SEMIANNUAL REPORT

TO CONGRESS

OCTOBER 1, 2003 - MARCH 31, 2004
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 misconduct;

 ■ Promote economy, efficiency and effectiveness;

 ■ Promote public integrity; and

 ■ Keep the Governors and Congress informed

of problems, deficiencies and corresponding

corrective actions.
October 1, 2003 - March 31, 2004 | i

A MESSAGE FROM THE INSPECTOR GENERAL

Shortly after my arrival, Inspector General (IG) executives met 

with the U.S. Postal Service Board 

of Governors Audit Committee to 

discuss a range of topics. One of the 

topics was the Office of Inspector 

General (OIG) Semiannual Report. 

The September 2003 Semiannual 

Report had introduced many of the 

IG community’s best practices to 

make the report more state-of-theart. But the Governors wanted more 

than a state-of-the-art report. They 

asked for a report that provided a 

comprehensive analysis of the Postal 

Service. I agreed with them. 

This report introduces a new 

approach that changes it from 

an account of OIG activities to an 

OIG analytical report on the Postal 

Service. This report format is aligned 

with the Postal Service’s strategic 

goals. It fully complies with statutory 

requirements and attempts to 

present a cohesive picture of Postal 

Service programs and operations. 

The OIG’s audit and investigative 

results are now embedded in the 

context of our reporting on Postal 

Service issues. Other statutory 

requirements are contained in the 

appendices.

I want to bring a few internal matters 

to the attention of our stakeholders 

and to Congress. I will do that in this 

message to preserve the report for 

our analysis. Before my arrival, the 

OIG had been gripped by crisis for 

many months, as a result of certain 

past management practices and 

fiscal activities. Upon arriving, I met 

with postal executives, the Board 

of Governors and congressional 

committees to understand those 

issues and practices that resulted 

in the dangerous crisis the office 

confronted.

Those meetings resulted in three 

initiatives to introduce changes that 

should make the office not just

a strong traditional OIG, but also 

one that anticipates and embraces 

emerging issues. The initiatives 

are: organizational redesign, value 

enhancement and performance 

orientation. 

The OIG has been restructured to 

reduce mission support investments, 

in order to increase mission delivery 

investments. Increased mission 

delivery capacity will substantially 

increase value in a budget-neutral 

way. Also, the audit organization 

created issue areas that exactly 

mirrored Postal Service business 

units. The investigative organization 

developed field offices that were 

responsive to the Postal Service’s 

nine geographic areas. Professional 

counterpart meetings have begun 

with business agendas that focus 

on improving the Postal Service’s 

effectiveness and efficiency. OIG 

audit directors and special agents in 

charge work with Postal Service vice 

presidents in planning and reviewing 

work as well as tackling issues to 

assure integrity.

The OIG enhanced performance 

metrics for all components 

to increase value. Goals and 

expectations are aligned with a 

new pay-for-performance system. 

The OIG believes this will result in 

a performance-driven organization 

that delivers substantial value.

The OIG has also entered a strategic 

alliance with the Postal Inspection 

Service to end years of internal conflict 

and bring powerful new resources 

in support of new investigative 

operations. These include disability 

fraud, revenue assurance, contract 

fraud and new efforts to guard against 

embezzlement. I am confident that 

the investigative initiatives and the 

new tool of audit issue area planning 

will provide for the construction of 

a strong and responsive strategic 

planning process.

Our fifteenth semiannual report sets 

forth the significant activities and 

accomplishments of this office from 

October 1, 2003, through March 

31, 2004. It details our efforts to 

improve the economy and efficiency 

of postal operations and to combat 

fraud, waste and misconduct within 

the Postal Service, and fulfills our 

reporting requirement under the 

Inspector General Act.

In this reporting period, the Office of 

Inspector General issued 199 audit 

reports, management advisories 

and other products. These efforts, 

some of which were accomplished 

by the OIG and postal management 

jointly, resulted in over $277 million 

in questioned costs, unrecoverable 

costs, funds put to better use and 

revenue impact. In addition, the 

OIG completed 282 investigations 

resulting in 46 arrests, 48 indictments, 

26 convictions; and over $17 million 

in fines, restitutions, and recoveries, 

of which over $4 million was returned 

to the Postal Service.

I wish to thank the Postal Service 

for its full cooperation and strong 

support of all our efforts. Postal 

executives have made a strong 

commitment to working with 

the OIG and have made that 

commitment known to their full 

leadership team.

This office is committed to innovations that will make the OIG a great 

deal for the American people and a 

powerful tool for the Postal Service 

and for Congress. 

Sincerely,

David C. Williams 

April 1, 2004

October 1, 2003 - March 31, 2004 | i
ii | October 1, 2003 - March 31, 2004

AUDIT

Reports issued ................................................................ 199

Significant recommendations issued .................................. 43

Total reports with financial impact ..................................... 38

 Funds put to better use ................................. $78,706,060

 Questioned costs1 ....................................... $197,232,283

 Unrecoverable costs ........................................ $1,256,827

 Revenue impact ................................................. $264,374

 TOTAL .......................................................$277,459,5442

INVESTIGATIONS3

Arrests ............................................................................... 46

Indictments/informations .................................................. 484

Fines, restitution and recoveries ........................ $17,324,7325 

 Amount to Postal Service5 .............................. $4,155,269

Convictions/pretrial diversions ........................................... 26

Actions affecting Postal Service employees ....................... 13

HOTLINE CONTACTS

Facsimile (FAX) ................................................................ 217 

E-Mail .............................................................................. 852 

Standard Mail .................................................................. 568 

Voice mail messages ....................................................... 465 

Phone calls ................................................................... 6,482

TOTAL CONTACTS ................................................... 8,584

SUMMARY OF PERFORMANCE

October 1, 2003—March 31, 2004

1 Includes unsupported costs of $513,055.

2

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

implemented, could result in over $277 million in savings.

3 To the fullest extent possible, Office of Inspector General (OIG) investigative cases will be worked 

with the Postal Inspection Service. During this period, a number of cases were investigated jointly 

and plans call for working the majority of cases together in the future. The OIG expresses its appreciation at the willingness of the Postal Inspection Service to jointly work the strategic alliance with 

our Office of Investigations. 

4 Includes 4 that occurred prior to the period but were not previously reported.

5

 Amount included in Fines, restitution and recoveries.
October 1, 2003 - March 31, 2004 | 1

Introduction ...........................................................................................................2

The Postal Service’s Strategic Direction .................................................................4

Goal 1: Improve Service .................................................................................7

Goal 2: Manage Costs .................................................................................10

Goal 3: Enhance Performance-based Culture ..............................................17

Goal 4: Grow Revenue .................................................................................23

Goal 5: Pursue Legislative Change ...............................................................27

Organization Chart ...............................................................................................30

Map of Office Locations .......................................................................................31

Appendices .........................................................................................................32

Appendix A – Quantifiable Potential Monetary Benefits ................................32

 Report Listing ...........................................................................................36

Appendix B – Findings of Questioned Costs ................................................40

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 .............................................................46 

Appendix G – Summary of Postal Service Investigative Activities 

 Under Title 39 USC § 3013 ....................................................47

Appendix H – Closed Congressional and Board of Governors Inquiries ........48

Supplemental Information ....................................................................................50

Audit Synopses ...........................................................................................50

Investigative Synopses .................................................................................53

Freedom of Information Act Requests...........................................................55

Glossary ......................................................................................................56 

TABLE OF CONTENTS
2 | October 1, 2003 - March 31, 2004

The Postal Service’s ability to maintain 

or increase its market share of the $900 

billion mailing industry is essential to 

providing universal service at affordable 

rates. To assist Congress, the Governors 

and postal management in addressing 

the challenges the Postal Service faces 

today, the OIG conducts audits of 

Postal Service programs and operations 

to improve economy and effi ciency 

as well as investigations to prevent 

and detect fraud, waste, misconduct 

and mismanagement. OIG audits and 

investigations play a vital role in helping 

the Postal Service operate effectively 

and effi ciently in a globally competitive 

environment. 

WHAT DOES THE POSTAL 

SERVICE DO?

The Postal Service’s mission is to bind the 

nation together by providing prompt and 

reliable mail delivery at fair and equitable 

prices to all customers. It delivers more 

than 200 billion pieces of mail each year. 

This represents more than 46 percent of 

the world’s mail. 

Based on revenue, it is the eleventhlargest enterprise in the nation, collecting 

nearly $68.5 billion in revenue annually. 

The Postal Service employs nearly 

730,000 career employees, making it the 

second-largest civilian employer in the 

nation. To deliver world-class service, the 

Postal Service must excel in performing 

its core business processes of accepting, 

processing, transporting and delivering 

the mail, as well as marketing postal 

products and services. 

HOW DOES THE POSTAL 

SERVICE DO IT?

Visualize over 650 million letters, cards, 

magazines, packages and catalogs in 

the mail stream each day, including mail 

dropped into any one of almost 300,000 

street collection mail boxes. Postal 

employees collect this 

mail and transport it to 

258 mail processing 

facilities, where the mail 

is sorted by destination. 

Once the mail reaches 

the processing facility, 

state-of-the-art 

automated processing 

and sorting equipment 

moves it to the right 

equipment or processing 

location. At high speed, 

letters are sorted and 

barcoded. Each hour, 

tens of thousands of 

letters are fed through 

automated machines 

that apply or read a 

barcode denoting the 

ZIP Code and speeding 

delivery to your home or 

business. 

INTRODUCTION

Sending missent mail to the correct mail distribution center keeps

postal operating costs down.

Sending missent mail to the correct mail distribution center keeps
October 1, 2003 - March 31, 2004 | 3

During this process the mail is assigned 

to the proper air or surface transportation 

network to ensure that it is delivered on 

time. 

The Postal Service spends billions of 

dollars per year to transport and deliver 

mail over a transportation network that 

stretches from Alaska to Florida and 

beyond. This network uses almost 

every mode of transportation possible, 

including plane, train, automobile, ship 

and even mule train to ensure the mail 

gets to the “last mile” in a timely fashion. 

Approximately 300,000 carriers deliver 

mail six days a week (plus Express 

Mail service on the seventh day) to 

142 million addresses. The average 

household receives about 1,420 pieces 

of mail each year. This is how the Postal 

Service delivers to everyone, everywhere, 

every day, and why it is considered 

the universal gateway to the American 

household.

WHAT PRODUCTS AND 

SERVICES DOES THE 

POSTAL SERVICE OFFER?

In today’s economy, creating customer 

value means both improving the quality and 

affordability of products and services and 

making them accessible and convenient for 

customers. So, the Postal Service works to 

understand its customers. 

Postal customers range from major 

mailers, such as marketing companies 

mailing advertisements, to household 

mailers who use the Postal Service to 

send bills and letters. Each group of 

customers has unique needs for which 

the Postal Service has created targeted 

products and services. 

The Postal Service wants to ensure its 

services are available at places where 

its customers choose to do business. 

Most customers obtain postal products 

and services from the vast postal retail 

network that includes more than 37,000 

Post Offices, stations, and branches. 

Post Offices provide local access to more 

than seven million Americans daily and 

offer various services for customers to 

send their mail. These services range 

from First-Class Mail® (postcards and 

letters) to expedited services such as 

Express Mail and Priority Mail and to 

packages. The Postal Service also offers 

other services—such as Certified and 

Registered Mail—that allow customers to 

confirm delivery of their mail. In addition 

to shipping supplies, the Postal Service 

sells stamp subscriptions and collectible 

stamps, packaged as patriotic keepsakes 

or combined with coins to create 

collectible products. 

If you cannot get to the Post Office, 

the Postal Service tries its best to 

bring the Post Office to you. Limited 

services are offered at more than 4,000 

privately operated contract retail units 

usually found in a local store or place of 

business. Customers can also purchase 

postage stamps through the mail, from 

more than 29,000 vending machines, 

online or at 20,000 ATMs and Automated 

Postal Centers, as well as at a variety of 

retail outlets.

The OIG conducts audits of Postal Service programs and operations to 

improve economy and efficiency. 
4 | October 1, 2003 - March 31, 2004

The Postal Reorganization Act of 

1970 established the Postal Service’s 

business model, which was based on 

the assumption that mail volumes would 

continue to increase enough to cover 

rising costs and lessen rate increases. 

Under this business model, the Postal 

Service pays for nearly all of its operating 

costs with revenue generated from its 

products and services. It receives only 

a modest government appropriation for 

revenue foregone to cover free mail for 

the blind, postage for voting materials 

of military personnel and citizens living 

overseas and the postage on balloting 

materials mailed in bulk between state 

and local election officials. More recently, 

the Postal Service has received funding 

for Homeland Security and for its 

Emergency Preparedness Plan. Volume 

increases are needed to finance the cost 

of a growing delivery network. Were it 

not for the expanding network, prudent 

management should be able to limit price 

increases to the rate of inflation. 

In today’s environment, this business 

model presents challenges to the Postal 

Service. Mail volume is not increasing 

enough to cover operating costs. For 

example, volume from certain mail 

categories, such as First-Class Mail, 

is decreasing, while the number of 

addresses the Postal Service serves is 

increasing. In FY 2003 alone, the Postal 

Service added 1.9 million new delivery 

points (new addresses). The Postal 

Reorganization Act did not foresee this 

challenge to generating sufficient revenue; 

nor did it address the central challenge for 

the Postal Service’s strategic planning in a 

dynamic and competitive environment.

To begin to address these issues, 

the Postal Service published its 

Transformation Plan in April 2002. The 

plan updated a series of cost-cutting 

measures that began in FY 2001 and 

committed to reduce costs by $5 

billion by FY 2006. The plan also offers 

alternative long-term structural changes 

and strategies, and calls for legislative 

action by Congress that provides Postal 

Service management with greater 

managerial flexibility.

TRANSFORMATION PLAN, 

APRIL 2002

The General Accounting Office (GAO) 

placed the Postal Service on its High-Risk 

list in April 2001. The GAO stated that 

fundamental changes need to be made 

to the Postal Service’s business model 

(as First-Class Mail volume declined) 

and the legal and regulatory framework 

that supports it, to provide for the Postal 

Service’s long-term financial viability. 

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’S STRATEGIC DIRECTION

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. 
October 1, 2003 - March 31, 2004 | 5

The Transformation Plan calls for 

streamlining operations, attracting 

new revenue by adding value to 

core products, and establishing a 

performance-based culture to motivate 

and empower employees to perform 

at peak levels. The Postal Service 

believes these near-term solutions can be 

accomplished without legislative change. 

However, the longer-term solution for the 

business model requires congressional 

action, which would provide the Postal 

Service with a new business model 

offering greater flexibility in pricing, 

operations and human resources, while 

maintaining universal service. 

THE PRESIDENT’S 

COMMISSION ON THE

U. S. POSTAL SERVICE

Responding to concerns of the GAO and 

Congress, on December 11, 2002, the 

President established a nine-member 

bipartisan Commission to craft a vision 

to ensure the efficient operation of the 

Postal Service in the 21st century. 

From January 2003 through July 2003, 

the Commission held nine public 

hearings, which solicited comments from 

customers, major mailers, postal unions, 

management associations and other 

interested parties on the subject of postal 

reform. In addition, the Commission 

obtained comments from the Postmaster 

General and the Treasury Under 

Secretary for Domestic Finance. 

In July 2003, the Commission issued 

its report, Embracing the Future, which 

stressed the need for the Postal Service 

to remain an independent public entity 

with a new business model. This 

new business model would limit the 

Postal Service’s activities to accepting, 

collecting, sorting, transporting 

and delivering letters, newspapers, 

magazines, advertising mail, and parcels; 

and providing other governmental 

services when in the public interest and 

where the Postal Service can recover the 

cost of such services. The model would 

also allow the Postal Service to maintain 

the current mail monopoly and retain 

sole access to customer mailboxes. The 

Commission’s other recommendations 

include:

■ Transforming the existing Postal Rate 

Commission into an independent 

Postal Regulatory Board with broad 

oversight authority.

■ Replacing the existing rate-setting 

process with an incentive-based 

rate-setting methodology that would 

streamline the existing rate-setting 

process.

■ Creating a Postal Network 

Optimization Commission (P-NOC), 

similar to the Defense Base Closure 

and Realignment Commission, which 

would make recommendations on 

the consolidation and rationalization 

of the Postal Service mail processing 

and distribution infrastructure.

■ Revolutionizing postal retail access 

by bringing a wider range of postal 

services and products to consumers in 

grocery stores, pharmacies and other 

convenient locations. 

These and other recommendations are 

an indication of the wide-ranging postal 

reform the Commission proposes. 

The OIG appreciates that the 

recommendations address many of the 

major management issues on which 

it advised the Commission during the 

initial comment period. The OIG rebutted 

charges made by a postal stakeholder 

that challenged the necessity of the OIG 

in the postal oversight process. In its final 

report, the Commission did not question 

the OIG’s oversight function nor the audit 

and investigative role it plays in postal 

matters. The OIG will remain engaged in 

the consideration and implementation of 

the recommendations of the President’s 

Commission by Congress, postal 

stakeholders and the Postal Service. 

As Congress may require, the OIG will 

continue to inform and advise on the 

recommendations of the Commission.
6 | October 1, 2003 - March 31, 2004

FIVE-YEAR STRATEGIC PLAN 

FY 2004-2008

The Postal Service’s current five-year 

strategic plan provides four broad 

strategic goals focused on results and 

describes how the Postal Service will 

continue to respond to the American 

people and increase its value to the U.S. 

economy. The plan also describes an 

overarching initiative that connects the 

other goals through greater legislative 

and regulatory flexibility. The four strategic 

goals and overarching initiative are:

1. Improve Service by providing timely, 

reliable and accurate mail delivery 

service to a growing universal 

network, and convenient access to 

postal services for all customers and 

all communities. 

2. Manage Costs and improve 

productivity to maintain fair and 

equitable prices for all customers. 

3. Enhance Performance-based Culture

by maintaining an accountable, 

motivated and diverse workforce 

empowered to maximize 

performance in a safe and secure 

work environment.

4. Grow Revenue through enhancing 

core services and providing greater 

value to customers.

5. Pursue Legislative Change (Reform)

by obtaining greater legislative 

and regulatory flexibility to improve 

service, manage costs, empower 

employees and respond to customer 

needs. 

The OIG concentrates on high-risk and 

strategically important areas to provide 

the Postal Service with an unbiased 

assessment on the progress made in 

achieving its goals. The OIG is currently 

looking at areas such as the Postal 

Service’s performance measures and 

integration of its strategic goals.
October 1, 2003 - March 31, 2004 | 7

The Postal Service’s first strategic goal 

is to provide timely, reliable and accurate 

mail delivery service to a growing 

universal network, and convenient access 

to postal services for all customers and 

communities. Most postal stakeholders 

would agree that prompt delivery of 

bills and payments; reliable delivery of 

magazines, newsletters and newspapers; 

timely delivery of information that makes 

shoppers aware of products, services 

and issues; and convenient, accurate 

delivery of packages are all critical to 

economic progress in the 21st century.

Service is one of the most fundamental 

indicators of postal performance. 

The Postal Service has established 

standards and measurement systems 

for Priority, Express and First-Class 

Mail services, and is implementing 

programs to continue to improve 

service performance. The Postal Service 

believes that strategies supporting 

service improvements are tied with those 

supporting productivity improvements

and has targeted two overarching 

strategies and supporting initiatives to 

guide it in achieving its goal of improving 

service. The strategies are: improve the 

consistency and quality of service and the 

efficiency of operational processes, and 

enhance tracking technology.

The strategies and initiatives to achieve 

convenient access to postal services for all 

customers and communities are discussed 

under the ‘Grow Revenue’ section of this 

report.

IMPROVE CONSISTENCY, 

QUALITY OF SERVICE AND

THE EFFICIENCY OF 

OPERATIONAL PROCESSES

Delivery Operations. The Postal Service 

is making progress in improving delivery 

operations efficiency. For example, the 

Postal Service reported that the Delivery 

Operations Information System (DOIS) 

and the Managed Service Points (MSP) 

system, both of which provide information 

to better manage delivery routes, were 

successfully deployed and use the 

Delivery Performance Achievement and 

Recognition System as a benchmarking 

tool to improve and recognize good 

performance.

