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Performance and Accountability Series:

January 2003:

Major Management Challenges and Program Risks:

U.S. Postal Service:

GAO-03-118:

A Glance at the Agency Covered in This Report:

A Glance at the U.S. Postal Service:

The U.S. Postal Service is an independent establishment of the 
executive branch. It is the federal government’s largest civilian 
employer and had revenues of about $67 billion in fiscal year 2002. 
The Service’s overall mission is to:

* bind the nation together through correspondence of the people;
* provide access to postal services in all communities;

* offer prompt, reliable postal services at reasonable rates;

* be self-supporting from postal operations; and

* break even financially.

The U.S. Postal Service’s Budgetary and Staff Resources:

[See PDF for image]

[a] Budgetary resources include new budget authority (BA) and 
unobligated balances of previous BA. The Postal Service receives 
minimal budgetary resources from the federal government and funds its 
operations primarily from postal revenues.

[b] Budget and staff resources are actuals for FY 1998-2001. FY 2002 
are estimates from the FY 2003 budget, which are the latest publicly 
available figures on a consistent basis as of January 2003. Actuals 
for FY 2002 will be contained in the President’s FY 2004 budget to be 
released in February 2003.

Source: Budget of the United States Government.

[End of figure]

This Series:

This report is part of a special GAO series, first issued in 1999 
and updated in 2001, entitled the Performance and Accountability 
Series: Major Management Challenges and Program Risks. The 2003 
Performance and Accountability Series contains separate reports 
covering each cabinet department, most major independent agencies, 
and the U.S. Postal Service. The series also includes a governmentwide 
perspective on transforming the way the government does business 
in order to meet 21st century challenges and address long-term fiscal 
needs. The companion 2003 High-Risk Series: An Update identifies areas 
at high risk due to either their greater vulnerabilities to waste, 
fraud, abuse, and mismanagement or major challenges associated with 
their economy, efficiency, or effectiveness. A list of all of the
reports in this series is included at the end of this report.

[End of section]

GAO Highlights:

Highlights of GAO-03-118, a report to Congress included as part 
of GAO’s 
Performance and Accountability Series

Why GAO Did This Report:

In the 2001 Performance and Accountability report on the U.S. 
Postal Service 
(the Service), GAO identified financial, operational, and human 
capital 
challenges threatening the Service’s ability to carry out its 
mission. Since 
then, these challenges have continued and its financial difficulties 
have 
increased, resulting in GAO’s placing the Service’s transformation 
efforts 
and long-term outlook on its high-risk list.  The information in 
this report 
is intended to help focus attention and facilitate progress in 
addressing the 
key challenges facing the Service.  This report is part of a 
special series on 
governmentwide and agency-specific issues.

What GAO Found:

The Service has made progress in addressing its challenges and 
has developed 
a Transformation Plan (the Plan) that contains steps to guide 
it in the future.  
Challenges remain, however, and leadership and sustained 
attention by the 
Service will be critical to carrying out its transformation.

* Implement the Transformation Plan and determine business model 
for the 21st 
century.  The Service is struggling to fulfill its mission of 
providing affordable, 
high-quality, universal service while remaining self-supporting. 
The figure shows 
that despite multiple rate increases, net income has decreased. 
The Service’s 
business model is at risk as mail volumes decline and 
competition and 
alternatives increase.

[See PDF for image]

[End of figure]

* Control costs and improve productivity under the Service’s 
existing authority.  
The Service’s ability to control costs and improve 
productivity is key to 
improving its financial situation.  The Service historically 
has had difficulty 
in achieving cost savings related to two costly areas—its 
workforce and its 
expansive physical infrastructure.

* Address unresolved financial issues.  The Service’s cash 
flow from operations 
has not been sufficient to fund needed capital expenditures 
and reduce debt 
pressures. Furthermore, its liabilities continue to exceed 
its assets, and 
postretirement health obligations are increasing. 

* Develop strategies to address human capital issues.  
Progress is needed in 
realigning the Service’s workforce planning and performance 
systems with its 
business model.  Cooperation between labor and management 
will be critical to 
achieving transformation goals.

* Provide complete and reliable financial and performance 
information in a timely 
and transparent manner.  The Service has not provided 
sufficient public information 
to explain its changing financial condition, outlook, and 
progress toward meeting 
its goals.

What Remains to be Done:

GAO believes the Service should:

* Work with Congress, the Presidential Commission, and 
stakeholders to implement 
the Plan and report on progress and financial impact of 
actions taken to support 
the Plan;
* Develop strategies to realign its infrastructure and 
workforce, to support 
its business model;
* Continue efforts to cut costs, improve productivity, and 
address long-term 
financial issues such as its debt and retirement-related 
obligations;
* Improve transparency and timeliness of financial and 
performance information.

www.gao.gov/cgi-bin/getrpt?GAO-03-118

To view the full report, click on the link above.
For more information, contact Bernard L. Ungar at (202) 512-2834 
or ungarb@gao.gov

Transmittal Letter:

Major Performance and Accountability Challenges:

GAO Contacts:

Related GAO Products:

Performance and Accountability and High-Risk Series:

This is a work of the U.S. Government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. It may contain 
copyrighted graphics, images or other materials. Permission from the 
copyright holder may be necessary should you wish to reproduce 
copyrighted materials separately from GAO’s product.

Transmittal Letter January 2003:

The President of the Senate
The Speaker of the House of Representatives:

This report addresses the major management challenges and program risks 
facing the U.S. Postal Service (the Service) as it works to carry out 
its mission. The report discusses the actions that the Service has 
taken and that are under way to address the challenges GAO identified 
in its Performance and Accountability Series 2 years ago, along with 
major events that have occurred that significantly influence the 
environment in which the Service carries out its mission. Also, the 
report summarizes the challenges that remain, new ones that have 
emerged, and further actions that we believe are needed.

This analysis should help the new Congress and the administration carry 
out their responsibilities and improve government for the benefit of 
the American people. For additional information about this report, 
please contact Bernard L. Ungar, Director, Physical Infrastructure 
Issues, at 
(202) 512-2834 or at ungarb@gao.gov.

David M. Walker
Comptroller General 
of the United States:

Signed by David M. Walker

[End of section]

Major Performance and Accountability Challenges:

As the federal government's largest civilian employer, with a 
nationwide network that delivers more than 200 billion pieces of mail 
each year, the Postal Service is a vital part of the nation's 
communications network and the hub of a $900 billion mailing industry. 
Over the past 2 years, the Service has experienced growing financial 
difficulties and has struggled to fulfill its primary mission of 
providing universal postal service at reasonable rates while remaining 
self-supporting from postal revenues. The Service continues to operate 
in an environment of growing financial, operational, and human capital 
challenges, as well as uncertainty about its future role. The events of 
September 11th and the subsequent use of the mail to transmit anthrax 
have introduced new issues related to mail safety and security that 
also must be addressed. These challenges require urgent attention to 
ensure that the Service will be able to fulfill its mission in the 21st 
century.

In April 2001, we placed the Service's transformation efforts and long-
term outlook on our high-risk list and recommended that it develop a 
comprehensive plan to determine the actions needed to address its 
financial, operational, and human capital challenges. This high-risk 
designation resulted in the development of the Service's Transformation 
Plan (the Plan)--a document that contains steps to guide the Service in 
carrying out its future mission. The implementation of this plan is a 
new challenge facing the Service, and thus we added it to our current 
list of its major challenges. This challenge replaces two of the major 
challenges we identified 2 years ago, because they are key parts of the 
Plan: the Service's ability to remain self-supporting while providing 
affordable, high-quality, universal service; and the need to address 
legal and regulatory issues. Three challenges that we previously 
identified still remain today: 1) controlling costs and improving 
productivity under the Service's existing authority, 2) developing 
strategies to address human capital issues, and 3) providing complete 
and reliable financial and performance information in a timely and 
transparent manner. Additionally, in response to the Service's 
deteriorated financial condition, we added a new challenge--addressing 
unresolved financial issues. The Service's cash flows from operations 
have not been sufficient to fund needed capital expenditures and 
significantly reduce debt pressures; its workers' compensation 
liability and postretirement health benefit obligations are large and 
increasing; and its liabilities exceed its assets. These underlying 
factors driving the Service's financial condition cannot be ignored.


