oversight

Postage Due and Handling Costs for Processing Mail With Insufficient Postage Are Not Being Recovered

Published by the Government Accountability Office on 1971-03-31.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

,




    RiPORT           TO THE CONGRESS




    Postage Due And Handling Costs
    For Processing Mail With
    Insufficient Postage
    Are Not Beii7g Recovered B-161568
    Post Offlce Department




    BY THE COMPTROLLER    GENERAL
    OF THE UNITED  STATES
                   COMPTROLLER        GENERAL     OF    THE      UNITED   STATES

                                     WASHINGTON    DC         23548




B-161568




To the     President      of the Senate     and the
Speaker      of the    House    of Representatives

         This    IS our report       on postage     due and handling                    costs for
processing        mall   with lnsufflclent      postage   not being                  recovered
by the Post       OffIce    Department.

         Our review     was made pursuant   to the Budget  and Ac-
counting    Act,   1921 (31 U.S.C. 53), and the act of September                               2,
1960 (39 U.S,C.       2206).

       Copies   of this          report     are being    sent to the Director,
Office  of Management               and   Budget,    the Postmaster     General,      the
U.S, Postal   Service            Board     of Governors,     and the Postal      Rate
C ommis slon,




                                                  Comptroller              General
                                                  of the United            States




                           50 TH ANNIVERSARY                     1921-    1971
COMPTROLLERGENERAL'S                  POSTAGEDUE AND HANDLING COSTS FOR
REPORTTO THE CONGRESS                 PROCESSINGMAIL WITH INSUFFICIENT
                                      POSTAGEARE NOT BEING RECOVERED
                                      Post Office Department B-161568


DIGEST
-_----

WHYTlflE REVlEW WASMADE

       For mall without sufflclent   prepard postage, the Postmaster General
       1s required by law to collect    postage due and to recover the cost of
       handling such mall     He may, however, waive the handling charge when
       he deems lt to be ln the interest     of the Government  Collection of
       the charge has been waived by the Postmaster General since August 1,
       1958    (See pp 3 and 6 )
       The General Accounting Offlce (GAO) wanted to know (1) if the Post-
       master General's indefinite   waiver of the handling charge was con-
       sistent with the intent of the law, (2) how much mall was being sent
       without sufficient   postage, (3) the costs incurred to collect the
       deficient  postage, and (4) the effectiveness   of the Department's pro-
       cedures for detecting and handling such maI 1      (Seep  3)

FINDINGS AND CONCLUSIONS

       The Department incurs additional     costs to detect and collect postage
       due for mall with lnsufflclent     postage and does not recover these
       costs from postal patrons contrary to law        Since August 1958, the
       Department has waived the collection      of the handling charge   GAO
       belleves that the Congress did not intend that the handling charge
       be waived lndeflnltely.      The Department, however, expressed the view
       that no restriction     was placed on the Postmaster General's waiver
       authority     (See pp. 6 and 9 )

       GAO found that some mall with lnsufflclent         postage was not being de-
       tected by the Department.        If the condltlons noted ln 13 postal facll-   ,
       l-ties covered by GAO's revlew are typical,        the Department 1s incurring
       significant     losses nationwide     A 1969 Department study showed that
       an estimated loss of $5 mllllon        annually resulted from not detecting
       and collecting      for mall with lnsufflclent    postage     A Department of-
       ficial    advised us, however, that the study was not conclusive and that
       it probably understated the actual loss           (See p. 6.)        *
       The absence of an effective   policy to prescribe the methods and respon-
       slblllty  for detecting mall with lnsufflclent   postage has contributed
       to revenue losses      (See P 7 )

Tear Sheet



                                         I          MARCH31,1971
                                                                                                             I

                                                                                                         I
                                                                                                        I
                                                                                                        I
      The Postal Reorganlzatlon    Act provides for abollshlng   the Post Offlce                        1
      Department and creating the United States Postal Service as an lndepen-                            I
      dent establishment      The Postmaster General will no longer be required                         I
                                                                                                        I
      to collect   a charge for handling mail without the proper postage       GAO                      I
      believes,   however, that, as a prudent business practice,    the Department                      I
                                                                                                        I
      should recover its costs; and the act requires the Postal Service to                              I
      become self-sustalnlng      (See pp. 4 and 27 )                                                   I
                                                                                                         I
                                                                                                         I
                                                                                                        I
                                                                                                        I
RECOMUENDATIONS
            ORSUGGESTIONS                                                                               I
                                                                                                        I
                                                                                                      I
      GAO IS making several recommendations designed to help solve this prob-                        I
      lem, including   a recommendation that the Department return mall with                         I
  '   insufficient   postage to senders rather than forward such ma71 to the                         I
                                                                                                     I
      addressees     (See p 17 )                                                                    I
                                                                                                    I
                                                                                                    I

AGENCY
     ACTIONSAND UNRESOLVED
                        ISSUES                                                                      I
                                                                                                  I
                                                                                                  I
      The Postmaster General said that, to better appraise the problem and                       I
      the solutions   avallable to the Department, a cost-benefit analysis                       I
                                                                                                 I
      would be made and that this analysis would generally recognize GAO's
      recommendations                                                                            I
                                                                                                 I
                                                                                                I
      GAO plans to review the results of the Department's    analysis and to                    I
                                                                                                I
      evaluate the actions to be taken In response to its    recommendations                    I
      (Seerp 18.)                                                                               I
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                                                                                               I
                                                                                               I
MATTERS
      FOR COiVSIDERATIOi'.'
                      BY TllE CONGRESS                                                         I
                                                                                               I
                                                                                              I
      This report informs the Congress (1) that, in GAO's opinion, the                        I
                                                                                              I
      Department has not complied with the intent of the provisions   of                      I
      the act of April 9, 1958, and (2) of the need for the Department                        I
                                                                                             I
      to Improve Its management to ensure that proper postage 1s col-                        I
      lected.   (See p 6 )                                                                 I
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                              Contents
                                                                      Page

