United States General Accounting Office

GAO Report to the Chairman, Subcommittee

on the Postal Service, Committee on

Government Reform and Oversight

House of Representatives

October 1996 U.S. POSTAL SERVICE

Revenue Losses From

Express Mail Accounts

Have Grown

G O A

years

1921 - 1996

GAO/GGD-97-3

GAO United States

General Accounting Office

Washington, D.C. 20548

General Government Division

B-262118 

October 24, 1996

The Honorable John M. McHugh

Chairman, Subcommittee on the Postal Service

Committee on Government Reform and Oversight

House of Representatives

Dear Mr. Chairman:

As you requested, we are reporting on the U.S. Postal Service’s controls

over Express Mail Corporate Accounts (EMCA). These accounts allow

customers to deposit money with the Service for using as needed to pay

for Express Mail delivery services. The Subcommittee requested this

review because of its general concern about the Service’s protection of

postage revenue and because of an allegation that some customers

obtained Express Mail services using bogus EMCAs that were not caught by

the Service. As agreed with the Subcommittee, our objectives were to

determine (1) whether there is any basis for the allegation regarding EMCA

abuse and (2), if so, what steps the Service is taking and could take to help

avoid or minimize EMCA revenue losses.

The Service first offered EMCAs in 1984 to provide a convenient way for

customers to pay for Express Mail services and thereby help stem a

decline in Express Mail business. Any individual or business can open an

EMCA and receive an EMCA number to place on Express Mail packages by

depositing as little as $100 with the Postal Service. To maintain valid

EMCAs, customers must keep at least $50 in their accounts. Express Mail

packages citing EMCA numbers can be handed to a clerk at any post office

or dropped in specially marked collection boxes located on many streets.

When a Service employee receives an Express Mail package at a post

office or mail-processing plant, the employee is to (1) make sure the EMCA

number is not on the Service’s list of invalid numbers and (2) record data

from the package so that it can be tracked by the Service and the customer

can be charged for postage. A more detailed description of the Service’s

EMCA procedures is included in appendix I.

Results in Brief As a result of our review, we found a basis for the allegation that some

mailers obtained Express Mail services using invalid EMCAs and that the

Service did not collect the postage due. In fiscal year 1995, the Service lost

Express Mail revenue of about $800,000—a 91-percent increase from fiscal

year 1993—largely because the Service had not verified EMCAs, which it

later determined were invalid. These losses occurred after Postal Service

Page 1 GAO/GGD-97-3 Express Mail Controls
B-262118 

employees spent a considerable amount of time trying to collect postage

from EMCA customers who had obtained Express Mail services using

invalid EMCAs.

The Service has few requirements for opening EMCAs and, when accepting

Express Mail packages with EMCA numbers, employees did not always do

the verifications required and also did not have access to EMCA data

necessary to ensure that the numbers were valid. Contrary to Service

policy, EMCA customers overdrew their accounts and, in some cases,

carried negative balances ranging up to $10,000 for as long as 5 months.

Further, the Service accepted and delivered some Express Mail packages

without recording any data when it accepted the packages. In these

instances, it could not accurately track and report the transactions and, in

cases where EMCAs were used, did not collect the postage.

Postal Service officials said that they eventually plan to provide employees

accepting Express Mail at post offices with automated access to valid EMCA

numbers and fund balances, which could help reduce EMCA revenue losses.

However, the date and cost of providing such access is yet to be

determined. Also, the Service has no plans to provide similar access to

employees who are responsible for verifying EMCA numbers at

mail-processing plants. Postal Service officials said that EMCA problems

occur more often at processing plants than post offices because of greater

time pressures at the plants to move the mail. Recognizing EMCA control

problems, Postal Service units recently began self-audits of EMCA

operations, which could help to reduce EMCA revenue losses.

The Service’s planned actions to improve controls over EMCA operations

will take a considerable amount of time and money to complete. Further,

even when completed, they will not have addressed several EMCA control

weaknesses we identified, such as the lack of automated EMCA data access

at processing plants. In light of the many EMCA control weaknesses

requiring corrective action and various other factors—such as

developments in the overnight delivery markets since EMCAs were first

introduced in 1984 and the fact that the Service now offers other

convenient methods (i.e., debit and credit cards) of paying postage—EMCAs

may not be the most cost-effective way of offering Express Mail customers

a way of paying postage. The Postal Service could evaluate the relative

customer convenience, cost-effectiveness, and other relevant factors to

determine whether EMCAs continue to be necessary or desirable. If EMCAs

are continued, stronger requirements are needed; and Postal Service

Page 2 GAO/GGD-97-3 Express Mail Controls
B-262118 

employees need to follow both the new and existing procedures designed

to help prevent EMCA revenue losses.

Background Express Mail, the Service’s premium service, was first offered in 1970 and

is designed to provide overnight delivery for documents and packages

weighing up to 70 pounds, which are to be tracked from the points of

acceptance to points of delivery. It is the Service’s only guaranteed

delivery service, and customers may request and receive a postage refund

if an Express Mail package is not delivered on time. As of July 1996, the

minimum postage for mailing an Express Mail package was $10.75.