The OIG is currently reviewing city letter 

carrier operations, with a focus on 

supervisory use of information in DOIS 

and MSP to manage carriers. This review 

will also assess managing workload to 

workhours, street management and route 

inspections, and mail volume reporting. 

The OIG also plans a future review of rural 

letter carrier operations.

Transportation Management Information 

Systems. New information systems to 

improve transportation performance are 

underway to capture information that 

will be used to optimize network design, 

improve transportation efficiencies and 

enhance service. The Postal Service has 

made progress on a number of these 

systems to enhance the Postal Service’s 

ability to assure mail is planned and 

routed effectively and that transportation 

contractors and the Postal Service have 

the data to assess costs and service 

performance more accurately. 

Further, the OIG is concerned about 

the reliability of systems developed. 

For example, the OIG has observed 

weaknesses in the Transportation 

Information Management Evaluation 

System (TIMES), particularly with

regard to overstating utilization rates. 

This system may be the focus of a future 

OIG review. The Postal Service, however, 

has plans to replace TIMES with another 

system that may improve tracking of 

utilization rates.

Service Performance Measurement 

Systems Development. The Postal Service 

recognizes the need for reliable service 

performance tracking for all categories 

of mail and has been working on several 

programs to develop effective and 

efficient systems that will add value. 

GOAL 1: IMPROVE SERVICE
8 | October 1, 2003 - March 31, 2004

Many customers are currently obtaining 

relevant data from these systems and 

the Postal Service works closely with 

business customers to regularly evaluate 

and improve overall service performance, 

while using data from these systems as 

a diagnostic tool for improving service. 

However, none of the systems have yet 

been accepted as measurement systems 

for service performance evaluations 

under the Government Performance and 

Results Act, as applied to the Postal 

Service under 39 U.S.C.§ 2803. 

For example, First-Class Mail service 

performance is measured by the External 

First-Class (EXFC) Measurement System. 

EXFC externally measures collection 

box to mail slot delivery performance, 

continuously testing a panel of 463 

ZIP Code areas selected on the basis 

of geographic and volume density, 

from which 90 percent of First-Class 

Mail volume originates and 80 percent 

destinates. Based on an OIG review, the 

Postal Service has recognized that EXFC 

is not a system-wide measurement of all 

First-Class Mail performance. 

In 2002, the OIG identified factors that 

Postal Service officials believed were 

critical to meeting EXFC Measurement 

System service standard scores. The 

critical factors included commercial airline 

performance; mail preparation, condition 

and arrival times; adequate facilities; 

and management stability and staffing. 

The OIG also noted that practices were 

implemented in efforts to control the 

factors affecting scores but that the 

Postal Service had no formal mechanism 

for identifying, assessing and sharing best 

practices affecting service standards on a 

nationwide basis. 

International Mail. The Postal Service 

has significant competition in every 

major category of service, not only 

from traditional carriers, but also from 

deregulated and privatized foreign 

postal operators, such as those of the 

Netherlands, Germany, Canada and 

Great Britain. The Postal Service plans 

to retain and increase international 

market share by developing business 

relationships with major international 

postal operators, improving service 

quality and redefining existing products. 

As part of its efforts to enhance the 

international mail segment, the Postal 

Service is cooperating with Canada and 

Europe to develop a valid and reliable 

external measure of international letter 

service between major cities.

Address Management. Service 

performance depends on the quality of 

addresses on the mail, proper preparation 

and induction points on mail entering 

the postal system. The Postal Service 

works closely with the mailing industry 

and major customers to establish relevant 

standards and effective systems, to 

provide both the lowest total mailing cost 

and improved service. 

The Postal Service is pursuing an 

aggressive policy of ongoing quality 

reviews and implementing technological 

and procedural improvements to ensure 

better communication between delivery 

units and the address management 

program. A focus was placed on 

increasing the use of the Internet changeof-address service, which is the least 

expensive, most accurate and most 

timely way to collect change-of-address 

information. In FY 2003, customer usage 

of this service increased by more than 60 

percent over FY 2002. 

The OIG previously assisted the Postal 

Service in evaluating various options 

for change-of-address services offered 

by commercial Internet companies. 

Additionally, the OIG has advised 

the Postal Service of the high costs 

associated with mishandled mail 

using the Address Change Service (an 

automated address correction service).

The Postal Service is in the process of 

implementing the Postal Automated 

Redirection System (PARS), which will 

identify and redirect undeliverable-asaddressed mail pieces at their induction 

point instead of at their destination point.

Worksharing. The GAO noted the 

President’s Commission report proposed 

requirements for worksharing discounts 

to be based on the costs that the Postal 

Service is estimated to avoid, as a 
October 1, 2003 - March 31, 2004 | 9

result of mailer worksharing activities, 

to prepare, sort and transport the mail. 

Mailers may receive discounts if they 

make the extra effort to provide properly 

addressed mail that can be handled by 

automated postal equipment or can skip 

postal operations through presorting or 

using their own transportation to enter 

the mail into the postal system closer to 

the destination point.

Last year, the OIG recommended that 

postal management develop a rate 

case proposal to eliminate destination 

entry discounts for letters destinating at 

certain delivery units. Postal management 

disagreed, citing the need to weigh 

all relevant factors before formulating 

a rate proposal, but stated that it has 

been reviewing the issue and expects 

to complete the review before the next 

omnibus rate case. 

ENHANCE MAIL TRACKING 

TECHNOLOGIES

The Postal Service is focusing on 

enhancing mail tracking technologies 

to improve service. Two initiatives, 

CONFIRMTM service and Intelligent MailTM, 

are discussed below.

CONFIRMTM Service. CONFIRM is a tracking 

system for letters and fl ats (oversized 

letters), using a second barcode, and 

is considered the fi rst Intelligent Mail 

product. It allows mailers to make better 

business decisions based on knowing 

where mail is in the postal operating 

system and when it is scheduled for 

delivery. The CONFIRM system allows 

near real-time access to data through 

a convenient, easy-to-use website with 

dedicated customer support. 

The OIG reported that if CONFIRM 

service was enhanced, it should enable 

the Postal Service to improve customer 

satisfaction by soliciting feedback, timely 

notifi cation of system changes and 

improving training and communication 

with business customers. 

Intelligent MailTM. In its Transformation 

Plan Progress Report, the Postal Service 

recognized that capturing real-time 

information has revolutionized postal 

products and services, but acknowledges 

that a complex union of postal services 

and digital technology will be necessary, 

in order to meet customers’ expectations 

of immediate feedback on the status of 

their letters and packages. The Postal 

Service is taking advantage of recent 

advances in item identifi cation and coding 

technology to develop an integrated 

system that signifi cantly improves the 

ability of the Postal Service and its 

customers to manage the mail. 

The Postal Service continues to make 

progress in implementing strategies 

to use technology to identify 

and track mail pieces and 

improve access, speed and 

reliability of accountable mail 

services. As noted by the 

President’s Commission, report, 

tracking mail is a standard 

service delivered by private 

carriers. While the Postal 

Service currently offers 

some tracking services, it 

lags far behind consumer 

expectations and the 

capabilities of technology. 

For example, except for 

Express Mail and Global 

Express Guaranteed 

services, the Postal 

Service will estimate–but 

not guarantee–a delivery 

date for any type of mail. 

The report continues to 

point out that if individual 

customers require more 

complete information 

about their mail, tracking 

is only available at very 

rudimentary levels for a 

premium price. The OIG 

plans reviews to assess the 

Postal Service’s progress in 

developing Intelligent Mail 

initiatives.

report, 

GOAL 1: IMPROVE SERVICE

The Postal Service is implementing technology 

to identify and track mail pieces and

improve access, speed and reliability of

accountable mail services.
10 | October 1, 2003 - March 31, 2004

The Postal Service’s goal in this area is to 

manage costs and improve productivity 

to provide service at the lowest possible 

price. The Postal Service has three 

main cost management strategies: 

replace labor-intensive processes with 

automation; optimize networks and 

enhance facility utilization; and reduce 

labor costs and improve employee 

utilization.

REPLACE LABOR

WITH CAPITAL

Over the last 20 years, the Postal Service 

has invested more than $13 billion in the 

deployment of automation equipment 

that supports the collection, sorting, and 

delivery of the nation’s mail. Additionally, 

the Postal Service plans to invest another 

$9 billion over the next five years. It has 

made great strides in automating letter 

mail. 

By the end of FY 2002, the Postal Service 

distributed approximately 95 percent 

of letters in automated operations with 

significant savings when compared to 

manual processing. The Postal Service 

is applying lessons learned in program 

management from letter mail automation 

to flats. This program management 

experience streamlined the time required 

to implement the flats automation 

program. 

The Postal Service’s automation program 

for the future increases the emphasis on 

flats and package automation. To date, 

the Postal Service has been successful 

in reducing costs while improving service 

and productivity. In FY 2002 and 2003, 

the Postal Service reported $2.8 billion in 

savings attributable to reductions in workhours and non-personnel expenses. 

The Transformation Plan described 

strategies to use automation technology 

to take more costs out of the Postal 

Service’s operating systems. These 

strategies were designed to increase 

machine throughput, improve address 

recognition and enhance processing. 

According to the Postal Service’s 

November 2003 Transformation Plan 

Progress Report, the successful 

application of automation technology to 

letter operations is being duplicated for 

flat mail distribution. The challenge for 

the Postal Service is to achieve the same 

increased productivity and work-hour 

savings in flats and package processing 

as it did for letters.

■ The Postal Service is implementing 

the Automated Package Processing 

System, which will improve sorting 

accuracy and productivity in the 

processing of parcels and bundles of 

mail. This system has an enhanced 

processing capacity and is designed 

to replace older, more laborintensive machines. This system 

could ultimately save $118.5 million 

in work-hours during its first full 

year in operation. However, a fourmonth delay in completion of system 

performance testing has delayed 

deployment. The OIG is concerned 

because, to date, improved 

productivity has not been achieved 

and staffing has not been reduced, 

potentially resulting in a lower returnon-investment.

■ The Postal Service is testing a new 

system, Postal Automated Redirection 

System (PARS), to identify and 

redirect undeliverable mail at the 

point of origin as opposed to the 

point of destination. Undeliverable 

mail is expensive to process because 

some of this mail is processed to 

the destination location before it is 

identified. For example, if someone 

moves to a different city, their mail 

may not be rerouted to their new 

address until after it has already gone 

to their old address. This requires 

extra handling time. PARS, still in its 

infancy, did not achieve the expected 

GOAL 2: MANAGE COSTS
October 1, 2003 - March 31, 2004 | 11

accuracy rate during the system 

performance testing. However, the 

PARS accuracy rate is much higher 

than the system it is replacing. The 

contractor and postal management 

are confident the PARS rate will meet 

expectations. The system has the 

potential to save between $1 billion 

and $1.4 billion through a reduction 

in sort passes and processing time 

associated with handling redirected 

mail.

The Board of Governors approves 

investments over $10 million. In addition, 

postal management is required to prepare 

quarterly Investment Highlights reports for 

investments in this category. These reports 

provide the Board of Governors and postal 

management the status of implementation, 

achievement of planned benefits and 

performance measures. This is especially 

true for return-on-investment projects that 

reduce work-hours in the Postal Service’s 

distribution, processing and delivery 

operations.

The application of technology to postal 

operations is not without risk. For 

example, during a past investigation into 

the production and use of a letter sorting 

machine, the OIG identified over-charges 

pertaining to a claim submitted by the 

contractor that resulted in the contract 

being reduced by $151,000 and a credit of 

$35,000 being issued. 

The Postal Service has had success 

in applying automation technology to 

improve efficiency and manage costs 

in the processing and distribution of 

mail. However, several areas still need 

improvement:

■ Meeting deployment schedules.

■ Increasing equipment utilization rates.

■ Consistently capturing empirical 

performance data.

■ Creating meaningful performance 

metrics.

The OIG plans to conduct reviews of 

various systems, including the Postal 

Automated Redirection System and 

Automated Package Processing System, 

as they progress from development to 

operation. 

NETWORK OPTIMIZATION AND 

FACILITY UTILIZATION

One of the Postal Service’s most 

costly expenditures is its infrastructure 

investment, which is set up to 

transport, process and deliver mail. This 

infrastructure was created incrementally 

over the last 30 years to improve service, 

in response to volume growth. With 

recent declines in mail volume, population 

shifts and advances in technology, the 

infrastructure contains excess capacity 

and may not be optimally located. The 

Postal Service also manages a vast 

highway, air, rail and water transportation 

network that moves billions of pounds 

of mail each year. In addition, the Postal 

Service recognized opportunities to 

further manage costs in the areas of 

facilities management, delivery, and 

supply chain management. Details on the 

Postal Service’s major sub-strategies in 

this area follow. 

Optimize the Distribution Networks. As 

part of its Transformation Plan, the 

Postal Service developed the Network 

Integration and Alignment (NIA) initiative, 

a sophisticated modeling effort to assess 

restructuring of the Postal Service’s 

complex processing and distribution 

network. 

Its aim is a flexible logistics network that 

reduces Postal Service and customers’ 

costs, increases operational effectiveness 

and improves consistency of service. The 

NIA initiative will also examine alternative 

network distribution concepts that 

focus on simplifying and standardizing 

operations, with less need for dedicated 

class-based networks. NIA will also 

examine more than 500 processing and 

transportation facilities. The President’s 

Commission indicated that this is the 

most tangible and important deliverable 

in the Transformation Plan. The network 

optimization, which includes NIA, is the 

linchpin that will facilitate driving down 

costs in mail processing, transportation 

and human capital. 
12 | October 1, 2003 - March 31, 2004

The Postal Service formed a crossfunctional team for this initiative that 

includes operations, facilities, finance 

experts, as well as several consultants (a 

postal management consulting firm and 

supply chain optimization experts). The 

team developed the models, collected 

and validated data inputs and completed 

initial modeling efforts. The Postal 

Service conducted limited verification 

and validation of the NIA models. 

This validation and verification was 

not independent or fully documented. 

Postal Service management agreed that 

independent verification and validation 

of the models was critical because 

this initiative has significant strategic 

implications, including the potential 

consolidation or closure of postal 

facilities. 

The Postal Service subsequently 

assembled a team to conduct an 

independent verification and validation

of the models. At the request of the 

Postal Service, the OIG is monitoring

and providing guidance to the team,

with regard to the independent verification 

and validation process, and has 

recommended best practices. The Postal 

Service will focus on model validation and 

concept testing during the remainder of 

2004.

While the team is validating the NIA 

model, the Postal Service and the OIG, 

in a joint effort, identified inefficiencies 

associated with several international 

services facilities. Processing operations 

were consolidated, two facilities were 

identified for closure, and labor hours 

were reduced. This joint effort resulted 

in a monetary impact of approximately 

$61 million over 10 years. The Postal 

Service and the OIG will continue this 

collaboration to identify opportunities to 

improve operations and reduce costs. 

Efficient and Responsive Transportation 

and Logistics. Mail transport is one of the 

Postal Service’s core operations, costing 

about $5 billion annually, and is essential 

to the Postal Service’s success. 

Network operations and logistics 

include transportation by air and surface 

networks—plus logistical support to all 

transportation or other Postal Service 

functions. This movement is supported by 

major logistical activities, including 22 Mail 

Transport Equipment Service Centers, 

fuel procurement, vehicle acquisition and 

various supplies and services. 

The Transformation Plan has identified 

network and logistics support strategies 

intended to reduce or offset costs. 

Among them are (1) sharing excess 

capacities across postal functions in 

order to raise revenue or share costs, 

(2) refining NIA to optimize air and 

surface transportation, (3) redesigning 

logistics to minimize costs, (4) reducing 

debt by leasing vehicles and equipment 

and (5) outsourcing transportation and 

maintenance services. 

In general, the Postal Service continues 

to make progress towards achieving 

these goals. For example, at the request 

of postal management, the OIG reviewed 

1,636 highway contracts, visited 103 

plants nationwide, and in conjunction 

with Postal Service transportation 

managers, recommended the integration 

or elimination of 915 highway trips and 

identified almost $43 million in potential 

savings, over the three years, or the term 

of the contract. 

Furthermore, the OIG assists with cost 

efficiency by aggressively pursuing acts of 

fraud associated with the Postal Service’s 

extensive transportation network. For 

example, in the Southeast area, the OIG 

is conducting a large joint investigation 

with other law enforcement agencies to 

break up a credit card theft ring. To date, 

20 individuals have been arrested for 

their involvement in an organized scheme 

to fraudulently manufacture and/or use 

government and commercial credit cards. 

Postal Service credit cards were used 

to purchase approximately $400,000 in 

fuel, which was subsequently resold. In 

California, theft-related charges were filed 

against a vehicle repair contractor for 
October 1, 2003 - March 31, 2004 | 13

billing the Postal Service over

$1 million while only performing

$160,000 in authorized work.

Retail Network Initiative. Most Americans 

purchase Postal Service products 

at retail outlets. The Postal Service’s 

major retail challenge is to meet its 

customers’ ever increasing needs for 

access, while reducing infrastructure 

and operating costs. The Postal Service, 

over the next fi ve years, has plans to 

(1) provide customers with easier and 

more convenient access, (2) create 

new, low-cost retail alternatives, (3) 

achieve a stable and effi cient network 

and (4) develop new retail services. The 

OIG plans to assess the retail network 

optimization initiative to determine 

whether the model has established 

performance measures and whether 

access will be provided to underserved 

areas while consolidating underutilized 

retail offi ces. 

Managing Real Estate Assets. The Postal 

Service is one of America’s largest 

owners, developers and managers of real 

estate. The Postal Service operates more 

than 37,000 geographically dispersed 

facilities—8,761 postal-owned facilities 

and 28,444 leased facilities—and 

occupies space in an additional 443 

federal facilities. 

The Postal Service has developed 

strategies to identify opportunities to 

reduce costs or maximize the return on 

investment. These key strategies include 

standardization of building design, 

disposal of underutilized or excess 

property and proactive leasing programs. 

The Postal Service needs to improve 

the process for identifying and reporting 

excess facilities and vacant space. This is 

a critical fi rst step in meeting the strategic 

objective of disposal of underutilized or 

excess property. 

The OIG plans to work with the Postal 

Service to identify opportunities for 

maximizing revenue through disposition 

of land. Additionally, the OIG is reviewing 

enforcement of lessor maintenance 

responsibilities to assist the Postal 

Service in reducing overall operating 

costs. 

The OIG is also proactively reviewing 

common area maintenance clauses 

contained in leases of shared facilities 

to determine whether the Postal Service 

was overcharged for services such as 

trash removal, utilities, landscaping, 

maintenance and snow removal. The 

cost for these types of services is 

calculated based on a dollar amount 

per square foot of space occupied. One 

investigation recently resulted in a refund 

At the request of postal management, the OIG reviewed 1,636 highway contracts and visited

103 plants nationwide.

GOAL 2: MANAGE COSTS
14 | October 1, 2003 - March 31, 2004

to the Postal Service of over $64,000 and 

a credit of $35,000 in future rent costs. 

Delivery Efficiency Improvements. The 

annual increase in delivery points (new 

addresses) puts considerable upward 

pressure on costs. During 2003, the 

Postal Service added 1.9 million new 

delivery points to the system. The Postal 

Service has improved delivery productivity 

through the implementation of Delivery 

Point Sequencing (DPS) and other 

management improvements. DPS is an 

automated process used to sort mail 

in the sequence that the carrier effects 

delivery, which has dramatically reduced 

carrier in-office work hours. Major 

initiatives in this area include

(1) benchmarking delivery performance, 

(2) testing city carrier route and 

optimization programs and (3) assessing 

methods to effectively staff retail units 

and customize services to meet local 

community needs. 

