October 1, 2004, through March 31, 2005 | 1

SEMIANNUAL REPORT

TO CONGRESS

OCTOBER 1, 2004 – MARCH 31, 2005

OFFICE OF INSPECTOR GENERAL
MISSION STATEMENT

The mission of the U.S. Postal Service Offi ce of Inspector General 

is to conduct and supervise objective and independent audits, 

reviews and investigations relating to Postal Service programs 

and operations to:

■ Prevent and detect fraud, waste and abuse;

■ Promote economy, effi ciency and effectiveness;

■ Promote program integrity; and

■ Keep the Governors, Congress and Postal Service 

management informed of problems, defi ciencies

and corresponding corrective actions.
October 1, 2004, through March 31, 2005 | i

With the Postal Service facing major fi nancial and operational 

challenges and opportunities, we 

are striving to provide high-impact, 

high-quality, timely audits and investigations to help the Postal Service 

meet those challenges. Building on 

last year’s initiatives, our offi ce is 

reaching full performance. We’ve 

become a leaner, better aligned 

organization and improved the 

effi ciency of our operations. While 

maintaining our independence, we 

partner with the Postal Service to 

identify high-risk areas to focus our 

audits and investigations.

We continue to improve our 

productivity, as evidenced by our 

performance measurement system. 

Improvements over the same period 

in Fiscal Year (FY) 2004 include the 

following: 

■ Investigations yielded a 143 

percent increase in the number of 

arrests and indictments.

■ The Offi ce of Audit had a 35 

percent increase in the number of 

audits with nationwide impact.

For FY 2005, we are focusing 

on directorate excellence, expert 

planning and smart workplace. 

The “Directorate Excellence” initiative ensures greater defi nition of 

roles and responsibilities at middle 

management levels. “Expert Planning” analyzes planning activities 

and identifi es strengths and areas 

for improvement. “Smart Workplace” 

provides guidelines and project 

management tools that help improve 

productivity and accountability and 

achieve optimal operational effi ciency. 

We are also focusing on customer 

satisfaction, both internally and 

externally. 

Internally, we created a formal pay 

for performance process, centered 

training around skills requirements 

and postal knowledge, and located 

resources and personnel close to 

postal facilities across the country. 

We also developed transaction-based 

processes that provide employee 

feedback on services provided by 

mission support staff. 

Externally, our managers hold 

strategically-focused meetings with 

stakeholders to facilitate mutual 

understanding of our mission and 

to help plan and develop audit and 

investigative initiatives. During this 

semiannual period, we sponsored 

the fi rst Inspector General Summit 

that also provided valuable insights 

and initiatives that were factored 

into our audit and strategic planning processes. Many audience 

participants commented that the 

summit could serve as a model for 

the Inspector General community to 

gain stakeholder input into signifi cant 

internal planning processes.

Following the Postmaster General’s 

September 2004 announcement of 

the transfer of certain investigative 

responsibilities from the U.S. Postal 

Inspection Service to the Offi ce of 

Inspector General (OIG), in February 

2005, the Deputy Postmaster 

General shifted resources between 

both organizations. These changes 

are designed to enhance the value 

of each organization to the Postal 

Service and its customers. In 

August, fi nal decisions about the 

investigative jurisdictions of both 

organizations will be made. 

In this reporting period, the OIG 

issued 169 audit reports, management advisories and other products. 

These efforts, some of which were 

accomplished by the OIG and postal 

management jointly, resulted in 

$133,550,374 in questioned costs, 

unrecoverable costs, funds put to 

better use, and revenue impact. 

Also in this time period, the OIG had 

49 signifi cant recommendations, 

of which 45 were accepted by the 

Postal Service. 

In addition, the OIG closed 1,269 

cases resulting in 306 referrals to 

management for administrative 

action, 194 arrests and indictments, 

and over $12.3 million in fi nes, restitutions, and recoveries.

This semiannual report reports on the 

state of the Postal Service through 

the eyes of the OIG by focusing on 

the fi ve Transformation Plan strategies 

— Improving Service, Managing 

Costs, Developing People, Growing 

Revenue, and Pursuing Reform — 

and how our work adds value.

In conclusion, the Offi ce of Inspector 

General continues its efforts to 

maintain America’s confi dence in 

its mail service while improving the 

bottom line. 

October 1, 2004 – March 31, 2005 | i

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

AUDIT

Reports issued ........................................................................................................169

Significant recommendations issued ........................................................................49

Total reports with financial impact .............................................................................49

Funds put to better use ...................................................................... $114,646,808

Questioned costs1 ................................................................................ $17,090,638

Unrecoverable costs ...............................................................................$1,549,233

Revenue impact ....................................................................................... $263,695

TOTAL .................................................................................................... $133,550,374

SUMMARY OF PERFORMANCE

October 1, 2004 – March 31, 2005

INVESTIGATIONS2

Investigations completed ...................................................................................... 1,269

Arrests .......................................................................................................................92

Indictments/informations .........................................................................................102

Convictions/pretrial diversions ...................................................................................23

Administrative actions ..............................................................................................306

Total fines, restitutions and recoveries ........................................................ $12,251,411

Amount to Postal Service (included in total figure above) ........................$3,521,640

HOTLINE CONTACTS

Facsimile – FAX ........................................................................................................ 318

E-mail ....................................................................................................................4,827

Standard Mail ...........................................................................................................709

Voice mail messages ............................................................................................ 1,428

Telephone calls ....................................................................................................13,157

TOTAL CONTACTS ......................................................................................... 20,439

1 Includes unsupported costs of $22,837.

2 Statistics include joint investigations with the U.S. Postal Inspection Service and other federal law enforcement agencies.
October 1, 2004, through March 31, 2005 | 1

OVERVIEW ..................................................................................................................2

‘DELIVERING RESULTS’ STAR REPORT .....................................................................3

Strategy: Improving Service ..................................................................................3

Strategy: Managing Costs .....................................................................................5

Strategy: Developing People ............................................................................... 15

Strategy: Growing Revenue ................................................................................ 17

Strategy: Pursuing Reform .................................................................................. 19

PRESERVING INTEGRITY AND SECURITY ..............................................................22

Investigative Activities ..........................................................................................22

Oversight of Investigative Activities and Security .................................................25

Security ...............................................................................................................26

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

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

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

APPENDIX A – Reports with Quantifiable Potential Monetary Benefits ...............30

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

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

APPENDIX C – Recommendations That Funds Be Put to Better Use ................. 41

APPENDIX D – Reports with Significant Recommendations Pending 

Corrective Actions ......................................................................42

APPENDIX E – Significant Management Decisions in Audit Resolution ..............44

APPENDIX F – Investigative Statistics ..................................................................45

APPENDIX G – Summary of Postal Service Investigative Activities 

Under Title 39 USC § 3013 .........................................................46

APPENDIX H – Closed Congressional and Board of Governors Inquiries ...........47

SUPPLEMENTAL INFORMATION ..............................................................................49

Audit Synopses ...................................................................................................49

Investigative Synopses ........................................................................................54

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

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

TABLE OF CONTENTS
2 | Semiannual Report to Congress

OVERVIEW

‘DELIVERING RESULTS’ STAR 

REPORT

Over the past year, the Postal Service made 

significant progress towards meeting some of its 

major strategies for Improving Service, Managing 

Costs, Developing People, Growing Revenue 

and Pursuing Reform. The Postal Service should 

continue to explore all opportunities to make 

progress towards these strategies to ensure efficient operations and maintain reasonable prices 

for its customers. 

Following is a summary of the strategies in this 

report.

■ Improving Service — The Postal Service is 

striving to enhance its service through several 

customer service and delivery operations 

initiatives. New product and service initiatives 

continue to make it quicker, easier and more 

convenient for customers to do business with 

the Postal Service. 

■ Managing Costs — The Postal Service is 

expected to provide timely, reliable delivery of 

the mail. It is also expected to provide service 

as efficiently as possible, while charging 

reasonable prices. Productivity improvements 

over the last five years resulted in significant 

cost savings and are helping the Postal Service 

achieve this strategy. 

■ Developing People — The Postal Service’s 

strategy is maintaining an accountable, motivated, and diverse workforce, empowered to 

maximize performance in a safe and secure 

work environment. It has set clear objectives 

for building an environment that is healthy, 

prosperous and inclusive. 

■ Growing Revenue — The Postal Service’s 

strategy for growing revenue is to enhance its 

core services to provide greater value to its 

customers. The challenge the Postal Service 

faces is that the number of mail deliveries is 

rising and the average number of pieces, per 

delivery, is increasing. 

■ Pursuing Reform — The Postal Service’s 

goal for pursuing legislative reform is to obtain 

greater flexibility to improve service. A growing 

number of members of Congress and the 

mailing community believe that the postal 

business model is broken and Congress must 

act quickly or the Postal Service will face 

economic disaster. 

PRESERVING INTEGRITY AND 

SECURITY

Integrity is an essential element for safeguarding 

postal products, customers, services and assets, 

and, ultimately, for maintaining a stable and sound 

Postal Service. Breaches of integrity pose an 

inherent risk due to the size and diversity of the 

organization. This chapter explores OIG work in 

the area. 

ORGANIZATIONAL CHART 

AND OFFICE LOCATIONS

These two pages show the OIG organizational 

chart and office locations as of March 31, 2005.

APPENDICES

The appendices align the OIG’s body of work with 

the Postal Service’s Transformation Plan. This 

semiannual report section fulfills the requirements 

of the Inspector General Act of 1978 to summarize OIG activities during the six-month period 

ending March 31, 2005.

SUPPLEMENTAL INFORMATION

This section includes brief synopses of each 

audit and selected investigations and Freedom 

of Information Act activities that were completed 

between October 1, 2004 and March 31, 2005. It 

also includes a glossary.

For this reporting period, the Semiannual Report to Congress revisits the Postal Service’s progress on its five strategic 

goals — Improving Service, Managing Costs, Developing People, Growing Revenue, and Pursuing Reform. Internally, it 

is called the ‘Delivering Results’ STAR. This semiannual report provides an overview of the Postal Service’s programs 

and operations.
October 1, 2004, through March 31, 2005 | 3

‘DELIVERING RESULTS’ STAR REPORT

The U.S. Postal Service has made 

notable progress in transforming itself to 

meet the challenges of the 21st century. 

Over the last three years, it has made 

significant improvements in operational 

efficiency which resulted in estimated 

savings of $4.3 billion. At the same 

time, the Postal Service has provided 

record-breaking service to its customers 

and attained high employee satisfaction 

scores. The Postal Service has also 

enhanced its core products and services 

to mitigate declining revenues from the 

loss of First-Class Mail volume.

While these accomplishments are 

noteworthy, they do not guarantee the 

long-term viability of the Postal Service. 

The Postal Service must continue to 

streamline its vast processing, distribution 

and transportation networks to ensure its 

resources are allocated efficiently. 

Expanding delivery networks challenge 

the Postal Service every day to allocate 

the workforce optimally. The Postal 

Service must also find ways to reduce 

the significant costs associated with 

workplace injuries and create safer work 

environments in an increasingly automated world. Marketing and product 

development have become critical to 

increasing revenues. Finally, effective 

in FY 2006, Congress must determine 

whether it will release billions of dollars 

of escrowed funds that were intended 

for Postal Service operations but were 

sequestered under Public Law 108-

18, the Civil Service Retirement Fund 

Escrow account. 

Each of these areas represent significant 

challenges to the health and long-term 

well-being of the Postal Service. The 

Office of Inspector General (OIG) has 

partnered with the Postal Service in 

tackling these challenges. This Semiannual Report to Congress reports on 

the progress the Postal Service has 

made towards meeting its major strategies for Improving Service, Managing 

Costs, Developing People, Growing 

Revenue, and Pursuing Reform. 

STRATEGY: 

IMPROVING SERVICE

The Postal Service is striving to 

enhance customer satisfaction through 

several customer service and delivery 

operations initiatives designed to make 

it quicker, easier and more convenient 

for customers to do business with the 

Postal Service. For example, the Postal 

Service has introduced about 2,500 

Automated Postal Center (APC) kiosks 

nationwide. These award-winning kiosks 

offer customers a wide range of postal 

retail services and, in many cases, 

24-hour service. 

Enhance Customer Service 

Operations 

The Postal Service is financed through 

revenue generated by its products and 

services and is addressing the shifting 

demographics and changes in lifestyle 

and behavior of postal customers by 

utilizing new technology to improve 

access to products and services. 

To encourage greater market growth, 

the Postal Service expanded access to 

its products and services with vending 

machines, APCs, Stamps Online, and 

Click-N-Ship. The OIG has conducted 

— and is presently conducting — audits 

to assess whether the Postal Service’s 

alternate access to products and 

services will enhance customer service 

and increase revenue. 

Customer Self-Service. Self-Service 

Vending Machines give customers a 

STRATEGY: IMPROVING SERVICE
4 | Semiannual Report to Congress

convenient alternative for purchasing 

stamps and other basic Postal Service 

products during and after business 

hours. Nationwide, the Postal Service 

maintains approximately 30,000 vending 

machines (27,000 self-service postal 

centers and 3,000 other types of vending 

equipment) that generate more than 

$1.9 billion in revenue. The OIG assessed 

the vending program and recommended 

that area and district officials improve the 

program’s effectiveness and efficiency 

by relocating equipment that does not 

meet minimum revenue requirements, 

and possibly reduce maintenance and 

repair costs by discontinuing the use of 

obsolete equipment. 

The OIG is currently assessing the 

Vending Equipment Sales and Service 

(VESS) System. VESS is an online 

database that offers real-time tracking of 

product sales, miscellaneous costs, and 

maintenance and service for the vending 

machines. Postal officials use VESS 

information to ensure that revenue goals 

are achieved and workhour costs remain 

within specified guidelines. 

The OIG is also assessing the APC 

deployment strategy. The Postal Service 

deployed 2,500 APCs in FY 2004, in 

an effort to move simple transactions 

to Post Office lobbies and create a new 

low-cost alternative to the postal counter. 

The Postal Service invested more than 

$95 million in the deployment. As of 

March 2005, these APCs have generated 

more than $169 million in revenue for the 

Postal Service. The Postal Service has 

plans for a second phase of the APC 

program project during FY 2005. 

Address Management. The OIG 

plans to further assist the Postal Service 

in improving customer satisfaction by 

reviewing the Address Management 

System, which enhances mail processing 

and delivery efficiency. The Postal Service 

spends more than $1 billion annually 

to handle undeliverable mail. Incorrect 

address information increases mail 

processing operating costs and adversely 

impacts customer service due to the 

diminished value of information for business mailers. 

Improve Delivery Operations

The Postal Service requires a significant 

infrastructure investment to meet its 

universal service obligation to deliver 

millions of pieces of mail daily. Delivery 

extends to more than 142 million delivery 

points, involving approximately 290,000 

city and rural letter carriers and more than 

6,000 box delivery highway route contractors to deliver the mail. 

The Postal Service estimates an increase 

of 1.8 million delivery points in FY 2005, 

mostly in rural areas. The Postal Service 

has, thus far, managed this continued 

delivery point growth and improved its 

delivery operations with these initiatives. 

Improving Data for Decision-Making.

The Postal Service improved delivery by 

implementing both the Delivery Operation Information System (DOIS) and the 

Managed Service Points (MSP) tools. The 

importance of these systems is to provide 

delivery supervisors and managers with 

data (such as workload status reports 

and carrier performance information), 

to improve daily delivery operational 

performance, and to allow supervisors 

and managers to determine the number 

of workhours required to deliver the mail 

on daily carrier routes.

The development and training for the 

delivery route optimization tool, Carrier 

Optimal Routing (COR), was completed in 

April 2004. COR is a computer program 

that: (1) configures compact contiguous 

routes; (2) determines safe and efficient 

travel patterns; (3) determines relays 

based on actual volume; and (4) reduces 

park points, mileage, and workhours. 

However, as a result of an agreement 

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October 1, 2004, through March 31, 2005 | 5

between the Postal Service and the 

National Association of Letter Carriers 

union, a nationwide moratorium was 

placed on route inspections from April 

through December 2004, and the Postal 

Service did not conduct route inspections or use COR during that period. The 

Postal Service started performing route 

inspections again in January 2005 and 

will begin to use COR to adjust routes 

where appropriate.

Sorting and Delivering. The Flats 

Sequencing System (FSS) and Delivery 

Point Packaging (DPP) are two delivery 

strategies that the Postal Service 

continues to research and develop. 

Currently, carriers sort fl ats manually in 

delivery cases, but the FSS automates 

that process and even puts the fl ats in 

delivery order. In July 2004, fabrication 

and in-plant testing of prototypes for the 

FSS began and will continue through 

September 2005. DPP sorts letters 

and fl ats into a single unit for delivery. 

Technology concepts and methodologies were analyzed in FY 2004, and will 

continue in FY 2005. 

Rural delivery service is the nationwide 

network of mail routes serviced by rural 

letter carriers. These carriers primarily 

deliver and collect mail from roadside 

mailboxes owned and maintained 

by residents in communities without 

convenient postal facilities. In the past 

fi ve years, rural deliveries have increased 

18 percent. Management recognizes 

that more attention is needed to develop 

rural delivery policies and procedures 

and in October 2004, the Postal Service 

created the Rural Delivery Program Offi ce 

to support rural operations. Reports 

about rural route workhour usage, which 

assist fi eld managers in analyzing overall 

performance by offi ce and route, are 

now accessible electronically and have 

proven to be a valuable tool for identifying 

problem areas. The Postal Service also 

reissued the guidebook titled Managing 

Rural Delivery Operations to remind rural 

delivery managers to maintain proper 

timekeeping procedures and complete 

timecard audits as a way to target 

problem areas and identify areas for 

improvement. 

Overseas Military Absentee Ballots. 

During the 2000 national election, there 

were highly publicized reports of delays 

and uncounted military absentee ballots. 

As a result, during the 2004 national 

election, the Postal Service and the 

Department of Defense combined efforts 

to expedite the processing and delivery 

of absentee ballots to and from overseas 

military Post Offi ces. 

At the request of the Postal Service, 

Vice President of Network Operations 

Management, the OIG assessed the 

Postal Service’s processing of overseas 

military absentee ballots for the 2004 

national election. The OIG conducted 

the audit in cooperation with the Postal 

Service’s International Transportation 

and Network Support group and the 

Intelligent Mail Implementation group.

The OIG concluded that the 

Postal Service succeeded 

in expediting the processing 

and delivery of military 

absentee ballots and ensured 

that absentee ballots were 

postmarked. However, some 

challenges remain in controls 

over absentee ballots and 

compliance by local election 

offi cials with time frames for 

delivering ballots. 

STRATEGY: 

MANAGING COSTS 

The Postal Service is expected to 

provide effi cient service while charging 

reasonable prices. It uses Total Factor 

Productivity (TFP) as an overall measure 

STRATEGY: IMPROVING SERVICE 

Rural carriers deliver and collect mail from roadside mailboxes 

owned and maintained by residents in communities without 

convenient postal facilities.
6 | Semiannual Report to Congress

of its efficiency, similar to the Multifactor 

Productivity measure used by the U.S. 

Department of Labor. Postal productivity 

has improved over the last five years, 

resulting in significant cost savings. 

Because of these efficiencies and the 

cost reductions resulting from the Postal 

Civil Service Retirement System Funding 

Reform Act of 2003 (Public Law 108-18), 

postage rates were last increased in 

2002 and will not be increased any earlier 

than 2006. 

Unless high-contribution mail classes 

grow, postal rate increases in line with 

economy-wide inflation will have difficulty 

producing enough revenue to cover all 

postal expenses, including fast-growing 

health care costs. 

The universal delivery network continues 

to expand at a rate of about 1.8 million 

new deliveries a year. The growth of the 

number of delivery addresses, coupled 

with increased costs for vehicle fuel and 

utilities for facilities, is increasing the cost 

of operations.

In 2004, the Postal Service introduced the 

Evolutionary Network Development (END) 

initiative. The goal of END is to create a 

flexible processing and transportation 

network that reduces Postal Service and 

customers’ costs, increases operational 

effectiveness, and improves consistency 

of service.

Postal Service Financial Position 

The Postal Service celebrated one of its 

most successful financial years in 

FY 2004, realizing more than $3 billion in 

net income. Further, the Postal Service 

eliminated $1.5 billion in costs during 

FY 2004, bringing the total reduced costs 

over the last three years to $4.3 billion. 

Revenues remained stable in FY 2004 at 

slightly under $69 billion, but operating 

expenses increased from $63.9 billion in 

FY 2003 to $65.9 billion in FY 2004. 

However, the $65.9 billion of actual 

expenses was less than the 

$66.8 billion in planned expenses for 

FY 2004. The reduction in actual versus 

planned expenses was due to controlling costs. 

The Postal Service reduced its debt 

from $11.3 billion in FY 2001 to 

$1.8 billion in FY 2004, a reduction of 

$9.5 billion. The Postal Service Civil 

Service Retirement System Funding 

Reform Act of 2003 significantly 

decreased the Postal Service’s funding 

requirements for Civil Service Retirement 

System (CSRS) retiree benefits. The 

legislation required the Postal Service 

to use “cost savings,” (the difference 

between what would have been paid 

without the law and the required contributions prescribed by the act), to maintain 

current postage rates through 2005 and 

to reduce outstanding debt in FYs 2003 

and 2004. 

Further, because of a complete overhaul 

of its debt portfolio in FY 2003, the Postal 

Service benefited from both lower interest 

rates on short-term debt and the flexibility 

to daily repay debt with available cash. 

A major benefit of the lower debt was the 

reduction in interest expense to its lowest 

amount since 1972. The Postal Service 

expects to further reduce its outstanding 

debt to approximately $800 million 

during FY 2005, and expects earnings on 

investments to exceed interest expense 

on its debt.

From FY 2003 to FY 2004, the Postal 

Service reduced the number of career 

employees from 729,035 to 707,485, 

and reduced workhours by 21 million. 

This trend began in FY 2000 and has 

allowed the Postal Service to offset salary 

increases due to raises in cost of living, 

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October 1, 2004, through March 31, 2005 | 7

salary, and health benefi ts by keeping 

personnel costs relatively stable. The 

Postal Service has been able to accomplish this while dealing with an expanding 

delivery network. In addition, workers’ 

compensation costs were reduced by 

more than $230 million in FY 2004, due 

to a reduction in the number of medical 

claims and a decrease in the cost per 

claim. The Postal Service noted these 

lower costs were a result of its multi-year 

efforts to prevent on-the-job injuries.

