U.S. Postal Service: Post Office Changes Suggest Cost Savings, but Improved Guidance, Data, and Analysis Can Inform Future Savings Efforts
Published: 2016-04-29T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: USPS continues to experience a financial crisis and has undertaken many initiatives to reduce costs. In May 2012, USPS announced POStPlan, which aimed to reduce retail hours at post offices and use less costly labor. However, an arbitrator ruled in September 2014 that USPS must reverse several of these staffing changes. GAO was asked to review the arbitration decision's effects on POStPlan staffing and cost savings.
GAO examined: (1) USPS's actions to implement POStPlan before the decision and expected savings, (2) the decision's effects on POStPlan's staffing and savings, and (3) whether USPS's POStPlan cost-savings estimates are reliable. GAO reviewed relevant POStPlan documentation and data; compared USPS's POStPlan cost-savings estimating process to GAO's data reliability and cost- estimating guidance and internal control standards adopted by USPS; and interviewed officials from USPS, its regulatory body, and postmaster associations.
section_title: What GAO Found
paragraphs: The U.S. Postal Service (USPS) had largely completed Post Office Structure Plan's (POStPlan) implementation prior to a 2014 POStPlan arbitration decision and expected millions in cost savings. Specifically, under POStPlan, USPS planned to reduce hours at about 13,000 post offices (from 8- to 2-, 4-, or 6-hours of retail service a day) and to staff them with employees less costly than postmasters. Prior to the arbitration decision, USPS had reduced hours at most of these offices and taken steps to make the staffing changes. For example, it replaced many career postmasters with non-career or part-time employees by offering separation incentives or reassignments. In July 2012, USPS estimated POStPlan would result in about $500 million in annual cost savings.
USPS determined that, while the 2014 arbitration decision significantly affected planned staffing at POStPlan post offices and estimated savings, POStPlan was the correct operational decision for USPS and its stakeholders. The arbitrator ruled that many offices be staffed by bargaining-unit employees, such as clerks, rather than the generally less costly employees USPS had planned to use. As a result, USPS estimated in June 2015 that POStPlan would now result in annual savings of about $337 million or 35 percent less than the about $500 million it expected.
USPS's original and post-arbitration decision estimates of expected POStPlan cost savings have limitations that affect their reliability. USPS officials noted that they do not have strict guidance on when a rough savings estimate is adequate versus when a more rigorous analysis is appropriate. Specific limitations include:
imprecise and incomplete labor costs, including errors in underlying data;
lack of a sensitivity review; and
the exclusion of other factors that affect net cost savings, particularly the potential impact of reduced retail hours on revenue.
For example, USPS's post-arbitration-decision estimate relies, in part, on its calculations of actual savings achieved due to POStPlan. While POStPlan most likely resulted in some savings, GAO found errors in the underlying salaries and benefits data used that may understate or overstate the amount of savings achieved. Additionally, while USPS later (i.e., after it developed its savings estimates) conducted analyses of changes in revenue, GAO found these analyses were limited because USPS's calculations of changes in revenue at POStPlan and non-POStPlan post offices were inconsistent with its definition of what constitutes a POStPlan office. As of March 2016, USPS was taking steps to understand the scope and origin of the errors in its salaries and benefits data, but its time frame for resolving the issue remains unclear, as does whether USPS subsequently intends to update its calculations of actual savings achieved. Internal control standards state that program managers and decision makers need quality data and information to determine whether they are meeting their goals. Without reliable data and quality methods for calculating the potential savings USPS expects to achieve through its initiatives, the actual savings they achieve, and the effects on revenue, USPS officials and oversight bodies may lack accurate and relevant information with which to make informed decisions regarding future cost-saving efforts in a time of constrained resources.
section_title: What GAO Recommends
paragraphs: To ensure that USPS has quality information regarding POStPlan, GAO recommends that USPS establish guidance that clarifies when to develop savings estimates using a rigorous approach; resolve errors in labor data and, as appropriate, recalculate actual savings achieved; and take steps to improve revenue analyses. USPS disagreed with some of GAO's findings but neither agreed or disagreed with the recommendations. GAO continues to believe its recommendations are valid as discussed further in this report.

section_title: Letter
paragraphs: The U.S. Postal Service (USPS) continues to experience a serious  financial crisis with, as of fiscal year 2015, nine consecutive years of large  net losses, about $125 billion in unfunded liabilities, no further authority  to borrow from the U.S. Treasury, and expected continued declines in  mail volume that will affect revenue. The task of restructuring USPS to  achieve sustainable financial viability has been on our list of high-risk  areas since 2009, and we have reported that USPS urgently needs to  restructure to align its costs with revenues. To improve its financial  condition while working to meet its statutory mission of providing prompt,  reliable, and efficient service to all areas of the country, USPS has  undertaken a number of initiatives to right-size its retail network. In  particular, in May 2012, USPS announced the Post Office Structure Plan  (POStPlan) initiative, through which it aimed to reduce the retail hours at  thousands of mostly small, rural post offices and staff them with lower  paid employees. However, in response to a filed labor grievance, an  impartial arbitrator ruled in September 2014 that USPS must reverse  several of the planned staffing changes. You asked us to review the  arbitration decision’s effects on POStPlan staffing and estimated cost  savings. This report examines (1) the actions USPS took to implement  POStPlan before the September 2014 arbitration decision and the  savings it estimated POStPlan would achieve, (2) the effect USPS  determined the arbitration decision had on POStPlan staffing and cost  savings, and (3) whether USPS’s POStPlan cost-savings estimates are  reliable and any limitations of the estimates.
To describe the POStPlan initiative, determine the actions USPS took to  implement it before the September 2014 arbitration decision and to  identify the effects USPS determined that the decision had on POStPlan  staffing, we reviewed relevant laws, regulations, and USPS  documentation, such as policies, procedures, and information submitted  during the Postal Regulatory Commission’s (PRC) 2012 POStPlan  proceeding. We also reviewed the arbitration decision and subsequent  memorandums of understanding that further implemented it. In addition,  we obtained USPS data related to the arbitration decision and POStPlan  implementation from 2012 to 2015 and interviewed USPS officials. We  assessed the reliability of these data by comparing them to other  information obtained from USPS and asking USPS officials questions  about data sources, quality, and timeliness. We found these data reliable  for the purpose of describing the progress and status of POStPlan before  and after the arbitration decision. To obtain their views on POStPlan and  the arbitration decision, we also reviewed documentation and interviewed  officials from PRC and USPS’s two postmaster associations—the  National Association of Postmasters of the United States (NAPUS) and  the National League of Postmasters of the United States (NLPM). For  example, we reviewed PRC’s 2012 advisory opinion on POStPlan. We  also contacted the American Postal Workers Union (APWU), but APWU  officials did not accept our invitation for a meeting.