The OIG plans to review the efficiency 

and effectiveness of city letter carrier 

operations, including office preparation 

of organizing the mail by address, street 

management and route examination.

Supply Chain Management. The Postal 

Service manages contracts with 

commitment values of over 

$19 billion annually for its goods, 

non-mail transportation services and 

facilities-related services. It awarded 

over $4 billion to its suppliers in FY 

2003 for these commodities. Supply 

chain management is the analysis and 

adjustment of the purchasing process 

and business organizations working 

together, as required, to meet customer 

demand and lower overall cost. It was 

set up to maximize the effectiveness and 

efficiency of these expenditures, using 

public and private standard practices. 

Supply Management, the Postal 

Service’s strategically-aligned support 

purchasing organization, has begun to 

implement supply chain management 

practices in line with the Transformation 

Plan’s goal of achieving cost reductions 

through increased supply chain savings, 

operational efficiencies, and managing 

assets more effectively. 

Strategies to reduce costs include 

reducing the supplier base to preferred 

suppliers and partnering with stakeholders. 

The November 2003 Transformation Plan 

Progress Report revealed that supply 

management initiatives have achieved 

$700 million in cost reductions, cost 

avoidance and revenue generation, since 

FY 2002. 

There have been improvements in 

business practices and cost-reduction 

strategies, evidenced through the use of 

commodity teams, national contracts, 

expanded use of web-based ordering 

and online auctions. 

Also, the Postal Service recently 

adopted the OIG’s proposed Purchasing 

Manual changes regarding adequate 

contractor accounting systems, critical 

contract clauses, and suspension and 

debarment of contractors for fraud, to 

decrease its exposure to fraud, waste 

and misconduct in its purchasing 

operations. It also announced intentions 

to amend its purchasing regulations to 

allow for the acquisition of goods and 

services in a manner similar to that 

followed by businesses in the commercial 

environment. 

The OIG is assisting the Postal Service 

by reviewing the impact of supply chain 

management initiatives to increase 

customer satisfaction and decrease 

overall cost. It is also reviewing long-term 

professional services ordering agreements 

to maximize the value obtained from 

Information Technology investments. 

The OIG will also continue to work with 

the Postal Service to ensure purchasing 

policies are adequate to reduce overall 

risk in the purchasing process. 

The Postal Service has made significant 

improvements to strengthen controls 

over management of contracts, including 

contract actions without definite pricing 

and/or terms and noncompetitive 

contracts. 
October 1, 2003 - March 31, 2004 | 15

The OIG is currently evaluating 

management controls, planning, design 

and implementation of a major acquisition 

to ensure that it meets cost, schedule 

and functional requirements. The OIG 

also plans to review how the Postal 

Service manages costs in its cost-type 

contracts. Also, through contract audits 

of about $1.2 billion from October 2003 

through March 2004, the Postal Service 

is better able to manage overall contract 

costs by excluding questionable items 

such as duplicate profits by interdivisional 

companies, indirect rates, interest 

costs and subcontract costs; thereby, 

potentially saving about $194 million. The 

OIG will continue to coordinate with the 

Postal Service to conduct these contract 

audits.

Further, the Postal Service needs to 

remain vigilant in monitoring and ensuring 

the integrity of contractors. Recently 

the OIG identified inflated contractor 

costs and bribery involving a $3.4 million 

construction and paving contract. 

In another investigation, substandard 

work and questionable charges were 

identified in a contract for asbestos 

abatement services, which resulted in a 

$1 million restitution to the Postal Service.

During this reporting period, the OIG 

had 259 open contract fraud-related 

investigations. Types of fraud schemes 

commonly seen today include product 

substitution, defective pricing, cost 

mischarging and false claims for services 

or supplies not provided. 

LABOR COST REDUCTION 

AND EMPLOYEE UTILIZATION 

IMPROVEMENT

The Postal Service’s investment in human 

capital is by far its most costly. The 

Postal Service has nearly 713,000 career 

employees and spends more than

75 percent of its expenses on personnelrelated costs. The Postal Service has 

developed strategies to address this 

critical component. In addition, in order 

to support current and future business 

needs, the Postal Service must optimize 

its information infrastructure and 

reengineer its systems. 

Reduce Labor. The vast majority of 

current postal labor requirements are 

inextricably tied to infrastructure issues, 

such as the postal retail network and 

the rising number of delivery points. The 

Postal Service has had some success 

in reducing labor costs by streamlining 

processes. In 2003, the Postal Service 

reengineered and automated accounting 

processes across the nation. As a result, 

85 district accounting offices were closed 

and 800 positions were eliminated by 

consolidating the residual activities into 

three Accounting Service Centers. In 

addition, fully automating the Postal 

Service timekeeping system resulted in 

the reduction of 1,005 timekeepers. Its 

area and district consolidations process 

worked well and the Postal Service 

was able to consolidate administrative 

functions without impacting operations or 

involuntarily separating employees while 

still achieving the district consolidation 

goals.

In a joint effort to improve the efficiency 

of work performed by employees in 

Business Mail Entry Units (BMEUs), the 

Postal Service and the OIG identified that 

work-hours to accept business mailings 

at seven facilities were excessive. These 

joint reviews resulted in a monetary 

impact of $28 million in reduced labor 

hours, over 10 years. Consequently, 

postal management requested and the 

OIG agreed to suspend future BMEU 

reviews, pending the completion of an 

analysis on staffing and the impact of 

the Mail Evaluation, Readability, and 

Lookup INstrument (MERLIN) system 

on acceptance activities at the BMEUs. 

MERLIN is a system designed to 

automate the mail verification process 

for business mailings and replaces most 

manual verifications. 

The OIG is conducting a review of 

MERLIN operations at three BMEUs 

to assess MERLIN utilization and 

performance.

Managing Labor-related Costs. The 

Postal Service is a large, labor-intensive 

GOAL 2: MANAGE COSTS
16 | October 1, 2003 - March 31, 2004

organization that faces signifi cant 

potential costs associated with injury 

compensation claims. The accident 

prevention and safety program at the 

Postal Service has shown improvement. 

The OIG is performing a comprehensive 

review of accident prevention and safety 

issues, as well as benchmarking with 

private industry.

The combined investigative efforts of the 

OIG and the Inspection Service to secure 

access to claimant records will assist the 

OIG in conducting investigations more 

effi ciently while assessing allegations of 

fraud. 

For example, in California, the OIG 

partnered with the DOL and the California 

Department of Insurance on a case 

involving a San Diego physician who pled 

guilty to submitting false statements in 

connection with services not provided to 

Postal Service claimants. The physician’s 

medical license was suspended pending 

the outcome of the judicial proceedings.

Technology Infrastructure. A key initiative 

supporting the distribution of innovative 

technologies within the Postal Service is 

the Advanced Computing Environment 

(ACE) initiative. This initiative involves 

replacing the entire distributed computing 

infrastructure and upgrading existing 

hardware, software, processes and 

support, while enhancing the stability

and reliability of the infrastructure. 

The OIG has reviewed the ACE program 

and concluded the Postal Service 

is meeting ACE program objectives 

to reduce costs, replace obsolete 

technology, and accelerate application 

change and development. The OIG 

has reviewed and recommended 

improvements in ACE security and plans 

additional security assessments later

this year.

The OIG is conducting a review of MERLIN operations at three 

BMEUs to assess MERLIN utilization and performance.
October 1, 2003 - March 31, 2004 | 17

The Postal Service has long realized that 

its organizational success depends on 

the efforts of postal employees. Since 

at least 1998, its plans for success 

have included the establishment 

of a performance-based culture to 

“Improve employee and organizational 

effectiveness by having the right people

in the right place with the right tools at

the right time . . . .” 

As one of the largest civilian employers 

in the nation, the Postal Service faces a 

number of challenges in maintaining and 

motivating a quality workforce. The Postal 

Service realizes that in order to achieve 

the goals laid out in its Transformation 

Plan, it must enhance its performancebased culture. The Postal Service’s 

overall goal in this area is to maintain 

an accountable, motivated and diverse 

workforce empowered to maximize 

performance in a safe and secure work 

environment. The Postal Service has 

strategies to improve the performancebased culture, the size and quality of 

its workforce, safety measures and 

employee attitudes.

RETENTION, RECRUITMENT 

AND DEVELOPMENT

The Postal Service is the secondlargest civilian employer in the nation, 

and Fortune magazine recently ranked 

the Postal Service as the fourth-largest 

employer in the world. Fortune also 

ranked the Postal Service as one of the 

top ten best places to work in America. 

More recently, a survey conducted by 

an independent think tank that studies 

information issues in business and 

government found that the Postal Service 

was one of the public’s most trusted 

government agencies.

In its Five-Year Strategic Plan FY 2004-

2008, the Postal Service reported that 

it does not have a retention problem 

and that employees who are eligible to 

retire usually stay well beyond retirement 

eligibility. The Plan also states, however, 

that the Postal Service has recruitment 

strategies and new programs to 

enhance its ability to retain, recruit and 

develop employees. For example, for 

three of its management programs, the 

Postal Service will recruit individuals 

with advanced degrees. Successful 

completion of the programs will result in a 

pool of skilled candidates capable of filling 

critical vacancies within the organization.

Proper succession planning is also critical 

to retention and development. The Postal 

Career Executive Service (PCES) was 

established in 1979 and consists of two 

levels of leadership. Level 1 executives 

are appointed by senior-level officers 

and include district and bulk mail center 

managers. Level 2 senior-level officers 

are appointed by the postmaster general 

and include functional vice presidents in 

Headquarters, area vice presidents and the 

deputy postmaster general. 

The Postal Service initiated its corporate 

succession planning process in 1994 

to identify a diverse pool of potential 

successors for PCES positions and 

to promote their development for 

leadership roles in the organization. The 

planning process was also to provide 

a mechanism for building diversity into 

the leadership of the organization. 

The process includes many features 

identified as best practices for successful 

organizations. 

It should be noted, however, that the 

President’s Commission recommended 

the Postal Service restructure its 

management to eliminate redundant 

positions and geographical divisions and 

to standardize and clarify job functions. 

It also recommended the Postal 

Service conduct a review of the entire 

management structure, size and cost to 

determine whether each component is 

necessary and consistent with the best 

practices of the private sector. 

GOAL 3: ENHANCE PERFORMANCE-BASED CULTURE
18 | October 1, 2003 - March 31, 2004

PAY-FOR-PERFORMANCE

The Postal Service is on track toward 

realizing its strategic goal of creating a 

performance-based culture, particularly 

for non-bargaining unit employees. It 

has implemented a pay-for-performance 

system for 800 executives, to improve 

operations and achieve goals in FY 

2003. In FY 2004, it will evaluate the 

non-bargaining employees using this 

system. This system is expected to create 

managerial accountability for reducing

the number of grievances, arbitrations

and equal employment opportunity

complaints and to improve safety.

According to the Postal Service’s 

November 2003 Transformation Plan 

Progress Report, the new pay system is 

based solely on performance evaluations. 

There are no automatic or across-theboard pay increases for executives or 

non-bargaining employees. All pay actions 

should be made within a salary structure 

that is market-based, following an 

independent and comprehensive market 

analysis of postal positions.

WORKPLACE ENVIRONMENT

Relationships between postal 

management, employees and unions 

have improved over the recent past. This 

was evident when the Postal Service and 

its four major unions reached negotiated 

agreements through collective bargaining, 

thereby avoiding arbitration for the fi rst 

time since 1987. 

In FY 2003, the Postal Service made 

managers accountable for workplace 

environment issues through the payfor-performance system. Area and 

district managers are scored on their 

achievements to help improve workplace 

relationships and to participate in 

improvements. This includes their 

ability to resolve grievances and equal 

employment opportunity complaints. 

Postal Service statistics indicate that 

the number of new grievances fi led and 

the number of backlogged grievances 

have declined. For example, the Postal 

Service and its unions have reduced the 

total number of grievances from 236,899 

fi led in FY 2002 to 198,525 fi led in FY 

2003. In addition, it has reduced the 

number of grievances in the backlog from 

The Postal Service has long realized that its organizational success depends on the

efforts of postal employees.
October 1, 2003 - March 31, 2004 | 19

110,695 to 42,545 for the same period. 

The OIG believes this is further evidence 

of improved relations. Specifically, the 

National Association of Letter Carriers 

(NALC) and the Postal Service reduced 

backlogged grievances by 95 percent, 

from 18,634 to 931, between FY 2000 

and FY 2003. The American Postal 

Workers Union (APWU) also filed 

significantly fewer grievances in FY 2003 

(99,255) than it did in FY 2002 (138,104). 

The OIG is conducting additional work 

to determine the root causes of the 

grievances and the initiatives in place to 

further reduce them. 

The Postal Service also improved 

communications between management 

and its unions by working together to 

produce manuals that provide a joint 

understanding of the interpretation 

and administration of provisions of the 

national agreements. The Postal Service 

believes this communication effort has 

proven invaluable in reducing tension 

between labor and management on 

the workroom floor, as it eliminates 

disagreements over the meaning of the 

provisions of the national agreements. 

The Postal Service believes its ability to 

produce such agreements is a “direct 

manifestation of the improving and 

maturing relationships” with postal 

labor organizations at the national 

level and the desire of all parties to 

achieve “harmonious relations” at all 

organizational levels.

Also indicative of a maturing relationship 

is an agreement with the NALC, signed 

in April 2003, to establish a joint task 

force to explore alternative delivery 

models that will successfully position 

the Postal Service as the premier 

provider of delivery services to every 

home and business in the nation. In 

FY 2003, the task force considered the 

impact of business and technological 

changes on delivery services and letter 

carriers and explored opportunities for 

change that will provide possibilities 

for greater revenue generation. The 

OIG’s September 2003 report to postal 

management regarding relationships 

with the unions recommended that a 

statement of common business interests, 

similar to that negotiated with the NALC, 

be negotiated with the National Postal 

Mail Handlers Union (NPMHU) and the 

National Rural Letter Carriers Association 

(NRLCA). Postal Service management 

agreed that this would add value to their 

mutual interests and that they would 

discuss it with the respective unions.

The Postal Service requires that 

each district maintain both a Threat 

Assessment Team and a Crisis 

Management Team to provide violence 

awareness and sexual and workplace 

harassment training, according to policy. 

In addition, the Workplace Environment 

Improvement Advisory Committee 

established new, objective criteria to 

identify troubled worksites and track the 

progress of actions for remediation. 

Although management and unions 

continue to improve their working 

relationships, some nagging issues 

remain. For example, the reduction in 

the total number of grievances filed in FY 

2003 and the total number of grievances 

in the backlog should have a positive 

impact on the costs associated with 

grievances and arbitrations. However, the 

Postal Service does not maintain data 

on all such costs, as the Postal Service 

contends it would be cost prohibitive to 

track supervisor/manager work-hours. 

As a result, identifying areas for potential 

costs savings could be difficult. 

Even though all costs related to 

labor-management issues cannot be 

determined, the Postal Service and the 

OIG have estimated that about $300 

million per year is spent on these issues. 

For that reason, the OIG recommended, 

in September 2003, that the Postal 

Service maintain and identify costs. 

The Postal Service agreed to modify 

its Grievance and Arbitration Tracking 

System to capture more cost data. The 

OIG will follow-up on the Postal Service’s 

efforts in this area, as part of its work to 

determine the root causes of grievances. 

The OIG continues to receive allegations 

from postal employees and Congress 

about the existence of hostile work 

GOAL 3: ENHANCE PERFORMANCE BASED CULTURE
20 | October 1, 2003 - March 31, 2004

environments. The OIG has conducted 

inquiries into these allegations because of 

the potential for violence in the workplace. 

For example, from January 2003 

through February 2004, the OIG wrote 

approximately 20 responses to senators 

and congressional representatives 

related to allegations of hostile work 

environments. Constituents who were 

either former or current Postal Service 

employees made the allegations. The 

OIG substantiated that eight of the 20 

allegations had merit and, in some cases, 

the OIG recommended that climate 

assessments be undertaken. Postal 

Service management then worked with 

the employees, union representatives 

and the OIG to ensure the issues were 

resolved.

The OIG also partnered with the 

Workplace Environment Improvement 

office to provide Hotline information on a 

monthly basis to help managers identify 

locations that may need assistance in 

improving their workplace environment. 

According to the Postal Service, from 

FY 2002 to the end of FY 2003, the 

number of troubled worksites has been 

reduced from 39 to 14. Efforts to reduce 

the number of troubled worksites will 

continue into FY 2004. 

One recent investigation involving 

workplace environment concluded that 

the allegations against a Texas district 

manager for reprisal actions were 

unfounded; however, it was determined 

that the postmaster who made the 

initial allegations had himself engaged in 

improper management conduct. 

EMERGENCY PREPAREDNESS

The Postal Service has developed 

initiatives to ensure its readiness in the 

event of another emergency, such as 

the anthrax attacks of October 2001. 

The OIG found that the Postal Service 

is doing a good job of implementing its 

Biohazard Detection Systems, Ventilation 

and Filtration Systems and Irradiation of 

the Mail initiatives. The OIG is continuing 

to monitor these initiatives and is 

reviewing the Postal Service’s Emergency 

Preparedness Plan, Threat Assessment 

and Consequences Management 

Assessment. 

The Postal Service has also recently 

established the Office of Emergency 

Preparedness (OEP). One of the OEP’s 

responsibilities is to continue efforts 

to respond to Homeland Security 

presidential directives. The OEP is 

also in the process of implementing an 

Integrated Emergency Management 

Plan (IEMP). The goal is to have one 

plan that will address responses to 

all incidents/hazards. IEMP training is 

currently focused at the district and 

installation level—specifically, those 

sites receiving the Biohazard Detection 

System. The IEMP will be integrated 

into the Postal Emergency Management 

System (PEMS), which enables real time 

data entry, analysis and response to 

emergency incidences both natural and 

man-made. The OIG is preparing to audit 

the IEMP process, including the PEMS. 

The Postal Service realizes that 

emergency preparedness is constantly 

changing as new threats appear. With 

that in mind, it is continuing to evaluate 

new technologies for detection of 

other biohazards and toxins. These 

technologies could expand the Postal 

Service’s detection capabilities and 

reduce risk.

WORKFORCE PROFILE

In its report to Congress, the President’s 

Commission stated that the size of the 

Postal Service’s workforce determines 

the costs of the workforce. The 

Commission also stated the success of 

the Postal Service’s transformation will 

hinge on its ability to successfully deploy 

and motivate a talented, capable, and 

nimble workforce, of a size appropriate 

to the future postal needs of the nation. 

Essential to this process is the ability 

to determine the right size of the postal 

workforce and ensure appropriate 

flexibilities in its deployment. 

In its recommendations, the Commission 

stated that 47 percent of the current 
October 1, 2003 - March 31, 2004 | 21

career employees would be eligible 

for retirement by 2010, and the Postal 

Service should take advantage of this 

unique “attrition opportunity” to right-size 

and realign its workforce with minimal 

displacement.

The Postal Service has made a good start 

in reducing its workforce through attrition. 

One result has been the reduction of 

62,000 employees, since the beginning of 

FY 2002. In addition, the Postal Service’s 

complement planning efforts have 

improved with the establishment of field 

complement coordinators. The workforce 

reduction should continue as the Postal 

Service takes advantage of limited 

early retirement offers and less need for 

temporary, part-time workers, as career 

employees use technology to perform 

their work more efficiently. 

Also, the Postal Service has, or plans to 

deploy, complement planning tools that 

it believes will give managers the ability 

to plan, adjust and track complement, 

as well as project complement needs. 

These tools should also determine the 

right people and skills necessary to adjust 

to current mail volumes and the changing 

environment.

The Postal Service is still constrained, 

however, by labor agreements that can 

create inflexible work arrangements. The 

President’s Commission recognized that 

inflexible work arrangements “clutter the 

path” to a fundamental overhaul of the 

Postal Service. The Commission is on 

target in that the Postal Service needs 

the ability to deploy workers, in the most 

efficient manner possible, and needs to 

create a culture of excellence to ensure 

a successful transformation. Additionally, 

the Commission correctly notes that in 

future collective bargaining agreements 

it is critical for postal management 

to include the necessary flexibility to 

manage the size and deployment of the 

Postal Service workforce. 

