~CCO -FILECepr COMp, GEN# Possible Need For Changing The Postal Money-Order System ..- ~~~~~~~~~~~~~ ~B-I 14874 Post Office Department UNITED STATES GENERAL ACCOUNTING OFFICE JA. 12,197 1 UNITED STATES GENERAL ACCOUNTING OFFICE \COU.~/ WASHINGTON, D.C. 20548 CIVIL DIVISION B- 114874 Dear Mr. Postmaster General: This is our report on the possible need for changing the Postal Money Order System. We appreciate the cooperation and assistance which your representatives have given to us. We shall appreci- ate being advised of any action taken on the matters pre- sented in this report. Sincerely yours, Director, Civil Division The Honorable Winton M. Blount The Postmaster General GENERAL ACCOUNTING OFFICE REPORT POSSIBLE NEED FOR CHANGING THE TO THE POSTMASTER GENERAL POSTAL MONEY ORDER SYSTEM Post Office Department B-114874 DIGEST WHY THE REVIEW WAS MADE The Postal Money Order System was established in 1864 to --accommodate the public by providing a safe, practicable method for transmitting small sums of money from one section of the country to another, --provide soldiers with a safe means for transmitting money, and --provide a much-needed source of revenue to the Government. Because of indications that the conditions which warranted the estab- lishment of the system have changed substantially, the General Account- ing Office has made a review to determine whether the system should be continued at its present scale. FINDINGS AND CONCLUSIONS Conditions which warranted creation of the Postal Money Order System have changed substantially. Many institutions actively compete with the Post Office Department for the money order market and provide a convenient means to the general public for transmitting funds safely from one location to another. Money orders are sold by banks, savings and loan associations, and; other commercial outlets and are usually less expensive than postal money orders. Other banking services (such as checking accounts) are also available and compare favorably to money orders. The military services provide, under the allotment system, a means of transmitting money safely to designated recipients. (See pp. 5 and 6.) In some rural areas, however, postal money orders are the only kind available. Also, many military personnel are stationed in locations (for example, aboard ships) where commercial money orders are not read- ily obtainable. In such situations, continuation of postal money or-+ ders seems to be justified. (See p. 10.) Tear Sheet JAN. 12, 197 1 During fiscal year 1969 money order revenues represented only about 1 percent of the Department's total revenue collections of $6.3 bil- lion. Also, postal money order sales generally have been declining since 1960--and the Department anticipates that the decline will con- tinue--while sales of money orders by private firms have been increas- ing. (See pp. 6 and 12.) The present status of the Postal Money Order System is, in many re- spects, similar to that of the Postal Savings System which the Congress discontinued in March 1966. Both were established many years ago to meet specific needs not then provided by commercial firms. Subse- quently, conditions changed and the needs were increasingly met by pri- vate enterprise. As a result, demand for the services declined steadily over a period of years so that the number of transactions were reduced markedly. (See p. 23.) In recent years the Department has consistently reported losses on its money order operations. The losses-range from a low of $1.2 million in fiscal year 1945 to a high of $32.8 million in fiscal year 1969. (See p. 35.) However, not all the costs associated with postal money orders will be eliminated by reducing the system. (See pp. 26 to 30.) RECOMMENDATIONS OR SUGGESTIONS. The Department should evaluate the Postal Money Order System to deter- mine what adjustments should be made to the system and develop plans to put such adjustments into effect. 2 Contents Page DIGEST 1 CHAPTER 1 INTRODUCTION 3 2 POSSIBLE NEED FOR CHANGING THE POSTAL MONEY ORDER SYSTEM 5 Money order services available to the general public 6 Services offered by banks 6 Services offered by commercial money order houses 9 Results of Post Office Department study 11 Revenue from postal money order operations 15 Sales of money orders to military personnel 17 Personnel engaged in postal money order operations 20 Theft of money orders 21 Similarity with discontinued Postal Savings System 23 Financial effect of changing the Postal Money Order System 26 Allocation of costs 26 Possible reduction of costs 28 Losses 29 3 CONCLUSION AND RECOMMENDATION 31 Recommendation to the Postmaster General 31 4 SCOPE OF REVIEW 32 APPENDIX I Revenues, costs, and losses of money order 35 operations each fiscal year since 1926 GENERAL ACCOUNTING OFFICE REPORT POSSIBLE NEED FOR CHANGING THE TO THE POSTMASTER GENERAL POSTAL MONEY ORDER SYSTEM Post Office Department B-114874 DIGEST WHY THE REVIEW WAS MADE The Postal Money Order System was established in 1864 to --accommodate the public by providing a safe, practicable method for transmitting small sums of money from one section of the country to another, --provide soldiers with a safe means for transmitting money, and --provide a much-needed source of revenue to the Government. Because of indications that the conditions which warranted the estab- lishment of the system have changed substantially, the General Account- ing Office has made a review to determine whether the system should be continued at its present scale. FINDINGS AND CONCLUSIONS Conditions which warranted creation of the Postal Money Order System have changed substantially. Many institutions actively compete with the Post Office Department for the money order market and provide a convenient means to the general public for transmitting funds safely from one location to another. Money orders are sold by banks, savings and loan associations, and other commercial outlets and are usually less expensive than postal money orders. Other banking services (such as checking accounts) are also available and compare favorably to money orders. The military services provide, under the allotment system, a means of transmitting money safely to designated recipients. (See pp. 5 and 6.) In some rural areas, however, postal money orders are the only kind available. Also, many military personnel are stationed in locations (for example, aboard ships) where commercial money orders are not read- ily obtainable. In