DIGEST                                                                  1

CHAPTER

        1    INTRODUCTION                                               3

        2    OPPORTUNITY FOR REDUCING LOSSES INCURRED IN
             HANDLING MAIL WITH INSUFFICIENT POSTAGE                    6
                 Charges not assessed for handling mall
                   with lnsufflclent         postage                    7
                 Department's     policy     and practices  for
                   detecting     short-paid      and unpaid mall       10
                      Low prlorlty       given to detecting
                        short-paid       and unpaid mall               11
                      Use of mechanized equipment                      12
                 Unrecovered costs and revenue loss due
                   to short-paid       and unpaid mall                 14
                      Detected mall                                    14
                      Undetected mall                                  14
                 Department's      policy    for collecting
                   postage due on mall                                 16
                 Recommendations to the Postmaster          General    17

         3   SCOPE OF REVIEW                                           19

APPENDIX

         I   Letter   dated October 1, 1970, from the Post-
               master General to the General Accounting
               Office                                                  23

    II       GAO evaluation       of agency comments                   27

  III        Prlnclpal     management offlclals     of the Post
                Office    Department responsible     for the ad-
               mlnlstratlon      of activities   discussed In
                this report                                            33
COMPTROLLERGENERAL'S                              POSTAGE DUE AND HANDLING COSTS FOR
REPORTTO THE CONGRESS                             PROCESSING MAIL WITH INSUFFICIENT
                                                  POSTAGE ARE NOT BEING RECOVERED
                                                  Post Offlce Department   B-161568


 DIGEST
-_----


WHYTHE REVIEW WASMADE

      For mall without       sufficient     prepaid    postage,   the Postmaster        General
      3s required     by law to collect        postage    due and to recover       the cost of
      handling    such mall.        He may, however,      waive the handling       charge when
      he deems it to be ln the interest              of the Government        Collection       of
      the charge has been waived           by the Postmaster      General   since August         1,
      1958      (See pp 3 and 6 )

      The General       Accounting        Office    (GAO) wanted    to know (1) lf the Post-
      master    General's      lndef-lnlte       waiver   of the handling       charge was con-
      sistent    with the intent           of the law, (2) how much mall was being sent
      without    sufflclent       postage,       (3) the costs   Incurred       to collect the
      deficient      postage , and (4) the effectiveness               of the Department's     pro-
      cedures    for detecting          and handling      such mall       (Seep       3)


FINDINGS AND CONCLUSIONS

      The Department           incurs      addltlonal        costs   to detect      and collect       postage
      due for mall with             lnsufflclent          postage    and does not recover           these
      costs     from postal         patrons       contrary      to law      Since August        1958, the
      Department        has waived         the collect-ran         of the handling       charge.       GAO
      belleves      that     the Congress           did not intend       that    the handling       charge
      be waived       lndeflnltely               The Department,        however,     expressed      the view
      that    no restriction           was placed          on the Postmaster        General's     waiver
      authority           (See pp 6 and 9 )

      GAO found that           some mall with lnsufflcient             postage     was not being de-
      tected      by the Department             If the condltlons          noted   ln 13 postal      facil-
      ities     covered       by GAO's review         are typical,     the Department        1s lncurnng
      significant         losses    nationwide           A 1969 Department       study showed that
      an estimated          loss of $5 m-illlon          annually   resulted     from not detecting
      and collecting           for mall with        lnsufflclent      postage        A Department      of-
      ficial      advised      us, however,       that     the study was not conLlus-rve          and that
      lt probably         understated       the actual         loss   (See p 6.)

      The absence     o-f an effective          policy    to prescribe         the methods  and respon-
      slblllty   for detecting        mall      with   lnsufflclent         postage  has contributed
      to revenue    losses       (See p         7 )
    The Postal Reorganlzatlon Act provTdes for abollshlng      the Post Offlce
    Department and creating the UnIted States Postal Service as an lndepen-
    dent establishment      The Postmaster General ~111 no longer be required
    to collect   a charge for handling mall wlthout the proper postage       GAO
    belleves,   however, that, as a prudent business practice,    the Department
    should recover its costs, and the act requires the Postal Service to
    become self-sustaining      (See pp. 4 and 27 )


h?ECOb&lENDATIONS
             ORSUGGESTIONS
    GAOIS making several reconnnendatlons designed to help solve this prob-
    lem, including   a recommendation that the Department return mall with
    insufficient   postage to senders rather than forward such mall to the
    addressees.    (See p 17 )


AGENCY
     ACTIONSAND UNRESOLVED
                        ISSUES
    The Postmaster General said that, to better appraise the problem and
    the solutions   available to the Department, a cost-benefit analysis
    would be made and that this analysis would generally recognize GAO's
    recommendations

    GAOplans to review the results of the Department's     analysis and to
    evaluate the actions to be taken in response to its    recommendations.
    (See p 18.)


ikW!'TERS
        FORCONSIDERATION
                      BY THECONGRESS
    This report informs the Congress (1) that, in GAO's oplnlon, the
    Department has not complied with the intent of the provisions   of
    the act of April 9, 1958, and (2) of the need for the Department
    to improve its management to ensure that proper postage IS col-
    lected.   (See p 6.)




