SEMIANNUAL REPORT

TO CONGRESS

APRIL 1, 2004 – SEPTEMBER 30, 2004

OFFICE OF INSPECTOR GENERAL
MISSION STATEMENT

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:

■ Prevent and detect fraud, waste and abuse;

■ Promote economy, efficiency and effectiveness;

■ Promote program integrity; and

■ Keep the Governors, Congress and Postal Service 

management informed of problems, deficiencies

and corresponding corrective actions.
April 1, 2004 – September 30, 2004 | i

Marking the one-year anniversary since my arrival, the U.S. Postal 

Service Office of Inspector General 

(OIG) completed its fiscal year (FY) 

2004 initiatives: organizational 

redesign, value enhancement and 

performance orientation. As a result, 

our performance has improved and is 

on a steady upward trajectory across 

the organization.

We strengthened the OIG by focusing on mission-critical initiatives 

and ensuring that OIG work adds 

value to the Postal Service. Audit 

directors and Investigative special 

agents in charge worked closely 

with Postal Service business units 

and area vice presidents.

The retooled Office of Investigations 

has far exceeded last year’s results. 

Our investigative work resulted in 

$23.7 million in fines, judgments and 

restitutions, a 259 percent increase 

over FY 2003.

The productivity and timeliness of our 

Office of Audit also improved and 

monetary benefits identified by our 

audits increased by 56.5 percent over 

the last fiscal year. The Postal Service 

vice presidents and their audit director counterparts focused efforts on 

issues that in FY 2004 identified 

$506.8 million in savings and funds 

that could be put to better use. 

To continue the momentum, we’re 

building on the three initiatives 

established at the beginning of FY 

2004. We’re ensuring directorate 

excellence, conducting expert planning (which includes close consultation with the postal community) and 

beginning a “Smart Workplace” initiative to ensure optimal performance. 

During this reporting period, each 

OIG employee was trained in project 

management, writing/editing and 

utilizing workplace alternatives.

Planning has begun to transfer a 

portion of the work currently performed by the U.S. Postal Inspection 

Service (USPIS) — appropriate 

internal crimes work — to the OIG, 

to be consistent with congressional 

intent. The two organizations had 

been working under a designation of 

functions crafted when the OIG was 

established in 1997. That agreement 

is being revisited.

In this semiannual report, we’re 

focusing on the top five management 

challenges the OIG believes are 

facing the Postal Service today: cost 

control; revenue; strategic direction; 

safety and security; and management information. Next, we’re 

highlighting several significant audits 

and investigations conducted over 

this reporting period. In a new section, we explore ideas and concepts 

regarding postal operations; programs that may contribute to reducing costs; improving efficiencies; and 

increasing revenue or introducing 

new ways of doing business.

As background, the OIG is required 

by law to report monetary benefits 

and accomplishments semiannually 

to Congress and the Governors of 

the Postal Service. Our auditors and 

postal managers use the evidence 

gathered during audits to develop 

figures that can be reasonably determined and supported. The savings 

identified are linked to recommendations such as, reducing workhours in 

postal facilities or terminating transportation contract routes to save 

money over a period of time without 

detracting from service delivery.

There are also non-financial benefits, 

such as deterring fraud, waste or 

misconduct; ensuring a level playing 

field for contractors; and helping 

secure postal computer systems 

from attack.

To estimate savings, the OIG and 

postal management project findings 

over the remaining term of a contract, 

lease, Decision Analysis Report 

(typically 10 years cash flow), or other 

period used by the Postal Service.

In this reporting period, the OIG 

issued 268 audit reports, management advisories and other products. 

These efforts, some of which the 

OIG and postal management 

accomplished jointly, resulted in 

$229.4 million in questioned costs, 

unrecoverable costs, funds to be put 

to better use and revenue impact.

In addition, the OIG completed 463 

investigations resulting in 190 referrals to management, 28 arrests, 

24 indictments, 14 convictions and 

$6.4 million in fines, restitutions and 

recoveries, of which more than 

$2.3 million was returned to the 

Postal Service.

As in my previous message, I again 

acknowledge Postal Service leadership and the Board of Governors 

for their strong support in all of our 

efforts. I look forward to continuing 

our work overseeing the nation’s mail 

service by delivering audit reports 

and investigative services that 

promote economy, efficiency and 

integrity within the Postal Service.

Sincerely,

David C. Williams

October 1, 2004

October 1, 2004 – March 31, 2005 | i

A MESSAGE FROM THE INSPECTOR GENERAL
ii | Semiannual Report to Congress

AUDIT

Reports issued ..................................................................................................... 268

Significant recommendations issued ...................................................................... 52

Total reports with financial impact ........................................................................... 60

Funds put to better use .................................................................... $163,398,672

Questioned costs1 .............................................................................. $65,263,905

Unrecoverable costs ................................................................................. $67,199

Revenue impact ...................................................................................... $664,780

TOTAL ................................................................................................. $229,394,5562

SUMMARY OF PERFORMANCE

April 1, 2004 – September 30, 2004

INVESTIGATIONS

Investigations completed ....................................................................................... 463

Arrests ..................................................................................................................... 28

Indictments/informations ......................................................................................... 24

Convictions/pretrial diversions ................................................................................. 14

Administrative actions .............................................................................................. 98

Total fines, restitutions and recoveries3 ...................................................... $6,352,168

Amount to Postal Service (included in total figure above)3 ..................... $2,291,260

HOTLINE CONTACTS

Facsimile – FAX ..................................................................................................... 214

E-mail ................................................................................................................. 2,749

Standard Mail ........................................................................................................ 480

Voice mail messages ............................................................................................. 849

Telephone calls ................................................................................................... 8,408

TOTAL CONTACTS ........................................................................................ 12,700

1 Includes unsupported costs of $4,725,975.

2 The Postal Service agreed to recommendations or proposed alternative corrective actions that, if implemented, could 

result in more than $229 million in savings.

3 Some fines and recoveries were from the previous reporting period, but not previously reported.
April 1, 2004 – September 30, 2004 | 1

INTRODUCTION ....................................................................................................... 2

MANAGEMENT CHALLENGES ................................................................................. 3

Cost Control ..................................................................................................... 3

Revenue ......................................................................................................... 10

Strategic Direction .......................................................................................... 11

Safety and Security ......................................................................................... 12

Management Information ................................................................................ 13

FEATURE STORIES ................................................................................................. 15

IDEAS WORTH EXPLORING ................................................................................... 21

ORGANIZATIONAL CHART ..................................................................................... 28

MAP OF OFFICE LOCATIONS ................................................................................. 29

APPENDICES .......................................................................................................... 30

APPENDIX A – Quantifiable Potential Monetary Benefits ................................... 31

Report Listing ........................................................................... 35

APPENDIX B – Findings of Questioned Costs ................................................... 41

APPENDIX C – Recommendations That Funds Be Put to Better Use ............... 42

APPENDIX D – Reports with Significant Recommendations Pending 

Corrective Actions .................................................................... 43

APPENDIX E – Significant Management Decisions in Audit Resolution ............. 46

APPENDIX F – Investigative Statistics ............................................................... 47

APPENDIX G – Summary of Postal Service Investigative Activities 

Under Title 39 USC § 3013 ...................................................... 48

APPENDIX H – Closed Congressional and Board of Governors Inquiries .......... 49

SUPPLEMENTAL INFORMATION ............................................................................ 51

Audit Synopses ................................................................................................ 51

Investigative Synopses ...................................................................................... 57

Freedom of Information Act Requests ............................................................... 59

Glossary ........................................................................................................... 60

TABLE OF CONTENTS
2 | Semiannual Report to Congress

INTRODUCTION

MANAGEMENT CHALLENGES

All federal departments confront significant 

management risks and opportunities. The Postal 

Service is no exception. In this report, the OIG 

focuses on five major challenges that confront 

postal management and spotlights efforts underway to manage them.

■ Cost Control — With declining revenues in 

several key areas, the Postal Service must 

control costs to maintain universal service. 

The greatest opportunities to reduce costs 

are in optimizing its network, controlling 

its labor costs and increasing efficiencies 

through technology investments.

■ Revenue — Revenue growth has been 

relatively stagnant in the face of rising labor 

costs and increases in new delivery points. 

The Postal Service must strive to develop 

revenue streams that fully cover the cost of 

its operations without placing undue burden 

on ratepayers.

■ Strategic Direction — The Postal Service 

must balance its public service obligation 

with the need to remain commercially viable. 

To achieve this objective, the Postal Service 

must continue to work within existing law 

to increase its business effectiveness and 

operational efficiency.

■ Safety and Security — With more than 

700,000 employees, nearly 38,000 facilities 

and approximately 200 billion pieces of mail 

to deliver each year, the Postal Service has 

the enormous task of securing the nation’s 

mail system and safeguarding its employees and customers in an environment of 

increased potential for terrorist attacks.

■ Management Information — To address 

concerns that information it provides is 

not transparent, the Postal Service has 

embarked on an effort to provide information 

that better meets the needs of its managers 

and stakeholders.

FEATURE STORIES

This chapter highlights OIG work in three areas: 

network optimization; working together — a 

“win-win” for the Postal Service; and the injury 

compensation working group.

IDEAS WORTH EXPLORING

This section presents concepts for improving 

Postal Service operations, which the OIG plans 

to evaluate in more depth. The ideas discussed 

are a property line initiative; commercialization of 

employee benefit programs; contract routes versus hourly carriers; neighborhood mail; five-day 

versus seven-day delivery; labor flexibility/moving 

across crafts; right-sizing Post Offices; providing 

fair and efficient retail services; and governmentrelated services.

APPENDICES

The appendices align the OIG’s body of work with 

the five management challenges facing the Postal 

Service. This semiannual report fulfills the requirements of the Inspector General Act of 1978 to 

summarize OIG activities during the immediately 

preceding six-month period ending September 

30, 2004.

SUPPLEMENTAL INFORMATION

This section includes a brief synopses of each 

audit, selected investigations and Freedom of 

Information Act requests that were completed 

between April 1 and September 30, 2004. It also 

includes a glossary.

For this reporting period, the April 1 to September 30 Semiannual Report to Congress focuses on the top five management challenges that the Office of Inspector General (OIG) believes the Postal Service is facing today. The OIG will 

continue providing audit and investigative support to postal executives as they take on these very significant challenges. 

Following is a summary of the sections in this report.
April 1, 2004 – September 30, 2004 | 3

MANAGEMENT CHALLENGES

All federal departments confront significant management risks and opportunities. The Postal Service is no exception. 

In this report, the OIG focuses on five 

major challenges that confront postal 

management and spotlights efforts 

underway to manage them.

COST CONTROL

The Postal Service’s universal service 

network continues to grow as the 

nation’s population increases and 

new businesses and households are 

formed. Even as this network expands, 

First-Class Mail volumes continue to 

decline due to the impact of electronic 

diversion and sluggish economic 

growth, negatively impacting the 

financial situation of the Postal Service. 

However, the costs of maintaining a 

universal service system will continue 

to increase regardless of the decrease 

in mail volume. From FY 2002 through 

2003, the Postal Service has added 

deliveries to 3.7 million new addresses.

The Postal Service has taken aggressive 

steps in recent years to stem the tide 

of increasing costs. It reduced overall 

spending by $8.3 billion during the past 

three years. Expenses decreased steadily 

from FY 2001 through FY 2003, and 

FY 2004 expenses are anticipated to 

be below those in FY 2001. In FY 2003 

alone, the Postal Service’s efforts in 

managing its business coupled with the 

impact of the Postal Civil Service Retirement System (CSRS) reform legislation 

resulted in a net income of $3.9 billion. 

Even without the CSRS legislation, cost 

reductions and increased productivity 

would have resulted in a net income of 

$900 million.

However, costs such as employee and 

retiree benefits continue to increase 

annually at rates exceeding inflation, and 

are expected to do so again in FY 2005. 

Although the Postal Service has offset 

some of these increases by reducing its 

number of career employees, other costs 

such as employee compensation and 

supplies and services associated with 

serving an expanding delivery network 

also continue to rise.

In FY 2003, Congress passed legislation that reduced the Postal Service’s 

payments to the CSRS. This allowed 

the Postal Service to divert some of the 

planned retirement benefit payments 

to other needs. For example, although 

it anticipated having to 

borrow additional funds 

in the fourth quarter of 

FY 2004, the Postal 

Service was able to pay 

off some of its remaining debt as of June 

30, 2004. However, 

expenses continue to 

rise in areas related to 

employee retirement 

and health care, which 

increased by more than 

$1 billion.

While legislative relief helped reduce 

the Postal Service’s CSRS costs, it 

placed additional burdens on the 

Postal Service not previously required 

and not levied against other federal 

government entities. The OIG reported 

that the decision to include additional 

obligations associated with the CSRS 

(such as requiring the Postal Service to 

fully fund military service pension costs 

for its employees) brought into question 

whether postal revenues are being used 

to fund costs not traditionally borne by 

federal agencies and suggested that the 

timing of adding these charges points 

to an effort to keep higher payments 

coming into the Civil Service Retirement 

and Disability Fund.

Since 2001, the Postal Service added deliveries to 3.7 million new 

addresses.
4 | Semiannual Report to Congress

After FY 2005, the law requires that “savings” from lowered CSRS payments be 

held in a separate account that the Postal 

Service cannot use until new legislation 

is passed. To compensate for not being 

able to use the savings to offset other 

business expenses, the Postal Service 

expects that it will have to raise postage 

rates over five percent, including two 

cents for First-Class Mail in FY 2006. 

Additionally, the Postal Service anticipates 

periodic postage rate increases of 1.0 

to 1.5 percent just to fund this provision 

after FY 2006. Further, with the continued 

diversion of First-Class Mail to other 

communication means, maintaining this 

“savings” requirement could accelerate 

this diversion.

The OIG reported that postal customers 

should be the beneficiaries of the lowered 

payments, so that the Postal Service may 

retire debt and cover other retirement 

costs not previously funded, or it may 

submit new cost data to the Postal Rate 

Commission that will ensure proper postage rates are set. Legislation is pending 

that addresses these issues.

In this report, the OIG focuses on three 

significant cost control opportunities: 

network optimization, labor costs and 

technology investments. Following are 

discussions of these elements.

Network Optimization

The challenge for the Postal Service is 

to standardize, retool and right-size its 

$26 billion mail processing and transportation network (this figure includes 

labor costs) while continuing its robust 

daily operations. This will not be easy. 

The sheer size and complexity of the 

network is daunting — as it is one of the 

most complex in the world.

It will be difficult to redesign the network 

while still in operation and at the same 

time maintain record customer service 

levels. Public and congressional concerns with facility closures will also need 

to be addressed. Moreover, network 

optimization will be a difficult initiative 

because the Postal Service has not yet 

achieved a common facility footprint or 

equipment layout in its facilities.

In the 34 years since the Postal Reorganization Act of 1970, the Postal Service 

implemented a series of class-based mail 

processing networks.

■ The Processing and Distribution 

Center (P&DC) network includes 

more than 300 facilities that primarily 

act as distribution centers for FirstClass Mail, periodicals and preferred 

parcel volume. Many of P&DCs have 

Business Mail Entry Units (BMEUs) 

where mailers present bulk mail or 

presorted mail for acceptance.

■ The Bulk Mail Center (BMC) network, 

instituted in the 1970s, includes 

21 processing facilities primarily 

designed to support Parcel Post and 

Standard Mail.

■ The Priority Mail Processing Center 

(PMPC) network, established in the 

mid-1990s, includes nine Logistics 

and Distribution Centers (L&DCs) 

and two processing centers primarily 

designed to process Priority Mail.

 The Processing and Distribution Center (P&DC) network includes more 

than 300 facilities that primarily act as distribution centers for First-Class 

Mail, periodicals and preferred parcel volume.
April 1, 2004 – September 30, 2004 | 5

■ The network of six International 

Service Centers (ISCs) serves as the 

gateway for international and military 

mail. The Postal Service established 

the network in 1996 to better compete in the international mail market.

While these networks were created 

incrementally during the last 30 years 

to standardize and improve the service 

of specific mail classes, this approach 

has also led to non-standardized use of 

the networks and facilities, resulting in 

overlapping mail flows across products 

and classes. Also, in today’s climate 

where some mail classes are experiencing flat to declining volume and market 

shifts, there is less need for dedicated 

class-based networks.

The Postal Service has developed a 

concept to optimize the current mail 

processing system by considering 

the physical shape of a product being 

processed. This “shape-based” system 

determines the capacity requirements 

based upon the volume and path of 

each type of shape.

A key component of network optimization 

is the Evolutionary Network Development 

(END) initiative, introduced in September 

2004 at the National Postal Forum. 

END is a sophisticated modeling effort 

to assess restructuring of the Postal 

Service’s mail processing, transportation 

and logistical support networks. For the 

past two years, the Postal Service has 

conducted extensive modeling and simulations of its networks — originally called 

the Network Integration and Alignment 

Initiative (NIA). Network modifications are 

expected to begin in calendar year 2005.

There is a strong and compelling case 

supporting network optimization. Declining mail volumes, evolving technology and 

increasing delivery points make it critical 

for the Postal Service to address inefficiencies in its network and infrastructure.

A key element of the Postal Service’s 

transportation network is its vehicle fleet 

and vehicle management infrastructure 

that ensures operationally-ready, safe 

and reliable vehicles. The Postal Service 

vehicle fleet includes light delivery 

vehicles, cargo vans, tractors and trailers 

that transport mail and equipment.

In recent audits of vehicle management, 

the OIG identified almost $90 million in 

unsupported costs or potential savings.

Other control initiatives include efforts to 

optimize the Postal Service’s highway 

transportation network and to reduce 

costs by consolidating highway contract 

transportation routes. Every day Postal 

Service trucking contractors transport 

mail across highway networks nationwide, 

costing more than $2 billion annually. 

Working with the OIG, the Postal Service 

has identified more than 

1,000 potential highway 

contract trip eliminations, 

consolidations or modifications, resulting in savings of 

more than $50 million over 

the life of the contracts.

Another large transportation network issue centers 

on the rising cost of fuel. 

The Postal Service currently 

spends more than $1 

billion per year for vehicle 

fuel, making it one of the 

largest fuel consumers in 

the United States. (Fuel costs are second 

only to labor costs in the Postal Service.) 

A one-cent increase in aviation and 

gasoline fuel prices, sustained for a year, 

has an approximate $8 million annual 

impact on postal expenses. An ongoing 

OIG audit will determine whether fuel 

procurement is cost-effective and if there 

are opportunities to save money.

The Postal Service is also restructuring 

its Mail Transport Equipment Service 

MANAGEMENT CHALLENGES

A one-cent increase in aviation and gasoline fuel prices, sustained 

for a year, has an approximate $8 million annual impact on postal 

expenses.
6 | Semiannual Report to Congress

Center network (MTESC), a system of 

22 contractor-operated logistical support 

facilities that provide equipment to mail 

processing facilities nationwide. The 

OIG is currently working with the Postal 

Service to identify opportunities to make 

the MTESC network more effective. See 

page 4 regarding network optimization.

Labor Costs

Controlling labor costs is one of the biggest challenges facing the Postal Service, 

due primarily to the size of its workforce. 

Labor costs include salary and cost of 

living adjustments (COLA), workers’ compensation for injured employees, health 

insurance and other benefits.

The Postal Service currently has about 

707,000 career and 98,000 non-career 

employees. Personnel and compensation 

benefits for employees totaled more than 

$50.5 billion in FY 2003, a figure that 

accounts for more than three-quarters 

of the Postal Service’s total operating 

expenses. A substantial portion of 

these costs can be attributed to the 

Postal Service’s 713,000 bargaining unit 

employees. In its 2003 Comprehensive 

Statement on Postal Operations, the 

Postal Service stated the average annual 

pay and benefits for career bargaining 

unit employees was $57,051.

Bargaining unit employees have a 

unique status within the Postal Service 

because they have the legal right to 

negotiate wages, hours and work conditions through collective bargaining with 

management. The four major collective 

bargaining agreements have expiration 

dates ranging from November 2005 to 

November 2006. The current agreements 

provide basic salary increases and a 

COLA that must be paid for the duration 

of the agreements. In FY 2004, Postal 

Service COLA and salary costs for bargaining unit employees increased about 

$851 million over the previous year. The 

Postal Service estimates the increase will 

be about $1 billion in FY 2005.

The 1970 Postal Reorganization Act, 

39aUSC, 101(c) & 1003(a), requires 

postal employee pay and benefits to be 

comparable to that paid for comparable 

levels of work in the private sector. This 

requirement came under debate during the April 2003 hearings before the 

President’s Commission on the Postal 

Service. In those hearings, the President’s 

Commission heard expert views regarding whether postal employees received 

comparable pay or were paid more than 

employees in the private sector who 

perform similar work.

As a result, the President’s Commission 

recommended in its July 2003 report that 

the Postal Reorganization Act of 1970 

be amended to clarify the meaning of 

the term “comparability” and that a new 

Postal Regulatory Board be authorized to 

determine comparable total compensation for all postal employees. Pending 

legislation on postal reform, however, 

does not contain provisions to address 

this recommendation.

The Postal Service’s largest labor cost 

center is delivery operations, which 

encompasses 43 percent of total labor 

hours. These hours are time expended 

by city and rural letter carriers sorting and 

delivering mail.

The Postal Service developed the 

management tool, Delivery Operations 

Information System (DOIS), to aid delivery 

managers in matching workload to 

workhours. Recent OIG reviews noted 

opportunities for supervisors and managers in several delivery units to increase 

use of DOIS to improve management of 

city letter carrier delivery operations. 

In FY 2005, the OIG will expand these 

reviews to other postal delivery units, as 

well as assess the rural and highway contract letter carrier models to determine 
April 1, 2004 – September 30, 2004 | 7

whether they are more efficient and costeffective than the city letter carrier model.

Another significant cost continuing to 

plague the Postal Service is workers’ 

compensation expenses for injured 

workers.

The Postal Service was the largest 

participant in the Department of Labor’s 

(DOL’s) Office of Workers’ Compensation 

Programs (OWCP) in FY 2004, representing about 30 percent of the total federal 

workforce that participated. It was also 

the largest payee to OWCP, with approximately $830 million in payments for the 

same year. This is more than 35 percent 

of the $2.3 billion in total federal workers’ 

compensation payments.

Postal workers’ compensation payments 

have risen by approximately 30 percent 

over the last several years — from 

$638 million in 2000 to $830 million in 

2004. At the same time, the administrative fees that OWCP charges the Postal 

Service have increased 33 percent, from 

$33 million in 2000 to $44 million in 2004.

