According to the Service, approximately 855,000 customers generate business mail, and over 4,600 Service employees handle that mail at 1,900 Business Mail Entry Units and 850 Detached Mail Units nationwide. In fiscal year 1998, business mail was the largest contributor to the Service’s total mail revenue and total mail-piece volume. Service-provided operational information shows that in fiscal year 1998, business mail accounted for 49 percent of the Service’s $58 billion in total mail revenue and 66 percent of the nearly 200 billion mail pieces handled by the Service. Because of the importance of business mail to its overall operations, the Service has developed a business mail plan to guide it in meeting the business mail challenges of the future. The plan is based on four strategies: Make the business mailing process as easy as possible for customers by eliminating unnecessary rules, having highly trained staff, and making maximum use of technology to achieve verification, acceptance, and payment processes. Lower the operational costs of verifying a customer’s eligibility for discounted rates by raising the customer’s preparation skills to a level that can be tested and certified. Retain and grow revenue through more work sharing incentives and removal of pointless rules. Obtain timely and accurate customer information during routine mail processing in order to use that information to better serve customers’ needs. The Service currently has about 30 different initiatives planned or in process that it believes will be helpful in achieving these four strategies. The seriousness of the control weaknesses we identified in our earlier work and the potential impact those weaknesses could have on Service revenue led us to make several recommendations to the Service in our 1996 report, which we believed were needed to improve business mail acceptance controls and minimize revenue losses. We recommended that the Service use a risk-based approach for selecting mailings to receive presort ensure that required presort verifications and supervisory reviews of those verifications are performed and documented; provide supervisors and staff with updated procedures, training, and tools; develop and use valid information for evaluating the adequacy of business mail acceptance controls, procedures, staffing, and training; and develop methodologies for measuring systemwide revenue losses. To determine the actions taken by the Service in response to our 1996 recommendations, we discussed with Service officials changes made to the Service’s business mail acceptance controls and obtained and reviewed program procedures and guidelines for the new process. We also obtained information on future plans for operation of the business mail program and programwide performance information for fiscal year 1998—the latest available fiscal year data at the time of our review. To determine whether the changes to the business mail acceptance controls were working, we obtained programwide information related to staff training and contractor surveys of business mail operations that measure various business mail performance indicators. Further, we observed business mail acceptance control procedures that were being carried out by Service employees at eight business mail facilities. We judgmentally selected the business mail facilities shown in table 1 to provide geographic dispersion for our work. The results of our work cannot be projected to the Service’s other business mail processing facilities. Although we did not fully verify the accuracy of the program information the Service provided us, we verified some information by reviewing certain presort verification records and records of supervisory reviews of acceptance procedures at the locations we visited. According to Service officials, the types of facilities we visited accounted for most of the business mail revenue received by the Service in fiscal year 1998. Also, according to Service officials, these types of facilities are where the acceptance control process makes extensive use of computers and where most business mail is processed. We did not observe any business mailings at mail facilities that used a manual acceptance control process. At the eight business mail facilities we visited, we observed Service employees performing acceptance process tasks for 40 different mailings submitted by customers. These included (1) mailings with 10,000 or fewer mail pieces, (2) mailings with more than 10,000 mail pieces, (3) mailings that received presort verifications, and (4) mailings that received Automated Barcode Evaluator testing. We selected mailings according to the number of mail pieces because the Service considers mailings with more than 10,000 mail pieces to be high-risk mailings and those with 10,000 or fewer mail pieces low-risk mailings. We selected mailings that were to receive presort verifications and Automated Barcode Evaluator testing to observe mailings that were subjected to these specialized acceptance controls. The 40 mailings we observed totaled 761,399 mail pieces and $172,361 in postage. We compared acceptance control steps taken by business mail employees on these mailings to the steps specified in Service program guidelines. We obtained explanations from the employees for their acceptance decisions and compared their responses to requirements specified in program guidelines. Our observations were not intended to determine whether business mail clerks applied appropriate Service postage rates to