The Postal Service has done a 

commendable job of managing costs. 

Nevertheless, without signifi cant reform 

these cost-cutting measures alone will 

not give the Postal Service the resources 

necessary to meet its mission. There 

appears to be signifi cant support for 

postal reform, but fi nal details of what 

the legislation will include have not 

yet been determined. For example, 

Congress needs to decide whether the 

Postal Service should carry the burden 

of funding military service pension 

costs not levied against other federal 

government agencies and how certain 

CSRS “savings” should be used. These 

decisions will have a signifi cant impact 

on how the Postal Service will manage 

future costs.

Internal Controls and Accuracy 

of Financial Reporting

As part of the overall audit of the Postal 

Service fi nancial statements, using a 

stratifi ed sampling plan, we selected 

and reviewed 77 Post Offi ces, Business 

Mail Entry Units (BMEUs) and SelfService and Automated Postal Centers. 

The audits revealed that fi nancial 

transactions were reasonably and fairly 

presented in the accounting records 

and, generally, internal controls were 

in place and effective. In addition, our 

audits at Postal Service headquarters 

and the Information Technology and 

Accounting Service Centers revealed 

management’s fi nancial accounting 

policies and procedures conformed with 

accounting principles generally accepted 

in the United States and provided for an 

adequate internal control structure. Also, 

the OIG did not identify any instances 

of noncompliance with laws and regulations that have a direct and material 

effect on the fi nancial statements.

City Letter Carrier Operations

Controlling delivery costs is necessary as the Postal Service continues 

to experience increases in delivery 

points (addresses) each year. There 

is an expectation that delivery point 

growth will continue to increase annually as the population grows. Higher 

revenue-contribution mail volume, such 

as First-Class Mail, has continued to 

decline as the public increases its use 

of alternative means of messaging, 

although overall revenue 

has increased slightly due 

to volume increases in 

other mail classes.

Delivery operations 

accounted for 45 percent 

of the Postal Service’s total 

labor hours in the FY 2005 

fi eld operating budget. 

These are hours city and 

rural letter carriers spend 

casing mail in the offi ce and 

delivering mail on routes. 

In FY 2005, salaries and 

benefi ts for city carriers are 

budgeted at more than $16 billion, with 

a budget performance goal of reducing 

city delivery workhours by 4.5 million. 

The Postal Service is making efforts to 

improve delivery effi ciency with standardization of city delivery operations, 

in order to manage delivery workhours. 

In FY 2004, the Postal Service began 

implementing AM Standard Operating 

Procedures (AM SOP). These new 

STRATEGY: MANAGING COSTS 

An OIG audit noted that management can improve operations by 

adequately reviewing the daily mail volumes when determining daily 

workhours for each carrier’s route to maintain effi ciency and cost. 
8 | Semiannual Report to Congress

morning management procedures assist 

managers and postmasters in making 

better business decisions for city delivery 

operations (e.g., more accurately estimating daily workhours needed).

The OIG assessed the management 

of city letter carrier operations in three 

delivery units in the Rio Grande District. 

The audit noted that management 

can improve operations by adequately 

reviewing the daily mail volumes when 

determining daily workhours for each 

carrier’s route to maintain efficiency and 

cost. Additionally, delivery unit supervisors 

and managers did not adequately match 

workhours with workload (mail volume), 

resulting in 2,543 unjustified workhours 

during October 2003 through February 

2004, valued at $92,762 in unrecoverable 

costs. The OIG is expanding its assessment of city letter carrier management to 

the Pacific and Great Lakes Areas.

Letter Carrier 

Compensation Models

The Postal Service and its associated 

unions use collective bargaining and 

compensation models on reach agreement to city and rural letter carriers’ 

compensation. Compensation for box 

delivery highway contract route (HCR), 

or contract carriers, is established via the 

contract the Postal Service enters into 

with private individuals or firms. The OIG 

will examine issues pertaining to these 

three letter carrier models to determine 

whether lower cost alternatives exist.

Workers’ Compensation Costs

A significant continuing cost for the 

Postal Service is compensation for 

injured workers. Due to the size of their 

bargaining unit workforce, the Postal 

Service is the largest participant in the 

Department of Labor’s (DOL) Office 

of Workers’ Compensation Programs 

(OWCP) in 2004, representing about 30 

percent of the total federal workforce that 

participated. The Postal Service was also 

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

same year.

The OIG examined a contract between 

the Postal Service and a preferred 

provider organization supplying injury 

compensation medical bill review 

services. The review determined and 

verified the cost savings claimed and 

realized by the Postal Service. The Postal 

Service realized $2.2 million in cost 

savings due to the contractor’s billing 

reviews from March 2001 through July 

2004. Although the cost savings was 

not the annual $30 million the Postal 

Service anticipated, they are working 

with DOL and the contractor to improve 

the program.

The OIG also reviewed the OWCP federal 

medical fee schedule for its impact on 

the Postal Service’s medical costs. 

Medical services covered by the fee 

schedule include payments for medical 

and other health services furnished by 

physicians, hospitals, and other health 

care providers for work-related injuries. 

OWCP regulations state that these costs 

shall not exceed a maximum allowable 

amount for such services, as determined 

by the Director, OWCP. 

The OIG concluded that, overall, the 

medical fee schedule had a positive 

impact on the Postal Service’s medical 

costs. The OWCP paid medical providers 

about $528 million less than the amount 

providers billed for chargeback years 

(1997 to 2003). Further, although some 

medical charges did not have maximum 

allowable amounts established, the 

OWCP independently reviewed the 

charges, resulting in payments made at or 

below what the providers billed.

The OIG is also completing a review of the 

Postal Service’s schedule award costs. 

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October 1, 2004, through March 31, 2005 | 9

The Federal Employees’ Compensation 

Act (FECA) provides for the payment 

of workers’ compensation benefi ts to 

civilian employees (including Postal 

Service employees) for specifi ed periods 

for the permanent or temporary loss of 

use for certain members, organs, and 

functions of the body. Payment is made 

for a specifi ed number of days or weeks 

based on the severity of the impairment. 

This compensation benefi t is defi ned as a 

schedule award.

Evolutionary Network 

Development 

Most mail is sorted either by using highspeed automated equipment or entered 

into the mailstream through mailer workshare programs, requiring less handling 

by the Postal Service. This has led to 

excess capacity in the network. Moreover, with fl at or declining mail volume in 

some classes and market shifts, there 

is less need for dedicated, class-based 

networks that support class-defi ned mailstreams such as First-Class Mail, Parcels 

and standard packages, and Priority Mail. 

Today’s climate offers the Postal Service 

an opportunity to redesign and consolidate the processing and distribution 

network, further simplifying the transportation network by reducing the number of 

transportation routes. 

At the 2004 National Postal Forum, 

Postmaster General and CEO John Potter 

announced the Evolutionary Network 

Development (END) initiative — the 

next step in the Postal Service’s efforts 

to create a fl exible logistics network to 

reduce costs, increase overall effectiveness, and improve consistency of service. 

The END initiative has the potential to 

impact $26 billion in processing, distribution, labor, and transportation costs. 

The September 30, 2004, Semiannual 

Report to Congress covered several 

near-term challenges facing the 

Postal Service’s 

END initiative. 

These included: 

(1) completing 

a blueprint to 

govern network 

changes; (2) 

developing a 

comprehensive 

and integrated 

plan; (3) 

identifying and 

obtaining resources needed to incrementally implement network optimization; and 

(4) developing a formal process to implement the initiative and evaluate results. 

The OIG will continue to work with the 

Postal Service on this critical project. 

Verifying and Validating the END 

Models. As part of the END initiative, 

the Postal Service assembled a team 

to conduct an independent verifi cation 

and validation of the END models. At 

the request of the Postal Service, a 

member of the OIG served in an advisory, 

ex offi cio role for the team. The OIG’s 

suggestions helped formulate the process 

for conducting this verifi cation and validation effort and benchmarking research. 

The OIG issued a report in this reporting 

period explaining its role in assisting the 

Postal Service’s independent verifi cation 

and validation team. 

Closing, Consolidating, and 

Realigning Facilities. The Postal 

Service reported that, as part of the END 

initiative, it closed more than 50 facilities 

and annexes; closed 38 remote encoding 

centers; and consolidated some distribution operations. During this period, the 

Postal Service and the OIG worked 

together in the Northern Ohio District to: 

■ Improve the effi ciency of operations 

at the Akron, Ohio, Processing and 

Distribution Center (P&DC) by reducing 

STRATEGY: MANAGING COSTS 

The END initiative is the next step in the Postal Service’s efforts to 

create a fl exible logistics network to reduce costs, increase overall 

effectiveness, and improve consistency of service.
10 | Semiannual Report to Congress

235,000 workhours. This reduction 

could produce a cost avoidance of 

about $74 million over 10 years.

■ Improve network efficiency and 

potentially upgrade delivery service by 

recommending the Mansfield, Ohio, 

Main Post Office’s outgoing mail operations be moved to the Akron P&DC, 

saving 28,000 workhours. The OIG 

also identified opportunities to improve 

operational efficiencies by reducing 

24,000 mail processing workhours 

at this Post Office. These reductions 

could help avoid costs of $17.2 million 

over 10 years.

The END initiative focus is on realigning 

various networks, developing and 

retrofitting processing equipment, and 

implementing the proposed bulk mail 

center (BMC) retrofit transition effort. 

The retrofit effort may redefine BMCs 

as regional distribution centers for all 

parcels and bundles, functioning as 

part of the Hub-and-Spoke Program 

(HASP) network.

The Postal Service and the OIG will 

continue to jointly identify opportunities 

to improve operations and reduce costs. 

The OIG plans to assess portions of the 

END initiative, covering systems under 

development and facilities issues. The 

OIG will continue to review the international service center and domestic mail 

processing networks for efficiency and 

consolidation opportunities. 

Transportation and Logistics Costs

Transporting mail and equipment 

between processing plants and Post 

Offices is one of the Postal Service’s 

core operations and is essential to its 

success. Last year, the Postal Service’s 

vast transportation and logistics networks 

moved more than 206 billion pieces 

of mail — having a multitude of mail 

classes, shapes, and service standards. 

The Postal Service also moved more 

than 200 million trays, 100 million sacks, 

and approximately 2.5 million rolling 

containers.

The Postal Service must control costs, 

and one of the greatest opportunities to 

reduce costs is optimizing its contractintensive transportation and logistics 

networks. The Postal Service must 

ensure that its networks, which cost the 

Postal Service more than $6 billion annually, are efficient, responsive, and leverage 

information to optimally align transportation resources. 

Optimizing the Transportation 

Network. The OIG examines the security, effectiveness and economy of its mail 

transportation via the air, highway, rail, 

maritime, and logistical support networks. 

Its most recent efforts addressed:

■ Underutilized or Redundant Highway 

Trips. A major component of the Postal 

Service’s infrastructure is the Bulk 

Mail Center (BMC) network. Bulk mail 

includes advertising mail, catalogs, and 

large quantities of identical merchandise shipped by major mailers such 

as publishers, catalog companies and 

on-line retailers. Bulk mail is processed 

by a system of 21 BMCs and other 

facilities nationwide. The Postal Service 

spends more than $500 million annually on contracts to transport bulk mail 

over highway networks. 

The OIG is evaluating scheduled 

BMC highway transportation routes 

for effectiveness and identifying 

opportunities for cost savings. To date, 

OIG and Postal Service officials have 

identified 183 BMC transportation trip 

eliminations, consolidations, or modifications, potentially resulting in savings 

of more than $19 million over the life of 

the contracts. The Postal Service eliminated or modified most of the 183 trips 

without negatively affecting service 
October 1, 2004, through March 31, 2005 | 11

STRATEGY: MANAGING COSTS 

or operational fl exibility because mail 

volume was low and mail could be 

consolidated on other trips. 

■ Effectiveness of Air Network 

Operations. Air networks are a vital 

part of the overall transportation 

network. The OIG recently assisted 

the Postal Service in addressing mail 

backlog at the Hartsfi eld-Jackson 

Atlanta International Airport, based on 

a postal employee’s tip concerning 

signifi cant mail backlog during 

the height of the December 2004 

holiday season. OIG auditors rapidly 

responded and found an estimated 

200,000 to 400,000 pounds of 

Express, Priority, and First-Class Mail 

staged (sitting) at one time on the 

airport tarmac awaiting transportation 

by a commercial airline — some mail 

sat for eight days. 

The backlog, which occurred after a 

major snowstorm required rerouting 

the mail through Atlanta, was further 

compounded by a computer failure 

and the seasonal increase in passengers and luggage. The Postal Service 

incurred unanticipated costs to reroute 

the mail. In addition to the actions the 

Postal Service was already taking, the 

OIG recommended that the Postal 

Service, among other things, assess 

commercial air transportation contract 

penalties. Management agreed with 

our recommendations.

■ Mail Transport Equipment Service 

Center Network — Equipment 

Processing. The OIG followed up on a 

2001 mail transport equipment audit 

report to determine whether the Postal 

Service saved money by requiring 

facilities to reuse serviceable equipment rather than return it to service 

centers. The OIG concluded that the 

Postal Service took aggressive action 

to implement this recommendation 

and, as a result, saved more than 

$7.2 million. Because not all postal 

facilities complied with headquarters’ 

policy to reuse serviceable equipment, 

they missed an opportunity to save 

an additional $1.4 million. However, 

there is still an opportunity to save an 

additional $628,000 over the next two 

years, if postal facilities implement 

the policy. 

As the Postal Service transforms its 

infrastructure through END and other 

initiatives, it must ensure that the 

transportation network responds to 

changing transportation requirements 

and demands. To aid this effort, the 

Postal Service is implementing the 

Surface Visibility initiative. Currently, only 

rough estimates of surface transportation 

volume are available to postal managers 

to make decisions about transportation 

needs. The Postal Service envisions that 

Surface Visibility will produce accurate, 

complete, and reliable mail volume data 

enabling managers to make timely decisions about the surface transportation 

network. The OIG 

will work with the 

Postal Service to 

evaluate the success 

of this initiative.

As noted earlier, 

the transportation 

network is fl uid 

and dynamic. For 

instance, the Postal 

Service recently 

announced that it 

would no longer 

use two air contract 

carriers for commercial air transportation 

because of service issues. Although the 

Postal Service subsequently allowed 

the carriers to resume transportation on 

a limited basis, the action required the 

Postal Service to evaluate all options 

and balance service and cost. The OIG 

will help the Postal Service ensure that 

Air networks are a vital part of the overall transportation network. 
12 | Semiannual Report to Congress

network disruptions do not affect service 

and that viable and cost-effi cient alternatives are examined and adopted. 

Vehicle Maintenance Facilities

The Postal Service supports its 

delivery network with a vehicle fl eet 

and vehicle management infrastructure 

that ensures operational readiness, 

safety, and reliability. The OIG has 

played — and continues to play — an 

extensive role in identifying opportunities for vehicle managers 

to improve management 

controls.

Vehicles are serviced 

and repaired 

in 322 Postal 

Service vehicle 

maintenance 

facilities (VMFs) 

and in commercial garages 

throughout 

the country. 

Economical maintenance of the vehicle 

fl eet ensures parts and materials required 

for maintenance actions are readily available when needed. 

The OIG assessed the controls used to 

manage vehicle parts inventories and 

maintain appropriate inventory stock 

levels in the Atlanta District and determined that the two VMFs did effectively 

manage controls over inventories and 

inventory stock levels. In addition, the OIG 

is assessing the management of vehicles 

used to support delivery operations in 

selected Postal Service areas.

Using Technology 

to Increase Effi ciency

The Postal Service depends on automation technology to process and sort more 

than 650 million pieces of mail daily to 

more than 142 million addresses. Like 

many organizations, it is challenged to 

smartly adapt new technology to maintain 

its competitive position in the market; 

however, the downstream cost control 

potential for automation investments is 

signifi cant for operations. 

Long-Term Vision. The Postal Service’s 

long-term vision is to automate the 

sorting of more mail in delivery order for 

a given route (e.g., sort letters and fl ats 

[oversized letters] together, place them 

in a single bundle, and deliver them to 

an individual address). While fl at-shaped 

mail represents nearly 30 percent of 

the Postal Service volume, most fl ats 

continue to require sorting by carriers. The 

Postal Service’s fl ats strategy, which is 

modeled after technology investments for 

increasing effi ciencies for letters, identifi es 

the near- and long-term investments being 

pursued by the Postal Service and highlights the areas of likely customer impact.

Future plans also include mail coding 

and tracking through Intelligent Mail that 

captures and shares information about 

each mailpiece throughout the postal 

system. This will help the Postal Service 

compete in a marketplace where information about mail is becoming increasingly 

more important to its customers. 

Competitors have built their businesses, 

in part, by recognizing the need to provide 

more real-time access to processing and 

delivery information. The Postal Service 

expects Intelligent Mail to stimulate 

revenue growth, reduce operating costs, 

and enhance mail security. An audit of 

the intelligent mail data acquisition system 

is under way for FY 2005. This system is 

a replacement initiative for mobile data 

collection devices that supported delivery 

operations. The OIG will continue to evaluate technology investments supporting 

intelligent mail coding and tracking.

Maximizing Innovation. The Postal 

Service has a long history of testing 

innovative methods in distribution, 

Vehicles are serviced and repaired in 322 Postal Service vehicle maintenance 

facilities (VMFs) and in commercial garages throughout the country. 
October 1, 2004, through March 31, 2005 | 13

STRATEGY: MANAGING COSTS 

delivery and transportation systems, and 

continues to invest research and development funds to enhance operational 

efficiencies. The OIG will continue to look 

at new technology and initiatives being 

developed to ensure efficiency enhancements are economical and attainable. 

For FY 2005, the OIG is auditing 

large technology investments that 

support Transformation Plan efficiency 

goals, including automated package 

processing systems, flats identification 

code sorters, flats recognition improvement programs, and flats sequencing 

systems. The value of these investments 

in this period is anticipated to be more 

than $1 billion. 

Increasing Availability of Technology 

to Customers. The Postal Service is 

operating within a highly competitive 

marketplace and is using technology 

wherever possible to enhance the 

value of its products and services for 

customers. The Postal Service has 

outlined opportunities to enhance retail 

access and encourage the growth of 

postal products and services as part 

of its overarching strategy of fostering 

growth through customer value. Certain 

Postal Service initiatives support their 

commitment to expand customer access 

to postal services, enhance operational 

efficiency, and strategically apply 

technology to provide Postal Service 

customers with convenient alternatives by 

moving transactions away from the retail 

counter. During this reporting period, 

the OIG issued audit reports on those 

initiatives, which include: APC program 

management, vending machine services, 

and the online Click-N-Ship self-service 

mailing application. 

Availability of Information. The 

Postal Service moves one step closer to 

bringing operational costs and revenue 

into balance each time cost savings 

and efficiency issues are identified and 

realized. The OIG’s operational efficiency 

reviews will aid Postal Service efforts to 

manage costs by allowing more efficient 

data center report distributions that could 

result in a $3.2 million cost savings. 

The OIG assists in validating this financial 

knowledge base by annually performing 

an information systems general controls 

review. The OIG’s latest review concluded 

that controls over systems, data, and 

computer-related infrastructure at the 

Information Technology and Accounting 

Service Centers generally provided 

reasonable assurance that data were 

accurate, complete, and secure; data 

integrity was ensured; and business 

practices complied with Postal Service 

policies, procedures, and standards. 

However, additional controls and actions 

were needed in the areas of online 

payroll application access; business 

unit continuity plan documentation and 

testing; career Postal Service employee 

security clearance updates; electronic 

data interchange policies, procedures, 

and password security; the Oracle public 

role; Windows 2000 server configuration 

settings; and Windows NT server status. 

The issues surrounding these findings 

have been corrected or targeted for 

priority resolution.

Supply Chain Management 

Business Practices

The Postal Service manages contracts 

with commitment values totaling more 

than $25 billion annually. The Postal 

Service issued over 39,000 contract 

actions with commitment values 

exceeding $6.8 billion during FY 2004 

and has, over the years, implemented the 

supply chain management philosophy to 

maximize the effectiveness and efficiency 

of these expenditures. 

The Postal Service’s challenge in this area 

is controlling and reducing costs while 

maintaining efficient acquisition practices 

with effective controls to prevent fraud, 
14 | Semiannual Report to Congress

waste, and mismanagement. The Postal 

Service expanded the use of supply chain 

management business practices to meet 

the Transformation Plan goal of continuing 

to implement and institutionalize supply 

chain management. For example, it 

established several strategic partnerships 

and expanded the use of web-based 

ordering to help achieve its planned cost 

reductions. However, it must continue to 

enforce measures that reduce the risk of 

loss and ensure that it receives the best 

possible value from its purchases. 

For example, the OIG identifi ed 

opportunities to improve the program 

management of APC acquisition. 

Specifi cally, the Postal Service agreed 

with recommendations to develop and 

document future APC requirements; 

prepare schedules and cost estimates 

for planned upgrades not already on 

contract; complete site security 

reviews; and ensure contractor 

employees obtain appropriate 

security clearances. Additionally, the 

Postal Service agreed to coordinate 

the site selection process for future 

APCs with all affected stakeholders 

and to submit quarterly Decision 

Analysis Report (DAR) compliance 

reports that fully communicate 

missing APC functionality and 

operational concept changes. 

The OIG plans to expand 

program management reviews 

to include software acquisitions 

and will also determine whether 

the Postal Service is properly 

planning for, and using, contract 

types that can help reduce 

overall operating costs. 

Additionally, due to congressional 

interest, the OIG is reviewing the 

effi ciency of the Postal Service’s 

use of a national offi ce supply 

contract. The Postal Service 

establishes national contracts for agencywide use in order to reduce administrative 

effort, simplify the supply of common-use 

items, and obtain discounts for buying in 

volume. The Postal Service spent almost 

$71 million on the purchase of offi ce 

supplies, through a contract in fi scal year 

2004, and estimated that it realized more 

than $15.7 million in item price savings 

by using the contract during that period. 

The OIG is working with Postal Service 

management to determine the actual 

savings. The OIG also began reviewing 

whether the Postal Service is effectively 

and effi ciently awarding and administering 

national contracts to reduce overall costs 

and meet contractor diversity goals. 

