Objective

Our objective was to determine if the U.S. Postal Service properly managed, funded, and executed its Innovation Pool Fund (Pool) in agreement with contractual terms.

The Pool is a supplier-proposed, value-added option included in the Postal Service’s Enterprise Project Management Office (EPMO) contract, where the Postal Service earns funding credits based on the total amount it spends on the contract. The EPMO contract was awarded in 2011, and as of December 2017, the Postal Service has spent about $[redacted] million. For every dollar spent, the supplier allocates between [redacted] and [redacted] cents to the Pool, which the Postal Service can use to obtain additional services from the supplier.

The credits can be used for a variety of prescribed services related to innovation, ranging from new non-EPMO initiatives and issuing whitepapers to conducting special studies. However, the credits may not be used to reduce the cost of existing programs or projects.

As of January 2018, the supplier contributed about $[redacted] million to the Pool and the Postal Service awarded 48 Pool task orders totaling about $[redacted] million, expending 92 percent of the credited funds.

What the OIG Found

The Pool was properly funded and work performed using Pool funds was executed in agreement with Postal Service contractual terms; however, there are opportunities to strengthen oversight over Pool activities.

The Postal Service did not reconcile Pool funds to ensure supplier contributions complied with contractual requirements, although the Pool contained the appropriate credits based on invoice activities. In addition, in fiscal year 2017, proposal statements for 10 of 48 task orders (21 percent) were not properly approved. In addition, management did not update operating procedures to require cost assessments to reflect current practices.

Furthermore, as there are benefits to using the Pool, such as making additional investments in innovation and bringing new ideas to the Postal Service, there are also risks, such as limits on how the funds can be used, potential misuse of funds, hidden/increased labor costs, and incentives for the Postal Service to use the supplier for follow-on work instead of competing the services. For example, the Postal Service executed eight follow-on task orders, valued at $[redacted] million, to the same supplier for other work without competition.

These conditions occurred because management did not maintain independent tracking of the Pool, have its own reporting tool, and relied on the supplier to provide current calculations and correspondence on Pool contributions. In addition, Pool activity was not reconciled because current operating procedures do not clearly define responsibility for tracking Pool funds. Furthermore, management indicated it was more cost effective to issue follow-on task orders related to Pool task orders instead of competing additional contracts.

Without adequate oversight, misappropriation of Pool funds could occur and go undetected. In addition, changes to processes or practices without timely updates to operating procedures allow for misinterpretation and unintended execution of the formal procedures.

What the OIG Recommended

We recommended management update current operating procedures to clearly define oversight responsibilities for the Pool, accurately reflect the approval and fair and reasonable process for task orders, and require responsible officials to develop a tracking and reporting tool to reconcile Pool funds to ensure that supplier contributions comply with contractual requirements. We also recommended management periodically evaluate the effectiveness of the Pool concept to ensure it is cost-justified and to assess whether it promotes fair and competitive contracting practices.

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