This report presents the results of our audit of the fiscal year (FY) 2009 Standard Mail® Volume Incentive Program (Project Number 10BO008FF000). The report responds to a request from the Postal Regulatory Commission (PRC). Our objectives were to evaluate the Standard Mail Volume Incentive Program (Summer Sale) to determine whether the Postal Service achieved its objective of increasing volume and revenue and whether the process used to establish customers’ mailing history was valid and accurate. This audit addresses financial risk. See Appendix A for additional information about this audit.
The U.S. Postal Service intended its Summer Sale to increase volume during a typically light mail volume period and increase revenue. The program ran from July 1 through September 30, 2009. At the end of this period, the Summer Sale provided a 30 percent credit to customers for additional volume mailed over a specified threshold.
The Postal Service reported both volume and revenue increases resulting from the FY 2009 Summer Sale.1 However, the processes used to calculate the reported
increases may result in misleading reported revenue and volume impacts. While the Postal Service used actual, verifiable mailing data in many cases, the additional data
essential to calculations supporting the reported increases is less precise. These data included various assumptions related to mail thresholds,2 negotiated mail volumes
based on customer input, and incomplete or unconsidered employee cost data. Postal Service outsiders — including the PRC’s public representatives3 — have also
questioned the Postal Service’s methods for calculating reported revenue and volume increases. The public representatives found that using methods more closely aligned
with those initially considered by the PRC in approving the Summer Sale suggests the Postal Service may actually have lost money on the FY 2009 program.
A Postal Service official stated that the benefits gained from conducting incentive programs like the Summer Sale outweigh their potential financial uncertainties. The
official said the Summer Sale program should be viewed as an investment in the future of the Postal Service, creating long-term customer satisfaction and building its
reputation. While these goals are commendable, a stated objective of the FY 2009 Summer Sale was to increase revenue and volume. It is uncertain whether the Postal
Service achieved that objective. We believe the Postal Service needs solid data and complete cost information in order to make well-informed decisions on the programs it initiates or conducts, particularly considering the critical financial predicament it is currently facing.
Revenue and Volume Increases Reported for Summer Sale May be Misleading
Overall, the Postal Service did not always have independent, reliable, and complete data upon which to calculate the $24.1 million in net revenue contribution and increased volume resulting from the FY 2009 Summer Sale. This occurred because the Postal Service relied on certain customer-provided data to determine customer thresholds and this data was a key component in evaluating revenue and volume increases. In addition, the method the Postal Service used to determine customer mail volume without a Summer Sale — commonly referred to as “loyalty growth” — differs from the PRCapproved method. The Postal Service’s calculation of “loyalty growth” considered trends in volume, whereas the PRC’s public representatives applied a measure of price sensitivity to volumes actually mailed during the Summer Sale to calculate “loyalty growth.” As a result, the Postal Service provided $67.8 million in rebates to customers who exceeded the established threshold volumes that may have been inaccurate. We consider the $67.8 million to be assets at risk.
A key component in calculating net revenue and volume increases was determining customers’ mail volume thresholds. To determine thresholds, the Postal Service provided mailing data that established a threshold for all its customers who were eligible to participate in the Summer Sale. While 324 customers agreed with this threshold figure, 129 others did not. Customers who disagreed with the threshold met with a Postal Service analyst from the Business Customer Intelligence (BCI) Department to discuss and negotiate the changes. Postal Service officials stated that BCI analysts researched the requested changes; however, they were not able to provide documentation to support the changes made or the validation process.
Furthermore, Postal Service outsiders have questioned the validity of the calculation of the “loyalty growth.” The PRC’s public representatives8 found that using the PRC’s method for “loyalty growth,” the Summer Sale lost $39.6 million of revenue. This is in contrast to the Postal Service’s reported $24.1 million net revenue growth. These varying calculations illustrate the difficulty in determining the results and effect of the Summer Sale.
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