The Postal Service revised its Purchasing 

Manual to reduce regulation of its 

purchasing policies and take advantage 

of the fl exibility allowed under the Postal 

Reorganization Act. The Postal Service 

must ensure adequate oversight remains 

over the internal set of guidelines to 

reduce the risk of fraud, waste, and 

mismanagement in the acquisition 

process. The OIG will continue monitoring 

purchasing policies.

Management of Facility Costs

The Postal Service operates more than 

34,000 geographically dispersed facilities. 

Specifi cally, it owns more than 8,800 facilities; leases more than 25,400 facilities 

(at a rental cost of approximately $946 

million per year); and occupies space 

in approximately 425 General Services 

Administration/federal facilities. 

The Postal Service has identifi ed opportunities to reduce costs or maximize the 

return on property, including standardization of building design, post-occupancy 

evaluations of recently built facilities, and 

proactive leasing programs. It has also 

developed a new prioritization system to 

The OIG identifi ed opportunities to 

improve program management of 

APC acquisition. 
October 1, 2004, through March 31, 2005 | 15

ensure funding is available to address 

the most critical needs. The Postal 

Service must have an adequate process 

to monitor and track projects eligible 

for rent reduction requests. With more 

than 25,400 leased facilities, this is a 

critical first step in reducing overall lease 

operating costs. Additionally, to enhance 

communication and to respond to repair 

and maintenance issues, the Postal 

Service is implementing a single-source 

provider program for facility maintenance 

and management needs. 

The OIG began performing postoccupancy evaluations of recently-built 

facilities and found both favorable and 

unfavorable variances between projected 

and actual building maintenance, custodial work hours, and utility costs. The OIG 

plans to perform additional post-occupancy reviews to assist management 

in comprehensively evaluating the 

reasonableness of the DAR projections, 

considering various facility sizes, locations, and other relevant factors. The OIG 

also plans to review the Postal Service’s 

processes for major construction and its 

implementation of a facility single-source 

provider program.

STRATEGY: 

DEVELOPING PEOPLE 

The Postal Service has one of the largest, 

most diverse workforces in the nation and 

relies heavily on its people to accomplish 

its mission. The Postal Service’s strategy 

is maintaining an accountable, motivated, 

and diverse workforce, empowered to 

maximize performance in a safe and 

secure work environment.

The Postal Service continues its strong 

commitment to diversity among its 

employees and suppliers. It has set clear 

objectives for building a healthy, prosperous, and inclusive environment. The 

organization protects its diversity in the 

work environment by conducting harassment and discrimination awareness and 

prevention programs. 

Enhance Workplace Environment

To successfully carry out its longstanding mission of providing affordable, 

universal service, the Postal Service 

relies on its 807,000 career and 

non-career employees. Employees 

satisfaction with their work environment 

is imperative to maximizing performance 

in an increasingly competitive environment. Consequently, the Postal Service 

strives to maintain a workforce that is 

effective, diverse, highly motivated, and 

recognized for individual and group 

accomplishments.

Troubled Worksites. The Postal 

Service has taken a number of steps 

to improve the work environment for its 

employees. The Workplace Environment 

Improvement Advisory Committee, which 

includes representatives of employee 

unions, management associations, labor 

relations, and human resources, has 

identified “troubled worksites” based on 

established criteria. These worksites may 

be susceptible to threatening or other 

undesirable behavior as a result of individual or systemic problems. The number 

of troubled Postal Service worksites was 

reduced from 39 in 2002 to eight in 2004 

as a result of proactive intervention and 

resolution of workplace issues.

The OIG conducted six audits during 

this reporting period due to complaints 

of hostile work environments at Postal 

Service worksites. The OIG found that 

hostile work environments did not 

exist at these sites; however, some 

employees experienced events that they 

perceived as hostile. The OIG also found 

STRATEGY: DEVELOPING PEOPLE 
16 | Semiannual Report to Congress

that Postal Service management quickly 

responded to employee complaints and 

took the steps necessary to improve the 

environment, including providing training 

and stand-up talks for employees 

and removing supervisors who acted 

inappropriately. 

Diversity Issues. The Postal Service 

continues to lead private industry and 

federal government in 

diversity, equal employment opportunity, 

veteran’s employment, 

affi rmative action, 

and other programs 

directed at improving 

the workplace for 

everyone, including 

women and minorities. For example, 

for the fi fth straight 

year, Fortune magazine 

named the Postal Service 

one of the nation’s “50 

Best Companies for Minorities.” In 2004, 

Equal Opportunity Publications, Inc., 

ranked the Postal Service as one of the 

top 20 government agencies for individuals with disabilities, and Careers and 

the Disabled magazine gave the Postal 

Service its outstanding employer award. 

The Postal Service’s National Awards 

Program for Diversity Achievement, in 

existence since 1996, recognizes the 

outstanding individuals and teams that 

encourage and promote diversity within 

the organization. This year, the Altruism 

award has been added to provide an 

opportunity to honor and recognize diversity achievements of employees outside 

the work environment. 

In addition to diversity and equal employment opportunity initiatives, the Postal 

Service enhanced a number of employment tools to streamline its employment 

process. Specifi cally, the Talent Acquisition Processing System (TAPS) was 

implemented to help maintain the integrity 

of the Postal Service’s testing process for 

hiring new employees. TAPS’ objective is 

supporting the dissemination, collection, 

storage, and inventory of all test materials 

and test results. 

Personnel Systems. During 2004, 

the Postal Service implemented a new 

web-based application to enhance 

employment opportunities throughout the 

Postal Service. eReassign allows career 

bargaining unit employees to request 

voluntary reassignments from one postal 

installation to another. According to the 

Postal Service, eReassign standardized 

the reassignment process, reduced 

processing cycle-time, and virtually eliminated manual processing.

The Postal Service improved accountability by including additional employees 

in the performance-based pay plan used 

to recognize individual and team efforts. 

In 2004, 78,000 non-bargaining unit 

employees joined approximately 800 

executives in a new pay-for-performance 

program that is based on the National 

Performance Assessment (NPA) system. 

The program sets performance goals for 

each individual based on that individual’s 

position in the organization and the contribution of that position toward achieving 

corporate goals. A key component of 

the new program is an objective-setting 

process that approves individual objectives and allows employees to align 

individual contributions with both unit and 

corporate successes. The new program 

calculates end-of-year performance 

ratings based on individual achievements 

against targets, in addition to unit and 

corporate results. The new pay system 

is based solely on these performance 

ratings and there are no automatic or 

Employees satisfaction with their work environment is imperative to 

maximizing performance in an increasingly competitive environment.
October 1, 2004, through March 31, 2005 | 17

across-the-board pay increases for executives or non-bargaining unit employees.

STRATEGY: 

GROWING REVENUE 

The challenge the Postal Service faces 

is that the number of mail deliveries 

is rising and the average number of 

pieces per delivery is increasing. The 

Postal Service’s products are primarily 

mature services in dynamic, rapidly 

growing markets that are impacted 

by new communications technology 

and by changing business practices 

and consumer attitudes. The Postal 

Service’s strategy for growing revenue 

is to enhance its core services to 

provide greater value to its customers. 

The focus is on the customer and 

delivering solutions.

The Postal Service relies on the sales 

of all its mail services to customers 

to generate the revenue necessary to 

support the expansion of the universal 

delivery network. The prices of its 

products are set to cover costs. Since 

2000, the Postal Service has substantially 

reduced its debt levels. Future improvements in its financial position depend 

on the success of strategic marketing 

initiatives, the growth of the economy, 

competitor initiatives, and congressional 

action on pending legislation.

Revenue to operate the Postal Service 

is derived primarily from the sale of 

domestic and international mail services 

and is supplemented by special service 

fees; money order sales; rents from 

Post Office boxes; and sale of stamped 

envelopes, mail-related supplies, 

merchandise, and philatelic items. 

Marketing Postal Products 

and Services

To achieve its strategic goal for growing 

revenue, the Postal Service has 

focused on four key marketing areas: 

Product Solutions, Value and Pricing, 

Channel and Servicing, and Promotion. 

Specifically, the Postal Service plans 

to aggressively manage core products 

and programs that offer the greatest 

revenue potential; use pricing flexibility 

as a strategic tool; manage the customer 

experience using customer knowledge 

to make it easier to access information 

and conduct transactions, pay for postal 

services, and champion and communicate the value of the Postal Service to 

the marketplace through integrated and 

aligned communications. 

Product Solutions. Over the coming 

year, the OIG plans to help the Postal 

Service grow revenue by assessing its 

efforts to manage core products that 

offer the greatest revenue potential. The 

OIG will review and assess key programs 

in Package Services and revitalized 

initiatives in direct mail. The OIG also 

plans to review programs that affect 

First-Class Mail. 

Value and Pricing. Pricing innovation 

is at the core of transformation efforts 

to maintain stable and affordable postal 

rates. Innovative pricing changes, such 

as negotiated service agreements (NSA), 

provide pricing incentives for customers 

in exchange for a shift in behavior by the 

customer that benefits the Postal Service. 

This sort of change has paved the way for 

other NSAs and other experimental rate 

case filings that address the expressed 

needs of mailers to maximize their investment in mail as a key business tool. 

In 2003, the Postal Service entered 

into its first NSA with Capital One 

STRATEGY: GROWING REVENUE 
18 | Semiannual Report to Congress

Services. During this reporting period, 

the OIG audited Capital One’s NSA. 

The audit identifi ed control weaknesses 

related to mail volume and revenue and 

determined that the Postal Service did 

not have a dedicated team throughout 

the NSA process. The Postal Service 

agreed with the OIG’s recommendations to strengthen controls over the 

NSA process, providing an increased 

opportunity to grow revenue. The Postal 

Service estimated that by the end of 

2004, this NSA-produced cost savings 

and new contribution greatly exceeded 

rate case projections.

The Postal Service has improved its 

International Customized Mail (ICM) 

agreements to produce new contributions. ICM agreements are contracts 

between the Postal Service and mailers 

for a period of one or more years 

and represent individually negotiated 

discounts with mailers, within certain 

categories of outbound international 

mail, in exchange for meeting prescribed 

annual minimum revenue or volume 

commitments. This area is currently under 

review by the OIG, in an effort to identify 

potential areas for improvement.

Channel and Servicing. By examining 

shifting customer demographics, 

lifestyles and behaviors, and utilizing 

new technology, the Postal Service can 

improve its retail operations by developing lower-cost alternatives to provide 

similar or easier access. To manage this 

customer experience, the Postal Service’s 

strategy in the coming year includes 

overseeing the management of payment 

options, building the business service 

network (BSN), and improving service 

and servicing options for the “Preferred” 

segment — the $20 billion market 

segment of small to medium businesses. 

The OIG plans to review this channel 

and servicing strategy that relies on 

postage technology initiatives such as 

online postage meters and key programs 

including Customer Gateway and 

Customer Connect.

Promotion. The Postal Service has 

developed advertising and other 

promotional materials to direct 

customers to all retail points of access 

and its website to ensure customers 

are aware of all available services. 

The Postal Service provides other 

value-added services to business 

mailers such as the BSN, a nationwide 

network of representatives that provides 

business mailers with a local point of 

contact for resolving local concerns. 

To that end, the Postal Service has 

devised an integrated and aligned 

promotion strategy to communicate the 

value of its services to the marketplace. 

The OIG plans to review key programs 

associated with product promotion 

and sales to include sponsorships and 

corporate advertising, as well as affi liations and alliances.

Collecting Package Surcharges

Each day, more than seven million 

customers visit Post Offi ces, branches, 

and contract postal units to buy 

stamps, mail packages, and collect 

mail from their Post Offi ce boxes. This 

portfolio of mail products and services 

generates postal revenue. 

In FY 2004, Priority Mail and Express 

Mail volumes declined but Package 

Services volume increased slightly 

because growth in Bound Printed 

Matter and Media Mail volume offset 

losses in Parcel Post volume. In this 

same period, the Postal Service 

received $5.8 million in walk-in revenue 

for non-machineable surcharges and 

oversize rates for parcels that required 

extra handling due to size and weight. 

The Postal Service plans to 

aggressively manage core products 

and programs that offer the greatest 

revenue potential.
October 1, 2004, through March 31, 2005 | 19

Although parcel surcharge revenues have 

increased over the last three years, there 

is still an opportunity for more growth. 

The OIG is looking at whether the Postal 

Service is receiving the correct surcharge 

revenue for Priority Mail and Parcel Post 

Packages from retail sales in FY 2005. 

Mail Acceptance

The Mail Evaluation, Readability and 

Lookup INstrument (MERLIN) was 

designed to improve the quality of letter 

and fl at mail preparation, automate 

acceptance, make verifi cation consistent, 

and ensure collection of appropriate 

revenue. The Postal Service has invested 

more than $186 million in MERLIN and 

deployed 1,203 machines nationwide. 

The MERLIN program had targets established for verifi cations of mailings under 

10,000 pieces at 17 percent and mailings 

over 10,000 pieces at 100 percent. The 

17 percent target was achieved and 

continuous improvement has been seen 

in performance against the 100 percent 

target. The OIG conducted six site 

reviews and concluded that while utilization had increased, MERLIN machines 

were not fully utilized. 

The Postal Service is exploring a valuebased verifi cation process that may 

replace the current verifi cation percentages established with MERLIN. The 

new criteria would base the schedule 

of verifi cations on the mailer’s historical 

performance, the type of mailpiece, and 

size of the mailing being presented.

At the completion of the nationwide 

MERLIN site-specifi c reviews, the OIG 

will issue a summary report covering 

systemic issues, user satisfaction, and 

other global MERLIN issues.

STRATEGY: 

PURSUING REFORM 

The 35-year-old legislative framework 

of the Postal Service established by 

the Postal Reorganization Act of 1970 

needs to be reformed to increase the 

operational and market fl exibility essential 

to respond to a dynamic, competitive 

market. The Postal Service’s goal for 

pursuing reform is to obtain greater fl exibility to improve service, manage costs, 

empower employees, and respond to 

customer needs.

Postal Reform

It has been more than a generation since 

Congress passed major postal reform 

legislation with the Postal Reorganization Act (Pub. Law 91-375, August 12, 

1970, 84 Stat. 719), which created the 

present-day Postal Service. The reform 

was undertaken to depoliticize the former 

Post Offi ce Department and to enable 

the new U.S. Postal Service to operate 

more 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, called 

“electronic diversion,” has 

contributed to a recent 

decline in First-Class Mail 

revenues. When coupled 

with growth in new 

deliveries, this becomes 

a serious threat to the 

Postal Service’s fi nancial 

stability. A growing number of members 

of Congress and the mailing community 

believe that the current postal business 

model is broken and Congress must act 

quickly or the Postal Service will face a 

tougher economic future.

STRATEGY: PURSUING REFORM 

Each day, more than seven million customers visit Post Offi ces, 

branches, and contract postal units to buy stamps, mail packages, and 

collect mail from their Post Offi ce boxes. 
20 | Semiannual Report to Congress

The House Committee on Government 

Reform and the Senate Committee on 

Homeland Security and Governmental 

Affairs each held a series of hearings 

to examine postal reform legislation 

during the last Congress. Customer 

representatives, postal employees, 

postal management, competitors, the 

Government Accountability Offi ce (GAO), 

the Administration, the Postal Rate 

Commission, and postal-reliant businesses testifi ed before Congress. Each 

committee eventually recommended 

passing postal reform legislation. 

However, neither the House nor the 

Senate brought up the postal reform bills 

for further consideration prior to adjournment. The reason, presumably, was 

anticipated opposition by the Administration to specifi c provisions found in each 

bill regarding the CSRS escrow account 

and the funding of the military service 

portion of Postal Service pensions.

Civil Service Retirement System 

Escrow Account. Congress passed 

Public Law 108-18 when it became aware 

that the Postal Service was on course to 

overfund its CSRS pension costs. Prior 

to passage of the law, it was estimated 

the Postal Service would overpay the 

fund by $105 billion over the life of CSRS, 

primarily due to higher than expected 

interest earnings. With enactment of the 

law, the difference between what would 

have been paid if the law had not been 

enacted and the contributions made 

under the new legislation would be used 

to maintain current postage rates 

through FY 2005 and reduce 

outstanding debt in FYs 

2003 and 2004. 

After FY 2005, the Postal 

Service is required to place this 

difference in its costs into a separate 

escrow account that it cannot use (even 

for maintaining current postage rates or 

minimizing increases in rates) until future 

legislation authorization. In a recommendation to Congress, the Postal Service 

has proposed using these savings to fund 

retiree health benefi ts. 

The OIG believes these savings are, 

essentially, accumulated postal revenues 

and, therefore, ratepayers’ money 

— not taxpayers’ dollars — and should 

be available for operations and capital 

investment, like all other postal revenue. 

In fulfi lling its congressional mandate 

to provide universal mail service and 

operate in a business-like manner, the 

OIG believes the Postal Service should 

be able to decide whether and how these 

funds should be spent.

Military Retirement. The legislative fi x 

also required a change in funding pension 

benefi ts by making the Postal Service 

responsible for funding the value of 

CSRS benefi ts attributable to the 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 — not 

Postal Service customers — should pay 

the costs of military service benefi ts. 

It is not appropriate for Postal Service 

customers alone to pay these costs 

through postage when military service 

protects all Americans. 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. Finally, the OIG believes this 

practice is inconsistent with policies for 

charging federal government agencies, 

since the Postal Service would be the 

only federal agency required to pay this 

cost for its own employees retroactively.
October 1, 2004, through March 31, 2005 | 21

Basic Postal Reform Legislation

These funding issues likely will be 

undertaken when Congress addresses 

postal reform legislation, provided 

they are not enacted in free-standing 

legislation. The following reforms may 

also be considered:

■ Workers’ Compensation Reform.

The President’s Commission recommended that the Postal Service be 

relieved from the Federal Employees 

Compensation Act (FECA) and able to 

transition totally disabled employees 

to regular retirement programs, which 

are less costly to the Postal Service. 

Specifi cally, the Postal Service should 

be allowed to transition individuals 

receiving workers’ compensation 

benefi ts to its retirement plan when 

employees become eligible for retirement, even when the injuries give rise 

to the workers’ compensation benefi ts.

The Postal Service has a signifi cant 

workers’ compensation liability. At 

the end of 2004, the Postal Service 

estimated its total liability for future 

workers’ compensation costs at almost 

$7.6 billion, an increase of $343 million 

over 2003. There is an urgent need to 

reconsider the Postal Service’s obligations under FECA given the Postal 

Service’s current almost $7.6 billion 

liability for workers’ compensation.

Congress should consider empowering 

the Postal Service 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 would have a 

major impact on improving the overall 

cost of postal operations.

■ 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 to allow the Postal Service 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 index 

would refl ect fuel and network expansion, the actual growth in statutory 

benefi ts, and employment costs. The 

Postal Service believes it is essential 

that it has the fl exibility to set rates 

that meet the needs of its customers 

and holds up to the challenge of its 

competitors. The goal is to streamline 

and simplify rate-setting procedures. 

■ Design a 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, to make 

recommendations on consolidating 

and rationalizing the Postal Service 

mail processing and distribution 

infrastructure (the END initiative). 

The Presidential Commission’s 

report indicates the P-NOC 

recommendations would become 

fi nal once the President submitted 

them to Congress, unless Congress 

disapproved them within a reasonable 

period. The OIG plans to address END 

closure processes in a future review.

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.

STRATEGY: PURSUING REFORM 
22 | Semiannual Report to Congress

PRESERVING INTEGRITY AND SECURITY 

While the Postal Service’s Five-Year 

Strategic Plan does not identify 

preserving integrity as a strategic goal, 

integrity is an essential element for safeguarding postal products, customers, 

services and assets, and, ultimately, for 

maintaining a stable and sound Postal 

Service. Breaches of integrity pose an 

inherent risk, due to the size and diversity of the organization. 

INVESTIGATIVE ACTIVITIES 

In addition to the many administrative 

and management safeguards already in 

place, the U.S. Postal Inspection Service 

(USPIS) and the OIG are important 

resources in preserving the integrity and 

security of the Postal Service. These 

two law enforcement agencies are 

responsible for investigating criminal, civil, 

and administrative matters related to the 

Postal Service.

The OIG’s mandate is to investigate 

contract fraud and employee misconduct. 

Results of the OIG’s investigative efforts 

are highlighted below.

Acquisitions and Contract Fraud. 

The OIG Contract Fraud Investigations 

program provides oversight of the Postal 

Service’s active contracts, which totaled 

more than $25 billion in FY 2004. 

OIG contract fraud investigations resulted 

in more than $11 million in fines, restitutions, recoveries, and settlements in 

FY 2004. To assess the Postal Service’s 

management of acquisitions and 

contracts, the OIG created initiatives 

focusing on each of the following five 

Postal Service portfolios: 

■ Services Portfolio. The Postal Service 

issued more than 8,000 contract 

actions for services with a commitment 

value of approximately $1.2 billion 

during FY 2004. 

In a major case, the OIG determined that a purchasing specialist 

had been steering Postal Service 

contracts to various printing companies in a 12-year bribery scheme. On 

February 11, 2005, a U.S. District 

Court judge in Washington, D.C., 

ordered the former purchasing 

specialist to spend 46 months in jail 

and pay $771,363 restitution to the 

Postal Service. The man pleaded 

guilty in October 2004 to receiving 

bribes and money laundering. This 

investigation also resulted in guilty 

pleas from a number of the printing 

vendors that were seeking, and 

obtaining, printing contracts with 

the Postal Service through the 

purchasing specialist. For some of 

these vendors, the payments went 

as far back as 1991. 

■ Supplies Portfolio. The Postal 

Service issued more than 4,000 

contract actions for supplies with a 

commitment value of approximately 

$1.6 billion during FY 2004. The OIG is 

undertaking supply contract initiatives 

and investigations involving delivery, 

information technology, office supplies, 

utilities, and trailers and vehicles. 

As a result of an OIG investigation, an 

Alabama auto-distributor company 

agreed to supply 174 truck transmissions for the Postal Service Long-Life 

Vehicle, valued at $256,650, for 

no charge. The 174 transmissions 

supplied by this contractor failed 

during the two-year warranty period. 