DIVERSITY DEVELOPMENT

Overall, the Postal Service’s workforce 

profile generally matches the civilian labor 

force. For the fourth straight year, Fortune

magazine recognized the Postal Service 

as a leader in diversity, naming it one of 

the “50 Best Companies for Minorities.” 

The Postal Service’s Diversity 

Development Office was established 

to build a motivated, productive and 

inclusive workforce. This office focuses 

on diversity in workforce management, 

promotions, developmental activities and 

succession planning. 

Realizing the challenges the Postal 

Service faces, as identified in the April 

2002 Transformation Plan, the Postal 

Service’s Diversity Development Office 

has four key initiatives to help it achieve its 

mission and be responsive to the diverse 

needs of its customers and employees:

■ Ensure representation of all groups

at all levels.

■ Achieve a harassment-and 

discrimination-free environment.

■ Enhance workforce management.

■ Strengthen customer and community 

relations.

In September 2002, the OIG reported 

that the Postal Service had established a 

corporate succession planning process for 

filling vacant PCES positions, and that the 

process included many features the OIG 

identified as best practices for successful 

organizations. The OIG also found the 

Postal Service had implemented diversity 

programs into the corporate succession 

planning process, resulting in a slight 

increase of some FY 2001 diversity statistics 

and little to no change in others. In addition, 

the OIG found that Postal Service women 

and minority representation, at the PCES 

level, could be improved when compared

to the civilian labor workforce.

VOICE OF THE EMPLOYEE

The Postal Service has stated the two 

critical factors that enable Postal Service 

employees to achieve organizational 

goals are a safe and fair workplace. The 

two measurements used to determine 

its accomplishments in this area are the 

GOAL 3: ENHANCE PERFORMANCE-BASED CULTURE
22 | October 1, 2003 - March 31, 2004

Voice of the Employee (VOE) Survey, 

and the Occupational Safety and Health 

Administration (OSHA) Illness and Injury 

rates.

The VOE survey is intended to build 

upon the insights and suggestions of 

the people closest to the work—the 

employees. The survey captures overall 

employee attitudes based on employee 

responses to questions related to six 

key workplace issues—performance 

recognition, accountability, exclusion, 

sexual harassment, being treated with 

dignity and respect, and workplace 

communication. Employee participation in 

the survey is voluntary and anonymous, 

and an independent contractor handles 

the entire survey process. 

In FY 2003, the VOE survey scores 

were included as part of the Postal 

Service’s pay-for-performance system. 

The scores were used to determine 

area vice president and district manager 

achievements that help improve 

workplace relationships. Areas and 

districts are required to improve their VOE 

scores from year to year.

OCCUPATIONAL SAFETY AND 

HEALTH ADMINISTRATION 

SAFETY REPORTING

The key measure used to determine 

the safety and security of employees, 

customers, and Postal Service facilities 

is the OSHA Injury and Illness rates. 

The Postal Service became subject to 

the reporting requirements of OSHA, as 

a result of the Postal Employee Safety 

Enhancement Act, in 1988.

OSHA defines an injury or illness as an 

abnormal condition or disorder including, 

but not limited to, cuts, fractures, sprains 

or amputations. Illnesses include both 

acute and chronic illnesses such as, but 

not limited to, skin diseases, respiratory 

disorders or poisoning. The Postal 

Service measures the OSHA Injury and 

Illness rates annually to ensure that 

employees and customers are provided a 

safe and secure environment. 
October 1, 2003 - March 31, 2004 | 23

To increase revenue, the Postal Service 

must enhance core services and provide 

greater value to its customers. To do 

this, the Postal Service must develop 

and implement new features and other 

relevant product enhancements to its 

core mail and mail-related services; and 

must seek new revenue sources from 

innovative applications of new technology 

or by leveraging its sizeable infrastructure. 

Working within the current structure, the 

Postal Service’s basic approach to revenue 

generation begins with continued service 

improvement while providing rate stability 

and the lowest prices possible. At the 

same time, the Postal Service will increase 

the value of the mail by enhancing its 

products and services.

Most of this strategic goal falls to the 

marketing function within the Postal 

Service. Over the past several years, this 

area has undergone many changes as it 

responded to the Postal Service’s need to 

grow revenue. While some of its initiatives 

have been successful, many have not. 

For example, many of the eBusiness 

initiatives have ended and international 

mail volume has been declining. Over the 

coming year, the OIG’s new marketing 

team will focus on helping the Postal 

Service successfully grow revenue. 

The team will review new product 

development, innovative pricing options, 

sales force operations and effectiveness, 

advertising programs and efforts to 

enhance the usefulness, accessibility and 

awareness of core products. 

As part of the strategic alliance, the OIG 

and the Postal Inspection Service will 

work together to assist the Postal Service 

in growing and protecting revenue, in 

order to cover its costs and adhere to its 

mandate of providing universal service. 

DEVELOP INNOVATIVE PRICING

The Postal Service views pricing 

flexibility as a critical tool for survival in a 

competitive market and a key to future 

modernization. Pricing innovation is 

key to its efforts to maintain stable and 

affordable rates. One pricing change 

underway is the Negotiated Service 

Agreement (NSA) with a financial 

institution.

An NSA is a contractual agreement 

between the Postal Service and a 

customer that provides pricing incentives, 

in exchange for a shift in behavior by the 

customer that benefits the Postal Service. 

In many cases the changes in behavior 

will create a substantial increase in FirstClass or Standard Mail volume. 

The President’s Commission cited NSAs 

as one of the most promising new areas 

of exploration for the Postal Service. 

These agreements could benefit the 

Postal Service by fostering overall cost 

efficiency and revenue growth. As such, 

the Commission believes NSAs are 

entirely appropriate, given the Postal 

Service’s mandate to operate like a 

business. 

The Postal Service is evaluating pricing 

improvements to better meet customer 

needs. Pricing initiatives like NSAs, as well 

as other innovative pricing methods, will 

allow the Postal Service to move gradually 

away from cost-based pricing to valuebased pricing.

The OIG is reviewing the NSA with a 

financial institution to outline the process 

involved in developing, approving, and 

implementing the NSA.

The OIG is also reviewing the Postal 

Service’s International Customized Mail 

Agreements to determine whether these 

agreements are profitable and adequately 

managed. These agreements are 

contracts between the Postal Service and 

a mailer that agrees to meet a prescribed 

annual minimum revenue or volume 

requirement, in return for reduced rates.

GOAL 4: GROW REVENUE
24 | October 1, 2003 - March 31, 2004

PROVIDE CONVENIENT ACCESS 

TO PRODUCTS AND SERVICES 

AND IMPROVE EASE OF USE

Making Postal Service products that are 

convenient, accessible, and easy-to-use 

maintains customer loyalty and directly 

impacts revenue. The Postal Service 

partners with commercial businesses 

to make its products and services more 

convenient to customers. This promotes 

accessibility and improves ease of use.

Over the next several years, the Postal 

Service plans to improve its retail 

operations by developing lower-cost 

alternatives that provide similar or easier 

access to its household segment. For 

example, Automated Postal Centers 

(APCs) are designed to provide easy, 

self-service access to postal products 

while reducing the amount of retail labor. 

Almost any product or service that can 

be purchased at the retail counter will 

be available by using the APC, including 

mailing packages. 

A review of the existing prototype APC 

noted that it met the Postal Service’s 

objectives to provide customers with 

convenient access; reduce customer 

waiting time in line; reduce the cost of 

selling postal products and provide easier 

customer access to premium products. 

Feedback from the market testing, 

performed by three different contractors, 

indicated positive response from postal 

customers. 

The Postal Service also leverages 

technology by offering easy access to 

postal information and products through 

its award-winning website, 

www.usps.com. Customers can use this 

website to track mail, look up ZIP Codes 

and purchase stamps 24 hours-a-day, 

7 days-a-week.

ENHANCE PRODUCT 

AWARENESS 

As the Postal Service strives to 

grow revenue, it cannot assume 

that customers are aware of all of its 

products and services. Therefore, new 

advertising and promotional material 

have been developed to help customers 

take full advantage of postal products 

and services. The Postal Service has 

redesigned portions of the 

Domestic Mail Manual to 

make it easier for households 

and small businesses to 

understand the postal rules 

and mailing requirements of 

the eBusiness Service used by 

these groups. The Business 

Service Network provides 

business mailers a local point 

of contact for resolving local 

concerns. 

The Postal Service also 

sponsors many customer 

forums to foster open 

communication. These forums 

include Postal Customer 

Councils, at the local 

level, for local issues; The 

Mailers’ Technical Advisory 

Committee that studies 

issues at the national level 

with major mailers; and the 

National Postal Forum, a 

Automated Postal Centers (APCs) are designed to provide 

easy, self-service access to postal products while reducing the 

amount of retail labor.
October 1, 2003 - March 31, 2004 | 25

mailing community conference that 

offers working sessions on postal issues 

and vendor exhibits on new products, 

technology and systems.

The OIG has reviewed promotional 

programs such as the sponsorship 

program. As the Postal Service develops 

new advertising and awareness 

programs, the OIG will evaluate these 

programs to ensure that reasonable 

measures are in place to measure 

effectiveness and that the program is 

achieving its intended goal.

In addition to ensuring customers 

are aware of products and services, 

the Postal Service needs to ensure 

that employees are well-versed and 

consistent in applying postal rules. 

Mailers have raised concerns regarding 

inconsistency of the acceptance 

procedures of their mail at Bulk Mail Entry 

Units. 

One of the major concerns is the blurring 

of the line between First-Class and 

Standard Mail. Technology has made 

it affordable for advertisements to be 

personalized, thus approaching the limits 

of distinguishing advertising mail from 

First-Class Mail. As a result, some Postal 

Service employees will accept the mail 

as Standard Mail and some will reject 

mail because the mail appears to meet 

the requirements for First-Class Mail. The 

Mailers’ Technical Advisory Committee 

has formed a new work group to examine 

the Postal Service’s goal of providing 

consistent interpretation and application 

of mailing standards and business mail 

acceptance procedures. 

The OIG will review the acceptance 

process and the appeal procedure, to 

ensure consistency in accepting mail and 

the effectiveness of the appeal process. 

BUILDING A MORE EFFECTIVE 

SALES TEAM

The Postal Service will work to maximize 

sales of its products and maintain superior 

service by effectively using its greatest 

asset—its people. To provide more timely 

and relevant information to its customer 

base, the Postal Service is targeting 

customers based on their distinct needs, 

updating and standardizing sales material, 

developing customer-focused sales tools 

and redesigning all national advertising 

programs.

The Postal Service is developing business 

partnerships with other organizations in 

order to sell postal products and services 

internationally. It is also training its postal 

sales force to work with the sales staffs 

from foreign postal administrations to sell 

postal products and services. 

The Postal Service is implementing Sales 

Support Solution, a new sales information 

system. The new system will greatly enhance 

sales effectiveness in evaluating additional 

revenue opportunities and identifying levels of 

service provided to the customer.

According to the November 2003 

Transformation Plan Progress Report,

the Postal Service improved its marketing 

effectiveness by targeting its marketing 

programs against key mailing segments. 

Postal Service sales initiatives now focus 

on the highest growth opportunities, while 

the Business Service Network provides 

high levels of customer service. 

Alignment of sales and service activities 

will lead to higher sales productivity, an 

improved ability to meet customer needs 

and the development of better ways to 

help postal customers use the mail as a 

tool to meet their business objectives.

The OIG will review the strategy and 

planning of the new sales force structure 

to assure it is properly aligned and 

adequately staffed with well-trained 

and experienced sales personnel, to 

market and sell its products and services 

profitably.

GOAL 4: GROW REVENUE
26 | October 1, 2003 - March 31, 2004

DEVELOP VALUE 

ENHANCEMENTS BY APPLYING 

TECHNOLOGY TO CORE 

PRODUCTS AND SERVICES

Information is a valuable commodity in 

the business world. The right information 

can mean the difference between being 

profitable or showing a loss. According 

to the November 2003 Transformation 

Plan Progress Report, the Postal Service 

is competing in an environment where 

information about the mail is valued as 

much as the mail itself. 

As a result, the Postal Service has 

embarked on Intelligent Mail initiatives 

that will provide customers with a 

wealth of information on individual mail 

pieces. By using unique identifier codes, 

information about individual mail pieces 

can be tracked and provided to users to 

improve business decision-making.

CONFIRM is an example of a postal 

product that uses unique identifier codes. 

Mailers who subscribe to CONFIRM can 

receive information electronically to track 

their outgoing mailings or incoming reply 

mail to enhance customer service. An

FY 2002 review of CONFIRM disclosed 

that 91 percent of users found the service 

useful for their business. 

The OIG will continue to monitor new 

systems from development to final 

deployment to ensure that the Postal 

Service is receiving a reasonable return 

on investment and that the system is 

providing the benefit intended.

MAINTAIN TRUST 

The Postal Service’s Five-Year Strategic 

Plan FY 2004-2008 states: 

“The value of mail is increased by the 

trust that most Americans have in the 

Postal Service. The Postal Service is 

improving long-standing policies that will 

preserve the privacy and security of the 

information customers and others provide 

and that the Postal Service uses in the 

course of its operations.”

The OIG contributes to building and 

maintaining the public’s trust in the Postal 

Service. Through independent audits 

and investigations of fraud, waste and 

misconduct within postal operations, the 

OIG assures the public that the Postal 

Service is operated in an efficient and 

effective manner. The OIG, through its 

financial audits, provides assurance 

that the financial statements presented 

to the public fairly represent the 

financial position of the Postal Service. 

By providing oversight of the Postal 

Inspection Service, the OIG helps ensure 

that integrity and confidence in the Postal 

Inspection Service are preserved. 

To maintain the integrity of the mail and 

ensure the confidence and trust that 

government agencies, businesses and 

customers place in the Postal Service, 

the Postal Inspection Service conducts 

investigations to reduce and deter 

criminal attacks on the mail, employees, 

customers and property. Through its 

security and law enforcement functions, 

the Postal Inspection Service also works 

with other law enforcement agencies 

to reduce the use of the mail for such 

crimes as consumer or business fraud 

and identity theft. 

During this reporting period, efforts to 

protect postal products, services, assets 

and people have resulted in: the removal 

of a Postal Service electronic technician, 

in South Dakota, for downloading and 

using unauthorized password decrypting 

software on a Postal Service server; 

payment of $3,000 in restitution by a 

Maryland postal employee who used 

an IMPAC card for personal gain; and 

the incarceration of a California woman 

for perjury associated with her filing a 

fraudulent $1 million automobile accident 

lawsuit against the Postal Service.
October 1, 2003 - March 31, 2004 | 27

It has been more than a generation since 

Congress passed major postal reform 

legislation, the Postal Reorganization 

Act of 1970, which created the presentday Postal Service. The reforms were 

intended to de-politicize the Post 

Office Department, inject greater 

professionalism into postal operations 

and give the Postal Service a mandate

to operate like a business.

Since then, there has been a revolution 

in how the public exchanges information. 

The movement of communication from 

hard copy to electronic form, dubbed 

“electronic diversion,” has led to a 

decline in First-Class Mail revenues. This, 

coupled with the growth in new deliveries, 

is a serious threat to the Postal Service’s 

financial stability. A growing number of 

members of Congress and the mailing 

community have stated that the postal 

business model is broken and argue 

that the handwriting is on the wall—if 

Congress does not act soon, the Postal 

Service is headed for economic disaster. 

Believing that “the day of reckoning” is 

upon us, in recent years several members 

of Congress have drafted and introduced 

postal reform bills. The legislation 

advanced approaches to modernizing 

the Postal Service to meet the needs of 

a changing society. The efforts of these 

concerned members were not widely 

supported by their colleagues, and the 

legislation eventually died.

In December 2002, the President 

established the Commission on the Postal 

Service. From January 2003 through 

July 2003, the Commission solicited 

comments from postal stakeholders. 

The Commission received many 

comments and suggestions including 

maintaining but also redefining universal 

service, improving productivity, more 

pricing flexibility, modifying the collective 

bargaining process, ensuring the financial 

transparency of the Postal Service, and 

providing management with greater 

flexibility. Notable exceptions were four 

postal unions’ disagreement with the 

Commission’s collective bargaining 

process recommendations.The 

Commission’s report, issued on July 31, 

2003, emphasized the need for postal 

reform on a much larger scale. 

Acknowledging the President’s call to 

make postal reform a top priority for the 

108th Congress, the House Committee 

on Government Reform and the Senate 

Committee on Governmental Affairs 

each held a series of hearings. At these 

hearings, the committees explored 

the Commission’s recommendations 

and their own proposals. Members 

of Congress heard testimony from 

individuals representing customers, 

postal employees, postal management, 

competitors, the GAO, the administration, 

the Postal Rate Commission and postalreliant businesses. While comprehensive 

postal reform remains crucial, an 

emergent theme was the necessity 

to deal with two critical issues: the 

funding requirement for the Civil Service 

Retirement System escrow account and 

the military retirement benefits of postal 

employees.

CIVIL SERVICE RETIREMENT 

SYSTEM (CSRS) ESCROW 

ACCOUNT

When Congress became aware that the 

Postal Service was on course to overfund its CSRS pension costs, Congress 

passed Public Law 108-18, which 

reformed the way the Postal Service 

funded its CSRS pension obligations. 

Prior to passage of the Law, it was 

estimated that the Postal Service would 

overpay the fund by $105 billion over the 

life of CSRS primarily due to higher than 

expected interest earnings. However, 

this Law charged/transferred $27 billion 

to the Postal Service to cover military 

service benefit costs, not included in 

prior legislation, which reduced the 

GOAL 5: PURSUE LEGISLATIVE CHANGE
28 | October 1, 2003 - March 31, 2004

overpayment to $78 billion over the life

of CSRS. 

Public Law 108-18 also provided that 

the “cost savings”—the difference 

between what would have been paid, 

if the law had not been enacted and 

the contributions made under the new 

legislation—be used to maintain current 

postage rates through FY 2005 and 

reduce outstanding debt in FY 2003 and 

2004. 

After FY 2005, the Postal Service is 

required to place the amount of “cost 

savings” into a separate escrow account 

that it cannot use—even for maintaining 

current postage rates or minimizing 

increases in rates—until otherwise 

provided by law. The Postal Service has 

proposed using these savings to fund 

retiree health benefits or to stabilize 

postage rates. 

The Postal Service should be allowed to 

use savings created by the reduction in 

contributions to the CSRS fund to run its 

operations, as it does with Postal Service 

revenue. The monies generated from 

Postal Service revenues should not be 

subject to outside control, since these 

revenues are essentially “other people’s 

money,” not tax dollars, and should be 

subject to normal usage for operations 

and capital investment. Under its 

mandate to provide universal mail service, 

the Postal Service should be allowed to 

operate in a business-like manner and be 

able to decide whether and how these 

funds should be spent. 

MILITARY RETIREMENT 

The legislative fix also required a 

change in funding pension benefits by 

making the Postal Service responsible 

for funding the value of CSRS benefits 

attributable to military service of its 

employees. This legislation effectively 

transferred $27 billion in military service 

pension costs from the Department of 

Treasury (taxpayers) to the Postal Service 

(ratepayers). 

The OIG believes that taxpayers 

should pay the costs for military 

service benefits—not Postal Service 

customers—and the liability, therefore, 

should be transferred back to Treasury. 

It is not appropriate for Postal Service 

customers to pay, through postage, for 

these costs when military service protects 

all Americans. As such, all taxpayers have 

a responsibility to bear the costs of a 

common defense through tax dollars. The 

use of stamps to pay defense costs is, in 

essence, a “hidden tax” on Postal Service 

customers. The Postal Service would 

also be the only federal agency, that is 

required to assume the burden of paying 

this cost.