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 2003, it estimated 

total liability for future workers’ compensation costs at $7.1 billion. The estimated 

total costs of a claim are based upon 

the severity of the injury, the age of the 

injured employee, the assumed life 

expectancy of the employee and/or the 

trend of experience with such an injury, 

and other factors.

Although most rising OWCP costs are 

beyond its control, the Postal Service 

is nonetheless trying to reduce costs 

through accident prevention initiatives 

that have resulted in fewer employees on 

OWCP rolls. To assist the Postal Service, 

the OIG identified 12 performance clusters in six areas of postal operations that 

implemented prevention initiatives which 

could become best practices in reducing 

accidents, injuries and illness. In addition, 

future OIG work will review the Postal 

Service’s efforts to prevent specific types 

of accidents.

The Postal Service has also tried for 

several years to gain congressional 

interest in its desire to replace the DOL’s 

OWCP program with its own program. 

The Postal Service believes having its 

own program would allow a great deal 

more flexibility and would be in its best 

interest. The OIG is conducting a survey 

to determine the feasibility and cost of 

such a program.

The OIG is also reviewing workers’ 

compensation costs in the areas of permanent and partial disability, and medical 

service payments made to 

providers. In addition, the 

OIG is examining a contract 

between the Postal Service 

and a preferred provider organization to determine the gain 

share amounts claimed and 

realized by the Postal Service 

through the contract.

Also, the OIG partnered with 

the Postal Service by creating an Injury Compensation 

Working Group to develop 

ways to help the Postal 

Service reduce its workers’ 

compensation costs.

One of the initiatives implemented by the 

working group is the new Healthcare 

Internal Data Analysis System computer 

program. This program examines duplicate medical billings and a practice called 

“unbundling,” where medical services are 

broken apart and separately billed for the 

purpose of charging more to OWCP. The 

working group and its initiatives are discussed in detail on page 19 of this report.

MANAGEMENT CHALLENGES

To assist the Postal Service, the OIG identified 12 performance 

clusters in six areas of postal operations that implemented 

prevention initiatives that can become best practices in 

reducing accidents, injuries and illness. 
8 | Semiannual Report to Congress

Another significant labor cost for the 

Postal Service is contributions made to 

the Federal Employees’ Health Benefits 

(FEHB) program on behalf of postal 

employees. In FY 2003, the Postal 

Service paid more than $4 billion for 

health insurance premium costs for nearly 

630,000 eligible postal employees. This 

contribution is more than one-third of the 

total costs of the FEHB program, which 

is more than any other federal entity. A 

fuller discussion on the Postal Service’s 

contribution to the FEHB program is on 

page 22.

Technology Investments

The Postal Service depends on technology to deliver more than 650 million 

pieces of mail daily to more than 140 

million addresses, but is challenged to 

smartly adapt new technology to maintain its competitive position in the market.

The Postal Service’s long-term vision is 

to automate the sortation of more mail in 

delivery-ready sequence (in delivery order 

for a given route). The possibilities include 

letters and flats (oversized letters) sorted 

together, placed 

in a single bundle 

and delivered to an 

individual address.

In addition, to 

improve the security 

and safety of customers and employees the Postal Service is addressing the 

threat of biohazards 

in the mail by identifying and deploying 

technology that is 

compatible with existing systems.

Automation and information technology 

have helped the Postal Service, over the 

last three years, trim $8.3 billion from the 

agency’s operating expenses, according to Postmaster General John Potter, 

speaking at the September 2004 National 

Postal Forum. Through automation, the 

Postal Service is sorting as much as 

80 percent of its letter mail into proper 

sequence for carrier delivery, but the 

goal is to reach 100 percent. Most flats 

and parcels continue to require sorting 

by carriers. The key to achieving its goal 

is quality barcoding and addressing by 

customers and through new technologies 

in development. The OIG will continue to 

look at the new technology and initiatives 

being developed to ensure benefits and 

capabilities are economical and attainable.

The Postal Service invested more than 

$13 billion deploying automation technology over the last 20 years. Letters are 

a majority of the volume that the Postal 

Service processes and most letters are 

sorted into delivery sequence order using 

automation equipment. The long-term 

capital plan still calls for significant 

capital investments in new automation 

equipment and management information 

systems to increase operating efficiency.

Over the past several years, the OIG has 

evaluated the development, deployment 

and return on investment of many Postal 

Service initiatives to automate its mail 

processing operations. These included 

material handling equipment, robotics, 

parcel processing equipment, retail 

systems and flats processing equipment. 

These initiatives improved operations, but 

in several instances there were delays in 

deployment and machine performance 

results were lower than expected.

The large size and diversity of the Postal 

Service’s customer base presents 

technological challenges demanding 

that solutions be simple, easy to use 

and competitive. The Postal Service is 

also using technology to achieve this 

aim. To address changing customer 

needs, the Postal Service has 

committed resources to better data 

The Postal Service invested more than $13 billion deploying automation 

technology over the last 20 years.
April 1, 2004 – September 30, 2004 | 9

management, tracking of mail and 

improved customer communication.

The Postal Service’s future vision 

includes intelligent mail coding and 

tracking. (Intelligent MailTM is the capture 

and sharing of information about each 

mailpiece throughout the postal system.) 

This will help the Postal Service compete 

in an environment where information 

about mail is becoming increasingly more 

important to its customers. Competitors 

have built their businesses, in part, 

by recognizing this shift in customer 

requirements. The Postal Service expects 

to benefit from this vision through revenue 

growth, reduced operating costs and 

enhanced mail security.

The OIG will continue to evaluate the 

efficiency and effectiveness of current 

and future Postal Service strategies to 

enhance mail processing equipment 

and other emerging technologies. The 

OIG will also continue to review new 

initiatives for biohazard detection and 

protection systems to safeguard postal 

employees, customers, operations 

and mail security during disasters and 

national emergencies.

MANAGEMENT CHALLENGES

The OIG will continue to look at the new technology and 

initiatives being developed to ensure benefits and capabilities 

are economical and attainable.

Intelligent mailTM is the capture and sharing of information 

about each mailpiece throughout the postal system.
10 | Semiannual Report to Congress

REVENUE

The Postal Service must strive to develop 

revenue streams that fully cover the cost of its 

operations without placing undue burden on 

ratepayers. Part of the OIG’s challenge is to 

work with the Postal Service to help minimize 

the size of rate adjustments required to meet 

the rising cost of operations.

Unlike most federal agencies, the Postal Service relies on its revenues, not appropriations, 

to fund its operations. Without adequate 

revenues, the Postal Service would have to 

borrow funds, reduce services, raise rates or 

seek taxpayer subsidies. Recent financial data 

indicates the Postal Service’s overall financial 

condition continues to improve in 2004. Current projections show a net income of about 

$2.6 billion at the end of FY 2004. However, 

this turnaround appears to be short-lived, as 

the Postal Service is projecting a loss in 

FY 2005 of about $200 million.

For FY 2004, some of the projected income 

relates to legislation passed in April 2003 

that reduced Postal Service payments to the 

Civil Service Retirement System by about 

$2.7 billion. In addition, revenues grew for 

Standard Mail due to increased advertising 

spending and election mail. However, FirstClass Mail revenue is expected to decrease 

by more than two percent after FY 2004, due 

to the continued use of electronic alternatives to mail. Further decreases are expected 

in the future. Additionally, other unknowns 

may impact revenue, including the passage 

of postal reform legislation, the economy and 

increasing competition.

To grow revenue, the Postal Service is entering into contractual agreements, Negotiated 

Service Agreements (NSA), with three customers that gives them pricing incentives in 

exchange for a shift in customer behavior that 

provides cost benefits to the Postal Service.

On September 30, the Postal Service completed the first year of an NSA with Capital 

One Services, Inc.; which has, based on the 

final forecast presented at the Postal Rate 

Commission (PRC), resulted in an estimated 

85 million additional First-Class mailpieces. 

Also, on the same date, the PRC recommended approval of the Discover Financial 

Services NSA. The Discover agreement is also 

intended to retain and grow First-Class Mail 

volume, however, the PRC case indicates that 

there will be a shift of mail volume from Standard to First-Class Mail. The Postal Service 

is waiting for PRC approval for the Bank One 

NSA, which is similar to the Discover Financial 

Services NSA.

All of the agreements are expected to result 

in cost savings because they require the customers to receive information about undeliverable mail electronically in lieu of having pieces 

returned physically. The OIG will continue 

to monitor the Bank One Corporation NSA, 

which was filed with the Postal Rate Commission on June 21, 2004.

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. The Postal 

Service invested $186.5 million in MERLIN to 

provide automated acceptance and verification of discounted mailings in BMEUs.

During this reporting period, the OIG conducted two site-specific reviews and reported 

that MERLIN was underutilized. One BMEU, 

for example, failed to collect $30,455 in 

additional revenue that was due. A report is 

planned to summarize the site-specific MERLIN reports and cover issues such as return 

on investment and user satisfaction.

Another avenue being pursued to increase 

revenue is providing government-related services in all Post Offices. One of these services 

is providing passports.

Last year, the Postal Service generated 

approximately $103 million in revenue from 

passport fees alone. The OIG plans to follow 

these new business strategies and marketing 

practices introduced by the Postal Service to 

determine if waste, misconduct or fraud could 

interfere with Postal Service efforts to increase 

business and revenue.
April 1, 2004 – September 30, 2004 | 11

STRATEGIC DIRECTION

In determining its strategic direction, 

the Postal Service must balance public 

service with its need to remain commercially viable. This task is increased due 

to heightened competition in the delivery 

and communication industries, especially with electronic alternatives to mail 

(such as electronic payments) steadily 

eroding First-Class Mail volume.

Unlike private corporations, the Postal 

Service is bound by statutory constraints 

that limit its ability to quickly adjust rates 

to respond to changing costs, negotiate 

with customers and employees, develop 

and price new products, close unprofitable outlets, and generate and reinvest 

surplus. Postal Service management 

recognizes that providing universal 

service in a dynamic and competitive 

environment requires a strategic direction that embraces change. To continue 

meeting its statutory mission, the Postal 

Service must continue to work within 

existing law to increase its business 

effectiveness and operational efficiency 

and to ensure that new products and 

services are self-sustaining and relate to 

its core business.

Due to concerns raised by Congress, 

the Government Accountability Office 

and other interested stakeholders 

regarding the Postal Service’s future, the 

Transformation Plan was issued in April 

2002. It addresses the continued need 

for strategic direction, outlines ways to 

address those concerns, provides shortterm actions to take under its existing 

authority and outlines long-term strategies that require congressional action.

Since the Transformation Plan Progress 

Report was issued in November 2003, 

the Postal Service is on target to achieve 

its promised cost reductions of about $5 

billion by 2006, and continues to pursue 

initiatives to develop people, manage 

costs, improve service and grow revenue. 

In order to track progress of 

Transformation Plan initiatives, 

the Postal Service must have 

accurate and reliable performance data, as discussed in the 

management information section 

of this semiannual report.

Despite record accomplishments in FY 2004, the Postal 

Service will again be challenged 

in FY 2005. Postal Service 

management is anticipating 

balancing a projected FY 2005 

budget of $68 billion (keeping 

revenues equal to expenses) 

and seeing Standard Mail 

volumes exceed First-Class 

Mail volumes for the first time. 

Management will continue to implement 

cost reductions while the Postal Service 

delivers an estimated 1.4 billion more 

pieces of mail than the previous year.

Through its work, the OIG is looking 

at ways to assist the Postal Service in 

its strategic planning process and to 

serve as a sounding board. As Postal 

Service management continued to seek 

cost-cutting efforts in FY 2004 

to reduce overhead, the OIG 

worked with management to 

provide a case study report 

on district consolidations highlighting what worked well and 

what could be improved.

In addition, the OIG plans to 

assess the major management reports the Postal 

Service issues on its plans, 

strategies and measurements 

to determine whether they 

duplicate each other or if any 

can be consolidated. Finally, 

the OIG will continue following pending congressional 

postal reform and the Postal 

Service’s Transformation Plan.

The GAO, Congress and other 

stakeholders called on the 

Postal Service to develop a 

comprehensive transformation 

plan that would address financial, 

operational and human capital 

challenges.

The Postal Service must balance public service 

with its need to remain commercially viable.

MANAGEMENT CHALLENGES
12 | Semiannual Report to Congress

SAFETY AND SECURITY

The nation’s mail system has been 

one of the mediums used for carrying 

out terrorist attacks. With more than 

700,000 employees, nearly 38,000 facilities and approximately 200 billion pieces 

of mail to deliver each year, the Postal 

Service faces the enormous challenge 

of securing the nation’s mail system 

and safeguarding postal employees and 

customers from these attacks. Regardless of the Postal Service’s efforts, the 

threat of future attacks can be reduced 

but not eliminated.

From January to July 2004, the Postal 

Service and the Postal Inspection Service 

responded to more than 800 suspicious 

white-powder mail incidents, having the 

potential to be anthrax.

To respond more effectively to such 

incidents, the Postal Service and the 

USPIS established national and local 

policies (supplementing national policies) 

for interacting with local police and fire 

departments. However, a recent OIG 

review found that the policies and procedures need to better complement one 

another and personnel need to be better 

trained, as demonstrated during a recent 

suspicious white-powder mail incident at 

a mail processing center in Washington, 

D.C. The Postal Service and the USPIS 

are taking actions to modify local policies 

to complement national policies and 

ensure postal personnel are trained to 

adequately respond.

In response to the Department of 

Homeland Security (DHS) Presidential 

Directive 5, the Postal Service’s chief 

operating officer and executive vice 

president revised existing emergency 

management policies and created the 

Office of Emergency Preparedness to 

reflect a new emergency preparedness 

focus. This new office is implementing 

an integrated emergency management 

plan throughout the Postal Service. The 

all-hazard, comprehensive plan will be 

issued in conjunction with the national 

deployment of the Biological Detection 

System and Ventilation and Filtration 

System to test for biological threats.

The Postal Service is also coordinating 

with the Federal Emergency Management 

Agency on DHS Presidential Directive 8, 

a companion to Presidential Directive 5. 

The new directive provides steps and prevention activities during the early stages 

of a terrorist attack. The Postal Service is 

also working closely with state and local 

officials to establish lines of communication, roles and responsibilities, and points 

of contact; and to develop site-specific 

details such as local jurisdictional issues.

The OIG will continue to review the Postal 

Service’s future efforts in developing 

effective mail security systems; the development, implementation, and coordination of emergency preparedness plans; 

and USPIS initiatives and programs that 

provide protection for employees, customers, physical assets and the nation’s 

mail system.

The Biological Detection System and Ventilation and Filtration 

System tests for biological threats.
April 1, 2004 – September 30, 2004 | 13

MANAGEMENT INFORMATION 

The importance of management 

information is paramount as the Postal 

Service continues to demonstrate to 

Congress, the Postal Rate Commission, stakeholders and the public that 

it is making progress in improving the 

quality of its revenue, cost and service 

measurements. In the past, problems 

with management information led to 

significant differences between initial 

and subsequent forecasted estimates 

within a three-month period. These 

significant changes in financial outlook 

were not evident from publicly available 

information and came as a surprise to 

many stakeholders. The Postal Service 

and its stakeholders need timely, reliable 

and accurate data to better plan, make 

critical management decisions and 

evaluate performance.

To address concerns that the information it provides is not transparent, 

the Postal Service is working to give 

information that better meets the needs 

of its managers and stakeholders. For 

example, the Postal Service is currently 

developing an annual report that more 

closely mirrors those of public companies, and is working to (voluntarily) 

comply with provisions of the SarbanesOxley Act. The OIG’s role is to help 

ensure that the information provided is 

timely, reliable and accurate.

The Postal Service relies on accurate 

information to make critical decisions 

and meet its congressional reporting 

requirements. Current postal reform 

bills in both the Senate and the House 

of Representatives would require the 

Postal Service to provide an annual 

report to a Postal Regulatory Commission that would analyze costs, revenues 

and rates. The report would also 

describe market information and measure service quality for postal products. 

If this provision in the bill is passed, the 

OIG will be active in validating 

data and auditing information 

systems to determine the accuracy of information provided to 

the new commission.

Data supporting performance 

and results must also be 

objective so that stakeholders 

receive accurate and complete 

information necessary to make 

decisions related to their needs. 

As noted in its July 2003 report, 

the President’s Commission 

recognizes that the Postal 

Service does, in many respects, 

conduct financial reporting over 

and above what is required 

of federal agencies; however, 

improvement is still needed. 

The President’s Commission 

suggests that the Postal Service should 

be setting the standard for financial 

transparency by which all other federal 

entities are judged.

In coordination with the Securities 

and Exchange Commission (SEC), the 

Postal Service initiated actions to voluntarily comply with certain SEC requirements in another measure to provide 

its stakeholders with better financial 

transparency. For example, the Postal 

Service enhanced its Quarterly Financial 

Report to provide more detail in such 

areas as costs and revenue by product 

and financial outlook. Changes to 

incorporate SEC disclosures in its 2004 

annual report are also being considered.

Additionally, the Postal Service began 

actions to comply with portions of the 

Sarbanes-Oxley Act of 2002 related to 

documentation and testing of controls 

over financial reporting. Processes in 

eight major focus areas — cash, money 

orders, meter revenue, payroll expense, 

transportation expense, real estate 

expense, contract payments and finanThe Postal Service relies on accurate 

information to make critical decisions.

MANAGEMENT CHALLENGES
14 | Semiannual Report to Congress

cial reporting — were initially selected 

for examination. The Postal Service has 

placed these processes under review 

and plans to revise the existing documentation to conform to the Committee 

of Sponsoring Organization’s framework.

Changes in technology and the business 

environment emphasize the need for 

providing timely, accessible, relevant and 

accurate data to postal decision makers 

to support these initiatives. Similarly, an 

effective system of accounting, financial 

and information controls is necessary 

for measuring financial performance. 

In FY 2004, the Postal Service moved 

to a commercial off-the-shelf general 

ledger system that improves support 

capabilities, adapts to changing business processes and supports financial 

reporting. The OIG, in support of the 

annual financial statement audit, is currently reviewing the transactions included 

in the new general ledger system.

Computers and electronic data are vital 

to Postal Service operations and its 

critical information not only needs to be 

timely, reliable and accurate, but also 

“safe and secure.”

To validate that management decisions 

are based on accurate information, the 

OIG conducted audits during FY 2004 

to ensure there are effective controls 

over information processing environments to protect the confidentiality, 

integrity, reliability and availability of vital 

information, the revenue stream and the 

agency brand. For example, the OIG 

performed security vulnerability assessments of servers covering key information processing platforms, as well as 

audits of the Postal Service disaster 

recovery and business continuity processes and computer incident response 

functions. The OIG will continue this 

effort in FY 2005.

Computers and electronic data are vital to Postal Service operations and its 

critical information.
April 1, 2004 – September 30, 2004 | 15

This chapter highlights OIG work in three 

areas: network optimization; working 

together — a “win-win” for the Postal 

Service; and the injury compensation 

working group.

NETWORK OPTIMIZATION

Optimizing the Postal Service’s multi-billion dollar mail processing and transportation network will not be easy. The sheer 

size and complexity of the network is 

daunting – as it is one of the most elaborate networks in the world.

■ The mail processing component of 

this network encompasses more than 

450 facilities, including processing 

and distribution centers/facilities, bulk 

mail centers, Priority Mail processing 

centers, logistics and distribution 

centers, international service center, 

business mail entry units and facility 

annexes, as well as various other 

facilities. Many of these facilities were 

established to process the mail by 

class (e.g., First-Class Mail, Standard 

Mail, Priority Mail, Periodicals and 

Package services). Efforts are 

underway to further enhance letter 

processing, improve flats automation 

and deploy the next generation of 

package sorting equipment.

■ The transportation and logistical 

support component of this network 

comprises more than 17,500 

highway network routes, 215,000 

vehicles and more than $6 billion in 

annual contracts for air and surface 

transport. This infrastructure is one of 

the biggest in the world. One major 

part of this infrastructure includes the 

hub-and-spoke program (HASP). A 

postal hub is a centralized mail collection facility located at various points 

nationwide. Spokes are the mail 

transportation routes that connect 

outlying dispatch or destination points 

to the hub. This concept reduces the 

need for direct point-to-point transportation routes and plays an integral 

part in network optimization.

This infrastructure, created incrementally 

over the last 30 years, contains excess 

capacity and some facilities that may 

not be optimally located. Over time, 

the classes and types of mail were 

commingled within these networks, 

resulting in overlapping mail flows across 

products and classes. Also, in today’s 

climate where some mail classes are 

experiencing flat to declining volume and 

market shifts, there is less need for these 

dedicated class-based networks.

An example that arose from multiple, 

class-based networks was the outsourcing of 10 Priority Mail Processing Centers 

to solely handle Priority Mail. Establishing 

a dedicated network for Priority Mail 

improved service, but increased Priority 

Mail costs to customers. Resulting price 

increases were a factor behind lower 

volume. The Postal Service learned that 

a more measured approach is necessary 

before implementing future major network 

changes. The Postal Service has developed a concept to optimize the current 

mail processing system by considering 

FEATURE STORIES

The transportation and logistical support component of this network 

comprises more than 17,500 highway network routes, 215,000 vehicles 

and more than $6 billion in annual contracts for air and surface transport.

Over time, the 

classes and types 

of mail were 

commingled within 

these networks, 

resulting in overlapping mail flows 

across products and 

classes. 

POSTCARDS

FLATS

LETTERS

PARCELS
16 | Semiannual Report to Congress

the physical shape of a product being 

processed. This “shape-based” system 

determines the capacity requirements 

based on the volume and path of each 

type of shape.

Evolutionary 

Network Development

A key component of network optimization is the Evolutionary Network Development (END), initiative, which affects 

$20 billion in processing, distribution 

and labor costs and $6 billion in transportation costs. (Various names have 

been used for this initiative including 

the Network Integration and Alignment 

Project and Network Rationalization.)

END starts with a sophisticated modeling 

process to help create a flexible processing and delivery network that reduces 

Postal Service and customer costs, 

increases operational effectiveness and 

improves consistency of service. It will 

be difficult to redesign the network while 

it is still in operation, and at the same 

time, maintain record customer service 

levels. Also, public and congressional 

concerns with facility closures will need to 

be addressed. Moreover, it will be a difficult initiative because the Postal Service 

has not yet achieved a common facility 

footprint or equipment layout in facilities.