Documentation of the failures led 

to an intensive quality review and 

significant improvements in product 

quality and reliability have been 

made. The company did not initially 
October 1, 2004, through March 31, 2005 | 23

provide free replacements per its 

agreement with the Postal Service. 

In an administrative settlement, the 

company agreed to supply the transmissions, over the next year, to 15 

vehicle maintenance facilities (VMFs) 

throughout the country. In addition, 

postal employees at the Philadelphia 

VMF identified seven more defective 

transmissions from a list compiled 

by special agents. The company 

replaced these transmissions, valued 

at $12,075, free of charge. 

■ Facilities Portfolio. The Postal Service 

issued more than 17,000 facilities 

related contract actions with a 

commitment value of approximately 

$650 million in FY 2004. OIG 

investigations focused on facilities 

planning, construction, repair, alteration, and leasing. In New York, the 

OIG investigated a subcontractor 

that submitted false payrolls under 

a $7 million contract to repair Postal 

Service facilities. The president and 

vice president of the company were 

eventually arrested. One has since 

pleaded guilty, and criminal prosecution is pending for the other.

The OIG is also investigating fraudulent 

charges for Common Area Maintenance 

(CAM), in which Postal Service facilities 

share common areas with other tenants. 

The OIG found that the Postal Service 

was charged more for maintaining these 

areas than the lease agreements stipulated, resulting in recoveries for the Postal 

Service of approximately $316,215.

■ Transportation Portfolio. The Postal 

Service issued more than 8,000 transportation-related contract actions with 

a commitment value of approximately 

$2 billion in FY 2004. OIG investigators are searching for potential fraud 

in transportation contracts for retail 

and bulk fuels and for surface and air 

transportation assets. One example 

of OIG work in this area involves a 

Postal Service contracting officer who 

managed a hub-and-spoke contract 

in Texas. This individual received 

gratuities from a contractor potentially 

affecting more than $11 million in ramp 

services contracts.

■ Mail Equipment Portfolio. The Postal 

Service issued more than 1,400 mail 

equipment contract actions with a 

commitment value of approximately 

$1.3 billion. The OIG monitors contractual activity involving mail sorting and 

processing equipment, address recognition technology, and bioprotection. 

Since September 2004, the OIG has 

established a Supplier Monitoring 

Working Group, in which audit and 

investigations team members share 

resources and information on the Postal 

Service’s top suppliers in the five portfolios discussed above. The OIG continues 

to work with the Postal Service’s Supply 

Management team to suspend and 

debar suppliers when exclusion or 

suspension from government contracting 

is merited. During this reporting period, 

OIG investigators proposed debarring 

eight suppliers.

IMPAC and Voyager Fleet Cards. In 

addition to acquiring goods and services 

through contracts, the Postal Service 

uses International Merchant Purchase 

Authorization Cards (IMPAC) and Voyager 

Fleet Cards. The IMPAC Program 

processed transactions totaling more 

than $400 million and earned the Postal 

Service more than $2 million in refunds 

during 2004. The Voyager Fleet Card 

Program — which pays for the fuel, oil, 

repair, maintenance, and washing of more 

than 220,000 Postal Service vehicles — 

processed more than $253 million in FY 

PRESERVING INTEGRITY AND SECURITY 
24 | Semiannual Report to Congress

2004, with documented savings and cost 

avoidance to the Postal Service of more 

than $22 million. 

The OIG developed a database to identify 

potentially fraudulent IMPAC and Voyager 

Fleet Card transactions. Investigators are 

also developing a knowledge base of 

known fraudulent transactions to maximize the tool’s effectiveness in identifying 

future fraudulent transactions. 

In another case, OIG investigators identifi ed program-wide 

weaknesses in the Voyager 

Fleet Card Program receiptreconciliation process. Since 

the case began in July 2003, 

offenders have used approximately 270 Voyager credit 

cards and/or card Personal 

Identifi cation Numbers (PINs) 

to fraudulently purchase 

approximately $400,000 in 

fuel in the Miami, Fla., area. 

Coordination between the 

OIG, Voyager card representatives, and Postal Service 

management enabled important changes to be made to 

the Voyager reconciliation 

process and program in the 

Southeast Area. 

Investigators also found that local 

managers had not been verifying (reconciling) all fuel receipts. Now, as a result of 

an OIG investigation, when someone fuels 

a postal truck, he or she must take the 

receipt to a local manager, who reconciles it with the Voyager database. This 

verifi cation process brought immediate 

large-scale improvements to Southeast 

Area VMFs, where approximately 70 

percent of Voyager transactions were not 

being reconciled. 

The OIG continues to investigate ringtype groups that are still fi nding ways to 

compromise Voyager cards to purchase 

fuel in the Northeast, Midwest, and on the 

West Coast. 

Financial Investigations. Financial 

investigations cover a wide range of 

activity, including embezzlement, theft, 

misconduct, falsifi cation of records, and 

conversion and misuse of Postal Service 

property. These are frequently internal 

investigations of employees and contractors. One case during the reporting 

period involved a Texas postmaster who 

embezzled more than $69,000 and is 

now facing criminal indictment. In a joint 

case with the USPIS, the OIG investigated 

a relief postmaster, in the Chicago area, 

who confessed to embezzling more than 

$100,000 in money orders. 

The OIG’s Financial Investigations group 

has started work on two new initiatives. 

The gift check initiative searches for 

managers who approve purchases by 

employees who cash the gift checks for 

themselves. The nonsuffi cient funds initiative identifi es customers and, increasingly, 

employees who pass bad checks to the 

Postal Service — a $29 million exposure 

in 2004.

Fraudulent Workers’ Compensation.

The Postal Service is one of the largest 

participants in the federal Workers’ 

Compensation Program and paid 

$830 million in compensation from July 

1, 2003 through June 30, 2004. Of this 

amount, $309 million was for medical 

payments to providers and $521 million 

was for compensation to claimants and 

benefi ciaries. Administered by the DOL 

OWCP provides direct compensation to 

providers, claimants, and benefi ciaries. 

The Postal Service later reimburses 

OWCP in a process known as Charge 

Back Billing. The OIG has initiated more 

The OIG launched several projects to detect fraud and 

identify the root causes of accelerating costs for workers’ 

compensation.
October 1, 2004, through March 31, 2005 | 25

PRESERVING INTEGRITY AND SECURITY 

than 700 claimant and provider fraud 

investigations since October 1, 2004. 

During this reporting period, healthcare 

fraud investigations resulted in more 

than $11 million in cost avoidances and 

approximately 60 administrative personnel 

actions, including removals, letters of 

warning, and claims terminations.

In March 2005, the OIG and the Postal 

Service’s Health and Resources Management (HRM) team established a process 

by which HRM will refer all allegations 

of workers’ compensation fraud to the 

OIG. Previously, the OIG received only 

allegations of medical provider fraud for 

possible investigation, while the USPIS 

received allegations of claimant fraud. 

The OIG will issue a quarterly report to 

apprise HRM of the status of the workers’ 

compensation referrals it has accepted 

for investigation — whether ongoing, 

resolved or closed. The OIG and the 

USPIS will coordinate their efforts in 

workers’ compensation fraud in order to 

determine the appropriate investigative 

action on each OWCP case.

The OIG launched several projects 

to detect fraud and identify the root 

causes of accelerating costs for workers’ 

compensation. One such project is 

the Injury Compensation Working 

Group, created in 2004. The group’s 

members include representatives from 

the OIG, USPIS, Postal Service Health 

and Resource Management, and DOL. 

Through investigative initiatives, the group 

has identified pharmaceutical providers, 

podiatrists, clinical psychologists, and 

durable medical equipment providers 

who reported the greatest increases in 

medical billings. These providers were 

then referred to OIG field offices for 

further investigation.

Another OIG initiative involved the review 

of $310 million in billings submitted by 

pharmaceutical and durable medical 

equipment providers, in the Pacific Area, 

over a three-year period. By comparing 

this information to typical indicators 

of fraud, the OIG was able to identify 

$2.9 million in questionable provider costs. 

The Health Care Internal Data Analysis 

System (HIDAS), developed by the OIG, is 

an automated reporting system that identifies potential fraudulent billing schemes. 

Since its implementation in the Southwest 

Area in July 2004, HIDAS has searched 

records of more than $173.5 million in 

billings to OWCP from January 1, 2000, 

to March 15, 2004. This search resulted 

in the discovery of more than $541,000 

in duplicate medical billings, $192,000 of 

which has since been credited back to 

the Postal Service. 

OVERSIGHT OF 

INVESTIGATIVE ACTIVITIES 

AND SECURITY

The OIG has a statutory requirement 

under the Inspector General Act of 

1978, as amended, to provide oversight 

of the U.S. Postal Inspection Service 

(USPIS). This oversight is accomplished 

through program audits and reviews, 

including quality control reviews of the 

USPIS. Details of the program audits are 

included in the Security Section of this 

semiannual report. 

The OIG and USPIS, two separate 

law enforcement agencies with their 

respective missions, have formed a 

partnership to work together in areas of 

shared responsibilities. The OIG and the 

USPIS will continue to conduct reviews to 

ensure effective investigative results and 

assist the Postal Service in addressing its 

management challenge of securing the 

nation’s mail system.
26 | Semiannual Report to Congress

Opportunities exist to improve the overall 

management of USPIS vehicles and 

accountability over firearms. 

Law Enforcement Vehicles. The 

USPIS maintains a fleet of approximately 

2,220 vehicles with an asset value of 

$42 million. These vehicles are primarily 

used by inspectors and postal police 

officers for official business only and are 

considered for replacement at five years 

or 75,000 miles. The OIG determined 

that although USPIS officials generally 

followed their own disposal criteria 

regarding vehicle age, the management 

of USPIS vehicles could be improved by 

extending the mileage and overall service 

life of its vehicles. 

Firearms. The USPIS allows its postal 

inspectors and postal police officers to 

carry firearms. These firearms must be 

accounted for from acquisition through 

final disposition, to include transfer, 

retirement, destruction, and lost, stolen, 

or missing. The OIG determined that the 

USPIS has made progress in effectively 

strengthening its controls over firearms. 

The USPIS Task Force inventoried all 

USPIS firearms and developed additional 

policy to ensure the future accuracy of 

the firearms inventory. However, based 

on the OIG’s analysis of task force results, 

47 additional firearms were not included 

in the task force’s inventory. The OIG 

recommended that USPIS management 

require responsible personnel to report 

the 47 firearms in the National Crime 

Information Center or consult with the 

Department of Justice (DOJ) to determine 

final resolution. 

SECURITY

Since the terrorist attacks in September 

2001, the federal government has worked 

on improving the safety and security of 

our nation’s infrastructure. One of the 

many concerns has been the potential 

vulnerability of the nation’s mail system. 

Due to its sheer size and geographic 

dispersion, securing the mail is a daunting 

challenge. However, through innovation 

and focus on key vulnerabilities, the 

Postal Service has made significant 

strides towards protecting the integrity 

of the mailstream by making its systems 

safer and more secure. 

Emergency Preparedness. In 

response to the Homeland Security 

Presidential Directive 5, the Postal Service 

is implementing an Integrated Emergency 

Management Plan. These directives 

require all federal departments and 

agencies, including the Postal Service 

and USPIS, to adopt a comprehensive 

plan to deal with all incidents and 

hazards. The plan is designed to improve 

coordination of planning and response 

activities among functional areas, 

minimize duplication of planning efforts, 

and establish a standardized emergency 

management process. The USPIS 

anticipates completing the plan by April 

2005 and providing training to all divisions 

by September 2005. The OIG will assess 

the effectiveness of the plan and training 

upon completion. 

Handling Suspicious Mail and 

Unknown Powders and Substances. 

Since October 2001, the Postal Service 

and the USPIS have responded to more 

than 20,000 suspicious mail incidents. 

In an effort to standardize communications and ensure consistent practices 

throughout the Postal Service, the 

Office of Emergency Preparedness has 

established a Suspicious Mail working 

group to review, consolidate, reconcile, 

and reissue national policies and procedures. The working group includes key 

officials within the Postal Service who 
October 1, 2004, through March 31, 2005 | 27

PRESERVING INTEGRITY AND SECURITY 

are responsible for ensuring a safe and 

secure environment for Postal Service 

employees and customers. The working 

group soon plans to issue a new memorandum of policy. 

Detection of Threat to and 

Protection of Mail Systems. The 

Postal Service continues to rely on 

technology investments to enhance 

the security and safety of customers 

and employees. The Postal Service is 

currently implementing key initiatives 

to expand its ability to detect potential biohazards. The Postal Service 

anticipates these initiatives will result in 

savings in operating costs and reductions in the original number of planned 

Biohazard Detection System purchases. 

Facility Security Reviews. The USPIS 

has implemented several initiatives to 

identify potential vulnerabilities of postal 

facilities through security reviews and 

observing mail processing conditions 

at facilities. These reviews are based on 

the use of a facility-risk rating model to 

assess the vulnerability of postal facilities 

to crime, with points assessed based on 

risk factors and countermeasures already 

in place. The model is a tool to help 

postal managers plan and fund projects 

and manage risk levels.

In addition, a uniformed security force 

will be maintained at high-risk facilities to 

protect employees, postal property, and 

the mail. The OIG, in coordination with the 

USPIS, plans to assess the facility security reviews to report on the effectiveness 

of facility security. 

The Postal Service and the OIG 

will continue to review policies and 

procedures for effectively: (1) handling 

suspicious mail and unknown powders 

and substances; (2) implementing new 

initiatives for detection of threats to and 

the protection of mail systems; and (3) 

developing, implementing, and coordinating emergency preparedness plans. 

Securing the Postal Service’s 

Network Infrastructure. The Postal 

Service’s 2002 Transformation Plan

called for enhancing security, upgrading 

the Postal Service infrastructure, and 

providing universal computing connectivity. In response to the Plan, the Postal 

Service modernized, secured, and 

simplified its infrastructure, during 2004, 

with the Advanced Computing Environment (ACE) program. In 2004, 147 

national applications were converted to 

ACE and 12,000 servers were removed 

from the field. 

The ACE program should result 

in significant savings through its 

centralization and reduction of support 

functions for the 130,000 Postal Service 

computer users at 28,000 postal facilities nationwide. In addition, ACE makes 

the system less cumbersome and 

complex, more reliable, and easier to 

maintain and manage. 

The Postal Service has rapidly 

upgraded its network infrastructure 

and communications capabilities and, 

during this process, the security and 

privacy of electronic information remain 

a high priority. The OIG performed 

audits of the Postal Service’s program 

infrastructure and of network perimeter 

devices associated with business 

partner connectivity. The OIG’s work has 

shown the security to be relatively good; 

however, improvements can be made. 

The Postal Service and the OIG will 

continue to provide periodic assessments 

of computing infrastructure security.
28 | Semiannual Report to Congress

U.S. POSTAL SERVICE 

OFFICE OF INSPECTOR GENERAL 

ORGANIZATIONAL CHART

As of March 31, 2005

Abbreviations

AIG Assistant Inspector General

CAATS Computer Assisted Assessment Techniques

CIO Chief Information Offi cer

FOIA Freedom of Information Act

IT Information Technology

CAATS Deputy General 

Counsel

Inspector General

Deputy 

Inspector General

Offi ce of 

General Counsel Offi ce of CIO AIG Investigations AIG – Mission Support

Deputy AIG 

Headquarters

Deputy AIG 

Investigations West Audit Reporting

AIG – Audit

Strategic 

Enforcement

Deputy AIG 

Financial Operations

Director 

Mission Support

Deputy AIG 

Investigations East

Special Inquiries Deputy AIG 

Field Operations

Deputy AIG 

Core Operations

Application 

Development

Congressional, 

FOIA & Hotline

Investigative 

Operations

Financial 

Statements

Human 

Resources

Computer 

Crimes Unit

Chicago 

Field Offi ce Field Operations Network 

Processing IT Operations Legal Services

Special Inquiries Information 

Systems

Administrative 

Services Altanta Field Offi ce

Dallas 

Field Offi ce Engineering Transportation Consolidated 

Security

Client Support/

Telecom

Performance

Investments Washington 

Field Offi ce

Boston Field Offi ce

Miami Field Offi ce

New York 

Field Offi ce

Philadelphia 

Field Offi ce

St. Louis 

Field Offi ce

Denver 

Field Offi ce

 Los Angeles 

Field Offi ce

San Francisco 

Field Offi ce

Marketing

Supply 

Management

Facilities Delivery & Retail 

Human Capital

Oversight of 

Investigative 

Activities

Audit Planning

Capital Investments Houston 

Field Offi ce
HEADER

October 1, 2004, through March 31, 2005 | 29

Field Offices

Field Offices (Investigations Only)

Audit & Investigations Offices

Investigations Only

Boston, MA

Springfield, MA

New Haven, CT

New York, NY

Philadelphia, PA

Washington, DC

Raleigh, NC

Greensboro, NC

New Orleans, LA Miami, FL

Atlanta, GA

Memphis,TN

Dallas,TX

Houston, TX

Seattle, WA

Chicago, IL

Detroit, MI

Pittsburgh, PA

Albany, NY

San Francisco, CA

San Diego, CA

Los Angeles, CA

Denver, CO

Phoenix, AZ

Kansas City,KS

St.Louis,MO

Cincinnati,OH

Cleveland, OH

Indianapolis,IN

Puerto Rico

Las Vegas, NV

Salt Lake City, UT

Birmingham, AL

Providence, RI

Baltimore, MD

Portland, ME

U.S. POSTAL SERVICE 

OFFICE OF INSPECTOR GENERAL 

OFFICE LOCATIONS

The OIG currently has more than 800 employees located 

in 13 field offices as well as other locations nationwide. 

October 1, 2004, through March 31, 2005 | 29
30 | Semiannual Report to Congress

APPENDICES

APPENDIX A

REPORTS ISSUED TO POSTAL SERVICE MANAGEMENT

For the period October 1, 2004, through March 31, 2005

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

team issues audit reports (AR) or management advisory reports (MA) in accordance with the identified needs of the project.

SUMMARY

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

The Inspector General Act of 1978 requires 

semiannual reports on the immediatelypreceding six-month periods ending 

March 31 and September 30. These reports 

are sent to Congress and made available to 

the public.

This report summarizes OIG activities and 

illustrates significant problems, abuses and 

deficiencies, along with recommendations 

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

and operations during the reporting period. 

During the last six months, the Postal Service 

agreed with OIG recommendations that 

identified potential monetary benefits of more 

than $133.5 million.

The appendices on the following pages fulfill 

the requirements of the Act.

Principal Area

Number of 

Reports Issued

Questioned 

Costs1

Unsupported

Costs

Recommended 

Funds Put To 

Better Use

Potential 

Additional 

Revenue

Unrecoverable 

Costs

Improving Service 12 — — — $121,062 $92,762 

Managing Costs 140 $17,090,638 $22,837 $114,646,808 $98,470 $1,456,471 

Developing People 2 — — — — — 

Growing Revenue 7 — — — $44,163 — 

Pursuing Reform — — — — — — 

Preserving Integrity 8 — — — — — 

TOTAL 169 $17,090,638 $22,837 $114,646,808 $263,695 $1,549,233 
October 1, 2004, through March 31, 2005 | 31

DEFINITIONS

QUESTIONED COSTS

A cost that is unnecessary, 

unreasonable, unsupported, or an 

alleged violation of law, regulation, 

contract, etc.

UNSUPPORTED COSTS

A cost that is not supported 

by adequate documentation. 

Unsupported Costs are included in 

Questioned Costs.

FUNDS PUT TO BETTER USE

Funds that could be used more 

efficiently by implementing 

recommended actions.

POTENTIAL ADDITIONAL 

REVENUE

Amounts from revenuegenerating 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.

UNRECOVERABLE COSTS

A cost that perhaps should not 

have been incurred and is not 

recoverable.