To determine the cost savings USPS originally estimated it would achieve  through POStPlan, the effect it estimated the arbitration decision had on  savings, and the reliability and limitations of these estimates, we reviewed  USPS’s 2012 estimate of the cost savings it expected to achieve through  POStPlan and its 2015 estimate of the arbitration decision’s impact on  expected cost savings. Specifically, we obtained USPS documentation  related to POStPlan cost savings, interviewed USPS officials, and  obtained documentation and interviewed officials from NAPUS, NLPM,  and PRC to determine how USPS developed its estimates, the  assumptions it used, the potential sources of uncertainty, the types of  inputs included and omitted, and these stakeholders’ views. We then  assessed the reliability and soundness of these estimates using our  guidance on assessing the reliability of data (the guidance defines data  as including estimates—such as estimates of cost savings—and  projections), our cost-estimating guidance and that from the Office of  Management and Budget (OMB), and internal control standards  adopted by USPS. We reviewed these standards and guidance and  then selected those practices that, in our professional judgment, were  most relevant given that POStPlan is an efficiency and cost-savings  initiative and given USPS’s financial condition. In particular, we assessed  the estimates’ accuracy, validity, completeness, and consistency; any use  of sensitivity analyses; and consideration of net cost-savings factors. We  also obtained USPS data on hourly pay rates in POStPlan post offices  pre- and post-arbitration decision; salaries and benefits paid, and walk-in  revenue earned, at POStPlan post offices for periods before (fiscal year  2011) and after (during fiscal year 2015) POStPlan implementation; and  actual cost savings achieved from fiscal year 2012 to June 2015 (the  most recent data available at the time of our review) due to POStPlan.  We assessed the reliability of these data by comparing them to other  information obtained from USPS and asking USPS questions about data  sources, quality, and timeliness, among other things. We found USPS’s  rate and revenue data reliable for the purpose of describing the hourly  pay rates in POStPlan post offices according to USPS and the changes in  revenue at POStPlan post offices. We discuss the limitations of USPS’s  salaries and benefits and actual savings achieved data in this report. It  was beyond the scope of our review to assess whether POStPlan was a  prudent business decision. Appendix I describes our scope and  methodology in greater detail.
We conducted this performance audit from May 2015 to April 2016 in  accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: The USPS Retail Network and Workforce
paragraphs: The most familiar part of USPS’s retail network is the post office. In fiscal  year 2015, there were approximately 26,600 post offices across the  country, largely unchanged from fiscal year 2005 (see fig. 1). Post offices  are a key part of USPS’s revenue stream—accounting for about 56  percent of USPS’s total retail revenue of about $19 billion in fiscal year  2015. Prior to the introduction of POStPlan, post offices were each  managed by postmasters. USPS also uses other facilities to provide key  services, such as selling stamps.
Over the past decade, the USPS workforce has declined and changed in  composition, but continues to account for almost 80 percent of USPS’s  total operating costs ($58 of $74 billion in fiscal year 2015). From fiscal  years 2005 to 2015, USPS’s workforce decreased from 803,000 to  approximately 622,000 employees, or by about 23 percent (see fig. 2).  During this period, career employees decreased (from approximately  704,700 to 491,900 or by about 30 percent), while non-career employees  increased (from approximately 98,300 to 130,000 or by about 32 percent).  Career positions—which are generally full time but also may be part- time—are eligible for annual and sick leave, health insurance, life  insurance, and retirement benefits. Non-career employees supplement  the career workforce and receive lower wages. They are not eligible for  life insurance or retirement benefits, but some are eligible for specified  types of health insurance upon hiring while others are eligible after  serving at least 1 year.
About 90 percent of USPS’s career employees—and some types of non- career employees, such as Postal Support Employees—are covered by  collective bargaining agreements and represented through unions.  APWU, one of USPS’s largest unions, represents over 200,000 USPS  employees in the clerk, maintenance, motor vehicle, and support services  employee “crafts.” The USPS-APWU 2010-2015 Collective Bargaining  Agreement (CBA) contains various provisions that specify rules  associated with the performance of bargaining-unit work (such as staffing  the retail window and placing mail in customers’ post office boxes) by  USPS employees. For example, the agreement specifies that USPS  should assign new or revised positions that contain non-supervisory  duties to the most appropriate employee craft and that USPS should  consult with APWU before doing so.
Two associations represent USPS’s postmasters, who are not covered by  CBAs: NAPUS and NLPM. USPS is required to consult with these  associations on planning, developing, and implementing certain programs  and policies—like POStPlan—that affect them.
section_title: The POStPlan Initiative
paragraphs: In May 2012, USPS announced the POStPlan initiative. POStPlan sought  to right-size USPS’s retail network of—at the time—26,703 post offices.  Generally, POStPlan had two elements:  reduce retail window service hours at some offices to better match  actual customer use, and  change the staffing arrangements at those offices to reduce labor  costs.
According to USPS officials, they informed APWU of POStPlan in May  2012, after announcing the initiative.
To evaluate which offices may be appropriate for hour reductions, in  December 2011, USPS analyzed the daily workload—as a proxy for  customer use—at 17,728 offices. Through this analysis, USPS  determined that it could reduce hours at 13,167 of these offices from 8- to  2-, 4-, or 6-hours of retail service a day. Post offices are classified into  “levels” and, under POStPlan, these reduced-hour offices would be  classified into a new set of levels that correspond with the number of  hours of retail service they would provide per day (i.e., Level 2, Level 4,  and Level 6). USPS also determined that the remaining 4,561 offices it  analyzed should continue to provide 8 hours of retail service a day; USPS  classified these offices as Level 18 offices.
USPS planned for most of the reduced-hour offices to be managed  remotely. That is, under POStPlan, Level 2, 4, and 6 offices would be  considered “remotely managed post offices” (RMPO) and they would  report to a postmaster at a Level 18 or above “administrative” post  office. USPS created an exception for offices it considered especially  isolated. These offices would not be remotely managed and would,  instead, be called “part time post offices” (PTPO); all PTPOs would be  Level 6 offices. According to USPS officials, Level 2, 4, and 6 RMPOs  and PTPOs are the “POStPlan post offices;” Level 18 or above offices are  not considered POStPlan post offices.
USPS plans to review workloads at POStPlan RMPOs annually and,  based on these reviews, may increase or decrease the number of hours  of retail service at these offices. USPS also plans to review the workload  at the Level 18 and above offices through USPS’s separate, pre- POStPlan processes, and based on the results, USPS may designate any  qualifying office a POStPlan post office and reduce its hours accordingly if  its workload justifies a reduction in hours.
Regarding the staffing arrangements at these offices, USPS planned to  replace career postmasters in the POStPlan post offices with less costly  non-career or part-time employees, as shown in fig. 3. Level 18 offices  would continue to be staffed by career, full-time postmasters.
On July 9, 2012, APWU filed a labor grievance claiming the changes  introduced by POStPlan violated provisions of the USPS-APWU 2010- 2015 CBA. USPS officials said they had the authority to modify the  POStPlan initiative during the grievance procedure but decided to  proceed with POStPlan implementation because they believed it was the  proper operational decision for its customers, employees, and USPS. As  a result, USPS continued with POStPlan implementation until September  2014, when—as discussed later in this report—an independent arbitrator  issued a decision that resolved the grievance.
section_title: USPS Had Largely Completed POStPlan Implementation Prior to the Arbitration Decision and Expected Total Cost Savings of $500 Million Annually
subsections: section_title: USPS Took Steps to Modify Retail Hours and Staffing at Most POStPlan Post Offices
paragraphs: Prior to the issuance of the POStPlan arbitration decision in September  2014, USPS had taken steps to reduce hours at almost three-quarters of  POStPlan post offices. After announcing POStPlan in May 2012, USPS  began implementation by reviewing its determinations on: (1) which  offices would have reduced hours, (2) which were considered especially  isolated, (3) which would be reclassified as Level 18, and (4) which would  become administrative offices. In July 2012, USPS finalized those  decisions and communicated the results to relevant field personnel, who  had the opportunity to advise on any potential concerns that could not be  identified at the USPS headquarters level. In September 2012, USPS  began surveying residents of the affected communities to give them an  opportunity to provide input before reducing their office’s hours. The  survey asked whether they preferred USPS continue with its plan to  reduce hours or whether they preferred USPS close their office and  institute alternatives, such as relocating post office box service to a  nearby office. In October 2012, USPS began holding meetings in the  communities to communicate the survey results and consider feedback.  Thereafter, USPS continued to conduct meetings and reduce hours at  offices on a rolling basis, with the first reductions occurring in November  2012 and most occurring within the first year of POStPlan’s  announcement (see fig. 4). Specifically, from November 2012 through  August 2014, USPS reduced hours at 9,159 post offices, or at about 72  percent of the almost 12,800 that would ultimately have hours reduced  under POStPlan.