Overall, Express Mail represents a relatively small portion of the Service’s

total mail volume and revenue. For fiscal year 1995, the Service reported

Express Mail volume of 56 million pieces, which generated revenue of

about $711 million, or about 1 percent of the Service’s total mail volume

and postage revenue that year.

The Postal Service began offering EMCAs in 1984 to make Express Mail

more attractive to customers by giving them a more convenient way to pay

postage. Around that time, the Postal Service took other steps as well to

retain Express Mail customers. For example, the Postal Service’s 1986

annual report to Congress shows that after Express Mail volume dropped

by 8.7 percent between fiscal years 1985 and 1986, it “. . . moved

aggressively to stop the decline and to make Express Mail service more

competitive.” According to the 1986 report, the Postal Service

implemented an Express Mail morning-delivery program in 30 cities,

placed 10,000 Express Mail collection boxes on the streets, and introduced

a new Express Mail letter envelope in 1986.

During fiscal year 1995, customers used EMCAs to pay about $139 million in

postage on about 8 million Express Mail packages, or 13 percent and

16 percent of the Service’s total Express Mail volume and revenue,

respectively. About 90 percent of all EMCA transactions were for domestic

Express Mail, and the balance for international Express Mail. In addition

to EMCAs, Express Mail customers can pay postage with cash, checks, and

postage meters. Recently, the Postal Service has begun making debit and

credit cards increasingly available for use by Express Mail customers and

other postal customers.

The Service’s Vice President for Marketing Systems, under the Senior Vice

President for Marketing, has overall responsibility for Express Mail

Page 3 GAO/GGD-97-3 Express Mail Controls
B-262118 

procedures and management oversight. Employees at post offices and

mail-processing plants where Express Mail is accepted from customers

and prepared for delivery are responsible for implementing the Service’s

EMCA policy and procedures.

Related GAO Reports In recent years, the House Subcommittee on the Postal Service, the U.S.

Postal Service, and we have received allegations of fraudulent schemes to

evade payment of postage. In addition, we have reported serious

weaknesses in some of the Service’s revenue systems. In 1993, we

reported1

 weak controls over postage meters after allegations of postage

meter fraud and a statement by the Postmaster General, which related that

revenue losses could total $100 million annually. More recently, we

reported2

 a lack of adequate procedures for accepting bulk mail, for which

the Service recorded revenue of about $23 billion in 1994. In response to

allegations and our reports, the Service took numerous actions to improve

its systems of controls over postage meters and bulk mail acceptance.

Since that time, we received the allegation that mailers were abusing

EMCAs.

Objectives, Scope,

and Methodology

Our objectives were to determine (1) whether there is any basis for an

allegation regarding EMCA abuse and (2), if so, what steps the Service is

taking and could take to help avoid or minimize EMCA revenue losses.

To review alleged EMCA abuse, we interviewed various Service officials at

headquarters offices in Washington, D.C., and reviewed Servicewide EMCA

policies, procedures, and internal controls for opening EMCAs, verifying

EMCA numbers presented by customers, closing EMCAs with negative

balances, and recording all required Express Mail data when packages are

accepted. To ascertain whether procedures and controls were adequate to

protect EMCA revenue and were being followed, we reviewed pertinent

Postal Service policies, procedures, and forms for EMCA operations and

discussed Express Mail and EMCA practices with Service officials in three

customer service districts (Dallas, TX; New York, NY; and Van Nuys, CA).

We selected the New York and Van Nuys districts because they were

among those having the largest number of EMCA transactions. We selected

1

Postage Meters: Risk of Significant Financial Loss But Controls Are Being Strengthened

(GAO/GGD-94-148, May 26, 1994).

2

Postal Service: Stronger Mail Acceptance Controls Could Help Prevent Revenue Losses

(GAO/GGD-96-126, June 25, 1996).

Page 4 GAO/GGD-97-3 Express Mail Controls
B-262118 

the Dallas district to provide broader geographic coverage of the Service’s

EMCA activities.

To help determine if use of EMCAs had resulted in revenue losses, we

reviewed, but did not verify, various management reports relating to EMCA

activities generated from the Service’s Electronic Marketing and Reporting

System (EMRS)3

. These reports provided data on (1) invalid EMCAs accepted

by the Service, (2) EMCAs with negative fund balances, and (3) Express

Mail packages delivered by the Service with no acceptance data recorded.

For the three selected districts, we gathered data on the dollar amounts of

the EMCA negative balances that existed for at least five consecutive

accounting periods. We scanned some Express Mail labels in all three

districts to determine if the Postal Service accepted Express Mail

packages from EMCA customers and did not record any acceptance data.