REPORTS WITH QUANTIFIABLE POTENTIAL 

MONETARY BENEFITS

SARC Report Title

Total 

Questioned 

Costs

Unsupported 

Costs

Funds Put to 

Better Use

Potential 

Additional 

Revenue

Unrecoverable 

Costs

IMPROVING SERVICE

DELIVERY AND RETAIL

City Letter Carrier Operations – 

Rio Grande District

DR-AR-05-009; 12/2/2004 — — — — $92,762 

NETWORK PROCESSING

Processing of Overseas Military 

Absentee Ballots

NO-AR-05-007; 3/30/2005 — — — $121,062 — 

MANAGING COSTS

FINANCIAL STATEMENTS

Imprest Fund at the Former Columbia, 

Maryland, Facilities Service Office

FT-MA-05-001; 1/6/2005 $1,470 $1,470 — — — 

FISCAL YEAR 2004 FINANCIAL INSTALLATION AUDITS 

Caribbean District

FF-AR-05-013; 12/6/2004 $21,367 $21,367 — — — 

Old San Juan Post Office

FF-AR-05-012; 12/6/2004 — — — $5,768 — 

Rahway Main Office

FF-AR-05-006; 10/26/2004 — — — $3,050 — 

San Juan and Old San Juan Self-Service 

Postal Units

FF-AR-05-011; 12/6/2004 — — — — $3,181 

FISCAL YEAR 2005 FINANCIAL INSTALLATION AUDITS

Brookhaven Station, Atlanta, Georgia

FF-AR-05-030; 12/29/2004 — — — $1,650 $2,494 

Chanhassen Business Mail Entry Unit – 

Chanhassen, Minnesota

FF-AR-05-086; 3/16/2005 $4,084 — — $1,869 — 

Claysburg Business Mail Entry Unit – 

Claysburg, Pennsylvania

FF-AR-05-091; 3/23/2005 — — — $8,171 — 

Dublin Business Mail Entry Unit – 

Dublin, Ohio

FF-AR-05-090; 3/23/2005 — — — $2,013 — 

Falls Church Automated Postal Center –

Falls Church, Virginia

FF-AR-05-037; 1/6/2005 — — — — $2,664 

APPENDIX A

October 1, 2004, through March 31, 2005 | 31
32 | Semiannual Report to Congress

REPORTS WITH QUANTIFIABLE POTENTIAL 

MONETARY BENEFITS

SARC Report Title

Total 

Questioned 

Costs

Unsupported 

Costs

Funds Put to 

Better Use

Potential 

Additional 

Revenue

Unrecoverable 

Costs

General Mail Facility Finance Station –

Denver, Colorado

FF-AR-05-025; 12/27/2004 $11,161 — — $10,483 $466 

Lansdale Business Mail Entry Unit –

Lansdale, Pennsylvania

FF-AR-05-044; 1/18/2005 — — — $12,668 — 

Leesburg Business Mail Entry Unit – 

Leesburg, Virginia

FF-AR-05-096; 3/29/2005 — — — $16,939 — 

Ludlam Branch Post Office, 

Miami, Florida

FF-AR-05-098; 3/30/2005 — — — $300 — 

Lynchburg Downtown Station, 

Lynchburg, Virginia

FF-AR-05-060; 2/11/2005 — — — $10,146 — 

Martinez Business Mail Entry Unit – 

Martinez, California

FF-AR-05-101; 3/31/2005 — — — $4,425 — 

Milpitas Business Mail Entry Unit – 

Milpitas, California

FF-AR-05-078; 3/4/2005 — — — $1,056 — 

Minneapolis Business Mail Entry Unit – 

Minneapolis, Minnesota

FF-AR-05-045; 1/13/2005 $33,211 — — $1,210 — 

North Lake Travis Branch – 

Lago Vista, Texas

FF-AR-05-034; 12/29/2004 — — — — $2,999 

Oak Park Business Mail Entry Unit – 

Oak Park, Illinois

FF-AR-05-048; 1/24/2005 — — — $12,768 — 

Ocala Post Office, Ocala, Florida 

FF-AR-05-071; 2/25/2005 — — — $1,992 $1,480 

Palo Alto Business Mail Entry Unit – 

Palo Alto, California

FF-AR-05-085; 3/16/2005 — — — $3,467 — 

Piqua Business Mail Entry Unit – 

Piqua, Ohio

FF-AR-05-053; 2/8/2005 — — — $495 — 

Wheaton Branch, Silver Spring, 

Maryland

FF-AR-05-040; 1/5/2005 — — — — $5,912 

INFORMATION SYSTEMS

Reports Distribution

IS-AR-05-001; 10/25/2004 — — $3,220,411 — — 

NETWORK PROCESSING

Efficiency Review of the Akron, Ohio, 

Processing and Distribution Center

NO-AR-05-009; 3/30/2005 — — $73,996,558 — — 
October 1, 2004, through March 31, 2005 | 33

REPORTS WITH QUANTIFIABLE POTENTIAL 

MONETARY BENEFITS

SARC Report Title

Total 

Questioned 

Costs

Unsupported 

Costs

Funds Put to 

Better Use

Potential 

Additional 

Revenue

Unrecoverable 

Costs

Efficiency Review of the Mansfield, Ohio, 

Main Post Office

NO-AR-05-004; 12/8/2004 — — $17,183,404 — — 

SUPPLY MANAGEMENT

Audit of Certified Price Adjustment Claim 

Submitted by Evergreen Aviation Ground 

Logistics Enterprises, Incorporated, 

Under Contract Number TNET 93-01

CA-CAR-05-014; 2/24/2005 $793,837 — — — — 

Audit of Certified Price Adjustment Claim 

Submitted by Evergreen Aviation Ground 

Logistics Enterprises, Incorporated, 

Under Contract Number TNET 93-01

CA-CAR-05-011; 1/20/2005 $2,259,851 — — — — 

Audit of Certified Price Adjustment Claim 

Submitted by Evergreen Aviation Ground 

Logistics Enterprises, Incorporated, 

Under Contract Number TNET 93-01 

CA-CAR-05-010; 1/20/2005 $3,755,842 — — — — 

Audit of Firm Fixed Price Base Proposal 

Submitted by Lockheed Martin Systems 

Integration, Owego, Under Solicitation 

Number 3AAERD-04-Z-6397

CA-CAR-05-012; 2/3/2005 $22,492 — — — — 

Audit of Firm Fixed Price Proposal 

Submitted by ABB Automation, 

Incorporated, Under Solicitation Number 

3BMHRD-04-A-1116

CA-CAR-05-003; 10/25/2004 $3,415,051 — — — — 

Audit of Firm Fixed Price Proposal 

Submitted by Lockheed Martin 

Distribution Technologies – Owego, 

Under Solicitation Number 

3BMHRD-03-B-4267

CA-CAR-05-007; 12/27/2004 $357,806 — — — — 

Audit of Firm Fixed Price Proposal 

Submitted by Lockheed Martin Systems 

Integration – Owego

CA-CAR-05-006; 12/14/2004 $1,868,004 — — — — 

Audit of Firm Fixed Price Proposal 

Submitted by Lockheed Martin Systems 

Integration – Owego, Under Solicitation 

Number 3AAERD-04-Z-6397

CA-CAR-05-009; 1/14/2005 $256,926 — — — — 

Audit of Firm Fixed Price Proposal 

Submitted by Northrop Grumman 

Corporation Electronic Systems 

Company

CA-CAR-05-008; 1/10/2005 $2,014,776 — — — — 

APPENDIX A
34 | Semiannual Report to Congress

REPORTS WITH QUANTIFIABLE POTENTIAL 

MONETARY BENEFITS

SARC Report Title

Total 

Questioned 

Costs

Unsupported 

Costs

Funds Put to 

Better Use

Potential 

Additional 

Revenue

Unrecoverable 

Costs

Audit of Firm Fixed Price Proposal 

Submitted by Northrup Grumman 

Corporation Electronic Systems 

Company

CA-CAR-05-015; 3/14/2005 $977,203 — — — — 

Audit of Incurred Cost Price Adjustment 

Proposal and Reformation Proposal 

Submitted by Matheson Flight 

Extenders, Incorporated Under Contract 

Number SNET-01-WR 

CA-CAR-05-004; 12/1/2004 $975,451 — — — — 

Audit of Parts of a Firm Fixed Price 

Proposal Submitted by Advanced 

Technology and Research Corporation, 

Under RFP Number 

3BMHRD-04-A-1337

CA-CAR-05-002; 10/25/2004 $250,617 — — — — 

Audit of Price Adjustment Proposal 

Submitted by Integrated Airline Services, 

Incorporated Under Contract Number 

SNET-01-SWR 

CA-CAR-05-005; 11/30/2004 $71,489 — — — — 

Automated Postal Center Program 

Management

CA-AR-05-001; 12/21/2004 — — — — $68,742 

TRANSPORTATION

Mail Transport Equipment Service 

Center Network – Equipment Processing

NL-AR-05-006; 3/31/2005 — — $7,845,043 — $1,368,533 

Surface Networks – Intermodal Rail and 

Highway Transportation – Pacific Area

NL-AR-05-004; 3/18/2005 — — $1,046,240 — — 

Surface Transportation – Bulk Mail 

Center Highway Transportation Routes –

Eastern Area

NL-AR-05-003; 3/17/2005 — — $4,791,570 — — 

Surface Transportation – Bulk Mail 

Center Highway Transportation Routes –

Southeast Area

NL-AR-05-005; 3/18/2005 — — $6,563,582 — — 

GROWING REVENUE

NETWORK PROCESSING

Mail Evaluation, Readability and Lookup 

INstrument Utilization at the Business 

Mail Entry Unit in Buffalo, New York

NO-AR-05-005; 12/20/2004 — — — $29,017 — 

Mail Evaluation, Readability and Lookup 

INstrument Utilization at the Business 

Mail Entry Unit In Nashville, Tennessee 

NO-AR-05-002; 11/24/2004 — — — $15,146 — 
October 1, 2004, through March 31, 2005 | 35

City Letter Carrier Operations – Rio Grande 

District

DR-AR-05-009; 12/02/2004

Self-Service Vending Program – Bay Valley 

District

DR-AR-05-008; 11/01/2004

Self-Service Vending Program – Boston District

DR-AR-05-002; 10/14/2004

Self-Service Vending Program – Cincinnati 

District

DR-AR-05-004; 10/14/2004

Self-Service Vending Program – Fort Worth 

District

DR-AR-05-003; 10/14/2004

Self-Service Vending Program – Greensboro 

District

DR-AR-05-005; 10/19/2004

Self-Service Vending Program – Northeast Area

DR-AR-05-011; 02/01/2005

Self-Service Vending Program – Oklahoma 

District 

DR-AR-05-001; 10/14/2004

Self-Service Vending Program – Pacific Area 

DR-AR-05-006; 10/27/2004

Self-Service Vending Program – Santa Ana 

District

DR-AR-05-007; 11/04/2004

Self-Service Vending Program – Southwest Area 

DR-AR-05-010; 12/10/2004

APPENDIX A

REPORT LISTING

The following complete listing of all OIG reports is grouped first by Postal Service ‘Delivering Results’ STAR, second by category of review and 

year, if applicable, and then alphabetically by title.

For the period of October 1, 2004, through March 31, 2005.

IMPROVING SERVICE

DELIVERY AND RETAIL

NETWORK PROCESSING

Processing of Overseas Military Absentee Ballots

NO-AR-05-007; 03/30/2005

MANAGING COSTS

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

Cost and Revenue Analysis (Capping Report)

FF-AR-05-076; 03/08/2005

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

Central New Jersey District 

FF-AR-05-046; 01/19/2005

Detroit District 

FF-AR-05-052; 02/04/2005

Fort Worth District 

FF-AR-05-092; 03/24/2005

Greater South Carolina District

FF-AR-05-042; 01/12/2005

Greensboro District

FF-AR-05-051; 02/02/2005

Lakeland District 

FF-AR-05-054; 02/07/2005

Mississippi District 

FF-AR-05-032; 12/29/2004

Northern, Ohio District 

FF-AR-05-024; 12/20/2004

Portland District 

FF-AR-05-063; 02/14/2005

Sacramento District 

FF-AR-05-056; 02/08/2005

San Diego District 

FF-AR-05-057; 02/08/2005

San Francisco International Service Center

FF-AR-05-061; 02/11/2005

Southeast New England District 

FF-AR-05-070; 03/09/2005

FINANCIAL STATEMENTS

Accountability at the San Francisco Vehicle 

Maintenance Facility 

FT-AR-05-008; 01/18/2005

Agreed-upon Procedures Report for Federal 

Intragovernmental Transactions

FT-AR-05-001; 12/02/2004

Fiscal Year 2004 Postal Service Financial 

Statements Audit – Eagan Information 

Technology and Accounting Service Center 

FT-AR-05-005; 01/10/2005

Fiscal Year 2004 Postal Service Financial 

Statements Audit – San Mateo Information 

Technology and Accounting Service Center

FT-AR-05-007; 01/12/2005

Fiscal Year 2004 Postal Service Financial 

Statements Audit – St. Louis Information 

Technology and Accounting Service Center 

FT-AR-05-009; 03/15/2005

Fiscal Year 2004 Postal Service Financial 

Statements Audit – Washington, D.C., 

Headquarters

FT-AR-05-006; 01/10/2005

Imprest Fund at the Former Columbia, Maryland, 

Facilities Service Office 

FT-MA-05-001; 01/06/2005

Opinion on the Postal Service’s Special-Purpose 

Financial Statements

FT-AR-05-002; 12/08/2004

Postal Service Board of Governors’ Travel and 

Miscellaneous Expenses for Fiscal Year 2004

FT-AR-05-004; 12/20/2004

Postal Service Officers’ Travel and 

Representation Expenses for Fiscal Year 2004

FT-AR-05-003; 12/20/2004
36 | Semiannual Report to Congress

FISCAL YEAR 2004 FINANCIAL INSTALLATION AUDIT

Business Mail Entry Units (Capping Report)

FF-AR-05-065; 02/24/2005

Contract Postal Units (Capping Report)

FF-AR-05-100; 03/31/2005

Post Offices, Branches, and Stations 

(Capping Report) 

FF-AR-05-097; 03/31/2005

Stamp Distribution Offices (Capping Report)

FF-AR-05-074; 03/31/2005

Self-Service Postal Centers (Capping Report)