According to USPS officials, they implemented POStPlan on a rolling  basis to make building modifications to some offices (to ensure that  customers could maintain access to their post office box even with  reduced hours) and to minimize the effect on POStPlan-affected  postmasters. For example, implementing POStPlan on a rolling basis  allowed affected postmasters more time to find reassignment  opportunities, as described below.
In addition to reducing hours at over 9,000 of the POStPlan post offices,  USPS simultaneously took steps to make the necessary staffing changes  and provide options for postmasters to separate from USPS or be  reassigned to other positions ahead of a planned “reduction in force”  (RIF). USPS announced a $20,000 separation incentive offer for all  postmasters in May 2012, followed by a $10,000 offer in July 2014 to  those POStPlan-affected postmasters who did not accept the first  incentive offer. In May 2012, USPS also began periodically posting  vacancies that POStPlan-affected postmasters could apply to, such as  positions that became available as postmasters retired through the May  2012 separation incentive. Postmasters in offices set to become Level 6  offices could also opt to remain in their office and accept a demotion to  the new, part-time position. According to USPS officials, as postmasters  separated from USPS or accepted reassignments, USPS filled the  positions according to its new POStPlan staffing arrangements. USPS  initially intended to complete POStPlan implementation by September  2014, with any POStPlan-affected postmasters who had not separated  from USPS or been reassigned to an alternate position as of this date to  be separated via RIF. However, USPS extended this deadline twice  during implementation—first to January then February of 2015—in order  to, according to USPS officials, find reassignment opportunities for as  many POStPlan-affected postmasters as possible. By September 2014,  about 4,100 POStPlan-affected postmasters had separated from USPS  and about 5,800 had been reassigned to a different position.
section_title: USPS Estimated Cost Savings of about $500 Million Annually Following Full POStPlan Implementation
paragraphs: In July 2012, USPS estimated it would achieve $516 million annually in  labor cost savings once POStPlan had been fully implemented for a  complete year (that is, once retail hours had been adjusted in all  POStPlan post offices). Given that USPS originally intended to complete  implementation by September 2014, this means the program would have  been implemented for a complete year in September 2015, with full  annual cost savings beginning in fiscal year 2016.
To develop this estimate, USPS calculated “before POStPlan” and “after  POStPlan” labor costs at the approximately 13,000 POStPlan post offices  and at the Level 18 offices using average salary and benefits data as of  pay period 6 of fiscal year 2012. To arrive at the “before POStPlan” labor  cost, USPS multiplied the number of post offices at each applicable, pre- POStPlan office level by the average salary and benefits that career  postmasters at those levels earn, then totaled the results. To arrive at the  “after POStPlan” labor cost, USPS multiplied the number of offices at  each post-POStPlan office level by the projected salary and benefits it  expected for employees that would staff those offices (based on the new  POStPlan staffing arrangements) then totaled the results. The $516  million represents the difference between these “before” and “after”  calculations. In June 2015, USPS revised this original estimate to $518  million in annual labor cost savings based on: (1) the actual savings it  estimated it achieved from fiscal years 2012 to 2014, (2) the remaining  savings it expected to achieve from offices whose hours had been  reduced in the prior year, and (3) the savings it expected to achieve from  offices whose hours had not yet been reduced.
section_title: USPS Determined the 2014 Arbitration Decision Significantly Affected POStPlan Staffing and Expected Cost Savings
subsections: section_title: The Arbitration Decision Changed Planned Staffing at About 82 Percent of POStPlan Post Offices
paragraphs: On September 5, 2014, an impartial arbitrator resolved APWU’s  POStPlan grievance and ruled that the staffing changes introduced by  POStPlan violated certain provisions of the USPS-APWU 2010-2015  CBA, and that USPS must reverse several of these changes. The  arbitrator agreed with APWU’s argument that, under POStPlan,  employees in Level 4 and 6 RMPOs were no longer performing any  managerial or supervisory work and also that the work was clerical in  nature and should be assigned to bargaining-unit employees. As a  result, according to USPS officials, the arbitration decision significantly  changed staffing in these offices, which account for about 82 percent of  POStPlan post offices as of August 2015, by awarding all non-bargaining- unit positions in them to APWU-represented employees. The arbitrator’s  decision on staffing in Level 4 RMPOs also affected the resolution of a  separate dispute. Specifically, in the POStPlan arbitration decision, the  arbitrator also ruled on a dispute regarding the type of work assignments  that staff in Level 18 offices could perform, finding certain Level 18 offices  must be staffed by a career employee (see fig. 5). USPS continued to  modify hours at POStPlan post offices as these changes were taking  place. According to USPS officials, subsequent memorandums of  understanding between USPS and APWU mitigated some of what the  officials believe could have been potentially negative effects of the  arbitration decision.
According to USPS officials as of February 2016, staffing changes related  to POStPlan and the arbitration decision are complete. USPS, NAPUS,  and NLPM officials told us that managing employee work rules under the  post-arbitration staffing arrangements is more complex than under the  original POStPlan staffing arrangements. They noted that this is because  each employee category has different work rules to manage and there  were fewer employee categories under the original POStPlan staffing  arrangements.
section_title: USPS Estimated the Arbitration Decision Will Reduce Originally Expected Cost Savings by Over a Third
paragraphs: USPS estimated that, due to the arbitration decision, annual POStPlan  cost savings will be lower than originally expected. Specifically, in June  2015, USPS estimated that the decision will reduce estimated annual cost  savings by $181 million, which is approximately 35 percent less than the  revised estimate of $518 million. As a result, USPS projected that  POStPlan will now result in total annual labor cost savings of about $337  million.
To develop the estimate of the impact from the arbitration decision, USPS  used a slightly different approach than it had used to develop its original  cost-savings estimate. Specifically, USPS calculated the difference  between the hourly salary and benefit rates for employees in the Level 4  and 6 POStPlan post offices under the original, pre-arbitration POStPlan  staffing arrangements and under the post-arbitration POStPlan staffing  arrangements. It then multiplied the rate differences by the total hours  worked per year at the applicable offices and totaled the results. This  resulted in a difference of $181 million. USPS then subtracted the $181  million from the $518 million in annual savings it expected to achieve to  arrive at the revised estimated annual savings of $337 million. According  to USPS officials, USPS developed this estimate using a different  approach from its original POStPlan cost-savings estimate because the  arbitration decision resulted in a new labor type and rate and USPS  believed this was the most logical method to factor in the arbitrator’s  decision.
USPS attributes the reduced cost savings to the higher compensation  employees receive in the POStPlan post offices under the post-arbitration  decision staffing arrangements relative to the compensation these  employees would have received under the original, pre-arbitration,  staffing arrangements, as shown in fig. 6.
