadequate supporting documentation for the proposed/ claimed costs.

USPIS – U.S. Postal Inspection Service, a law enforcement arm of the 

Postal Service that provides assurance to American businesses for the 

safe exchange of funds and securities through the U.S. Mail; to postal 

customers of the “sanctity of the seal” in transmitting correspondence 

and messages; and to postal employees of a safe work environment.

Verification – The procedural checks of a mailing presented by a 

mailer to determine proper preparation and postage payment.

Value proposition – Develops audit work that maximizes benefits 

to the Postal Service and assists top management in reaching their 

goals.

VESS – Vending Equipment Sales and Service (VESS) System data 

is an online database that offers real-time tracking of product sales, 

miscellaneous costs, and maintenance and service for vending 

machines.

VMF – A Vehicle Maintenance Facility (VMF) is where the Postal 

Service maintains and repairs vehicles.

Voyager Fleet Cards – Credit cards used by postal employees to 

acquire automotive goods and services, such as gasoline or repairs.

Work at home scheme – Schemes, such as envelope stuffing, that do 

not provide home employment.

“The following are among the many trademarks owned by the United States Postal Service: United States Postal Service®, U.S. Postal Service®, USPS®, First Class Mail®, USPS.com®, Click-N-Ship®, 

Automated Postal Center®, APC®, Express Mail®, Priority Mail®, Standard Mail®, Parcel Post®, The Postal Store®, Media Mail®, Customized Market Mail®, United States Postal Service Office of Inspector General®, Post OfficeTM, Postal ServiceTM, Signature ConfirmationTM, Certified MailTM, Delivery ConfirmationTM, Registered MailTM, Post Office BoxTM, ZIP CodeTM, Carrier PickupTM and Postmaster 

GeneralTM. The Sonic Eagle Logo and the Mail Truck Design are also registered trademarks belonging to the U.S. Postal Service.”
office of inspector general

Report 

Fraud, Waste, and Misconduct

in the Postal Service

Contact the Hotline at:

1.888.USPS.OIG

1.888.877.7644 

Fax: 1.866.756.6741

or www.uspsoig.gov

TTY (HEARING IMPAIRED)

1.866.OIG.TEXT

1.866.644.8398
U.S. Postal Service

OFFICE OF INSPECTOR GENERAL

1735 N. Lynn Street

Arlington, VA 22209-2020

703.248.2100

Fax: 703.248.2291

Internet: www.uspsoig.gov