such situations, continuation of postal money or- ders seems to be justified. (See p. 10.) I During fiscal year 1969 money order revenues represented only about 1 percent of the Department's total revenue collections of $6.3 bil- lion. Also, postal money order sales generally have been declining since 1960--and the Department anticipates that the decline will con- tinue--while sales of money orders by private firms have been increas- ing. (See pp. 6 and 12.) The present status of the Postal Money Order System is, in many re- spects, similar to that of the Postal Savings System which the Congress discontinued in March 1966. Both were established many years ago to meet specific needs not then provided by commercial firms. Subse- quently, conditions changed and the needs were increasingly met by pri- vate enterprise. As a result, demand for the services declined steadily over a period of years so that the number of transactions were reduced markedly. (See p. 23.) In recent years the Department has consistently reported losses on its money order operations. The losses range from a low of $1.2 million in fiscal year 1945 to a high of $32.8 million in fiscal year 1969. (See p. 35.) However, not all the costs associated with postal money orders will be eliminated by reducing the system. (See pp. 26 to 30.) RECOMMENDATIONS OR SUGGESTIONS The Department should evaluate the Postal Money Order System to deter- mine what adjustments should be made to the system and develop plans to put such adjustments into effect. 2 CHAPTER 1 INTRODUCTION The General Accounting Office reviewed the Postal Money Order System of the Post Office Department to ascertain whether-conditions that warranted its establishment in 1864 had changed sufficiently to indicate that the system should be changed. Our review did not include an examination into international money order operations since such money or- ders account for; a very small part of the total number of money orders sold. Details on the scope of our review are shown on page 32 of this report. The Postal Money Order System, established by the act of May 17, 1864 (13 Stat. 76), provided that money orders in amounts of up to $30 could be transmitted through the mails. The present limit of $100 has been in effect since March 3, 1883 (22 Stat. 527). A postal money order is issued by a U.S. post office, branch, or station or by a facility provided for members of the Armed Forces, for payment of a specified sum of money to the payee, indorsee, or remitter. The range of money or- der amounts and related fees charged for domestic money or- ders are as follows: Amount of money order Amount of fee $ 0.01 to $ 10.00 $0.25 10.01 to 50.00 0.35 50.01 to 100.00 0.40 A postal money order may be cashed by any post office, bank, or rural postal carrier. Money orders issued at mili- tary post offices are payable at those offices; at U.S. mil- itary banking facilities; or at post offices or banks loca- ted in the United States, its possessions or territories, and certain foreign countries. Money orders issued by mili- tary post offices are not considered to be international money orders even though they may be issued or paid in a foreign country. 3 After the establishment of the Postal Money Order Sys- tem in 1864, the number of domestic money orders issued in- creased from about 74,000 in fiscal year 1865 to a high of about 375.2 million in fiscal year 1952. Since fiscal year 1952 the number of domestic money orders issued has declined steadily to about 188.1 million in fiscal year 1969. In 1864 money orders were issued by 141 post offices; during fiscal year 1969 they were issued by approximately 43,200 post offices, stations, and branches within the United States. Revenues collected from domestic and international money or- ders in fiscal year 1969 totaled $61.5 million. The total number of international money orders issued accounted for less than 1 percent of the total number of money orders is- sued. The Assistant Postmaster General, Bureau of Finance and Administration, is responsible for the development of poli- cies and for administration of the domestic, international, and military money order operations. The Money Order Divi- sion of the Bureau is directly responsible for administering the operations of the Postal Money Order System. 4 CHAPTER 2 POSSIBLE NEED FOR CHANGING THE POSTAL MONEY ORDER SYSTEM We believe that the Department should evaluate the need for continuing the Postal Money Order System in certain lo- cations because of the availability of alternative services. The system, as established in 1864 during the Civil War pe- riod, was intended to -- accommodate the public by providing a safe, practi- cable method for transmitting small sums of money from one section of the country to another, -- provide soldiers with a safe means for transmitting money to their families and friends at very little expense, and --provide a much-needed source of revenue to the Gov- ernment. Since the passage of the enabling legislation in 1864, conditions in the United States have changed. Many insti- tutions now actively compete with the Department for the money order market and provide a convenient means to the general public for transmitting funds safely from one loca- tion to another. For example, various types of money orders are sold by banks, savings and loan associations, and other commercial outlets. Other banking services, such as check- ing accounts, are also available. Under rules adopted by the Federal Deposit Insurance Corporation, checking accounts, money orders, and other bank instruments are insured against loss resulting from bank failures. In many instances commercial money orders and other banking services are available to members of the Armed Forces. Also, the military services provide, under the al- lotment system, a means of transmitting money safely to the relatives of military personnel and to other recipients. Under this system a specific sum is withheld from the pay of military personnel and Government checks are transmitted 5 to designated recipients. If a check is lost or stolen, a duplicate check is issued by the Government and thereby pro- vides adequate protection for such designated recipients. Although nonpostal money orders have become increasingly accessible, there are places where nonpostal money orders are not available. (See p. 10.) Since the peak fiscal year of 1960, money: order revenue has generally been declining.