These key areas must be addressed because the Service is at a very 
important crossroads. Its current business model, which relies on 
increasing mail volumes to mitigate postal rate increases and cover the 
Service's costs, is at risk in today's environment of greater 
competition and communication alternatives. In fiscal years 2001 and 
2002, despite multiple rate increases and significant cost-cutting 
efforts, the Service still incurred deficits of $1.7 billion and $676 
million, respectively, as its volumes declined by the most significant 
amount since postal reorganization occurred over 30 years ago. 
Furthermore, uncertainties such as the effects of a slowing economy, 
the pace of diversion to electronic alternatives, and new measures 
taken to enhance the safety and security of the mail have affected 
postal finances during this time and may continue to do so in the 
future.

[See PDF for image] 

[End of figure] 

Opportunities exist, however, that may help the Service address these 
major management challenges and effectively carry out its 
transformation. For example, the results of a recent financial analysis 
may lead to a reduction in the Service's pension liability and related 
annual payments if Congress takes legislative action in this area. This 
action could lead to further improvements in the Service's financial 
condition and outlook beyond the $600 million net income that was 
budgeted for fiscal year 2003.

The additional "breathing room" could allow the Service to address 
other financial challenges, such as its outstanding debt, substantial 
postretirement health obligations, and current capital freeze. The 
Service also faces a large number of upcoming retirements, which 
provide an opportunity to realign its workforce and infrastructure to 
meet its future operational needs. The Service will need to develop and 
effectively implement strategies to address these five challenges in 
order to carry out its mission in the 21st century. Although various 
postal reform proposals addressing the Service's future role and 
responsibilities have recently been debated in Congress, no consensus 
has been reached among postal stakeholders on what the future of the 
Service should be. The President recently established a commission to 
make recommendations regarding the future of the Postal Service. 
Committed leadership and sustained attention in addressing these 
challenges will be important to achieve the results necessary for us to 
reassess our inclusion of the Postal Service's transformation efforts 
and long-term outlook on our high-risk list.

Implement Transformation Plan and Determine Business Model for the 21st 
Century:

The key issues involved in implementing the Plan and determining a new 
business model are as follows:

* Ability to carry out mission is at risk;

* Mail volumes have declined, and multiple rate increases have been 
implemented;

* Growth in operating expenses has outpaced growth in operating 
revenues;

* No consensus has been reached on the Service's future role and 
mission;

* More public information is needed on transformation progress.

The Service has struggled to fulfill its core function of providing 
affordable, high-quality, universal service while at the same time 
remaining self-supporting. Decreasing mail volumes, along with total 
expenses that are greater than total revenues, have led to the third 
consecutive year of deficits despite multiple rate increases during 
this period. Figure 1 shows that net income has decreased in 6 of the 
past 8 fiscal years.

Figure 1: Net Income Has Been Declining, Even Though Rates Have Been 
Increasing:

[See PDF for image] 

[End of figure] 

These financial difficulties are not a cyclical phenomenon that will 
fade as the economy recovers. The Service's business model, which is 
based on the premise that increases in mail volumes will cover rising 
costs and mitigate rate increases, is at risk because of growing 
competition from private companies, foreign postal operators, and 
technological alternatives, such as cell phones and the Internet. Total 
mail volume declined by 2.5 percent over the past 2 fiscal years. 
Further, Figure 2 shows that growth in First-Class Mail and Standard 
Mail has been, on average, declining since the 1980s. Declines in 
volume growth for these two mail classes are particularly important 
because the Service relies on them for approximately three-fourths of 
its annual revenue.

Figure 2: Growth in First-Class Mail and Standard Mail Volumes Has Been 
Declining:

[See PDF for image] 

[End of figure] 

In addition to this slowing growth rate, the changing composition of 
the mail also affects the Service's revenue. First-Class Mail volume 
declined in fiscal year 2002 for the first time in over 25 years, which 
is particularly important because the revenue generated from First-
Class Mail is used to cover a significant portion of the Service's 
overhead costs. In addition, the weight per mail piece--which is a key 
factor in determining the rate charged and the revenue earned--across 
most major mail categories is down. The Service's reliance on rate 
increases to generate additional revenues is unlikely to reverse the 
change in composition or promote the volume growth that is needed to 
sustain financial viability. As volume growth in the major mail 
categories has declined and mail composition has changed, growth in the 
Service's operating revenue also has declined. Figure 3 shows that over 
the past 3 fiscal years, on average, operating revenue growth has 
dropped below that of operating expenses growth.

Figure 3: Operating Expense Growth Has Outpaced Operating Revenue 
Growth:

[See PDF for image] 

[End of figure] 

Although the results of a new analysis by the Office of Personnel 
Management (OPM) could significantly reduce the Service's annual Civil 
Service Retirement System (CSRS) pension payments, the Postmaster 
General (PMG) recently stated that this does not resolve the 
fundamental flaws in the Service's business model. We agree, and 
believe that the Service must address its key long-term challenges for 
a successful transformation to a new business model. These challenges 
include revisiting the Service's mission and determining the definition 
of universal postal service; devising operational strategies to address 
infrastructure and human capital matters; identifying actions needed to 
enhance mail safety and security; addressing issues of future 
governance and ratemaking structures; and determining proper 
accountability mechanisms and needed legislative changes. Addressing 
these challenges requires consensus among various stakeholders, which 
has been very difficult to achieve, in part, because numerous 
stakeholders have divergent needs and concerns. Since 1996, postal 
reform legislation has been considered many times in Congress; however, 
none of these reform proposals has been passed. As we noted in February 
2002, a commission may be needed to address unresolved issues related 
to the Service's transformation to a new business model and to develop 
a comprehensive proposal for consideration by the Congress. On December 
11, 2002, the President established a nine-member Commission on the 
United States Postal Service to prepare and submit a report on a 
proposed vision for the future of the Postal Service and recommend the 
legislative and administrative reforms needed to ensure the viability 
of postal services. The Commission is expected to submit its report to 
the President by July 31, 2003.

In response to our April 2001 recommendation to address its unresolved 
financial, operational, and human capital challenges, the Service 
released its Transformation Plan in April 2002. In the Plan, the 
Service outlined the steps, both current and long-term, it deemed 
necessary to guide it in carrying out its mission in the future. 
Specifically, the Plan presented actions to deal with transformation 
issues (1) in the short term, under its current authority and through 
moderate regulatory and legislative reforms, and (2) in the longer 
term, through fundamental structural transformation. To achieve its 
fundamental structural transformation, the Service proposed moving 
toward a Commercial Government Enterprise business model. This model 
differs slightly from its current model, and would allow flexible 
pricing and retained earnings. Table 1 provides a more complete 
comparison between the Service's proposed Commercial Government 
Enterprise model and its current business model.

Table 1: Comparison between the Service's Current Model and Its 
Proposed Future Model:

Key areas: Mission/Public policy; Current model: Provide affordable 
universal service; Commercial Government Enterprise model: Provide 
affordable universal service.

Key areas: Universal service obligation; Current model: All addresses, 
6 days/week; Commercial Government Enterprise model: Negotiated with 
regulator.

Key areas: Ownership; Current model: U.S. government; Commercial 
Government Enterprise model: U.S. government.

Key areas: Corporate governance; Current model: Board of Governors; 
Commercial Government Enterprise model: Board of Governors refocused on 
fiduciary duties.

Key areas: Regulation; Current model: Postal Rate Commission; 
Commercial Government Enterprise model: Postal Rate Commission.