Network Validation

As recommended by the OIG, the Postal 

Service assembled an internal team 

to conduct independent verification 

and validation (IVV) of the END models 

developed by contractors. During 

2004, the IVV team identified key model 

assumptions, verified underlying inputs 

to the models and is currently validating 

the models. The OIG, working jointly with 

the IVV team, has monitored progress 

and recommended best practices. The 

Postal Service plans to complete the IVV 

process in December 2004. Incremental 

implementation and deployment of network modifications will begin in calendar 

year 2005, and are tentatively projected 

to be completed by the end of 2009.

The Postal Service has already been 

improving network efficiency. For 

instance, the Postal Service has reduced 

costs by improving operational efficiency 

in the international mail processing network. Postal Service management closed 

the Dallas, Texas, International Service 

Center (ISC) and performed network 

efficiency reviews of other centers. The 

OIG continues to work together with the 

Postal Service to independently assess 

inefficiencies in the ISC network. 

Over the past six months, the OIG and 

the Postal Service have worked jointly to:

■ Improve the efficiency of operations 

at the New York ISC by reducing 

320,000 workhours. This reduction 

could produce a cost avoidance of 

$98 million over 10 years.

■ Improve the efficiency of the Airmail 

Records Unit at the New York ISC 

by reducing 30,000 workhours. This 

reduction could produce a monetary 

impact of $9.2 million over 10 years. 

Management also agreed to consider outsourcing this operation.

The OIG and the Postal Service will work 

together to further improve operational 

efficiencies by examining the Los Angeles 

ISC and selected domestic mail processing facilities in the Eastern and Capital 

Metro Areas.

Transportation Network

The Postal Service spends more than 

$2 billion annually for contracted highway 

transportation. It has taken steps to 

optimize its highway transportation network and reduce costs by consolidating 

highway contract transportation routes.

Over the past two years, the OIG issued 

10 audit reports covering evaluation 
April 1, 2004 – September 30, 2004 | 17

of highway contract routes, and has 

worked with the Postal Service to identify 

more than 1,000 potential highway 

contract trip eliminations, consolidations 

or modifications potentially resulting in 

savings of more than $50 million over 

the life of the contracts. The Postal 

Service eliminated or modified most of 

these trips without negatively affecting 

service or operational flexibility because 

mail volume was low and mail could be 

consolidated on other trips.

Air networks are another vital part of the 

overall transportation network necessary 

to accomplish the Postal Service’s mission. Its air network operations consist of 

contracts with FedEx, commercial airlines 

and other private carriers. Approximately 

$1.9 billion is spent annually on these 

operations — with about $1.2 billion to 

FedEx and $700 million to commercial 

and other private carriers.

In May 2004, the OIG began audit work 

in the air network operations area with 

the objectives of determining whether 

air network operations are effective and 

identifying opportunities to save money. 

During the first phase of the audit, the 

OIG is assessing operations under the 

new commercial air contract, including 

a review of contract implementation by 

postal headquarters and planned reviews 

of local postal air mail and carrier operations. Through this work, the OIG intends 

to assist the Postal Service in overcoming 

network optimization challenges.

The Postal Service currently spends more 

than $1 billion per year for vehicle and 

aviation fuel, making it one of the largest 

fuel consumers in the United States. Fuel 

costs are second only to labor costs in 

Postal Service highway transportation 

contracts. A one-cent increase in the cost 

of fuel results in an $8 million annual fuel 

increase. Consequently, in March 2004, 

the OIG announced audit work in the fuel 

management area to determine if fuel 

procurement is 

cost-effective 

and to identify 

opportunities 

to save money. 

The first phase of the audit will determine 

if the diesel bulk fuel program is being 

effectively implemented. The results 

of this work will determine if the diesel 

bulk fuel program can be expanded to 

provide savings in additional areas of fuel 

consumption.

During this period, OIG investigations 

uncovered fraud in the transportation 

services area. A Postal Service contracting officer became suspicious that 

a Texas truck trailer lease contractor 

involved in mail delivery was overcharging for truck trailer repairs. Following 

our investigation, in August 2004, the 

contractor pled guilty to making false 

claims. The OIG determined that the 

contractor filed hundreds of claims for 

damage reimbursement, conspired with 

certain preferred vendors to undermine 

the required competitive bidding process 

and, between 1997 and 2002, submitted 

more than 95 percent of its claims with a 

falsified estimate for repair.

The OIG will continue to work with the 

Postal Service to optimize the highway 

transportation network, and plans to 

review the bulk mail transportation routes 

and the FedEx contract.

FEATURE STORIES
18 | Semiannual Report to Congress

Looking Toward The Future

The Postal Service and the OIG will 

continue working together to identify 

opportunities to improve operations and 

reduce costs. Some near-term challenges 

for the Postal Service involving the END 

initiative include:

■ Completing a blueprint that will govern network changes;

■ Developing a comprehensive and 

integrated plan for network changes;

■ Identifying and obtaining the 

resources needed to incrementally 

implement network optimization; and

■ Developing a formal process to 

implement the initiative and evaluate 

results.

WORKING TOGETHER — 

A “WIN-WIN” FOR THE 

POSTAL SERVICE

Working together has proven to be an 

effective means of improving the efficiency 

of the Postal Service. Today, there is 

increased involvement with postal management in planning and providing technical assistance on audits, but independence is maintained by ensuring that final 

decisions are made by the OIG, according 

to responsibilities outlined by the Inspector 

General Act. In some instances, postal 

employees were assigned to serve as 

technical advisors on OIG-led audits. This 

relationship has fostered trust and open 

communications between the Postal 

Service and the OIG. The OIG’s goal is to 

add value and provide a helpful resource 

to the Postal Service.

In another example, Postal Service 

managers worked closely with the OIG’s 

Network Operations – Processing and 

Logistics teams to save the Postal Service 589,000 workhours, eliminate 1,000 

unnecessary trips and realize monetary 

benefits of more than $247 million. 

The table below provides additional 

breakdowns.

The OIG’s Network Operations – Processing and Logistics teams will continue 

to assist postal managers in tackling 

the challenges of declining mail volume, 

excess capacity and underutilized 

networks by providing an independent 

assessment of mail processing and 

transportation operations. The improved 

relationship has also led to audit referrals 

in the areas of domestic and international 

mail operation networks, bulk mail 

highway transportation routes and military 

absentee ballots.

These efforts have generated more discussion on how the OIG can coordinate 

and cooperate to bring value to the Postal 

Service. For instance, the OIG Network 

Topic Theme

Number 

of 

Reviews

Workhour 

Savings

Monetary 

Impact over 

10 Years

Evolutionary Network 

Development

Independent Verification and 

Validation - Advisory Capacity

1 None None

Business Mail Entry Units Efficiency 7 94,000 $29 million

International Service Centers Efficiency and Facility 

Closures

4 495,000 $168 million

MERLIN Utilization/Revenue Collection 2 None $30,455

Highway Contract Routes Optimizing the Transportation 

Network

10 None $50 million 

over contract term, 

1,000 trips eliminated

TOTAL 24 589,000 $247 million

ADDING VALUE
April 1, 2004 – September 30, 2004 | 19

Operations - Logistics team was recently 

requested to make presentations at the 

Southeast Area’s Transportation and Networks meeting and at a national meeting 

of managers from bulk mail centers, area 

distribution network offices and network 

operations management.

The OIG shared with the Postal Service 

its methodology for evaluating highway 

contract trips and identifying opportunities to eliminate trips and save money. 

The Postal Service transportation 

managers shared their thoughts and 

insights. At these meetings, both the 

Postal Service and the OIG addressed 

the challenges brought on by change, 

stressed the need for and benefit of 

working together, and explored opportunities to share information.

Working together has definitely proven to 

be a “win-win” for the Postal Service and 

the OIG as they prepare for the future.

INJURY COMPENSATION 

WORKING GROUP

To identify and help control increasing 

costs associated with the workers’ 

compensation program, an Injury 

Compensation Working Group (ICWG) 

was created in January 2004, with a 

staff drawn from the OIG, the USPIS, the 

Postal Service’s Health and Resource 

Management (H&RM) division and 

stakeholders. Investigative, audit and 

administrative initiatives were begun to 

reduce provider and claimant fraud, to 

address systemic issues related to the 

fee schedule and bill payment system 

of the DOL OWCP and to enhance the 

Postal Service’s operational efficiency.

A major management challenge for the 

Postal Service in FY 2004 was to reduce 

workers’ compensation payments, 

which increased from $638 million in 

FY 2000 to $830 million in FY 2004. In 

addition, the Postal Service paid the DOL 

$44.5 million in fees for administering 

OWCP claims in 2004. (DOL administers 

the workers’ compensation program 

for all federal agencies. However, unlike 

agencies that receive annual appropriations from Congress, the Postal Service 

pays workers’ compensation costs from 

its own revenue.)

In July 2004, the ICWG implemented 

a new computer program called the 

Healthcare Internal Data Analysis System. 

The system “analyzes” data by delving 

into DOL OWCP medical billing and compensation payment records to identify 

patterns, trends and schemes that may 

be driving up costs, as well as to select 

and refine management practices that 

could result in fewer work-related injuries 

to postal employees.

Phase I of the system rollout began in 

July 2004. A contracted registered nurse 

and investigative analyst from H&RM 

and the postal healthcare fraud group 

are analyzing data to identify duplicate 

medical billings for identical or multiple 

medical services paid by DOL OWCP.

From July 1, 2003 to July 1, 2004, the 

OIG Dallas Field Office and Postal Service 

Injury Compensation Unit conducted 

“beta” (field) testing of the system, which 

identified $432,851 in duplicate billings 

in the Southwest Area. Collection efforts 

since October 1, 2003, have returned 

nearly $289,000 to the Postal Service 

by way of DOL. An additional $84,000 is 

pending collection, with analysts reviewing another $60,000 for possible collection. At the conclusion of the Southwest 

Area review, the working group will use 

the system to analyze medical data in the 

Pacific, Southeast and Eastern Areas.

Phase II of system implementation, which 

began recently, is examining “unbundling” 

as a potential cause of increased costs 

for OWCP and the Postal Service. 

(Unbundling is the practice of breaking 

FEATURE STORIES
20 | Semiannual Report to Congress

a medical service apart and separately 

billing the constituent parts. 

For example, an unbundled appendectomy might produce separate bills 

for the abdominal incision, abdominal 

surgery, tissue restructuring and sutures.) 

Unbundled services cost OWCP and the 

Postal Service more, since the total cost 

for the various parts is more than the 

allowable charge for the service. Beta 

testing of this phase of the system is 

scheduled to begin in November 2004, 

followed by implementation at the end of 

December 2004.

In addition to identifying root causes for 

cost increases, the ICWG’s 11 members 

seek to lower costs through investigations, 

audits or administrative remedies and recommendations. Thus far, analytical work 

by group members has pinpointed certain 

system weaknesses and administrative 

activities, as well as fraud, as potential 

causes for the rising costs. The OIG has 

already initiated investigations and audits 

and has others planned.

The group also expects to provide 

information that may support a legislative change that would allow the Postal 

Service to better control its OWCP costs 

by moving from the OWCP Federal 

Employees’ Compensation Act program 

to one of its own.
April 1, 2004 – September 30, 2004 | 21

The role of the OIG is not only to fight waste, 

fraud and misconduct, but also to promote 

economy, efficiency and effectiveness in 

Postal Service programs and operations. 

Therefore, researching initiatives is within 

the OIG’s area of responsibility. In this section, the OIG explores ideas and concepts 

regarding postal operations and programs 

that may reduce costs, improve efficiencies, 

increase revenue or introduce new ways of 

doing business. Many of these ideas have 

been introduced before, and the OIG plans 

to determine the feasibility or viability of 

these concepts.

The OIG proposes eight ideas for further 

consideration:

■ Property line mailbox delivery, which looks 

at improving efficiency by requiring mail 

delivery to property line mailboxes rather 

than to a customer’s door.

■ Postal Service commercialization of benefit programs like life and health insurance 

as well as administration of the workers’ 

compensation program.

■ Cost efficiency of contract routes versus 

hourly carriers.

■ “Neighborhood mail,” which allows the 

delivery of unaddressed mail to the 

mailbox.

■ Five-day versus seven-day delivery to 

maximize efficiency and infrastructure 

utilization.

■ Labor flexibility to allow employees to 

perform jobs currently worked by a single 

craft.

■ Right-sizing Post Offices while providing 

fair and efficient retail services.

■ Government-related services, which 

would allow postal employees to 

perform functions on behalf of other 

federal agencies.

Each of these suggestions poses new challenges and potential opportunities for the 

Postal Service.

PROPERTY LINE MAILBOX INITIATIVE

The Postal Service is continually challenged 

to keep up with increasing mail delivery 

points (drop-off points for mail, such as 

houses, businesses, housing developments, 

etc.). It delivers to more than 140 million 

delivery points, or stops, daily; and, as of the 

third quarter of 2004, there were more than 

1 million additional delivery points added over 

the previous year.

According to the U.S. Census Bureau, the 

nation’s population was more than 282 million 

in 2000, and by 2010 it will be approximately 

309 million. As urban and suburban areas 

continue to grow, maximizing mail carrier 

efficiency to new and existing delivery points 

will be key to controlling the costs of providing 

universal service.

City delivery workhours comprise the largest 

workhour segment in the Postal Service. City 

letter carriers can make deliveries in vehicles, 

on foot, or a combination of vehicle and on 

foot. The cost per delivery increases as the 

delivery is made closer to the customer’s 

door. Delivery to a customer’s door is the least 

efficient mode of delivery because the carrier 

has to dismount from the vehicle, walk onto 

the customer’s property and, in many cases, 

climb stairs to perform the door delivery.

According to a recent Government Accountability Office review, door delivery once was 

the norm in urban settings; however, the 

Postal Service changed its policy in 1978 

to limit additional door deliveries to further 

enhance delivery efficiencies. To comply 

with this policy, the Postal Service started 

working with developers of new single-family 

neighborhoods to provide alternatives to door 

delivery. As a result, property line delivery is 

one of the fastest growing modes of delivery. 

According to Postal Service delivery officials, 

the only instance where new delivery points 

would receive door delivery would be if the 

new delivery point is established on a block 

that currently receives door delivery.

IDEAS WORTH EXPLORING
22 | Semiannual Report to Congress

At the end of FY 2003, approximately 32 

percent of deliveries (excluding those to 

postal retail facilities) were still made to the 

door. This has a significant impact on the 

workhours and thus the costs of delivery for 

the Postal Service.

Instituting a national policy on mailbox placement, whereby existing door deliveries would 

be converted to property line deliveries, might 

possibly provide for savings in excess of a 

billion dollars annually to the Postal Service. 

Other key factors such as customer 

concerns and Congressional interests would need to be considered. 

This national policy could also allow 

for certain exceptions, through a 

local approval process, to provide 

continued door service for senior 

citizens and other customers who 

for reasons of disability or other 

appropriate reasons need door 

delivery on a continual or periodic 

basis.

In addition, alternatives to 

property line delivery should be 

considered for those areas where 

theft and the security of mail are a 

significant concern.

COMMERCIALIZATION OF 

EMPLOYEE BENEFITS PROGRAMS

The Postal Service may have an opportunity 

to better administer its benefits programs by 

utilizing its buying power and looking on the 

open market for comparable or better rates 

and coverage.

While evaluating alternate opportunities, the 

Postal Service can initiate or continue to 

work with organizations currently administering the benefits programs to ensure all parties are doing everything possible to minimize 

costs by preventing or detecting errors or 

irregularities. This could slow the increase 

of current employee benefits program 

costs while, more importantly, not reducing 

employee benefits.

Postal employees are covered by the federal 

benefit programs for workers’ compensation, 

Office of Workers’ Compensation Programs 

(OWCP); life insurance, Federal Employees’ 

Group Life Insurance (FEGLI); and health 

insurance, Federal Employees’ Health Benefits (FEHB). In FY 2003, these three programs 

accounted for more than 11 percent of the 

Postal Service’s compensation and benefits, 

or $5.7 billion.

Because these programs represent a significant portion of its overall costs, the Postal 

Service may receive better rates with no 

reduction in benefits to employees by allowing private sector companies to competitively 

bid against each other to sponsor or administer the Postal Service’s benefits programs.

Postal employees who are injured on the 

job are covered by the Federal Employees’ 

Compensation Act, administered by the 

DOL’s OWCP. As noted previously, the 

Postal Service was the largest participant in 

the federal workers’ compensation program 

in FY 2004, paying over one-third of the 

$2.3 billion in total federal workers’ compensation payments. This was an increase of 

over 30 percent since FY 2000. In addition, 

the administrative fees that OWCP charges 

the Postal Service have increased 33 percent, from $33 million in 2000 to $44 million 

in 2004.

There are opportunities to reduce workers’ 

compensation costs through rule changes 

that would put the federal program on par 

with most state programs. Eliminating annual 

COLAs, establishing one compensation rate 

at 66 2/3 percent, implementing a three day 

waiting period, allowing employer choice 

of physician and mandatory retirement age 

would all make the federal program more 

cost-effective for the entire federal government and not adversely affect the OWCP 

benefits of injured workers.

Federal Employees’ Health Benefits (FEHB) 

brochure
April 1, 2004 – September 30, 2004 | 23

Given the size of the Postal Service injury 

compensation program, the possibility of 

establishing its own program could result 

in savings for the Postal Service and the 

federal government, and needs to be more 

fully explored.

In the meantime, the Postal Service has 

taken steps to reduce workers’ compensation costs. For example, medical claim costs 

were reduced by contracting with a network 

of medical care providers. The savings are 

distributed back to the Postal Service.

Also, the Postal Service, along with the OIG, 

should keep working with the DOL’s OWCP 

to find new ways of conducting business 

and developing tests to detect possible fraud 

schemes, double billings or simple errors 

associated with workers compensation payments. Continued efforts should work to keep 

costs down.

FEGLI is the largest group life insurance program in the world. Generally, the cost of basic 

insurance is shared between the employee 

and the government; however, the Postal Service pays the complete cost of basic life insurance for its 690,000 eligible employees, nearly 

$200 million per year. (All postal employees 

receive basic life insurance coverage, with 

the exception of those who waive coverage, 

casual or temporary employees, substitute 

rural carriers and certain members of the Uniformed Services, among others.) The Postal 

Service pays over 50 percent of the total 

costs spent by the federal government for 

this benefit. Estimates indicate that the Postal 

Service could realize substantial savings if its 

assets were transferred from FEGLI to a plan 

operated by the Postal Service.

The FEHB program provides health insurance 

benefits to more than eight million federal 

enrollees and dependents, including eligible 

employees of the Postal Service. (Similar 

to the life insurance benefit, certain postal 

personnel are not eligible for health insurance, 

including members of the armed forces.) Like 

other federal agencies, health benefit costs 

are shared between the Postal Service and 

the employee. However, according to the 

President’s Commission, Postal Service collective bargaining employees contribute only 

slightly more than half of what other federal 

and private sector workers contribute for 

health care coverage.

In FY 2003, the Postal Service paid approximately 83 percent or $4 billion of the premium 

costs for nearly 630,000 eligible employees. 

This was an increase of nearly 8 percent from 

FY 2002. Costs continued to rise through 

the third quarter of FY 2004 and the Postal 

Service expects an increase of about $800 

million in FY 2005.

The Government Accountability Office, in an 

FY 1992 report on federal health benefits 

costs, noted that the FEHB program’s administrative costs could be reduced by allowing 

for the competitive selection of contractors 

to perform the program’s administrative 

services. Further research may be necessary 

to determine whether sufficient vendors exist 

that could accommodate the Postal Service’s 

employee benefit needs.

The concept of the federal government utilizing the commercial marketplace to reduce 

costs is not new. The government has 

recognized that it must determine whether 

efficiencies can be gained by using commercial or private sector alternatives. A recent 

update to the President’s Management 

Agenda further encourages public-private 

competition. The President’s Commission 

noted that unless postal expenses can be 

reduced, it is questionable whether affordable universal mail service is sustainable via 

a self-financing public institution. The Commission also supported broader flexibility to 

pursue new strategies to bring revenues and 

expenditures into balance without sacrificing 

quality of service and the ability to meet the 

nation’s postal needs.

IDEAS WORTH EXPLORING
24 | Semiannual Report to Congress

The OIG can work with the Postal Service 

to determine the feasibility of a strategy to 

pursue commercial alternatives to its current 

benefit programs while, at the same time, 

work with the Postal Service and administrators to monitor the benefit programs to keep 

cost increases to a minimum.

CONTRACT ROUTES 

VERSUS HOURLY CARRIERS

As discussed, delivery costs for the Postal 

Service are significant and grow with 

increases in the number of addresses. Unlike 

processing, street delivery is intrinsically labor 

intensive. The Postal Service uses more 

than 220,000 city carriers and 60,000 rural 

carriers to deliver the mail to more than 140 

million delivery points.

Both city and rural carriers are Postal Service 

employees. However, city carriers are paid 

hourly wages with overtime, if worked, while 

rural carriers are paid an annual salary based 

on an evaluation of the average workload per 

route. The Postal Service also contracts with 

private individuals and businesses through 

competitive bidding for the highway movement and delivery of mail to another two 

million delivery points.

Salaries and benefits for letter carriers, 

which constitute about 43 percent of total 

salaries and benefits for the Postal Service, 

are projected for FY 2005 to be $21 billion 

— $16 billion for city carriers and $5 billion 

for rural carriers. A 1999 study by Postal 

Rate Commission (PRC) staff concluded that 

the costs of the different types of delivery 

vary significantly. The study showed that the 

average annual cost per route for city carriers 

was about $104,000; for rural carriers, about 

$74,000; and for highway contract carriers, 

about $25,000.

A July 2004 report from the Government 

Accountability Office (GAO) noted that the 

Postal Service estimated the annual cost in 

FY 2003 for each city door delivery ($295) 

was more than twice as expensive as rural 

delivery ($143) and over three times as 

expensive as highway contract deliveries 

($90). The GAO report said a key factor in 

determining the total cost of a route is the 

carriers’ compensation system, which differs 

for each type of carrier. Compensation for 

city and rural carriers is collectively bargained 

between the Postal Service and the National 

Association of Letter Carriers (NALC) and the 

National Rural Letter Carriers Association 

(NRLCA), respectively. Compensation for 

contract carriers is established by the terms 

of their contracts.

The OIG plans to consult with the Postal 

Service and its unions to explore the merits 

and concerns regarding the various methods 

of compensating carriers for a day’s work. 

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. Rural 

and contract carriers have more incentive to 

deliver mail quickly because, in general, their 

compensation does not vary even if it takes 

longer than normal to deliver a given day’s 

mail volume.