-, For instance, the Department reported money order revenues amounting-to abo.ut, $81.2 mil- lion in fiscal year 1960 and $61.5 million in fiscal year 1969,,ior a decrease of $19.7 million. Also,-the-money order collections in fiscal year 1969 represented only about 1 per- cent of the Department's total revenue collections of $6.3 billion. MONEY-ORDER SERVICES AVAILABLE TO THE GENERAL PUBLIC Evaluations of the money order market by the Department and others indicate that money order services rendered by private firms are increasing and are generally available to the public and that the role of the Postal Money Order Sys- tem as a service is decreasing. The number of domestic postal money orders sold during fiscal year 1969 was 188.1 million--the lowest since fiscal year -1933 when about 171.5 million of such money orders were sold. The graph on the following page shows the number of postal money orders sold. at 4-year intervals since 1900, the number in fiscal year 1969, and the steadily declining vol- ume of postal money order sales over the past several years. Services offered by banks Many banks issue bank-or personal money orders. Bank money orders are signed by an authorized bank employee, whereas personal money orders are signed by the customer. A 1966 American Bankers Association sampling survey of money order sales of 2,405 banks showed that 37 percent of the commercial banks sold personal money orders and that 44 per- cent sold bank money orders. The survey report concluded that about three quarters of the nation's banks sold money 6 MILLIONS 380 NUMBER OF DOMESTIC POSTAL MONEY ORDERS ISSUED AT 4 YEAR INTFRVALS 360 (FISCAL YEARS 1900-68) AND DURING FISCAL YEAR 1969 340 (IN MILLIONS) 320 300 280 260 240 . / . 220 200 180 160 140 120 100 80 60 40 20 1900 04 08 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 1969 FISCAL YEARS <7 orders. Most banks also offer other services to their cus- tomers, such as regular'-checks, 'certified c'hecks,; and cash- ier's checks, which can be used in lieu of'.postal money or- ders. About 85'percent of the total domestic postal money orders were sold by first- and second-class post offices in fiscal year 1969. According to the 1966 survey, money or- :ders sold by banks are available in nearly all communities having a fir-st-class-post office and in many communities having a second-class post office. The survey also showed that most of the banks issuing money orders increased their sales over the 5-year period prior to the study. According to a 1967 Department study, the fees charged by banks 'for money orders were generally less than those charged by the Department. For more information on the De- partment's study, see pages 11 through 14. For example, the fee for a $50 postal money order is 35 cents; however, the fee for a $50 bank money order ranged from 15 cents to 25 cents, and the prevailing fee was-.15 cents. Also, the maximum amount of a postal money, order is $100. Most banks, however, place ceilings of $200 to $250 on personal money orders and place no dollar limit on bank money orders. The average amounts of various types. of money order transactions, as indicated by the American Bankers Associa- tion's 1966 survey, were: bank money order',- $365; personal money order, $34; and postal money order, $22. Another study issued in January 1966 by a private firm indicated that the average amount of a commercial money order issued by a private money order firm was about $20. Checking account services offered by banks for indi- viduals, partnerships, and corporations have increased sub.-- stantially over the years. Federal Deposit Insurance Cor- poration reports show that the number of such accounts in- creased by about 53 million, or about 240 percent, from 1936 to 1966. From June 30, 1966, to June 29, 1968, the number of checking accounts increased 5.9 percent from about 74.7 million to about 79.1 million. According to a 1966 report resulting from a marketing research study performed for a commercial money' order 'ho0use, 8 checking accounts represent a major competitor of money or- ders. The study showed that there had been an upward trend since 1940 in the proportion of families who had checking accounts and indicated that many people were probably using checking accounts in lieu of money orders. The study showed that checking accounts were preferred because checks were cheaper and easier to use than money orders and provided a record of payment. The American Bankers Association 1966 survey indicated that about 28,000 banking offices (branches and main of- fices) were providing money order and checking account ser- vices. Although there were more post offices than banks selling money orders, the survey indicated that, in most large communities where most of the domestic postal money orders were sold in recent years, money orders were also sold by banks and commercial money order houses. Also, a 1967 Department report estimated that the nation's savings and loan associations sold about 28.5 million money orders annually, although it was not known exactly how many of these institutions, which totaled about 6,200, sold money orders. Services offered by commercial money order houses Commercial money order houses are major competitors in the money order market. Commercial vendors operate in all 50 States and are represented in urban and rural areas. Sales are usually made through retail outlets, such as gro- cery stores, drug stores, and department stores. According to the Department's 1967 report, the largest commercial money order house has representatives in all States and claims to have about 34,000 agents in the field. The second largest firm has about 15,000 outlets in 47 States. The business of commercial money order houses is gen- erally comparable to the postal money order business. Com- mercial money order houses, however, generally serve urban areas more extensively than rural areas. An official of one of the commercial money order houses that we visited informed 9 us that, for the areas serviced by the company, additional sales outlets could be established should the need for out,- lets develop., There is one notable advantage for serving the-public- that commercial money order houses have over both the De- partment and banks. Such companies generally distribute - money orders through retail stores which do not have the limited business hours of banks and post offices. For ex- ample, drug stores often sell