various types of business mail. We reviewed a number of Inspection Service audit reports for the last several years relating to Service business mail operations. We conducted our review between March and October 1999 in accordance with generally accepted government auditing standards. We requested comments on a draft of this report from the Postmaster General. The Service’s comments are discussed near the end of this report. In 1996, we reported that the Service’s random method of selecting business mailings for presort verifications may not result in the best use of the Service’s resources and said that the Service could better target its verification efforts based on risk by considering factors such as mailer histories and the postage value of mailings. We recommended that the Service make risk a prominent factor in deciding which mailings should receive a presort verification. The Service agreed, and with the help of a consultant, determined that mailings of more than 10,000 mail pieces posed the greatest risk to the Service of revenue loss. The Service structured its new acceptance controls so that a “one-pass” evaluation is made of mailings posing the least risk of revenue loss and a “two- pass” evaluation is made of mailings with the higher risk of revenue loss. This risk-based approach by the Service addresses the objective we intended by our 1996 recommendation in that fewer but more high-risk mailings are targeted for verification. Under the one-pass concept, low-risk mailings of 10,000 or fewer pieces would typically receive an evaluation that includes verification that the customer has Service approval to make business verification that the customer has funds on deposit in his Service postage account sufficient to cover the cost of the mailing; visual checks of the accuracy of technical requirements, such as routing labels and zip codes; verification of weight, mail-piece count, and postage accuracy; and verification of barcodes if required by Service criteria. If a one-pass mailing passes this evaluation, it is accepted and entered into the mail stream. However, the customer is required to fix any problems found during the evaluation before processing will continue. Also, if a customer leaves the business mail facility before the mailing has been physically inspected for compliance with technical requirements, such as the adequacy of routing labels and zip codes, any detected problems in these areas will cause the mailing to receive a presort verification. If the one-pass mailing passes the presort verification, it is to be accepted and entered into the mail stream. If the mailing fails the verification, the customer is to correct the problems or pay a higher postage rate before the mail is entered into the mail stream. Under the two-pass concept, high-risk mailings of more than 10,000 mail pieces receive the same initial evaluation as one-pass mailings. However, a presort verification will also be performed if the computer selects the mailing for such testing. The frequency of selection for presort verification testing depends upon whether the customer has consistently submitted well-prepared mailings. If the two-pass mailing passes the presort verification, it is to be accepted and entered into the mail stream. If the mailing fails the verification, the customer is to correct the problems or pay a higher postage rate before the mail is entered into the mail stream. Data obtained from the Service showed the following level of one-pass and two-pass mailing activity in fiscal year 1998. In 1996, we reported that 40 percent of the required presort verifications of business mailings that we reviewed were not performed and that many rejected mailings were resubmitted and accepted into the mail stream without proper corrections or postage. We recommended that the Service establish procedures to ensure that all required presort verifications and all reexaminations of failed mailings are performed and documented. In our most recent review, we found that the Service changed its requirements for presort verifications and incorporated the changes into a computer-controlled process that has integrated presort verification and documentation requirements. The computer driven process for selecting high-risk mailings for presort verification, combined with limiting the authority to override the computer’s selection of a mailing for presort verification to supervisors, provides the Service greater assurance that required presort verifications are performed. However, the Service still has no systematic way of knowing whether all required verifications are performed. Business mail clerks are to begin processing a mailing by entering customer information into a computer. If the mailing is high-risk, the computer will determine whether a presort verification is required based on the customer’s prior mailing history, which is electronically accessed by the computer. As part of this process the customer’s historical success at passing presort verifications is electronically compared to Service- developed criteria that determines the required frequency for presort verifications. If a presort verification is required, a code for the results of the verification process must be input to the computer to complete processing and to update the customer’s mailing history. If a customer has consistently submitted well-prepared high-risk mailings the computer is to randomly select 1 out of every 30 mailings submitted by that customer for a presort verification.