Key areas: Monopoly; Current model: Letter and mailbox monopoly; 
Commercial Government Enterprise model: Letter and mailbox monopoly.

Key areas: Product development; Current model: As the Service finds 
appropriate and in the public interest; Commercial Government 
Enterprise model: Market-based --cost/benefit model.

Key areas: Pricing; Current model: Rate setting includes public 
hearings and divided authority between the Postal Rate Commission and 
the Board of Governors.; Commercial Government Enterprise model: 
Flexibility within broad parameters, complaint-based review.

Key areas: Human capital; Current model: Collective bargaining, third-
party arbitration, federal salary cap, and pay comparability; 
Commercial Government Enterprise model: Collective bargaining, 
Railroad Labor Act model, some private-sector laws, no salary cap.

Key areas: Financial requirement; Current model: Break-even mandate; 
Commercial Government Enterprise model: Reasonable net income; retained 
earnings.

Key areas: Ability to invest; Current model: Through U.S. Treasury; 
Commercial Government Enterprise model: Business alliances.

Key areas: Access to capital; Current model: $15 billion debt ceiling; 
Commercial Government Enterprise model: Legislated debt ceiling; 
retained earnings.

Key areas: Earnings; Current model: Break-even mandate; Commercial 
Government Enterprise model: Retained earnings to support Universal 
Service Obligation and capital and business continuity; dividends 
possible.

Key areas: Taxes; Current model: None; Commercial Government Enterprise 
model: Determined through legislation.

Key areas: Security; Current model: Postal Inspection Service; 
Commercial Government Enterprise model: Postal Inspection Service.

Source: Postal Service and GAO.

[End of table]

We have reported that the development of the Transformation Plan was a 
good first step in raising key postal reform issues.[Footnote 1] Since 
the Plan was issued, the Postmaster General has highlighted the 
progress made in implementing initiatives set forth in the Plan, 
including significant cost savings achievements; improvements in 
service performance; efforts to improve the ratemaking process with 
targeted pricing initiatives; enhancements to existing products with 
the implementation of a new service, Confirm, that enables senders to 
monitor the status of their mailings; and efficiency improvements to 
the Service's automated processing of flat mail, such as magazines and 
catalogs.

However, we feel that additional steps are needed to ensure effective 
implementation of the Plan. Specifically, periodic public information 
about the status of actions taken to implement the Plan should be 
provided to Congress and other postal stakeholders, including postal 
employees and customers. Little information has been made publicly 
available on the status of these actions. Postal officials told us that 
they have established accountability mechanisms, such as detailed 
project plans with strategies and time frames for implementing them; 
however, these documents are used for internal management purposes only 
and are not available to the public. Providing periodic public 
information on the status of actions taken to implement the Plan, 
including priorities, time frames, progress, and estimated financial 
impact, would be useful for congressional oversight purposes and for 
giving stakeholders, whose business plans may be impacted by the 
Service's planned actions, information on the Service's efforts. An 
example of such useful information is the "progress report" provided by 
the Service and the Mailing Industry Task Force,[Footnote 2] which 
provides periodic updates on the implementation status of the Task 
Force's recommendations to increase the effectiveness of the mail.

Further, effective leadership and sustained attention from the 
Service's Board of Governors and the PMG will be key to ensuring the 
successful implementation of its Plan. The role of the Board of 
Governors in the Service's transformation includes such major areas as: 
1) providing strategic advice to management; 2) assisting in managing 
risk, including risk that is related to attempts to maximize current 
value at the expense of mortgaging the future; and 3) holding 
management accountable for results. In addition, the Service will need 
to work with Congress, the Presidential Commission on the Postal 
Service, and other stakeholders to implement legislative and 
operational changes.

Control Costs and Improve Productivity under the Service's Existing 
Authority:

Key issues in controlling costs and improving productivity include the 
following:

* Difficulty in achieving cost savings and sustaining productivity 
gains;

* High infrastructure and workforce costs;

* Unknown costs related to safety and security;

* Capital freeze that may increase future costs.

The ability to control costs and sustain productivity gains is a key 
challenge to improving the Service's financial situation. The Service 
made progress in cutting costs and improving productivity in fiscal 
years 2001 and 2002, and costs for both years were below budgeted 
amounts. Despite these short-term reduction efforts, the Service 
continues to face significant challenges in sustaining long-term cost 
savings and productivity gains, particularly in the workforce and 
infrastructure areas, where costs are difficult to cut. Further, the 
Service will be challenged to deal with unknown costs related to 
enhancing mail safety and security. Although the Service's Plan 
includes long-term strategies that could greatly impact its future 
operational structure, a continuing emphasis on finding operating 
efficiencies within the current structure is a more immediate priority 
in order to mitigate postal rate increases.

The Service has made progress in the past 2 fiscal years in controlling 
the growth in costs and improving productivity. Although total costs 
increased by $2.8 billion in fiscal year 2001, those costs declined by 
about $400 million in fiscal year 2002. The Service reduced its staff 
by about 11,500 employees in fiscal year 2001 and by about 23,000 in 
fiscal year 2002. These results were due in part to a reduced workload 
from lower-than-planned mail volumes over the 2-year period, which 
resulted in significant work-hour reductions. The Service increased its 
productivity by 1.3 percent in fiscal year 2001 and 1.1 percent in 
fiscal year 2002 from actions including the deployment of automation 
and other operational and administrative efficiencies. Productivity is 
the relationship between the Service's outputs--mail processing and 
delivery to an expanding network--and the resources expended in 
producing these outputs. The Service also postponed a number of program 
expenditures and froze some capital spending during this time to 
control expenses and improve its cash position. The above actions 
helped offset cost increases for health care benefits, cost-of-living 
adjustments, safety and security, fuel, transportation, unemployment 
compensation, and workers compensation, as well as continued expansion 
of its infrastructure and delivery network.

The Service plans to continue efforts to cut costs and increase 
productivity in fiscal year 2003. Its budget calls for a $1 billion 
cost reduction that includes a decrease of 12,000 employees by 
attrition, deployment of automation equipment, and reduction in work 
hours. Further progress in this area may face impediments, including 
the following:

* Historically, the Service has had difficulty in sustaining cost 
savings and productivity improvements, and numerous reports by us and 
by the Postal Service's Inspector General have noted inefficiencies in 
the postal system and difficulties challenging the Service in realizing 
opportunities for savings over the long term.

* The Service has controlled the growth of its expenses over the past 
year in areas such as reducing overtime and staff costs through 
attrition, as mail volumes have declined. However, the Service will be 
challenged to continue controlling and reducing its expenses if mail 
volumes increase.

* Despite heavy investments in automation over the past decade, postal 
employee-related costs continue to account for over three-quarters of 
total operating expenses. The Service reported that growth in salaries 
and benefits has been driven by wage inflation, not by growth in work 
hours. The Service's workforce included over 854,000 employees as of 
the end of fiscal year 2002, of whom 753,000 were career employees (see 
table 2).

Table 2: The Service's Workforce Composition in Fiscal Year 2002:

Career employees: [Empty].

Career employees: Clerks; 256,656.

Career employees: City delivery carriers; 233,639.

Career employees: Mail handlers; 59,259.

Career employees: Rural delivery carriers--full-time; 60,817.

Career employees: Building and equipment maintenance personnel; 42,275.

Career employees: Supervisors/managers; 37,829.

Career employees: Postmasters/installation heads; 25,771.

Career employees: Professional/administrative/ technical personnel; 
9,661.

Career employees: Motor vehicle operators; 9,092.

Career employees: Headquarters-related; 5,560.

Career employees: Vehicle maintenance personnel; 5,513.

Career employees: Inspection Service (field); 3,875.

Career employees: Area offices and nurses; 2,280.

Career employees: Inspector General; 722.

Career employees: Total career employees; 752,949.