commercial money orders and generally stay open during evening hours. Also, they are normally open 6 or 7 days a week. Since the Postal Money Order System was established, many nonpostal alternative services have become available and actively compete with the Department for the money or- der market. Because alternative services-are readily avail- able to the public in many locations (e.g., urban areas), we believe that there is a need to consider whether-postal money order services should continue to be provided by the Department. In certain areas (e.g., rural areas), however, postal money orders are the only such services readily available; and, in such places, there is an apparent need to continue to provide postal money order services. Also, although nonpostal money orders, are readily avail- able to many members.of the Armed Forces through post ex- change facilities., many military personnel, are stationed in locations (e.g., aboard ships) where commercial money orders are not readily available. In such locations the continua- tion of postal money order services seems to-be justified. Further, as a convenience to postal patrons, money orders might be retained for use in international and collect-on- delivery transactions. 10 RESULTS OF POST OFFICE DEPARTMENT STUDY In 1967 a Department report on its study' of the Postal Money Order System concluded that the Department should continue to provide money order services because (1) money orders contributed millions of dollars for the payment of the Department's overhead costs; that is, some of the costs allocated to money order services were fixed costs and would not be reduced if money order services were to be cur- tailed (for our evaluation of this matter see pp. 26-through 30) and (2) money orders fulfilled a need for many patrons who continue to purchase money orders (for our evaluation of this matter see p. 10). The report recommended that postal money order services not be expanded because (1) the money order system was aux- iliary to the Department's principal function of carrying the mail and an expansion in the number of offices or hours of business should be made on the basis of the needs of the mails, not the money order business, and (2) from the view- point of maintaining the proper roles for the economy's pub- lic and private sectors, expansion of the service could eas- ily result in undue competition with private business. The 1967 study stated that the Department was the most important money order vendor and attributed its market strength to (1) public awareness that the Post Office De- partment sells money orders, (2) consumer acceptance built up over a 102-year period, (3) 45,000 domestic outlets in all but the tiniest hamlets of the nation, (4) a logical tie-in with the mail service in that most money orders were purchased to transmit funds through the mail and a money or- der could be bought and posted at the same post office, and (5) the confidence which people have in dealing with an agency of the Federal Government. According to the Department's 1967 study, 614 million money orders were sold annually and the money order market was shared as follows: We believe that the fact that about two thirds of all money orders sold are nonpostal money orders indicates that a large number of money order users purchase nonpostal money orders at an accessible ,commer-cial outlet and mail the money orders at a .nearby. mail receptacle rather than make a trip to the nearest.:.postal .f,acility. to purchase and mail a postal money order. Concerning the.confidehnce which persons have in postal money orders,, the. fact'that about two thirds of all money orders sold are nonpostal'money orders indicates a high de- gree of customer confidence in nonpostal money orders. The Department report also stated that: -- Private firms generally provided adequate money or- der services in urban areas, but postal money orders were the only money orders available in many rural areas whose residents need access to money order services. -- Most money order business came from the less prosper- ous, less educated, historically bank-shy industrial workers. -- Despite steady losses in sales volume, postal money order sales represented about one third of the na- tion's money order market and postal money order sales were greater than the money order sales of any single competitor or type of competitor, such as com- mercial banks. -- The importance of postal money orders to the city dweller was evidenced by the fact that, despite the availability of commercial vendors, most postal money order sales were in the larger, urban post of- fices, which indicated a high degree of consumer satisfaction. --The decline in money order sales over the 6-year pe- riod between 1960 and 1966 was shared by all classes of post offices, all regions, and most States; and the rate of decline in sales was almost equal for each class of post office. 13 -- The trend of declining sales between 1964'and 1966 (years for which data was available by States) was experienced in most'of the States as follows: In first-class post offices, 45 of 50 States and the' District of Columbia; in second-class post offices, 32 of 50 States; in third-class post offices, 44 of 50 States; and in fourth-class post offices, 44 of 48 States. 14 REVENUE FROM POSTAL MONEY ORDER OPERATIONS The graph on the following page illustrates, for fis- cal years 1960-69, the postal money order revenues and the total costs and losses attributable to money order opera- tions. Appendix I shows the revenues, costs, and losses at- tributed to postal money order operations since fiscal year 1926. Although the Department reported financial losses on its money order operations, the curtailment of the Postal Money Order System would not necessarily result in avoiding all costs allocated to money order operations. For a fur- ther discussion of the financial effects of revising the money order system, see pages 26 through 30. One of the reasons for authorizing the establishment of the Postal Money Order System in 1864 was to provide a source of revenue to the Government. Revenues from the sale of money orders (domestic and international orders) in fiscal year 1969 amounted to about $61.5 million, a de- crease of $19.7 million from the revenues in 1960--the peak year--of about $81.2 million. Revenues from the sale of money orders in fiscal year 1969 were about 1 percent of the revenue collections of about $6.3 billion reported by the Department. Further, as shown in appendix I, the costs allocated by the Department to postal money order opera- tions have consistently exceeded the revenues derived from sales of money orders. 