                                   2
                             CHAPTER 1


                           INTRODUCTION

       The General Accounting     Office   has made a review to de-
termlne whether the Post Offlce         Department's  pollcles     and
practices   for detecting    and handling mall with insufficient
postage are consistent      with the intent     of law and to exam-
ine into the incidence      of short-paid     and unpaid mall,     the
costs being Incurred      by the Department to collect       the defl-
cient postage,    and the effectiveness       of the Department's
procedures    for detecting    and handling such mall         Short-
paid mall 1s mall on which some, but not all,           of the re-
quired postage has been prepaid.          Unpaid mall 1s mall on
which none of the required       postage has been prepaid

      The U S postal laws generally         require   that postage be
prepaid at the time of mailing.         Postage may be prepaid by
use of postage stamps, meter stamps, or permit lndlcla.             For
mall without   sufflclent     prepaid postage,     the Postmaster  Gen-
eral 1s required     by the act of April 9, 1958 (39 U.S.C.
4110), to collect      the deficient   postage plus a charge to
cover the cost of handling such mall.           The act provides
that the collection       of any handling charges may be waived
by the Postmaster      General when he deems a waiver to be in
the interest   of the Government.

       During fiscal    year 1969 the Department handled about
81 bllllon   pieces of domestlc mall and about 830 million
pieces of internatlonal       mail.    Our review did not cover in-
ternational   mail, because It 1s a small proportion          of the
total   mail volume.     Also, the amount of postage paid 1s not
shown on certain     types of mall (nonrated mall)          For exam-
ple, malllngs    made In bulk generally       are ImprInted   with
permit lndlcla.      Following     1s an example


                                   Bulk Rate
                                 U S Postage
                                    PAID
                                Permit No
                              Falls Church, VG




                                     3
       Since nonrated mall does not show the amount of post-
age paid for each piece, we did not Include nonrated mall
in our review        Such mall represented about 40 percent of
the total   fiscal    year 1969 domestic mall volume, or about
33 bllllon    pieces.

        Also, postage on about 4 percent,       or 3 bllllon    pieces,
of the domestic mall handled during fiscal           year 1969 was
not required       to be prepaid and was not Included in our re-
view       Such mall includes penalty mall (offlclal         Government
mail),     franked   mall  (mall used primarily   by  members   of Con-
gressl,      and certain  other types of mall.

       We estimate that about 56 percent,       or 45 bllllon
pieces, of fiscal     year 1969 domestlc mall had the amount of
postage paid indicated        on the mall (rated mall) and that
such mall could have been examined at any time after mall-
lng and prior     to delivery    to addressees to determine whether
the required    postage had been prepaid.       Our review concerned
itself  with this type of mall.        Following are examples of a
postage stamp and metered stamp--the         most frequently  used
methods of lndlcatlng       the amount of prepaid postage
        Postage    stamp                    Metered   stamp




       In fiscal    year 1970 the Department handled about
84 bllllon    pieces of domestic mall and about 900 mllllon
pieces of international          mail.    Of the 84 bllllon   pieces of
domestic mall, 48 bllllon          pieces, or about 57 percent,      rep-
resented rated mall, 32 bllllon            pieces, or about 39 percent,
represented      nonrated mall, and 3.5 bllllon,         or about 4 per-
cent, represented       penalty,     franked,   and other special mall.

        The Postal Reorganlzatlon   Act, approved on August 1'2,
1970 (84 Stat. 719), provides for abolishing        the Post Office
Department and creating     the United States Postal Service as
an independent establishment      of the executive    branch of the
Government of the United States.        In accordance with a res-
olutlon    by the Board of Governors of the United States

                                    4
Postal Service      (36 F R 785), all provlslons            of the act are
to be in effect      as of July 1, 1971

       The act does not require     the Postmaster     General to
prescribe     a handling charge to be collected      for matter
malled without      prepayment of required    postage as does
39 u s.c      4110.    The act, however, requires    the Postal Ser-
vice to become self-sustalnlng.         Postal rates and fees are
required    to be set so that all postal revenues (lncludlng
approprlatlons      that the Congress may make to cover the loss
of revenues on congressionally        declared free and reduced-
rate mall) equgl expenses

       The Assistant      Postmaster    General,'Bureau      of Finance
and Admlnlstratlon,         1s responsible     for developing      and rec-
ommending rates and fees for mall services.                 The   Asslstant
Postmaster      General, Bureau of Operations,          provides    func-
tional    dlrectlon    for the execution       of pollcles,     programs,
regulations,       and procedures    governing operatlonal         actlvltles
of the Department which involve admlsslblllty,                 classlflca-
tlon,    Collection,     processing,    dispatch,    and dellvery       of mall.

      In fiscal year 1969 the Department's     total   income was
$6,256 mllllon  and Its costs were $7,279 mllllon,        which re-
sulted In a deflclt   of about $1,023 mllllon        In fiscal
year 1970 the Department's    total Income was $6,473 million
and Its costs were $8,097 mllllon,     which resulted     in a def-
lclt  of about $1,624 mllllon




                                        5
                               CHAPTER 2


           OPPORTUNITY FOR REDUCING LOSSES INCURRED

          IN HANDLING MAIL WITH INSUFFICIENT POSTAGE

        The Department is Incurring       additional  handling and de-
livery     costs to detect and collect       postage due for mail with
insufficient      postage.   The Department has not recovered
these costs from postal patrons through the collection             of a
handling charge, contrary         to law, because the Department,
under the waiver provision          in the law, has suspended the
collection      of the handling charge since August 1, 1958. We
believe that the Congress did not intend that a waiver of
the collection       of a handling charge be continued indefi-
nitely.      In addition,   some mail with insufficient      postage
was not being detected by the Department.

       At the 13 postal facilities     where we made our review,
 the Department detected insufficient       postage on 18,916
pieces of mall, or 0.33 percent of the 5.8 million          pieces
of rated mail processed on the days that we conducted our
tests     For this mail, the Department collects        the deficient
postage from postal patrons but does not recover the re-
lated handling costs.       According to 1960 Department data
 (the latest    Department data available),     the cost of handling
detected     short-paid  and unpaid mail varied from about
6 cents to about 12 cents a piece, depending on the class
of mail.