Career employees: Non-career employees[A]; 101,427.

Career employees: Total employees; 854,376.

Source: Postal Service.

[A] Noncareer employees include casuals, nonbargaining temporaries, 
rural substitutes, evening relief/leave replacements, and transitional 
employees.

[End of table]

* Some of the Service's employee-related costs, including those related 
to postretirement health benefits and workers' compensation, are 
expected to continue increasing for the foreseeable future. The Service 
reported that its health benefit cost rose by 10 percent in fiscal year 
2002 and is forecasted to rise 14 percent in fiscal year 2003. Workers' 
compensation expenses increased by over $500 million to $1.5 billion in 
fiscal year 2002 and are expected to increase approximately 5 percent 
in fiscal year 2003.

* The Service has high costs related to its nationwide infrastructure 
and transportation network, which delivers 6 days a week and to over 
139 million addresses nationwide. This network grows by approximately 
1.7 million new addresses annually. These costs are difficult to cut 
when volumes decrease, as carriers must service every delivery unit 
even if they have fewer letters to deliver. Furthermore, the Service 
faces legal requirements and practical constraints that affect the size 
of its infrastructure network, including a prohibition on closing small 
post offices solely for operating at a deficit. Figure 4 shows the 
various components of this network.

Figure 4: Overview of the Service's Infrastructure and Transportation 
Network in Fiscal Year 2002:

[See PDF for image] 

[End of figure] 

* The Service faces significant investment decisions and operating 
costs related to its efforts to improve the safety and security of the 
mail as a result of the terrorist events and subsequent use of the mail 
to transmit anthrax. The Service's Emergency Preparedness Plan has 
projected costs for prevention, detection, and protection measures to 
total almost $800 million in fiscal year 2003, and the Service has 
submitted a fiscal year 2004 appropriations request to Congress of $350 
million for emergency preparedness costs. We recently raised concerns 
about whether the Service had conducted sufficient testing prior to 
making additional investments for security-related equipment in this 
area.[Footnote 3] Further, we are concerned that the Service has not 
specified costs related to operating, maintaining, and replacing any of 
this new equipment.

* In fiscal year 2002, the Service continued its freeze on capital 
spending primarily for new facilities, and capital outlays amounted to 
$1.2 billion less than those in fiscal year 2001. Freezing capital 
spending may have detrimental financial and operational effects on the 
Service. These delays may result in higher future capital costs, 
operational delays, deteriorating infrastructure, deferred maintenance 
costs and efficiency gains, and difficulty in meeting growth demands 
for providing universal service.

* The Service may also incur costs associated with the implementation 
of its Transformation Plan, but it has not specified its expected costs 
or projected revenue increases for implementing various actions 
included in the Plan.

The Service must continue exploring ways to control costs and improve 
productivity, particularly in connection with the Service's nationwide 
infrastructure and transportation network and the workforce that 
supports it. The Service's nationwide network has developed piecemeal 
over time and may not represent the most effective strategy to support 
current postal operations. For example, the locations of some postal 
facilities may have been based on operating strategies that are now 
outdated, as the Service has moved from a manually oriented processing 
and delivery environment to a highly automated environment. Further, 
mailers are now performing more mail preparation and processing 
functions that may bypass some of the Service's processing steps. Also, 
alternatives are available that may be more cost-effective for the 
Service and may increase customer convenience and accessibility. For 
example, stamp purchases account for about 450 million transactions in 
post offices each year. As Figure 5 shows, it costs less for the 
Service to sell stamps at ATMs and through other retail alternatives 
such as supermarkets, drugstores, and other large retail vendors than 
it does at post office counters.

Figure 5: Cost per $1 to the Postal Service for Sale of Stamps at 
Different Points of Service:

[See PDF for image] 

[End of figure] 

As part of its Transformation Plan, the Service has started to lay the 
groundwork for addressing possible inefficiencies in its current 
operating network. First, the Service is developing proposals for 
implementing its Network Integration Alignment program to align mail-
processing infrastructure with its logistics and operational 
strategies. On the retail side, the Service has also ended its self-
imposed moratorium on post office closings, and is examining 
alternative methods to provide retail services in
a more cost-effective and customer-friendly manner.[Footnote 4] The 
Service has recently launched a national advertising campaign to 
promote the purchase of stamps at ATMs and other alternatives, such as 
grocery stores. The Service is also pursuing other retail alternatives, 
such as partnering with commercial retail outlets to sell postal 
products and services.

These actions represent a good starting point to address possible 
inefficiencies in its current operating network. The Service's ability 
to control costs and improve productivity will help restrain postal 
rate increases and improve its overall financial position. Looking to 
the future, as the Service determines its business model and 
incorporates measures to enhance security and safety, it will be 
challenged to realign its infrastructure and workforce to support the 
new business model.

Address Unresolved Financial Issues:

Key issues concerning unresolved financial issues include the 
following:

* Insufficient cash flow has increased pressure to borrow;

* Outstanding debt remains high;

* Workers' compensation liability and postretirement health obligations 
are increasing;

* Difficulties remain in generating sufficient revenues to cover 
funding needs.

The Service's unresolved financial issues may have significant long-
term impacts on its financial condition and outlook. The Service's cash 
flows from operations have not been sufficient to fund needed capital 
expenditures and significantly reduce debt pressures; its workers' 
compensation liability and postretirement health benefit obligations 
are large and increasing; and its liabilities exceed its assets. 
Furthermore, we recently reported that the Service should reassess the 
accounting treatment of its pension and postretirement health 
obligations, in part because of these financial challenges.[Footnote 5] 
Considering the Service's current difficulties in generating sufficient 
revenue and net income, concerns remain about how its obligations and 
liabilities will be funded under the current rate process. The recent 
discovery that the Service may be overfunding its pension liability may 
provide an opportunity for the Service to address financial challenges, 
such as its outstanding debt and postretirement health obligations. The 
Service will need to take a leadership role and examine how best to 
address these issues, both under its current authority and within the 
context of a new business model.

Insufficient Cash from Operations to Finance Capital Expenditures 
Necessitates Borrowing:

Over the past 2 years, the Service has had insufficient cash flow from 
operations to cover needed capital expenditures. This decreasing cash 
position has also increased pressure on borrowing as the Service has 
approached its statutory debt limit of $15 billion. During fiscal years 
2001 and 2002, the Service froze part of its capital program to improve 
its cash position and limit borrowing. Specifically, in fiscal year 
2001, the Service froze $1 billion in construction and renovation on 
more than 800 postal projects. However, a slowing economy led to a 
$1.68 billion net loss for fiscal year 2001, and a decreased cash 
position necessitated a $2 billion increase in borrowing. As seen in 
figure 6 below, this increase in outstanding debt put the Service 
within $4 billion of its statutory debt limit.

Figure 6: The Service's Outstanding Debt Has Been Approaching Its 
Statutory Debt Limit:

[See PDF for image] 

[End of figure] 

In fiscal year 2002, the Service continued its freeze on capital 
spending primarily for new facilities, and capital outlays were $1.2 
billion less than those in fiscal year 2001. This reduction in capital 
expenditures, combined with additional revenues from a mid-year rate 
increase and cost-cutting efforts, improved its cash flows from 
operations and allowed the Service to reduce debt by $200 million. This 
was the first debt reduction in the past 6 years. Despite these 
improvements, the Service incurred a $676 million net loss for the 
fiscal year. The Service is also planning on continuing its capital 
freeze on new facilities in fiscal year 2003 and budgeting an $800 
million debt reduction. While freezing capital expenses has helped to 
keep the Service's borrowing below planned levels in the short term, 
this action is not a viable long-term solution. As we stated earlier, 
these delays may result in higher future capital costs, operational 
delays, deteriorating infrastructure, deferred maintenance costs and 
efficiency gains, and difficulty in meeting growth demands for 
providing universal service.