USPS officials told us that while the arbitration decision reduced the cost  savings it expected to achieve, POStPlan was still the correct operational  decision for USPS and its stakeholders.
section_title: Limitations Affect the Reliability of USPS’s POStPlan Cost- Savings Estimates and the Accuracy of Actual Savings Achieved
subsections: section_title: USPS Estimates of Expected Cost Savings Have Limitations That Affect Reliability, Including Data Errors That Affect the Accuracy of Calculations of Actual Savings Achieved
paragraphs: We reviewed USPS’s 2012 original POStPlan cost-savings estimate and  2015 estimate of the arbitration decision’s impact on cost savings and  found that while POStPlan most likely resulted in some cost savings, the  estimates have limitations that affect their reliability. Specifically, the  limitations include: (1) imprecise and incomplete labor costs, including  errors in the underlying data that affect the accuracy of calculations of  actual savings achieved; (2) lack of a sensitivity review; and (3) the  exclusion of other factors that would be necessary to consider the net  cost savings of the POStPlan initiative, particularly the potential impact of  reduced hours on retail revenue.
subsections: section_title: Imprecise and Incomplete Labor Costs
paragraphs: Our guidance on assessing data reliability states that reliable data, which  include estimates and projections, can be characterized as being  accurate, valid, and complete. For example, accurate data appropriately  reflect the actual underlying information, valid data actually represent  what is being measured, and complete data appropriately include all  relevant information. Data should also be consistent, a subset of  accuracy. Consistency can be impaired when there is an inconsistent  interpretation of what data should be entered. Internal control standards  adopted by USPS also state that program managers and decision makers  need complete and accurate data to determine whether they are meeting  their goals, and that they should use quality information to make informed  decisions and evaluate an entity’s performance in achieving key  objectives and addressing risks. These standards also note that the  ability to generate quality information begins with the data used.
While USPS’s original estimate of the savings it expected to achieve from  POStPlan clearly states that it accounts for labor costs only, we found  that the salary and benefits information that USPS used to calculate these  labor costs was imprecise, and this imprecision contributes to  inaccuracies in the estimate. For example:
When calculating the “before POStPlan” labor costs, USPS used  average postmaster salaries and benefits and, when calculating the  “after POStPlan” costs, sometimes used the salary and benefits of  newly hired postmasters and in other instances used the salary and  benefits of incumbent postmasters. In a POStPlan advisory opinion,  PRC noted that using an average postmaster salary is imprecise; that  salaries at post offices vary, on average, by as much as $20,000 from  the lowest to the highest salary; and that these variations can add up  considerably when thousands of offices are considered.
Although USPS used average postmaster salaries and benefits for the  “before POStPlan” labor costs, approximately 3,100 of the post offices  included in the calculation were not being staffed by postmasters.  These offices were being staffed by other types of employees, such  as non-postmasters designated as “Officers in Charge,” whose  salaries were generally lower. In the POStPlan advisory opinion, PRC  estimated that if it assumed salaries at these offices were at a level  more representative of these other types of employees, the annual  cost savings would be $386 million, not $516 million. minimum salary for that grade, a difference of as much as $25,000. In  the POStPlan advisory opinion, PRC explained that this may have  overstated these costs and estimated that if these assumptions were  corrected, the annual cost savings would be $704 million, not $516  million.
USPS included about 100 post offices that were actually closed or  suspended in its calculation of labor costs despite stating that  suspended offices were not part of POStPlan, that it would not re-visit  closed offices’ status, and that there were no plans to reopen these  offices. In its POStPlan advisory opinion, PRC estimated that the cost  savings would be $513 million, not $516 million, if USPS excluded  these offices.
Similar to the original POStPlan cost-savings estimate, USPS’s estimate  of the arbitration decision’s impact on cost savings has limitations related  to imprecise labor costs, which, as noted above, contribute to  inaccuracies. For example:
USPS used a single, proxy employee category and hourly rate to  represent all employees under the pre-arbitration POStPlan staffing  arrangements, rather than the actual different rates these employees  would have received, as described above. USPS used this proxy  although it had the actual rates, and none of the actual rates matched  the proxy rate.
USPS included all Level 6 post offices and their associated positions’  labor costs in its estimate. However, the arbitration decision did not  affect the Level 6 PTPOs. This is inconsistent with how USPS treated  Level 2 RMPOs in the estimate. These RMPOs were also not affected  by the arbitration decision. Removing the Level 6 PTPOs from the  estimate reduces the impact from about $181 million to about $170  million, meaning the revised savings would have been $348, not  $337, million.
USPS’s post-arbitration decision estimate of $337 million in expected  annual cost savings relies, in part, on USPS calculations of actual  savings achieved due to POStPlan, but the accuracy of these actual  savings calculations may be limited by errors in the underlying  salaries and benefits data used to develop them. As described above,  to arrive at $337 million, USPS subtracted the $181-million impact it  calculated from the revised estimate of $518 million it developed in  June 2015. Also as noted above, USPS developed that $518 million  estimate in part by considering the actual savings it achieved from  fiscal years 2012 to 2014. However, we found errors in USPS’s  salaries and benefits data that, according to USPS officials as of  March 2016, may have been caused by employees’ workhours being  incorrectly recorded when employees worked in more than one  office. We found that these errors would result in some offices’  salaries and benefits being understated, and others being  overstated. While understated and overstated costs at individual  offices would likely offset each other in aggregate (i.e., when costs at  all offices, either POStPlan or non-POStPlan, were considered), they  do not offset when analyzing costs at just POStPlan post offices.  Given that according to USPS, its calculations of actual savings  achieved consider costs at POStPlan—but not non-POStPlan— offices, the calculations may be limited by these errors. Additionally,  according to USPS as of October 2015, thus far it has saved $306  million in labor costs from fiscal year 2012 to June 2015 as a result of  POStPlan. Although POStPlan most likely resulted in cost savings  because of the overall reduction in work hours at thousands of post  offices, the accuracy of these calculated savings may also be limited  by these errors.
USPS’s calculation of labor costs in both its original and post-arbitration  decision estimates was also incomplete. A full estimate of labor costs  might have included additional labor cost elements. For example:
USPS’s original estimate did not include costs associated with the  addition of supervisors at the Level 18 or above offices that remotely  manage the POStPlan post offices due to their increased supervisory  workload. Specifically, according to USPS officials, USPS added  about 320 such positions, though not all as a result of POStPlan, and  the average hourly pay for supervisors as of August 2015 was  $48.73.
USPS’s original estimate did not include one-time labor costs  associated with separation incentives USPS offered to postmasters.  According to USPS officials, acceptance of these separation  incentives by POStPlan-affected postmasters cost USPS about $69  million.
USPS’s estimate of the arbitration decision’s impact on cost savings  excluded the potential cost impact of staffing changes in Level 18 post  offices. Although USPS officials have stated that Level 18 offices are  not part of POStPlan, the arbitration decision and a September 2014  memorandum of understanding that further implemented it required  that a certain type of position staffing Level 18 offices be changed to a  bargaining-unit clerk position.
section_title: No Sensitivity Analysis Conducted
paragraphs: Our cost-estimating best practices state that sensitivity analysis should  generally be conducted when estimating costs, especially if changes in  key assumptions would likely have a significant effect on the estimate.
Sensitivity analyses identify a range of possible cost estimates by varying  major assumptions, parameters, and inputs to enable an understanding of  the impact altered assumptions have on estimated costs. This can also  help managers and decisions makers identify risk areas and relevant  program alternatives. Since uncertainty cannot be avoided, it is necessary  to identify the elements that represent the most risk, which can be done  through sensitivity analysis.