The Postal Service may consider exploring 

legislation permitting a form of pay called 

“administratively uncontrolled overtime,” a 

substitute form of payment used by other 

agencies for irregular, unscheduled overtime 

work, which is paid on an annual rather than 

hourly basis. This form of compensation 

could allow the Postal Service to better 

predict and control overtime costs.

Rural carrier City letter carrier
April 1, 2004 – September 30, 2004 | 25

NEIGHBORHOOD MAIL

The Postal Service previously developed 

the concept of neighborhood mail or community mail, a service that could benefit the 

Postal Service and small- and medium-sized 

businesses. Using neighborhood mail, businesses could send unaddressed mail to 

potential customers in the communities they 

serve using the Postal Service’s knowledge 

of the number of pieces necessary to cover a 

given delivery area. However, past opposition 

from major newspaper lobbyists stopped 

further concept development.

Currently, only three countries with major 

Posts (postal services) — Italy, Spain and the 

United States — do not take advantage of 

neighborhood mail. Countries that provide 

this service include Switzerland, France, 

Germany and Sweden. However, these 

countries do not have a monopoly on mail 

delivery; rather, they only have a share of the 

total mail volume in their respective countries.

For the Postal Service, further concept 

development of unaddressed neighborhood 

mail may be beneficial because it has a 

monopoly on every mailbox in the United 

States. The Postal Service could potentially 

have 100 percent share of the volume if it 

offered this service, increasing mail volume 

and revenue, enabling it to meet its federal 

mandate to operate on a break-even basis. 

Neighborhood mail may also increase small 

businesses’ targeted market presence and 

revenues. While the Postal Service has not 

made any formal revenue projections, some 

officials estimated this service could increase 

annual revenue by $100 million to $300 million per year.

FIVE-DAY VERSUS 

SEVEN-DAY DELIVERY

The Postal Service currently delivers mail 

six days-a-week as part of its universal 

service obligation. Changing this six-day 

commitment to five or seven days could be 

explored for opportunities to enhance the 

Postal Service’s current financial position. 

The Postal Service has already examined the 

five-day option and deemed it not feasible 

from a financial perspective, or from impact 

on stakeholders. (On April 3, 2001 the Postal 

Service Board of Governors directed management to study cost savings associated 

with reducing delivery service to five days. 

On July 10, 2001, the Governors announced 

that the Postal Service will continue with its 

existing six-day delivery service after hearing 

preliminary findings on the study of the fiveday option.) The estimated net savings was 

found to be negative due to loss of revenue 

and less than expected cost savings.

More importantly, the adverse impact on 

customer service and customer satisfaction was deemed to be prohibitive. These 

findings suggest that increasing the delivery 

frequency to seven days may result in 

equally interesting but favorable findings. It is 

conceivable that a seven-day delivery service 

may result in additional revenues that would 

offset additional costs while increasing customer service and satisfaction, and offering 

the Postal Service a competitive advantage.

The OIG may consider exploring the operational feasibility and financial considerations 

of changing the frequency of delivery to 

seven days. The Postal Service has a significant infrastructure in place that is generally 

not utilized one day a week. Market research 

and cost studies need to be undertaken 

IDEAS WORTH EXPLORING

Neighborhood mail may also increase small businesses’ targeted 

market presence and revenues. 
26 | Semiannual Report to Congress

to properly examine the operational and 

financial impact of such a proposal. Market 

research would be helpful to probe customers’ needs and stakeholders’ reaction, and 

to estimate volume and revenue impact. 

There could also be political pressure against 

this change from competitors such as 

newspaper associations and other delivery 

services. If these studies, however, yield 

favorable findings, the Postal Service may 

opt for a gradual approach (as opposed 

to a big bang approach) in implementing 

this change in a test market before full and 

national implementation.

LABOR FLEXIBILITY/MOVING 

ACROSS CRAFTS

The agreements between the Postal 

Service and three of its four major unions 

— American Postal Workers Union, National 

Postal Mail Handlers Union, and the National 

Association of Letter Carriers — state that 

“normally, work in different crafts, occupational groups or levels will not be combined 

into one job.” This is a prohibition against 

what is referred to as “crossing crafts,” 

except in accordance with certain restrictive 

provisions. This prohibition may have slowed 

the Postal Service in its efforts to increase 

efficiencies in mail processing and delivery. 

Specifically, it limits the Postal Service’s 

ability to make cross craft assignments even 

when there is no question the reason for the 

assignments is to avoid duplication of effort 

and increase efficiencies.

For example, if a postal clerk has insufficient 

work for an eight-hour workday but there is 

a heavy workload elsewhere, management 

cannot readily assign him/her to that work 

unless it is within his/her craft and at his/her 

same level. Instead, the Postal Service 

generally would either pay overtime to an 

employee in the overloaded craft or delay 

completion of the work until another day. In 

the meantime, management must pay the 

idle clerk, even though he/she is not working.

The issue of greater flexibility in the deployment of the Postal Service workforce was 

discussed in the President’s Commission 

report. The report stated that the effective 

utilization of employees was essential to the 

process of building and maintaining a worldclass workforce. The report further stated 

this was needed to ensure appropriate flexibilities in its deployment of the workforce.

The OIG will look at merits and concerns on 

these issues with the Postal Service and its 

unions.

RIGHT-SIZING POST OFFICES: 

PROVIDING FAIR AND EFFICIENT 

RETAIL SERVICES

The Postal Service faces significant legal 

and political constraints when attempting to 

close Post Offices to right-size its operations. 

Private companies that provide retail services 

have much greater flexibility to open and 

close outlets than the Postal Service. It is a 

commonly 

accepted 

principle 

that private 

competitive markets do a 

far better 

job of supplying the 

demand 

for goods 

and services than 

the government. 

Many believe that government should only 

provide essential goods and services if 

private markets would fail to do so.

The Postal Reorganization Act defines postal 

services as “basic and fundamental” and 

requires that the Postal Service provide 

“prompt, reliable, and efficient services to 

patrons in all areas and shall render postal 

services to all communities.” It is clear that 

Private companies that provide retail services 

have much greater flexibility to open and close 

outlets than the Postal Service.
April 1, 2004 – September 30, 2004 | 27

Congress believes that postal services are 

essential services that private markets would 

not serve. It is not clear whether the Postal 

Service provides such service in the most fair 

and efficient manner possible. Putting aside 

the question of whether private markets 

would provide postal services if there were 

no monopoly, much could be learned from 

private markets on how and where similar 

services are provided.

The OIG will benchmark postal retail services 

against retail services provided by private 

markets for essential services such as pharmacies and other similar retail outlets. This 

research could develop measures of access 

to postal and other retail services such as 

retail units per square mile, customers per 

retail unit and households per retail unit. 

Such measures could be compared nationwide and by geographic areas.

The benchmarking would recognize that 

the Postal Service is expanding access to 

products and services through alternate 

locations and channels. Nonetheless, the 

results may indicate that there are too many 

and or too few Post Offices in many areas. 

Most importantly, the analysis would provide 

a knowledge base and criteria for the Retail 

Network Optimization initiative and would 

assist decision makers in determining any 

changes to the network and where the 

access points best fit into that retail network.

In the Transformation Plan, the Postal 

Service identified its strategy to ensure it 

continues to provide customers with more 

and better access to its products and to 

make better, more efficient use of its extensive retail network, including moving simple 

transactions out of the Post Office.

The Postal Service recognizes that the shifting geography of its customers, the changes 

in customer lifestyles and behaviors, and 

the rise of new technology all affect how it 

provides access to its products and services. 

To determine how best to provide access to 

retail services, the Postal Service has a Retail 

Network Optimization initiative to develop 

a “consistent and systematic methodology 

to maximize retail access strategy, which 

will result in equal or better value for Postal 

Service customers, in addition to avoiding 

unnecessary future postal expenditures.”

GOVERNMENT – RELATED SERVICES

The Postal Service has the opportunity to 

increase revenue and potentially decrease 

the cost of government in general by providing more services through its extensive retail 

network for other government agencies in 

need of a physical presence in thousands (up 

to 38,000) of locations throughout the country. For example, the Postal Service currently 

offers limited government-related services 

such as passport applications.

The passport application program is in 

partnership with the Department of State. 

The Postal Service receives $30 for each 

application. For fiscal year 2004, the Postal 

Service has generated more than $100 

million in revenue from passport fees alone. 

The Postal Service continues to explore new 

opportunities to generate revenue by offering 

government-related services.

Additional services could be provided for 

other agencies, such as taking applications 

for social security cards, benefit applications for social security or welfare, etc. The 

Postal Service may wish to examine ways 

to provide more mail services to other 

federal agencies. Currently, federal agencies are not using postal products such as 

Express Mail and Priority Mail to its fullest 

extent possible for government business. 

Because of regulatory constraints, the 

Postal Service cannot respond to market 

forces where other carriers are able to 

provide more flexible pricing and discounts 

than the Postal Service. The OIG plans to 

explore the opportunities of other governmental activities through which the Postal 

Service could generate additional revenue.

IDEAS WORTH EXPLORING

The passport application program is 

in partnership with the Department 

of State. The Postal Service receives 

$30 for each application.
28 | Semiannual Report to Congress

USPS OFFICE OF INSPECTOR GENERAL 

ORGANIZATIONAL CHART

*Assistant Inspector General

As of November 1, 2004

Inspector

 General

Deputy Inspector 

General

Office of Chief 

Information 

Officer

AIG Mission 

Support

AIG* General 

Counsel AIG Investigations

Audit Operations

Deputy AIG

Investigations 

West

Deputy AIG

Investigations 

East

Deputy AIG

Mission Support Deputy Counsel

Deputy AIG 

Financial 

Operations

Deputy AIG 

Field Operations 

Deputy AIG Core Operations

Special Inquiries Strategic 

Enforcement

Human 

Resources Legal Services Financial

Statements

Field 

Operations

Network 

Operations–

Processing

Transition Team Investigative 

Operations

Administrative 

Services

Congressional, 

FOIA & Hotline

Information 

Systems

Supply, 

Management 

& Facilities

Network 

Operations–

Logistics

Investments

Performance Miami

Field Office

Boston

Field Office

New York 

Field Office

Philadelphia 

Field Office

Washington 

Field Office

Dallas

Field Office

Denver 

Field Office

Los Angeles 

Field Office

St. Louis 

Field Office

Chicago 

Field Office

Strategy, 

Performance & 

Marketing

Cost, Revenue & 

Rate Information

Engineering Delivery & Retail

Human Capital

Oversight of 

Investigative 

Activities

AIG Audit
HEADER

April 1, 2004 – September 30, 2004 | 29

Field Offices

Field Offices (Investigations Only)

Audit & Investigations Offices

Investigations Only

Audit Only

Boston, MA

Springfield, MA

New Haven, CT

New York, NY

Philadelphia, PA

Washington, DC

Greensboro, NC

Raleigh, NC

Miami, FL

Tampa, FL

New Orleans, LA

Atlanta, GA

Memphis,TN

Dallas,TX

Houston, TX

Seattle, WA

Portland, OR

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

Cincinnati,OH

Cleveland, OH

Indianapolis,IN

Puerto Rico

USPS OFFICE OF INSPECTOR GENERAL

OFFICE LOCATIONS

The OIG currently has more than 700 employees located in 

ten field offices as well as other locations nationwide. 

April 1, 2004 – September 30, 2004 | 29
30 | Semiannual Report to Congress

APPENDICES

APPENDIX A

The Inspector Generals 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. Over 

the last six-month time period, the Postal 

Service agreed with our recommendations 

that identified potential monetary benefits of 

nearly $230 million.

The appendices on the following pages fulfill 

the requirements of the Act.

REPORTS ISSUED TO POSTAL SERVICE MANAGEMENT

For the period April 1, 2004, through September 30, 2004

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 or management advisory reports in accordance with the identified needs of the project.

SUMMARY

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

Principal Area

Number of 

Reports Issued

Questioned 

Costs1

Unsupported

Costs

Recommended 

Funds Put To 

Better Use

Revenue

Impact

Unrecoverable 

Costs

Cost Control 248 $65,263,905 $4,725,975 $163,398,672 $634,325 $67,199

Revenue 4 $0 $0 $0 $30,455 $0

Safety and Security 5 $0 $0 $0 $0 $0

Management Information 10 $0 $0 $0 $0 $0

Strategic Direction 1 $0 $0 $0 $0 $0

TOTAL 268 $65,263,905 $4,725,975 $163,398,672 $664,780 $67,199

1 Includes unsupported costs of $4,725,975.
April 1, 2004 – September 30, 2004 | 31

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 

with the amounts shown as 

Questioned Costs.

FUNDS PUT TO BETTER USE

Funds that could be used more 

efficiently by implementing 

recommended actions.

REVENUE IMPACT

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 generated revenue 

from new sources.

UNRECOVERABLE COSTS

A cost that perhaps should not 

have been incurred and is not 

recoverable.

REPORTS WITH QUANTIFIABLE POTENTIAL MONETARY BENEFITS

Audit Report

Questioned

Costs

Unsupported

Costs

Recommend

Funds Put to

Better Use

Revenue 

Impact

Unrecoverable

Costs

COST CONTROL

SUPPLY MANAGEMENT AND FACILITIES

Application of Agreed-Upon Procedure 

to Lease Operating Expenses Claimed 

by Equities Office Property Trust

CA-CAR-04-023; 07/01/2004 $9,632 — — — —

Audit of Billed Costs Submitted by 

Clean Harbors Environmental Services, 

Incorporated Under Contract Number 

CG84-99-A-100042, Delivery Order 

483083-02-F-0108

CA-CAR-04-014; 04/21/2004 $1,010,063 — — — —

Audit of Firm Fixed Price Proposal 

Submitted by M & A Technology 

Incorporated

CA-CAR-04-013; 04/13/2004 $1,374,913 — — — —

Audit of Firm Fixed Price Proposal 

Submitted by Northrop Grumman 

Corporation, Electronics Systems 

Company, Under Letter Contract 

Number 3BMHRD-03-Z-5541, 

Solicitation Number DLH-071804

CA-CAR-04-018; 05/05/2004 $13,250,468 — — — —

Audit of Firm Fixed Price Proposal 

Submitted by Siemens Dematic Postal 

Automation L.P.

CA-CAR-04-021; 06/02/2004 $89,463 — — — —

Audit of Incurred Costs at the William 

F. Bolger Conference Center Under 

Contract Number 102590-97-B-0032

CA-CAR-04-020; 06/02/2004 $25,822 — — — —

Audit of Proposal Submitted by CODE 

Plus, Incorporated

CA-CAR-04-026; 09/20/2004 $249,238 — — — —

Audit of Termination for Convenience 

Price Adjustment Claim Submitted by 

Abcon Associates, Incorporated

CA-CAR-04-022; 06/16/2004 $4,478,385 $2,702,465 — — —

Financial Opportunities of Underutilized 

Land

CA-MA-04-004; 07/1/2004 — — $330,000 — —

Lessor Maintenance Enforcement

CA-MA-04-006; 09/30/2004 — — $20,507 — $6,000

FISCAL YEAR 2003 FINANCIAL INSTALLATION AUDITS

Englewood Station

FF-AR-04-239; 08/12/2004 $7,035 $7,035 — — —

APPENDIX A
32 | Semiannual Report to Congress

REPORTS WITH QUANTIFIABLE POTENTIAL MONETARY BENEFITS

Audit Report

Questioned

Costs

Unsupported

Costs

Recommend

Funds Put to

Better Use

Revenue 

Impact

Unrecoverable

Costs

FISCAL YEAR 2004 FINANCIAL INSTALLATION AUDITS

Albany Business Mail Entry Unit

FF-AR-04-224; 07/08/2004 — — — $994 $0

Amsterdam Business Mail Entry Unit

FF-AR-04-199; 06/21/2004 — — — $794 —

Bally Post Office

FF-AR-04-272; 08/31/2004 — — — $1,068 —

Broken Arrow Post Office, Broken 

Arrow, OK

FF-AR-04-295; 09/27/2004 — — — $1,301 —

Carrollton Post Office and Business 

Mail Entry Unit

FF-AR-04-150; 05/05/2004 — — — $122,900 —

Cathlamet Post Office

FF-AR-04-174; 05/27/2004 — — — $3,570 —

Clarksville Self-Service Postal Center

FF-AR-04-131; 04/20/2004 — — — — $1,896

Clovis Main Post Office

FF-AR-04-206; 06/28/2004 — — — $2,093 —

Coronado Self-Service Postal Center

FF-AR-04-132; 04/22/2004 — — — — $1,192

Crenshaw Station

FF-AR-04-128; 04/30/2004 — — — $1,005 —

Durham Business Mail Entry Unit

FF-AR-04-236; 07/27/2004 — — — $16,503 —

El Dorado Post Office

FF-AR-04-210; 06/30/2004 — — — $2,350 —

El Mercado Postal Store

FF-AR-04-293; 09/21/2004 — — — $3,507 —

Frederick Business Mail Entry Unit

FF-AR-04-118; 04/13/2004 — — — $141,954 —

High Point Post Office

FF-AR-04-192; 06/10/2004 — — — $12,735 —

Ithaca Downtown Station

FF-AR-04-277; 09/08/2004 — — — — $1,082

Kenwood Station

FF-AR-04-162; 05/13/2004 — — — $18,178 —

Lakeland District Leased Vehicles

FF-MA-04-001; 07/02/2004 — — $186,027 — —

Lebanon Business Mail Entry Unit

FF-AR-04-197; 06/16/2004 — — — $568 —

Livonia Business Mail Entry Unit

FF-AR-04-216; 07/07/2004 — — — $582 —

Long Beach Viking Station (CA)

FF-AR-04-157; 05/14/2004 — — — $1,114 —

Manasquan Main Office

FF-AR-04-207; 06/29/2004 — — — $1,200 —

Merced Business Mail Entry Unit

FF-AR-04-297; 09/28/2004 — — — $2,442 —
April 1, 2004 – September 30, 2004 | 33

REPORTS WITH QUANTIFIABLE POTENTIAL MONETARY BENEFITS

Audit Report

Questioned

Costs

Unsupported

Costs

Recommend

Funds Put to

Better Use

Revenue 

Impact

Unrecoverable

Costs

Milton Post Office

FF-AR-04-222; 07/08/2004 — — — $5,354 —

New Castle Post Office

FF-AR-04-173; 05/28/2004 — — — $5,816 —

New Haven (CT) Business Mail 

Entry Unit

FF-AR-04-233; 07/21/2004 — — — $4,524 —

New York Main Office

FF-AR-04-262; 08/19/2004 — — — $5,725 $13,807

Northaven Station

FF-AR-04-176; 05/27/2004 — — — $2,060 —

Northwest Postal Store, Gainesville, FL

FF-AR-04-156; 05/14/2004 — — — $0 $22,916

Ortega Contract Postal Unit

FF-AR-04-251; 08/13/2004 — — — $18,960 —

Palatine Business Mail Entry Unit (IL)

FF-AR-04-159; 05/14/2004 — — — $5,160 —

Pewaukee Business Mail Entry Unit

FF-AR-04-276; 09/07/2004 — — — $10,338 —

Pico Rivera Bulk Mail Entry Unit

FF-AR-04-298; 09/28/2004 $1,379 — — — —

Pico Rivera Main Office – Self-Service 

Postal Center

FF-AR-04-116; 04/08/2004 — — — $0 $4,121

Piney Creek Post Office (NC)

FF-AR-04-151; 05/10/2004 — — — $756 —

Rockford Post Office, Rockford, MI

FF-AR-04-167; 05/21/2004 — — — $1,264 —

San Francisco Business Mail Entry Unit

FF-AR-04-275; 09/07/2004 — — — $18,120 —

Schertz Main Post Office

FF-AR-04-119; 04/09/2004 — — — $1,309 $4,012

Southampton Post Office

FF-AR-04-133; 04/22/2004 — — — $517 —

Tampa Business Mail Entry Unit

FF-AR-04-219; 07/08/2004 — — — $5,572 —

Tampa Main Office Window Unit

FF-AR-04-255; 08/13/2004 — — — $3,948 $12,173

West Chester Business Mail Entry Unit

FF-AR-04-246; 07/30/2004 — — — $19,044 —

FISCAL YEAR 2004 FINANCIAL RELATED AUDITS

Stamp Accountability and Inventory 

Controls Related to the American Bank 

Note Company

FF-AR-04-269; 8/31/2004 — — — $191,000 —

APPENDIX A
34 | Semiannual Report to Congress

REPORTS WITH QUANTIFIABLE POTENTIAL MONETARY BENEFITS

Audit Report

Questioned

Costs

Unsupported

Costs

Recommend

Funds Put to

Better Use

Revenue 

Impact

Unrecoverable

Costs

NETWORK OPERATIONS - LOGISTICS

Bulk Mail Center Highway 

Transportation Routes – Great Lakes 

Area

NL-AR-04-004; 09/29/2004 — — $7,660,533 — —

Vehicle Management – Delivery 

Vehicles – Buy Versus Lease

NL-AR-04-005; 09/30/2004 $42,751,032 — $40,296,954 — —

Vehicle Management – Trailer 

Requirements – Northeast Area

NL-AR-04-006; 09/30/2004 $2,016,475 $2,016,475 $7,300,150 — —

NETWORK OPERATIONS – PROCESSING

Efficiency of the Airmail Records Unit 

at the New York International Service 

Center

NO-AR-04-011; 09/24/2004 — — $9,248,967 — —

Efficiency of the New York International 

Service Center

ND-AR-04-009; 09/24/2004 — — $98,355,534 — —

REVENUE

NETWORK OPERATIONS – PROCESSING

Mail Evaluation, Readability and Lookup 

INstrument Utilization at the Business 

Mail Entry Unit in Philadelphia

NO-AR-04-012; 09/224/2004 — — — $30,455 —
April 1, 2004 – September 30, 2004 | 35

SUPPLY MANAGEMENT AND FACILITIES

APPENDIX A

REPORT LISTING

The following complete listing of all OIG reports is grouped first by Postal Service management challenge, second by category of review and year, 

if applicable, and then alphabetically by title.