We reviewed data provided by the Service’s collection agency on the

amount of EMCA-related postage lost due to invalid EMCAs. We reviewed

relevant portions of all 19 Postal Inspection Service reports that addressed

EMCA activities in various districts, including two of the three selected

districts.

To help determine what recent actions, if any, the Service had taken or

planned to take relating to EMCAs, we interviewed various headquarters

officials responsible for EMCA procedures and controls and for providing

employees with equipment that could help to strengthen EMCA-related

controls. We also discussed EMCA procedures with officials at the Service’s

area offices in Dallas, TX and Memphis, TN. At the Memphis office, we

inquired about a recently developed EMCA self-audit guide, which was to be

used by all districts.

To determine what actions the Service might take to reduce EMCA losses,

we interviewed various headquarters officials and reviewed various

Service reports showing the purpose to be achieved with EMCAs, Express

Mail volumes, and related data after the Service introduced EMCAs. We also

interviewed account representatives for two of the Service’s principal

competitors for overnight delivery—Federal Express and United Parcel

Service. We determined if these competitors offered corporate accounts to

customers and, if so, what they required for opening an account.

The Postal Service provided written comments on a draft of this report.

The Service’s comments are summarized and evaluated beginning on page

17 and included in appendix II.

3

This system is administered by the Service’s Information Systems Service Center in San Mateo, CA.

Page 5 GAO/GGD-97-3 Express Mail Controls
B-262118 

We did our work from November 1995 through April 1996 in accordance

with generally accepted government auditing standards.

Revenue Losses From

Corporate Accounts

Have Grown

EMCA procedures have not adequately protected the Service against

postage revenue losses, and EMCA customers have sometimes obtained

Express Mail services without valid EMCAs. Postal Service reports showed

that the EMCAs were invalid because the EMCA numbers used by customers

did not match any of the Service’s valid numbers. Also, although EMCAs are

to always contain sufficient funds to cover Express Mail postage, EMCA

customers sometimes overdrew their accounts and accumulated large

negative account balances.

The Service lost increasing sums of Express Mail revenue in the past 3

years because of weak internal controls over EMCAs. Nationwide, the

Service referred about $966,000 in delinquent EMCAs to its collection

agency in fiscal year 1995. Of that amount, the Service recovered about

$165,000 (17 percent), and the balance of $801,000 was written off as

uncollectible, almost twice (90 percent increase) the amount written off in

1993, as figure 1 shows.

Page 6 GAO/GGD-97-3 Express Mail Controls
B-262118 

Figure 1: EMCA Revenue Losses

Increased by About 90 Percent

Between Fiscal Years 1993 and 1995

Express Mail postage write-offs

100

200

300

400

500

600

700

800

900

1000

1993 1994 1995

Fiscal year

Note: The Postal Service did not have data readily available for fiscal years 1993 through 1995 to

show whether the volume of EMCA transactions varied significantly over these 3 years. However,

the total Express Mail volume varied by less than 10 percent during the 3 years when EMCA

write-offs increased by about 90 percent.

Source: Compiled by GAO from the Postal Service’s Electronic Marketing and Reporting System

reports.

Invalid Corporate Account

Numbers Sometimes Used

Postal Service reports show that its employees accepted and delivered

some Express Mail packages with invalid EMCA numbers. After delivering

the packages, the Service determined that EMCA numbers provided by

customers did not match any of the valid EMCA numbers in the Service’s

automated system. The Service lost revenue and incurred administrative

cost to follow up on these customers because it had not determined that

their EMCA numbers were invalid before accepting and delivering Express

Mail packages.

To help employees detect invalid EMCA numbers before accepting Express

Mail, the Service includes, as part of a “Fraud Alert” in a biweekly Postal

Bulletin distributed within the Service, a list of EMCA numbers that it has

determined to be invalid after some prior EMCA action (e.g., it had

previously closed the account). Employees are instructed to not accept

Express Mail packages bearing any of the invalid numbers. When the

Page 7 GAO/GGD-97-3 Express Mail Controls
B-262118 

packages are accepted at a post office or a mail-processing plant,

employees are to check EMCA numbers manually against the biweekly list

of invalid numbers.

Various Service officials told us that employees accepting Express Mail

with EMCA payment do not always use the bulletins to check for invalid

EMCAs. Employees at mail-processing plants are expected to move huge

volumes of mail in a few hours, and Postal Service officials said that, due

to time pressures, most of the EMCA problems occur as a result of improper

acceptance of Express Mail at processing plants. A manual process of

checking for invalid EMCAs can take a considerable amount of time

because of the large quantity of invalid numbers to be scanned for each

EMCA package (e.g., the Postal Bulletin dated June 20, 1996, contained

about 2,900 invalid 6-digit EMCA numbers listed in numeric order).

Employees accepting Express Mail packages at post offices and

mail-processing plants have access to and are to use only the list of invalid

EMCA numbers to verify that customers are presenting valid EMCA numbers.

Therefore, if a customer made up a number, it likely would not be on the

Service’s list of invalid EMCAs. Postal employees at post offices and

processing plants do not have automated access to valid EMCA

numbers—which totaled about 113,000 in February 1996.