In developing its estimates, USPS did not conduct a sensitivity analysis to  determine what would happen to estimated costs and savings should key  assumptions it was making under POStPlan vary. For example, USPS  officials told us that they recognized the possibility that APWU would  challenge the planned staffing arrangements at POStPlan post offices.  Despite this statement, in its original cost-savings estimate, USPS did not  analyze the sensitivity of POStPlan labor costs to alternative staffing  arrangements that might have been more in line with APWU’s views on  the staffing provisions specified in the USPS-APWU 2010-2015 CBA.  USPS officials explained that they believed that savings associated with  reduced hours at POStPlan post offices would significantly outweigh any  reduction in savings should an arbitrator rule in APWU’s favor. Similarly,  USPS did not analyze the sensitivity of its estimated savings to possible  changes in the benefits offered to USPS employees. For example, when  calculating the salary and benefits of Postmaster Reliefs (PMR)—the  employees expected to staff Level 2 and 4 RMPOs—USPS assumed that  the only benefit they were eligible for was 1 hour of annual leave for every  20 hours worked. However, in 2014, USPS began providing health  coverage for PMRs who meet the requirements of the 2009 Affordable  Care Act. Additionally, in both its estimates, USPS did not consider that  staffing at offices may continue to change based on the workload re- evaluations it plans to conduct. For example, under the original POStPlan  staffing arrangements, a Level 4 RMPO staffed by a PMR earning $14.87  per hour could become a Level 6 RMPO staffed by a part-time  postmaster earning $21.17 per hour if, after a re-evaluation of the office’s  workload, USPS determines that the office’s workload has increased  enough to justify a Level 6 classification. Thus, the number of offices at  each level might continue to increase or decrease year after year. This  also means that although USPS refers to its estimates as estimates of the  “annual” savings it will achieve upon full POStPlan implementation, only a  single-year estimate of savings can be produced at any given time,  unless and until estimates of potential staffing changes in future years  can be made.
section_title: Exclusion of Potential Impact on Revenue
paragraphs: OMB cost-estimating guidance states that agencies should determine  whether an activity’s benefits (savings) also take into account the costs  incurred to implement it. That is, the guidance suggests that it is the net  benefit, or in this case, the net cost savings that should be considered.  However, USPS’s estimate did not include certain factors that could affect  the net cost savings of the POStPlan initiative. In particular, USPS’s  original estimate did not include an analysis of the extent to which  reduced hours at POStPlan post offices could affect revenue at those  offices and across USPS. That is, it did not fully consider any offsetting  financial losses that should be weighed against estimated savings.
In July 2012, USPS testified to PRC that it did not anticipate losing  revenue due to POStPlan, though it had not conducted a financial  analysis to support this statement. Specifically, as described below,  USPS expected any revenue lost at POStPlan post offices to be  absorbed elsewhere. Despite this assumption, in its POStPlan advisory  opinion, PRC stated that it was concerned that reduced retail hours may  lead to reduced revenue and recommended that USPS undertake a post- implementation review of POStPlan to measure changes in revenue at  POStPlan post offices. In September 2015, we asked USPS what, if any,  steps it had taken to address PRC’s recommendation. At that time, USPS  had not yet taken steps to analyze changes in revenue at POStPlan post  offices, though in January 2014—in response to a request from PRC— USPS submitted data to PRC on the fiscal year 2013 revenue earned in  POStPlan post offices and in the Level 18 and above administrative post  offices. USPS officials told us that they planned to conduct a revenue  analysis annually, comparing fiscal year over fiscal year, and later  provided us with a preliminary analysis of changes from fiscal years 2014  to 2015.
USPS’s preliminary POStPlan revenue analysis has limitations that may  affect its representation of changes in revenue at POStPlan post offices  and across USPS. This analysis showed that walk-in revenue declined by  about 4 percent at POStPlan post offices, as well as at non-POStPlan  offices, and at all offices in general. However, we found that USPS’s  calculation of revenue in POStPlan post offices was inconsistent with its  definition of what constitutes POStPlan post offices. Specifically, USPS  included revenue from the Level 18 or above administrative offices,  though USPS does not define these as POStPlan post offices.  Additionally, according to USPS officials, those are the offices most likely  to absorb customers who are looking for nearby alternatives in the face of  reduced hours at their local office. USPS also excluded the Level 6  PTPOs from its analysis although it considers these to be POStPlan post  offices. After we inquired about the Level 6 PTPOs, USPS provided us  with a revised analysis but, in this revision, USPS included the Level 18  and above administrative offices as POStPlan post offices. When we re- sorted the offices in USPS’s analysis to exclude the Level 18 and above  administrative offices from the “POStPlan post offices” category and  include the Level 6 PTPOs in the “POStPlan post offices” category, we  found that revenue declined by about 10 percent, not 4 percent in  POStPlan post offices and by about 4 percent in non-POStPlan post  offices.
To obtain a more comprehensive picture of how POStPlan may have  affected revenue in the reduced-hour offices, we also analyzed the walk- in revenue earned at POStPlan post offices, by office level, for the most  recent fiscal year (2015) compared to the most recent fiscal year in which  no POStPlan implementation activities had begun to occur (2011). We  found that revenue at RMPOs in fiscal year 2015 was 29 percent lower  than revenue, adjusted for inflation, in fiscal year 2011, with over a 50  percent decline in Level 2 RMPOs. See table 1.
While our analysis shows that revenue at the POStPlan RMPOs declined  by 29 percent, this revenue constituted a small portion of the total  revenue from all of USPS’s post offices. In January and February of 2016,  USPS conducted additional analysis comparing fiscal years 2011 and  2015 post office walk-in revenue. According to this analysis, revenue from  RMPOs in fiscal year 2011 accounted for just 4.5 percent of  approximately $11.9 billion in total revenue earned from post offices that  year and, in fiscal year 2015, 3.7 percent of approximately $10.8 billion in  total revenue. Additionally, USPS’s analysis showed that the Level 18 or  above administrative offices experienced less of a decline in revenue than  the RMPOs they remotely manage. Specifically, revenue at these offices  in fiscal year 2011 was about $2.32 billion (adjusted for inflation) and, in  fiscal year 2015, about $2.06 billion, a decline of about 11.2 percent. In its  analysis, USPS also reported total revenue from all non-POStPlan  offices. However, USPS’s reported total again included the Level 6  PTPOs in this category. Overall, revenue at all post offices declined by  about 14.6 percent from fiscal years 2011 to 2015 when fiscal year 2011  revenue is adjusted for inflation.