For the period April 1, 2004, through September 30, 2004

COST CONTROL

Function 4 – Customer Service Operations

DR-AR-04-014; 09/30/2004

DELIVERY AND RETAIL

Duplicate Payment Made to Inland Paperboard 

& Packaging

FT-AR-04-012; 09/30/2004

Erroneous Economic Value Added Reserve 

Payments

FT-OT-04-003; 06/18/2004

Independent Report on Withholdings and 

Contributions for Health Benefits, Life Insurance, 

Retirement and Employee Headcount Data

FT-AR-04-011; 08/23/2004

Postal Service’s Funding of the Civil Service 

Retirement System

FT-0T-04-002; 04/09/2004

FINANCIAL STATEMENTS

Business Mail Entry Unit (Capping Report)

FF-AR-04-256; 08/18/2004

Englewood Station

FF-AR-04-239; 08/12/2004

Contract Postal Units (Capping Report)

FF-AR-04-230; 07/19/2004

Post Office, Branches and Stations 

(Capping Report)

FF-AR-04-247; 08/24/2004

Self-Service Postal Centers (Capping Report)

FF-AR-04-232; 07/19/2004

Stamp Distribution and District Accounting 

Offices (Capping Report)

FF-AR-04-149; 05/06/2004

FISCAL YEAR 2003 FINANCIAL INSTALLATION AUDITS 

Application of Agreed-Upon Procedure on 

Billed Costs Submitted by APL Logistics Under 

Contract Number 162745-97-B-1177

CA-CAR-04-016; 05/05/2004

Application of Agreed-Upon Procedure to 

Lease Operating Expenses Claimed by Bedford 

Property Investors, Inc.

CA-CAR-04-024; 07/01/2004

Application of Agreed-Upon Procedure to Lease 

Operating Expenses Claimed by Equities Office 

Property Trust

CA-CAR-04-023; 07/01/2004

Arlington, Virginia, Main Post Office

CA-OT-04-002; 07/09/2004

Audit of Airfare Adjustment Cost Estimating 

Relationship Factor Proposed by Siemens 

Dematic Postal Automation L.P.

CA-CAR-04-015; 05/03/2004

Audit of Billed Costs Submitted by Clean Harbors 

Environmental Services, Inc. Under Contract 

Number CG84-99-A-100042, Delivery Order 

483083-02-F-0108

CA-CAR-04-014; 04/21/2004

Audit of Firm Fixed Price Proposal Submitted by 

M & A Technology, Inc.

CA-CAR-04-013; 04/13/2004

Audit of Firm Fixed Price Proposal Submitted 

by Northrop Grumman Corporation, Electronics 

Systems Company, Under Letter Contract 

Number 3BMHRD-03-Z-5541, Solicitation 

Number DLH-071804

CA-CAR-04-018; 05/05/2004

Audit of Firm Fixed Price Proposal Submitted by 

Siemens Dematic Postal Automation L.P.

CA-CAR-04-021; 06/02/2004

Audit of Forward Pricing Proposal and Related 

Historical Costs Submitted by Worldwide Flight 

Services, Inc.

CA-CAR-04-025; 07/30/2004

Audit of Incurred Costs at the William F. Bolger 

Conference Center Under Contract Number 

102590-97-B-0032

CA-CAR-04-020; 06/02/2004

Audit of Proposal Submitted by CODE Plus, 

Incorporated

CA-CAR-04-026; 09/20/2004

Audit of Proposed Rates as Part of Indefinite 

Quantity Proposal Submitted by URS Group, Inc.

CA-CAR-04-019; 05/07/2004

Audit of Reported Postage Sales at Selected 

Contract Postal Units Operated by Mail America 

Corp.

CA-CAR-04-017; 05/05/01

Audit of Termination for Convenience Price 

Adjustment Claim Submitted by Abcon 

Associates, Inc.

CA-CAR-04-022; 6/16/2004

Automated Postal Centers

CA-OT-04-001; 4/9/2004

Financial Opportunities of Underutilized Land

CA-MA-04-004; 7/1/2004

Fiscal Year 2003 Supply Chain Management 

Savings

CA-AR-04-003; 09/30/2004

Lessor Maintenance Enforcement

CA-MA-04-006; 09/30/2004

Leased Office Spacing, New Haven (CT)

CA-OT-04-003; 7/30/2004

Preferred Portfolio Partnering Program

CA-AR-04-002; 09/30/2004

Repairs and Alterations of Postal Service 

Facilities

CA-MA-04-005; 7/23/2004

Supply Management Transactional Cost Models

CA-OT-04-004; 8/4/2004
36 | Semiannual Report to Congress

FISCAL YEAR 2004 FINANCIAL INSTALLATION AUDITS 

Abilene Business Mail Entry Unit

FF-AR-04-228; 07/13/2004

Albany Business Mail Entry Unit

FF-AR-04-224; 07/08/2004

Aloha Branch

FF-AR-04-221; 07/07/2004

Amsterdam Business Mail Entry Unit

FF-AR-04-199; 06/21/2004

Bally Post Office

FF-AR-04-272; 08/31/2004

Baton Rouge Stamp Distribution Office

FF-AR-04-169; 05/24/2004

Beedeville Post Office

FF-AR-04-122; 04/20/2004

Broken Arrow Post Office

FF-AR-04-295; 09/27/2004

Brownsburg Post Office

FF-AR-04-124; 04/21/2004

Brunswick Business Mail Entry Unit

FF-AR-04-267; 8/26/204

Camden Business Mail Entry Unit

FF-AR-04-291; 09/22/2004

Cameron Contract Postal Unit

FF-AR-04-286; 9/16/2004

Canton Business Mail Entry Unit

FF-AR-04-260; 08/20/2004

Carmichael Business Mail Entry Unit

FF-AR-04-177; 05/27/2004

Carrollton Post Office and Business Mail Entry Unit

FF-AR-04-150; 05/05/2004

Cathlamet Post Office

FF-AR-04-174; 05/27/2004

Cincinnati Self-Service Postal Center #237

FF-AR-04-125; 04/20/2004

Cincinnati Stamp Distribution Office

FF-AR-04-237; 07/27/2004

Clarksville Self-Service Postal Center

FF-AR-04-131; 04/20/2004

Claydesta Station

FF-AR-04-280; 09/10/2004

Clovis Main Post Office

FF-AR-04-206; 06/28/2004

Coeymans Post Office

FF-AR-04-175; 05/27/2004

Colorado Springs Self-Service Postal Center

FF-AR-04-301; 09/30/2004

Columbus Stamp Distribution Office

FF-AR-04-194; 06/10/2004

Coronado Self-Service Postal Center

FF-AR-04-132; 04/22/2004

Cozad Post Office

FF-AR-04-248; 08/11/2004

Crenshaw Station

FF-AR-04-128; 04/30/2004

Dallas Business Mail Entry Unit

FF-AR-04-211; 07/01/2004

Dexter Post Office

FF-AR-04-245; 07/30/2004

Durham Business Mail Entry Unit

FF-AR-04-236; 07/27/2004

Durham West Station

FF-AR-04-181; 06/04/2004

East Greenville Business Mail Entry Unit

FF-AR-04-220; 07/07/2004

Eau Claire (WI) Business Mail Entry Unit

FF-AR-04-270; 08/30/2004

El Dorado Post Office

FF-AR-04-210; 06/30/2004

El Mercado Postal Store

FF-AR-04-293; 09/21/2004

Farmingdale Business Mail Entry Unit

FF-AR-04-268; 08/30/2004

Farmingdale Main Office

FF-AR-04-141; 04/26/2004

Folcroft Business Mail Entry Unit

FF-AR-04-278; 09/07/2004

Fox Valley Business Mail Entry Unit

FF-AR-04-171; 05/26/2004

Frederick Business Mail Entry Unit

FF-AR-04-118; 04/13/2004

Fremont Post Office

FF-AR-04-193; 06/10/2004

Gallatin Business Mail Entry Unit

FF-AR-04-213; 07/06/2004

Glen Rock Branch

FF-AR-04-144; 04/29/2004

Gonzales Business Mail Entry Unit

FF-AR-04-172; 05/26/2004

Grand Chute Branch

FF-AR-04-202; 06/24/2004

Grove City Post Office

FF-AR-04-191; 06/14/2004

Guilford Post Office

FF-AR-04-235; 07/22/2004

Gulfport Business Mail Entry Unit

FF-AR-04-201; 06/23/2004

Haltom City Branch

FF-AR-04-180; 06/02/2004

Harlingen Business Mail Entry Unit

FF-AR-04-244; 07/29/2004

Harmon’s Contract Postal Unit

FF-AR-04-184; 06/04/2004

Harrisburg Stamp Distribution Office

FF-AR-04-209; 06/30/2004

Hayward Post Office

FF-AR-04-250; 08/12/2004

High Point Post Office

FF-AR-04-192; 06/10/2004

Honolulu Stamp Distribution Office

FF-AR-04-281; 09/10/2004

Ithaca Business Mail Entry Unit

FF-AR-04-292; 09/22/2004

Ithaca Downtown Station

FF-AR-04-277; 09/08/2004

Jacksonville Business Mail Entry Unit

FF-AR-04-200; 06/22/2004

Johnstown Business Mail Entry Unit

FF-AR-04-296; 09/29/2004

Kearney Business Mail Entry Unit

FF-AR-04-273; 08/31/2004

Kelly’s Inc., Contract Postal Unit

FF-AR-04-289; 09/20/2004

Kenwood Station

FF-AR-04-162; 05/13/2004

Kerrville Post Office

FF-AR-04-287; 9/17/2004

Kilgore Post Office

FF-AR-04-259; 08/17/2004

Lafayette Hill Post Office

FF-AR-04-299; 09/29/2004

Lakeland District Leased Vehicles

FF-MA-04-001; 07/02/2004
April 1, 2004 – September 30, 2004 | 37

APPENDIX A

Lakeshore Station

FF-AR-04-168; 05/21/2004

Laredo Business Mail Entry Unit

FF-AR-04-264; 08/25/2004

Las Vegas Business Mail Entry Unit

FF-AR-04-241; 07/30/2004

Las Vegas Stamp Distribution Office

FF-AR-04-225; 07/13/2004

Lebanon Business Mail Entry Unit

FF-AR-04-197; 06/16/2004

Ledyard Post Office

FF-AR-04-139; 04/22/2004

Lily Dale Post Office

FF-AR-04-115; 04/05/2004

Livonia Business Mail Entry Unit

FF-AR-04-216; 07/07/2004

Long Beach Downtown Station

FF-AR-04-153; 05/11/2004

Long Beach Viking Station

FF-AR-04-157; 05/14/2004

Loyola University Contract Postal Unit

FF-AR-04-190; 06/10/2004

Manasquan Main Office

FF-AR-04-207; 06/29/2004

Manchester Stamp Distribution Office

FF-AR-04-261; 08/23/2004

Marinette Post Office

FF-AR-04-242; 07/28/2004

Memphis Stamp Distribution Office

FF-AR-04-163; 05/19/2004

Merced Business Mail Entry Unit

FF-AR-04-297; 09/28/2004

Metairie Self-Service Postal Center #73

FF-AR-04-186; 06/09/2004

Milford Business Mail Entry Unit

FF-AR-04-249; 08/11/2004

Milton Post Office

FF-AR-04-222; 07/08/2004

Mineral Wells Business Mail Entry Unit

FF-AR-04-294; 09/22/2004

Missoula Business Mail Entry Unit

FF-AR-04-285; 9/16/2004

Mount Juliet Business Mail Entry Unit

FF-AR-04-217; 07/07/2004

Monte Vista Business Mail Entry Unit

FF-AR-04-212; 07/09/2004

Nahcotta Community Post Office

FF-AR-04-126; 04/20/2004

NETC Station

FF-AR-04-161; 05/17/2004

Newberg Post Office

FF-AR-04-188; 06/14/2004

New Castle Post Office

FF-AR-04-173; 05/28/2004

New Haven (CT) Business Mail Entry Unit

FF-AR-04-178; 05/28/2004

New Haven (CT) Business Mail Entry Unit

FF-AR-04-233; 07/21/2004

New London Business Mail Entry Unit

FF-AR-04-231; 07/20/2004

New Meadows Post Office

FF-AR-04-266; 08/26/2004

New York Main Office

FF-AR-04-262; 08/19/2004

Newark Business Mail Entry Unit

FF-AR-04-252; 08/13/2004

Newport Post Office

FF-AR-04-154; 05/12/2004

Norfolk Post Office

FF-AR-04-155; 05/20/2004

North West St. Johns Station

FF-AR-04-189; 06/10/2004

Northaven Station

FF-AR-04-176; 05/27/2004

Northwest Postal Store - Gainesville, FL

FF-AR-04-156; 05/14/2004

Oak Harbor Post Office

FF-AR-04-114; 04/07/2004

Oceanside Business Mail Entry Unit

FF-AR-04-215; 07/06/2004

Old Village Station

FF-AR-04-185; 06/08/2004

Orlando Business Mail Entry Unit

FF-AR-04-271; 08/31/2004

Ortega Contract Postal Unit

FF-AR-04-251; 08/13/2004

Palatine Business Mail Entry Unit (IL)

FF-AR-04-159; 05/14/2004

Palatka Post Office

FF-AR-04-164; 05/19/2004

Peter Stuyvesant Station

FF-AR-04-140; 04/27/2004

Pewaukee Business Mail Entry Unit

FF-AR-04-276; 09/07/2004

Pico Rivera Bulk Mail Entry Unit

FF-AR-04-298; 09/28/2004

Pico Rivera Main Office – Self-Service 

Postal Center

FF-AR-04-116; 04/08/2004

Pikeville Business Mail Entry Unit

FF-AR-04-218; 07/07/2004

Piney Creek Post Office

FF-AR-04-151; 05/10/2004

Port Clinton Post Office

FF-AR-04-243; 07/28/2004

Port Jefferson Business Mail Entry Unit

FF-AR-04-204; 06/28/2004

Portage Post Office

FF-AR-04-170; 05/25/2004

Radcliff Business Mail Entry Unit

FF-AR-04-226; 07/09/2004

Rhinelander Post Office

FF-AR-04-253; 08/13/2004

Rockford Post Office, Rockford (MI)

FF-AR-04-167; 05/21/2004

Rural Hall Business Mail Entry Unit

FF-AR-04-214; 07/06/2004

Salt Lake City Stamp Distribution Office

FF-AR-04-130; 04/20/2004

San Francisco Business Mail Entry Unit

FF-AR-04-275; 09/07/2004

San Marcos Post Office

FF-AR-04-187; 06/10/2004

Saugatuck Station

FF-AR-04-234; 07/21/2004

Savannah Plaza Contract Postal Unit

FF-AR-04-137; 04/23/2004

Schertz Main Post Office

FF-AR-04-119; 04/09/2004

Seattle Stamp Distribution Office

FF-AR-04-127; 04/20/2004

Ship Bottom Branch

FF-AR-04-290; 09/20/2004

FISCAL YEAR 2004 FINANCIAL INSTALLATION AUDITS 
38 | Semiannual Report to Congress

Albany District

FF-AR-04-160; 05/20/2004

Appalachian District

FF-AR-04-257; 08/18/2004

Arizona District

FF-AR-04-227; 07/12/2004

Big Sky District

FF-AR-04-158; 05/13/2004

Cincinnati District

FF-AR-04-208; 06/29/2004

Connecticut District

FF-AR-04-265; 08/26/2004

Gateway District

FF-AR-04-135; 04/21/2004

Honolulu District

FF-AR-04-288; 09/20/2004

John F. Kennedy Air Mail Facility

FF-AR-04-229; 07/15/2004

Kentuckiana District

FF-AR-04-143; 04/29/2004

Long Island District

FF-AR-04-117; 04/05/2004

Massachusetts District

FF-AR-04-258; 08/17/2004

Mid-America District

FF-AR-04-129; 04/20/2004

Mid-Carolinas District

FF-AR-04-134; 04/22/2004

New Hampshire/Vermont District

FF-AR-04-284; 09/20/2004

New Jersey International Bulk Mail Facility

FF-AR-04-263; 08/25/2004

New York District

FF-AR-04-238; 07/27/2004

Northland District

FF-AR-04-146; 05/05/2004

Oklahoma District

FF-AR-04-121; 04/14/2004

Philadelphia District

FF-AR-04-196; 06/14/2004

Pittsburgh District

FF-AR-04-136; 04/20/2004

Rio Grande District

FF-AR-04-147; 05/05/2004

Royal Oak District

FF-AR-04-152; 05/10/2004

Salt Lake City District

FF-AR-04-182; 06/04/2004

South Florida District

FF-AR-04-223; 07/08/2004

Suncoast District

FF-AR-04-254; 08/13/2004

Westchester District

FF-AR-04-195; 06/10/2004

AUDIT OF STATISTICAL TESTS FOR FISCAL YEAR 2004 COST AND REVENUE ANALYSIS

FISCAL YEAR 2004 FINANCIAL INSTALLATION AUDITS 

Southampton Business Mail Entry Unit

FF-AR-04-198; 06/17/2004

Southampton Post Office

FF-AR-04-133; 04/22/2004

South Salem Post Office

FF-AR-04-283; 9/15/2004

Spearfish Self-Service Postal Center

FF-AR-04-300; 09/29/2004

Spencer Post Office

FF-AR-04-240; 07/27/2004

Strathcona Main Post Office

FF-AR-04-142; 04/28/2004

Tampa Business Mail Entry Unit

FF-AR-04-219; 07/08/2004

Tampa Main Office Window Unit

FF-AR-04-255; 08/13/2004

Terre Haute Stamp Distribution Office

FF-AR-04-183; 06/04/2004

Trevett Post Office

FF-AR-04-179; 06/01/2004

Tucson Self-Service Postal Center #737

FF-AR-04-274; 09/01/2004

Tyler Southeast Crossing Station

FF-AR-04-138; 04/23/2004

University of Central Arkansas Contract Postal Unit

FF-AR-04-120; 04/14/2004

Valley Forge Business Mail Entry Unit

FF-AR-04-205; 06/28/2004

Van Brunt Station

FF-AR-04-203; 06/28/2004

Vestal Main Office

FF-AR-04-123; 04/14/2004

Warners Post Office

FF-AR-04-279; 09/08/2004

Washington (DC) Self-Service Postal Center #0502

FF-AR-04-166; 05/17/2004

West Chester Business Mail Entry Unit

FF-AR-04-246; 07/30/2004

West Palm Beach Stamp Distribution Office

FF-AR-04-282; 9/13/2004

West Simsbury Post Office

FF-AR-04-145; 05/04/2004

Wickenberg Post Office (AZ)

FF-AR-04-165; 05/20/2004

Stamp Accountability and Inventory Controls 

Related to the American Bank Note Company

FF-AR-04-269; 8/31/2004

FISCAL YEAR 2004 FINANCIAL RELATED AUDITS

Fiscal Years 2003 and 2004 Protective Reviews 

Capping Report

FT-MA-04-003; 8/12/2004

FISCAL YEAR 2004 PROTECTIVE REVIEWS
April 1, 2004 – September 30, 2004 | 39

City Letter Carrier Street Management and Route 

Inspections in the Fort Worth District

DR-AR-04-001; 06/22/2004

City Letter Carrier Office Preparation – Dallas 

District

DR-AR-04-005; 7/26/2004

Self-Service Vending Program – Alabama District

DR-AR-04-004; 6/30/2004

Self-Service Vending Program – Albany District

DR-AR-04-006; 9/13/2004

Self-Service Vending Program – Atlanta District

DR-AR-04-002; 07/01/2004

Self-Service Vending Program – Eastern Area

DR-AR-04-015; 09/30/2004

Self-Service Vending Program – Greater South 

Carolina District

DR-AR-04-007; 09/20/2004

Self-Service Vending Program – Kentuckiana 

District

DR-AR-04-012; 09/30/2004

Self-Service Vending Program – Massachusetts 

District

DR-AR-04-008; 09/24/2004

Self-Service Vending Program – Nevada-Sierra 

District

DR-AR-04-009; 09/24/2004

Self-Service Vending Program – Rio Grande 

District

DR-AR-04-010; 09/24/2004

Self-Service Vending Program – Sacramento 

District

DR-AR-04-011; 09/28/2004

Self-Service Vending Program – Southeast Area

DR-AR-04-013; 09/30/2004

Self-Service Vending Program – Tennessee 

District

DR-AR-04-003; 06/30/2004

DELIVERY AND RETAIL

Network Optimization

NETWORK OPERATIONS – LOGISTICS

Efficiency of the Airmail Records Unit at the New 

York International Service Center

NO-AR-04-011; 09/24/2004

Efficiency of the New York International Service 

Center

NO-AR-04-009; 09/24/2004

NETWORK OPERATIONS – PROCESSING

Efforts to Prevent Accidents, Injuries and 

Illnesses in the Mississippi and Suncoast 

Performance Clusters 

(Southeast Area)

HM-AR-04-006; 04/29/2004

Efforts to Prevent Accidents, Injuries and 

Illnesses in the Arkansas and Oklahoma 

Performance Clusters 

(Southwest Area)

HM-AR-04-007; 06/28/2004

Efforts to Prevent Accidents, Injuries and 

Illnesses in the Mid-America and Salt Lake City 

Performance Clusters

(Western Area)

HM-AR-04-010; 07/20/2004

Efforts to Prevent Accidents, Injuries and 

Illnesses in the Los Angeles and Oakland 

Performance Clusters

(Pacific Area)

HM-AR-04-011; 07/26/2004

Efforts to Prevent Accidents, Injuries and 

Illnesses in the Long Island and New York 

Performance Clusters 

(New York Metro Area)

HM-AR-04-008; 07/07/2004

Efforts to Prevent Accidents, Injuries and 

Illnesses in the Chicago and Greater Indiana 

Performance Clusters 

(Great Lakes Area)