BASIC POSTAL REFORM 

LEGISLATION

When Congress addresses postal reform 

legislation, the reforms described below 

could be undertaken, in addition to the 

funding issues discussed above, provided 

they are not enacted in free-standing 

legislation.

Workers’ Compensation Reform. The 

Postal Service has a significant workers’ 

compensation liability. In both FY 2002 

and FY 2003, the Postal Service incurred 

approximately $1.5 billion in workers’ 

compensation expenses. Given the 

Postal Service’s current $7.2 billion liability 

for workers’ compensation, there is an 

urgent need to reconsider the Postal 

Service’s obligations under the Federal 

Employees Compensation Act (FECA).

The President’s Commission 

recommended that the Postal Service 

be relieved from FECA so that totally 

disabled employees could be transitioned 

to a regular retirement program which has 

been found to be less costly to the Postal 

Service. Specifically, the Postal Service 

should be allowed to transition individuals 

receiving workers’ compensation to 

the Postal Service’s retirement plan, 

at such time as the employee would 

have become eligible for retirement 

notwithstanding the injury giving rise to 
October 1, 2003 - March 31, 2004 | 29

the workers’ compensation benefi ts. 

The Postal Service must be empowered 

to deal with its workers’ compensation 

costs, in a manner that preserves 

reasonable benefi ts for injured workers, 

while not saddling it with unreasonable 

costs. Reducing these costs can have 

a major impact on improving the overall 

cost of postal operations. 

Seeking to identify root causes for 

accelerating costs, while the number of 

new injury claims decreases, an Injury 

Compensation Working Group was 

created with a staff representing the 

Health Care Fraud Group, Computer 

Assisted Assessment Team (CAATs), 

Audit, Postal Inspection Service, Health 

and Resource Management and our 

stakeholders to work collaboratively to 

identify, address and control increasing 

costs associated with the workers’ 

compensation program. 

Initiatives have been implemented to 

address concerns of provider and 

claimant fraud, systemic issues related 

to the OWCP fee schedule and bill 

payment system known as Affi liated 

Computer Services, and enhancing the 

Postal Service’s operational effi ciency, 

all of which present consequences 

for protecting postal revenue. A 

consolidation of fi ndings will be prepared 

to support legislative change and 

operational effectiveness.

New Rate-Setting Procedures. The 

President’s Commission recommended 

replacing the existing rate-setting process 

with an incentive-based system featuring 

upper and lower price limits in which 

the Postal Service would be free to set 

rates based on business decisions. The 

Postmaster General and the Chairman 

of the Board of Governors testifi ed that a 

well-constructed price cap would include 

an index for fuel and network expansion, 

the actual growth in statutory benefi ts 

and employment costs. It is essential 

that the Postal Service has the fl exibility 

to set rates that meet the needs of its 

customers and hold up to the challenge of 

its competitors. Rate-setting procedures 

should be streamlined and considerably 

shortened, to occur in far less time than 

the current average time-frame.

Design Smaller, Stronger Postal 

Network. The President’s Commission 

recommended creating a Postal 

Network Optimization Commission 

(P-NOC), similar to the Defense Base 

Closure and Realignment Commission, 

which would make recommendations 

regarding the consolidation and 

rationalization of the Postal Service mail 

processing and distribution infrastructure. 

Recommendations of the P-NOC, once 

submitted to Congress by the President, 

would become fi nal, unless Congress 

disapproves them in a reasonable period 

of time. 

In addition, repealing existing statutes 

limiting the Postal Service’s ability to 

close low-activity post offi ces, as the 

President’s Commission recommended, 

would give the Postal Service needed 

fl exibility to manage its facilities like 

private sector businesses. The Postal 

Service must balance its mandate of 

providing universal mail service with 

carefully managing its costs.

It has been more than a generation since Congress 

passed major postal reform legislation.

GOAL 5: PURSUE LEFISLATIVE CHANGE
Deputy AIG 

Operations & 

Human Capital

Inspector

 General

Deputy Inspector 

General

Information

Technology

Special 

Projects

Washington 

Field Offi ce

Deputy AIG

Investigations East

Strategic 

Enforcement

Technical Crimes 

Unit

Miami

Field Offi ce

Boston

Field Offi ce

New York 

Field Offi ce

Philadelphia 

Field Offi ce

Chicago 

Field Offi ce

Deputy AIG

Investigations 

West

Special Inquiries

Investigative 

Operations

Dallas

Field Offi ce

Denver 

Field Offi ce

Los Angeles 

Field Offi ce

St. Louis 

Field Offi ce

Deputy General 

Counsel

Legal Services

Congressional, 

FOIA & Hotline

Audit Operations

Deputy AIG 

Technology, 

Marketing 

& Oversight

AIG Audit

Deputy AIG 

Financial 

Management

Financial

Statements

Field Operations

Supply

Management & 

Facilities

Network 

Operations–

Processing

Network 

Operations–

Logistics

Human Capital

Delivery & Retail

Inspection Service 

Oversight

Engineering

Marketing

Information 

Systems

Strategy & 

Performance

30 | October 1, 2003 - March 31, 2004

USPS OFFICE OF INSPECTOR GENERAL

ORGANIZATION CHART

Deputy AIG

Mission Support

Human Resources

Administrative 

Services

Investments

Performance

AIG Investigations AIG Legal

Services

AIG

Mission

Support
October 1, 2003 - March 31, 2004 | 31

The OIG currently has more than 700 employees located in 10 field offices as well as other 

locations nationwide. 

USPS OFFICE OF INSPECTOR GENERAL

OFFICE LOCATIONS

Seattle, WA
32 | October 1, 2003 - March 31, 2004

The Inspector General Act of 1978 requires semiannual reports on the immediately-preceding six-month periods ending March 31 and September 30. These 

reports are sent to Congress and made 

available to the public.

This report summarizes OIG activities and 

illustrates significant problems, misconducts 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 to recommendations or proposed alternative corrective 

actions that, if implemented, could result 

in over $277 million in savings.

The appendices on the following pages 

fulfill the requirements of the Act.

APPENDICES

APPENDIX A

OVERVIEW

For the period of October 1, 2003, through March 31, 2004

OFFICE OF INSPECTOR GENERAL

OIG audit teams conduct performance and financial audits, evaluations and other reviews to address the business of the Postal Service. Each team issues audit reports (AR) or management 

advisory reports (MA) in accordance with the identified needs of the project.

QUANTIFIABLE POTENTIAL MONETARY BENEFITS

For the period of October 1, 2003, through March 31, 2004

Number Recommend

Principal of Reports Questioned Unsupported Funds Put Unrecoverable Revenue

Area Issued Costs Costs To Better Use Costs Impact

Manage Costs 189 $197,232,283 $513,055 $78,706,060 $1,256,827 $264,374

Enhance Performance-based Culture 9 $0 $0 $0 $0 $0

Pursue Legislative Change 1 $0 $0 $0 $0 $0

TOTAL 199 $197,232,283 $513,055 $78,706,060 $1,256,827 $264,374
October 1, 2003 - March 31, 2004 | 33

REPORTS WITH QUANTIFIABLE POTENTIAL MONETARY BENEFITS

Report Title Questioned

Costs

Unsupported

Costs

Recommend

Funds Put

To Better Use

Unrecoverable

Costs Revenue Impact

MANAGE COSTS

 Supply Management and Facilities

Audit of Amended Cost Data Relating to 

a Certified Price Adjustment Claim Submitted by Evergreen Aviation Ground 

Logistics Enterprise Incorporated

CA-CAR-04-003; 01/07/2004 $5,394,970 — — — —

Audit of Billed Costs Submitted by Shaw 

Environmental and Infrastructure, Inc. 

Under Contract Number GS-10F-0048J, 

Delivery Order 483083-02-N-0099

CA-CAR-04-004; 01/13/2004 $15,086,078 — — — —

Audit of Claimed Operating and Tax 

Costs Submitted by Jones Lang LaSalle 

Americas, Incorporated for the Postal 

Service’s Lease of the Redwood City 

Postal Facility

CA-CAR-04-005; 01/28/2004 $7,337 — — — —

Audit of Firm Fixed Price Proposal 

Submitted by Northrop Grumman Corporation, Automation and Information 

Systems, Under Solicitation Number 

3AAERD-03-A-1467

CA-CAR-04-009; 02/27/2004 $6,000,332 — — — —

Audit of Firm Fixed Price Proposals 

submitted by Siemens Dematic Material Handling Automation Division for 

the Automatic Tray Handling System 

Under Solicitation Number 3AAERD03A-1778

CA-CAR-04-006; 02/17/2004 $11,997,263 $500,000 — — —

Audit of Firm Fixed Price Proposal Submitted by Siemens Dematic Postal Automation L.P. as a Modification to Contract 

Number 512593-00-Z-2804

CA-CAR-04-011; 03/16/2004

$137,349 — — — —

Audit of Proposal Submitted by Siemens 

Dematic Postal Automation L.P. for the 

Multi-Line Replacement Program

IR-CAR-04-001; 10/16/2003

$136,507,655 — — — —

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.

UNRECOVERABLE COSTS

A cost that perhaps should not 

have been incurred and is not 

recoverable.

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 generating revenue 

from new sources. 

APPENDIX 

A
34 | October 1, 2003 - March 31, 2004

Report Title Questioned

Costs

Unsupported

Costs

Recommend

Funds Put

To Better Use

Unrecoverable

Costs Revenue Impact

Audit of Proposal Submitted by Siemens 

Dematic Postal Automation L.P. for the 

Ventilation and Filtration System

CA-CAR-04-001; 10/31/2003

$18,675,493 — — — —

Audit of Termination for Convenience 

Proposal Submitted by Corporate Air 

Under Contract Number AMOT 2203-

02 and AMOT 2003-03

CA-CAR-04-010; 03/16/2004

$277,085 — — — —

 Financial Statements

Fiscal Year 2003 Postal Service Financial 

Statements Audit - Eagan Information Technology and Accounting Service Center

FT-AR-04-010; 02/26/2004 $180,209 — — — —

Fiscal Year 2003 Postal Service Financial 

Statements Audit - San Mateo Information 

Technology and Accounting Service Center

FT-AR-04-008; 02/24/2004 $558,074 — — — —

Terminated Contract Stations

FT-MA-04-002; 02/11/2004 $67,341 — — — —

 Fiscal Year 2003 Financial Installation Audits

Concord Main Post Office

FF-AR-04-008; 10/31/2003 $13,055 $13,055 — — $8,400

Dallas Main Post Office

FF-AR-04-012; 11/26/2003 — — $2,148 — —

 Fiscal Year 2004 Financial Installation Audits 

Aurora Self-Service Postal Center

FF-AR-04-039; 02/04/2004 — — — $8,389 —

Cards n’ Such Contract Postal Unit

FF-AR-04-070; 02/24/2004 — — — — $458

City of Industry Business Mail Entry Unit

FF-AR-04-082; 03/03/2004 — — — — $8,387

Colorado Springs Business Mail Entry Unit 

FF-AR-04-058; 02/19/2004 — — — — $2,365

East Lansing Business Mail Entry Unit

FF-AR-04-061; 02/19/2004 — — — — $3,762

Eatonton Business Mail Entry Unit

FF-AR-04-021; 01/08/2004 — — — — $376

Fern Hill Contract Postal Unit

FF-AR-04-104; 03/30/2004 — — — — $1,876

Hampton Village Contract Postal Unit

FF-AR-04-089; 03/09/2004 — — — — $755

Martinsville Business Mail Entry Unit

FF-AR-04-105; 03/30/2004 — — — — $555

Plaquemine Post Office

FF-AR-04-107; 03/31/2004 — — — — $46,166

South Bend Business Mail Entry Unit

FF-AR-04-030; 01/27/2004 — — — — $1,150

Wacker Drive Station

FF-AR-04-018; 01/05/2004 — — — — $4,513

 Fiscal Year 2003 Financial Related Audits

Stamp Accountability and Controls Related 

to Minnesota Diversified Industries, Inc. 

FF-AR-04-015; 12/26/2003 — — — $370,976 —

 Fiscal Year 2004 Financial Related Audits

Potential Improper and Erroneous Payments

FT-AR-04-001; 12/01/2003 $2,014,030 — $119,103 — —
October 1, 2003 - March 31, 2004 | 35

 Network Operations - Logistics

Highway Network Scheduling - Great Lakes 

Area

NL-AR-04-003; 03/29/2004 — — $5,352,877 — —

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 $877,462 —

 Network Operations - Processing

Efficiency of Work Performed by Clerks in 

the Columbia, Maryland, Business Mail Entry 

Unit

NO-AR-04-002; 12/26/2003 — — $ 1,388,363 — —

Efficiency of Work Performed by Clerks in the 

Southern Maryland Business Mail Entry Unit

NO-AR-04-001; 12/24/2003 — — $8,398,222 — —

Efficiency of the Oakland International 

Service Facility and the Regatta Facility

NO-AR-04-007; 03/31/2004 — — $17,013,959 — —

Efficiency of the San Francisco International 

Service Center and the General Services

Administration Facility

NO-AR-04-006; 03/31/2004 — — $44,261,283 — —

Efficiency of Work Performed by Clerks in the 

Springfield, Virginia Business Mail Entry Unit

NO-AR-04-004; 02/09/2004 — — $969,893 — —

Express Mail Processing in the Los Angeles 

District 

NO-MA-04-001; 01/13/2004 — — — — $185,611

Military Mail Issues During Operation Iraqi 

Freedom

NO-AR-04-003; 12/30/2003 $316,012 — — — —

APPENDIX 

A
36 | October 1, 2003 - March 31, 2004

REPORT LISTING

The following list of reports is grouped first by Postal Service strategic management goals, second by category of review and year, if applicable,

and then alphabetically by title.

For the period of October 1, 2003, through March 31, 2004.

 MANAGE COSTS

 SUPPLY MANAGEMENT AND FACILITIES

 FINANCIAL STATEMENTS

 FISCAL YEAR 2003 FINANCIAL INSTALLATION AUDITS

FISCAL YEAR 2004 FINANCIAL INSTALLATION AUDITS 

Burnsville Byerly’s Foods Contract Postal Unit

FF-AR-04-001; 10/21/2003

Chicago Business Mail Entry Unit 

FF-AR-04-011; 10/31/2003

Concord Main Post Office 

FF-AR-04-008; 10/31/2003

Dallas Main Post Office 

FF-AR-04-012; 11/26/2003

Hopkins Byerly’s Foods Contract Postal Unit 

FF-AR-04-003; 10/21/2003

Hopkins Post Office 

FF-AR-04-007; 10/21/2003

James C. Brown Jr. Facility

Post Office; 

FF-AR-04-004; 10/15/2003

Longworth Post Office Window

Operations;

FF-AR-04-063; 02/23/2004

Minneapolis Main Post Office

FF-AR-04-005; 10/24/2003

Roseville Post Office 

FF-AR-04-006; 10/21/2003

St. Louis Main Office Finance Unit 

FF-AR-04-010; 10/31/2003

San Antonio General Mail Facility 

Window Unit; 

FF-AR-04-009; 10/24/2003

San Bernardino Processing and 

Distribution Center Window Service Unit;

FF-AR-04-002; 10/14/2003

Audit of Amended Cost Data Relating to a

Certified Price Adjustment Claim Submitted by 

Evergreen Aviation Ground Logistics

Enterprise Incorporated; 

CA-CAR-04-003; 01/07/2004

Audit of Billed Costs Submitted by Shaw

Environmental and Infrastructure, Inc.;

Under Contract Number GS-10F-0048J,

Delivery Order 483083-02-N-0099 

CA-CAR-04-004; 01/13/2004

Audit of Claimed Operating and Tax Costs 

Submitted by Jones Lang LaSalle Americas, 

Incorporated for the Postal Service’s Lease of 

the Redwood City Postal Facility;

CA-CAR-04-005; 01/28/2004

Audit of Firm Fixed Price Proposal Submitted 

by New York City Industries for the Blind Inc. 

CA-CAR-04-008; 02/26/2004

Audit of Firm Fixed Price Proposal Submitted 

by Northrop Grumman Corporation,

Automation and Information Systems;

Under Solicitation Number

3AAERD-03-A-1467

CA-CAR-04-009; 02/27/2004

Audit of Firm Fixed Price Proposal Submitted 

by Siemens Dematic Material Handling

Automation Division for the Automatic Tray 

Handling System Under Solicitation Number; 

3AAERD-03A-1778 

CA-CAR-04-006; 02/17/2004

Audit of Firm-Fixed Price Proposal Submitted 

by Siemens Dematic Postal Automation 

L.P. as a Modification to Contract Number 

512593-00-Z-2804; 

CA-CAR-04-011; 03/16/2004

Audit of Fiscal Years 2004 through 2008 

Forward Pricing Rate Proposal Submitted by 

Siemens Dematic Postal Automation L.P. 

CA-CAR-04-002; 11/19/2003

Audit of Proposed Rates Submitted by

Lockwood Greene as part of 

IDIQ Proposal;

CA-CAR-04-012; 03/31/2004

Audit of Proposal Submitted by Siemens 

Dematic Postal Automation L.P. for the

Multi-Line Replacement Program; 

IR-CAR-04-001; 10/16/2003

Audit of Proposal Submitted by Siemens 

Dematic Postal Automation L.P. for the

Ventilation and Filtration System; 

CA-CAR-04-001; 10/31/2003

Audit of Termination for Convenience Proposal 

Submitted by Corporate Air Under Contract 

Numbers AMOT2203-02 and

AMOT2003-03

CA-CAR-04-010, 03/16/2004

Audit of Termination for Convenience

Settlement Proposal Submitted by Specialized 

Technology Resources for the Stamp Adhesive 

Research and Development Contract; 

CA-CAR-04-007; 02/20/2004

Contract Management for the Curseen-Morris 

Facility Cleanup and Modification;

CA-MA-04-003; 03/31/2004

Contracting Authority 

CA-MA-04-001; 11/19/2003

Realty Asset Management Program 

CA-MA-04-002; 01/09/2004

Use of Reverse Auctions – Headquarters 

CA-AR-04-001; 02/26/2004

Agreed-upon Procedures Report for Federal

Agencies’ Centralized Trial Balance System

Verification, FT-AR-04-006; 01/29/2004

Agreed-upon Procedures Report for Federal 

Intragovernmental Transactions;

FT-AR-04-009; 02/23/2004

Collection of Advances to United States

International Air Carriers;

FT-MA-04-001; 01/29/2004

Fiscal Year 2003 Postal Service Financial

Statements Audit – Washington, D.C.,

Headquarters; FT-AR-04-005; 01/16/2004

Fiscal Year 2003 Postal Service Financial

Statements Audit – Eagan Information

Technology and Accounting Service Center 

FT-AR-04-010; 02/26/2004

Fiscal Year 2003 Financial Statements Audit –

St. Louis Information Technology and

Accounting Service Center; FT-AR-04-007; 

02/11/2004

Fiscal Year 2003 Postal Service Financial

Statements Audit - San Mateo Information

Technology and Accounting Service Center;

FT-AR-04-008; 02/24/2004

Internal Controls Over the Recording and

Reporting of Inbound Mail Volumes from 

Canada; FT-AR-04-002; 12/02/2003

Postal Service Board of Governors’ Travel

and Miscellaneous Expenses for Fiscal

Year 2003 FT-AR-04-004; 01/15/2004

Postal Service Officers’ Travel and

Representation Expenses for Fiscal

Year 2003; FT-AR-04-003; 01/15/2004

Terminated Contract Stations;