While both our and USPS’s analyses comparing fiscal year 2011 and  2015, and USPS’s analysis of changes from fiscal years 2014 to 2015  help to illustrate the potential effects of POStPlan on revenue, they do not  fully measure it. In particular, analyzing the extent of revenue reductions  that are independently due to POStPlan would require a more complex  analysis that takes into account a variety of factors, and the USPS data  available to us were not adequate to conduct such an analysis. For  example, in addition to considering changes in revenue at POStPlan post  offices by level, other factors need to also be considered, such as  revenue changes in non-POStPlan offices and other retail channels within  a reasonable distance to POStPlan offices, as well as at offices and  channels not near POStPlan offices. Such an analysis would also need to  consider other factors that may influence retail revenue over time. These  factors could include, for example, the state of the general economy, the  adoption of technology substitutes to traditional mail (such as e-mail, e- retail, and electronic bill payments), and relevant demographic  characteristics that might affect mail volume, such as population density  and household income. Such an analysis would also need to consider the  movement of customer traffic to alternate ways of accessing postal  services. For instance, in fiscal year 2015, about 46 percent of USPS’s  total retail revenue of about $19 billion was generated through these  alternate access channels, which include usps.com, self-service kiosks,  and third-party retail partners. In the case of POStPlan, USPS officials  explained that since revenue from POStPlan post offices accounts for a  small portion of total post office revenue and cost reductions due to  POStPlan were expected to be much larger, cost savings due to  POStPlan would likely outweigh lost revenue. However, analyzing the  extent of revenue reductions that are independently due to POStPlan  through a more complex analysis could be helpful in evaluating the  overall impact of POStPlan if USPS expanded the initiative to additional  post offices, as may occur due to the workload re-evaluations that USPS  plans to conduct.
section_title: USPS Acknowledged the Limitations of Its Cost- Savings Estimates, Calculations of Actual Savings, and Revenue Analysis
paragraphs: Overall, USPS officials have acknowledged that their original POStPlan  cost-savings estimate was not sophisticated—characterizing it as a rough  estimate that used a “quick and dirty” approach—and have also  acknowledged the limitations of their estimate of the arbitration decision's  impact on cost savings. Prior to making any changes (like POStPlan) in  the nature of postal services that are at least substantially nationwide in  scope, USPS must request an advisory opinion from PRC on the  change. USPS officials explained that this process entails a review of  the proposed initiative by PRC and that when making their case before  PRC, USPS’s legal counsel makes recommendations on strategy for the  proceeding in consultation with other USPS staff. They further noted that  in order to make an informed business decision prior to undertaking an  initiative such as POStPlan, USPS undertakes reasonable efforts to  appropriately assess the expected cost savings to determine whether the  initiative is worth pursuing. The officials added that the nature and extent  of this assessment varies by the specific circumstances, particularly, the  financial circumstances facing USPS, the need for expedited  implementation of an initiative, and USPS’s overall confidence that an  initiative will prudently reduce costs. USPS officials stated that in cases  such as POStPlan, there is no strict guidance or thresholds that govern  when cost-savings estimates should be rigorous versus when it is  sufficient to use a less rigorous approach to gain a rough approximation,  and there is no legal requirement to produce cost-savings estimates or to  use a particular methodology. Instead, USPS officials said these are  judgmental decisions.
Regarding USPS’s calculations of actual savings achieved, USPS  officials have also acknowledged the limitations of the underlying salaries  and benefits data. For example, USPS officials acknowledged that the  errors we found in these data would result in some offices’ salaries and  benefits being understated, and others being overstated. In February  2016, USPS officials told us that they were not previously aware of this  issue and that they have begun to take steps to further understand the  scope of the errors and how and why they occurred. As of March 14,  2016, USPS officials were continuing to assess this issue, but USPS’s  time frame for identifying the scope and resolving the issue remains  unclear, and it is also unclear if USPS subsequently intends to update its  calculations of actual savings achieved.
Regarding its analysis of changes in revenue from fiscal year 2014 to  2015, after reviewing our analysis of revenue at POStPlan post offices,  USPS has also acknowledged that some PTPOs should have been  included in its analysis and provided details on why it included these  offices and the Level 18 and above administrative offices in the  categories that it did. In particular, USPS officials told us that they agreed  that some of the PTPOs should have been included in their analysis as  POStPlan post offices and explained that they had included these offices  in their analysis as non-POStPlan offices because this type of office  existed prior to POStPlan. They also noted that they included the Level  18 and above administrative offices as POStPlan post offices because, as  noted above, those would be the offices most likely to absorb customers  who are looking for nearby alternatives in the face of reduced hours at  their local post office. USPS officials also said that it is important to note  that revenue declines at POStPlan post offices may not be fully lost to  USPS because customers may use other nearby retail channels (e.g., the  Level 18 or above offices, usps.com, etc.) instead. While we agree that  ultimately, it is the revenue lost to USPS as a whole that is most relevant  to USPS, it is still important to accurately represent the changes in  revenue at the reduced-hour offices to fully understand the effects of  POStPlan on these offices and the trade-offs necessary between costs  and benefits, and to provide relevant information for program evaluation  and future decision making.
section_title: Conclusions
paragraphs: We have long reported that USPS needs to restructure its operations to  better reflect customers’ changing use of the mail and to align its costs  with revenues. Toward this end, USPS has proposed or started a number  of initiatives, such as POStPlan, to increase efficiency and reduce costs  as it seeks to improve its financial viability. Having reliable data and  quality methods for calculating the potential savings USPS expects to  achieve through these initiatives, the actual savings they achieve, and the  potential effects they have on revenue are critical. Such rigor can help  ensure that USPS officials and oversight bodies, such as PRC and  Congress, have accurate and relevant information to help USPS strike  the right balance between the costs and benefits of the various initiatives.
Although POStPlan was an initiative that affected about 66 percent of  USPS’s post offices and postmasters, USPS did not produce cost- savings estimates with the level of rigor that an initiative with such a large  footprint may have warranted. Having reliable estimates of expected cost  savings when initially making decisions could help ensure that USPS is  achieving its goals, yet USPS’s estimates of expected savings had  limitations. For example, by not conducting a sensitivity analysis, as  recommended by our cost-estimating guidance, USPS may have missed  an opportunity to test how vulnerable its expected cost savings were to  program changes. For instance, USPS may have been able to test how  its expected savings would change should any of its assumptions change,  as some later did because of the arbitration decision, which affected  staffing arrangements at the majority of POStPlan post offices. If USPS  had noticed significant differences in its projected labor costs and savings  through a sensitivity analysis, it might have taken steps to address these  vulnerabilities prior to announcing POStPlan. USPS believes that, given  likely savings and the realities of postal operations, moving forward with  POStPlan was the correct operational decision. However, for future  initiatives like POStPlan, having guidance that clarifies when USPS  should develop cost-savings estimates using a rigorous approach could  help ensure that USPS produces estimates that thoroughly consider the  scope of a program’s implications, effects, and alternatives. Such an  approach is particularly relevant given that USPS has projected  unsustainable losses through fiscal year 2020 and beyond, may continue  to develop efficiency and cost-savings initiatives, and will need quality  information on the potential savings and effects associated with these  initiatives.
Further, according to USPS as of October 2015, it has saved $306 million  in labor costs from fiscal year 2012 to June 2015 as a result of POStPlan.  While we recognize that POStPlan most likely resulted in some cost  savings, the accuracy of USPS’s calculation of savings may be limited by  errors we found in USPS’s salaries and benefits data, and thus, it is  unclear whether USPS may have actually saved more or less. USPS’s  time frames for assessing and resolving this issue—and whether it  intends to, subsequently, update its calculations of actual savings  achieved—are also unclear. Finally, in its estimates of expected savings,  USPS did not initially consider the effect that reduced retail hours may  have on revenue and thus did not calculate an estimate of net cost  savings. This means USPS had an incomplete picture of the effects of  POStPlan. Even the preliminary analysis of changes in revenue that  USPS later conducted was limited because it was not consistent with  USPS’s definition of what constitutes POStPlan post offices. Improving  the quality of future POStPlan revenue analyses, especially as the  program potentially expands to additional offices, could help USPS better  understand the implications of POStPlan and inform future decision- making as USPS conducts workload re-evaluations of post offices.
section_title: Recommendations for Executive Action
paragraphs: The Postmaster General should direct executive leaders to: establish guidance that clarifies when USPS should develop cost- savings estimates using a rigorous approach that includes, for  example, a sensitivity analysis and consideration of other factors that  could affect net costs and savings, versus when it is sufficient to  develop a rough estimate; continue to take steps to assess and resolve the salaries and benefits  data errors and, subsequently, update calculations of actual cost  savings achieved due to POStPlan as appropriate; and verify that calculations of changes in revenue at POStPlan post  offices in USPS’s revenue analyses are consistent with USPS’s  definition of POStPlan post offices and take steps to consider when it  may be appropriate to develop an approach for these analyses that  will allow USPS to more fully consider the effects of POStPlan on  retail revenue across USPS.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to PRC and USPS for their review and  comment. PRC provided comments in an e-mail and stated that it found  the report accurately reflects PRC’s advisory opinion and actions  regarding POStPlan. USPS provided a written response, which is  reproduced in appendix II of this report. In the written response, USPS  disagreed with the overall tone and title of our report, provided  observations on our recommendations but did not state whether it agreed  or disagreed with them, and disagreed with some of the specific  examples we use in our report.
