oversight

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)

~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