HM-AR-04-009; 07/07/2004

Summary Report on the Efforts to Prevent 

Accidents, Injuries and Illnesses in 12 

Performance Clusters

HM-AR-04-012; 09/21/2004

HUMAN CAPITAL

Labor

Bulk Mail Center Highway Transportation Routes 

– Great Lakes Area

NL-AR-04-004; 09/29/2004

Buy Versus Lease – Cargo Vans

NL-OT-04-001; 9/09/2004

Vehicle Management – Delivery Vehicles – 

Buy versus Lease

NL-AR-04-005; 09/30/2004

Vehicle Management – Trailer Requirements 

– Northeast Area

NL-AR-04-006; 09/30/2004

APPENDIX A

Advanced Facer Canceler System Improvements

DA-AR-04-004; 09/30/2004

Automated Package Processing

DA-AR-04-001; 08/20/2004

Postal Automated Redirection System First 

Article Testing

DA-AR-04-002; 9/15/2004

Technology Acquisition Management

DA-AR-04-003; 09/24/2004

ENGINEERING

Technology
40 | Semiannual Report to Congress

Postal Inspection Service’s Asset Forfeiture 

Program

SA-AR-04-002; 06/29/2004

INSPECTION SERVICE OVERSIGHT

REVENUE

Express Mail Operations

NO-AR-04-008; 05/05/2004

Mail Evaluation, Readability and Lookup 

INstrument Utilization at the Business Mail Entry 

Unit in Philadelphia, PA

NO-AR-04-012; 09/24/2004

Mail Evaluation, Readability and Lookup 

INstrument Utilization at the Business Mail Entry 

Unit in Columbia, SC

NO-AR-04-010; 09/24/2004

NETWORK OPERATIONS - PROCESSING

Fiscal Year 2003 District Consolidations in the 

Eastern, Northeast and Pacific Areas

ST-OT-04-001; 06/17/2004

STRATEGY & PERFORMANCE

STRATEGIC DIRECTION

Decision Process for Disposition of the CurseenMorris Facility

DA-OT-04-003; 04/09/2004

Emergency Preparedness Training

DA-OT-04-004; 07/23/2004

ENGINEERING

SAFETY AND SECURITY

Business Continuity Planning and Testing at the 

Eagan, San Mateo and St. Louis Information 

Technology and Accounting Service Centers

IS-AR-04-010; 07/14/2004

Personnel Security Controls at the Eagan, San 

Mateo and St. Louis Information Technology and 

Accounting Service Centers

IS-AR-04-011; 09/08/2004

INFORMATION SYSTEMS

Postal Inspection Service’s Postal Police Officers

SA-AR-04-001; 04/21/2004

INSPECTION SERVICE OVERSIGHT

Audit of Serena ChangeMan ZMF 

Implementation

IS-AR-04-008; 06/17/2004

Click-N-Ship Application Controls Review 

– Access to Nonproduction Systems

IS-AR-04-012; 09/28/2004

Computer Incident Detection and Response 

Capabilities

IS-AR-04-009; 06/18/2004

Electronic Data Interchange at the San Mateo 

Information Technology and Accounting Service 

Center

IS-AR-04-013; 09/29/2004

Follow-up of the Network Security and Security 

Testing of Load Balancers at the San Mateo Host 

Computing Services

IS-AR-04-006; 06/08/2004

Oracle Database Testing at the Host Computing 

Services, Eagan, MN

IS-CS-04-004; 06/16/2004

Postal Service’s Advanced Computing 

Environment Program Management

IS-AR-04-007; 06/16/2004

Postal Service’s Business Partner Connectivity

IS-AR-04-014; 09/30/2004

Security Vulnerability Assessment of Selected 

UNIX Servers at Host Computing Services, 

Eagan, MN

IS-CS-04-005; 07/12/2004

Security Vulnerability Assessment of Selected 

Windows Servers at the Host Computing 

Services, Eagan, MN

IS-CS-04-003; 05/21/2004

INFORMATION SYSTEMS

MANAGEMENT INFORMATION
April 1, 2004 – September 30, 2004 | 41

APPENDIX B

APPENDIX B

FINDINGS OF QUESTIONED COSTS

For the period April 1, 2004, through September 30, 2004

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

OFFICE OF INSPECTOR GENERAL AND 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 22 $94,171,919 $10,483,386

Reports requiring management decision that were issued during the reporting 

period 12 $65,263,905 $4,725,975

TOTAL 34 $159,435,824 $15,209,361

Reports for which a management decision was made during the reporting period (i+ii) 22 $95,720,298 $8,492,933

(i) Dollar value of disallowed cost — $16,313,060 $78,338

(ii) Dollar value of cost not disallowed — $79,407,238 $8,414,595

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

period. Negotiations are ongoing. 12 $63,715,526 $6,716,428

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

(See Note 1 for a list of individual reports) 0 $0 $0

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

(See Note 2 for a list of individual reports) 6 $13,208,954 $1,997,488

Report Date Report/Case Number Project Type

Total

Questioned

 Costs

Unsupported 

Costs Included in 

Questioned Costs

— — $0 $0

Subject Case 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 – M.E.S. Incorporated CA-CAR-02-051 9/13/2002 $620,681 $187,271

Contract Audit – Bell and Howell Mail and 

Messaging Technologies CA-CAR-03-002 10/16/2002 $343,759 $0

Contract Audit – D. L. Kaufman, Incorporated CA-CAR-03-011 2/11/2003 $4,028,935 $0

Audit of Equitable Adjustment Claim Submitted by 

STV, Incorporated IR-CAR-03-011 9/30/2003 $98,569 $0

OFFICE OF INSPECTOR GENERAL TOTAL $6,145,207 $321,611 

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 

Note 1 – 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:

COMBINED TOTAL $13,208,954 $1,997,488 
42 | Semiannual Report to Congress

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 11 $183,597,134

Reports requiring management decision that were issued during the reporting 

period 8 $163,398,672

TOTAL 19 $346,995,806

Reports for which a management decision was made during the report period (i + ii) 11 $185,753,605

(i) Value of recommendations agreed to by management — $183,142,772

(ii) Value of recommendations that management did not agree — $2,610,833

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

period.* 8 $161,242,201

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

issuance

(See Note 1 for a list of individual reports) 1 $1,200,212

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

(See Note 2 for a list of individual reports) 4 $104,784,352

Subject Case Number Report Date

Recommend Funds 

Put to Better Use

Vehicle Maintenance Facilities – Chicago District – Accidental Vehicle Damage Cost 

and Vehicle Safety, Security and Appearance NL-AR-04-002 12/05/2003 $1,200,212

TOTAL $1,200,212

Subject Case Number Report Date

Recommend Funds 

Put to Better Use

Bulk Fuel Purchase Plan TR-AR-01-004 07/27/2001 $15,918,035 

New York Metro Area Operational Use of Trailers TD-MA-03-001 01/29/2003 $2,495,344 

Trailer Lease Justification TD-AR-02-002 3/29/2002 $82,349,739

New York Metro Area Trailer Acquisition – Lease Versus Buy TD-AR-03-009 03/31/2003 $4,021,234 

TOTAL $104,784,352

* Included herein 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.

APPENDIX C

RECOMMENDATIONS THAT FUNDS BE PUT TO BETTER USE

For the period April 1, 2004, through September 30, 2004

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 can be put to better use by 

management.

Note 1 – 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:
April 1, 2004 – September 30, 2004 | 43

OFFICE OF INSPECTOR GENERAL

APPENDIX D

APPENDIX D

REPORTS WITH SIGNIFICANT RECOMMENDATIONS PENDING CORRECTIVE ACTIONS

For the period through September 30, 2004

As required by the IG Act, the following pages include a list of each audit report issued before the commencement of the reporting period for which no management decision has been made by the end of the reporting period.

Issue

Date

Number of 

Recommendations* Report TitleReport

Number

9/29/1999 3 Emergency and Extra Trip Expenditures on Highway Routes TR-AR-99-003

9/29/2000 2 Review of the United States Postal Inspection Service Budget Process OV-AR-00-005

4/30/2001 1 Postal Inspection Service Support to Postal Service Threat Assessment Teams OV-AR-01-002

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

9/28/2001 1 Postal Inspection Service Fraud Against Government Program OV-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

3/29/2002 1 Public-Key Infrastructure Initiatives by the Postal Service EM-AR-02-009

3/29/2002 2 Trailer Lease Justification TD-AR-02-002

5/8/2002 2 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

7/10/2002 2 New York Metro Area Trailer Acquisition Requirements TD-MA-02-003

7/30/2002 3 Postal Inspection Service Health Examination Program OV-AR-02-003(R)

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

10/28/2002 2 New York Metro Area Trailer Acquisition - Safety and Length TD-AR-03-001

1/29/2003 2 New York Metro Area Operational Use of Trailers TD-MA-03-001

1/30/2003 1 Fiscal Year 2002 Postal Service Financial Statements Audit – St. Louis Information 

Technology and Accounting Service Center

FT-AR-03-008

1/30/2003 1 Sexual Harassment Prevention Measures in the Northern Virginia and Richmond 

Districts – Capital Metro Operations

LH-AR-03-003

2/25/2003 2 Sexual Harassment Prevention Measures in the Albany and Southeast New England 

Districts – Northeast Area

LH-AR-03-004

3/5/2003 1 Sexual Harassment Prevention Measures in the Central Florida and South Georgia 

Districts – Southeast Area

LH-AR-03-005

* Pending corrective action
44 | Semiannual Report to Congress

Issue

Date

Number of 

Recommendations* Report TitleReport

Number

3/5/2003 2 Sexual Harassment Prevention Measures in the Greensboro and Harrisburg Districts 

– Eastern Area

LH-AR-03-006

3/5/2003 1 Sexual Harassment Prevention Measures in the Dakotas and Portland Districts 

– Western Area

LH-AR-03-007

3/12/2003 2 Address Change Service TD-AR-03-004

3/18/2003 3 Sexual Harassment Prevention Measures in the Oakland and Santa Ana Districts 

– Pacific Area

LH-AR-03-008

3/19/2003 3 Vehicle Maintenance Facilities - Vehicle Inventory Control Weaknesses in the Chicago 

District

TD-AR-03-005

3/25/2003 3 Sexual Harassment Prevention Measures in the Arkansas and Rio Grande Districts 

– Southwest Area

LH-AR-03-009

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

3/31/2003 1 Retail Data Mart System – Security Issues OE-AR-03-002

3/31/2003 2 New York Metro Area Trailer Acquisition – Lease Versus Buy TD-AR-03-009

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

6/30/2003 2 Review of Facility Conditions at the Groton, Connecticut, Main Post Office LH-AR-03-010

7/31/2003 2 Efficiency of Work Performed by Business Mail Entry Clerks Within the Los Angeles 

District

AO-AR-03-001

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

9/8/2003 2 Capping Report on the Postal Service’s Sexual Harassment Prevention Measures in 18 

District Offices

LH-AR-03-011

9/10/2003 1 Retail Data Mart System – Data Integrity and Expected Benefits OE-AR-03-006

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

9/26/2003 2 Postal Inspection Service Controls Over Firearms – Reconciliation of Sturm, Ruger and 

Company, Inc., Firearms

SA-AR-03-006

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

9/30/2003 1 Inventory Management – Maintenance Stockrooms AC-AR-03-007

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

12/1/2003 1 Potential Improper and Erroneous Payments FT-AR-04-001

12/2/2003 3 Fiscal Year 2003 Information System Controls, Eagan, San Mateo and St. Louis 

Information Technology and Accounting Service Centers

IS-AR-04-001

12/5/2003 3 Vehicle Maintenance Facilities - Chicago District – Accidental Vehicle Damage Cost and 

Vehicle Safety, Security and Appearance

NL-AR-04-002

2/23/2004 1 Conditions at Patterson Station in the Baltimore District NL-MA-04-002

2/24/2004 1 Network Integration and Alignment Models – Independent Verification and Validation NO-AR-04-005

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

3/30/2004 4 Compliance with the Bank Secrecy Act FF-AR-04-100

* Pending corrective action
April 1, 2004 – September 30, 2004 | 45

APPENDIX D

Issue

Date

Number of 

Recommendations* Report TitleReport

Number

3/31/2004 2 Efficiency of the San Francisco International Service Center and the General Services 

Administration Facility

NO-AR-04-006

3/31/2004 2 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 3 Follow-up of the Network Security and Security Testing of Load Balancers at the San 

Mateo Host Computing Services

IS-AR-04-006

7/1/2004 2 Financial Opportunities of Underutilized Land CA-MA-04-004

7/14/2004 1 Business Continuity Planning and Testing at the Eagan, San Mateo and St. Louis 

Information Technology and Accounting Service Centers

IS-AR-04-010

9/13/2004 2 Self-Service Vending Program – Albany District DR-AR-04-006

9/20/2004 3 Self-Service Vending Program – Greater South Carolina District DR-AR-04-007

9/22/2004 2 Self-Service Vending Program – Nevada-Sierra District DR-AR-04-009

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

9/24/2004 2 Self-Service Vending Program – Massachusetts District DR-AR-04-008

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

9/28/2004 2 Self-Service Vending Program – Sacramento District DR-AR-04-011

9/29/2004 2 Electronic Data Interchange at the San Mateo Information Technology and Accounting 

Service Center

IS-AR-04-013

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 Preferred Portfolio Partnering Program CA-AR-04-002

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

9/30/2004 2 Advanced Facer-Canceler System Improvements DA-AR-04-004

9/30/2004 2 Self-Service Vending Program – Kentuckiana District DR-AR-04-012

9/30/2004 2 Self-Service Vending Program – Southeast Area DR-AR-04-013

9/30/2004 2 Function 4 - Customer Service Operations DR-AR-04-014

9/30/2004 2 Self-Service Vending Program – Eastern Area DR-AR-04-015

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

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

* Pending corrective action
46 | Semiannual Report to Congress

Trailer Lease Justification 

(TD-AR-02-002, 3/29/2002)

Recommendation 1: We recommended 

the Vice President, Purchasing and Materials, prepare a Decision Analysis Report to 

purchase the common fleet trailers currently 

under the nationwide lease and submit it to 

the Board of Governors.

Recommendation 4: We recommended the 

Vice President, Purchasing and Materials, 

develop management controls to ensure 

use of a Decision Analysis Report for leases 

exceeding $10 million per year.

Agency Response: Postal Service management stated the National Trailer Lease was not 

a lease, but a service contract, and as a result, 

did not require a Decision Analysis Report or 

Board of Governors’ approval. However, on 

July 22, 2002, in an effort to reach resolution, 

the deputy postmaster general directed Postal 

Service management to analyze the National 

Trailer Lease in accordance with the procedures specified by Postal Service investment 

policy, and stated that Postal Service Finance 

would independently verify the analysis in 

accordance with the same procedures they 

use for capital projects. Consequently, we 

deferred further decision on how to proceed 

with resolution until we had an opportunity 

to review the validated analysis. As of this 

semiannual reporting period, we have not 

received a validated analysis — the equivalent 

of an analysis the Postal Service would use for 

capital projects. Therefore, we have elected to 

proceed with these recommendations through 

the resolution process.

New York Metro Area Trailer Acquisition

– Lease Versus Buy 

(TD-AR-03-009, 3/31/2003)

Recommendation 1: We recommended the 

Vice President, Supply Management, prepare 

a Decision Analysis Report in accordance 

with Postal Service investment policy to 

support acquisition of trailers for the New 

York Metro Area.

Recommendation 2: We recommended the 

Vice President, Supply Management, submit 

the Decision Analysis Report to the Board of 

Governors for approval.

Agency Response: Postal Service management pointed out that the issues raised during 

this audit were substantially the same as 

the issues raised during the Trailer Lease 

Justification audit. We concur. Accordingly, we 

have joined our resolution efforts concerning 

these two audits.

Postal Inspection Service Tracking of 

Investigative Workhours and Activity

(SA-AR-03-003, 6/13/2003)

Recommendation 1: We recommend 

the Chief Postal Inspector develop and 

implement a documented process to track 

total investigative workhours for jacketed 

cases using existing Postal Inspection Service 

(USPIS) Data Base Information System Service 

capabilities, which allows the USPIS the 

ability to determine total workhours expended 

for individual area cases that resulted in 

jacketed cases.

Agency Response: The USPIS was concerned 

that any estimates of attributed workhours 

expended in the preliminary stages of an 

investigation to a specific jacketed case 

would degrade the integrity of their internal 

reporting systems.

OFFICE OF INSPECTOR GENERAL

APPENDIX E

SIGNIFICANT MANAGEMENT DECISIONS IN AUDIT RESOLUTION

For the period April 1, 2004, through September 30, 2004

As required by the IG Act, the following pages discuss information concerning any significant management decision with which the Inspector General disagrees and is 

currently in audit resolution.
April 1, 2004 – September 30, 2004 | 47

INVESTIGATIVE STATISTICS1

For the period April 1, 2004, through September 30, 2004

OFFICE OF INSPECTOR GENERAL

Statistics

Investigations completed 463

Arrests 28

Indictments/Informations 24

Convictions/Pretrial diversions 14

Administrative Actions 98

Fines, restitutions and recoveries2

 $6,352,168

Amount to Postal Service3

 $2,291,260

U.S. POSTAL INSPECTION SERVICE4

For the period October 1, 2003, through September 30, 2004

Statistics

Investigations completed 1,643

Arrests/Indictments/Informations 652

Convictions/Pretrial diversions 608

Administrative Actions 

Removals 1,081

Identifications 1,303

Fines, restitutions and recoveries $8,969,308

Amount to Postal Service3 $864,624

1 Statistics include joint investigations with other federal law enforcement agencies. 2 Some fines and recoveries were from the previous reporting period, but not previously counted.

3 Amount included in total fines, restitutions and recoveries.

4 Statistics for the previous reporting period were not included in the October 1, 2003 – March 31, 2004 

Semiannual Report to Congress, therefore these statistics reflect the entire fiscal year.

APPENDIX F

APPENDIX F
48 | Semiannual Report to Congress

Subpoena activity for the period of April 2004, through September 30, 2004

Case No. Date Issued Scheme

04-005 05/07/04 Solicitations in the guise of Invoices

04-006 06/04/04 False Representation – Failure to Render

04-007 06/04/04 False Representation – Failure to Render

04-008 09/30/04 Sweepstakes Scheme

04-009 09/30/04 Sweepstakes Scheme

SUMMARY OF U.S. POSTAL INSPECTION SERVICE ACTIONS UNDER

39 USC 3005 and 3007 – April 1, 2004 through September 30, 2004

Type of Scheme

Complaints

Filed

Consent

Agreements FROs

Cease & 

Desist Orders

Advance fee 1 1 0 1

Boiler rooms/Telemarketing – – 1 2

Contest/Sweepstakes 2 1 1 2

False billings 1 1 – 2

Lotteries (Foreign and Domestic) 6 – – –

Misrepresentation 2 2 – 3

Work at home 8 5 6 12

TOTAL 20 10 8 22

APPENDIX G

OTHER ADMINISTRATIVE ACTIONS

Administrative Action Requests 21

Temporary Restraining Orders Requested 4 

Temporary Restraining Orders Issued 1 

Civil Injunctions (Section 1345) Requested 1 

Civil Penalties (Section 3012) Imposed $100,595 

Withholding Mail Orders Issued 13 

Voluntary Discontinuances 43 

FINANCIAL REPORTING ON INVESTIGATIVE 

ACTIVITIES FY2004 MO 7-12

Type Semiannual Report

Personnel 171,461,269

Nonpersonnel 44,949,123

TOTAL 216,410,392

Capital Obligations 17,477,292 

SUMMARY OF POSTAL SERVICE INVESTIGATIVE ACTIVITIES 

UNDER 39 USC 3013

For the period April 1, 2004, through September 30, 2004

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

Postal Service 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.
April 1, 2004 – September 30, 2004 | 49

APPENDIX H

APPENDIX H

CLOSED CONGRESSIONAL AND BOARD OF GOVERNORS INQUIRIES

For the period April 1, 2004, through September 30, 2004

COST CONTROL

Requestor Allegations/Concern Closure Date

Representative, Illinois Allegations of nepotism, discrimination and mismanagement. 22-Jun-04

Representative, Illinois Request to investigate the death of a former postmaster. 22-Jun-04

Representative, Washington Allegations of fraudulent acts, harassment and discrimination. 11-May-04

Senator, Colorado Request to investigate work practices at a Post Office. 13-May-04

Representative, South Carolina Allegations of financial and other improprieties. 22-Apr-04

Senator, Florida Allegations of employment-related and injury compensation benefits 

issues.

15-Apr-04

White House Request to investigate work practices at a Post Office. 13-May-04

Senator, Virginia Requesting assistance in expediting EEO complaint against USPS OIG. 26-Apr-04

Representative, Florida Allegations of harassment and discrimination at a Post Office. 29-Apr-04

Senator, Delaware Allegations of improper acts by a postal employee. 5-May-04

Governors Employee allegations of USPS OIG mismanagement. 19-May-04

Representative, Louisiana Allegation that USPS OIG findings are biased and condone Postal Service 

mismanagement.

9-Aug-04

Representative, Illinois Allegations of retaliation as a result of EEO and EEOC decisions. 23-Jun-04

Representative, Virginia Allegation of misdelivery of mail. 22-Jun-04

Senator, California Request to investigate allegations of perjury by a postmaster. 31-Aug-04

Representative, Louisiana Request for reconsideration of OWCP case based on allegations of fraud. 27-Sep-04

Senator, Louisiana Allegations that USPS OIG findings are biased and condone Postal Service 

mismanagement.

9-Aug-04

State Senator, New York Allegations of unfair practices, discrimination and illegal acts at a Post Office. 18-Aug-04

Representative, Virginia Request to review the development of Postal Service areas. 2-Aug-04

Representative, Virginia Allegations of delivery problems and incurred costs as a result of the 

problems.

11-Aug-04

Representative, New York Request status of investigation. 13-Sep-04

Representative, New York Allegation of hostile work environment. 25-Aug-04

Senator, New York Request status of investigation. 13-Sep-04

Representative, Arizona Allegations of sexual harassment and adverse personnel actions as a 

result of an EEO complaint.

29-Sep-04

Governor Request to perform a comparison of buy versus lease of cargo vans. 9-Sep-04

Senator, Virginia Allegations that the USPS OIG improperly handled an EEO and EEOC case. 30-Sep-04

Representative, Virginia Allegations of wasteful and inefficient job training and placement 

decisions. 

30-Sep-04
50 | Semiannual Report to Congress

SAFETY AND SECURITY

Requestor Allegations/Concern Closure Date

Senator, Connecticut Request to review decision by the USPS to eliminate the presence of Postal 

Police Officers at six postal facilities.

27-Apr-04

Governors Review criteria to reopen/close a post office after decontamination. 9-Apr-04

Representative, South Carolina Allegations of financial and other improprieties. 22-Apr-04

Senator, Illinois Allegation of misdelivery of mail. 1-Apr-04

Representative, Massachusetts Allegations of ceasing procedures on handling Unendorsed Bulk Business 

Mail (UBBM) at a post office.

22-Apr-04

Representative, California Allegation of mail theft. 7-May-04

Senator, Delaware Request report on accident prevention efforts of the Postal Service. 6-May-04

Senator, Maine Request report on accident prevention efforts of the Postal Service. 6-May-04

Representative, Oregon Allegations of threats of violence at a Post Office. 7-Jul-04

Representative, North Carolina Allegations that the Postal Inspection Service did not pay reward money. 7-Jul-04

Representative, Georgia Allegation of falsification of documents by a postmaster and supervisors. 27-Sep-04

Representative, Georgia Allegation of falsification of documents by a postmaster and supervisors. 27-Sep-04

Representative, Pennsylvania Request to investigate allegations of mail fraud. 15-Jul-04

Senator, Maine Concerns with overseas delivery services. 20-Jul-04

Representative, California Allegations of mail theft. 2-Aug-04

Representative, Michigan Allegations of fraud, mismanagement and harassment. 17-Sep-04

Representative, Virginia Request to review the late delivery of First Class Mail. 11-Aug-04

Representative, Illinois Allegation of mail fraud. 27-Sep-04

REVENUE

Requestor Allegations/Concern Closure Date

Representative, California Request for update on letter sent by prior IG. 5-May-04

Senator, Arizona Allegations of difficulties with mailing and packaging contract. 17-Jun-04

Representative, New York Allegations that the USPS is stonewalling on issues dealing with vendors 

and mailers.