FT-MA-04-002; 02/11/2004
October 1, 2003 - March 31, 2004 | 37

 FISCAL YEAR 2004 FINANCIAL INSTALLATION AUDITS

Alameda Main Post Office

FF-AR-04-029; 02/02/2004

American Fork Business Mail Entry Unit 

FF-AR-04-040; 02/05/2004

Aurora Self-Service Postal Center 

FF-AR-04-039; 02/04/2004

Bensenville Business Mail Entry Unit 

FF-AR-04-067; 02/23/2004

Boiling Springs Post Office 

FF-AR-04-023; 01/14/2004

Breckenridge Post Office 

FF-AR-04-014; 12/26/2003

Cards n’ Such Contract Postal Unit

FF-AR-04-070; 02/24/2004

Centerpointe Mall Branch

FF-AR-04-048; 02/10/2004

Central Plaza Contract Postal Unit

FF-AR-04-076; 02/27/2004

City of Industry Business Mail Entry Unit

FF-AR-04-082; 03/03/2004

Cocoa Post Office

FF-AR-04-019; 01/06/2004

Colorado Springs Business Mail Entry Unit

FF-AR-04-058; 02/19/2004

Columbus Business Mail Entry Unit 

FF-AR-04-022; 01/12/2004

Deltona Boulevard Station 

FF-AR-04-013; 12/23/2003

East Hanover Business Mail Entry Unit 

FF-AR-04-043; 02/04/2004

Hayward Business Mail Entry Unit 

FF-AR-04-046; 02/10/2004

Highland Contract Postal Unit 

FF-AR-04-072; 02/25/2004

East Lansing Business Mail Entry Unit 

FF-AR-04-061; 02/19/2004

Eatonton Business Mail Entry Unit 

FF-AR-04-021; 01/08/2004

Fairview Post Office 

FF-AR-04-020; 01/05/2004

Fern Hill Contract Postal Unit

FF-AR-04-104; 03/30/2004

Fort Wayne Stamp Distribution Office 

FF-AR-04-068; 02/23/2004

Fredericksburg Business Mail Entry Unit

FF-AR-04-111; 03/31/2004

Ft. Lauderdale Self Service Postal Center

FF-AR-04-091; 03/11/2004

Ft. Myers Self-Service Postal Center

FF-AR-04-090; 03/10/2004

Glendale Business Mail Entry Unit 

FF-AR-04-037; 02/04/2004

Glenolden Post Office 

FF-AR-04-069; 02/23/2004

Goodspring Post Office 

FF-AR-04-102; 03/25/2004

Gordonsville Business Mail Entry Unit 

FF-AR-04-079; 03/02/2004

Greenville, SC Business Mail Entry Unit

FF-AR-04-075; 02/27/2004

Greenville, NC Business Mail Entry Unit

FF-AR-04-088; 03/08/2004

Hampton Village Contract Postal Unit

FF-AR-04-089; 03/09/2004

Hiram Post Office 

FF-AR-04-016; 12/26/2003

Hollow Rock Post Office

FF-AR-04-027; 01/16/2004

Itasca Business Mail Entry Unit

FF-AR-04-093; 03/15/2004

Jackson Westland Station 

FF-AR-04-054; 02/17/2004

Jefferson City Business Mail Entry Unit

FF-AR-04-051; 02/27/2004

Kennett Square Post Office

FF-AR-04-086; 03/04/2004

Kilmer Lobby Branch

FF-AR-04-024; 01/14/2004

Lewisville Business Mail Entry Unit

FF-AR-04-056; 02/17/2004

Liberty Business Mail Entry Unit 

FF-AR-04-055; 02/19/2004

Manasota Business Mail Entry Unit 

FF-AR-04-045; 02/09/2004

Martinsville Business Mail Entry Unit

FF-AR-04-105; 03/30/2004

McChord Air Force Base Post Office 

FF-AR-04-064; 02/23/2004

Meijer Contract Postal Unit

FF-AR-04-085; 03/03/2004

Mesa Business Mail Entry Unit 

FF-AR-04-025; 01/15/2004

Mesquite Post Office 

FF-AR-04-042; 02/05/2004

Mineola Business Mail Entry Unit

FF-AR-04-098; 03/16/2004

Montgomeryville Business Mail Entry Unit 

FF-AR-04-080; 03/03/2004

Mountain Lakes Business Mail Entry Unit 

FF-AR-04-059; 02/19/2004

Muncie Downtown Station 

FF-AR-04-077; 03/02/2004

Naples Business Mail Entry Unit 

FF-AR-04-034; 01/28/2004

New Brunswick Business Mail Entry Unit

FF-AR-04-103; 03/24/2004

Omaha Business Mail Entry Unit

FF-AR-04-071; 02/24/2004

Orange Business Mail Entry Unit

FF-AR-04-083; 03/03/2004

Paramus Main Office 

FF-AR-04-052; 02/17/2004

Peachtree Corners Station 

FF-AR-04-026; 01/15/2004

Pelham Business Mail Entry Unit 

FF-AR-04-081; 03/03/2004

Phoenix Business Mail Entry Unit

FF-AR-04-101; 03/25/2004

Plano Business Mail Entry Unit 

FF-AR-04-047; 02/11/2004

Plaquemine Post Office

FF-AR-04-107; 03/31/2004

Platteville Business Mail Entry Unit 

FF-AR-04-035; 02/04/2004

Plaza Station Self-Service Postal Center 

FF-AR-04-036; 02/03/2004

Powell Business Mail Entry Unit 

FF-AR-04-078; 03/02/2004

Reno Main Office – Self Service Postal Center

FF-AR-04-094; 03/16/2004

Revere Main Post Office

FF-AR-04-110; 03/31/2004

Richmond Main Post Office

FF-AR-04-097; 03/16/2004

Richwood Post Office

FF-AR-04-074; 02/25/2004

Ridgway Post Office 

FF-AR-04-017; 12/30/2003

Roanoke Business Mail Entry Unit 

FF-AR-04-062; 02/23/2004

San Francisco Plant and Distribution

Center - Self-Service Postal Center 

FF-AR-04-053; 02/17/2004

San Leandro Business Mail Entry Unit

FF-AR-04-087; 03/08/2004

Santa Ana Business Mail Entry Unit 

FF-AR-04-028; 01/27/2004

Scooba Post Office 

FF-AR-04-033; 01/28/2004

Sidney Business Mail Entry Unit

FF-AR-04-096; 03/16/2004

Somerset Business Mail Entry Unit 

FF-AR-04-031; 01/27/2004

South Bend Business Mail Entry Unit 

FF-AR-04-030; 01/27/2004

South Georgia Stamp Distribution

FF-AR-04-112; 03/31/2004

Southhaven Main Post Office 

FF-AR-04-032; 01/27/2004

Stockholm Main Office

FF-AR-04-099; 03/18/2004

Sunrise Contract Station #6 

Contract Postal Unit

FF-AR-04-084; 03/03/2004

Tampa Stamp Distribution Office

FF-AR-04-092; 03/11/2004

Tempe Business Mail Entry Unit 

FF-AR-04-073; 02/25/2004

Thurmont Business Mail Entry Unit 

FF-AR-04-041; 02/05/2004

Trenton Business Mail Entry Unit

FF-AR-04-057; 02/19/2004

Union Post Office 

FF-AR-04-044; 02/09/2004

Universal City Post Office

FF-AR-04-108; 03/31/2004

Wacker Drive Station

FF-AR-04-018; 01/05/2004

Waldorf Business Mail Entry Unit

FF-AR-04-065; 02/23/2004

Westerville Business Mail Entry Unit

FF-AR-04-060; 02/19/2004

APPENDIX 

A
38 | October 1, 2003 - March 31, 2004

FISCAL YEAR 2003 FINANCIAL RELATED AUDITS

Cost and Revenue Analysis 

FF-AR-04-038; 02/10/2004

Stamp Accountability and Controls Related to

Minnesota Diversified Industries, Inc. 

FF-AR-04-015; 12/26/2003

FISCAL YEAR 2004 FINANCIAL RELATED AUDITS

FISCAL YEAR 2003 PROTECTIVE REVIEWS

FISCAL YEAR 2004 PROTECTIVE REVIEWS

Compliance With the Bank Secrecy Act

FF-AR-04-100, 03/30/2004

Cost and Revenue Analysis – 

Central Illinois District 

FF-AR-04-049; 02/10/2004

Cost and Revenue Analysis –

Hawkeye District

FF-AR-04-113; 03/31/2004

Cost and Revenue Analysis –

Oakland International Service Center 

FF-AR-04-066; 02/25/2004

Cost and Revenue Analysis – 

San Francisco International Service Center

FF-AR-04-050; 02/12/2004

Cost and Revenue Analysis 

Santa Ana District

FF-AR-04-109; 03/30/2004

Cost and Revenue Analysis –

South Georgia District

FF-AR-04-095; 03/16/2004

Cost and Revenue Analysis – 

Van Nuys District

FF-AR-04-106; 03/30/2004

Potential Improper and Erroneous Payments

FT-AR-04-001; 12/01/2003

Rate Case Development Process

FT-OT-04-001; 01/29/2004

Blackstone Main Office 

PR-MA-04-013; 10/30/2003

Butler Main Office 

PR-MA-04-008; 10/16/2003

Carrollwood Station 

PR-MA-04-006; 10/08/2003

Centennial Branch Post Office 

PR-MA-04-004; 10/22/2003

Cleveland, Tennessee Post Office 

PR-MA-04-002; 10/07/2003

Coraopolis Post Office 

PR-MA-04-003; 10/06/2003

Englewood Mail Processing Center 

PR-MA-04-011; 10/22/2003

Johnstown Main Post Office 

PR-MA-04-009; 10/17/2003

Joliet Post Office 

PR-MA-04-005; 10/08/2003

O’Fallon Post Office 

PR-MA-04-007; 10/10/2003

Richmond Northside Post Office 

PR-MA-04-010; 10/17/2003

San Carlos Main Office 

PR-MA-04-001; 10/03/2003

Uxbridge Main Office 

PR-MA-04-012; 10/23/2003

Bethalto Post Office

PR-MA-04-024; 01/12/2004

Chesapeake Beach Main Office

PR-MA-04-027, 03/18/2004

Cresaptown Branch 

PR-MA-04-015; 11/12/2003

Edgewater Post Office 

PR-MA-04-017; 11/25/2003

Forney Main Post Office 

PR-MA-04-022; 12/31/2003

Greenwood Village Post Office 

PR-MA-04-016; 11/19/2003

Hillsborough, North Carolina, 

Main Post Office 

PR-MA-04-025; 02/12/2004

Leonardtown Post Office 

PR-MA-04-026; 03/05/2004

Manassas Downtown Station 

PR-MA-04-023; 12/31/2003

Martinsville Post Office 

PR-MA-04-014; 11/12/2003

Mendota Main Post Office 

PR-MA-04-019; 12/12/2003

North Chicago Main Post Office 

PR-MA-04-021; 12/22/2003

Oak Hill Post Office 

PR-MA-04-020; 12/18/2003

Windsor Maine Post Office

PR-MA-04-018; 12/01/2003
October 1, 2003 - March 31, 2004 | 39

ENGINEERING

Labor Scheduler Program Phase 1;

DA-MA-04-002; 02/06/2004

Self Service Platform; 

DA-MA-04-001; 12/18/2003

INFORMATION SYSTEMS

NETWORK OPERATIONS - LOGISTICS

NETWORK OPERATIONS - PROCESSING

ENHANCE PERFORMANCE-BASED CULTURE 

HUMAN CAPITAL

NETWORK OPERATIONS - LOGISTICS

Conditions at Patterson Station in the Baltimore District;

NL-MA-04-002; 02/23/2004

Vehicle Storage – Robert F. Kennedy Stadium,

Washington D.C.;

NL-MA-04-001; 01/13/2004

PURSUE LEGISLATIVE CHANGE

Comparison of Retirement Benefits to Workers’

Compensation Benefits for Employees on the

Periodic Roll

HM-AR-04-001; 12/12/2003

Advanced Computing Environment – 

Vulnerability Assessment 

IS-AR-04-002; 01/06/2004

Controls Over Wireless Communications 

Within the Postal Service 

IS-AR-04-003; 01/13/2004

Fiscal Year 2003 Information System Controls, 

Eagan, San Mateo and St. Louis Information 

Technology and Accounting Service Centers 

IS-AR-04-001; 12/02/2003

Information Systems Disaster Recovery Process 

IS-AR-04-004; 03/10/2004

Online Payroll Application Access Controls

IS-AR-04-005; 03/31/2004

Security Vulnerability Assessment at the Host 

Computing Services, 

San Mateo, California

IS-CS-04-002; 03/22/2004

Highway Network Scheduling - Great Lakes Area

NL-AR-04-003; 03/29/2004

Vehicle Maintenance Facilities –

Chicago District – Accidental Vehicle 

Damage Cost and Vehicle Safety, 

Security and Appearance; 

NL-AR-04-002; 12/05/2003

Vehicle Maintenance Facilities – 

Fraudulent Damage Claim Practices 

in the Greater Indiana District; 

NL-AR-04-001; 12/05/2003

Efficiency of Work Performed by

Clerks in the Columbia, Maryland,

Business Mail Entry Unit; 

NO-AR-04-002; 12/26/2003

Efficiency of Work Performed by 

Clerks in the Southern Maryland 

Business Mail Entry Unit; 

NO-AR-04-001; 12/24/2003

Efficiency of Work Performed by 

Clerks in the Springfield, Virginia

Business Mail Entry Unit; 

NO-AR-04-004; 02/09/2004

Efficiency of the Oakland International 

Service Facility and the Regatta Facility

NO-AR-04-007; 03/31/2004

Efficiency of the San Francisco International 

Service Center and the General Services 

Administration Facility;

NO-AR-04-006; 03/31/2004

Express Mail Processing in the 

Los Angeles District; 

NO-MA-04-001; 01/13/2004

Military Mail Issues During Operation

Iraqi Freedom; 

NO-AR-04-003; 12/30/2003

Network Integration and Alignment Models –

Independent Verification and Validation; 

NO-AR-04-005; 02/24/2004

Compendium of Prior Audits Addressing 

the Postal Service’s Injury Compensation Program

HM-OT-04-002; 12/10/2003

Postal Service’s Death Benefit Payments 

to Decedent’s Survivor(s) – Phase II;

HM-MA-04-001; 01/30/2004

Pacific Area’s Equal Employment Opportunity 

Monetary Settlement Process; 

HM-AR-04-002; 12/24/2003

Postal Service’s December 2000 Equal

Employment Opportunity Settlement Policy;

HM-AR-04-003; 12/30/2003

Postal Service’s Equal Employment 

Opportunity Organizational Structure;

HM-AR-04-004; 01/08/2004

Postal Service’s Injury Compensation 

Program – Past and Present;

HM-OT-04-001; 12/10/2003

Postal Service’s Rehabilitation Program 

for the Long Beach, Los Angeles, and 

San Diego Performance Clusters;

HM-AR-04-005; 02/04/2004

APPENDIX 

A
40 | October 1, 2003 - March 31, 2004

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 20 $88,533,202 $12,320,162

Reports requiring management decision that were issued during the reporting period 15 $197,232,283 $513,055

TOTAL 35 $285,765,485 $12,833,217

Reports for which a management decision was made during the report period (i + ii) 13 $191,593,566 $2,349,831

 (i) Value of recommendations agreed to by management $67,993,561 $1,760,557

 (ii) Value of recommendations that management did not agree $123,600,005 $589,274

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

reporting period 22 $94,171,919 $10,483,386

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

 (See Note 1 for a list of individual reports) 5 $62,535,148 $8,414,595

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

 (See Note 2 for a list of individual reports) 8 $14,994,231 $2,055,736

APPENDIX B

FINDINGS OF QUESTIONED COSTS

For the period of October 1, 2003, through March 31, 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. 

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

Subject Case Number Report Date

Total Questioned 

Costs

Unsupported Costs 

Included In 

Questioned 

Costs

Audit of Equitable Adjustment Claim Submitted by STV, Incorporated IR-CAR-03-011 9/30/2003 $98,569 $0 

Audit of Equitable Adjustment Proposal Submitted by Bell and Howell Mail and 

Messaging Technologies CA-CAR-03-014 5/6/2003 $703,466 $0 

Audit of Firm Fixed Price Proposal Submitted by Northrop Grumman

Security Systems, LLC, Automation and Information Systems, Under Solicitation

Number 512593-02-A-0353 CA-CAR-03-015 5/6/2003 $60,825,861 $8,414,595 

Audit of Termination Settlement Proposal Submitted by Lockheed Martin

Distribution Technologies IR-CAR-03-010 9/26/2003 $95,663 $0 

Supplemental Audit of Incurred Costs for Fiscal Year 1998 Submitted by

New Breed Corporation IR-CAR-03-003 7/15/2003 $811,589 $0 

TOTAL $62,535,148 $8,414,595
October 1, 2003 - March 31, 2004 | 41

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

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

Southwest Area Expenditures for Extra Highway Trips Using

Leased Equipment TR-AR-00-005 2/29/2000 $848,000 $0

Terminated Station Contract FT-MA-02-004 8/2/2002 $58,248 $58,248

United States Postal Service Warranty Repair of Tractors CA-AR-00-001 5/17/2000 $977,598 $0

OFFICE OF INSPECTOR GENERAL TOTAL $7,930,484 $379,859 

Contract Audit; 181-1294644-AC(1) 11/17/1999 $7,063,747 $1,675,877

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

COMBINED TOTAL $14,994,231 $2,055,736

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

Subject Case Number Report Date

Total Questioned 

Costs

Unsupported Costs 

Included In 

Questioned 

Costs

APPENDIX 

B
42 | October 1, 2003 - March 31, 2004

APPENDIX C

RECOMMENDATIONS THAT FUNDS BE PUT TO BETTER USE

For the period of October 1, 2003, through March 31, 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.

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 $159,689,010

Reports requiring management decision that were issued during the reporting period 9 $78,706,060

TOTAL 20 $238,395,070

Reports for which a management decision was made during the report period (i + ii) 9 $54,797,936

 (i) Value of recommendations agreed to by management $16,574,186

 (ii) Value of recommendations that management did not agree $38,223,750

Reports for which no management decision was made by the end of the reporting period* 11 $183,597,134

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

 (See Note 1 for a list of individual reports) 1 $10,577,367

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

 (See Note 2 for a list of individual reports) 5 $105,072,333

Subject Case Number Report Date

Recommend Funds Put to 

Better Use

Highway Network Scheduling - Eastern Area TD-AR-03-015 9/30/2003 $10,577,367

TOTAL $10,577,367 

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

Subject Case Number Report Date

Recommend Funds Put to 

Better Use

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

Highway Network Scheduling - New York Metro Area TD-AR-03-008 3/28/2003 $287,981 

New York Metro Area Operational Use of Trailers TD-MA-03-001 1/29/2003 $2,495,344 

New York Metro Area Trailer Acquisition - Lease versus Buy TD-AR-03-009 3/31/2003 $4,021,234 

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

TOTAL $105,072,333

*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. 

Note 1 - Reports for which no management decision was made within six months of issuance:
October 1, 2003 - March 31, 2004 | 43

OFFICE OF INSPECTOR GENERAL

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

2/29/2000 2 Southwest Area Expenditures for Extra Highway Trips Using 

Leased Equipment

TR-AR-00-005

9/29/2000 2 Review of the United States Postal Inspection Service Budget 

Process

OV-AR-00-005

4/18/2001 1 Network Security at the San Mateo Computer Operations Center IS-AR-01-001

4/30/2001 1 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

11/8/2001 1 Fiscal Year 2001 Information System Controls, Eagan,

San Mateo, and St. Louis Information Technology and

Accounting Service Centers

IS-AR-02-001

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 Overpayment and 

Refundable Disbursements

LH-AR-02-003

7/9/2002 6 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

9/24/2002 6 Biohazard Detection System DA-MA-02-001

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 Use of Noncompetitive Contracting Process for Tabbing 

Systems Purchases

CA-AR-02-005

APPENDIX 

D

APPENDIX D

REPORTS WITH SIGNIFICANT RECOMMENDATIONS PENDING CORRECTIVE ACTIONS

Through March 31, 2004

As required by the IG Act, the following pages include a summary 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, an explanation of the reasons such management decision has not been made, and a statement concerning the desired timetable for 

achieving a management decision on each report.