Regarding the tone and title of our report, in its response USPS reported  that it does not see a basis for any conclusion other than that, with  POStPlan, it is saving substantial amounts from the reduction in work  hours and the use of lower cost labor. It further stated that POStPlan was  a reasonable initiative in light of declining mail transactions and the need  to right-size its infrastructure to support the retail needs of the country.   Finally, USPS said that it believes POStPlan was and remains a prudent  business decision. Our report does not comment directly on the  reasonableness of the POStPlan initiative or whether it was a prudent  business decision, but we note in our report that USPS believed  POStPlan was a proper operational decision for USPS and its  stakeholders. Instead, our report focuses on USPS’s estimates of savings  due to POStPlan. We do not disagree that POStPlan most likely resulted  in some savings due to reduced work hours and have clarified our report  to state such. However, as we mention in the report, USPS’s calculations  of the actual savings achieved may be limited by errors in USPS’s  salaries and benefits data, and thus, USPS may have understated or  overstated the amount it has saved. We also revised the title of the report  in response to USPS’s concern.
Regarding our first recommendation that USPS establish guidance that  clarifies when USPS should develop cost-savings estimates using a  rigorous approach versus when it is sufficient to develop a rough  estimate, USPS said that it performed the level of analysis necessary to  support the decision to move forward with POStPlan and that there is not  a concrete set of business rules that determine the level of analysis that  should be conducted. Instead, USPS noted that its management intends  to be guided by a variety of factors, on a case-by-case basis. These  factors include: (1) the cost associated with the development of rigorous  financial information, (2) whether savings are the sole factor motivating  the decision, and (3) the amount of time that must be committed to  performing detailed analysis, among other things. USPS added that  decisions based on more complex operational changes and risk may  require more detailed analysis. While we appreciate that there is value to  considering the types of analyses to perform on a case-by-case basis, the  factors that USPS lists in its written response are precisely the type of  factors that could be included (or expanded upon) in guidance that  clarifies how to make those case-by-case decisions. Additionally, as we  note in our report, we believe such guidance will be helpful to USPS and  its oversight bodies as it considers future initiatives. As such, we continue  to believe our recommendation is appropriate.
Regarding our second recommendation that USPS continue to assess  and resolve errors in its salaries and benefits data and, as appropriate,  update its calculations of actual savings achieved due to POStPlan,  USPS said that it did not rely on this type of data in its original estimate of  expected cost savings. We recognize that USPS did not rely on these  data in that estimate. Instead, our report mentions that such data affected  USPS’s post-arbitration decision estimate of expected savings and were  used to calculate actual savings achieved thus far. Regarding the latter,  USPS noted in its written response that due to system limitations, it  cannot change past, existing data, but that it will continue to identify and  rectify the causes of the data anomalies. USPS also noted that as more  detailed information may be necessary in the future, it is reviewing  possible future system or process improvement opportunities. These are  positive steps to ensure that USPS is addressing these data issues and  reviewing opportunities for future improvements.
Regarding our third recommendation that USPS (1) verify that  calculations of changes in revenue at POStPlan post offices in its revenue  analyses are consistent with USPS’s definition of POStPlan post offices  and (2) take steps to consider when it may be appropriate to develop an  approach that more fully considers the effects of POStPlan on revenue  across USPS, USPS did not directly address either part of this  recommendation. Instead, USPS provided information on revenue at  POStPlan post offices in 2011 and 2015 (such as the portion of total walk- in revenue these offices constituted), much of which is included in our  report. USPS also re-iterated that it expected revenue would shift from  POStPlan post offices to the Level 18 and above offices that remotely  manage the POStPlan offices, and noted that USPS’s revenue analysis  supports that assumption. The intent of our recommendation was not to  disagree with this assumption. Rather, the intent of our recommendation  is to help ensure that USPS and its oversight bodies have quality  information on the changes in revenue at POStPlan post offices in order  to fully understand the effects of POStPlan. Key to having such  information is ensuring that the calculations of changes in revenue are  consistent with USPS’s definition of what constitutes a “POStPlan post  office.” As such, we continue to believe that verifying the accuracy of its  calculations is important. Additionally, our report acknowledges the small  portion of total walk-in revenue that POStPlan post offices constitute, and  notes that a more complex analysis could be helpful if USPS expanded  the initiative to additional offices, as may occur due to the workload re- evaluations that USPS plans to conduct. We therefore continue to believe  that USPS should take steps to consider at what point such an analysis  may be warranted.
Finally, USPS disagreed with some of the specific examples we use in  our report. In particular:
USPS disagreed with an example showing that its original cost- savings estimate was incomplete due to the omission of costs  associated with separation incentives offered to postmasters, noting  that “annualized savings” estimates are generally not reduced by such  start-up costs. We do not disagree that annualized savings are one  way to measure cost savings. However, as we note in our report,  OMB cost-estimating guidance states that agencies should also take  into account the costs incurred to implement an activity, suggesting  that it is the net cost savings that should be considered. As such, a  fully complete cost-savings estimate would consider such start-up  costs. Similarly, USPS disagreed in another instance that showed the  saved salary USPS authorized to postmasters contributed to the  incompleteness of its original estimate and noted that these salary  payments were not planned at the inception of the program. We have  updated our report to reflect that these payments were not planned.
Finally, USPS disagreed with statements showing that the change  made to staffing in Level 18 post offices as a result of the POSPlan  arbitration decision is tied to POStPlan, noting that this change was  related to a separate grievance and that this separate grievance was  specifically identified in a footnote in the POStPlan arbitration  decision. We do not disagree with the idea that this change was a  resolution of a separate grievance and that the footnote USPS refers  to cites this separate grievance. However, we disagree that the  change was not at all tied to POStPlan. The connection to POStPlan  is clear in the arbitration decision’s wording. Specifically, in the  arbitration decision, the arbitrator ruled that Level 4 RMPOs should be  staffed by PSEs. When stating its ruling regarding the staffing change  in Level 18 offices, the arbitration decision clearly states, “In view of  the increased use of PSEs in Level 4 RMPOs …. I further order that  all Level 18 post offices that are currently staffed by PSEs with the  designation code 81-8 will now be staffed with a career employee.”  Therefore, it is clear that changes in staffing at Level 4 RMPOs (which  were part of POStPlan) also affected the resolution of this separate  dispute.