Liabilities and Obligations:

As of the end of fiscal year 2002, the Service's liabilities (as 
reported in the Service's annual financial statement) and obligations 
were estimated at approximately $117 billion. Table 3 lists some of the 
major expenses paid in fiscal year 2002 and the remaining liability and 
obligation balances for key financial categories as of the end of 
fiscal year 2002.

Table 3: Selected Service Expenses, Liabilities, and Obligations in 
Fiscal Year 2002:



Retirement-related; Selected expenses in fiscal 
year 2002: $9.1; Remaining liability balance as 
of 9/30/02: $32.2; Remaining obligation balance 
as of 9/30/02: n/a .

Retiree health insurance premiums; Selected 
expenses in fiscal year 2002: 1.0; Remaining 
liability balance as of 9/30/02: n/a ; 
Remaining obligation balance as of 9/30/02: $45.0[A].

Subtotal, retirement-related; Selected expenses 
in fiscal year 2002: 10.1; Remaining liability 
balance as of 9/30/02: 32.2; Remaining 
obligation balance as of 9/30/02: 45.0.

Compensation and benefits[B]; Selected expenses 
in fiscal year 2002: 41.5; Remaining liability 
balance as of 9/30/02: 2.0; Remaining 
obligation balance as of 9/30/02: n/a .

Workers' compensation; Selected expenses in 
fiscal year 2002: 1.5; Remaining liability 
balance as of 9/30/02: 6.7; Remaining 
obligation balance as of 9/30/02: n/a .

Outstanding debt; Selected expenses in fiscal 
year 2002: 0.3[ C]; Remaining liability balance 
as of 9/30/02: 11.1; Remaining obligation 
balance as of 9/30/02: n/a .

Accumulated leave; Selected expenses in fiscal 
year 2002: n/a; Remaining liability balance as 
of 9/30/02: 2.1; Remaining obligation balance 
as of 9/30/02: n/a .

Leases; Selected expenses in fiscal year 2002: 
0.8; Remaining liability balance as of 9/30/02: 
n/a ; Remaining obligation balance as of 9/30/
02: 9.6[ D].

Payables and accrued expenses; Selected 
expenses in fiscal year 2002: n/a; Remaining 
liability balance as of 9/30/02: 2.2; Remaining 
obligation balance as of 9/30/02: n/a .

Other; Selected expenses in fiscal year 2002: 
12.9[ E]; Remaining liability balance as of 9/
30/02: 5.7[ F]; Remaining obligation balance as 
of 9/30/02: n/a .

Total; Selected expenses in fiscal year 2002: 
$67.2; Remaining liability balance as of 9/30/
02: $62.0; Remaining obligation balance as of 
9/30/02: $54.6.

Source: Postal Service.

n/a --not applicable.

[A] The Service's 2002 Annual Report estimated that its postretirement 
health benefits obligation ranged from $40 billion to $50 billion. 
Therefore, we used the midpoint of the range for an estimate of the 
Service's postretirement health obligation.

[B] Excludes retirement and workers' compensation expenses, which have 
been listed separately.

[C] Interest expense paid for the Service's borrowing.

[D] Future minimum lease payments for all noncancelable operating 
leases.

[E] Includes transportation; emergency preparedness, net; and other 
expenses.

[F] Includes estimated prepaid postage; prepaid box rentals and permit 
and metered mail; outstanding postal money orders; and other 
liabilities.

[End of table]

The Service's total liabilities exceeded its total assets by $3.0 
billion at fiscal year's end 2002. Under the Service's current break-
even business model, ratepayers are responsible for these liabilities. 
However, despite multiple rate increases, revenues have been 
insufficient to fund both operating expenses and expenses related to 
these liabilities, which continue to exceed total assets. As Figure 7 
shows, this imbalance has been growing since fiscal year 1999.

Figure 7: The Imbalance between the Service's Assets and Liabilities 
Has Been Increasing:

[See PDF for image] 

[End of figure] 

This imbalance could change in fiscal year 2003 if Congress takes 
legislative action based upon recent OPM analysis of the Service's CSRS 
pension liability.[Footnote 6] OPM's analysis showed that the Service 
would overfund its pension liability if the current statutory funding 
mechanism remains unchanged. Consequently, OPM proposed legislative 
action that would change this mechanism and reduce the Service's annual 
pension payments to OPM. Figure 8 compares the estimated future 
payments under current law with the estimated future payments under the 
OPM legislative proposal provided in November 2002. However, if 
legislation is enacted that differs from this proposal, the Service's 
estimated future payments could change.

Figure 8: Estimated Annual Payments Related to Current and Proposed 
Pension Liability:

[See PDF for image] 

[End of figure] 

The potential for reduced future payments in this area offers 
opportunities to address some of the Service's major financial 
challenges. The Service has stated that it would use available cash 
from these reductions in the future payments to further reduce debt in 
2003 from $800 million to more than $3 billion. Another consideration 
would be to fund the Service's significant obligation for retiree 
health benefits, which ranges from $40 billion to $50 billion according 
to the Service's 2002 Annual Report. The annual payments for these 
retiree health benefits are currently calculated on a pay-as-you-go 
basis and have been increasing at an average rate of 15 percent over 
the past 2 years. Furthermore, uncertainties remain about the future 
direction of mail volumes and revenues, and thus, any available cash 
may have to be used to cover operating and capital expenditures.

Difficulty in Generating Sufficient Revenue and Funding the Service's 
Needs:

Under the Service's current business model, sufficient revenues have 
not been generated to cover all of its funding needs and obligations 
(see Figure 9). This has resulted in an accumulated deficit of $6.0 
billion as of the end of fiscal year 2002, which represents the amount 
by which cumulative expenses have exceeded cumulative revenues since 
the Service's inception.

Figure 9: Needs for Funds Outweigh Sources of Funds:

[See PDF for image] 

[End of figure] 

Opportunities may exist under the current rate-setting process to 
generate additional revenues. Over the past year, the Service has 
explored options within the current rate-setting process to generate 
more volume and revenues, such as the use of Negotiated Service 
Agreements (NSAs). NSAs, which are sometimes referred to as "contract 
rates," provide an agreement between the Service and its customers that 
the customers would perform specific activities to their mailings (for 
example, improved address quality or mail preparation enhancements), 
and that these mailings would exceed a preset volume threshold. In 
exchange, the Service would provide discount rates and/or predetermined 
services. The Service hopes that such agreements would result in 
additional volume and revenue. Although an NSA was recently submitted 
for approval, it is too early to tell whether additional net revenues 
would result. Further, some mailers are concerned about whether NSAs 
would ensure fair and equitable pricing among postal customers, 
particularly among smaller mailers. Although much discussion remains 
for these and other ratemaking alternatives, joint mailing industry-
Service efforts, such as the postal summits, provide an opportunity to 
explore improvements to the ratemaking process that can be mutually 
beneficial. Actions in this area need to be further explored; without 
them, the Service is likely to experience difficulty in generating 
sufficient revenues to cover its increasing funding needs and to carry 
out its mission of providing universal service at reasonable rates.

Further, changes in the accounting treatment for future obligations, 
including those for retiree health benefits, may impact the Service's 
funding needs. We recently reported that the Service should consider 
the potential accounting ramifications of its unique statutory 
obligations and reassess how best to account for and disclose 
them.[Footnote 7] Such fundamental funding issues raise many questions, 
including:

* How will the Service's obligations be paid--from increased rates, 
volume growth, or other revenue sources, such as federal 
appropriations?

* Who will pay these obligations--current ratepayers, future 
ratepayers, or taxpayers?

* When will these obligations be paid--now, later, or incrementally 
over time?

Develop Strategies to Address Human Capital Issues:

Key issues for developing such strategies are as follows:

* Workforce planning needs to support transformation;

* Pay comparability and performance-based pay issues are unresolved;

* Labor-management cooperation is needed to support transformation.

