The U.S. Postal Service offers a postage rate discount to mailers for presorting, pre-barcoding, handling, or transporting of mail. These workshare discounts incentivize mailers to perform specific activities that the Postal Service would otherwise have to perform. They allow the Postal Service to increase operational efficiencies, avoid some mailing costs, stimulate mail volume growth, and improve service. The Postal Accountability and Enhancement Act of 2006 (PAEA) mandates that, with certain exceptions, the Postal Regulatory Commission (PRC) ensure workshare discounts do not exceed the cost avoided by the Postal Service as a result of the workshare activity.
Our objective was to assess the accuracy and reliability of the Marketing Mail letters cost-avoidance model used to develop mail processing workshare discounts. We also reviewed pricing strategies for Marketing Mail workshare discounts to determine compliance with PRC directives.
What the OIG Found
Opportunities existed for the Postal Service to ensure the accuracy and reliability of mail processing cost estimates for Marketing Mail letters. While we found no errors in model calculations, some inputs may be outdated. The cost model contained four inputs from case studies and testimonials that had not been updated for over two decades. These outdated inputs may not reflect current operating conditions.
The Postal Service did not have a formal schedule or process to periodically measure the impact of changes to certain inputs on cost estimates. Further, there was no formal process to determine the feasibility of revising inputs that are not regularly updated. While management stated it reviews cost model inputs for appropriateness, it did not have documented cost-benefit or sensitivity analyses to support its decision to not update the inputs prior to our audit.
The use of inputs that are not periodically updated may impact the accuracy and reliability of mail processing cost estimates for Marketing Mail letters. As a result, the Postal Service cannot ensure that workshare discounts impacted by potentially outdated inputs do not exceed the cost avoided, comply with PAEA, and increase operational efficiencies.
We also found the Postal Service developed pricing strategies to bring noncompliant Marketing Mail workshare discounts that exceeded the cost avoided into compliance with PAEA. We evaluated these strategies and found the Postal Service either changed the discounts to comply with PAEA or made incremental price adjustments to phase out the excessive discounts over time. The Postal Service should continue to periodically review pricing strategies to ensure they reflect existing operations and align with the cost avoided by workshare activities. Since the Postal Service has implemented a reasonable strategy and action plan to address noncompliant Marketing Mail workshare discounts, we are not making recommendations on this subject at this time.
What the OIG Recommended
We recommended management document the periodic review of non-recurring inputs in the Marketing Mail letters cost model, to include conducting and maintaining documentation of cost-benefit and sensitivity analyses.