15 MILLIONS OF DOLLARS 100 POSTAL MONEY ORDERS REVENUES, COSTS, AND LOSSES FOR FISCAL YEARS 1960- 69 (IN MILLIONS OF DOLLARS) 90 80 FULLY ALLOCATED COSTS 3.. ..L.L..L.. 70 ~iiai:~iiii:i:::ii~ii:!;Y~~:,:::-.:.'" 60 50 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 YEARS 16 16 SALES OF MONEY ORDERS TO MILITARY PERSONNEL Military post offices provide postal services, includ- ing the sale of money orders, to military personnel in areas where there are no civilian post offices and in other places designated by the military. Until September 1969 the fees for postal money orders sold to military personnel were the same as the fees charged other persons. In September 1969 the Department revised its policy and stated that no fee would be charged for postal money orders issued to military personnel and their dependents at military post offices lo- cated in Vietnam or on board a ship in contiguous waters. Also, the fee for money orders issued to military personnel on board any ship or at any other military post located out- side the 50 States, Puerto Rico, and Guam, was reduced to 15 cents. Their dependents also may purchase money orders at this rate. An exception to the general trend of the steadily de- clining number of postal money orders sold is the sale of money orders to military personnel. About 9.9 million postal money orders were sold through military post offices in fiscal year 1967, a 26-percent increase over the number sold in fiscal year 1966. Sales continued to increase dur- ing fiscal year 1968 when about 10.2 million money orders were sold through military post offices. According to a De- partment official, the recent increases in the sales of money orders through military post offices were due primar- ily to the large buildup of our military forces overseas. Sales during fiscal year 1969, however, decreased to 9.9 mil- lion. Our review indicated that in many instances commercial money orders and other private banking services were avail- able to members of the Armed Forces. Information obtained from the Army and Air Force Exchange Service headquarters indicated that commercial money orders were readily avail- able to Army and Air Force personnel at 86 post exchange fa- cilities. In addition, Army regulations provide for the sale of banking instruments, such as bank money orders and cashier's checks, by banking facilities on military instal- lations. We were also informed that commercial money orders were available to Navy personnel assigned to land installa- tions. 17 Sales of commercial money orders through Army and Air Force post exchange facilities are governed by contract agreements negotiated with commercial firms. The negotiated contracts usually cover a period of 2 years and have an op- tion to renew for 3 more years, if mutually agreeable. Sev- eral commercial firms have expressed interest in selling money orders to military personnel. During a recent, adver- tised solicitation for bids from firms to sell money orders through post exchanges, about 12 firms responded to the so- licitation, and four of the firms were awarded contracts. Also, the Army and Air Force Exchange Service received in- quiries from nine other firms which were interested in con- tracts for the sale of money orders. The four contracts awarded provide for a flat fee of $0.20 a money order. Of these contracts, two provide for issuing individual money orders in any amount up to $250 and two provide for issuing money orders in the maximum amounts of $200 and $100, respectively. For the year ended January 28, 1968, the Army and Air Force Exchange Service estimated that about 1,068,000 com- mercial money orders were sold under these contracts in the continental United States and overseas and that gross income of $120,400 accrued to the service. The service's net in- come from the sales (gross income less operating expenses) is ultimately distributed to the Army and Air Force Welfare and Recreation Fund. The Department authorized the Air Force to discontinue selling postal money orders at its installations as of June 28, 1968, because (1) the military personnel would re- alize a direct savings from the lower fee charged for com- mercial money orders and (2) military personnel would bene- fit since a portion of the money order fee would revert to the Army and Air Force Welfare and Recreation Fund. Subse- quently, the Army reported receiving an offer from a com- mercial vendor to issue commercial money orders at Army in- stallations. On September 15, 1969, the Department announced that money orders issued by all military post offices in Vietnam or on board a ship in contiguous waters would be provided without charge and that the fee for money orders sold at 18 other overseas military post offices and aboard any ship outside the United States was reduced to 15 cents. Also, on January 15., 1970, the Department issued a new postal money order form, for use at all overseas military post offices, which bears the restriction "not payable through banks out- side the United States of America other than through U.S. Military banking -facilities.'' This money order was developed to stem the illicit exchange of money orders for foreign currency purchased in. South Vietnam's black market. On February 3, 1970, the Secretary of Defense directed the Secretary of the Air Force to resume issuing postal money orders at Air Force postal facilities at the earliest practicable date. This directive was issued to resolve the "controversy with Post Office Department. regardingAir Force sale of commercial money orders instead of postal money or- ders." Air Force personnel in Vietnam would gain an imme- diate personal benefit since postal money orders were issued free to servicemen in that area. Although nonpostal money-orders are available to mem- bers of the Armed Forces in many instances, there are situ- ations in which members of the Armed Forces must depend upon postal money orders for transmitting funds. For example, military personnel on board ship or in combat zones probably could not purchase nonpostal money orders. Therefore it ap- pears that there is a need for continuing postal money order services in certain military areas. 