       Also, insufficient  postage was affixed    to 592 pieces,
or 1 04 percent of the 56,699 pieces of rated mail we ex-
amined, but was not detected by the Department (undetected
mail).     The average amount of deficient   postage on this mail
was about 6 cents a piece.

          If the conditions     we noted at the 13 postal facilities
are typical        of the handling of the approximately    48 billion
pieces of rated mall delivered          annually by all postal fa-
cilities,        we believe that the Department is incurring       sig-
nificant       losses nationwide    because of (1) unrecovered costs
of handling detected short-paid           and unpaid mail and (2) rev-
enue losses resulting         from undetected   short-paid and unpaid
mail        We noted that a 1969 Department study showed that an

                                   6
estimated  revenue loss of about $5 mllllon   annually re-
sulted from undetected   short-pald and unpaid mall.   A De-
partment offlclal  advised us that the study was not conclu-
sive and that the actual loss probably was greater.

       The Department does not have a stated policy which as-
signs responslblllty     for detecting      short-paid    and unpaid
mail     Department officials     have informed us that all postal
employees generally     understand     that they are responsible
for detecting    such mall.     Our review showed, however, that
some p6stal employees did not understand            that they had this
responslblllty       We believe that the absence of an effec-
tlve policy which assigns the responslblllty             and prescribes
the methods for detecting       short-paid    and unpaid mall has
contributed    to revenue losses

CHARGESNOT ASSESSEDFOR HANDLING MAIL
WITH INSUFFICIENT POSTAGE

        In 1957 the Department requested     the Congress to amend
the postal laws to give the Department more flexlblllty          in
issuing regulations    for handling mall with lnsufflclent
postage and for prescribing      a handling charge to recover
related    costs,  As a result   of the Department's    request,
sections    4109 and 4110 were added to Title      39, Unlted States
Code, by the act of April      9, 1958     Section 4109 provides
that

             "The Postmaster    General shall prescribe     the
      condltlons   for delivery    to the addressee,    return
      to the sender, or other dlsposltlon,       of matter
      mailed without   prepayment of the postage required
      by law."

Section   4110 provides    that

           "The Postmaster    General shall prescribe     from
      time to time the charges to be collected      for mat-
      ter mailed without   prepayment of required     postage
      The charges--

                  (1) shall b e In addition      to the payment
            of lawfully  required  postage,



                                    7
                  (2) may not be adjusted more frequently
             than once every two years, and

                    (3) when adJusted,   shall equal, as
             nearly as practicable,    the approximate   cost
             Incurred   by the Department with respect    to
             the dellvery    of such matter and the collec-
             tlon of postage and other charges thereon

               "The Postmaster General may waive the COIL-
       lectlon    of any charges when he deems a waiver to
       be In the interest     of the Government."

        On June 26, 1958, the Department issued lnstructlons
to implement the act of April          9, 1958   The lnstructlons,
which became effective        July 1, 1958, required    that short-
paid and unpaid mall be (1) marked to show the amount of
the deflclent     postage plus a handling charge of 5 cents
and (2) dellvered      to the addressee upon payment by him of
both the deficient      postage and the handling charge           With
respect to first-class       mall,   lncludlng airmall,    the In-
structlons    provided   that,    In the event the addressee re-
fused to pay the deficient         postage plus the handling charge,
the mall be returned      to the sender and delivered       upon pay-
ment by him of the deficient         postage and the handling
charge of 5 cents.

       With respect to all other classes of mall, the lnstruc-
tlons provided that,        If the addressee refused to pay the
deficient     postage plus the handling charge, the mall be re-
turned to the sender and delivered            upon payment by him of
the deflclent      postage,    the forwardlng    postage,   if any, the
return    postage, and a handling charge of 5 cents               All un-
deliverable     mall which did not bear a return          address was
to be disposed of In accordance with applicable               postal reg-
ulations

      On July 17, 1958, the Department issued lnstructlons
suspending the collection     of the handling charge for short-
paid and unpaid mall during the period of August 1 through
October 31, 1958.    The lnstructlons   stated that the suspen-
sion was to provide mailers with time to become familiar
with the new postage rates which became effective      August 1,



                                     8
1958   On October 2, 1958, the Department Issued lnstruc-
tlons extending  the suspension period through January 31,
1959   No reason was given, however, for the extension    of
the suspension period.

       On January 15, 1959, a bill       (H R 2502) to eliminate
the requirement     that a handling     charge be collected     on
short-pald    and unpaid mall was Introduced       in the House of
Representatives     and referred    to the House Committee on Post
Office    and Civil   Service     On January 16, 1959, the Post-
master General publicly        announced an lndeflnlte      suspension
of the handling     charge pending congressional       action on
House bill    2502     The bill,   however, was not enacted

      On January 25, 1960, another bill         (H R 9889) with the
same purpose as House bill      2502 was introduced      in the House
of Representatives    and referred    to the House Committee on
Post Office   and Civil  Service.     After   the Committee recom-
mended on April    12, 1960, that the bill       be passed, the
House of Representatives      approved House bill     9889 on
April  19, 1960     House bill    9889 was Introduced      in the
Senate on April    20, 1960, and referred       to the Senate Com-
mittee on Post Office    and Civil    Service,    but the Senate
Committee took no action on the bill.

        The suspension of the handling charge          on short-paid
and unpaid mall has remalned In effect          from    August 1958 to
the present --over 12 years         The Postmaster      General said
that,     In view of the language of 39 U.S.C          4110, It was
difficult      to conclude that any restrlctlon        was placed on
the Postmaster      General's  waiver authority         (See app I.)