FF-AR-05-073; 03/02/2005

Caguas Main and North Stations 

FF-AR-05-016; 12/07/2004

Caribbean District 

FF-AR-05-013; 12/06/2004

Cohasset Post Office

FF-AR-05-015; 11/17/2004

Dallas Main Post Office

FF-AR-05-014; 11/16/2004

Enfield Business Mail Entry Unit 

FF-AR-05-003; 10/07/2004

Maple Grove Business Mail Entry Unit

FF-AR-05-001; 10/01/2004

Ocean City Main Post Office 

FF-AR-05-008; 11/04/2004

Old San Juan Post Office 

FF-AR-05-012; 12/06/2004

Rahway Main Office 

FF-AR-05-006; 10/26/2004

Rancocas Post Office 

FF-AR-05-007; 10/28/2004

San Juan and Old San Juan Self-Service 

Postal Units 

FF-AR-05-011; 12/06/2004

San Juan Main Office Window Service

FF-AR-05-010; 12/06/2004

Seymour Business Mail Entry Unit 

FF-AR-05-009; 11/04/2004

Spearman Post Office 

FF-AR-05-002; 10/07/2004

Westbrae Station 

FF-AR-05-005; 10/20/2004

Woodstock Business Mail Entry Unit

FF-AR-05-004; 10/12/2004

FISCAL YEAR 2005 FINANCIAL INSTALLATION AUDIT

Apalachicola Post Office – Apalachicola, Florida 

FF-AR-05-087; 03/17/2005

Barstow Post Office, Barstow, Maryland

FF-AR-05-083; 03/11/2005

Bergenfield Main Office – Bergenfield, 

New Jersey 

FF-AR-05-023; 12/27/2004

Berne Business Mail Entry Unit – Berne, Indiana 

FF-AR-05-089; 03/23/2005

Bloomfield Hills Business Mail Entry Unit – 

Bloomfield Hills, Michigan 

FF-AR-05-039; 01/05/2005

Blue Island Illinois Business Mail Entry Unit – 

Blue Island, Illinois

FF-AR-05-019; 12/10/2004

Bonham Main Post Office – Bonham, Texas 

FF-AR-05-059; 02/09/2005

Brookhaven Station, Atlanta, Georgia

FF-AR-05-030; 12/29/2004

Cartersville Business Mail Entry Unit – 

Cartersville, Georgia 

FF-AR-05-041; 01/06/2005

Chandler Post Office – Chandler, Texas

FF-AR-05-026; 12/27/2004

Chanhassen Business Mail Entry Unit – 

Chanhassen, Minnesota 

FF-AR-05-086; 03/16/2005

Claremont Station Automated Postal Center – 

Everett, Washington 

FF-AR-05-055; 02/04/2005

Claysburg Business Mail Entry Unit – 

Claysburg, Pennsylvania 

FF-AR-05-091; 03/23/2005

Clifton Business Mail Entry Unit – 

Clifton, New Jersey 

FF-AR-05-082; 03/08/2005

Columbia Business Mail Entry Unit – 

Columbia, Tennessee 

FF-AR-05-080; 03/08/2005

Diamond Farms Automated Postal Center – 

Gaithersburg, Maryland 

FF-AR-05-067; 02/23/2005

Dublin Business Mail Entry Unit – Dublin, Ohio 

FF-AR-05-090; 03/23/2005

East Point Station – Atlanta, Georgia 

FF-AR-05-072; 02/25/2005

Elmira Heights Branch – Elmira, New York

FF-AR-05-020; 12/14/2004

Falls Church Automated Postal Center –

Falls Church, Virginia 

FF-AR-05-037; 01/06/2005

Fort Myers Business Mail Entry Unit – 

Fort Myers, Florida 

FF-AR-05-064; 02/14/2005

General Mail Facility Finance Station – 

Denver, Colorado 

FF-AR-05-025; 12/27/2004

Glen Cove Business Mail Entry Unit – 

Glen Cove, New York

FF-AR-05-050; 01/28/2005

Greenville Business Mail Entry Unit – 

Greenville, Texas 

FF-AR-05-038; 01/05/2005

Harold Business Mail Entry Unit – 

Harold, Kentucky 

FF-AR-05-038; 03/31/2005

Joppa Business Mail Entry Unit – 

Joppa, Maryland 

FF-AR-05-075; 03/02/2005

Kaplan Post Office – Kaplan, Louisiana 

FF-AR-05-081, 03/08/2005

Knightsen Main Post Office – 

Knightsen, California 

FF-AR-05-094; 03/29/2005

Land O’Lakes Postal Store – 

Land O’Lakes, Florida

FF-AR-05-033; 12/29/2004

Lansdale Business Mail Entry Unit – 

Lansdale, Pennsylvania 

FF-AR-05-044; 01/18/2005

Lee’s Summit Self-Service Postal Center – 

Lee’s Summit, Missouri 

FF-AR-05-068; 02/22/2005

Leesburg Business Mail Entry Unit – 

Leesburg, Virginia 

FF-AR-05-096; 03/29/2005
October 1, 2004, through March 31, 2005 | 37

APPENDIX A

Linden Main Office – Linden, New Jersey 

FF-AR-05-029; 12/27/2004

Long Island City Business Mail Entry Unit – Long 

Island City, New York 

FF-AR-05-027; 12/28/2004

Ludlam Branch Post Office, Miami – Florida 

FF-AR-05-098; 03/30/2005

Lynchburg Downtown Station – 

Lynchburg – Virginia 

FF-AR-05-060; 02/11/2005

Mariner Station – Seal Beach, California 

FF-AR-05-093; 03/28/2005

Martinez Business Mail Entry Unit – 

Martinez, California 

FF-AR-05-101; 03/31/2005

McLaren Station – San Francisco, California 

FF-AR-05-028; 12/28/2004

Milpitas Business Mail Entry Unit – 

Milpitas, California 

FF-AR-05-078; 03/04/2005

Minneapolis Business Mail Entry Unit – 

Minneapolis, Minnesota 

FF-AR-05-045; 01/13/2005 

Mundelein Business Mail Entry Unit – 

Mundelein, Illinois 

FF-AR-05-062; 02/11/2005

New Port Richey Carrier Annex – 

New Port Richey, Florida 

FF-AR-05-035; 12/30/2004

North Lake Travis Branch – Lago Vista, Texas 

FF-AR-05-034; 12/29/2004

North Port Arthur Station – Port Arthur, Texas 

FF-AR-05-077; 03/04/2005

North Side Station – Dothan, Alabama 

FF-AR-05-021; 12/17/2004

Oak Park Business Mail Entry Unit – 

Oak Park, Illinois 

FF-AR-05-048; 01/24/2005

Ocala Post Office – Ocala, Florida 

FF-AR-05-071; 02/25/2005

Ocean Springs Business Mail Entry Unit – 

Ocean Springs, Mississippi 

FF-AR-05-095; 03/28/2005

Olympia Business Mail Entry Unit – 

Olympia, Washington

FF-AR-05-031; 12/29/2004

Palo Alto Business Mail Entry Unit –

Palo Alto, California 

FF-AR-05-085; 03/16/2005

Paris Business Mail Entry Unit – 

Paris, Texas

FF-AR-05-017; 12/08/2004

Pensacola Business Mail Entry Unit – 

Pensacola, Florida 

FF-AR-05-079; 03/08/2005

Piqua Business Mail Entry Unit – Piqua, Ohio 

FF-AR-05-053; 02/08/2005

Point Richmond Station – Richmond, California 

FF-AR-05-022; 12/20/2004

Port Tobacco Post Office – Port Tobacco, 

Maryland 

FF-AR-05-069; 02/25/2005

Port Townsend Business Mail Entry Unit – 

Port Townsend, Washington 

FF-AR-05-058; 02/09/2005

Portland Self-Service Postal Center Unit #0036 

FF-AR-05-049; 01/28/2005

Rochelle Business Mail Entry Unit – 

Rochelle, Illinois 

FF-AR-05-036; 01/03/2005

San Antonio Business Mail Entry – 

San Antonio, Texas 

FF-AR-05-043; 01/11/2005

Seahurst Main Office – Burien, Washington

FF-AR-05-018; 12/08/2004

Sheridan Post Office – Sheridan, Montana 

FF-AR-05-066; 02/18/2005

Somerset Business Mail Entry Unit – 

Somerset, New Jersey 

FF-AR-05-047; 01/20/2005

Staten Island Business Mail Entry Unit – 

Staten Island, New York 

FF-AR-05-084; 03/23/2005

Sumter Business Mail Entry Unit – 

Sumter, South Carolina 

FF-AR-05-088; 03/17/2005

Wheaton Branch – Silver Spring, Maryland 

FF-AR-05-040; 01/05/2005
38 | Semiannual Report to Congress

Reports Distribution 

IS-AR-05-001; 10/25/2004

INFORMATION SYSTEMS

Efficiency Review of the Akron, Ohio, 

Processing and Distribution Center 

NO-AR-05-009; 03/30/2005

Efficiency Review of the Mansfield, Ohio, 

Main Post Office 

NO-AR-05-004; 12/08/2004

Office of Inspector General Assistance to 

Evolutionary Network Development Independent 

Verification and Validation Team 

NO-MA-05-001; 03/30/2005

NETWORK PROCESSING

Application of Agreed-Upon Procedures to Costs 

Incurred Under Contract 102592-00-Z-0799 

Submitted by Logistics Management Institute 

CA-CAR-05-001; 10/14/2004

Audit of Certified Price Adjustment Claim 

Submitted by Evergreen Aviation Ground 

Logistics Enterprises, Incorporated, Under 

Contract Number TNET 93-01 

CA-CAR-05-014; 02/24/2005

Audit of Certified Price Adjustment Claim 

Submitted by Evergreen Aviation Ground 

Logistics Enterprises, Incorporated, Under 

Contract Number TNET 93-01 

CA-CAR-05-011; 01/20/2005

Audit of Certified Price Adjustment Claim 

Submitted by Evergreen Aviation Ground 

Logistics Enterprises, Incorporated, Under 

Contract Number TNET 93-01 

CA-CAR-05-010; 01/20/2005

Audit of Firm Fixed Price Base Proposal 

Submitted by Lockheed Martin Systems 

Integration Owego – Under Solicitation Number 

3AAERD-04-Z-6397 

CA-CAR-05-012; 02/03/2005

Audit of Firm Fixed Price Proposal Submitted by 

ABB Automation, Incorporated, Under Solicitation 

Number 3BMHRD-04-A-1116 

CA-CAR-05-003; 10/25/2004

Audit of Firm Fixed Price Proposal Submitted by 

Lockheed Martin Distribution Technologies – 

Owego, Under Solicitation Number 

3BMHRD-03-B-4267 

CA-CAR-05-007; 12/27/2004 

Audit of Firm Fixed Price Proposal Submitted by 

Lockheed Martin Systems Integration – Owego 

Under Solicitation Number 3BNHRD-040-A-1342

CA-CAR-05-006; 12/14/2004

Audit of Firm Fixed Price Proposal Submitted by 

Lockheed Martin Systems Integration – Owego, 

Under Solicitation Number 3AAERD-04-Z-6397 

CA-CAR-05-009; 01/14/2005

Audit of Firm Fixed Price Proposal Submitted 

by Northrop Grumman Corporation Electronic 

Systems Company 

CA-CAR-05-008; 01/10/2005

Audit of Firm Fixed Price Proposal Submitted 

by Northrop Grumman Corporation Electronic 

Systems Company 

CA-CAR-05-015; 03/14/2005

Audit of Forward Pricing Rate Proposal for 

Standard Labor, Material Overhead, Program 

Overhead, and Postal General and Administrative 

Expense Rates Submitted by Siemens Logistics 

and Assembly Systems 

CA-CAR-05-013; 02/11/2005

Audit of Incurred Cost Price Adjustment Proposal 

and Reformation Proposal Submitted by 

Matheson Flight Extenders, Incorporated Under 

Contract Number SNET-01-WR 

CA-CAR-05-004; 12/01/2004

Audit of Parts of a Firm Fixed Price Proposal 

Submitted by Advanced Technology and 

Research Corporation, Under RFP Number 

3BMHRD-04-A-1337 

CA-CAR-05-002; 10/25/2004

Audit of Price Adjustment Proposal Submitted by 

Integrated Airline Services, Incorporated Under 

Contract Number SNET-01-SWR 

CA-CAR-05-005 11/30/2004

Automated Postal Center Program Management 

CA-AR-05-001; 12/21/2004

Beach Haven Post Office – Beach Haven, 

New Jersey

CA-OT-05-002; 11/02/2004

Corporate Contact Management – GAO Fraudnet 

CA-OT-05-001; 10/13/2004

Post Occupancy Review of the Greensboro, North 

Carolina, and Columbus, Ohio, Processing and 

Distribution Centers 

CA-MA-05-001; 02/08/2005

SUPPLY MANAGEMENT

Complaints of a Hostile Work Environment 

at a South Florida District Priority Mail 

Processing Center 

HM-AR-05-001; 11/04/2004

DEVELOPING PEOPLE

HUMAN CAPITAL
October 1, 2004, through March 31, 2005 | 39

APPENDIX A

Mail Backlogs at the Hartsfield – Jackson Atlanta 

International Airport 

NL-AR-05-002; 03/08/2005

Mail Transport Equipment Service Center 

Network – Equipment Processing 

NL-AR-05-006; 03/31/2005

Mail Transport Equipment Service Center 

Network – Network Realignment – Pittsburgh, 

Detroit, Cleveland 

NL-AR-05-001; 01/25/2005

Surface Networks – Intermodal Rail and Highway 

Transportation – Pacific Area 

NL-AR-05-004; 03/18/2005

Surface Transportation – Bulk Mail Center 

Highway Transportation Routes – Eastern Area 

NL-AR-05-003; 03/17/2005

Surface Transportation – Bulk Mail Center 

Highway Transportation Routes – Southeast Area 

NL-AR-05-005; 03/18/2005

TRANSPORTATION

Postal Service’s Negotiated Service Agreement 

With Capital One 

ST-AR-05-001; 12/20/2004

GROWING REVENUE

MARKETING

Mail Evaluation, Readability and Lookup 

INstrument Utilization at the Business Mail Entry 

Unit in Buffalo, New York 

NO-AR-05-005; 12/20/2004

Mail Evaluation, Readability and Lookup 

INstrument Utilization at the Business Mail Entry 

Unit in Mobile, Alabama 

NO-AR-05-003; 12/02/2004

Mail Evaluation, Readability and Lookup 

INstrument Utilization at the Business Mail Entry 

Unit In Nashville, Tennessee 

NO-AR-05-002, 11/24/2004

Mail Evaluation, Readability and Lookup 

INstrument Utilization at the Business Mail Entry 

Unit in Oklahoma City, Oklahoma 

NO-AR-05-006; 01/18/2005

Mail Evaluation, Readability and Lookup 

INstrument Utilization at the Business Mail Entry 

Unit in Sacramento, California 

NO-AR-05-008; 03/30/2005

Mail Evaluation, Readability and Lookup 

INstrument Utilization at the Business Mail Entry 

Unit in Terre Haute, Indiana 

NO-AR-05-001; 11/23/2004

NETWORK PROCESSING

Click-N-Ship Application Control Review 

IS-AR-05-005; 02/22/2005

Click-N-Ship Security Vulnerability Assessment 

IS-CS-05-002; 01/13/2005

Fiscal Year 2004 Information Systems General 

Controls Capping Report 

IS-AR-05-004; 01/28/2005

Oracle Security Environment at the Eagan 

and San Mateo Information Technology and 

Accounting Service Centers 

IS-AR-05-002; 11/10/2004

Postal Service’s Business Partner Connectivity – 

Firewall Permissions 

IS-AR-05-006; 03/24/2005

Security Assessment (PhoneSweep) of PBX Site 

Event Buffers 

IS-CS-05-001; 12/08/2004

Windows Server Security at the Eagan, 

Minnesota, and San Mateo, California, 

Information Technology and Accounting 

Service Centers 

IS-AR-05-003; 01/05/2005

PERSERVING INTEGRITY

INFORMATION SYSTEMS

Audit of Postal Inspection Service’s Emergency 

Preparedness 

SA-AR-05-001; 01/05/2005

OVERSIGHT OF INVESTIGATIVE ACTIVITIES
40 | Semiannual Report to Congress

APPENDIX B

FINDINGS OF QUESTIONED COSTS

For the period October 1, 2004, through March 31, 2005

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

OFFICE OF INSPECTOR GENERAL AND POSTAL INSPECTION SERVICE

As required by the Inpector General Act (IG), the following pages show the total number of audit reports and the total dollar value of questioned costs 

in audit reports.

Description

Number

 of

 Reports 

Total

 Questioned

 Costs

Unsupported

Costs Included In 

Questioned Costs

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

reporting period 12 $63,715,526 $6,716,428

Reports requiring management decision that were issued during the reporting period 18 $17,090,638 $22,837

TOTAL 30 $80,806,164 $6,739,265

Reports for which a management decision was made during the reporting period (i+ii) 9 $3,700,471 $22,837

(i) Dollar value of disallowed cost — $2,328,399 $1,470

(ii) Dollar value of cost not disallowed — $1,372,072 $21,367

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

period. Negotiations are ongoing. 21 $77,105,693 $6,716,428

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

(See Note 1 for a list of individual reports) 3 $49,245,892 $4,718,940

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

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

Subject Report Number Report Date

Total

Questioned

Costs

Unsupported 

Costs Included in 

Questioned Costs

Audit of Termination for Convenience Price Adjustment Claim 

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

Vehicle Management – Delivery Vehicles – Buy versus Lease NL-AR-04-005 9/30/2004 $42,751,032 —

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

OFFICE OF INSPECTOR GENERAL TOTAL $49,245,892 $4,718,940

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

Subject Report Number Report Date

Total Questioned

Costs

Unsupported Costs

Included In

Questioned

Costs

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

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

Contract Audit – Bell and Howell Mail and 

Messaging Technologies CA-CAR-03-002 10/16/02 $343,759 —

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

Audit of Equitable Adjustment Claim Submitted by 

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

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

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

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

COMBINED TOTAL $13,208,954 $1,997,488 

Note 2 - Reports for which no management decision was made within one year of issuance:
October 1, 2004, through March 31, 2005 | 41

APPENDIX C

RECOMMENDATIONS THAT FUNDS BE PUT TO BETTER USE

For the period October 1, 2004, through March 31, 2005

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

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

can put to better use.

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 8 $161,242,201

Reports requiring management decision that were issued during the reporting period 7 $114,646,808

TOTAL 15 $275,889,009

Reports for which a management decision was made during the report period (i + ii) 6 $113,600,568

(i) Value of recommendations agreed to by management — $105,652,568

(ii) Value of recommendations that management did not agree — $7,948,000

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

period* 9 $162,288,441

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

(See Note 1 for a list of individual reports) 3 $55,257,637

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

(See Note 2 for a list of individual reports) 5 $105,984,564

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

Subject Case Number Report Date

Recommend Funds 

Put to Better Use

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

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

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

TOTAL $55,257,637

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

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

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

Vehicle Maintenance Facilities – Chicago District – Accidental Vehicle Damage Cost and 

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

TOTAL $105,984,564

* Included are amounts where Postal Service management agreed to take the recommended corrective action but could not comment on some of the potential 

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

APPENDIX C
42 | Semiannual Report to Congress

OFFICE OF INSPECTOR GENERAL

Issue

Date

Number of 

Recommendations* Report TitleReport

Number

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

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 2 Trailer Lease Justification TD-AR-02-002

5/8/2002 1

Southwest Area’s Efforts in Obtaining Appropriate Chargeback Credits for Identified 

Wage Compensation Overpayments and Refundable Disbursements LH-AR-02-003

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

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

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

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

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

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

10/28/2002 1 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

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

3/28/2003 2

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

Des Moines Bulk Mail Centers CQ-AR-03-001

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

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

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

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

9/10/2003 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 8 General Controls at the Engineering Research and Development Center IS-AR-03-008

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

12/2/2003 1

Fiscal Year 2003 Information System Controls, Eagan, San Mateo, and St. Louis 

Information Technology and Accounting Service Centers IS-AR-04-001

* Pending corrective action

APPENDIX D

REPORTS WITH SIGNIFICANT RECOMMENDATIONS PENDING 

CORRECTIVE ACTIONS

For the period through March 31, 2005

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

decision has been made by the end of the reporting period.
October 1, 2004, through March 31, 2005 | 43

APPENDIX D

Issue

Date

Number of 

Recommendations* Report TitleReport

Number

12/5/2003 3

Vehicle Maintenance Facilities – Chicago District – Accidental Vehicle Damage Cost and 

Vehicle Safety, Security, and Appearance NL-AR-04-002

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

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

3/31/2004 1

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

Administration Facility NO-AR-04-006

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

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

6/8/2004 2

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

Mateo Host Computing Services IS-AR-04-006

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

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

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

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

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

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

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

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

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

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

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

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

10/14/2004 2 Self-Service Vending Program – Boston District DR-AR-05-002

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

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

11/1/2004 2 Self-Service Vending Program – Bay Valley District DR-AR-05-008

11/4/2004 2 Self-Service Vending Program – Santa Ana District DR-AR-05-007

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

12/21/2004 6 Automated Postal Center Program Management CA-AR-05-001

1/10/2005 2

Fiscal Year 2004 Postal Service Financial Statements Audit – Eagan Information 

Technology and Accounting Service Center FT-AR-05-005

1/25/2005 2

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

Detroit, Cleveland NL-AR-05-001

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

3/15/2005 1

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

Technology and Accounting Service Center FT-AR-05-009

3/17/2005 2

Surface Transportation – Bulk Mail Center Highway Transportation Routes – 

Eastern Area NL-AR-05-003

3/18/2005 1 Intermodal Rail and Highway Transportation – Pacific Area NL-AR-05-004

3/18/2005 1

Surface Transportation – Bulk Mail Center Highway Transportation Routes – 

Southeast Area NL-AR-05-005

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

* Pending corrective action
44 | Semiannual Report to Congress

Trailer Lease Justification 

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

Recommendation 1: The OIG 

recommended the Vice President, 

Purchasing and Materials prepare a 

Decision Analysis Report to purchase 

the common fleet trailers currently under 

the nationwide lease and submit it to the 

Board of Governors. 

Recommendation 4: The OIG recommended the Vice President, Purchasing 

and Materials develop management 

controls to ensure use of a Decision 

Analysis Report for leases exceeding 

$10 million per year. 

Agency Response: Postal Service 

management stated the National Trailer 

Lease was not a lease, but a service 

contract, and as a result, did not require 

a Decision Analysis Report or Board of 

Governors’ approval. However, on July 

22, 2002, in an effort to reach resolution, 

the deputy postmaster general directed 

Postal Service management to analyze 

the National Trailer Lease in accordance 

with the procedures specified by the 

Postal Service investment policy, and 

stated that Postal Service Finance would 

independently verify the analysis in 

accordance with the same procedures 

they use for capital projects. The OIG is 

currently working with the Postal Service 

to resolve this issue.

New York Metro Area Trailer 

Acquisition – Lease Versus Buy 

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

Recommendation 1: The OIG 

recommended the Vice President, Supply 

Management prepare a Decision Analysis 

Report in accordance with Postal Service 

investment policy to support acquisition 

of trailers for the New York Metro Area. 

Recommendation 2: The OIG 

recommended the Vice President, Supply 

Management submit the Decision Analysis Report to the Board of Governors for 

approval. 

Agency Response: Postal Service 

management pointed out that the issues 

raised during this audit were substantially 

the same as the issues raised during the 

Trailer Lease Justification audit. Accordingly, the OIG has joined its resolution 

efforts concerning these two audits. 

OFFICE OF INSPECTOR GENERAL

APPENDIX E

SIGNIFICANT MANAGEMENT DECISIONS IN AUDIT RESOLUTION

For the period October 1, 2004, through March 31, 2005

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.
October 1, 2004, through March 31, 2005 | 45

APPENDIX F

INVESTIGATIVE STATISTICS1

For the period October 1, 2004, through March 31, 2005

APPENDIX F

OFFICE OF INSPECTOR GENERAL

Misconduct Statistics

Employee Mail 

Theft Statistics2

Investigations completed 1,269 1,115

Arrests/Indictments/Informations 194 316

Convictions/Pretrial diversions 23 218

Administrative Actions 306 800

Fines, restitutions and recoveries $12,251,411.40 —

Amount to Postal Service3 $3,521,640.28 —

1 Statistics include joint investigations with the U.S. Postal Inspection Service and other 

federal law enforcement agencies.

2 Cases worked solely by the Postal Inspection Service.

3 Amount included in total fines, restitutions and recoveries.
46 | Semiannual Report to Congress

SUMMARY OF U.S. POSTAL INSPECTION SERVICE ACTIONS UNDER 39 USC 3005 AND 3007

 For the period October 1, 2004, through March 31, 2005

Type of Scheme

Complaints

Filed

Consent

Agreements FROs

Cease & 

Desist Orders

False Billings 3 2 2 4

Internet Auction 1 1 1 1

Lotteries (Foreign and Domestic) 2 – – –

Medical 1 – – – 

Merchandise: – – – –

Failure to furnish 1 1 1 1

Misrepresentation 1 1 – 1

Miscellaneous 1 – – –

Work at Home 2 1 1 3

TOTAL 12 6 5 10

APPENDIX G

OTHER ADMINISTRATIVE ACTIONS

Administrative Action Requests 20 

Temporary Restraining Orders Requested 4 

Temporary Restraining Orders Issued 2 

Civil Injunctions (1345) Requested 2 

Civil Injunctions (1345) Issued 2 

Cases Using Direct Purchase Authority 3 

Civil Penalties Imposed $1,315,842 

Expenditures Incurred for:

Test Purchases $510 

Expert Testimony – 

Witness Travel – 

Withholding Mail Orders Issued 15 

Voluntary Discontinuances 12 

FINANCIAL REPORTING ON INVESTIGATIVE 

ACTIVITIES FY 2005 MO 1-6

Type Semiannual Report

Personnel $167,831,425

Nonpersonnel $40,396,168

TOTAL $208,227,593

Capital Obligations $3,085,048

NOTE: There were no administrative subpoenas issued during 

the reporting period.

SUMMARY OF POSTAL SERVICE INVESTIGATIVE ACTIVITIES 

UNDER 39 USC 3013

For the period October 1, 2004, through March 31, 2005

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

the U.S. Postal Service Inspection Service on a semiannual basis. With passage of the Deceptive Mail Prevention and Enforcement Act in 

December 1999, the Postal Service’s reporting obligations were changed. The Act requires the Postal Service to submit its semiannual report 

on investigative activities to the Office of Inspector General rather than to the Board of Governors, expands the subject matter that must be 

reported, and revises the reporting schedule to coordinate with the OIG Semiannual Report to Congress. The information in the report includes 

actions directed at combating crimes involving the mail; costs and expenditures devoted to Postal Service investigative activities; use of 

subpoena power; and any additional information the OIG may require.

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

actions include the issuance of cease and desist orders directed to mailers, actions to intercept payments fraudulently induced, and 

orders seeking to intercept fraudulent mailings.
October 1, 2004, through March 31, 2005 | 47

APPENDIX H

APPENDIX H

CLOSED CONGRESSIONAL AND BOARD OF GOVERNORS INQUIRIES

For the period October 1, 2004, through March 31, 2005

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

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

MANAGING COSTS

Requestor Allegations/Concern Closure Date

Governors

Improper contracting procedures used in closing Mail Transport Equipment 

Service Center. 28-Jan-05

Governors Senior USPS employee accepted bribes from a contractor. 10-Mar-05

Senator, Iowa Improprieties in procurement. 17-Mar-05

Representative, Oklahoma Improprieties in procurement. 8-Oct-04

Representative, Oklahoma Improprieties in procurement. 8-Oct-04

Representative, Texas Postal Service violated its rules on selection of independent contractors. 17-Mar-05

Senator, California Allegations of fraud, waste, and mismanagement at a Post Office. 14-Oct-04

Representative, Tennessee Improprieties in the USPS Fuel Management Program. 15-Nov-04

Senator, Missouri

Improprieties at a Postal Service facility, including sexual harassment and 

misuse of government credit cards. 17-Mar-05

Representative, Alabama Delays in EEO case settlement. 4-Nov-04

State Assemblyman, California Request to review plans for closing two postal facilities. 15-Nov-04

Representative, Ohio Request for assistance to obtain a response for an MSPB case. 7-Dec-04

Senator, West Virginia Improprieties in assigning a rural route. 30-Nov-04

Senator, California Misuse of government vehicle. 15-Mar-05

Senator, Texas Retaliation following protected communications. 3-Mar-05

Representative, Louisiana Availability of report concerning alleged on-the-job injury. 16-Mar-05

Representative, Alabama Request for assistance regarding an EEO case. 22-Mar-05

PRESERVING INTEGRITY AND SECURTY

Requestor Allegations/Concern Closure Date

Representative, Florida Misreporting and misuse of medical information by supervisor. 10-Mar-05

Representative, Maryland Harassment, intimidation, interrogation, and surveillance. 6-Oct-04

Representative, Alabama Harassment and hostile work environment at a Post Office. 27-Oct-04

Representative, Virginia Harassment and retaliation at a Post Office. 27-Oct-04

Senator, Virginia

Misuse of Postal Service facilities and equipment to harass and slander an 

individual and a corporation. 2-Feb-05

Senator, West Virginia Delays in delivery or loss of mail. 22-Nov-04

Senator, Georgia Availability of OIG report confirming forged training documents. 9-Nov-04

Senator, Georgia Misdelivery or loss of Priority Mail. 3-Nov-04

Senator, Arizona Retaliation as a result of an EEO complaint and communication with the OIG. 7-Dec-04

Representative, Georgia

FOIA request and Worker’s Compensation issues under control of the 

Postal Service. 22-Nov-04

Senator, West Virginia Refusal to deliver Standard Mail. 22-Nov-04
48 | Semiannual Report to Congress

Senator, New York Possible forgery of leave documents. 2-Dec-04

Representative, Virginia Delays in mail delivery. 6-Dec-04

Representative, Arizona Availability of OIG investigative report. 17-Feb-05

DEVELOPING PEOPLE

Requestor Allegations/Concern Closure Date

Representative, Missouri Harassment and violations of Family and Medical Leave Act at a Post Office. 26-Oct-04

Governor Noise complaints at a Post Office. 2-Nov-04

Representative, Massachusetts Retaliation following an EEO complaint against the OIG. 18-Oct-04

Senator, Texas OIG employee reassignment. 13-Dec-04

Senator, Massachusetts Harassment, discrimination, and retaliation by an OIG employee. 29-Oct-04

Senator, California Registered nurse qualifications at a Postal Service facility. 2-Nov-04

Representative, Texas OIG employee reassignment. 13-Dec-04

Senator, Massachusetts Harassment, discrimination, and retaliation by an OIG employee. 13-Jan-05

Representative, Hawaii Medical records provided under subpoena not yet returned. 15-Feb-05

Senator, Wyoming

Request for information on existing Postal Service programs and initiatives 

to combat obesity. 9-Mar-05
October 1, 2004, through March 31, 2005 | 49

SUPPLEMENTAL INFORMATION

SUPPLEMENTAL INFORMATION

AUDIT SYNOPSES

IMPROVING SERVICE

City Letter Carrier Operations — Rio Grande District, 

DR-AR-05-009

The OIG found opportunities to improve the management of city letter 

carrier operations in the Cresthaven, J. Frank Dobie, and University 

Park delivery units. The OIG recommended the Manager, Rio Grande 

District make a number of changes including direct delivery unit 

supervisors and managers to require carriers to properly complete 

required forms; instruct the supervisors to only authorize time that 

carriers request, obtain, and use correct time factors for approving 

and justifying requests for additional time; require supervisors to 

properly and fully utilize the DOIS system. 

The OIG also recommended requiring delivery unit supervisors and 

managers, scheduled for an upcoming route inspection, to review 

the Southwest Area’s Post Route Adjustment Guidelines on post 

evaluation follow-up procedures and provide additional training to 

managers or supervisors in more effectively using Managed Service Points (a computerized tool designed to monitor consistency 

of delivery time and enhance street management using mobile 

data collection devices). The OIG also recommended requiring 

supervisors and managers to consistently document unauthorized 

overtime on required forms and take appropriate corrective action. 

Management agreed with the OIG’s findings and recommendations 

and has completed initiatives and plans addressing the issues in this 

report. Management also agreed that the $193,947, identified by 

the OIG using the F2B Audit process, was unjustified cost. However, 

management stated that through their analysis only 2,543 hours 

or $92,762 was unrecoverable. The OIG reported only $92,762 as 

unrecoverable costs.