19 PERSONNEL ENGAGED IN POSTAL MONEY ORDER OPERATIONS On the basis of information contained in the Depart- ment's Revenue and Cost Analysis Report and the National Payroll Hours Report, we estimated that the equivalent of about 5,991 postal clerks were engaged in money order op- erations during fiscal year 1969. Our estimate showed that during this period over 1 million man-days were devoted to money order transactions by postal clerks who worked full- or part-time issuing money orders and that rural carriers devoted the equivalent of about 75,600 man-days to money order operations. Of the total costs of about $94.3 million allocated by the Department to money order operations in fiscal year 1969, about $78.8 million represented personnel costs. Of these costs, about $48.8 million, or about 52 percent, rep- resented salaries of postal clerks. A breakdown of the fiscal year 1969 costs follows. Costs of postal money order operations fiscal year 1969 (note a) Costs (000 omitted) Percent Postmasters' salaries $19,682 20.9 Supervisors' salaries 8,021 8.5 Total 27,703 29.4 Postal clerks' salaries: lst- and 2d-class offices 44,742 47.5 3rd-class offices 2,334 2.5 Contract station service 1,740 1.8 Total 48,816 51.8 City delivery service 11 Rural carriers 2,217 2.3 Total 2,228 2.3 Other costs 15,529 16.5 Total $94 276 100.0 aRepresents fully allocated costs. See pages 26 through 30 for a discussion of fully allocated costs and costs demonstrably related to postal money orders. 20 I Department officials have advised us that the face value of stolen money orders is normally recovered through banks from the persons presenting such money orders to the Government for payment and that the only losses sustained by the Department result from a few stolen or otherwise irregular money orders which are cashed by postal employees under circumstances which warrant ultimate release of the employees from financial responsibility. The Department's Bureau of the Chief Postal Inspector investigates such money order irregularities as lost, stolen, and incorrectly paid money orders. A representative of the Bureau of the Chief Postal Inspector advised us that during fiscal year 1969 about 25 man-years were spent investigat- ing matters relating to money orders. In the event that the Postal Money Order System is curtailed, we believe that a reduction will occur in the manpower required to investigate money order thefts. We noted that, in the 1970 budget hearings before the Treasury, Post Office and Executive Office Subcommittee of the House Committee on Appropriations, the Chief Postal Inspector re- quested 250 additional inspectors to handle the increase in the inspection service work load due to the increase in crimes involving postal services. 22 SIMILARITY WITH DISCONTINUED '"' POSTAL.SAVINGS SYSTEM The conditions affecting the Postal Money Order System are, in many respects, similar to the conditions which af- fected the Postal Savings System when the. Congress autho- rized its discontinuance in March 1966. Both systems were established many years ago to meet specific needs not then provided by the private sector of the economy. Subse- quently, conditions changed and the needs were increasingly met by the private sector. As a result, the demand for the services declined steadily over a period of years so that the number of transactions were reduced markedly. The Postal Savings System was established in 1910 to provide savings deposit facilities in those communities which lacked adequate savings banking services and to at- tract the savings of those individuals who lacked confi- dence in the Nation's banking system. Prior to the discontinuance of the Postal Savings Sys- tem in 1966, the General Accounting Office issued three re- portsl on postal savings activities, in which we pointed out that the Congress might wish to consider the need for continuing the system because of the nationwide development of insured banking and savings facilities which appeared to satisfy the purposes for which the system was originally established. We reported that, after the enabling legislation was passed in 1910, the banking industry of the country ex- panded and numerous savings facilities were offered to small "The Postal Savings System for the Fiscal Years Ended June 30, 1952 and 1953" (B-114853, November 4, 1954). "The Postal Savings System, Post Office Department, For the Fiscal Year Ended June 30, 1954" (B-114853, December 2, 1955). "Audit of The Postal Savings System, Post Office Department" (B-114853, May 15, 1963). 23 depositors by commercial and savings banks and by the sav- ings and loan type of financial institutions. In addition, after the formation of the Federal Deposit Insurance Corpo- ration in 1933 and the Federal Savings and Loan Insurance Corporation in 1934, the security of savings deposits sought by depositors but previously not obtainable except in postal savings was afforded to nearly all savings deposits up to $10,000. The similarity between various aspects of the Postal Savings System and the present Postal Money Order System is presented in the following table. Postal Postal Savings Money Order System System System in operation many years Yes Yes (1910-66) (Since 1864) System established to meet spe- cific needs not provided by the private sector of the econ- omy Yes Yes Subsequently,'alternative meth- ods of meeting needs became generally available Yes Yes Service provided not related to primary purpose of delivering mail Yes Yes Decline in use of the system Yes Yes Revenue received in excess of allocated costs Yes No Postal clerks largest cost fac- tor Yes Yes Principal business in urban areas (first- and second-class post offices) Yes Yes 24 The Department has stated that the Postal Money Order System is not comparable to the Postal Savings System be- cause the public has proven much less receptive to privately issued money orders than to private savings banks, as proven by Post Office market dominance. In addition, the Depart- ment has expressed the view that, although the Federal De- posit Insurance Corporation (FDIC) protects savings accounts across the country, it is questionable whether all purchasers of privately issued'money orders enjoy equal protection. The Department's 1967 study showed that sales of postal money orders accounted for about one'third of the total money order market and were declining but thatsales of money orders by private firms were increasing. Also, in public testimony the Postmaster General mentioned that the Department's share of the money order market was declining (see p. 12). We believe that these facts indicate that the public is becoming increasingly receptive to privately issued money orders. We believe also that purchasers of nonpostal money or- ders have confidence in those instruments since their pur- chases account for about two thirds of all money order sales. Also, the FDIC insures the,deposits (including money orders) of all national and most State banks against bank failures. Therefore money orders purchased from member banks of the FDIC are insured by the FDIC. Further, the Department's 1967 study stated that several States had enacted laws requiring that firms selling money orders be bonded. 