30-Sep-04

MANAGEMENT INFORMATION

Requestor Allegations/Concern Closure Date

Governor Automated Postal Center deployment delays. 9-Apr-04

Governor Report on how much money is spent at other agencies on financial 

statement work.

15-Apr-04

Representative, California Request for update on letter sent by prior IG. 5-May-04

Governor Improper contracting of rental property. 30-Jul-04

Governor Transition from self-service vending to Automated Postal Centers 15-Jun-04
April 1, 2004 – September 30, 2004 | 51

SUPPLEMENTAL INFORMATION

SUPPLEMENTAL INFORMATION

AUDIT SYNOPSES

COST CONTROL

Automated Postal Centers, CA-OT-04-001

The OIG found that the contract award for the Automated Postal 

Centers was delayed because the requirements were not developed in sufficient detail to prepare a statement of work at the time 

the Board of Governors approved the project.

Contract Reviews

The Defense Contract Audit Agency (DCAA) performed 14 contractrelated audits during the period at the OIG’s request. The audits 

evaluated costs associated with advanced co-processor units, 

emergency response services for anthrax contamination and 

biohazard detection systems. DCAA also audited terminated contract costs; verified billed costs; and determined whether forward 

pricing rates were reasonable. The OIG considered most of the 

proposals acceptable for negotiating fair and reasonable rates and 

$20 million was identified as potential contract savings.

Duplicate Payment Made to Shipping Box Vendor, 

FT-AR-04-012

The Postal Service made a $765,781 duplicate payment to a vendor for Priority Mail shipping boxes. Payments processed by the 

San Mateo Accounting Service Center, Calif., generally were supported and correctly entered into the accounts payable accounting 

and reporting system. However, a double payment occurred when 

the vendor submitted the same invoice for payment on two separate dates. Further, system controls did not detect the duplicate 

invoices because the San Mateo personnel incorrectly entered 

the first invoice number that resulted in the duplicate payment for 

goods not received by the Postal Service.

Erroneous Economic Value Added Reserve Payments,

FT-OT-04-003

The Postal Service’s Chief Financial Officer (CFO) asked the OIG 

to review internal payroll processes and controls to determine 

why more than 41,000 current or former employees received 

$103 million in erroneous Economic Value Added (EVA) payments 

on June 18, 2004. These payments were intended to complete the 

remaining payout of EVA reserve balances to approximately 1,900 

employees. These erroneous payments duplicated lump-sum payments that employees received in October 2002. The OIG identified 

and reported on the corrective actions taken by the Postal Service 

to prevent this from occurring again.

Field Operations Reviews

The OIG audited and reported on financial operations of 149 installations, including 50 business mail entry units, 70 Post Offices, 8 

contract postal units, 9 self-service postal centers and 12 stamp 

distribution offices, as a part of its fiscal year (FY 2004) financial 

statements audit of the Postal Service. Generally, financial transactions were reasonably and fairly presented in the accounting records 

and internal controls were in place and effective at 145 units, 

although the OIG identified some internal control and compliance 

issues. However, at four installations, the OIG identified significant 

internal control weaknesses such as those related to cash and stamp 

accountability and business mail verification and acceptance.

For the FY 2004 Cost and Revenue Analysis, the OIG observed 

statistical tests conducted in 27 districts. Data collectors generally followed Postal Service policies and procedures when conducting statistical tests, except for various test errors observed 

in 15 districts.

In addition to the FY 2004 financial installation and Cost and Revenue Analysis work, the OIG audited and reported on seven additional installations at the request of Postal Service management or 

as a result of other audits. The OIG also issued five capping reports 

related to its FY 2003 financial installation audits of Post Offices, 

business mail entry units, contract postal units, self-service postal 

centers and stamp distribution offices.

Financial Opportunities of Underutilized Land,

CA-MA-04-004

Working with Postal Service officials, the OIG jointly developed 

a methodology for identifying marketable underutilized land for 

which there was no operational need. The OIG applied it to facilities 

in Colorado and identified two that had marketable, underutilized 

land. The estimated net proceeds from the sale of the underutilized 

land were $330,000. In addition, the OIG performed a preliminary 

analysis of all postal-owned facilities and identified 627 that had 

potential underutilized land in excess of 100,000 square feet each. 

The OIG agreed to provide this information to Facilities personnel 

to use in their upcoming inventory of excess property.

Fiscal Year 2003 Supply Chain Management Savings,

CA-AR-04-003

In FY 2003, Postal Service operating expenses were approximately 

$64 billion, of which $9 billion was for goods and services. To 

reduce spending, postal officials adopted a supply chain management (SCM) philosophy. The OIG looked at whether the Postal 

Service was appropriately assessing SCM impact and found this 

was generally true for the 18 projects it reviewed. The methodology used to calculate cost savings, cost avoidance, cost reduction 

and revenue generation was reasonable; and conservatively, soft 

savings were not included as SCM impact. The Postal Service also 

has a mechanism for updating cumulative and carryover SCM 

impact. However, officials did not always establish an appropriate 

baseline for calculating SCM impact, and they reported impact for 

projects not attributable to SCM initiatives. As a result of the projects reviewed, the Postal Service overstated FY 2003 SCM savings 

by about $98.6 million.

Fiscal Years 2003 and 2004 Protective Reviews Capping 

Report, FT-MA-04-003

The OIG found that internal controls were generally in place and 

functioning at 117 local Postal Service facilities. However, because 

field personnel did not always follow policies and procedures, 

opportunities existed to strengthen controls in the areas of asset 

and postmaster accountability, revenue protection and expense 

For the period April 1, 2004, through September 30, 2004
52 | Semiannual Report to Congress

minimization, employee and customer service, information systems security, and oversight.

Function 4 – Customer Service Operations, DR-AR-04-014

The Postal Service projected $1 billion in savings and cost avoidance from FYs 2002 through 2006 with a workforce reduction of 

19,000 full-time equivalent employees. It would achieve this goal 

using the Function 4 process for customer service operations that 

includes retail, administrative, automated and manual distribution 

activities within its Post Office, station and branch operations. The 

OIG’s audit of the Function 4 process found that postal managers 

can improve customer service operations by fully using standardized Function 4 reviews and sharing proven practices.

Independent Report on Withholdings and Contributions for 

Health Benefits, Life Insurance, Retirement and Employee 

Headcount Data, FT-AR-04-011

The OIG assisted the Office of Personnel Management (OPM) 

in verifying employee withholdings and employer contributions 

reported on the “Report of Withholdings and Contributions for Health 

Benefits, Life Insurance and Retirement” for the payroll periods ending February 20, 2004; March 5, 2004; and April 2, 2004; and the 

“Supplemental Semiannual Headcount Report” as of March 5, 2004. 

Generally, the OIG verified the Postal Service’s employee withholdings, employer contributions and enrollment information for health 

benefits, life insurance and retirement. Four reportable issues were 

identified based on the agreed-upon procedures provided by OPM.

Lessor Maintenance Enforcement, CA-MA-04-006

An audit of lease operating expenses found that the Administrative 

Service Office (ASO) and Facilities Service Office (FSO) personnel 

responsible for repair projects in the Dallas, Colorado/Wyoming and 

Capital Districts did not always process rent reduction requests. 

Also, FSO personnel did not include the costs of investigations and 

studies for repair projects in the Dallas and Fort Worth Districts 

in future rent reductions. As a result, the Postal Service incurred 

expenses for repairs that could have required the lessor to perform 

under the lease agreement, and missed an opportunity to reduce 

overall lease operating expenses by $26,507.

Preferred Portfolio Partnering Program, CA-AR-04-002

The OIG looked at the Preferred Portfolio Partnering (PPP) program, 

where Postal Service officials identify, develop and implement 

information technology (IT) business solutions for functional areas. 

Contract files generally contained the required documentation, but 

the Postal Service can enhance program oversight and maximize 

IT savings. The audit recommended that postal officials review PPP 

performance to ensure the program was an effective and efficient 

tool for obtaining IT business solutions, something it has not done 

since FY 2001. Additionally, the audit recommended that postal 

officials should determine whether the Postal Service received 

accurate research and development credit from one of its PPP 

partners. Postal officials agreed with OIG recommendations.

Postal Service’s Funding of the Civil Service Retirement 

System, FT-OT-04-002

The OIG analyzed issues pertaining to the Postal Civil Service 

Retirement System (CSRS) Funding Reform Act of 2003 (Public 

Law 108-18). The Government Accountability Office found that the 

Postal Service’s amortized payments to OPM for its CSRS liability 

were too large. If the overpayments had continued, the Postal Service would have overpaid its obligation by over $100 billion. When 

OPM acknowledged the overpayment, the Postal Service was 

given legislative relief. However, additional burdens were placed 

on the Postal Service that had not been required for CSRS pension 

costs and not levied against other federal government entities. 

The Postal Service did not envision it would pay these charges for 

CSRS pension costs.

All Postal Service funding is derived from its customers’ purchases 

of Postal Service products, and the Postal Service is not allowed to 

charge customers more than it needs for its expenses. The money 

should not be returned to OPM to replace appropriated tax dollars. 

This would constitute a hidden tax for Postal Service customers 

that Congress has not appropriated.

Repairs and Alterations of Postal Service Facilities, 

CA-MA-04-005

During FY 2003, an OIG audit found that Postal Service officials 

in the Dallas District effectively managed expensed repairs and 

alterations for its buildings and leased facilities. However, there 

was an appearance that the Dallas District did not appropriately 

use funds budgeted for expensed repairs and alterations.

The Southwest Area established a procedure in FY 2004 to use 

each district’s budget proposal to allocate funds to the districts. 

In an updated audit, the OIG found that personnel responsible 

for expensed repair and alteration projects did not always close 

or update rollover projects in their tracking system resulting in 

unreliable data for making management decisions. The OIG recommended that the Postal Service enhance its policy on construction 

projects to include timely updates to FMSWIN for expensed repairs 

and alterations, and communicate that requirement to applicable 

personnel. Management agreed with the recommendation and 

planned to have corrective action in place by July 30, 2004.

Stamp Accountability and Inventory Controls Related to the 

Stamps on Consignment Program, FF-AR-04-269

The OIG audited stamp accountability and inventory controls 

related to the company that supplies stamps for the Stamps on 

Consignment Program and is in the fourth year of their contract. 

The Stamps on Consignment Program places stamps in commercial retail outlets and banks for sale to the public. Generally, the 

audit noted that stamps were properly controlled and accounted 

for in accordance with contract terms and payments to the Postal 

Service were accurate. However, Postal Service accounting 

records overstated the contractor’s stamp accountability by $17 

million, nine consignees disputed receipt of stamp shipments 

valued at approximately $191,000 and five consignees had transactions valued at approximately $191,000 that were overdue by 

at least 60 days.

Network Optimization

Bulk Mail Center Highway Transportation Routes – Great 

Lakes Area, NL-AR-04-004

The Postal Service could save about $7.7 million on existing Great 

Lakes Area bulk mail highway contracts by terminating, substituting or modifying 96 trips. The Postal Service could eliminate or 

modify the trips without negatively affecting service because trip 

mail volume was low and mail could be consolidated on other trips. 

Management agreed to verify the cancellation or modification of 

the 40 trips they identified for termination during the OIG’s audit; 
April 1, 2004 – September 30, 2004 | 53

SUPPLEMENTAL INFORMATION

verify appropriate action on the 49 trips they agreed to modify, 

substitute, or terminate; and reassess the 7 trips they thought 

were still necessary.

City Letter Carrier Office Preparation – Dallas District,

DR-AR-04-005

The Dallas District can improve its office preparation for city letter 

carriers. Specifically, impediments adversely impacted delivery 

supervisors’ and managers’ ability to adequately match workhours 

with workload. In addition, city letter carriers’ work activities did 

not always ensure they departed the delivery unit as scheduled. 

Further, supervisors and managers did not effectively use the 

Delivery Operations Information System to assist in managing 

office activities. Management disagreed with five of the six recommendations because the findings reflected on the performance of 

the entire Dallas District and not the three delivery units the OIG 

visited. Management implemented corrective actions based on the 

report findings throughout the district. Management’s actions taken 

and planned should correct the issues identified in the findings.

City Letter Carrier Street Management and Route Inspections 

in Fort Worth District, DR-AR-04-001

At the Oakwood and Riverside Stations, the OIG found that street 

management and route inspections were generally effective. Delivery unit supervisors conserved city delivery carriers’ workhours by 

conducting required street observations. However, a route inspection conducted at the Oakwood Station delivery unit noted that 

managers did not adjust routes to maintain them at eight hours.

Efficiency of the Airmail Records Unit at the New York 

International Service Center, NO-AR-04-011

The New York International Service Center (ISC) in the New York 

Metro Area could improve the efficiency of its Airmail Records 

Unit (AMRU) by reducing workhours by 30,000. Management 

should also consider outsourcing the AMRU, since this operation 

is not core to the New York ISC’s mission. Reducing workhours 

by 30,000 could produce a cost avoidance of $9,248,967 based 

on labor savings over a 10-year period.

Efficiency of the New York International Service Center,

NO-AR-04-009

An OIG audit noted that the New York International Service Center could improve the processing efficiency of international and 

military mail by reducing employee workhours by 326,000 and 

increasing supervisory workhours by 6,000, for a net reduction 

of 320,000 workhours. This 320,000-workhour reduction could 

produce a cost avoidance of more than $98 million based on labor 

savings over 10 years.

Self-Service Vending Program—DR-AR-04-002, DR-AR04-003, DR-AR-04-004, DR-AR-04-006, DR-AR-04-007, DRAR-04-008, DR-AR-04-009, DR-AR-04-010, DR-AR-04-011, 

DR-AR-04-012, DR-AR-04-013, DR-AR-04-015

The Self-Service Vending (SSV) Program provides postal customers with a convenient alternative for purchasing stamps and other 

basic products after business hours and without the need to stand 

in line during business hours. During the OIG’s reviews of the SSV 

equipment in various districts, the OIG noted that officials could 

increase revenue opportunities by redeploying equipment that does 

not meet minimum revenue requirements. Further, officials could 

reduce maintenance and repair costs by stopping the use of obsolete equipment. The OIG’s physical observation of vending machines 

in the various districts indicated that, overall, the machines were 

operational and easily accessible, with few exceptions.

Trailer Requirements – Northeast Area, NL-AR-04-006

The Postal Service has a national trailer lease for 4,475 trailers to 

transport mail. The lease would cost the Postal Service more than 

one-quarter billion dollars over a 12-year period. In the Northeast 

Area, an OIG audit found that the Postal Service could be more 

effective and save money if officials analyze and identify trailer 

requirements. The Postal Service may have missed an opportunity 

to save more than $2 million because it leased more trailers than 

the Springfield Bulk Mail Center needed. However, the Postal 

Service can save more than $7.3 million over the remaining trailer 

lease by returning unneeded trailers. Postal management, however, 

advised that potential savings estimates were overstated.

Vehicle Management – Delivery Vehicles – Buy Versus Lease, 

NL-AR-04-005

The Postal Service owns about 163,000 long-life delivery vehicles 

(LLVs), each expected to last 24 years. The Postal Service supplements the long-life fleet with leased vehicles that typically cost 

two or three times as much as long-life vehicles. Since 1991, the 

Postal Service leased as many as 7,600 vehicles, but never less 

than a minimum of 2,300. The OIG audit ascertained that from fiscal years 1991 through 2003, the Postal Service could have saved 

more than $43 million by replacing at least 2,300 commercially 

leased vehicles with Postal Service-owned vehicles. In 2006, the 

Postal Service can reduce its fleet of leased vehicles by 2,300 

by purchasing LLVs instead that will save more than $40 million 

during the 24-year expected life of a long-life vehicle.

Labor

Efforts to Prevent Accidents, Injuries and Illnesses in 12 

Performance Clusters – HM-AR-04-006, HM-AR-04-007, HMAR-04-008, HM-AR-04-009, HM-AR-04-010, HM-AR-04-011, 

HM-AR-04-012

All of the 12 performance clusters (PCs) audited carried out 

prevention initiatives that can become best practices in reducing 

accidents, injuries and illnesses. Additionally, all 12 PCs were 

accumulating and analyzing accident, injury and illness data for 

prevention initiatives. In all facilities visited by the OIG, processes 

in place helped accurately report accidents, injuries and illnesses. 

However, in the Mississippi, Suncoast, Los Angeles,Oakland, Chicago, Greater Indiana, Long Island,New York, Arkansas,Oklahoma, 

Mid-America and Salt Lake City PCs, the OIG could not determine 

whether the prevention initiatives reduced the number of accidents, injuries and illnesses, or whether the initiatives were carried 

out in a timely manner. Of this group, only the New York PC had 

data showing that prevention initiatives reduced the number of 

accidents, injuries and illnesses.

At the Los Angeles, Oakland, Chicago, Greater Indiana, Arkansas 

and Oklahoma PCs, the Human Resources Information Systems 

and the Risk Management Reporting Systems are antiquated and 

will be replaced. At the Mississippi and Suncoast Performance 

Clusters, these systems did not efficiently analyze data for prevention initiatives.
54 | Semiannual Report to Congress

Technology

Advanced Facer Canceller System Improvements,

DA-AR-04-004

Two upgrades to the Postal Service’s Advanced Facer Canceller System might not achieve program performance nor protect revenue. 

Postal Service management agreed to delay deployment of the 

upgrades until contract requirements were met.

Interim Report – Automated Package Processing System 

First Article Test, DA-AR-04-001

The Automated Package Processing System (APPS) was not able 

to sustain throughput requirements during the First Article Test. 

Since testing, the Postal Service made numerous software and 

hardware changes to address the throughput issues. As a result of 

improvements, the Postal Service conditionally accepted the APPS. 

Also, the Postal Service did not include facility modification costs 

as part of the overall cost of the program. Sites did not receive 

detailed information to make a correct assessment as to whether 

modifications were needed to accommodate the APPS. As a result, 

numerous modification costs were not included as part of the 

overall program costs. We made no recommendations because 

Postal Service management has taken a proactive approach in 

addressing this issue.

Postal Automated Redirect System First Article Test,

DA-AR-04-002

The OIG evaluated the Postal Automated Redirection System 

(PARS) to determine if it provides reliable technology for processing undeliverable-as-addressed mail. PARS identifies and redirects 

undeliverable-as-addressed mailpieces at their point of origin 

as opposed to their destination. The system has the potential to 

provide significant savings through a reduction in sort passes and 

processing time associated with handling redirected mail. Results 

of the PARS First Article Test Phase 1 disclosed that intercept rates 

on mail processing equipment were all above the statement of 

work technical requirements. However, there were First Article Test 

technical issues for the mail processing equipment and Changeof-Address Forms Processing System (CFPS). Postal Service management generally agreed with the OIG’s concerns and is taking 

actions to lessen the impact of these issues.

Technology Acquisition Management, DA-AR-04-003

The Technology Acquisition Management organization generally 

supported, documented, approved and controlled Postal Service 

acquisitions. However, the organization still faces challenges in 

managing acquisitions because of the absence of formal written 

policies and procedures. In addition, program managers used 

different program management processes and did not document 

standards for conditionally accepted projects. Management agreed 

with the OIG’s recommendation.

REVENUE

Mail Evaluation, Readability and Lookup INstruments 

Utilization at the Business Mail Entry Unit in Columbia, South 

Carolina, NO-AR-04-010

The Columbia, S.C., Business Mail Entry Unit (BMEU) and its 

detached mail units were not fully using Mail Evaluation, Readability 

and Lookup INstrument (MERLIN) machines to identify and collect 

the appropriate postage from business mailers. The Postal Service’s 

target was 100 percent verification of large mailings (those with 

more than 10,000 pieces), but the overall MERLIN verification 

rate was underutilized. The OIG recommended management reassess BMEU staffing and scheduling to ensure full use of MERLIN 

machines. Management agreed with the OIG’s recommendation.

Mail Evaluation, Readability and Lookup INstruments 

Utilization at the Business Mail Entry Unit in Philadelphia, 

Pennsylvania, NO-AR-04-012

The Philadelphia Business Mail Entry Unit (BMEU) and its detached 

mail units were not fully using Mail Evaluation, Readability and 

Lookup INstrument (MERLIN) machines to identify and collect the 

appropriate postage from business mailers. While MERLIN utilization increased, MERLIN-compatible mailings (those with more than 

10,000 pieces), it remained below the Postal Service’s target of 

100 percent. The BMEU did not collect $26,825 in additional postage assessed by MERLIN verifications. Management agreed with 

the OIG’s recommendations to collect the postage due.

Postal Inspection Service’s Asset Forfeiture Program,

SA-AR-04-002

The U.S. Postal Inspection Service’s Asset Forfeiture Program 

began with the Child Protection Act of 1986 and the granting 

of forfeiture authority in child exploitation cases. In 1988 and 

1992, the Money Laundering Control Act of 1986 was amended to 

give the Postal Inspection Service (USPIS) forfeiture authority for 

investigations of mail fraud, narcotics, child exploitation, money 

laundering and other financial crimes. The USPIS is adequately 

managing the Asset Forfeiture Program. Asset forfeiture specialists and managers generally followed policies and procedures 

established for the Asset Forfeiture Program, and the USPIS is 

addressing its strategic management challenge to strengthen 

program management.

Review of Express Mail Operations, NO-AR-04-008

A review of Express Mail operations found that the Postal Service 

exceeded its service standards in FY 2003 by delivering 95 percent of Express Mail items on time. However, over 99 percent of 

Express Mail packages sent to Guam and 87 percent to American 

Samoa did not meet established service standards. As a result, 

the Postal Service had a potential monetary exposure of $376,000, 

if all customers requested refunds because guaranteed delivery 

times were not met. The review also noted that the Postal Service 

met its goal of scanning 98.8 percent of Express Mail packages 

for FY 2003. However, during the same period, two districts did 

not properly scan over 70,000 Express Mail packages at the time 

of acceptance.