       Our review of the leglslatlve    history    of the act of
April   9, 1958 (39 U S C. 4110), indicates      that it was the
intent   of the Congress that the additional       costs Incurred
by the Post Office    Department in detecting      and cbllectlng
postage due on short-paid     and unpaid mall be recovered        from
postal patrons through a handling      charge      In its report
dated June 20, 1957, on the act of April        9, 1958
 (H. Rept. 580, 85th Cong , 1st sess ), the House Committee
on Post Office    and Civil  Servrce stated that the amendment
to 39 U.S.C. 4110 would provide
      I’*** a guideline    for the Postmaster General in the
      determlnatlon     of the charges to be prescribed by

                                    9
       regulation,    to be collected      on dellvery   of matter
      malled wlthout prepayment of the lawfully             required
      postage thereon.        It clarlfles    the Intent    of the
      bill    that such charges, which represent         payment
      for a special service,        shall be in addltlon       to
      lawful postage,      that they may not be adlusted
      more often than once every 2 years, and that, when
      adlusted,    they shall equal, as nearly as practl-
      cable, the approximate        cost of rendering     such spe-
      clal service.      *** This amendment 1s consistent
      with the policy of the committee and of the Post
      Office Department that postal revenues and fees
      for special services--      and delivery     of short-pald
      mail, as well as collection          of charges thereon,
      represent    special services--shall        more nearly
      equal the costs Incurred."           (Underscoring   supplied.)
       The act of April 9, 1958, allows the Postmaster Gen-
eral to waive collection       of the handling charge when he
deems It to be In the interest       of the Government      Our re-
view of the legislative      hlstory   of the act, however, did
not lndlcate    that the Congress intended that the requlre-
ment for the collection      of handling charges be wazved for a
substantial    period of time or lndeflnltely.      We belleve,
therefore,   that It 1s reasonable to conclude that the Con-
gress Intended that the waiver authority        be exercised by
the Postmaster General only in those Instances        where It
could be shown that collection       of a handling charge would
not be In the interest     of the Government.

      Since House bill      2502 and House bill  9889 were not en-
acted into law, we believe that the Postmaster General was
not Justified     in continuing   the suspension of the handling
charge indefinitely

DEPARTMENT'S POLICY AND PRACTICES
FOR DETECTING SHORT-PAID AND UNPAID MAIL

      The Department does not have a stated policy which as-
signs responslblllty     for detecting    short-pald and unpaid
mail    Department offlclals      informed us that, although the
Department did not have a stated policy on this matter,         the
Department's   unwritten    policy provided that all postal



                                   10
employees who handle the mall be responsible     for detecting
short-paid    and unpaid mall and that thus unwritten   policy
was generally    understood  by all Department employees.

       To determine what practices      were being followed      by
post offices    to detect short-paid     and unpaid mall, we made
inquiries    at 13 postal facilities        These lnqulrles     re-
vealed that formal procedures had not been established              to
guide employees In detecting        mall with lnsufflclent      postage
and that the postal     employees had been following        practices
which were not effective      in detecting    mall with lnsuffl-
cient postage

        At one postal facility,      employees sorting         outgoing mail
were told not to speclflcally         examine mall for proper post-
age because mall with lnsufflclent            postage would be ldentl-
fled during subsequent processing           at the recipient        postal
facility.     At another postal faclllty,          an official      stated
that the ldentlflcatlon         of short-paid     and unpaid mall was
made prlmarlly     at the outgoing facility.

       A supervisor   at one postal facility    told us that the
procedure at his location      was for mall clerks to be con-
cerned only with mall with lnsufflclent        postage that could
be easily detected,      such as unpaid mall.     He said that this
procedure was In accordance with national         policy.       The su-
perintendent     of another postal facility    said that employees
attempted    to detect all short-paid     and unpaid mall and that
this procedure was In accordance with national            policy.

       On the basis of our findings,          we believe    that the De-
partment's    unwritten      policy   concerning   the detection     of
short-paid    and unpaid mall 1s not generally           understood     by
postal employees.         Also, our review revealed that some mall
with lnsufflclent       prepaid postage was not being detected             at
either    the orlglnatlng       or the destination     postal facility
This 1s more fully        discussed beginning on page 14.

Low priority     given to detecting
short-paid     and unpaid mall

      Several employees informed us that they did                not look
for short-paid  and unpaid mall because to do so               would have
slowed the flow of mall.    We noted that, during              the period
covered by our review,   it was the policy of the              Department

                                      11
to attempt overnight   delivery of first-class     mail    The
effect  of this policy  on mall processing     1s summarized In
an excerpt from “Toward Postal Excellence--The       Report of
the President’s  Commlsslon on Postal Organlzatlon,”       dated
June 1968

              “The goal of overnight dellvery  leads dl-
      rectly     to a maJor problem  the ‘dally peak.’   In-
      stead of working an even flow of mall throughout
      the day, most mall must be processed during a
      relatively     short period

             “The largest      peak occurs In the evening.
      The natural     lncllnatlon        of most businesses    1s to
      deposit first-class         mall late In the afternoon,
      near or after       the close of the workday.          Deter-
      mined Post Office        efforts      to persuade users to
       ‘mall early’    have been productive          but have not
       succeeded In ellmlnatlng           the peak.    With the goal
      of overnlght      delivery,      this flood of mall col-
      lected In the late afternoon             must be sorted in
      a few evening hours to make night dispatches                to
      non-local     destlnatlons.         Another smaller peak
      occurs during the early hours of the morning when
      mall arrlvlng      from other cities         1s sorted for de-
      livery    that day.      Thus, over half the mall 1s
      processed In about eight hours of the evening and
      early morning. ”

       The Department’s    policy    requires   that mall be handled
wlthln   prescribed   time llmlts        For example, first-class
mall 1s generally     required     to be ready for transportation
toward Its destination       within    90 minutes from the time it
1s received     at the post office