Self-Service Vending Program, DR-AR-05-001, DR-AR-05-002, 

DR-AR-05-003, DR-AR-05-004, DR-AR-05-005, DR-AR-05-006, 

DR-AR-05-007, DR-AR-05-008, DR-AR-05-010

The Self-Service Vending (SSV) Program provides an alternative to 

the retail counter that gives customers convenient access 24 hoursa-day, seven days-a-week, to the postal products and services they 

most frequently need.

During reviews of the SSV equipment in various districts, the OIG 

noted that Postal Service officials could increase revenue opportunities by redeploying equipment that did not meet minimum 

revenue requirements. Further, officials could discontinue the use 

of obsolete equipment to reduce maintenance and repair costs. 

The OIG’s physical observation of vending machines, in the various 

districts, indicated that the machines are, overall, easily accessible, 

with few exceptions. 

Area management agreed with the findings and recommendations 

and initiated corrective actions to redeploy underperforming vending equipment and remove obsolete equipment. Further, the Vice 

President, Delivery and Retail, issued a directive in August 2004 to 

implement nationwide changes in the Postal Service’s Self Service 

Vending Program. The changes included development of a task force 

to implement a self-service strategy that would eliminate costly 

obsolete vending equipment; remove and redeploy current, underperforming vending equipment; and revise removal and redeployment vending machine criteria. 

MANAGING COSTS

Accountability at the San Francisco Vehicle Maintenance 

Facility, FT-AR-05-008

The OIG conducted an audit of the San Francisco Vehicle Maintenance Facility (VMF) as part of the annual financial statements audit 

of the San Mateo Information Technology and Accounting Service 

Center. The audit looked at whether the VMF properly accounted 

for vehicle parts, bulk fuel and oil inventories, and vehicles. The OIG 

found that the San Francisco VMF did not maintain accountability 

over vehicle parts inventories and five types of vehicle parts could 

not be reconciled to the local VMF accounting system. Additionally 

there were differences between the physical counts used to update 

the two parts accounting systems and between the physical counts 

and the amounts recorded in the Vehicle Management Accounting 

System (VMAS). The differences were not reconciled, nor was the 

VMAS updated to reflect the accurate numbers of parts. 

Application of Agreed-Upon Procedures to Costs Incurred 

Under Contract Number 102592-00-Z-0799 Submitted by 

Logistics Management Institute, CA-CAR-05-001

This report presented results of the application of agreed-upon 

procedures to costs incurred under contract 102592-00-Z-0799 

submitted by the Logistics Management Institute. The audit’s aim 

was to verify costs incurred and determine their allowability. The 

audit disclosed no questioned or unallowable costs. The OIG did not 

perform an examination and, accordingly, did not express an opinion 

on the subject matter of this report. Additional matters might have 

come to the OIG’s attention and been reported, if more procedures 

had been performed. 

Audit of Certified Price Adjustment Claim Submitted by a 

Logistics Company, Under Contract Number TNET 93-01, 

CA-CAR-05-011

The OIG audited a $3,755,842 certified price adjustment claim for 

the period of July 18, 1998, through April 5, 2004, submitted by a 

logistics company for the handling of mail containers at an airmail 

facility. The audit looked at whether the claimed costs were acceptable as a basis to negotiate a fair and reasonable settlement. The 

audit questioned the claim in its entirety because the claimed costs 

do not represent the incremental additional costs associated with the 

claimed additional work and are not supported by the contractor’s 

accounting records. The contractor has not made any attempt to 

specifically identify and quantify the claimed additional labor. 

The results of the audit are qualified because the contractor’s 

accounting system did not accumulate direct costs by job or contract. Also, the issue of contractor entitlement was not addressed in 

this report because it is a matter for legal determination. 

The audit found that the contractor submitted inadequate cost or 

pricing data and the claim was not prepared in accordance with 

appropriate provisions of the Postal Service’s Purchasing Manual. 

Because the noncompliances were considered significant, the OIG 

did not consider the claim to be an acceptable basis for negotiation 

of a fair and reasonable settlement.

For the period October 1, 2004, through March 31, 2005
50 | Semiannual Report to Congress

Audit Opinion on the Postal Service’s Special-Purpose 

Financial Statements: Federal Intragovernmental Transactions, 

FT-AR-05-002, FT-AR-05-001

The OIG audited the Postal Service’s “special-purpose closing package” and performed agreed-upon procedures on federal intragovernmental transactions. (The special-purpose closing package is a 

submission of fiscal year-end financial statements and other related 

data to the Department of the Treasury, as required by Section 405 of 

the Government Management Reform Act of 1994. The data is used 

in preparing the Financial Report of the United States.) 

The reclassified balance sheet as of September 30, 2004, and 

the related reclassified statements of net cost and changes in net 

position for the year then ended, and accompanying notes, were 

prepared by the Postal Service to provide financial information to the 

Department of the Treasury and GAO to use in preparing and auditing 

the Financial Report of the U.S. Government. In the OIG’s opinion, 

the special-purpose financial statements were presented fairly, in all 

material respects, the financial position of the Postal Service as of 

September 30, 2004, and its net costs and changes in net position 

for the year then ended in conformity with accounting principles 

generally accepted in the United States, and the presentation was 

pursuant to the requirements prescribed in the Treasury Financial 

Manual, Chapter 4700. 

Automated Postal Center Program Management, CA-AR-05-001

The Automated Postal Center (APC) program office began a phased, 

nationwide deployment of 2,500 APCs on April 1, 2004. The process 

for selecting APC deployment sites needed improvement, since the 

Postal Service had incurred $68,742 for facility design and support for 

46 sites no longer included in the APC deployment schedule. These 

costs represent unrecoverable costs for the Postal Service. Also, the 

deployed APCs generally met requirements but were found to be 

missing four functional capabilities described in the DAR, APC development, and deployment processes, including control weaknesses 

that exposed the Postal Service to unnecessary risks. Additionally, 

APC capital investment costs may exceed the approved $95.43 million capital funding level. Finally, the program office generally kept 

the Board of Governors and senior Postal Service officials informed of 

changes in APC program status via the Investment Highlights reports, 

but did not disclose a potentially significant operational concept 

change and the fact that four functional requirements, described in 

the DAR, were not included with deployed APCs. 

Management agreed with the OIG’s recommendations to develop 

and document APC requirements; prepare schedules and cost 

estimates for planned future upgrades not already on contract; 

complete site security reviews; and ensure contractor employees 

obtain appropriate security clearances. Additionally, management 

agreed to coordinate the site selection process for future APCs with 

all affected stakeholders, submit quarterly DAR compliance reports 

that fully communicate missing APC functionality and operational 

concept changes, and submit a DAR Modification Request for Board 

of Governor consideration and approval, if necessary, that identifies 

additional capital funding requirements. Finally, management agreed 

to capitalize contractor Customer Acceptance Testing costs; however, 

they disagreed with recommendations to capitalize certain other 

program costs. The OIG considers management’s disagreement with 

the recommendations as unresolved and is pursuing these issues 

through the formal audit resolution process. 

Beach Haven, New Jersey Post Office, CA-OT-05-002

The OIG examined documentation detailing noise and other concerns 

that neighboring residents voiced regarding operations at the Beach 

Haven, N.J., Post Office. The OIG discussed those concerns with the 

Postal Service Law Department and South Jersey District personnel 

and learned that postal officials participated in non-binding mediation with neighboring residents on October 7, 2004. The Postal Service plans to continue discussions to resolve concerns and agreed to 

meet with the residents again. The OIG believes this matter is best 

addressed by first allowing the agreed-upon mediation to proceed; 

and therefore does not plan to perform any further review. 

Contract Reviews 

The Defense Contract Audit Agency (DCAA) performed 15 contractrelated audits during this reporting period at the OIG’s request. The 

audits evaluated cost proposals associated with Robotic Containerization Systems, Automatic Tray Sleevers, and Automatic Flat Sorting 

Machines. The DCAA also audited certified price adjustment claims, 

verified incurred costs, and determined whether forward pricing 

rates were reasonable. The OIG considered most of the cost proposals acceptable for negotiating fair and reasonable rates; however, 

the claims were not considered to be acceptable as a basis for 

negotiation of a fair and reasonable settlement. In total, $17 million 

was identified as potential contract savings.

Corporate Contact Management — GAO Fraudnet, 

CA-OT-05-001

The OIG conducted a limited review of allegations of mismanagement, by the Postal Service and Convergys Corporation, in developing a new customer contact system. The OIG found that the Postal 

Service entered into the contract to streamline and consolidate 

various customer-call centers and estimates substantial savings with 

this initiative. The OIG found no evidence that key applications were 

deemed out of scope or that there were multiple contracts; contract 

terms that permit Convergys to subcontract portions of the work; 

and Convergys failure to meet the milestone required for receipt of 

its associated bonus payment.

Efficiency Review of the Mansfield, Ohio, Main Post Office, 

NO-AR-05-004

An OIG audit of the Mansfield Main Post Office (MPO) found it could 

improve operational efficiency by reducing 24,000 mail processing workhours, based on the assumption that mail volume will not 

significantly change from FY 2003 levels. This would allow the 

Mansfield MPO to achieve 90 percent of its targeted goals and could 

produce a cost avoidance of approximately $7.6 million based on 

labor savings over 10 years. 

The OIG also concluded that moving the outgoing mail operations 

from the Mansfield MPO to the Akron P&DC would save 28,000 

workhours at the Mansfield MPO, improve network efficiencies, 

and potentially upgrade delivery service. This workhour reduction 

could produce a cost avoidance of more than $9.6 million based 

on labor savings over ten years. The OIG reported this amount, and 

the approximately $7.6 million in labor savings, as funds put to 

better use. 

Field Operations Reviews

The OIG audited the financial operations of 77 installations, including 34 post offices, 38 business mail entry units, and 5 self-service 

and automated postal centers. At 11 of the 77 installations, financial 

transactions were reasonably and fairly presented and generally 

internal controls were in place and effective. At 65 of the 77 installations, although financial transactions were reasonably and fairly 

presented in the accounting records, and generally internal controls 

were in place and effective, the OIG noted some internal control and 

compliance issues. For example, there were issues with account-
October 1, 2004, through March 31, 2005 | 51

SUPPLEMENTAL INFORMATION

ability, cash, stamps and mail acceptance and verification. Also, at 

one of the 77 installations, internal controls were not in place. 

For the FY 2005 Cost and Revenue Analysis, the OIG observed 

statistical tests conducted at 13 Postal Service installations. Data 

collectors generally followed Postal Service policies and procedures 

when conducting statistical tests, except for some test errors at nine 

of the 13 installations.

In support of an independent public accounting firm’s opinion on the 

Postal Service’s financial statements, the OIG examined the financial 

activities and accounting records at Postal Service Headquarters 

and the Information Technology and Accounting Service Centers 

in St. Louis, Mo.; San Mateo, Calif.; and Eagan, Minn. The OIG also 

audited computer systems that generate financial data. The audit 

determined management’s policies and accounting procedures 

conformed to 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.

Fiscal Year 2004 Postal Service Financial Statements Audit — 

Eagan Information Technology and Accounting Service Center, 

FT-AR-05-005

The OIG conducted its annual audit of the Postal Service’s financial 

statements, in support of the independent public accounting firm’s 

overall audit opinion on the Postal Service’s financial statements. 

The audit disclosed that management’s financial accounting 

policies and procedures conform to generally accepted accounting 

principles and provide for an adequate internal control structure. 

Additionally, accounting transactions at the Eagan Information 

Technology and Accounting Service Center that affect the general 

ledger account balances were fairly stated in the National Trial 

Balance Report in accordance with generally accepted accounting 

principles. (The National Trial Balance Report represents the general 

ledger account balances that make up the financial statements of 

the Postal Service.)

The OIG did not identify any instances of noncompliance with laws 

and regulations that have a direct and material effect on the financial 

statements. However, the OIG identified an opportunity to improve 

the Postal Service’s impact on the overall adequacy of internal controls. This report provided two recommendations to assist the Postal 

Service in improving the internal controls over payroll processing. 

Management agreed with the OIG’s recommendations and has 

initiatives planned to be completed by the third quarter of FY 2005. 

Fiscal Year 2004 Postal Service Financial Statements Audit — 

San Mateo Information Technology and Accounting Service 

Center, FT-AR-05-007

The OIG audited the financial activities and accounting records at 

the Information Technology and Accounting Service Center (IT/ASC) 

in San Mateo, Calif., for the fiscal year ending September 30, 2004. 

The audit disclosed that management’s financial accounting policies 

and procedures conform to generally accepted accounting principles 

and provide for an adequate internal control structure. 

Additionally, accounting transactions at the San Mateo IT/ASC 

impacting the general ledger account balances were fairly stated 

in the national trial balance in accordance with these principles. 

Also, the OIG did not identify any instances of noncompliance with 

laws and regulations that have a direct and material effect on 

the financial statements; however, the San Mateo IT/ASC did not 

include all payments in its universe of invoices selected for selfaudit. Specifically, invoices coded to be paid the next business day 

were excluded from selection as part of the IT/ASC’s self-audit. As 

a result, the San Mateo IT/ASC did not effectively use its self-audit 

program to ensure it correctly entered invoices into the Accounts 

Payable Accounting and Reporting System II (APARS II) and to identify systemic processing errors. 

During the audit, the San Mateo IT/ASC took corrective action to 

modify the timing of the APARS II selection of invoices for self-audit. 

The OIG confirmed that the system now selects invoices prior to 

processing invoices for payment, to include those invoices entered 

into APARS II the previous day and coded for payment on the next 

business day. The results of the audit were discussed with Postal 

Service management on October 26, 2004, but management chose 

not to respond because there were no recommendations. 

Fiscal Year 2004 Postal Service Financial Statements Audit — 

Washington, D.C., Headquarters, FT-AR-05-006

The OIG audited selected financial activities and accounting 

records at Postal Service Headquarters for the fiscal year ending September 30, 2004. The audit disclosed that management’s 

financial accounting policies and procedures conform to generally accepted accounting principles and provide for an adequate 

internal control structure. Additionally, general ledger account 

balances for investments, unemployment compensation, workers’ 

compensation, and Governors’ and officers’ travel and expenses 

were stated in the national trial balance in accordance with these 

principles. Also, the OIG did not identify any instances of noncompliance with laws and regulations that have a direct and material 

effect on the financial statements. 

In FY 2004, the Postal Service switched from reporting financial data 

based on 28-day accounting periods to monthly reporting and implemented a new general ledger system, therefore making a number of 

changes to its legacy chart of accounts, including the elimination and 

creation of accounts. The Postal Service’s general ledger account 

balances remained consistent with the general classification of 

accounts from the previous year. The asset, liability, equity, income, 

expense, and commitment accounts were appropriately classified 

in the new general ledger system. The results of the audit were 

discussed with Postal Service management on October 25, 2004. 

Imprest Fund at the Former Columbia, Maryland, Facilities 

Service Office, FT-MA-05-001

The OIG reviewed an imprest fund at the former Columbia, Md., 

Facilities Service Office, in response to a request from Postal Service 

Headquarters to review inactive imprest funds. The report presents 

an issue concerning $1,470 in unaccounted funds, which were 

reported as questioned costs. The request listed eight imprest funds 

(totaling $17,400) for which personnel at Postal Service Headquarters 

lacked sufficient status reports. The San Mateo Accounting Service 

Center (ASC) personnel did not adequately monitor the imprest fund 

because one of their technicians was not familiar with the requirement to monitor, initiate action, or report on funds not maintained in 

accordance with Postal Service policies and procedures. As a result, 

the Postal Service could not determine what happened to $1,469.58 

of the recorded $2,000 imprest fund. 
52 | Semiannual Report to Congress

Mail Transport Equipment Service Center Network — Network 

Realignment: Pittsburgh, Detroit, Cleveland, NL-AR-05-001

Postal Service officials are realigning the Mail Transport Equipment 

Service Center (MTESC) network to integrate or consolidate operations, close facilities, and save money. As part of this realignment, 

officials planned to close service centers in Pittsburgh and Detroit, 

and consolidate operations in Cleveland. On March 24, 2004, the 

Board of Governors asked the OIG to examine the plan and notify 

them before the Postal Service moved operations to Cleveland, after 

receiving an allegation that the Postal Service never solicited revised 

pricing from the incumbent contractor and that retaining operations 

in Pittsburgh and Detroit would be cheaper than moving to Cleveland. The Cleveland contract award was scheduled for May 7, 2004. 

Ultimately, the Postal Service decided not to consolidate operations 

to Cleveland. Instead, on August 6, 2004, management entered into 

a five-year agreement with the incumbent Pittsburgh-Detroit contractor and anticipates savings of more than $21.6 million over a 

five-year period compared to current costs. 

Postal Service Board of Governors’ Travel and Miscellaneous 

Expenses and Officers’ Travel and Representation Expenses for 

Fiscal Year 2004, FT-AR-05-004, FT-AR-05-003

For the fiscal year ending September 30, 2004, the Board of Governors’ expenses of $234,000, and the officers’ expenses of $1.4 million were properly supported and complied with Board of Governors’ 

guidelines and Postal Service policies and procedures. 

Reports Distribution, IS-AR-05-001

The Postal Service’s control of the distribution of print outputs by 

the Eagan Host Computing Services is essential to increasing efficiency and minimizing associated costs. For this to occur, the Postal 

Service must establish a steering committee to promote its existing 

electronic infrastructure and implement an output distribution policy 

that conveys its preference for using electronic media over printing 

and distributing hardcopies of reports. Areas of opportunity exist for 

increasing the use of electronic media to print outputs that have an 

electronic distribution method already in place and are capable of 

being distributed electronically as part of ongoing initiatives. In addition, the Postal Service can reduce the frequency for mailing some 

print outputs. The financial impact of these specific opportunities is 

$3,220,411, annually. 

The OIG agreed with Postal Service managers that a one-time offsetting investment cost for conversion of hardcopy to electronic report 

distribution may be required. However, additional benefits may also 

be achieved by evaluating outputs and cost factors that the OIG did 

not consider in its review.

DEVELOPING PEOPLE

Complaints of a Hostile Work Environment at a South Florida 

District Priority Mail Processing Center, HM-AR-05-001

The OIG found that a hostile work environment did not exist at the 

Miami Priority Mail Processing Center (PMPC) as a whole; however, 

it may have existed for some employees because supervisors and 

managers, working in a diverse environment failed to address 

employee issues consistently. The OIG found no evidence that 

employee treatment was based on race. Additionally, South Florida 

District and Miami PMPC managers were made aware of employee 

complaints of a hostile working environment on at least two occasions and responded according to Postal Service policies and procedures with a fact-finding investigation and report issued on April 15, 

2004, to the South Florida Human Resources Manager. 

After receiving the OIG’s report, these managers developed an action 

plan on June 21, 2004, to resolve the identified issues. The actions 

taken include ongoing monthly diversity training and activities for all 

employees in the following areas: anti-harassment, sexual harassment, equal employment opportunity, and sensitivity to others. Additionally, periodic meetings are held with supervisors and managers 

to ensure they are communicating and enforcing clear, uniform 

policies regarding employee issues such as attendance, light duty, 

breaks, and leaving the building while on the clock. 

The OIG believes management addressed the issues raised by 

employees at the Miami PMPC and their proposed action plan should 

help improve the workplace environment; therefore, no recommendations were made. Management generally agreed with most of the 

report’s information and agreed with the OIG’s overall conclusion 

that there are workplace issues at the Miami PMPC that need to 

be addressed. 

GROWING REVENUE

Mail Evaluation, Readability and Lookup INstrument Utilization 

at the Business Mail Entry Units, NO-AR-05-001, 

NO-AR-05-002, NO-AR-05-003, NO-AR-05-005

These reports present the results of OIG self-initiated audits of 

the Mail Evaluation, Readability and Lookup INstrument (MERLIN) 

utilization at Business Mail Entry (BMEU) associated detached mail 

units. The OIG assessed whether BMEU’s were fully using MERLIN 

machines to verify business mailings and whether MERLIN utilization 

rates have generally met the Postal Service target of 100 percent 

verification of large mailings. 

The OIG examined how well BMEU’s collected additional postage 

assessed by MERLIN verifications and controlled overwrites of revenue assessed by MERLIN to assure that additional postage would be 

collected. The OIG recommended management comply with existing 

Postal Service guidance for documenting MERLIN Overwrite Reports. 

In addition, the OIG recommended management review and approve 

or disapprove all overwrites of MERLIN assessments. 

Management was responsive to OIG recommendations that they 

reassess staffing and scheduling, collect additional postage 

assessed by MERLIN verifications, and issue clarifying instructions 

on overwrite procedures.

Postal Service’s Negotiated Service Agreement with Capital 

One, ST-AR-05-001

The OIG completed a self-initiated audit of the Postal Service’s negotiated service agreement (NSA) with Capital One Services, Inc. (Capital 

One), to determine the extent that the NSA achieved the intended 

results of increasing mail volume, revenue, and cost savings; and 

to determine whether the Postal Service could rely on its systems to 

obtain accurate and timely data on mail volume and revenue. 

The audit found the Postal Service could not rely on its Permit System 

to account for all of Capital One’s mail volume because a third-party 

mailer did not provide mail volume data specific to Capital One. 

Consequently, the Postal Service had to manually calculate a portion 

of Capital One’s mail volume, which may not accurately account for 

the mail volume data needed to determine whether Capital One is 

entitled to a refund. In addition, postal officials did not establish a 

dedicated team, throughout the NSA process, to ensure adequate 

involvement by the necessary Postal Service departments. This 
October 1, 2004, through March 31, 2005 | 53

SUPPLEMENTAL INFORMATION

occurred because the Postal Service did not have formal policies and 

procedures that defined the roles, responsibilities, and established 

timelines to process an NSA. 

As a result, Postal Service departments may encounter internal 

delays and experience a breakdown in communication throughout 

the process. The OIG recommended the Postal Service include a 

clause in all future NSAs to require customers to stipulate that all 

third-party mailers provide the Postal Service with customer specific 

mail volume data. Management disagreed in part with this, stating 

that all data used to calculate Capital One’s volumes are taken from 

either the Permit or PostalOne! Systems, but agreed to look for 

ways to explicitly describe obligations of third parties in providing 

mail volume. However, management felt third-party mailers were 

not needed to provide data not relevant to an NSA. The OIG also 

recommended the Postal Service finalize the draft Handbook for 

Negotiated Service Agreements, and management agreed to finalize 

the draft by December 2004. 