The Service has the second largest civilian workforce in the nation, 
with over 854,000 employees, and its personnel-related costs make up 
over three-quarters of its total annual operating expenses. 
Consequently, the Service faces major human capital challenges, 
including (1) planning for the appropriate workforce, (2) addressing 
unresolved pay and compensation issues, and (3) enhancing labor-
management relations. The Service faces major transitions in each of 
these areas, as it is increasingly affected by a large number of 
upcoming retirements and by rising costs associated with these 
retirements that are difficult to control. The strategies developed to 
address these issues will have significant financial and operational 
impacts in the future. The Service will be challenged to align its 
human capital strategies with its transformational goals. It will need 
to work together with its major unions and management associations to 
find common ground to achieve progress in addressing these long-
standing issues.

Workforce Planning Needs to Support Transformation:

Current Service workforce planning generally focuses on the short term-
-up to 3 years--and supports operations in the current environment. 
However, the Transformation Plan is outlining changes to the postal 
operating environment, and the Service needs to align its workforce to 
correspond with these changes. For example, under its current 
authority, the Service has already taken actions to increase its 
operational efficiency by examining alternatives to traditional postal 
facilities, increasing its use of automation and information 
technology, consolidating operating shifts, and offering new products 
and services. These actions require a different mix in the number, 
skills, and deployment of its employees, and they may involve 
repositioning, retraining, outsourcing, and reducing the workforce.

Developing strategies to determine the appropriate workforce to support 
the Service's operations structure will be challenging. The Service has 
an opportunity, however, with its large number of impending retirements 
to gain resource flexibility to aid realignment. As shown in figure 10, 
the Service has projected that from fiscal year 2003 through fiscal 
year 2010, 75 percent of its executives, 51 percent of its managers/
supervisors/ postmasters, and 38 percent of its carriers, clerks, and 
other bargaining employees will reach eligibility for regular 
retirement.

Figure 10: A Large Percentage of the Service's Workforce Will Soon Be 
Retirement-Eligible:

[See PDF for image] 

[End of figure] 

Note: Percentages may not add due to rounding.

The decisions regarding these retirements (that is, whether or not to 
fill these slots, and if so, when, with whom, and where) may have 
significant financial and operational impacts. For example, we have 
reported that the Service faces potentially serious succession problems 
in its managerial ranks.[Footnote 8] As of late 2001, the Service's 
Senior Vice President for Human Resources estimated that the Service 
had qualified staff to replace about three-quarters of its current 
leadership positions, and some of these replacement staff members were 
themselves approaching retirement eligibility. The Service will be 
challenged to ensure that it has a sufficient number of managers with 
the competencies to lead its workforce.

As part of its long-term planning, the Service will be challenged to 
realign its workforce to support its new business model. Specifically, 
legislative or regulatory changes that would address restrictions on 
closing or consolidating postal facilities, change the universal 
service obligation, or modify the postal monopoly provision could also 
affect the appropriate number, skills, and deployment of the postal 
workforce. Regardless of the time frame, the Service needs mechanisms 
and milestones, along with the flexibility to align its workforce with 
its goals. These mechanisms and milestones would provide the measures 
to assess progress and make necessary adjustments to effectively 
implement changes to its large workforce and vast operations network.

Resolve Pay Comparability and Performance-Based Pay Issues:

A significant portion of the Service's personnel-related expenses is 
used for employee salaries and benefits. Properly aligning these pay 
systems with the Service's transformation goals would contribute to the 
Service's ability to attract, motivate, and retain high-performing 
employees and help focus the workforce's efforts toward achieving 
organization goals. The Service will be challenged to develop 
strategies that align these systems to its goals because of long-
standing issues, including (1) developing performance-based pay systems 
for all employees, and (2) other pay issues, including disagreements 
related to private-sector pay comparability and statutory pay caps for 
selected positions, which may hinder recruitment and retention for 
these positions.

Recent events in the Service's performance-based pay system have 
brought needed attention to this area. The Service initiated a 
performance-based pay system for its executives, managers, postmasters, 
supervisors, and other nonbargaining employees in fiscal year 1995 that 
was intended to align rewards with measured results. Concerns were 
raised among some postal stakeholders about the effectiveness of the 
incentives in this system, and the Service recently announced that it 
discontinued this system in fiscal year 2002 and is in the process of 
revising it. As the Service develops strategies to enhance its 
performance-based compensation system, some key factors to consider 
include (1) the basis on which payments are made, and (2) whether the 
incentives provided in the system would actually reduce costs and 
support organizational goals. Furthermore, the Service's performance-
based pay system covered only certain segments of the Service's 
workforce; namely, postal management. The Service's bargaining unit 
employees (union), who make up most of its workforce, have generally 
opposed performance-based compensation systems.

Other pay issues also challenge the Service, some of which are 
statutorily set. First, the Service is required by law to maintain 
employee compensation and benefits on a standard comparable to the 
compensation and benefits paid for comparable levels of work in the 
private sector. The Service and its major employee unions, however, 
have often disagreed with the way in which the comparability standard 
should be applied and have frequently relied on third-party arbitration 
to settle compensation-related disputes. Studies have been completed 
that support both sides of the argument, and disagreements continue as 
to the appropriate level of compensation and benefits (pension, retiree 
health, and so forth) for postal employees. Furthermore, other 
statutorily set pay-related issues are also challenging the Service, 
such as the salary cap on postal executive salaries. Postal officials 
believe that this cap constrains its ability to provide compensation 
that is comparable to that in the private sector for selected 
managerial, executive, and officer-level positions, thus making it more 
difficult for the Service to retain and recruit key talent. In today's 
environment of increased competition and uncertain financial 
conditions, the Service will be challenged to develop strategies to 
enhance its performance-based system so that employee performance is 
effectively aligned with organizational goals.

Labor-Management Cooperation Is Needed to Support Transformation:

As we have often reported, the Service has long-standing adversarial 
labor-management relations. In human capital areas, including workforce 
deployment, work rules, and pay comparability, disagreements between 
the two sides have existed for quite some time and, in many cases, were 
resolved by third-party arbitration. Disagreements between these groups 
can have major financial, operational, and human capital implications, 
because personnel-related costs represent the largest single element of 
the Service's annual expenses, and they are the primary determinant of 
prices and the key factor in the Service's overall financial viability. 
The Service will also be challenged to develop strategies to improve 
this relationship and to effectively plan and carry out the changes 
needed to implement the Transformation Plan.

Recent actions between the Service and its unions have shown that these 
parties can work together and achieve positive results. Following the 
terrorist attacks, the Service worked closely with its unions and 
management associations to develop strategies to protect the mail, 
customers, and postal employees. The Service and some of its unions 
also worked together to implement the first negotiated rate settlement 
in fiscal year 2002, which expedited the rate process and generated 
additional revenues that enabled the Service to address financial 
difficulties caused by the terrorist events and the slowing economy. 
More recently, the Service and the leaders of its largest union, the 
American Postal Workers Union (APWU), proposed a 2-year extension of 
the current negotiated contract.

Furthermore, movement toward transformation provides an opportunity for 
the Service and unions to make continued progress that can be 
beneficial to both parties. With the Service's leadership, these groups 
will need to address other issues that will also impact transformation, 
including: (1) developing a new business model; (2) determining 
processes to make operational changes, including changes to its 
infrastructure (such as facility closings) to support the new model; 
(3) realigning and restructuring the workforce--particularly in light 
of the large number of impending retirements--through prevailing 
collective bargaining agreements and other available means; and (4) 
reaching agreement on and improving the collective bargaining process. 
The Service and the National Association of Letter Carriers announced 
in September 2002 the formation of a joint task force to address 
transformation issues. Also, the Service and the APWU announced that 
they will establish a joint task force to explore methods of 
repositioning the workforce, with the goals of minimizing employee 
dislocation, maximizing customer service, and maintaining efficient 
operations. Although disagreements still exist between the Service and 
these groups, including concerns about some aspects of the 
Transformation Plan, we believe that these parties have taken steps in 
the right direction and need to continue communication and cooperation.