Use of mechanized     equipment

       The Department’s       use of mechanized sorting   machines
was also cited by postal employees as a cause of not effec-
tively   detecting     short-paid   and unpaid mall.    In recent
years letter     sorting    machlnes, which allow operators     to
mechanically     sort each piece of mall, have been introduced
into a number of post offices.          These machines operate at
a speed of about one letter         a second, and the operators
usually   do not handle the mall

                                   12
         A sorting         machlne       supervisor       at one of the 13 postal
facllltles           included       In our revrew         told us that very little
short-paid          mall was detected             when these machines           were used
because          the time limit          allowed      for the sorting      operation
left      little       time for the operator              to scan mall      to detect       ,
insufficient             postage         Other maJor mall-handling              processes,
facing         of letters      --turning       letters      so that   the addresses
face in one dlrectlon                  with    the stamp or meter         imprint      in
the upper right              corner --and cancellation              of postage      stamps,
are also being automated                     at more post offices,          and, as a
result,          manual handling           of mall will       be further      reduced

        We believe      that,   although       machlne     processing     may not
permit     detection      of short-paid        and unpaid      mall   at certain
points     where It 1s used,          such mall       could be detected       at
other mall-processing           points.        For example,       even though       a
letter     may be machlne        sorted     from the time It 1s placed              into
the mall-processing           operation       until     It IS distributed       to a
carrier      (an employee      who delivers          mall  to addressees)       for
delivery,       the carrier     would have an opportunity               to detect
short-paid        or unpaid    mall,     since      each piece    of mall must be
handled     by him for sorting           to the addressee.

        We believe       also that       the use of certain         machines      could
result     In Increased        detectlon      of mall with       lnsufflclent
postage         For Instance      , a recent      modlficatlon        to automatic
facer/cancellng          machines,      which enables        the machines       to de-
tect    stamps impregnated           with    a phosphorescent         Ink,    should
assist     the Department         in detecting      unpaid mall         since mail
without      such stamps ~111 be reJected               by the machines.            The
automatic       facer/cancellng         machines,     however,      do not provide
for detection         of short-paid         mall.

        Statements   by postal     offlclals        and others     In congres-
sional     hearings  on the modlflcatlons             to facer/cancellng        ma-
chines     indicate  that    the purpose      of the modlflcatlon           was to
provide      greater effectiveness         In the automatic        canceling
process      and not to detect     unpaid     mall.      We believe,       however,
that    the Department      should   consider       the detection        of short-
paid and unpaid mall         In the development          of mechanized       han-
dling     equipment




                                               13
-x   n




         UNRECOVEREDCOSTS AND RE’VENUELOSS
         DUE TO SHORT-PAID AND UNPAID MAIL

         Detected     mall

                  On the days that we conducted our tests,    the 13 postal
         facllltles     In four postal regions Included in our review
         processed a total      of 5.8 mllllon  pieces of rated mall.    The
         volume of short-paid      and unpaid mall detected by the postal
         service was 18,916 pieces,       or about 0 33 percent of the
         5 8 mllllon     pieces    The volume of mall processed by the
         four regions in fiscal      year 1969 totaled  16.8 bllllon
         pieces

                Although increased handling costs were Incurred         In col-
         lectlng    the addltlonal    postage due on the mall detected
         with lnsufflclent      postage,   a handling charge was not as-
         sessed or collected         Because the Department did not have
         current    data on the costs Incurred       In special handling of
         mall with lnsufflclent       postage, we were unable to estimate
         the extent of the unrecovered        costs.

                The extent of such costs,    however, 1s lndlcated     by a
         Department study conducted in 1954, and subsequently          updated
         to 1960 cost levels,     which estimated   that the extra handling
         cost of each piece of short-paid       and unpaid mall was 6 3,
         10 8, 7 1, and 11 7 cents for first-,        second-, third-,   and
         fourth-class    mall, respectively.     Several pay raises given
         to postal employees since 1960 have probably         Increased this
         cost

               If the detection   rate of short-pald       and unpaid mall at
         the 13 postal facllltles     1s slmllar     to the detection    rate
         for all other postal facllltles      natlonwlde,     we belleve    that,
         on the basis of the Department’s        cost study, the unrecovered
         costs of handling such mall could be substantial.

         Undetected    mall

               We examined 56,699 pieces of rated mall at the 13
         postal facllltles   to determine whether the required      postage
         had been prepald     Our examlnatlon    was conducted after     the
         mall had been processed and lmmedlately       prior to its being
         routed to carriers   for delivery    or to clerks for dlstrlbu-
         tlon to post-offlce    boxes    We found that 592 pieces of

                                             14
such mall, or 1 04 percent,     did not have sufflclent      postage
and had not been detected by postal      employees.     The postage
due averaged about 6 cents a piece        In view of the percent-
age of undetected    short-pald  and unpaid mall at the 13
postal facllltles    included In OUT review and the substantial
amount of rated mall processed by the Department          (48 billion
pieces annually),    we believe  that the potential     revenue
loss natlonwlde   from such mall could be substantial

      A measure of this loss 1s indicated        by a 1969 Depart-
ment study which estimated        that an annual revenue loss of
about $5 mllllon    resulted    from undetected   short-paid   and
unpaid mall      A Department offlclal     advised us that the
study was not conclusxve       and that the estimated     loss prob-
ably was a conservative      figure

       The results    of our tests to ascertaln    the quantity of
undetected    short-pald     and unpaid mall processed by the 13
postal facllltles       included In OUI review are shown In the
following    table