25 FINANCIAL EFFECT OF CHANGING THE POSTAL MONEY ORDER SYSTEM Allocation of Costs The Department's 1969 Revenue and Cost Analysis Report--formerly known as the Cost Ascertainment Report-- allocates "demonstrably related costs" to the four classes of mail and to other postal services. Generally, demonstra- bly related costs, according to the Department, are postal costs which can be demonstrated (1) to vary in response to changes in volumes of a particular class, subclass, or cat- egory of service or (2) to be the consequence of providing one specific class, subclass, or category of service. For example, all costs which would be eliminated because a ser- vice was either curtailed or discontinued would be classi- fied as demonstrably related costs. All other costs (institutional costs), according to the Department, are not directly responsive to changes in postal volume and would not normally be affected by the elimination of a particular class of mail or service. For example, the cost of space in a building would not be reduced if a ser- vice were curtailed or discontinued. The space would prob- ably be used for other purposes, but no reduction in total space costs would occur. The total of demonstrably related costs and institu- tional costs represents fully allocated costs. The Department's Revenue and Cost Analysis Report for fiscal year 1969 showed that the money order revenue was $61.5 million and that the demonstrably related costs allo- cated to money order operations totaled only $2.2 million. The demonstrably related costs of $2.2 million represent (1) $764,000 for administration and regional operations, in- cluding costs of the Money Order Division in Washington, D.C., which is responsible for administering the money order operations; (2) $913,000 for the cost of money order forms, including printing costs; and (3) $484,000 for reimburse- ments to the Department of the Treasury for processing money orders. Costs for such items as handling and transportation of money order forms to locations throughout the country, although directly related to money order operations, have 26 not been included but, in our view, should have' been, in- cluded in demonstrably .related costs by the Department. For fiscal years 1926 through 1969, the.Department re- ported an accumulated loss of about $578 million on money order operations, based on the allocation of.all postal costs to the various classes of mail and to other postal services (fully allocated costs). The loss each year has ranged from a low of about $1.2 million in fiscal year 1945 to a high of about $32.8 million i'n fiscal year 1969 (see app.I). The following.information presents the costs allocated by the Department to money order operations. on a fully al- located cost basis and on a demonstrably related cost basis for fiscal year 1969. . . Fully allocated Demonstrably Type of cost costs related costs (000 omitted) Postmasters' salaries and other personnel costs $19, 682 $ Supervisors' salaries and other personnel costs 8.,021 Clerks' salaries and other personnel costs 48,816 Post Office Registry 3,488 Stamps and accountable paper (printing of money orders) 913 913 City delivery service 11 - Rural carriers' salaries and other personnel costs 2,217 Custodial service, salaries, and other personnel costs 2,311 Building occupancy. 3,262 - General overhead 3,000 1,248 Depreciation 691 - Miscellaneous 1,864 _ Total $94,276 $2 16'1 27 Possible reduction in costs If the Department should decide to curtail the Postal Money Order System, we believe that savings would result in the following ways: 1. Postmasters' salaries in some instances eventually would be affected because, in determining the level of these salaries, the total amount of postal re- ceipts which includes money order sales is consid- ered. Postmasters' salary levels in first-, second-, and third-class offices are generally based on three factors--(l) revenue units, (2) delivery routes, and (3) number of employees. A revenue unit is the average revenue from postal rates and fees for 1,000 pieces of originating mail (e.g. generated and mailed in the same geographic location) and for spe- cial service (e.g. money orders) transactions during a fiscal year. Thus, the number of money orders issued and the related revenue are included in the determination of postmasters' salary levels in first-, second-, and third-class post offices. In fourth-class post offices, postmasters' salaries are adjusted on the basis of hours actually worked on postal matters. If the money order system were changed, the time spent by some postmasters on postal operations would also change and would even- tually cause revisions in these postmasters' sal- aries. 2. The total amount of supervisors' salaries probably would not be affected because supervisors salaries are generally considered to be an overhead expense, and we believe that the curtailment of money order activities would have an insignificant effect on their total responsibilities. 3. Savings would occur in the cost of clerks' salaries allocated to money orders through reduction of clerks engaged full-time on money order matters and through 28 assignment of clerks presently working part-time on money orders to other activities (see pp. 20 and 21). 4. Post Office registry costs are costs for shipping blank money order forms via registered mail from the Department's Eastern Area Supply Center to all post offices. In the event that money order'ser- vices are curtailed, this cost would be reduced. 