The Postal Service incurred administrative costs to collect postage from

some EMCA customers using invalid EMCA numbers after the Postal Service

delivered Express Mail packages. Each of the three selected districts we

visited had 4 to 13 employees responsible for domestic and international

Express Mail and Priority Mail activities. Service officials said that all

districts have employees with similar responsibilities. District officials told

us that these employees receive reports each workday showing EMCA

errors that must be investigated so postage can be collected.

These administrative actions can be time consuming and costly because

they entail obtaining copies of mailing labels, verifying data, and recording

new data when a valid EMCA can be charged. When the EMCA number

appears to be invalid, i.e., does not match the Service’s records of valid

EMCA numbers, the employees must further investigate each case through

telephone calls or letters asking for reimbursement and requesting mailers

to stop using invalid accounts.

Page 8 GAO/GGD-97-3 Express Mail Controls
B-262118 

EMCAs Sometimes

Overdrawn and Collection

Is Difficult

Some customers continued to use EMCAs although they had insufficient

funds in their accounts to cover charges for Express Mail services that

they received—a problem that the Inspection Service reported over

several years.

Under current Service procedures, customers must maintain a minimum

EMCA balance of either the customer’s estimated Express Mail postage for

1 week or $50, whichever is higher. However, employees do not have the

necessary EMCA data access to verify that this requirement is met before

accepting Express Mail packages. Some EMCA customers overdrew their

EMCA accounts, and the Postal Service continued to accept Express Mail

packages from these customers.

When EMCA customers overdraw their accounts, Postal Service procedures

require that employees contact individuals and businesses to collect the

postage due. A letter is to be sent to the EMCA customer when the account

is deficient for one postal accounting period (28 days). If the account

remains deficient after 3 postal accounting periods (84 days), the Service

is to close the account and refer it to a collection agency used by the

Service.

However, the Service has little information from EMCA applications to use

in locating customers and collecting postage. Under current Service

procedures, an individual or corporation is to be approved for an EMCA

after completing a one-half page application, which shows the applicant’s

name, address, and telephone number, and depositing the minimum

money required in the account. The Service does not require the applicant

to present any identification, such as a driver’s license or major credit

card, to receive an EMCA. Employees approving EMCA applications are not

required to verify any information presented on the applications. Thus, an

EMCA applicant could provide false or erroneous information on the

application and, in these instances, efforts by the Postal Service and its

collection agency to locate the customers and collect postage on the basis

of information in the EMCA application likely would be unsuccessful.

A Service report on EMCA operations for February 1996 showed that about

97,000 of the approximately 113,000 EMCAs (or 86 percent) had money on

deposit with the Service totaling $18.5 million. However, for the remaining

14 percent, or about 16,000 EMCAs, there was no money on deposit; rather,

the accounts were overdrawn by $4.3 million.

Page 9 GAO/GGD-97-3 Express Mail Controls
B-262118 

According to the Service’s management reports on Express Mail

operations, many EMCAs had large negative balances for periods exceeding

three accounting periods and were not closed or sent to the collection

agency. For example, in the New York district, 16 of the 27 EMCAs we

reviewed had negative balances for about 5 consecutive accounting

periods (about 140 days). Of these 16 EMCAs, 10 had negative balances of

more than $2,000 each, at the time of our review; and the negative balance

for one account was about $10,000. Similarly, in the Van Nuys district, 10

of the 14 EMCAs we reviewed had negative balances for 5 consecutive

accounting periods, and the negative balances for 8 accounts were about

$3,000 each. In the Dallas district, 3 of the 12 EMCAs we reviewed had

negative balances for 5 consecutive accounting periods, including 1 EMCA

with a $8,800 negative balance.

The Service’s practice of allowing postage to remain unpaid for Express

Mail services over long periods of time is inconsistent with the Service

policy, which requires that Express Mail must be prepaid or paid at the

time of mailing.4

 Further, allowing customers to overdraw EMCAs and

maintain active EMCAs with negative balances for periods exceeding three

accounting periods5

 violates Postal Service procedures.

The Postal Inspection Service has conducted financial audits that included

a review of controls over EMCA operations. Postal inspectors in the New

York district reported finding overdrawn EMCAs during five audits done

since 1987. Some audits revealed that the total negative EMCA balances for

the district exceeded $600,000. The inspectors reported that the Van Nuys

district had EMCAs with negative balances at various times since 1988. For

example, in 1994, the district had EMCA accounts with negative balances

totaling about $122,000.

As a result of financial audits, the Inspection Service also reported EMCAs

with negative balances in many districts that we did not visit. In reports on

districts with negative EMCA balances, the Inspection Service

recommended that local management take action to eliminate such

balances.

4

U.S. Postal Service’s Domestic Mail Manual, Sept. 1, 1995.

5

A postal accounting period is 4 calendar weeks or 28 days, with 13 accounting periods comprising a

postal fiscal year.