PRESERVING INTEGRITY 

AND SECURITY

Audit of Postal Inspection Service’s Emergency Preparedness, 

SA-AR-05-001

The Postal Inspection Service (USPIS) has embraced the requirements of Homeland Security Presidential Directive 5 and is taking 

action to develop a USPIS-Integrated Emergency Management Plan 

(IEMP) to fully meet the requirements while ensuring continuity with 

the Postal Service’s IEMP. In July 2004, the USPIS established a 

working group of subject matter experts made up of postal inspectors from various divisions in the USPIS to help achieve a USPIS 

all-hazard, one-plan goal. The USPIS has established a plan of action 

with target dates for its IEMP initiative. This plan will assist the USPIS 

with developing procedures to more effectively protect people and 

maintain operations during emergencies.

Click-N-Ship Security Vulnerability Assessment, IS-CS-05-002

The OIG conducted a security vulnerability assessment on selected 

servers that support the Click-N-Ship application to assess the security of selected servers and to determine whether the servers were in 

compliance with current Postal Service server hardening standards. 

The Click-N-Ship application is generally secure; however, security 

can be enhanced by frequent monitoring and review of system configurations and compliance with Postal Service standards. Although 

the report did not contain formal recommendations, the OIG urged 

system administrators to review the information provided and use it 

as a tool to assist in locating potential weaknesses, establishing priorities for corrective action, and implementing repairs as necessary. 

Computer Security at the Eagan, Minnesota, and San Mateo, 

California, Information Technology and Accounting Service 

Centers, IS-AR-05-003

The OIG audited information systems controls for selected servers, at 

the Eagan, Minn., and San Mateo, Calif. Information Technology and 

Accounting Service Centers, and found that Postal Service servers 

were reasonably secure. The Postal Service has developed — and 

continues to update — corporate-wide policies and procedures for 

the purpose of building a consistent and secure server configuration. 

However, the audit found that management could improve server 

security by reviewing the current configurations. Management concurred with the two recommendations in the report. 

Oracle Security Environment at the Eagan and San Mateo 

Information Technology and Accounting Service Centers, 

IS-AR-05-002

The OIG audited information systems controls for selected Oracle 

applications at the Eagan, Minn., and San Mateo, Calif., Information Technology and Accounting Service Centers and found that the 

Oracle security environment related to the selected applications 

is reasonably secure. However, Postal Service management could 

improve controls. Management concurred with this recommendation and agreed to make corrections by December 30, 2004. 

Security Assessment (PhoneSweep) of PBX Site Event Buffers, 

IS-CS-05-001

The OIG utilized PhoneSweep software to test 442 PBX site event 

buffers managed by Sprint and found that the telecommunications 

professionals are managing them well. PhoneSweep attempts to 

identify systems attached to remote modems and find areas of poor 

security by guessing common usernames and passwords. The OIG 

was able to connect to and identify site event buffers (modems), 

but were unable to penetrate them. Summary results show that 

PhoneSweep did not succeed in penetrating any systems. However; 

PhoneSweep did not complete the full brute force routine, because 

site event buffers were designed to freeze or stop sessions after 

attempts by the software the OIG used. No inconsistent results were 

found during this PhoneSweep scan. Finally, the OIG noted that 

security alerts are functioning as intended and security incidents 

identified by Sprint were reported to the Postal Service as required.
54 | Semiannual Report to Congress

SUPPLEMENTAL INFORMATION

INVESTIGATIVE SYNOPSES

Acceptance of Gratuities and Loans Cost Senior Postal 

Manager His Job 

The Postal Service fired a senior Postal Service manager at the 

Dallas-Fort Worth Airport, on January 6, 2005, for accepting gifts and 

loans from a national contractor that he managed. 

The contractor provided passenger, cargo, and ramp handling services to major commercial and charter airlines, and held a Postal 

Service contract for the Dallas-Fort Worth Airport from May 1991 

to May 2004. During this period, the manager took $10,000 in 

gratuities, including meals and alcoholic beverages, and $3,500 in 

cash loans from the contractor. The contractor also employed the 

manager’s spouse. 

Contractor Jailed for Stealing $861,541 from Postal Service

On December 3 and 6, 2004, a California Superior Court judge 

sentenced the owner of a vehicle repair shop to a two-year prison 

term and payment of full restitution for stealing $861,541 from the 

Postal Service. Between August 2001 and October 2003, the man 

submitted Voyager credit card charges for services and gasoline 

not provided. He had held a contract since 2001 to maintain and 

provide minor repair to Postal Service delivery vehicles.

On October 8, 2004, the owner pled guilty to one of 10 counts of 

theft. To date, $99,329 of the stolen funds have been recovered, 

with $97,000 of the reimbursement from a U.S. Bank credit to the 

Postal Service.

Defective Roofing Product Investigation Nets Postal Service 

More Than $2 Million 

The Postal Service has recovered $2,054,004 to date by opting into a 

class-action suit involving phenolic foam roofing insulation (PFRI). Of 

this amount, $323,220 was recovered during this semiannual reporting period. PFRI can corrode metal roof decks and was installed on 

various Postal Service facilities. It was manufactured and sold from 

1980 through approximately 1992.

Opened in 2001, this national investigation is based on a referral 

from the Postal Service Law Department in St. Louis, Mo., indicating 

that two manufacturers of PFRI concealed the fact that it corrodes 

metal roofing decks. OIG agents mined databases to identify postal 

facilities where PFRI might be installed. They narrowed an initial list 

of more than 8,000 postal facilities to 343 facilities that required 

additional testing to determine the presence of PFRI. Of those, 

the OIG identified 58 facilities with PFRI. Additional recoveries are 

expected from outstanding claims. 

False Medical Claims Put Two Physical Therapists in Jail, Aide 

on House Arrest 

Two physical therapists and a physical therapist aide were convicted 

of fraud for submitting claims for health-care services that were 

neither necessary nor actually performed. The men submitted false 

claims to Medicare, workers’ compensation programs (including the 

OWCP for Postal Service employees), and private health insurers. 

On November 2, 2004, a U.S. District Court judge in Charlotte, N.C., 

sentenced one therapist to 41 months imprisonment and ordered 

him to pay $281,064 in restitution. The judge ordered the aide to six 

months house arrest with work release. On September 10, 2004, 

the other therapist was sentenced to 16 months imprisonment. The 

OIG conducted this investigation jointly with the U.S. Department of 

Health and Human Services, FBI, and state law enforcement offices.

Jury Convicts Mail Handler of Fraud, Helps Postal Service Avoid 

$800,000 in Disability Benefits

A Postal Service mail handler was convicted, by a jury in U.S. District 

Court in Martinsburg, W.Va., on March 31, 2005, on 26 counts of 

fraud, resulting in an $800,000 cost avoidance to the Postal Service. 

The jury found the mail handler guilty on two counts of defrauding 

the OWCP by concealing the true nature of his physical condition. He 

was also convicted on 5 counts of mail fraud and 19 counts of wire 

fraud. The mail handler had been on disability, since 1996, and had 

received nearly $163,000 in compensation for work-related injuries. 

OIG investigators found that he was routinely exceeding his medical 

restrictions. 

The mail handler faces a maximum sentence of 20 years imprisonment and a $250,000 fine on the mail and wire fraud counts; and a 

maximum sentence of five years imprisonment and a $250,000 fine 

on the workers’ compensation fraud convictions. 

Neurologist and Wife Imprisoned for Health-Care Fraud, Must 

Pay Government $445,600

A Virginia neurologist and his wife were sentenced, on February 25, 

2005, for conspiracy and health-care fraud, in U.S. District Court in 

Alexandria, Va. Both were convicted, on November 30, 2004, of one 

count of conspiracy and 61 counts of health-care fraud. Both were 

ordered to spend 41 months in jail, followed by 36 months supervised probation. The neurologist was also ordered to pay $445,598 

in restitution to the government. 

OIG investigators found that the physician had treated 18 Postal 

Service employees for $765,656 in medical service. He improperly 

received $65,526 from OWCP by upcoding billing for services not 

rendered, and misrepresenting dates of services. 

Neurologist Indicted on 188 Counts of Health-Care and Mail 

Fraud

The U.S. Attorney’s Office in Oakland, Calif., filed an indictment, 

on January 20, 2005, charging a neurologist with 188 counts of 

health-care and mail fraud. (This indictment superseded one filed on 

October 28, 2004, that charged the neurologist with 102 counts of 

fraud.) The physician allegedly submitted fraudulent claims to various health-care benefit programs for services not provided to Postal 

Service employees, Medicare beneficiaries, and private insurance 

claimants. Since 1990, the Postal Service has paid the doctor more 

than $391,969, under OWCP, for 32 postal employees. 

The Medical Board of California issued a “no-practice” order against 

the doctor on March 2, 2004. His physician’s and surgeon’s certificate 

was also suspended. A trial date is scheduled for October 2005.

Operation Bad Voyage Indicts 46, Arrests 41, and Seizes 

44 Vehicles

In the Operation Bad Voyage case, the OIG and other state and 

federal agencies arrested 41 individuals on February 16, 2005, and 

seized 44 vehicles, including two tanker trucks with 4,500- and 

9,500-gallon capacities. The operation also resulted in a 546-count 

indictment filed against 46 individuals and 10 companies in the 11th 

Judicial Circuit Court in Miami-Dade County, Fla. Since July 2003, 

more than 270 account numbers from Postal Service Voyager Fleet 

Cards and many Personal Identification Numbers (PINs) have been 

compromised to make approximately $400,000 in fraudulent fuel 

purchases throughout the Miami area. 

For the period October 1, 2004, through March 31, 2005
October 1, 2004, through March 31, 2005 | 55

SUPPLEMENTAL INFORMATION

To date, 73 arrests, 78 indictments, 1 information, and 5 sentencings 

have resulted from this OIG joint investigation with the Miami-Dade 

Police Department, Florida Department of Environmental Protection, 

U.S. Department of Transportation OIG, and U.S. General Services 

Administration OIG.

Postal Official Admits Taking Gratuities from Subcontractor

On October 28, 2004, a former high-level Postal Service manager pleaded 

guilty to one count of knowingly receiving a contribution and supplementation to his salary from a source other than the Postal Service. He was 

charged in an information filed in U.S. District Court in South Bend, Ind., on 

September 23, 2004. 

OIG investigators found that the manager accepted entertainment, in the 

form of golf outings, meals, and drinks, from a Postal Service subcontractor, 

from 1998 to 2000. The manager was involved in, and supervised those 

involved in, evaluating contract bid proposals. The contract ultimately was 

awarded to the subcontractor’s prime contractor. The former manager was 

scheduled for sentencing on April 26, 2005, and is no longer employed by 

the Postal Service. 

Printer Admits Bribery to Win Postal Contracts

The owner and president of a local printing company were fined $10,000 

by a U.S. District Court judge in Washington, D.C., on April 8, 2005. The 

printer pleaded guilty, on January 24, 2005, to paying gratuities to a 

Postal Service purchasing specialist. From 1996 to 2003, the printer paid 

gratuities to the employee, including a payment of $11,575 to his divorce 

attorney, in exchange for favorable treatment on numerous printing contracts. OIG special agents confirmed that the Postal Service awarded the 

printing company 212 contracts, with a value of $4.7 million. The printer 

provided various services to the Postal Service, including the production of 

brochures, labels, and posters. 

This investigation was opened as a spin-off from an earlier investigation 

of the Postal Service purchasing specialist, who accepted more than 

$771,000 in bribes and gratuities from various Postal Service printing 

vendors in the Washington D.C., area. The printer is the seventh person in 

this case to plead guilty, including the purchasing specialist and five other 

printing vendors.

Purchasing Specialist Jailed for Taking $770,000 in Bribes

A Postal Service purchasing specialist was ordered, by a U.S. District Court 

judge in Washington, D.C., to spend 46 months in jail and pay $771,363 in 

restitution to the Postal Service, on February 11, 2005. The former employee 

signed a plea agreement, on October 7, 2004, admitting to receiving bribes 

and taking part in a conspiracy to commit money laundering. 

The OIG determined that the purchasing specialist steered Postal Service 

contracts to various printing companies for more than 12 years. The 

specialist used fictitious front companies and dummy bank accounts to 

launder some of the bribes. This investigation also resulted in guilty pleas 

from a number of the printing vendors that were seeking and obtaining 

printing contracts with the Postal Service through the purchasing specialist. Payments to some of the vendors go as far back as 1991. 

Top Officers of Postal Subcontractor Guilty of Falsifying Payrolls

On March 8, 2005, the vice president of a construction and restoration 

firm pleaded guilty in U.S. District Court, in Brooklyn, N.Y., to making false 

statements to the Postal Service regarding certified payrolls. The firm’s 

president was expected to plead guilty to the same charge, at a court 

appearance scheduled for April 21. Both the president and vice president 

were arrested on December 14, 2004. 

The firm was the subcontractor on a $7 million contract that the Postal Service awarded for renovations at the John F. Kennedy International Airport 

Post Office, in Jamaica, N.Y. The subcontractor received about $470,000 

for the work performed at Kennedy, from October 7, 2001, through May 13, 

2002. Evidence revealed that the president and vice president gave false 

statements to the Postal Service by underreporting the number of employees and overreporting what the company paid them. The OIG conducted 

this investigation jointly with the Department of Labor OIG and the New 

York City Department of Investigation. 

Trucker Investigation Saves Postal More than $740,000 in 

Disability Benefits

An OIG investigation of a Postal Service tractor-trailer operator resulted 

in a potential cost avoidance to the Postal Service of more than 

$740,000. On January 28, 2005, the operator pleaded guilty, in U.S. 

District Court in Denver, Co., to one count of making false statements 

to obtain federal employee’s compensation. Investigators determined 

that the operator fraudulently received more that $345,000 in workers’ 

compensation benefits. 

The operator was injured on the job, on January 2, 1995, when he slipped 

and fell on ice in a parking lot. He filed a disability claim, which was 

accepted by the Department of Labor, OWCP, on March 21, 1995. OIG 

investigators found that the driver operated a car sales business, from 

June 2003 until August 2004, but failed to claim any type of employment 

on annual OWCP questionnaires that he submitted in May and June 2003. 

He was arrested on October 27, 2004, and scheduled for sentencing on 

April 15, 2005. The OIG investigated this case jointly with the USPIS. 

Truck-Trailer Contractor to Pay $1.7 Million for Criminal False Claims 

A San Francisco U.S. District Court judge ordered a Postal Service trucktrailer contractor who falsified repair estimates to pay a $500,000 criminal 

fine and $1.2 million to the OIG to cover investigative costs, on October 

5, 2004. The company pleaded guilty, on August 3, 2004, to one count 

of “making and using a false writing and document.” OIG investigators 

learned that the Texas contractor, who leases truck trailers for mail delivery, filed nearly 2,000 claims for damage reimbursement supported by 

forged and fraudulent bids and estimates. More than 95 percent of the 

claims submitted between 1997 and 2002, contained a falsified estimate 

for repair. The contractor also colluded with certain preferred vendors to 

undermine the required competitive bidding process. As a condition of its 

plea agreement, the company entered into a corporate integrity agreement with the Postal Service, requiring the implementation of a quality 

assurance program to ensure its compliance with postal regulations and 

sound business ethics. 
56 | Semiannual Report to Congress

SUPPLEMENTAL INFORMATION

FREEDOM OF INFORMATION ACT

ACTIVITIES

For the period October 1, 2004, through March 31, 2005

REQUESTS Number of Requests

Carryover from prior period 23

Received during period 77

Total on hand during the period 100

OIG ACTIONS Number of Requests

Processed during the period 95

Released (34)

Withheld (8)

No records (29)

Referred to Postal Service or other agency 22

Otherwise closed 2

Total Processed During the Period 95

Balance at end of period (pending) 5
October 1, 2004, through March 31, 2005 | 57

SUPPLEMENTAL INFORMATION

SUPPLEMENTAL INFORMATION

GLOSSARY

Advance fee scheme – Obtaining fees purporting to 

secure buyers or obtain loans.

APC – Automated Postal Center, a kiosk that dispenses 

postage and provides several mailing services. APC’s 

allow customers to weigh, calculate, and apply exact 

postage, and ship Express Mail and Priority Mail items, 

packages and First-Class letters right at the kiosks. They 

also provide easy access to postal products and services.

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.

BMEU – See Business mail entry unit.

Bulk mail – Mail that is rated for postage partly by weight 

and partly by the number of pieces in the mailing. The term 

is generally used to refer to Standard Mail (A).

Business mail entry unit (BMEU) – The area of a postal 

facility where mailers present bulk, presorted and permit 

mail for acceptance. The BMEU includes dedicated 

platform space, office space and a staging area on the 

workroom floor.

Biohazard Detection System – The Biohazard Detection System (BDS) is a system that is used to detect the 

presence of harmful bio-agents that may exist in mailpieces 

that are processed in Processing and Distribution Centers 

(P&DCs) operated by the Postal Service. The BDS continuously monitors the air for hazardous aerosol contaminants 

that may be released by mail being handled by one or 

more systems of United States Postal Service (USPS) mail 

processing equipment.

Click-N-Ship – Click-N-Ship is an online, self-service 

mailing application that allows customers to enter a delivery 

address and weight, choose a service shipping option, 

method of payment, and then print out postage-paid 

shipping labels.

END initiative – The END initiative is the next step in the 

Postal Service’s efforts to create a flexible logistics network 

to reduce costs, increase overall effectiveness, and improve 

consistency of service. 

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.

False billings scheme – Mailing solicitations in the guise 

of billings.

First-Class Mail – A class of mail that includes all matter 

wholly or partly in writing or typewriting, all actual and 

personal correspondence, all bills and statements of 

account, and all matter sealed or otherwise closed against 

inspection. First-Class Mail comprises three subclasses: 

postcards, letters and sealed parcels, and Priority Mail. Any 

mailable matter may be sent as First-Class Mail. First-Class 

Mail is a Postal Service trademark.

Flat–size mail – A mailpiece that exceeds one of the 

dimensions for letter-size mail (11-1/2 inches long, 6-1/8 

inches high, 1/4 inch thick) but that does not exceed the 

maximum dimension for the mail processing category 

(15 inches long, 12 inches high, 3/4-inch thick). 

Dimensions are different for automation rate flat-size 

mail eligibility. Flat-size mail may be unwrapped, sleeved, 

wrapped or enveloped. 

Fraud internet schemes – Fraudulent schemes using the 

Internet with a connection to the mail.

FY – Fiscal Year.

Highway contract transportation routes – A route served 

by a postal contractor to carry mail by highway between 

designated points. 

Logistical support network – Activities or programs 

that support the transportation of mail, such as fuel 

procurement, mail transport equipment procurement and 

management, and vehicle management and maintenance.

Lottery scheme – Advertisements seeking money or 

property by mail for participation in schemes to win prizes 

through chance.

Merchandise failure to pay scheme – Mail order 

merchandise acquired without providing payment.

Merchandise misrepresentation scheme – Mail order 

merchandise or services that are materially misrepresented 

in advertising.

Negotiated Service Agreement (NSA) – A contractual 

agreement between the Postal Service and customers that 

gives pricing incentives in exchange for a shift in customer 

behavior that benefits the Postal Service.

OWCP – Administered by the U.S. Department of Labor, 

the Office of Workers’ Compensation Programs (OWCP) 

provides direct compensation to providers, claimants, and 

beneficiaries.

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 
58 | Semiannual Report to Congress

as nearly as practicable total estimated costs.” 

(Public Law 91-375, signed August 12, 1970.)

Priority Mail – First-Class Mail that weighs more than 

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

matter weighing 13 ounces or less. Priority Mail provides 

expedited delivery.

Processing and Distribution Center/Facility (P&DC/F) – 

A central mail facility that processes and dispatches part or 

all of both incoming mail and outgoing mail for a designated 

service area. It also provides instructions on the preparation 

of collection mail, dispatch schedules, and sorting plan 

requirements to mailers.

Remote Encoding Centers – When all computer-based 

means of resolving address information have been 

exhausted at a mail facility, an image of an address is sent 

to a remote encoding center (REC), where operators use 

video display terminals and keyboards to process the address information. The results of this encoding are sent back 

electronically to the facility that has the mailpiece, thereby 

keeping the mailpiece in the automated mailstream.

Retail facility – A postal unit of a Post Office and its 

subordinate units as well as military Post Offices that sell 

postage stamps and provide other postal retail services to 

customers. The subordinate units are within the service 

area of a main Post Office and include Post Office stations, 

Post Office branches, contract postal units and nonpersonnel units.

Standard Mail – A class of mail consisting of mailable 

matter that is not required to be mailed as First-Class Mail 

or is not mailed as Periodicals.

Unsupported costs – Costs that are questioned because 

of inadequate supporting documentation for the proposed/

claimed costs.

Verification – The procedural checks of a mailing 

presented by a mailer to determine proper preparation and 

postage payment. 

VMF – A Vehicle Maintenance Facility (VMF) is where the 

Postal Service maintains and repairs vehicles.

Work at home scheme – Schemes, such as envelope 

stuffing, that do not provide home employment.

“The following are among the many trademarks owned by the United States Postal Service: United States Postal Service®, U.S. Postal Service®, 

USPS®, First Class Mail®, USPS.com®, Click-N-Ship®, Automated Postal Center®, APC®, Express Mail®, Priority Mail®, Standard Mail®, Parcel 

Post®, The Postal Store®, Media Mail®, Customized Market Mail®, United States Postal Service Office of the Inspector General®, Post OfficeTM, 

Postal ServiceTM, Signature ConfirmationTM, Certified MailTM, Delivery ConfirmationTM, Registered MailTM, Post Office BoxTM, ZIP CodeTM, Carrier 

PickupTM and Postmaster GeneralTM. The Sonic Eagle Logo and the Mail Truck Design are also registered trademarks belonging to the United 

States Postal Service.”
OFFICE OF INSPECTOR GENERAL

Report 

Fraud, Waste, and Misconduct

CONTACT THE HOTLINE AT:

1-888-USPS OIG

1-888-877-7644 Fax: 1-866-756-6741

or www.uspsoig.gov

TTY (HEARING IMPAIRED)

1-866-OIG-TEXT

1-866-644-8398
U.S. Postal Service

OFFICE OF INSPECTOR GENERAL

1735 N. Lynn Street

Arlington, VA 22209-2020

(703) 248-2100

Fax: (703) 248-2291

Internet: www.uspsoig.gov