Issue

Date

Number Of 

Recommendations

Report

Title

Report

Number
44 | October 1, 2003 - March 31, 2004

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 1 Postal Automated Redirection System, Phase 1 DA-AR-03-002

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

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 3 Retail Data Mart System - Security Issues OE-AR-03-002

3/31/2003 2 Highway Network Scheduling - New York Metro Area TD-AR-03-008

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 4 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

Issue

Date

Number Of 

RecommendationsReport

Title

Report

Number
October 1, 2003 - March 31, 2004 | 45

APPENDIX 

D

9/8/2003 1 Voyager Card - Control Weaknesses - National Analysis TD-AR-03-012

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 4 Postal Service and Union Labor Relations LH-AR-03-012

9/30/2003 2 Highway Network Scheduling - Eastern Area TD-AR-03-015

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

12/2/2003 4 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 1 Vehicle Maintenance Facilities - Fraudulent Damage Claim 

Practices in the Greater Indiana District

NL-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

12/26/2003 1 Stamp Accountability and Controls Related to Minnesota

Diversified Industries, Inc.

FF-AR-04-015

1/6/2004 1 Advanced Computing Environment – Vulnerability Assessment IS-AR-04-002

1/13/2004 2 Controls Over Wireless Communications Within the Postal 

Service

IS-AR-04-003

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

2/24/2004 3 Fiscal Year 2003 Postal Service Financial Statements Audit 

- San Mateo Information Technology and Accounting Service 

Center

FT-AR-04-008

2/24/2004 1 Network Integration and Alignment Models - Independent

Verification and Validation

NO-AR-04-005

2/26/2004 1 Use of Reverse Auctions - Headquarters CA-AR-04-001

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

3/29/2004 3 Highway Network Scheduling - Great Lakes Area NL-AR-04-003

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

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
46 | October 1, 2003 - March 31, 2004

APPENDIX F

INVESTIGATIVE STATISTICS1

For the period of October 1, 2003, through March 31, 2004

To the fullest extent possible, Office of Inspector General (OIG) investigative cases will be worked with the Postal Inspection Service. During this period, a number of cases were 

investigated jointly and plans call for working the majority of cases together in the future. The OIG expresses its appreciation at the willingness of the Postal Inspection Service 

to jointly work the strategic alliance with our Office of Investigations.

OFFICE OF INSPECTOR GENERAL

Statistics

Arrests 46

Information/Indictments 482

Convictions/Pretrail Diversions3 26

Administrative Actions

 Postal Service Employees 13

Fines, Restitution, and Recoveries $17,324,732

 Amount to Postal Service4 $4,155,269

1

 Statistics include joint investigations with other federal law enforccement agencies.

2

 Includes 4 that occurred prior to the period but were not previously reported.

3

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

4

 Amount included in Fines, Restitution and Recoveries.

APPENDIX E

SIGNIFICANT MANAGEMENT DECISIONS IN AUDIT RESOLUTION

For the period October 1, 2003, through March 31, 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.

OFFICE OF INSPECTOR GENERAL

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 Inspection Service Data Base Information System capabilities, which allows the Postal 

Inspection Service the ability to determine total workhours expended for individual area cases that resulted in jacketed cases.

Agency Response: Postal Inspection Service 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. The recommendation 

is in step 2 of the audit resolution process. 
October 1, 2003 - March 31, 2004 | 47

APPENDIX G

SUMMARY OF POSTAL SERVICE INVESTIGATIVE ACTIVITIES UNDER 39 USC 3013

For the period of October 1, 2003, through March 31, 2004

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

POSTAL INSPECTION SERVICE

The Postal Service reports to the Office of Inspector General information related to investigative activities designed to protect the public against unscrupulous mailers perpetrating 

fraudulent schemes. 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.

 Complaints Consent False Cease &

 Filed Agreements Representation Desist 

 Orders Orders

Type of Scheme

Advance fee 6 5 — 5

Boiler rooms/Telemarketing — — — 1

Rebate fraud 1 1 — 1

False billings 3 2 2 3

Fraud – Internet Schemes 1 1 1 1

Lotteries (Foreign and Domestic) 8 — — —

Work at home 8 7 4 7

TOTAL 27 16 7 18

Other Adminstrative Actions

Administrative Action Requests 30

Temporary Restraining Orders Requested 3 

Temporary Restraining Orders Issued 3 

Civil Injunctions (1345) Requested 1 

Civil Injunctions (1345) Issued 1 

Withholding Mail Orders Issued 21 

Voluntary Discontinuances 48 

Postal Service Administrative Subpoena Authority

The Postal Service reports to the Office of Inspector General information on the number of cases in which the Postal Service issued administrative subpoenas in connection with 

deceptive mailing. The following section identifies the number and nature of cases in which the Postal Service exercised this authority to request relevant business and associated 

records.

Case No. Date Issued Scheme 

USPS 04-001 10/22/2003 Failure to Render 

USPS 04-002 12/12/2003 Failure to Render 

USPS 04-003 12/12/2003 Failure to Render 

USPS 04-004 12/16/2003 Deceptive Sweepstakes 

Financial Reporting On Investigative Activities

The Postal Service reports to the Office of Inspector General information related to the amount of financial expenditures and obligations incurred pursuing the investigative activities 

of the Postal Service. Information related to these activities is summarized below.

Type Semiannual Report

Personnel 169,542,466

Nonpersonnel 40,454,009 

TOTAL 209,996,475 

Capital Obligations 9,912,689

APPENDIX 

G
48 | October 1, 2003 - March 31, 2004

IMPROVE SERVICE

Requestor Allegations/Concern Response Date

Senator, North Carolina Allegation of mail tampering. 23-Oct-2003

Representative, California Allegation of difficulties with highway contract. 04-Nov-2003

Representative, California Request to review appeal concerning difficulties with highway contract. 03-Dec-2003

State Representative, New York Allegations of inefficiency and mismanagement at a post office. 22-Jan-2004

Representative, New York Allegations of deficiencies in the handling and delivery of mail and repercussions 

as a result of voicing allegations.

12-Jan-2004

Representative, Connecticut Concerns regarding an investigation. 06-Feb-2004

MANAGE COSTS

Requestor Allegations/Concern Response Date

Representative, Missouri Request to review the justification of bonuses for employees. 9-Mar-2004

ENHANCE PERFORMANCE-BASED CULTURE

Requestor Allegations/Concern Response Date

Senator, Connecticut Allegations of hostile work environment after filing a whistle-blower complaint. 02-Oct-2003

Senator, California Allegations of hostile work environment and improprieties of a postmaster. 17-Oct-2003

Senator, California Allegations of hostile work environment. 06-Nov-2003

APPENDIX H

CLOSED CONGRESSIONAL AND BOARD OF GOVERNORS INQUIRIES

For the period October 1, 2003, through March 31, 2004

This appendix lists the 43 Congressional and Governors inquires the OIG closed during this reporting period. The OIG reviewed these inquiries to help identify 

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

CONGRESSIONAL

Other Investigative Activities

The Postal Service also reports to the Office of Inspector General additional information related to significant investigative activities and other investigative matters. This section 

outlines a number of significant investigative activities the Postal Service has initiated and is pursuing, to include the Internet Crimes Complaint Center and the Deceptive Mail Enforcement Team. Office of Inspector General criminal statistical information is summarized in Appendix F.

International Affairs Group

The Postal Inspection Service is an active participant in international investigations and security initiatives. The International Affairs Group targets initiatives to improve the safety, 

security and reliability of international mail for the United States. The group develops strategies and initiatives to improve quality of service and security of international mail for the 

190 member countries of the Universal Postal Union. The Postal Security Action Group of the Universal Postal Union, which is chaired by the Chief Postal Inspector, identifies and 

resolves problems and issues affecting the safety, security and integrity of international mail.

Deceptive Mail Prevention

The Deceptive Mail Prevention and Enforcement Act, which became effective April 12, 2000, subjects violators to civil penalties in addition to Cease and Desist Orders and False 

Representation Orders. To support this new law, the Postal Inspection Service created the Deceptive Mail Enforcement Team to identify violators and ensure swift, appropriate, investigative attention. This fiscal year to date, 27 questionable promotions have been investigated by postal inspectors.

Internet Crimes Complaint Center (Ic3)

The Internet is teeming with schemes, and swindlers have learned how easy it is to exploit innocent victims. Fraud on the Internet often results in mail fraud, as cyber scammers 

use the mail to receive payments or ship items. As a result of the growing trend among fraudsters to use the Internet, the Postal Inspection Service participates in a multi-federal 

project known as the Internet Crimes Complaint Center, which was established by the Federal Bureau of Investigation and National White Collar Crime Center. The project is aimed at 

stemming Internet fraud by gathering, analyzing and referring Internet complaints. The Internet Crimes Complaint Center offers a central repository for complaints related to Internet 

fraud.
October 1, 2003 - March 31, 2004 | 49

ENHANCE PERFORMANCE-BASED CULTURE

Requestor Allegations/Concern Response Date

Representative, Michigan Allegations of waste of funds and adverse personnel actions as a result of an 

EEOC decision.

21-Oct-2003

Representative, Oregon Allegations of a hostile work environment and managerial harassment. 08-Oct-2003

Senator, Louisiana Allegations of hostile work environment. 06-Nov-2003

Representative, California Allegations of managerial harassment. 23-Oct-2003

Representative, Louisiana Allegations of hostile work environment. 06-Nov-2003

Representative, Virginia Allegations of hostile work environment. 06-Nov-2003

Representative, Virginia Allegations of hostile work environment. 30-Oct-2003

Representative, Massachusetts Allegations of discrimination, retaliation, and managerial harassment. 17-Oct-2003

Representative, Virginia Allegations of hostile work environment. 23-Oct-2003

Senator, Utah Allegations of difficulties to find permanent limited duty assignment. 30-Oct-2003

Senator, Virginia Allegations of mail delay. 23-Oct-2003

Senator, California Allegations of electronic fraud at a post office. 06-Nov-2003

Representative, California Allegations of discrimination and hostile work environment. 04-Feb-2004

Senator, Illinois Allegations of discrimination and improper promotions. 27-Oct-2003

Senator, Oklahoma Allegations of discrimination at a post office. 19-Nov-2003

Senator, Iowa Allegations of a hostile work environment. 05-Dec-2003

Representative, Ohio Allegations of retaliation from filing sexual harassment charges. 11-Dec-2003

Representative, Utah Allegations of fraud, waste, and misconduct by a Postal Service manager. 04-Feb-2004

Representative, Texas Allegations of inappropriate use of contract labor. 30-Dec-2003

Representative, Oregon Allegations of a hostile work environment. 30-Jan-2004

Representative, Virginia Allegations of harassment and retaliation. 26-Feb-2004

GROW REVENUE

Requestor Allegations/Concern Response Date

Senator, Texas Request to review procurement practices of the USPS for mailing supplies. 11-Dec-2003

Senator, Indiana Allegations of improper contract award. 19-Mar-2004

Representative, California Allegations of managerial favoritism and improper funds management. 13-Nov-2003

PURSUE LEGISLATIVE CHANGE

Requestor Allegations/Concern Response Date

Representative, California Request to perform an analysis of the Postal Service’s current service levels and 

performance efficiency. 

04-Mar-2004

OVERSIGHT OF INSPECTION SERVICE

Requestor Allegations/Concern Response Date

Senator, California Allegations of improper investigation. 17-Mar-2004

OTHER SIGNIFICANT ISSUES

Requestor Allegations/Concern Response Date

Senator, California Allegation that a USPS-OIG agent caused undue stress on an individual. 22-Oct-2003

Senator, Louisiana Allegations reimbursement for travel expenses not received. 23-Oct-2003

Senator, Massachusetts Review the termination of a contract with USPS-OIG. 06-Nov-2003

Representative, Massachusetts Review the termination of a contract with USPS-OIG. 10-Nov-2003

Senator, Virginia Allegations disability accommodations not made for a USPS-OIG employee. 13-Nov-2003

GOVERNORS

Requestor Allegations/Concern Response Date

Governor Allegations of delays in processing Workman’s Compensation claim. 06-Jan-2004

Governor Review of Anthrax issues. 30-Jan-2004

APPENDIX 

H
50 | October 1, 2003 - March 31, 2004

MANAGE COSTS

Efficiency of the San Francisco International 

Service Center and General Services 

Administration Facility (GSA), and the Oakland 

International Service Facility and Regatta Facility, 

NO-AR-04-006, NO-AR-04-007

The Postal Service could avoid $61.2 million in 

costs over 10 years, by reducing 145,000 workhours at the San Francisco International Service 

Center (ISC) and the Oakland International Service 

Facility (ISF) and transferring mail processing, 

including military surface mail, to the San Francisco 

ISC and the Oakland ISF and closing the GSA and 

Regatta facilities.

Express Mail Processing in the Los Angeles 

District, NO-MA-04-001 

The Postal Service did not collect postage due 

from some Express Mail packages originating in the 

Los Angeles District. Additionally, some Express 

Mail packages had missing acceptance data. As a 

result, the Postal Service may have lost a projected 

$185,600 in revenues, from February 2002 through 

January 2003. In addition, the missing acceptance 

data makes it difficult to respond to customer 

inquiries about the status of Express Mail packages. 

Postal Service management generally agreed with 

OIG recommendations and has recovered $157,427 

in revenue from previously unpaid Express Mail

packages.

Highway Network Scheduling — Great Lakes 

Area, NL-AR-04-003

The Postal Service could save about $5.4 million

over the term of existing Great Lakes Area

highway contracts by canceling or not renewing

72 unnecessary trips. 

Labor Scheduler Program Phase 1, DA-MA-04-002

The Labor Scheduler was effectively developed 

and deployed to the pilot sites, however; we 

recommended a review of the Phase 1 model results 

to capture realistic savings before the execution 

of the Decision Analysis Report (DAR) for Phase 2 

national deployment. Management agreed the Phase 

2 DAR should be based on an accurate analysis of 

the Phase 1 model results.

Network Integration & Alignment Models, NO-AR04-005

The Postal Service had conducted limited verification 

and validation on Network Integration and Alignment 

models, but they were not independently or 

fully documented. The Postal Service had used 

employees involved in the development process

to perform the verification and validation. 

Online Payroll Application Access Controls DDE/

DR-Interim Report, IS-AR-04-005

Eagan ASC management did not always properly 

administer access to the Distributed Data Entry 

(DDE) applications. Specifically, many Eagan ASC 

employees had access privileges that allowed them 

to view their coworkers’ payroll data. 

Review of Military Mail During Operation Iraqi 

Freedom, NO-AR-04-003

The Postal Service did not delay military mail from the 

Persian Gulf region, and, in fact, did a commendable 

job performing its responsibilities regarding military 

mail. However, the Postal Service incurred over 

$300,000 in additional labor costs to reprocess mail 

that the military had returned from the Persian Gulf 

as undeliverable. Postal management alerted the 

Department of Defense Military Postal Service of 

the issues identified in the report and was assured 

the necessary corrective measures will be taken to 

preclude a recurrence of a similar episode.

Review of Vehicle Maintenance Facilities at 

Chicago District, NL-AR-04-002 and Greater 

Indiana District, NL-AR-04-001

The Chicago District incurred unnecessary repair 

costs because personnel accidentally damaged 

vehicles, or officials did not always try to get 

restitution from private parties. The district could 

save up to $1.2 million, over the next two years, if 

accidental damage is prevented or damage claims 

are properly pursued. In the Greater Indiana District, 

vehicle maintenance managers submitted improper 

damage claims to insurance companies. Inadequate 

controls were in place to detect the improperly 

submitted claims. 

Reviews of Work at Southern Maryland, Columbia, 

Md., and Springfield, Va., Business Mail Entry 

Units, NO-AR-04-001, NO-AR-04-002, NO-AR-04-

004 

The Southern Maryland, Columbia, Md., and 

Springfield, Va., business mail entry units used 

excessive hours to accept mailings. Management 

agreed to reduce work-hours by 20,240 hours at the 

Southern Maryland unit, 3,960 hours at Columbia, 

and 2,775 hours at Springfield. These reductions 

could produce cost avoidances of almost $10.8 

million over 10 years. 

Self Service Platform, DA-MA-04-001

The Self Service Platform will offer customers a 

broader range of Postal Service products, services 

and information through a state-of-the art vending 

platform with convenient and reliable access 24 

hours-a-day, 7 days-a-week. However, the Postal 

Service could improve system operations and 

increase customer satisfaction by developing specific 

instructions for lobby mailbox collection, identifying 

Express Mail acceptance times and providing multilanguage options for diverse customer populations.

Contract Reviews

The Defense Contract Audit Agency (DCAA) 

performed 13 contract-related audits, during the 

period, at the request of the Postal Service and the 

OIG. The audits evaluated costs associated with 

automated mail processing equipment, emergency 

response services for anthrax contamination, 

architectural and engineering services and mailbags. 

DCAA also audited terminated contract costs; verified 

billed costs; and determined whether forward pricing 

rates were reasonable and operating and tax costs 

SUPPLEMENTAL INFORMATION

AUDIT SYNOPSES
October 1, 2003 - March 31, 2004 | 51

were allowable. The Defense Contract Audit Agency 

(DCAA) audited verified billed costs; and determined 

whether forward pricing rates were reasonable and 

operating and tax costs were allowable. The OIG 

considered most of the proposals acceptable for 

negotiating fair and reasonable rates and $194 million 

was identified as potential contract costs savings. 

Contracting Authority, CA-MA-04-001

The Postal Service generally had adequate controls 

over contracting authority for the commitment of 

funds for the 70 contracts reviewed. However, three 

of the16 contracting officers reviewed did not always 

meet requirements for qualifications and continuing 

professional education.

Curseen-Morris Facility Cleanup and Modification, 

CA-MA-04-003

The Postal Service adequately managed contracts for 

the unprecedented cleanup and modification of the 

Curseen-Morris Processing and Distribution Center. 

In addition, the Postal Service implemented adequate 

internal controls to control costs and properly used 

and controlled appropriated funds. 

Fiscal Year 2003 Postal Service Financial 

Statement Audits — Washington, D.C., 

Headquarters, FT-AR-04-005; St. Louis IT/ASC,

FT-AR-04-007; San Mateo IT/ATC, FT-AR-04-008; 

and Eagan, FT-AR-04-010

Fiscal Year 2003 Information System Controls, 

Eagan, San Mateo, and St. Louis Information 

Technology and Accounting Service Centers, 

IS-AR-04-001

In support of the independent public accounting 

firm’s opinion on the Postal Service’s financial 

statements, we examined the financial activities and 

accounting records at the Information Technology 

and Accounting Service Centers in St. Louis, Mo.; 

San Mateo, Calif.; and Eagan, Minn. The OIG also 

audited the computer systems that generated the 

financial data. Management’s policies and accounting 

procedures conformed with generally accepted 

accounting principles and provided for an adequate 

internal control structure. The OIG did not identify 

any instances of noncompliance with laws and 

regulations that have a direct and material affect on 

the financial statements.

Postal Service Board of Governors’ Travel and 

Miscellaneous Expenses and Officers’ Travel and 

Representation Expenses for Fiscal Year 2003, 

FT-AR-04-004, FT-AR-04-003

For the fiscal year ending September 30, 2003, 

the Board of Governors’ expenses of $260,000 

and the officers’ expenses of $1 million were 

properly supported and complied with the Board of 

Governors’ guidelines and Postal Service policies and 

procedures. 

Potential Improper and Erroneous Payments, 

FT-AR-04-001

The Postal Service generally made proper payments. 

However, because personnel did not always follow 

policies and procedures, the Postal Service awarded 

several million in improper contracts and made 

$119,103 in duplicate payments.

Realty Asset Management Program, 

CA-MA-04-002

The Postal Service could improve its process 

for identifying and reporting excess facilities and 

vacant space. Postal Service area officials did not 

review their property inventory annually because 

they were unaware of the requirement. As a result, 

the Postal Service may not have been maximizing 

its return on these assets. Management generally 

agreed with our findings and agreed to emphasize 

the importance of identifying excess space. They 

stated the new National Prioritization Process and 

Network Integration Alignment effort will help clarify 

where excess space exists and where new space is 

needed. Management also enhanced the reporting 

process to include negative replies and will provide 

a standardized method for annual reporting and 

submission of excess space as it occurs.