Page 10 GAO/GGD-97-3 Express Mail Controls
B-262118 

Acceptance Data for Some

Express Mail Packages Not

Recorded

Along with not verifying some EMCAs, Service employees at times did not

make any record of accepting Express Mail packages that the Service

processed and delivered. In these instances, the necessary information

was not available to respond to customer inquiries about the status of

packages and process requests for postage refunds when customers

claimed that packages were delivered late. Also, in cases where EMCAs

were to be charged, the Service lost some revenue because of the lack of

acceptance data.

Employees receiving Express Mail packages, whether EMCAs are used or

not, are to electronically scan a barcode on the mailing labels to record

data for tracking and reporting purposes. When the packages include EMCA

numbers, employees are to record those numbers so that the Service can

charge postage to the EMCA. Postal Service reports showed that, for the

12-month period ending February 1996, it delivered about 1.9 million

domestic Express Mail packages, or 3.4 percent of total domestic Express

Mail volume, for which the Service did not record any required acceptance

data.6

Service officials in the three districts we visited said that recording

Express Mail acceptance can be a problem when customers drop

packages in collection boxes and employees are expected to record

acceptance data when the packages arrive at a mail-processing plant.

According to these officials, pressures to keep the mail moving and meet

scheduled deadlines can result in some Express Mail being received,

sorted, and delivered without proper acceptance.

Service officials at headquarters and in the districts we visited routinely

receive exception reports showing that Express Mail was delivered but not

properly accepted. They said that generally no attempt is made to correct

these errors or collect the postage due in cases where EMCAs are used.

Specifically, district officials said that they were instructed by Service

headquarters not to take any action in these cases. They also said that they

did not have the employees needed to do follow-up, even if it were

required.

When the Service failed to record acceptance of Express Mail packages, it

did not have data needed to respond to customers’ inquiries about the

status of Express Mail packages. Because the packages were not logged in,

6

Although we looked mainly at domestic Express Mail transactions, a similar problem exists for some

international Express Mail. For example, according to Postal Service reports, during one postal

accounting period, the Dallas district delivered 3,163 international Express Mail packages where

required data were not recorded at acceptance points.

Page 11 GAO/GGD-97-3 Express Mail Controls
B-262118 

the Service had no record to show when packages were received. The

Service needs such data to verify whether Express Mail customers’ claims

for postage refunds on late deliveries are valid. The Service guarantees

that Express Mail packages will be delivered on time. In fiscal year 1995,

the Service refunded postage to Express Mail customers totaling about

$1.5 million. We did not determine if it had adequate data for determining

whether the refund claims were valid. However, if the Service lacks data

on when a package was accepted for delivery, it cannot determine

whether the package was delivered on time or whether it was delivered

late.

Further, the Service regularly reports on-time delivery rates for Express

Mail on the basis of the data that are to be recorded when packages are

accepted and delivered. When acceptance data are not recorded, the

Service has incomplete data to report on-time delivery rates for Express

Mail.

The Service lost unknown amounts of revenue because some customers

had included EMCA numbers on Express Mail packages, but Service

employees did not record any acceptance data. We scanned some Express

Mail labels in the three selected districts and noted that all three had

received some Express Mail packages from EMCA customers without

recording acceptance data. In all three districts, the practice was to not

follow up when customers used EMCAs; therefore, no Express Mail

acceptance data were recorded. Postal Service officials in the three

districts and at headquarters did not know the extent of EMCA revenue

losses associated with the failure to record Express Mail acceptance data.

Actions That Could

Help Reduce EMCA

Revenue Losses

We identified two Postal Service actions under way that could help to

improve EMCA controls and thereby reduce related revenue losses and

provide needed EMCA data. However, these actions were not fully

implemented at the time of our review, and the actions do not address

some EMCA control weaknesses that we identified.

Some Actions Were Being

Taken

Recognizing the Postal Service’s overall vulnerability to revenue losses, in

1994, the Senior Vice President for Finance established a new revenue

assurance unit to help collect revenue owed to the Service. The new unit

targeted EMCAs as one of five Postal Service operations for improvement.

The unit developed strategies, such as self-audits of EMCA activities, to

reduce revenue losses resulting from EMCAs. At the time of our review, the

Page 12 GAO/GGD-97-3 Express Mail Controls
B-262118 

strategies had not yet been fully implemented; and no results from the

self-audits, or the unit’s other EMCA-related efforts, were available for our

review.

In addition to the above action, the Postal Service was installing

“point-of-service” terminals at post offices to provide employees with

improved access to current postage rates and certain other automated

data maintained by the Postal Service.7

 According to the headquarters

manager responsible for the point-of-service terminal project, eventually,

the terminals are to provide access to the EMCA database and thus enable

employees to verify EMCA numbers and fund balances before accepting

Express Mail packages. He said that the date and additional cost to

provide this access are yet to be determined.