                                                            Short-pald   and unpaid mall
                                                         not detected    by the Department
           Post office    and             Pieces of mail  Number of             Percent of
            delivery   unit             revlewed by GAO     pieces          mall    revletied
    Hartford,      Connecticut
          Main offlee        statlon         10,167            113                  1 11
          Wethersfleld         branch         9,485            100                  1 05
    Denver, Colorado
          Alcott     station                     972            12                  1 23
          Capitol     Hill statlon            1,216             12                    99
          Maln offlce        station          3,603             43                  1 19
    Englewood,       Colorado
          Maln offlce                         3,201             28                    87
    Golden, Colorado
          Main office                         6,388             42                    66
    Phoenix,      Arizona
          Downtown station                    4,812             44                    91
    Mlnneapolls,        Minnesota
          Bloomington        branch           1,066             12                  1 13
          Maln statlon                        2,684             31                  1 15
          Minnehaha station                   1,361              7                    51
    Seattle,      Washlhgton
          Ballard      station                6,763                                 1 39
          Maln offlce        statlon          4,981                                 1 08
                Total                        26.699




                                                 15
        Because the short-pald     and unpaid pieces of mail we
found were Sub-Ject to further        handling and possible      detec-
tion by the carriers,      we  established    controls    to determine
whether any of this mail was subsequently            detected by car-
riers      Carriers at 11 of the 13 postal facilltles          did not
detect any of this mail, whereas carriers            at the other two
offlces    detected only four pieces of this mail.

         In addition  to making our review at the 13 postal fa-
cilities,     we made two tests in the Denver area during 1968
and 1969. These tests consisted of mailing specially          pre-
pared test letters       that were short-paid  or had no postage
attached       The results    of these tests were as follows
                               Pieces                     Pieces
  Test      Pieces          not detected                detected
mailing     mailed        Number     Percent       Number      Percent

  1968         124           67           54           57           46
  1969         119           75
                             -            63           44
                                                       -            37

  Total

DEPARTMENT'S POLICY FOR
COLLECTING POSTAGEDUE ON MAIL
       The Department's   policy generally    requires    collection
of postage due on short-paid      and unpaid mail from the ad-
dressee     An exception    is made when quantity     mailings     of 10
or more pieces of short-paid      or unpaid mail from the same
sender are found at the postal facility        where the mall was
deposited     In such cases, the sender 1s notified          so that
correct payment can be made before the mall is dispatched
for delivery.     As previously   pointed out, in nelther        case
is a charge made for the additional        handling costs incurred
by the Department.

       Postal personnel informed us that one cause for short-
paid mail was that company representatives        were sending
mall to home offices    with little    regard concerning the suf-
ficiency    of postage    Employees of one post office      cited as
an example a company that received such a large volume of
short-paid    mail from Its sales representatives      that special
postal measures were taken to check the postage on all mail
from these representatives.        The estimated  costs borne by

                                    16
the Department to check postage and to collect  postage due
on this mail was about $11,200 a year, and the company es-
timated its annual postage-due payments at about $40,000.

     We believe  that the     Department should return   short-
paid and unpaid mail to     the senders whenever practicable
so as to place financial      responsibility  for the postage
due and handling charge     on the senders of such mall        Also,
such a policy may deter     senders from entering    such mail into
the postal system.

RECOMMENDATIONS
              TO THE POSTMASTERGENERAL

      We recommend that the Postmaster        General   take   the fol-
lowing courses of action

     --Develop    data on the cost to detect and collect   post-
        age due on short-paid   and unpaid mail and prescribe
        a handling charge, based on such cost, to be col-
        lected.

     --Establish     procedures     for measuring the revenue
        losses resulting       from undetected    short-paid and un-
        paid mall.      This information     would provide Depart-
        ment offlclals      with data to assess the Department-
        wide significance        of the revenue loss so that they
        would have a sound basis for planning corrective           ac-
        tlons.

     --Issue   a policy  and implementing      instructions     for as-
        signing specific   responsibilities       and prescribing
        methods for detecting    mail with     insufficient     postage.

     --Change the policy   from generally    forwdrding  short-
       paid and unpaid mail to addressees to returning
        such mall to senders unless it can be shown by ade-
        quate study that under certain    circumstances   it is
       not practicable   to do so.   Returning    mall to senders
        could serve to deter such mail from entering      the
        postal system in the future

     --In connection    with research and development efforts,
        explore techniques    which can be utilized  with mecha-
        nized mail-processing     equipment to aid in the detec-
        tion of short-paid    and unpaid mail.

                                  17
      The Postmaster General, In a letter       to us dated Octo-
ber 1, 1970 (app I), stated that,       to better    appraise the
problem dlscussed In our report      and the solutions     avallable
to the Department,    a cost-benefit   analysis would be made
and that this analysis would generally       recognize our recom-
mendatlons     He stated,   however, that forwarding      mall with
postage due to the addressee was the most expedient           and
economical method of processing      such mall.     We plan to re-
view the results   of the Department’s     analysis   and to eval-
uate the actions   to be taken in response to our recommenda-
tlons

      The Postmaster General provided      addItIona    comments on
our draft  report,  which are included     along with   our evalu-
ation In appendix II.




                                 18
                                   CHAPTER 3


                              SCOPE OF REVIEW
       During the period October 1968 to July 1969, we re-
viewed the handling of short-paid    and unpaid mall at the
following    13 postal facilltles In four postal regions

                                                        Name of
     Region and delivery         unit                 post offlce
     Boston region
          Maln office        statlon         Hartford,      Connecticut
          Wethersfleld        branch                Do.
     Denver region
          Alcott     station                 Denver, Colorado
          Capitol Hill station                     Do.
          Main office        station               Do
          Englewood post offlce              Englewood, Colorado
          Golden post office                 Golden,             I1