Provide Complete and Reliable Financial and Performance Information in 
a Timely and Transparent Manner:

Key issues to address in providing financial and performance 
information include the following:

* Greater transparency is needed in quarterly financial information;

* Accounting and disclosure of long-term obligations and liabilities 
need reassessment;

* Performance information could be improved.

Given the vital role of the nation's postal system and the importance 
of its financial viability, it is imperative that the Service, its 
stakeholders, and the public have adequate information available to 
them to understand the Service's changing financial situation and 
assess its progress toward meeting its performance goals and future 
plans. The Service has made some improvements in its financial 
information since 2001; however, we continue to have concerns about the 
transparency of its financial and performance information. Although the 
Service has traditionally provided detailed financial data to 
stakeholders throughout the fiscal year, its periodic financial reports 
have not clearly explained changes in its financial condition and 
outlook or results of operations, and they have not always been readily 
available to the public. Further, we believe that the Service should 
reassess its accounting treatment and disclosure of some of its long-
term obligations, including its pension and postretirement health 
obligations. The Service has also made mixed progress in implementing 
our recommendations relating to improved reporting on its new products 
and services and enhanced performance plans and reports. Improved 
transparency is necessary to reflect economic reality and to enhance 
accountability and decisionmaking for the Service.

Greater Transparency Is Needed in Quarterly Financial Information:

Despite the fact that the Service publicly releases periodic financial 
information, significant changes in its financial outlook over the past 
2 years were not evident from this information and came as a surprise 
to many stakeholders. We have raised concerns and made recommendations 
regarding the lack of transparent, timely, and readily accessible 
periodic information necessary to explain changes in the Service's 
financial situation and expected outlook. In response to our 
recommendations, the Service committed to providing quarterly financial 
statements similar to those provided by publicly traded enterprises, 
and posting them to its Web site. However, we recently reviewed the 
Service's quarterly financial reports and reported that they provided 
only limited analysis and explanation to help stakeholders understand 
what had changed, why it had changed, and how the changes affected its 
financial condition, operating results, and expected outlook.[Footnote 
9] Additionally, the quarterly reports were neither consistent in their 
format and content nor readily available to the public. Consistency in 
the format and content, as well as availability of recent and past 
reports, is necessary for stakeholders to assess the Service's 
performance over time. Since the issuance of our report, the Service 
released a first-quarter report for fiscal year 2003 that was an 
improvement over its previous quarterly reports because it contained 
more information.

Accounting and Disclosure of Long-Term Obligations and Liabilities Need 
Reassessment:

The magnitude of the Service's annual revenues and the importance of 
its financial situation to the mailing industry, its ongoing 
transformation efforts, and both Congress's and the public's calls for 
more information and additional transparency regarding financial 
reporting matters in general have focused attention on the Service's 
reporting of some of its major long-term obligations and liabilities. 
We recently reported that because of these factors and the potential 
effects on current and future ratepayers, the Service should reassess 
the accounting treatment of its pension and postretirement health 
obligations.[Footnote 10] Further, we also reported that the Service 
should disclose its estimated postretirement health obligations in its 
financial statements. We believe that decisionmakers' ability to fully 
consider the impact of these obligations is hindered by the current 
lack of recognition and disclosure. Accounting and reporting should 
reflect economic reality to provide stakeholders with a clear 
understanding of the Service's true financial condition, so that 
decisions can be made about what funds will be needed and how to 
address these liabilities and obligations in the future.

Performance Information Could Be Improved:

Over the past 2 years, we have reported concerns about the quality and 
transparency of the Service's performance information--information 
that is critical for effective management, as well as for communication 
with customers, Congress, and other stakeholders. For example, we 
reported concerns that the Service did not include important net income 
and delivery scores in its preliminary fiscal year 2002 performance 
plan.[Footnote 11] We continue to have concerns in this area. The 
Service's fiscal year 2003 Performance Plan included targets for all 
four quarters only for one service category--First-Class overnight 
mail. In addition, as we reported in our January 2001 report on the 
Service's major management challenges, a number of issues have been 
raised relating to the reliability and credibility of the data the 
Service uses for ratemaking.[Footnote 12] The Service's progress in 
this area continues to be a concern for congressional oversight.

Furthermore, we have also raised concerns that the Service's 
information related to its e-commerce and other new products and 
services was not complete, accurate, and consistent. We recommended 
that the Service provide Congress and the Postal Rate Commission (PRC) 
with an annual report that includes information on revenues and 
expenses for all its new products and services. The Service issued its 
first report in May 2002; however, the report provided information only 
on selected new products and services. We are concerned that without 
complete and consistent information, the Service will not be able to 
assess its progress toward meeting overall performance goals, and 
Congress, the PRC, and other interested parties will not have 
sufficient information for oversight purposes.

[End of section]

GAO Contacts:

Subjects covered in this report: Implementing the Transformation Plan 
and determining a business model for the 21st century; ; Financial 
condition and outlook; ; Human capital issues; ; Transparency and 
timeliness of financial and performance 
information; Contact person: Bernard L. Ungar, Director; Physical 
Infrastructure Issues; (202) 512-2834; ungarb@gao.gov.

Subjects covered in this report: Unresolved long-term financial issues; 
; Retirement-related obligations; ; Outstanding debt; Contact person: 
Linda Calbom, Director; Financial Management and Assurance; (202) 512-
8341; calboml@gao.gov.

Subjects covered in this report: Mail safety and security; Contact 
person: Keith A. Rhodes, Chief Technologist; Applied Research and 
Methods; (202) 512-6412; rhodesk@gao.gov.

[End of section]

Related GAO Products:

Transformation:

U.S. Postal Service: Moving Forward on Financial and Transformation 
Challenges. GAO-02-694T. Washington, D.C.: May 13, 2002.

U.S. Postal Service: Deteriorating Financial Outlook Increases Need for 
Transformation. GAO-02-355. Washington, D.C.: Feb. 28, 2002.

U.S. Postal Service: Financial Outlook and Transformation Challenges. 
GAO-01-733T. Washington, D.C.: May 15, 2001.

U.S. Postal Service: Transformation Challenges Present Significant 
Risks. GAO-01-598T. Washington, D.C.: Apr. 4, 2001.

U.S. Postal Service: Sustained Attention to Challenges Remains 
Critical. GAO/T-GGD-00-206. Washington, D.C.: Sept. 19, 2000.

Cost Cutting, Productivity, Security, and Financial Issues:

Contract Management: Postal Service's National Office Supply Contract 
Has Not Been Effectively Implemented. GAO-03-230. Washingon, D.C.: 
Jan. 17, 2003.

U.S. Postal Service: More Consistent Implementation of Policies and 
Procedures for Cash Security Needed. GAO-03-267. Washington, D.C.: Nov. 
15, 2002.

United States Postal Service: Opportunities to Strengthen IT Investment 
Management Capabilities. GAO-03-3. Washington, D.C.: Oct. 15, 2002.

Diffuse Security Threats: USPS Air Filtration Systems Need More Testing 
and Cost Benefit Analysis before Implementation. GAO-02-838. 
Washington, D.C.: Aug. 22, 2002.

Diffuse Security Threats: Technologies for Mail Sanitization Exist, but 
Challenges Remain. GAO-02-365. Washington, D.C.: Apr. 23, 2002.

Highlights of GAO's Conference on Options to Enhance Mail Safety and 
Postal Operations. GAO-02-315SP. Washington, D.C.: Dec. 20, 2001.

Breast Cancer Research Stamp: Millions Raised for Research, but Better 
Cost Recovery Criteria Needed. GAO/GGD-00-80. Washington, D.C.: Apr. 
28, 2000.