The Service did not plan to provide the terminals to employees in

mail-processing plants who accept Express Mail packages. These

employees will still lack access to valid EMCA numbers and current fund

balances, and the Service will continue to be vulnerable to revenue losses

when customers drop Express Mail packages in collection boxes and

include invalid EMCA numbers on the packages.

Planned Actions Do Not

Fully Address EMCA

Control Weaknesses

Although completion of Service actions discussed above should help to

improve controls over EMCAs and reduce related revenue losses, control

weaknesses will remain. Taking additional steps to better ensure

compliance with existing controls, as well as adding controls, can help to

protect revenue. But, the Postal Service will incur cost to strengthen

internal controls over EMCAs. Given this and other factors, such as changes

that have occurred in the overnight mail delivery market and new methods

of providing customer convenience, a reasonable step would be for the

Postal Service to first ensure that it wants to retain EMCAs before incurring

substantial, additional costs to improve related controls.

The Postal Service introduced EMCAs in 1984 to help stem the decline in the

growth of Express Mail business and become more competitive. As we

previously reported,8

 since that time, private carriers have dominated the

expedited (overnight) delivery market. We reported that Federal Express

7

In June 1996, the Postal Service Board of Governors approved funding of $275 million for the first

phase of “point-of-service equipment” acquisition and deployment. According to the Postal Service, the

first phase will provide 22,414 terminals at 4,124 retail facilities and cover approximately 36 percent of

the retail revenue.

8

U.S. Postal Service: Pricing Postal Services in a Competitive Environment (GAO/GGD-92-49, Mar. 25,

1992).

Page 13 GAO/GGD-97-3 Express Mail Controls
B-262118 

is the acknowledged leader in this market and that the Postal Service’s

share of the market declined from 100 percent in 1971 to 12 percent in

1990.

Recognizing these market realities, in recent years, the Postal Service has

focused marketing efforts more on Priority Mail—which generally is to be

delivered in 2 or 3 days—than overnight Express Mail. Priority Mail

accounted for almost 6 percent of total revenue in fiscal year 1995,

compared with just over 1 percent for Express Mail. Unlike Express Mail,

the Postal Service does not offer a corporate account for Priority Mail, and

the annual growth rate of Priority Mail pieces outpaced Express Mail

growth over each of the past 5 fiscal years. (See figure 2.)

Figure 2: Comparison of Express and

Priority Mail Volume Growth Rates,

Fiscal Years 1991 Through 1995

Annual percentage growth rate in mail pieces

-9

-7

-5

-3

-1

1

3

5

7

9

11

13

15

17

1991 1992 1993 1994 1995

Fiscal year

Express Mail

Priority Mail

Source: U.S. Postal Service’s “Revenue, Pieces, Weights” reports for fiscal years 1991 through

1995.

Page 14 GAO/GGD-97-3 Express Mail Controls
B-262118 

Other factors also suggest that EMCAs may not be the most cost-effective

method of offering payment convenience. Specifically, in 1994, the Postal

Service began offering customers the use of major debit or credit cards

(e.g., MasterCard, Visa, or American Express) to pay for various mail

services at post offices.9

 Customers who want to drop Express Mail

packages in collection boxes currently have the option of using postage

meters to pay postage.10

Thus, as one step toward addressing EMCA control problems, the Postal

Service could compare the relative customer convenience, administrative

cost, and risk of revenue losses of EMCAs with alternative payment

methods currently available to Express Mail customers. The Postal Service

could also consider competitors’ current customer service practices. On

the basis of our limited inquiry, we found some of the Postal Service’s

competitors (i.e., Federal Express and United Parcel Service) offer

corporate accounts to customers. For example, Federal Express offers

customers a “FedEx” account and requires that applicants have a major

credit card to qualify for an account.

If the Postal Service determines that EMCAs are necessary or desirable, we

identified two additional steps, beyond those now planned and under way,

to help minimize the risk of EMCA abuse and revenue losses as discussed

below.

• First, while the self-audits proposed by the revenue assurance unit could

help to improve compliance, the audits were just getting started at the

time of our review. Express Mail packages can be accepted at about 40,000

post offices and several hundred mail-processing plants, and self-audits

covering all of these entities will take some time to complete. Postal

Service headquarters responsible for Express Mail operations could

reinforce the need for managers and employees to comply with existing

internal procedures and controls designed to prevent EMCA abuse. These

procedures require employees to (1) record all required data from Express

Mail labels, (2) verify EMCA numbers presented by customers against lists

of invalid EMCA numbers, and (3) close EMCAs with negative balances

running more than three postal accounting periods.

9

U.S. Postal Service: Proposed Policy to Accept Credit and Debit Credit Cards Makes Sense

Conceptually (GAO/GGD-94-154, June 16, 1994).

10As detailed in our earlier report, Postage Meters: Risk of Significant Financial Loss But Controls Are

Being Strengthened (GAO/GGD-94-148, May 26, 1994), the Service has taken numerous actions to

improve control over postage meters and reduce postage revenue losses.