5. Costs allocated to printing of money orders would decline proportionately with any reduction in the scale of money order operations because these costs are considered by the Department to be demonstrably related to money order operations. Losses In determining the net financial effect of any changes in the Postal Money Order System, consideration should be given to the savings in interest costs on Government borrow- ings, which result from the availability of funds for use by the Government from the date'of the sale of money orders until the date that money orders are redeemed. The use of these funds by the Government has the effect of reducing the amount of Treasury borrowings needed to meet the obliga- tions of the Government. According to the Postmaster General's 1969 Annual Re- port to the President, the amount of money orders outstand- ing totaled about $135.5 million as of June 30, 1969. The funds were available to the Government interest free. By applying the average interest rate of 5.94 percent on out- standing marketable bills of the U.S. Treasury during fiscal year 1969 to the average amount ($103 million) of domestic money orders outstanding during the year, we estimated that the annual interest savings was about $6.1 million. Because we are uncertain what, if any, changes will be made in the Postal Money Order System, we could not compute the financial effects of any changes. As discussed above however, we believe that the Department's allocation of $2.2 million of demonstrably related costs to the Postal Money Order System (see pp. 26 and 27) does not accurately 29 measure the amount of costs that would be affected by a curtailment of the System. Department officials stated that the Department should try to raise the level of its services and reduce the postal deficit and that to abandon the Postal Money Order System would be a move in the opposite direction. Although we agree that the Department should continu- ally strive to reduce the postal deficit, we do not agree that raising the level of money order services will neces- sarily result in a reduction in the postal deficit. For example, as discussed on page 17 , in September 1969 the Department;improved the money order services available to military personnel stationed overseas by reducing the fees on money orders and by providing money orders free to ser- vicemen stationed in certain combat zones. Although this action improved money order services available to military personnel stationed overseas, this reduction in money order fees also resulted in a reduction of revenues from money order sales to military personnel. 30 CHAPTER 3 CONCLUSION AND RECOMMENDATION Since the Postal Money Order System was established in 1864, conditions in the United States have changed signifi- cantly and money order services and other similar services are now offered by banks, savings and loan associations, and other types of establishments serving most of the pub- lic throughout the United States. Commercial money orders, regular checks, certified checks, and cashier's checks are used in lieu of postal money orders, and this use has sig- nificantly reduced money order sales by the Department. Also, as pointed out on pages 5 and 17 through 19, members of the Armed Forces often have access to alternative means of safely transmitting funds. It appears to us that, since the conditions which war- ranted the establishment of the money order system have significantly changed, some revision of the system seems justified. RECOMMENDATION TO THE POSTMASTER GENERAL In light of the downward trend in money order volume and revenues and the increasing availability and acceptance of alternative means of remitting monies through the mails, we recommend that the Department evaluate the Postal Money Order System to determine what adjustments should be made to the system and develop appropriate plans to put such ad- justments into effect. 31 CHAPTER 4 SCOPE OF REVIEW Our review included an examination into major aspects of the Domestic Postal Money Order System, as well as cer- tain aspects of commercial money order activities. We did not examine into international money order operations since these operations accounted for less than 1 percent of the total number of money orders sold and of the total fees collected. We reviewed Post Office regulations, procedures, and accounting records relating to postal money order activ- ities. Also, we reviewed the legislation and legislative history related to the establishment of the Postal Money Order System. In addition, we obtained information on money orders from commercial sources and from the Army and Air Force Exchange Service. Further, we conferred with repre- sentatives of the Department and with officials of commer- cial money order firms. The review was made at the Post Of- fice Department headquarters, Washington, D.C., and at var- ious cities in the United States. 32 APPENDIX 33 I APPENDIX I REVENUES, COSTS, AND LOSSES OF MONEY ORDER OPERATIONS EACH FISCAL YEAR SINCE 1926 (Domestic and International Money Orders) Fiscal year Revenue Cost Loss (000 omitted) 1926 $ 16,853 $ .25,249 $ 8,396 1927 17,923 25,647 7,724 ·1928 17,940 26,244 8,304 1929 18,323 28,044 9,721' 1930 18,403 28,890 10,487 1931 17,117 27,705 10,588 1932 16,449 26,985 10,536 1933 17,228 24,292 7,064- 1934 19,414 23,705 4,291 1935 21,339 27,610 6,271 1936 22,305 31,351 9,046 1937 24,244 32,376 8,132 1938 24,567 33,569 9,002 1939 24,425 34,056 9,631 1940 24,907 34,943. 10,036 1941 26,957 35,603 8,646 1942 32,221 38,195 5,974 a 1943 1944 42,444 45,684 3,240 1945 47,390 .48,562 1,172 1946 35,652 64,580 28,928 1947 37,823 61,591 23,768 1948 37,283 63,433 26,150 1949 51,534 75,096 . - 23,562 1950 56,406 77,695 - 21,289 1951 60,602 85,166 .24,564 1952 71,232 95,200 - 23,968 1953 69,440 95,082 25,642 1954 69,419 92,461 · 23,042 1955 65,649 95,792 -30,143 1956 65,405 90,419 . 25,014 1957 63,880 79,594 15,714. 1958 71,018 79,002 7,984 1959 67,089 78,801 11,712 1960 81,189 82,706 1,517 1961 64,164 81,040 16,876 1962 65,782 76,943 11,161 1963 63,880 75,688 11,808 1964 62,155 73,029 10,874 1965 58,965 71,538 : 12,573 1966 60,968 69,114 8,146 1967 65,884 69,991 4,107 1968 63,800 72,563 8,763 1969 ° 61,515 94,275 32,760 Total $1,921,183 $2 499 509 $578,326 aNo cost ascertainment information compiled. bBeginning with fiscal year 1969, the Department also reported costs attributable to money orders on a demonstrable basis (see pp. 26 through 30). U.S. GAO Wash., D.C. 35
Possible Need for Changing the Postal Money Order System
Published by the Government Accountability Office on 1971-01-12.
Below is a raw (and likely hideous) rendition of the original report. (PDF)