U.S. Postal Service: Changes Made to Improve Acceptance Controls for 
Business Mail. GAO/GGD-00-31. Washington, D.C.: Nov. 9, 1999.

U.S. Postal Service: Stronger Mail Acceptance Controls Could Help 
Prevent Revenue Losses. GAO/GGD-96-126. Washington, D.C.: June 25, 
1996.

Human Capital:

U.S. Postal Service: Diversity in District Management-Level Positions. 
GAO/GGD-00-142. Washington, D.C.: June 30, 2000.

U.S. Postal Service: Diversity in the Postal Career Executive Service. 
GAO/GGD-00-76. Washington, D.C.: Mar. 30, 2000.

Equal Employment Opportunity: The Postal Service Needs to Better Ensure 
the Quality of EEO Complaint Data. GAO/GGD-99-167. Washington, D.C.: 
Sept. 28, 1999.

U.S. Postal Service: Diversity in High-Level EAS Positions. 
GAO/GGD-99-26. Washington, D.C.: Feb. 26, 1999.

U.S. Postal Service: Little Progress Made in Addressing Persistent 
Labor-Management Problems. GAO/GGD-98-1. Washington, D.C.: Oct. 1, 
1997.

U.S. Postal Service: Labor-Management Problems Persist on the Workroom 
Floor. GAO/GGD-94-201A/B. Washington, D.C.: Sept. 29, 1994.

Financial and Performance Transparency:

Postal Service Employee Workers' Compensation Claims Not Always 
Processed Timely, but Problems Hamper Complete Measurement.
GAO-03-158R. Washington, D.C.: Dec. 20, 2002.

U.S. Postal Service: Actions to Improve Its Financial Reporting. 
GAO-03-26R. Washington, D.C.: Nov. 13, 2002.

U.S. Postal Service: Accounting for Postretirement Benefits. 
GAO-02-916R. Washington, D.C.: Sept. 12, 2002.

United States Postal Service: Information on Retirement Plans. 
GAO-02-170. Washington, D.C.: Dec. 31, 2001.

U.S. Postal Service: Update on E-Commerce Activities and Privacy 
Protections. GAO-02-79. Washington, D.C.: Dec. 21, 2001.

U.S. Postal Service: Enhancements Needed in Performance Planning and 
Reporting. GAO/GGD-00-207. Washington, D.C.: Sept. 19, 2000.

U.S. Postal Service: Postal Activities and Laws Related to Electronic 
Commerce. GAO/GGD-00-188. Washington, D.C.: Sept. 7, 2000.

U.S. Postal Service: Challenges to Sustaining Performance Improvements 
Remain Formidable on the Brink of the 21st Century. GAO/T-GGD-00-2. 
Washington, D.C.: Oct. 21, 1999.

The Results Act: Observations on the Postal Service's Preliminary 
Performance Plan for Fiscal Year 2000. GAO/GGD-99-72R. Washington, 
D.C.: Apr. 30, 1999.

U.S. Postal Service: Development and Inventory of New Products. GAO/
GGD-99-15. Washington, D.C.: Nov. 24, 1998.

Financial Reporting: Accounting for the Postal Service's Postretirement 
Health Care Costs. GAO/AFMD-92-32. Washington, D.C.: May 20, 1992.

[End of section]

Performance and Accountability and High-Risk Series:

Major Management Challenges and Program Risks: A Governmentwide 
Perspective. GAO-03-95.

Major Management Challenges and Program Risks: Department of 
Agriculture. GAO-03-96.

Major Management Challenges and Program Risks: Department of Commerce. 
GAO-03-97.

Major Management Challenges and Program Risks: Department of Defense. 
GAO-03-98.

Major Management Challenges and Program Risks: Department of Education. 
GAO-03-99.

Major Management Challenges and Program Risks: Department of Energy. 
GAO-03-100.

Major Management Challenges and Program Risks: Department of Health and 
Human Services. GAO-03-101.

Major Management Challenges and Program Risks: Department of Homeland 
Security. GAO-03-102.

Major Management Challenges and Program Risks: Department of Housing 
and Urban Development. GAO-03-103.

Major Management Challenges and Program Risks: Department of the 
Interior. GAO-03-104.

Major Management Challenges and Program Risks: Department of Justice. 
GAO-03-105.

Major Management Challenges and Program Risks: Department of Labor. 
GAO-03-106.

Major Management Challenges and Program Risks: Department of State. 
GAO-03-107.

Major Management Challenges and Program Risks: Department of 
Transportation. GAO-03-108.

Major Management Challenges and Program Risks: Department of the 
Treasury. GAO-03-109.

Major Management Challenges and Program Risks: Department of Veterans 
Affairs. GAO-03-110.

Major Management Challenges and Program Risks: U.S. Agency for 
International Development. GAO-03-111.

Major Management Challenges and Program Risks: Environmental Protection 
Agency. GAO-03-112.

Major Management Challenges and Program Risks: Federal Emergency 
Management Agency. GAO-03-113.

Major Management Challenges and Program Risks: National Aeronautics and 
Space Administration. GAO-03-114.

Major Management Challenges and Program Risks: Office of Personnel 
Management. GAO-03-115.

Major Management Challenges and Program Risks: Small Business 
Administration. GAO-03-116.

Major Management Challenges and Program Risks: Social Security 
Administration. GAO-03-117.

Major Management Challenges and Program Risks: U.S. Postal Service. 
GAO-03-118.

High-Risk Series: An Update. GAO-03-119.

High-Risk Series: Strategic Human Capital Management. GAO-03-120.

High-Risk Series: Protecting Information Systems Supporting the Federal 
Government and the Nation's Critical Infrastructures. GAO-03-121.

High-Risk Series: Federal Real Property. GAO-03-122.

FOOTNOTES

[1] U.S. General Accounting Office, U.S. Postal Service: Moving Forward 
on Financial and Transformation Challenges, GAO-02-694T (Washington, 
D.C.: May 13, 2002).

[2] The Mailing Industry Task Force is a committee that includes 
Service management and various industry representatives. This Task 
Force assesses the current role and value of mail in business and 
consumer communication, evaluates the competitive environment 
affecting the postal industry's future, and identifies opportunities 
for future growth.

[3] U.S. General Accounting Office, Diffuse Security Threats: USPS Air 
Filtration Systems Need More Testing and Cost Benefit Analysis before 
Implementation, GAO-02-838 (Washington, D.C.: Aug. 22, 2002).

[4] Lifting the moratorium on closing post offices, the Postmaster 
General stated that the Service would restart the process of closing 
those post offices that have been "suspended" or effectively closed. He 
stated that alternative services were provided for postal customers in 
these communities (that is, contract stations, community post offices, 
and so forth).

[5] U.S. General Accounting Office, U.S. Postal Service: Accounting for 
Postretirement Benefits, GAO-02-916R (Washington, D.C.: Sept. 12, 
2002).

[6] As part of a separate review, we asked OPM to estimate how much of 
the underfunded CSRS pension liability is attributable to the Service 
and to estimate the Service's postretirement health obligations.

[7] GAO-02-916R.

[8] U.S. General Accounting Office, U.S. Postal Service: Deteriorating 
Financial Outlook Increases Need for Transformation, GAO-02-355 
(Washington, D.C.: Feb. 28, 2002).

[9] U.S. General Accounting Office, U.S. Postal Service Actions to 
Improve Its Financial Reporting, GAO-03-26R (Washington, D.C.: Nov. 13, 
2002).

[10] GAO-02-916R.

[11] U.S. General Accounting Office, U.S. Postal Service: Financial 
Outlook and Transformation Challenges, GAO-01-733T (Washington, D.C.: 
May 15, 2001).

[12] U.S. General Accounting Office, Major Management Challenges and 
Program Risks: U.S. Postal Service, GAO-01-262 (Washington, D.C.: Jan. 
2001).

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