Terminated Contract Stations, FT-MA-04-002

Of the 362 contract stations reviewed, four stations 

were identified that no longer provided service 

for the Postal Service, but were still active in the 

Accounts Payable Accounting and Reporting System 

II. As a result, contractors received payments 

totaling $67,341 for services not performed. Postal 

management took corrective action to terminate 

future payments for those contracts and stopped 

payment on non-cashed checks issued to the 

identified contractors. 

Use of Reverse Auctions, CA-AR-04-001

The Postal Service’s use of reverse auction events 

conducted by one contractor met user requirements, 

successfully maintained supplier relations and 

identified cost savings. However, the criteria for 

calculating supply chain management savings were 

not complete and had not been published as a 

formal policy. Also, subsequent to completion of 

the reverse auction pilot program, Postal Service 

officials awarded a noncompetitive contract without 

performing a cost or price analysis or providing 

documentation of price reasonableness.

Financial Field Reviews

As part of the overall audit of the Postal Service 

financial statements, we audited the financial 

operations of 103 installations, including 45 business 

mail entry units, 40 Post Offices, 9 contract postal 

units, 6 self-service postal centers and 3 stamp 

distribution offices. Generally, financial transactions 

were reasonably and fairly represented in the 

accounting records, internal controls were in place 

and effective. However, at 91 installations, there 

were minor internal control and compliance issues, 

including problems with accountability, cash, stamps 

and Post Office boxes. 

For the FY 2004 Cost and Revenue Analysis, the 

OIG observed statistical tests conducted at eight 

Postal Service installations. Data collectors generally 

followed Postal Service policies and procedures 

when conducting statistical tests except for minor 

errors found at five of the eight installations. 

As part of a series of protective reviews, the OIG 

reviewed 25 Post Offices and one mail processing 

center. The OIG conducted the reviews to provide 

management with timely information on sensitive, 

high-risk activities at these Postal Service facilities. 

The OIG reviewed a number of issues, including the 

adequacy of controls over accountability for assets, 

capital properties, vehicles, customer service, the 

workplace environment, training and development, 

and facility safety and security. The OIG also reviewed 

the adequacy of controls over mail operations. 

Collection of Advances to United States 

International Air Carriers, FT-MA-04-001

The Postal Service did not always collect advances to 

domestic air carriers for services to foreign countries 

for transporting international mail. Although the $5 

million cap for this fund was not exceeded, $2.6 

SUPPLEMENTAL INFORMATION
52 | October 1, 2003 - March 31, 2004

million in advances, or over 50 percent of the revolving 

fund balance, was outstanding over three years. 

Federal Agencies’ Centralized Trial Balance 

System Verification; Federal Intragovernmental 

Transactions, FT-AR-04-006, FT-AR-04-009

At the request of the Department of the Treasury, the 

OIG performed agreed-upon procedures, as stated 

in guidance for the Federal Agencies’ Centralized Trial 

Balance System Verification System. We provided 

our report to Treasury and GAO to help them prepare 

and audit the consolidated financial statements of the 

U.S. Government for the year ending September 30, 

2003. Postal Service management is responsible for 

the proper accounting, presentation and reporting of 

its consolidated financial statements and reporting of 

information to Treasury. 

International Air Carriers, FT-MA-04-001

The Postal Service did not always collect advances 

to domestic air carriers for services to foreign 

countries for transporting international mail. Although 

the $5 million cap for this fund was not exceeded, 

$2.6 million in advances, or over 50 percent of the 

revolving fund balance, was outstanding over three 

years. 

Rate Case Development Process, FT-OT-04-001

The OIG issued an informational report describing 

the Postal Service’s internal rate case development 

process. 

Stamp Accountability and Controls Related

to Minnesota Diversified Industries, Inc., 

FF-AR-04-015

Postal Service records showed $8.7 million more 

than the stamp stock actually on hand with 

the contractor and in the contractor’s inventory 

system. Also, the Postal Service did not establish 

effective internal controls over stamp destruction 

at the contractor’s facility, resulting in $370,976 

in destruction costs. However, the Postal Service 

disagreed with the destruction cost calculation. 

ENHANCE PERFORMANCEBASED CULTURE

Compendium of Prior Audits Addressing the 

Postal Service’s Injury Compensation Program, 

HM-OT-04-002

The Compendium of Prior Audits Addressing the 

Postal Service’s Injury Compensation Program 

provided a history of the program, a summary of

prior OIG audit reports and the management 

challenges those audits addressed.

Conditions at Patterson Station in the Baltimore 

District, NL-MA-04-002

Patterson Station employees were exposed to 

hazardous conditions and we recommended that 

management identify all the individuals who may 

have been affected to ensure that they are notified 

about potential exposure. Also, the Baltimore District 

unnecessarily spent $100,000 to lease the Patterson 

Station (for very limited delivery operations) and 

could save $25,000 by terminating the Patterson 

Station lease. District management took immediate 

action and relocated Patterson delivery operations 

to another location two miles away. Postal 

management stated that equipment was removed 

and it began negotiating lease termination.

Pacific Area’s Equal Employment Opportunity 

Monetary Settlement Process, HM-AR-04-002

The Pacific Area complied with its Equal Employment 

Opportunity (EEO) policy requiring the human resource 

manager to approve all settlements over $10,000, 

regardless of the position of the individual being 

charged. Also, the Pacific Area generally complied 

with Postal Service EEO policy requiring officers and 

executives to obtain higher-level approval to settle 

complaints against themselves for $25,000 or more.

Postal Service’s Death Benefit Payments to 

Decedent’s Survivor(s) - Phase II, HM-MA-04-001 

The Postal Service Injury Compensation Control 

Office did not effectively monitor or review death 

benefit claim files, and the files did not always contain 

current documentation. As a result, the Postal 

Service paid an estimated $3.4 million in questionable 

compensation to survivors for benefits that they 

might not have been entitled to receive. 

Review of Postal Service’s December 2000 EEO 

Settlement Policy, HM-AR-04-003

Postal Service policy requiring officers and executives 

to obtain higher level approval in order to settle 

EEO complaints for $25,000 or more against 

themselves appeared inconsistent with EEO policies 

and procedures. Postal management subsequently 

communicated with EEO counsel to address this 

perceived inconsistency, and EEO counsel advised 

the Postal Service that it would not suggest any 

changes to the Postal Service’s alternative dispute 

resolution policy. 

Postal Service’s Equal Employment Opportunity 

Organizational Structure, HM-AR-04-004

The Postal Service’s EEO structure at headquarters 

was consistent with Equal Employment Opportunity 

Commission (EEOC) guidance; however, at the 

area level, its EEO structure was not. Area officials 

executing and advising on personnel actions were 

also responsible for managing, advising or overseeing 

the EEO complaint processes. 

Postal Service’s Rehabilitation Program for 

the Long Beach, Los Angeles, and San Diego 

Performance Clusters, HM-AR-04-005

The Postal Service’s Rehabilitation Program is 

adequately placing employees with work-related 

injuries in the Long Beach, Los Angeles, and San 

Diego Performance Clusters in modified work 

assignments. However, the injury compensation 

control office staff did not closely monitor the medical 

and work status of rehabilitation employees, which 

could result in some rehabilitation employees working 

beyond their recommended medical restrictions, 

risking additional injury, or not working to their full 

capacity, thus reducing their units’ productivity. 

Vehicle Storage — Robert F. Kennedy Stadium, 

Washington, D.C., NL-MA-04-001

Approximately 200 Postal Service vehicles were 

stored at an unsecured Robert F. Kennedy Stadium 

parking lot in Washington, D.C. Our inspection of the 

parking lot, and the vehicles stored there, identified 

safety, security and environmental issues.
October 1, 2003 - March 31, 2004 | 53

MANAGE COSTS 

Facilities

Construction manager pled guilty to accepting 

a gratuity while overseeing a construction and 

pavement contract worth $3.4 million

The Postal Service is continually searching for 

ways to reduce costs associated with building 

and maintaining facilities. The Postal Inspection 

Service and the OIG conduct investigations that 

target contractors who have attempted to defraud 

the Postal Service by submitting false invoices, 

performing poor work, or using substandard 

construction materials.

For example, at a New Jersey facility, the Postal 

Service contracted with a construction and paving 

company for over $3.4 million in paving work. The 

OIG investigated allegations that an executive of 

the company provided a gratuity to a construction 

manager, under contract to the Postal Service, to 

oversee the project. The OIG investigation revealed 

that the executive provided free paving services 

at the construction manager’s residence. The 

investigation further revealed that the construction 

manager approved inflated charges on a contract 

modification. Both parties have pled guilty to charges 

relating to gratuities. The company pled guilty to 

charges relating to submitting false statements. 

Sentencing is scheduled in May 2004, and 

debarment proceedings against the company are 

pending.

Telecommunications company paid $1 million 

to settle allegations of false claims related to 

overcharges and work never performed

The Postal Service hired a large telecommunication 

company to install wire at numerous postal facilities 

nationwide. In conjunction with the wire installation, 

the company also performed asbestos abatement 

work at approximately 265 facilities. The Postal 

Service paid the company nearly $1.3 million for the 

abatement services. 

The OIG identified substandard work and 

questionable labor hours relating to the asbestos 

abatement. To protect the interests of the Postal 

Service, the OIG asked its environmental staff 

to conduct inspections of the 265 facilities. The 

inspections confirmed allegations of questionable 

charges and substandard work at 70 percent of the 

facilities. The U.S. Attorney’s Office pursued the 

contractor for False Claims Act violations related 

to billing the Postal Service for work that was 

either over-billed, never performed or substandard. 

Consequently, the company agreed to pay $1 million 

to settle the allegations. 

Interest and Other Expenses

Appeal denied for California woman convicted of 

filing false $1 million tort claim against the Postal 

Service

A northern California woman, who previously lost 

her $1 million lawsuit against the Postal Service, 

has begun serving a criminal sentence. The woman 

filed the suit for an automobile accident with a San 

Francisco letter carrier, in which she sustained 

$63.55 worth of property damage. 

The OIG investigation led to the woman being 

criminally convicted on perjury charges related 

to omissions about a prior injury. She appealed 

her criminal conviction to the 9th Circuit Court of 

Appeals, where her conviction was sustained, and 

then to the Supreme Court of the United States, 

where her petition was denied. This year, she began 

serving her criminal sentence, which includes a sixmonth prison term, three years of probation postimprisonment and a fine of $10,000.

Over $400,000 recovered in lost revenue from 

third-party-mailer postage due scheme 

For approximately five months, a Missouri Post 

Office was accruing large postage due charges 

from a third-party mailer due to Standard Mail being 

returned to the sender. As of January 2004, over 

$400,000 in postage due charges had accumulated 

at the Post Office on approximately 106,000 pieces 

of Standard Mail. 

The OIG was contacted by a postal supervisor 

and initiated an investigation into the postage due 

charges. The OIG assisted the Postal Service in 

collecting the lost revenue. To date, the company has 

paid over $400,000 for the postage due charges. 

Additional monies are expected to be paid.

Postal employee agreed to pay $3,000 after 

embezzling funds through the unauthorized use 

of a purchase card

The OIG worked with the Postal Inspection Service 

on a case involving a postal clerk in Maryland who 

was suspected of using a government IMPAC 

(purchasing) card for personal gain. 

The investigation uncovered evidence that included 

the clerk’s confession that he embezzled Postal 

Service funds and property. The clerk would use 

his IMPAC card to buy authorized items at local 

area stores, but later return some of the items to 

the merchants for store credit or cash refunds. An 

administrative settlement was reached, in which the 

employee agreed to repay the Postal Service $3,000, 

retire from the Postal Service and remain in a leave 

without pay status, until the retirement is in effect. 

Twenty members of a credit card theft ring 

arrested for fraudulent use of Postal Service 

credit cards 

In the Southeast Area, individuals were creating 

counterfeit Voyager cards (credit cards used by 

postal employees to pay for gas and maintenance 

services for government vehicles) and commercial 

gas credit cards. These credit cards, along with 

others that were stolen, were being fraudulently used 

to purchase large quantities of fuel in the Miami area. 

Approximately $400,000 in fraudulent postal fuel 

charges have been reported. Allegedly, the group 

then resells the fuel to legitimate gas stations for 

profit. The OIG has made 20 arrests in this case, to 

date.

SUPPLEMENTAL INFORMATION

INVESTIGATIVE SYNOPSES

SUPPLEMENTAL INFORMATION
54 | October 1, 2003 - March 31, 2004

Two individuals convicted on charges relating to 

the filing of a false tort claim seeking $100,000 in 

damages for an ankle injury at a postal facility

The OIG investigated allegations that an individual 

filed a false tort claim against the Postal Service for 

a broken ankle sustained at a Nebraska Post Office. 

The individual sought damages in the amount of 

$100,000. The OIG investigation substantiated that 

the claim was false. The individual filing the claim 

was convicted by trial and is awaiting sentencing. 

A witness who made false statements to federal 

investigators concerning her knowledge of the injury 

pled guilty to one count of making a false statement 

and was put on probation for three years.

Vehicles

Company charged with theft for over-billing 

$861,000 in vehicle repair charges

The Postal Service uses a combination of in-house 

repair facilities and contracted vehicle repair shops 

to maintain its fleet of delivery vehicles. A contracted 

repair shop in California billed over $1 million to 

Postal Service Voyager cards while only performing 

$160,000 in authorized work. The owner of the repair 

shop has been charged in the Superior Court of 

California with 10 counts relating to theft. 

Transportation

Transportation company repays approximately 

$500,000 in overpayments 

With the rising cost of fuel, Postal Service 

transportation costs are an increasing area of 

concern. The OIG and the Postal Inspection Service 

worked together in the St. Louis area on a “qui 

tam” suit filed by a former general manager of a 

transportation company. 

The suit charged that the Postal Service had overpaid 

the company and that company management was 

aware of the overpayments and concealed the fraud. 

Total recoveries to the Postal Service, including those 

secured by the Postal Inspection Service, are over 

$500,000.

Supplies and Services

Postal Service subcontractor sentenced for mail 

fraud and false statements involving a $1.6 

million contract, in connection with the 2001

anthrax decontamination at a New York postal 

facility

A Postal Service subcontractor was hired to clean 

and decontaminate a New York Processing & 

Distribution Center, after anthrax was discovered at 

the location. The subcontractor produced Hazardous 

Waste Operations training certifications that falsely 

represented the subcontractor’s employees as 

having the required training in order to clean and 

decontaminate the facility. Since the employees did 

not have the required training, the resulting claims of 

$1.6 million that were submitted were in violation of 

the contract. The subcontractor pled guilty to making 

a false statement and was sentenced to 30 months 

in prison and ordered to make restitution to the 

Postal Service in the amount of $1,385,971. 

Workers’ Compensation

California physician pled guilty to filing a false 

statement for services not rendered 

The OIG worked with the Department of Labor 

and the California Department of Insurance on 

a case involving a San Diego physician who 

committed workers’ compensation related fraud. 

The investigation revealed that the physician was 

submitting fraudulent workers’ compensation claims 

for services he had not provided. The physician pled 

guilty to one count of filing a false statement and one 

count of presenting a false statement. A San Diego 

Superior Court judge has suspended the physician’s 

medical license pending the outcome of the judicial 

proceedings. Sentencing is pending.

IMPROVE SERVICE

Extortion scheme uncovered by tracking an 

unauthorized access to a Postal Service public 

web service 

A 21-year-old individual from Minnesota allegedly 

obtained unauthorized access to a Postal Service 

public web service and to computer systems 

belonging to at least two financial institutions. The 

Royal Canadian Mounted Police provided the OIG 

with information that allowed positive identification of 

the individual. 

After obtaining a warrant, based on an OIG affidavit, 

the local sheriff’s office seized the computer. The 

images were turned over to the OIG’s Technical 

Crimes Unit for analysis. The analysis disclosed 

e-mails sent to companies asking for money in return 

for information on how he broke into their systems. 

In addition, the OIG identified over 150,000 legitimate 

credit card numbers and hundreds of other sensitive 

files illegally obtained during the intrusion of a financial 

institution in the Midwest. The subject was indicted 

and has surrendered to federal officials.

Unauthorized password decrypting software 

detected on Postal Service server

A Postal Service electronic technician at a Postal 

Service Processing and Distribution Center 

(P&DC) admitted to using unauthorized software 

on computers and running password decrypting 

software on the server at the P&DC. 

Computer forensic examination of the server and two 

computer systems verified that unauthorized software 

had been downloaded and used. The employee 

was put on emergency off-duty status and has 

subsequently been removed from the Postal Service.
October 1, 2003 - March 31, 2004 | 55

OIG Actions Number of Requests

Carryover from prior period 5

Received during the period 62

TOTAL ON HAND DURING THE PERIOD 67

Processed during the period

 Released 22

 Withheld 10

Referred to Postal Service or other agency 23

Otherwise closed* 4

TOTAL PROCESSED DURING THE PERIOD 59

BALANCE AT END OF PERIOD (PENDING) 8

FREEDOM OF INFORMATION ACT

REQUESTS

For the period of October 1, 2003, through March 31, 2004

OIG Actions Number of Requests

Total appealed 3

Total upheld 3

Appeals pending 0
56 | October 1, 2003 - March 31, 2004

GLOSSARY

Advance fee - 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 - 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 - 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.

Employment - Soliciting money for information or 

assistance in obtaining nonexistent or misrepresented 

jobs.

Express Mail - 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 FirstClass Mail (that is, 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 - 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 flatsize mail eligibility. Flat-size mail may be unwrapped, 

sleeved, wrapped or enveloped. 

Fraud internet schemes - Fraudulent schemes 

using the Internet with a nexus to the mail.

Lottery - Advertisements seeking money or property 

by mail for participation in schemes to win prizes 

through chance.

Merchandise failure to pay - Mail order 

merchandise that is acquired without providing payment.

Merchandise misrepresentation - Mail order 

merchandise or services are materially misrepresented 

in advertising.

Miscellaneous - Any other scheme not described in 

a specific category.

Postal Rate Commission (PRC) -

An independent federal agency that makes 

recommendations on Postal Service requests for 

changes in postal rates and mail classifications.

The five commissioners are nominated by the

President and approved by the U.S. Senate. 

Postal Reorganization Act - The statute that 

requires postal rates and fees to “provide sufficient 

revenues so that the total estimated income and 

appropriations . . . will equal as nearly as practicable 

total estimated costs.” (Public Law 91-375, signed 

August 12, 1970). 

Priority Mail - First-Class Mail that weighs more 

than 13 ounces and, at the mailer’s option, any other 

mail matter weighing 13 ounces or less. Priority Mail 

provides expedited delivery. 
October 1, 2003 - March 31, 2004 | 57

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. If the Board finds these rates unsatisfactory, it may 

modify them by unanimous vote. 

Retail facility - A postal unit (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 FirstClass Mail or is not mailed as Periodicals. 

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 - Schemes, such as envelope 

stuffing, that do not provide home employment.
58 | October 1, 2003 - March 31, 2004

NOTES PAGE
U.S. Postal Service

Office of Inspector General

Help track down fraud, 

waste and misconduct at 

the U.S. Postal Service

HOTLINE

1-888-USPS-OIG

(1-888-877-7644)

TO REPORT:

■ Alleged violations of law, rules or regulations

■ Significant mismanagement and waste of funds

■ Whistleblower reprisal

■ Misconduct of authority

■ Improper use of government resources

■ Endangerment of public health and safety

■ Misconduct

■ Conflict of interest

■ Bribes, kickbacks or bid rigging

■ Fraudulent travel claims

■ Contract or procurement fraud

■ Health care fraud

■ Workers’ compensation fraud

For additional information, see our website at www.uspsoig.gov
Office of Inspector General

1735 N. Lynn Street

Arlington, VA 22209-2020

(703) 248-2100

Fax: (703) 248-2291

Internet: www.uspsoig.gov