STRATEGIC DIRECTION

Fiscal Year 2003 District Consolidations in the Eastern, 

Northeast and Pacific Areas, ST-OT-04-001

Overall, the district consolidation process worked well for the 

Postal Service. In particular, the Postal Service consolidated administrative functions without affecting operations or involuntarily 

separating employees, while still achieving the district consolidation goals. In addition, no grievances were filed by executive and 

administrative schedule employees, and only seven Equal Employment Opportunity (EEO) and two Merit Systems Protection Board 

(MSPB) complaints were filed regarding the consolidation. All of the 

EEO complaints and one MSPB complaint are pending. The other 

MSPB complaint was settled in favor of the Postal Service.
April 1, 2004 – September 30, 2004 | 55

SUPPLEMENTAL INFORMATION

SAFETY AND SECURITY

Business Continuity Planning and Testing at the Eagan, San 

Mateo and St. Louis Information Technology and Accounting 

Service Centers, IS-AR-04-010

This report showed that essential business units at the Eagan, 

San Mateo and St. Louis Information Technology and Accounting 

Service Centers had not fully developed and tested business 

continuity plans documenting where and how all essential functions would be performed during a business interruption. These 

centers need to develop and test business continuity plans that 

address the movement of key personnel to an alternate facility in 

the event of a disruption.

Decision Process for Disposition of the Curseen-Morris 

Facility, DA-AR-04-003

A Postal Service Governor asked what decision process the Postal 

Service used to decide whether to reopen the Curseen-Morris 

facility (formerly Brentwood) after the anthrax attack. Postal management disclosed that the decision to sell, demolish or reopen 

Curseen-Morris was made using professional judgment after 

reviewing the unique circumstances of the event. While a firm set 

of criteria may not be practical for every situation, general criteria 

or guidelines would help ensure that a systematic approach is used 

and the Postal Service is addressing major considerations. The 

OIG recommended that postal management should benchmark 

with other federal and private sector organizations and document 

criteria and guidelines to be used in the decision-making process 

after a biohazard attack or other disaster.

Emergency Preparedness Training, DA-OT-04-004

In November 2003, the Postmaster General created the Office of 

Emergency Preparedness to best serve national security interest 

and properly safeguard employees and customers. Its purpose 

is to establish a high level of emergency preparedness through 

better planning, process integration and field support. Postal 

Service management asked for OIG input on the adequacy of 

their new emergency preparedness training. As a result, OIG 

staff participated in training sessions and exercises to learn the 

process for implementing the new plans. Overall, the OIG found the 

training sessions helpful in disseminating headquarters policies 

and terminology to all levels. However, the audit noted that while 

postal management continually provided guidance and policy, the 

guidance was not always communicated and therefore was not 

always followed by the emergency management teams.

Personnel Security Controls at the Eagan, San Mateo and 

St. Louis Information Technology and Accounting Service 

Centers, IS-AR-04-011

The OIG audited personnel security at the Eagan, San Mateo and 

St. Louis Information Technology and Accounting Service Centers. 

Auditors also evaluated the effectiveness of internal controls over 

hiring and termination procedures for Postal Service career and 

contract employees in sensitive positions at the three centers and 

found that internal controls were generally effective. While management processed initial security clearances for career employees and 

contractors on a timely basis, security clearance updates were not 

always processed on a timely basis. Obtaining and updating security clearances help protect computer resources from accidental or 

unauthorized use, modification, disclosure or destruction.

Postal Inspection Service’s Postal Police, SA-AR-04-001

The Postal Inspection Service (USPIS) used several methodologies 

to support its decision to eliminate postal police officers at six 

facilities. These methodologies included studies and analyses; 

professional judgment based on interviews with local police, 

Postal Service managers, the USPIS and security force managers; and recommendations from the most recent Security Force 

Assessment Survey. However, the studies and surveys gave contrasting opinions on whether to maintain a postal police presence 

at the six facilities. Also, the Security Force Assessment Survey is 

over 18 years old and no documentation was available to assess 

the validity of its methodology. The OIG recommended that the 

USPIS update, document and validate the methodology used for 

conducting Security Force Assessment Surveys or use an alternative process that can be validated and documented to evaluate the 

presence of postal police officers at postal facilities.

MANAGEMENT INFORMATION

Audit of Serena ChangeMan ZMF Implementation,

IS-AR-04-008

Serena ChangeMan ZMF is a new product that manages and 

automates the process of migrating software changes from a 

development environment to any test environment and to the 

production environment. By implementing Serena ChangeMan 

ZMF at the Eagan Information Technology and Accounting Service 

Center, the Postal Service established internal controls that provide reasonable assurance for the integrity of application change 

management. Key controls — including appropriate access, documentation maintenance, segregation of duties and management 

controls — were in place and functioning.

Click-N-Ship Application Controls Review – Access to NonProduction Systems, IS-AR-04-012

The Postal Service needs stronger controls over internal access 

to non-production Click-N-Ship systems, an OIG audit determined. 

The Click-N-Ship system is an Internet application that allows 

customers to use personal computers and printers to pay for and 

print labels for domestic and international mail. Users can create 

and pay for labels online instead of having to go to a Post Office.

Computer Incident Detection and Response Capabilities, 

IS-AR-04-009

The Postal Service is detecting and responding to computer security incidents. The Postal Service is doing a commendable job in 

responding to identified incidents. However, the Postal Service can 

enhance the incident detection and response functions and reevaluate software tools and resources. The Postal Service is reevaluating 

deployment of network-based intrusion detection sensors.

Electronic Data Interchange at the Information Technology 

and Accounting Service Center, IS-AR-04-013

The Postal Service could improve electronic data interchange 

operations by revising policies and procedures to reflect the 

electronic data interchange environment; changing passwords at 

regular intervals and implementing password history; and using 

contingency plans to reflect the current operating environment. 

Postal Service management corrected deficiencies in off-site storage of critical backup media and specifications for trading partner 

agreements. They also obtained reports required by Statement on 

Auditing Standards No. 70 for the value-added network vendor.
56 | Semiannual Report to Congress

Follow-up of the Network Security and Security Testing of 

Load Balancers, IS-AR-04-006

The OIG looked at whether postal management had corrected the 

issues identified in Interim Audit Report – Network Security and 

Security Vulnerability Technical Report – Security Testing of Load 

Balancers. The Postal Service has corrected the issues of trust relationships between computers, load balancers and password sharing. 

However, managers could further improve controls over accounts.

Oracle Database Testing at the Host Computing Services, 

Eagan Minn., IS-CS-04-004

The OIG tested the Oracle database at the Host Computing Services to assess the security of the database, perform compliance 

checks against Postal Service standards, and perform security 

vulnerability assessments on three applications. Overall, the 

Oracle environment is well-managed. Some database configurations deviated from Postal Service standards, but in general, the 

Database Support Services (DBSS) staff is doing a good job of 

system maintenance. The OIG recommended that the DBSS staff 

should review the deviations.

Postal Service’s Advanced Computing Environment Program 

Management, IS-AR-04-007

The Postal Service has made remarkable progress in upgrading its 

outdated computing infrastructure into a modernized environment. 

In reviewing the program accomplishments, the OIG noted that 

the Program Management Office was not preparing and reporting 

accurate financial information on the ACE program on a timely basis. 

During the OIG’s review, the Program Management Office took 

steps to document the reporting procedures and update financial 

reports. Management agreed with the OIG’s recommendations and 

has procedures in progress, completed or planned addressing the 

issues in this report. These procedures, when fully implemented, 

ensure that cost controls are effective and the total cost of the 

project are known and reported to upper management.

Postal Service’s Business Partner Connectivity, IS-AR-04-014

The Postal Service’s controls over business partner connectivity 

are generally adequate but can be improved. Postal management 

agreed to OIG recommendations.

Security Vulnerability Assessment of Selected UNIX Servers 

at Host Computing Services, IS-CS-04-005

The OIG evaluated security over selected UNIX servers at the 

Host Computing Services to determine whether the servers 

complied with Postal Service standards for server hardening. 

The OIG selected eight production servers for review, but limited 

the OIG’s tests to two servers not included in a Postal Service 

internal review of six of the eight servers. The servers the OIG 

reviewed support the general ledger and eAccess applications. 

The OIG reviewed all eight servers for compliance with Postal 

Service hardening standards. Overall, the UNIX environment is 

well-managed; however, the OIG made several recommendations 

that postal management agreed with.

Security Vulnerability Assessment of Selected Windows 

Servers at the Host Computing Services, IS-CS-04-003

The OIG conducted a security vulnerability assessment at the Host 

Computing Services to evaluate security over one Windows NT and 

three Windows 2000 servers. Overall, the Windows environment is 

well-managed. The OIG had several recommendations that postal 

management agreed with making.
April 1, 2004 – September 30, 2004 | 57

SUPPLEMENTAL INFORMATION

INVESTIGATIVE SYNOPSES

SUPPLEMENTAL INFORMATION

Truck Trailer Contractor Pleads Guilty to Filing False Claims

A Texas contractor that leases truck trailers for mail delivery pleaded 

guilty in U.S. District Court in San Francisco, Calif., on August 3, 2004, 

to one count of making false claims. OIG special agents determined 

that the contractor filed hundreds of claims for damage reimbursement 

supported by forged and fraudulent bids and estimates. The company 

also colluded with certain preferred vendors to undermine the required 

competitive bidding process, and between 1997 and 2002 submitted 

more than 95 percent of its claims with a falsified estimate for repair.

As a condition of its plea agreement, the company entered into a corporate integrity agreement with the Postal Service requiring the implementation of a quality assurance program to ensure its compliance with 

postal regulations and sound business ethics. The company was also 

placed on one year probation.

On October 5, 2004, the contractor was ordered to pay a $500,000 

criminal fine and $1.2 million to cover the OIG’s investigative costs.

Construction and Paving Company Fined, Debarred

On June 10, a construction and paving company hired to renovate a 

parking lot at a New Jersey International & Bulk Mail Center was ordered 

by a U.S. District Court judge in Newark, N.J., to pay a $60,000 fine 

and $33,400 in restitution to the Postal Service. Earlier, the company 

pleaded guilty to causing the Postal Service to modify a contract when it 

submitted change orders that contained inflated costs. The company is 

also serving a three-year probationary period.

The judge, in addition, fined the corporate president $5,000 and ordered 

him to serve two years probation for providing a gratuity to an employee 

of a construction management services firm under contract to the Postal 

Service. In exchange for free paving of his driveway, that employee 

approved overstated and nonexistent charges on a contract modification.

Medical Doctor Sentenced for Insurance Fraud

A four-year investigation culminated on May 25 when a California doctor was sentenced for insurance fraud. The doctor pleaded guilty to a 

23-count criminal indictment in March, and a San Diego superior court 

judge ordered him to serve 48 months in prison.The judge also ordered 

the doctor to pay $1,311.53 in restitution to the Postal Service and $495 

to the California Department of Insurance, as well as perform 500 hours 

of community service.

 Contractor Fails to Outsmart Postal Service

On May 24, a U.S. District Court judge in St. Louis, Mo., dismissed a 

case against the Postal Service, which resulted in a cost avoidance of 

$107,237. Two months earlier, on March 24, the OIG learned that a former highway transportation contractor fraudulently negotiated $170,227 

in Postal Service checks. The Postal Service sent the checks in error to 

the contractor’s former company as payment for operating a particular 

highway contract route. The contractor cashed the checks, even though 

he knew his company no longer operated the route.

At one time, the contractor’s company ran the highway contract route.But 

in 2001 that route was sold to another contractor in a state court action 

involving the contractor and his companies. When the Postal Service 

withheld the funds from two other highway contract routes in order to 

recover its money, the contractor filed a civil suit on April 19, alleging the 

Postal Service was in breach of contract. The contractor also filed two 

temporary restraining orders, requesting the judge to order immediate 

release of the funds. The judge denied both temporary restraining orders 

and the case was dismissed.

Two More Sentenced in Texas Billing Scheme

Two more participants in a billing scheme between an auto service 

company and a Texas Post Office were sentenced on July 19.A U.S. 

District Court judge in Texas sentenced a former postal supervisor to 

27 months in prison, three years supervised release and payment of 

$3,130 in restitution. The supervisor was convicted of 17 counts of false 

claims, two counts of false statements and one count of conspiracy to 

commit bribery. The owner of the auto service company pleaded guilty 

to conspiracy to commit bribery and was sentenced to six months in a 

community corrections center and five years probation.

The investigation revealed discrepancies in the frequency of repairs, 

number of labor hours charged and number of parts that the vehicle 

maintenance facility provided. Invoices disclosed that the Texas Post 

Office paid over $200,000 to the company.

Long-Life Vehicles Roll On with New Transmissions

As a result of an OIG investigation, an Alabama auto distributor company 

agreed on May 17, to supply to the Postal Service 174 truck transmissions valued at $256,650 for no charge. The transmissions for the 

Postal Long-Life Vehicles had all failed during the two-year warranty 

period. The company did not initially provide free replacements per its 

agreement with the Postal Service. In an administrative settlement, the 

company agreed to supply the transmissions over the next year to 15 

vehicle maintenance facilities (VMFs) throughout the country.

In addition, postal employees at the Philadelphia VMF were able to 

identify seven more defective transmissions from a list compiled by 

special agents. The auto company replaced these transmissions, valued 

at $12,075, on May 3, free of charge.

Healthcare Business Owner to Pay $29,032 for Fraud

On June 7, a U.S. District Court judge in Kansas City, Kan., ordered the 

owner of a Kansas City healthcare company to pay more than $29,032 in 

restitution and to spend six months confined to his home for healthcare 

fraud. The OIG opened its investigation after learning that the company 

billed the Department of Labor’s Office of Workers’ Compensation Programs (OWCP) and a federal health-benefit plan for the same services 

to a postal employee.

Over a three-year period, one postal worker received treatment from 

a chiropractor, a massage therapist and a personal trainer for a repetitive-motion injury of his arm, elbow and shoulder. After treatment, the 

employee received documentation showing that the facility’s owner 

(who was also a caregiver) double-billed for the services by submitting 

invoices to OWCP and the employee’s health-benefit plan. The documentation also falsely showed that this one caregiver had treated the 

postal worker all 27 times when, in fact, several different specialists 

were involved in the treatment.

Elusive Psychotherapist Sentenced

On April 29, a Florida psychotherapist was sentenced in Florida state 

court to one year of probation after pleading “no contest” to secondand third-degree grand theft charges. In an investigation initiated 

at the request of the Florida Department of Insurance Fraud, the OIG 

determined that the psychotherapist fraudulently billed Blue Cross and 

For the period April 1, 2004, through September 30, 2004
58 | Semiannual Report to Congress

Blue Shield nearly $49,000 for services he did not provide. The physician 

claimed that he supplied services to 11 postal employees.

The doctor had eluded arrest for about five months by fleeing to Canada 

in August 2003, when a warrant for his arrest was issued. A random 

screening at the Phoenix Sky Harbor International Airport turned up the 

outstanding arrest warrant, and the psychotherapist was extradited 

to Florida.

$473,894 in Costs Avoided

An OIG investigation helped the Postal Service avoid $473,894 in costs 

when it verified that a “casual” postal employee was continuing to receive 

disability benefits by not reporting that she had returned to work. The 

Washington, D.C., resident hurt herself on the job in 1997, while working 

for the Postal Service during the second of two 90-day periods. While 

continuing to receive workers’ benefits, the woman went back to work, 

holding jobs with a grocery store chain and two banks from June 2001 to 

October 2003. Her compensation benefits have since been stopped.

$724,299 Payout Avoided in Civil Suit

On June 21, a reduced judgment in a civil lawsuit resulted in a cost avoidance of $724,299 for the Postal Service. A Florida man sought $3 million 

in damages for injuries received during a June 1999 traffic accident with 

a postal vehicle. As a result of the OIG’s investigative efforts, a U.S. District 

Court judge in Jacksonville, Fla., concluded that the plaintiff proved damages totaling only about $1.4 million and then awarded him $724,299.

$916,710 in Illegally Gained Disability Benefits Avoided

OIG special agents helped the Postal Service avoid paying $916,710 in 

disability payments over the lifetime of an employee who was cheating 

the system. Investigators substantiated that a postal mechanic, who 

worked in Maryland, continued to receive more than $2,300 a month 

in disability benefits even though he had returned to full-time work. 

For his improper conduct, the man was removed from his position on 

August 27. The Office of Workers’ Compensation Programs overpaid the 

mechanic $20,291 for the eight months from February to October 2003 

when he was working.

Scammer Knocked Off OWCP Roles

An OIG investigation substantiated that a former Maryland postal worker 

was receiving full disability benefits after she returned to work. The 

woman’s job injury occurred in September 2002, but she began earning 

wages again in October 2002 and continued through March 2004 without notifying the Office of Workers’ Compensation Programs, as required. 

Workers’ compensation benefits to the woman have been suspended, 

potentially saving the Postal Service $696,196.

“Operation Bad Voyage” Makes Good Progress

OIG special agents continued to make headway in the “Operation Bad 

Voyage” investigation into the gasoline fraud scheme in the Miami area. To 

date 26 subjects have been arrested. Since July 19, 2003, an abundance 

of Postal Service Voyager Fleet Card Personal Identification Numbers 

(PINs) and more than 270 account numbers have been compromised as 

subjects purchased about $400,000 in fuel throughout the Miami area.

A total of 14 subjects are scheduled for a plea arraignment on November 

12. During the reporting period, three subjects were sentenced. On 

May 24, 2004, a U.S. District Court judge in Miami ordered one subject 

to spend five months in prison and five months in home confinement. 

Another subject was sentenced on April 26, 2004, to one year of probation by an 11th Circuit Court Judge in Miami-Dade County. The third 

subject entered into a plea agreement with the Florida State Attorneys’ 

Office on September 1, and was sentenced to two years probation. In 

June, OIG agents seized a large commercial fuel tanker in Miami that 

was used to transport stolen fuel purchased with counterfeit credit cards 

using Voyager and Exxon/ Mobil credit card numbers.

Handling of Suspicious Mail Reviewed

In August 2004, the Postmaster General asked the OIG to review the policies, procedures and practices of the Postal Service and Postal Inspection 

Service (USPIS) regarding the handling of a suspicious mail package at 

the V Street mail processing facility in Washington, D.C.The results and 

findings of this inquiry are restricted due to the security issues identified.

Seattle Employee Confesses to Hacking Postal Computers

A Seattle postal employee was put on immediate administrative suspension after he confessed to adding unauthorized IDs and computer 

password-defeating software to computers in the Seattle District. The 

OIG initiated an investigation on May 6, after learning that the unauthorized user IDs were added to the local administrator’s group without the 

consent or knowledge of the Internet services manager. The employee’s 

case is pending administrative action by postal management.
April 1, 2004 – September 30, 2004 | 59

SUPPLEMENTAL INFORMATION

FREEDOM OF INFORMATION ACT

ACTIVITIES

For the period April 1, 2004, through September 30, 2004

SUPPLEMENTAL INFORMATION

REQUESTS Number of Requests

Carryover from prior period 8

Received during period 53

Total on hand during the period 61

OIG ACTIONS Number of Requests

Processed during the period 26

Released (19)

Withheld (7)

Referred to Postal Service or other agency 7

Otherwise closed 5

Total Processed During the Period 38

Balance at End of Period (Pending) 23

APPEALS

Status Number of Appeals

OIG determinations appealed 5

OIG determinations upheld 3

OIG determinations upheld in part 2

OIG determinations reversed 0

Appeals of OIG determinations pending 0
60 | Semiannual Report to Congress

Advance fee scheme – Obtaining fees purporting to 

secure buyers or obtain loans.

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.

Boiler rooms/telemarketing scheme – An office 

or suite of offices with banks of telephones and telephone 

solicitors who use high-pressure techniques to persuade 

consumers to respond to bogus offers.

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.

Contest/sweepstakes scheme – Schemes in 

which the respondent is required to pay a fee to obtain 

prizes of money, gifts or other items of value. “Prizes” are 

either never shipped or are inferior to what was promised.

Common facility footprint – A standard footprint 

design for architectural design, equipment complement 

and layout.

Craft – A bargaining unit employee represented by a 

union at the national level.

Employment scheme – Soliciting money for 

information or assistance in obtaining nonexistent or 

misrepresented jobs.

Express MailTM – 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.

External First-Class Measurement – A system 

whereby a contractor performs independent service performance tests on certain types of First-Class Mail (letters, 

flats, postcards) deposited in collection boxes and business 

mail chutes. It provides national, area, performance cluster 

and city estimates, which are compared with Postal Service 

goals. The results are released to the public quarterly by the 

consumer advocate.

False billings scheme – Mailing solicitations in the 

guise of billings.

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.

Gain Share – A gain share is used to describe a situation 

where a savings has been realized and will be shared with 

the Postal Service and an outside entity.

Highway contract transportation routes

– A route served by a postal contractor to carry mail by 

highway between designated points.

Logistical support network – Activities or programs 

which 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 that is acquired without providing payment.

Merchandise misrepresentation scheme 

– Mail order merchandise or services that are materially 

misrepresented in advertising.

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).

SUPPLEMENTAL INFORMATION

GLOSSARY
April 1, 2004 – September 30, 2004 | 61

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.

Rate setting – The process by which postage rates and 

fees are changed under the joint responsibility of the Postal 

Service and the Postal Rate Commission (PRC). Postal 

Service managers recommend proposed rates for all mail 

classes to the Board of Governors; with the approval of 

the Board, the proposed rates are sent to the PRC, which 

holds public hearings and recommends rates. It the Board 

finds these rates unsatisfactory, it may modify them by 

unanimous vote.

Retail facility – A postal unit of a Post Office and its 

subordinate units as well as military Post Offices that sells 

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 

non-personnel units.

Revenue forgone appropriations – Congressionally authorized reimbursements to the Postal Service for 

revenue that was not received because of phased or lower 

rates mandated by Congress for certain mail categories, 

such as free matter for the blind.

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.

Verification – The procedural checks of a mailing 

presented by a mailer to determine proper preparation and 

postage payment.

Voice of the Employee (VOE) – An assessment 

of Postal Service employee issues that will strengthen 

the company, shape the business future and improve 

employees’ role in its success.

Work at home scheme – Schemes, such as envelope 

stuffing, that do not provide home employment.

SUPPLEMENTAL INFORMATION
62 | Semiannual Report to Congress

NOTES
April 1, 2004 – September 30, 2004 | 63

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
OFFICE OF INSPECTOR GENERAL

1735 N. Lynn Street

Arlington, VA 22209-2020

(703) 248-2100

Fax: (703) 248-2291

Internet: www.uspsoig.gov