Self- Certification Process for Domestic Competitive Product Negotiated Service Agreements
Background
Negotiated Service Agreements (NSAs) are contractual agreements between the U.S. Postal Service and specific mailers. NSAs provide customized pricing and classifications, with specified terms and conditions, and may include modifications to current mailing standards and other postal requirements. NSAs can provide millions of dollars in revenue and contributions from new business, which benefits the Postal Service.
The Postal Accountability Enhancement Act of 2006 (PAEA) requires the Postal Regulatory Commission (PRC) to review domestic competitive product NSAs within 15 days of the Postal Service filing them.
The PAEA also requires the Postal Service to ensure that each competitive product covers its direct and indirect costs and complies with statutory requirements. The Postal Service must also ensure that all competitive products collectively cover an appropriate share of their direct or indirect costs.
The Postal Service must self-certify each NSA by attesting to the accuracy of the data submitted. It must also file documentation with the PRC showing that a prospective agreement will improve its net financial position or mail processing functions and will not cause undue discrimination to the marketplace. Our objective was to evaluate the Postal Service's self-certification process for domestic competitive product NSAs. Specifically, we assessed the adequacy of internal controls and compliance with cost coverage and pricing requirements.
From October 1, 2015, through March 31, 2016, the Postal Service approved, self-certified, and filed with the PRC 100 domestic competitive product NSAs that were valued at about $1.6 billion. We judgmentally sampled 54 of 100 domestic competitive product NSAs. We selected all 13 of the 100 that each exceeded $10 million or more as they required additional actions taken prior to filing. We then randomly selected 41 additional NSAs from the five mail classes. The total value of all 54 NSAs that were evaluated was about $1.1 billion.
What the OIG Found
We found that all 54 of the NSAs reviewed were in compliance with cost coverage and pricing requirements. We traced cost and pricing data inputs on the cost model templates to cost and revenue reports to validate compliance. However, opportunities exist to strengthen the current internal controls surrounding the self-certification process for domestic competitive product NSAs.
Specifically, two of 13 NSAs in our review that were valued at more than $10 million were not reviewed by the Postal Service's Business Evaluations Team as required. This team conducts a business case and sensitivity analysis for NSAs exceeding $10 million to determine whether the NSA is favorable or not to the Postal Service.
This issue occurred because there is not a formal, comprehensive NSA process that outlines the internal controls – including roles and responsibilities, communication, and accountability – among personnel required to execute the NSA self-certification process. Although we did not identify any specific issues with these two NSAs, the lack of review increases the risk that the NSA may not make good business sense for the Postal Service.
What the OIG Recommended
We recommended management formally document the NSA process by developing a comprehensive standard operating procedure that outlines roles and responsibilities, communication, and accountability among personnel required to execute the NSA self-certification process.