We are sending copies of this report to the appropriate congressional  committees, the Postmaster General, the Acting Chairman of PRC, and  other interested parties. In addition, the report is available at no charge on  the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at 202-512-2834 or rectanusl@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report examines (1) the actions the U.S. Postal Service (USPS) took  to implement the Post Office Structure Plan (POStPlan) before the  September 2014 arbitration decision and the savings USPS estimated  POStPlan would achieve, (2) the effect USPS determined the arbitration  decision had on POStPlan staffing and cost savings, and (3) whether  USPS’s POStPlan cost-savings estimates are reliable and any limitations  of the estimates.
To describe the POStPlan initiative, determine the actions USPS took to  implement it before the September 2014 arbitration decision and identify  the effects USPS determined the decision had on POStPlan staffing, we  reviewed relevant laws, regulations, documentation and data, and  conducted interviews. Specifically, we reviewed USPS guidance, policies,  procedures, and other documents related to POStPlan planning and  implementation, such as fact sheets, employee notification letters, and  information submitted during the Postal Regulatory Commission’s (PRC)  2012 POStPlan proceeding. We reviewed USPS’s 2014 and 2015 annual  reports to Congress and 2013 Five-Year Business Plan. We also  reviewed documentation related to the arbitration in particular, such as  the arbitration decision, subsequent memorandums of understanding  between USPS and the American Postal Workers Union (APWU) that  further implemented the decision, and the 2010-2015 collective  bargaining agreement between USPS and APWU. We obtained written  responses and data from USPS officials on the arbitration decision and  POStPlan implementation from 2012 to 2015, such as data on the  number of post offices where USPS reduced hours from 2012 to 2015  and postmasters affected by POStPlan. We assessed the reliability of  these data by comparing them to other information obtained from USPS  and asking USPS questions about data sources, quality, and timeliness.  We found these data reliable for the purpose of describing the progress  and status of POStPlan before and after the arbitration decision. We also  reviewed prior GAO reports and documentation from USPS stakeholders,  including PRC and USPS’s two postmaster associations—the National  Association of Postmasters of the United States (NAPUS) and the  National League of Postmasters of the United States (NLPM). For  example, we reviewed PRC’s advisory opinion on POStPlan and the  transcript of PRC’s POStPlan hearing, which it held on July 11, 2012.  We selected NAPUS and NLPM due to their role as management  associations that USPS must consult with and because they represent  POStPlan-affected postmasters. We selected PRC due its oversight role  over USPS. We interviewed USPS officials and NAPUS, NLPM, and PRC  officials to obtain additional information, views, and context on POStPlan.  We also contacted APWU, but APWU officials did not accept our  invitation for a meeting.
To determine the cost savings USPS originally estimated it would achieve  through POStPlan, the effect it estimated the arbitration decision had on  savings, and the reliability and limitations of these estimates, we reviewed  USPS’s POStPlan cost-savings estimates and compared the estimates to  relevant criteria. Specifically, we reviewed USPS’s 2012 estimate of the  savings it expected to achieve through POStPlan and its 2015 estimate of  the arbitration decision’s impact on expected cost savings. We obtained  USPS documentation and written responses related to POStPlan cost  savings, interviewed USPS officials, and obtained documentation and  interviewed officials from NAPUS, NLPM, and PRC to determine how  USPS developed its estimates, the assumptions it used, the potential  sources of uncertainty, the types of inputs included and omitted, and  these stakeholders’ views. We then assessed the reliability and  soundness of these estimates using guidance on assessing the reliability  of data (which are defined as including estimates—such as estimates of  cost savings—and projections), cost estimating guidance, and internal  controls standards adopted by USPS to determine the extent to which the  estimates comported with these criteria. We reviewed these standards  and guidance and then selected those practices that, in our professional  judgment, were most applicable given that POStPlan is an efficiency and  cost-savings initiative and given USPS’s financial condition. In particular,  we assessed the estimates’ accuracy, validity, completeness, and  consistency; any use of sensitivity analyses; and consideration of net  cost-savings factors. We discuss the limitations of the estimates in this  report. We also obtained USPS data on actual cost savings achieved  from fiscal year 2012 to June 2015 (the most recent data available at the  time of our review) due to POStPlan, and hourly pay rates in POStPlan  post offices under the pre- and post-arbitration decision POStPlan staffing  arrangements. We assessed the reliability of these data by comparing  them to other information obtained from USPS and asking USPS officials  questions about data sources, quality, and timeliness, and, for the actual  savings data, reviewing how consistently USPS’s data files followed the  methodology USPS officials described to us. Regarding the actual  savings data, we found that USPS’s data files when USPS first began  tracking savings did not always follow the methodology USPS described  to us. While USPS officials did not provide explanations for these  inconsistencies, USPS updated its methodology for tracking POStPlan  cost savings beginning in fiscal year 2015. However, we also found errors  in the salaries and benefits data USPS used to calculate actual savings  achieved; we discuss the limitations in this report. Regarding the hourly  pay-rate data, we found these data reliable for the purpose of describing  hourly pay rates in POStPlan post offices according to USPS. It was  beyond the scope of our review to assess whether POStPlan was a  prudent business decision.
Finally, to better understand the potential effects of POStPlan and the  arbitration decision, we analyzed (1) salaries and benefits paid, and (2)  the walk-in revenue earned at POStPlan post offices, by post office level,  for periods before and after POStPlan implementation. We used data  provided by USPS, as follows:
Salaries and benefits data: USPS provided us data on the salaries  and benefits it paid to POStPlan employees in POStPlan post offices  in the third quarter of fiscal year 2011 (i.e., April, May, and June  2011). According to USPS officials, these data represented all  salaries and benefits paid to all relevant employees during that  period. USPS provided us the same information for the third quarter  of fiscal year 2015. To make the fiscal year 2011 data comparable  to the fiscal year 2015 data, we adjusted the fiscal year 2011 salaries  and benefits using adjustment factors provided by USPS officials.
Revenue data: USPS provided us data on the revenue in POStPlan  post offices in fiscal years 2011 and 2015. We adjusted fiscal year  2011 dollars using the Gross Domestic Product deflator so that they  would be stated in 2015 dollars.
Office level classification data: USPS provided us data on what  level each POStPlan post office is classified as of October 2015 (i.e.,  whether it is a Level 2, 4, or 6 remotely managed post office (RMPO)  or part time post office (PTPO)).
Although USPS officials stated that these data provided included all  POStPlan post offices, we found that they did not always include  information for the same set of offices, and when providing these data,  USPS officials did not provide explanations for why the number of  POStPlan post offices differed. As such, regarding our revenue analysis,  we excluded offices as necessary in order to have as complete a set of  information as possible for as many offices as possible with what was  provided. Specifically, of those offices for which we had level information,  we excluded those for which we did not have revenue data for both  periods. In particular, USPS’s data did not include complete information  on revenue in both periods at the majority of the about 400 Level 6  PTPOs. Thus, we excluded the Level 6 PTPOs from our results. We also  excluded one Level 6 RMPO for this reason. Additionally, we excluded  four offices that had multiple level classifications. Of those four, three  were classified as both Levels 4 and 18, and one was classified as both  Levels 6 and 18. Despite these exclusions, we found these data reliable  for the purpose of describing changes in revenue at POStPlan post  offices. Regarding our salaries and benefits analysis, in analyzing USPS’s  salaries and benefits data, we found that these data were not reliable due  to errors in how USPS recorded the hours its employees worked.
section_title: Appendix II: Comments from the U.S. Postal Service
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, key contributors to this report  were Derrick Collins (Assistant Director), Amy Abramowitz, Lilia Chaidez,  William Colwell, Marcia Fernandez, SaraAnn Moessbauer, Nalylee  Padilla, Malika Rice, Michelle Weathers, and Crystal Wesco.