Page 15 GAO/GGD-97-3 Express Mail Controls
B-262118 

• Second, the Postal Service could improve EMCA internal controls by

imposing more stringent requirements for opening EMCAs, such as

requiring that individuals present a valid driver’s license, a valid major

credit card, or other appropriate identification to receive an EMCA. If Postal

Service employees approving EMCAs are required to record information

from such sources about EMCA applicants, such information could be

useful to the Service and its collection agency to locate and collect

postage from customers with overdrawn and closed EMCAs.

Conclusions Internal controls over EMCAs are weak or nonexistent, which has resulted

in potential for abuse and increasing revenue losses over the past 3 fiscal

years. Establishing adequate control over EMCA operations will require

management attention and additional dollar investments.

In light of the control problems we identified, overnight mail market

developments since 1984, and the increased availability of other payment

methods, EMCAs may not be the most cost-effective method of providing a

convenient method for paying Express Mail postage. This question

requires further evaluation by the Postal Service of all the relevant factors.

If EMCAs are necessary or desirable, the Postal Service can take steps

beyond those planned and under way to help minimize revenue losses and

other problems associated with EMCAs. Some employees did not always

comply with existing EMCA procedures for checking EMCAs numbers and

recording Express Mail data. Although acceptance employees are under

pressure to move the mail and some have side stepped some required

tasks, management could emphasize to these employees the importance of

following EMCA procedures and collecting the postage due when the Postal

Service delivers mail. Further, the Postal Service violated its procedures

by allowing customers to overdraw EMCAs and continue using them for up

to 5 months. Currently, few requirements exist for customers to obtain

EMCAs; and more stringent requirements for opening EMCAs, similar to

those used by the Service’s competitors, might also help to avoid Express

Mail revenue losses.

Recommendations To help reduce EMCA revenue losses and other related problems discussed

in this report, we recommend that the Postmaster General require Service

executives to determine if EMCAs are the most cost-effective method for

achieving the purpose for which they were intended, in light of all relevant

factors.

Page 16 GAO/GGD-97-3 Express Mail Controls
B-262118 

If EMCAs are determined to be a necessary or desirable method, we

recommend that the Service (1) establish stronger requirements for

opening EMCAs and (2) hold managers and employees accountable for

handling EMCA transactions in accordance with the new requirements as

well as existing Service policies and procedures for verifying EMCA

numbers, closing EMCAs with negative balances, and recording required

data for all Express Mail packages accepted.

Postal Service

Comments and Our

Evaluation

In a September 9, 1996, letter, the Postmaster General said that the Postal

Service agreed with our overall findings and conclusions. He said that the

Service was moving forward with initiatives to cut down on revenue losses

from invalid EMCAs. In addition to the two actions discussed previously in

our report, he said that the Service will take the following actions to

address our recommendations:

• Establish more stringent requirements for opening and using EMCAs. These

requirements will include a $250 deposit (in lieu of a $100 deposit now

required) to open an account and weekly reviews at acceptance units of

EMCA use to ensure that minimum balance requirements are met. Area and

district managers will focus more consistent attention on ensuring that

acceptance units follow EMCA procedures.

• Examine the feasibility and cost of installing terminals at mail-processing

plants in addition to the terminals being installed at many post offices to

check instantly whether EMCAs are valid and contain sufficient funds for

Express Mail postage.

• Evaluate whether continuing to offer EMCAs as a payment option still

makes good business sense.

The Service expects these corrective actions to go a long way toward

minimizing the use of invalid EMCAs and revenue losses.

We agree that, when the Service has fully implemented the actions taken

and planned, controls over EMCA are likely to be significantly improved.

The Service will need to coordinate these EMCA improvement actions with

its evaluation to determine whether to continue offering EMCAs. Otherwise,

it could incur unnecessary cost of improving controls over EMCAs if later it

determines that EMCAs do not make good business sense and should be

discontinued.

Page 17 GAO/GGD-97-3 Express Mail Controls
B-262118 

We are sending copies of this report to the Postmaster General, the Postal

Service Board of Governors, the Ranking Minority Member of your

Subcommittee, the Chairman and Ranking Minority Member of the Senate

Oversight Committee for the Postal Service, and other congressional

committees that have responsibilities for Postal Service issues. Copies will

also be made available to others upon request.

The major contributors to this report are listed in appendix III. If you have

any questions about this report, please call me on (202) 512-8387.

Sincerely yours,

J. William Gadsby

Director, Government Business

 Operations Issues

Page 18 GAO/GGD-97-3 Express Mail Controls
Page 19 GAO/GGD-97-3 Express Mail Controls
Contents

Letter 1

Appendix I 

Description of the

Postal Service’s

Express Mail

Corporate Account

Procedures

22

Sample Express Mail Label 22

Appendix II 

Comments From the

U.S. Postal Service

25

Appendix III 

Major Contributors to

This Report

27

Figures Figure 1: EMCA Revenue Losses Increased by About 90 Percent

Between Fiscal Years 1993 and 1995

7

Figure 2: Comparison of Express and Priority Mail Volume

Growth Rates, Fiscal Years 1991 Through 1995

14

Abbreviations

EMCA Express Mail Corporate Account

EMRS Electronic Marketing Reporting System

Page 20 GAO/GGD-97-3 Express Mail Controls
Page 21 GAO/GGD-97-3 Express Mail Controls
Appendix I 

Description of the Postal Service’s Express

Mail Corporate Account Procedures

EMCAs are available to both individual and business customers. Under

current Service procedures, anyone can open an EMCA by depositing $100

or the customer’s estimated 2-weeks Express Mail postage, whichever is

higher. EMCA customers are required to maintain a minimum balance of $50

or 1-week Express Mail postage, whichever is higher, on deposit with the

Service. Although Service officials said that the number of active EMCA

varies daily, Service records show that, during the month of

February 1996, an average of about 113,000 EMCAs existed nationwide.

When opening EMCAs, customers are to be given a six-digit EMCA number,

and these numbers are to be included on mailing labels affixed to the

Express Mail packages. Customers can drop the package in a collection

box designated for Express Mail or take the package to a post office,

mail-processing plant, or other places where the Service accepts Express

Mail.

Postmasters, clerks, or other Service employees accepting Express Mail at

post offices and mail-processing plants are to electronically scan a

preprinted barcode on the Express Mail label, which enters the label’s

unique identifying number into an automated system for tracking

purposes. The employees are to weigh the package, verify that the

customer calculated the correct postage, and take steps as required to

ensure the correct postage is collected. These steps are to be done for all

Express Mail, whether an EMCA is used for payment or not.

For those Express Mail packages involving an EMCA, employees accepting

the package are to determine if the EMCA number on the package is invalid

by manually comparing the number against a list of EMCA numbers that the

Service has determined to be invalid. If the number on the package is not

found on that list, employees are to manually key in the EMCA number and

the postage due so that the amount can be charged to the EMCA. An EMCA is

to be charged for the Express Mail package when employees record a

valid EMCA number at the acceptance point and scan the Express Mail

barcode. A sample Express Mail label follows, showing EMCA numbers and

other data to be recorded by employees when they accept a package.

Page 22 GAO/GGD-97-3 Express Mail Controls
Appendix I 

Description of the Postal Service’s Express

Mail Corporate Account Procedures

Sample Express Mail

Label

Postal Service employees are to manually record an Express Mail Corporate Account number 

supplied by the customer in this block.

Employees are to scan a barcode pre-printed by the Service on each Express Mail label.

A

B

Label 11-B October 1995

Source: U.S. Postal Service.

Page 23 GAO/GGD-97-3 Express Mail Controls
Appendix I 

Description of the Postal Service’s Express

Mail Corporate Account Procedures

After acceptance is recorded, the Service is to track each Express Mail

package until it reaches the delivery station near the home or business

receiving the package. At these stations, Service employees are to again

electronically scan the barcode on the Express Mail label before the

package is delivered.

The Service has an Electronic Marketing and Reporting System (EMRS)11 to

record, track, and report on Express Mail transactions. The system is used

to receive and compare the Express Mail identification numbers scanned

by postal employees at the post offices or mail-processing plants and

delivery stations. If the comparisons show no match between the scanned

barcodes entered at the points of acceptance and delivery, exception

reports are to be prepared and made available to Service officials each

workday for follow-up action. EMRS also generates reports showing

(1) pieces of mail charged to invalid EMCAs; (2) Express Mail packages

scanned at either the acceptance point or the delivery point, but not both;

and (3) EMCAs with insufficient or negative fund balances.

Along with these exception reports, the system generates other reports

every 4 weeks for use by Service officials and, in some cases, EMCA

customers. Among these reports are those that show Express Mail volume

and revenue, on-time delivery rates, and refunds of postage for late

delivery. Service officials and each EMCA customer are to receive a report

every 4 weeks showing the beginning EMCA balance, number of packages

mailed, amount of postage charged during the preceding 4-week period,

ending and minimum balances, and any additional deposit required by the

customer.

11This system is administered by the Service’s Information Systems Service Center in San Mateo, CA.

Page 24 GAO/GGD-97-3 Express Mail Controls
Appendix II 

Comments From the U.S. Postal Service

Page 25 GAO/GGD-97-3 Express Mail Controls
Appendix II 

Comments From the U.S. Postal Service

Page 26 GAO/GGD-97-3 Express Mail Controls
Appendix III 

Major Contributors to This Report

General Government

Division, Washington,

D.C.

Michael E. Motley, Associate Director

James T. Campbell, Assistant Director

Dallas Field Office Sherrill Johnson, Core Group Manager

Raimondo Occhipinti, Evaluator-in-Charge

Hugh Reynolds, Evaluator

(240199) Page 27 GAO/GGD-97-3 Express Mail Controls
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