          Downtown station                   Phoenix, Arizona
     Minneapolis      region
          Bloomington branch                 Minneapolis,      Minnesota
          Main station                            Do.
          Mlnnehaha station                       Do.
     Seattle     region
          Ballard     station                Seattle,  Washlngton
          Main office        station                Do
        Our review consisted       primarily      of observing        the han-
dling of short-paid        and unpaid mall being processed at the
delivery     offices    and at mall-handling         facllltles       and of
holding dlscusslons        with employees and supervisors                at these
locations.        Also, we held dlscusslons          with regional        offl-
clals and with offlclals          In Washington,         D C. We revlewed
pertinent     leglslatlon,     leglslatlve       history,       Department pub-
llcatlons     and regulations,       and certain       other records at
local,    regional,     and national      levels




                                        19
APPENDIXES




   21
                                                                         APPENDIX      I
                                                                              Page     1




                                                          October   1, 1970




Dear Mr    NeuwLrth

Your recent proposed report to the Congress on Mail wrth Insufflcrent
Postage (1) questlons the Postmaster General's     authority    to waive
collection    of deflclent  postage penalty charges for an mdeflnrte
period and (2) alleges that we are not detectang     a srgnlfrcant     volume
of short-pard    and unpaid mall                                I

With regard to the frrst pomt,    the language of 39 U S C 411'0 LS
quite clear    It provrdes that the Postmaster   General "may waive the
collectron  of any charges when he deems a waiver to be in the Interest
of the Government" (underscorlng    provided). It is drfflcult,      m the
face of this language, to conclude that any restriction       LS placed
upon the Postmaster General's warver authority      Further,    since the
new U S Postal Servrce has been authorrsed,      the effectiveness      of
39 U S C 4110 1s of llmrted duration

With regard to your      second pornt,       any prudently    run postal admlnrs-
tratlon   -11 pursue     the protectron      of Its revenues, and we have em-
ployed a number of     techniques,     as discussed m the Attachment.         We
have made extensive      collection    efforts    where deficiencies    are substan-
tial,   and we cover   the proper collection        of postage durrng our audit
Lnspectrons of post     offices




                             [See   GAO note     ]




We have weelghed the costs of collectron     and adverse patron response
against  the potential   revenue garn and have arrrved at our current
approach of collectrng     msufflcrent  postage for the reasons detaLled
In the Attachment      So that we may better   apprarse the extent of the
problem and the solutrons available     to us, I am directing   a cost/

GAO note       The deleted       comments   relate     to matters    which were
               discussed       In the draft     report   but omitted     from this
               final    report




                                      23
APPENDIX I
    Page 2



    benefit analysis which will, generally,            recognize   the recommendations
    on pages 22 and 23 of your draft report

    We shall     be glad to inform   you of the results       of this   analysis

                                          Sincgrely,




                                          Wrnton M Blount


    Mr. Max A. Neuwirth
    Assocrate DFrector,  Civil Drvkslon
    U. S. General Accounting Office
    Washington, D C 20568


    Attachment




                                            24
                                                                 APPENDIX I
                                                                     Page 3
                                                             ATTACHMENT

      FACTORS CONTRIBUTING TO CURRENT PRACTICES RELBlTING
               TO MAIL WITH SHORT-PAID AND UNPAID
                            POSTAGE


SURCHARGE

The occurrence of frequent rate mcreases over the past 12 years has ltiblted
lmposltion of a surcharge because we dzd not want to aggravate adverse patron
reaction and because rate increases may easily result m honest mistakes on
the part of patrons   Further, we have sollclted patron cooperation m a number
of programs, such as ZIP Codmg, whxh benefit us but add to our patrons’ cost
of mmlmg .

We have been able to collect short-pad postage from addressees. However, we
met with great resistance when, for a brief period m 1958, we attempted to col-
lect a surcharge from addressees     Imposltzon of a surcharge would result m
m mcrease m the amount of msLl1 refused by addressees and a concormtant m-
crease m our handling expenses. Further, a procedure of collectmg a surcharge
wxll slgmfxantly  add to costs.

EDUCATION

We believe it necessary to a large volume, low cost delivery system to assume
that the vast majority of our patrons are honest aqd to tactfully sollclt their
cooperation through a program of education     Ths program mcludes        The &s-
patch of customer-relations   men to maJor mmlers, the use of tramng films for
postal personnel, and the free tistnbutlon of rmlllons of booklets which mdlcate
the latest rates

FORWARDING TO ADDRESSEE OR RETURN TO SENDER

Forwardmg postage due rnti to the addressee 1s the most expe&ent and economl-
c&l method of processing such ma1 m a large volume operation such as the
Postal Service     It facilitates swift transmlsslon of the m;ul It avoids the
crltxlsm   that, for modest sums of money, we delay pieces of mall that have lm-
portant time value Further, it LS the only practicable way to handle ma1 ulth-
out a return address, or maul whose unpad or short-pad condition was first
dscovered at the office of destmatlon.

A system for returmng short-pmd mall to the sender can be umntentlonally or
mtentionally rendered moperatxve by falure to provide a return address. Thus,
a return to sender system would not deter the conscious offender.
APPENDIX I
    Page 4


OFFSETTING     FACTOR

Though there are pieces of short-paid mall entermg the system, there are
also pieces of ma1 with excess payments. T~LS factor, though never measured,
serves to offset the loss of revenues suffered through msufflclent payment of
postage.

DETECTION    BY CARRIERS

Since postal rates are based upon per piece weight, rt 1s lmpractlcable to
place the burden of detecting msufflclent postage upon the carriers.   To do
so would require an increase m their m-office time mth corollary mcreases
m postal labor costs, and necessitate the issuance, to them, of scale
equipment.

TAGGED STAMPS

Jncreased mechamzatlon of mill1 sortmg IS essential to reduction of postal
costs and improvement of delivery time        However, mechamzatlon has made
more &fflcult the venficatlon of postage. Through employment of lummescent
mks, we have narrowed the posslb&ty of unpad ma1 flowmg through the mall
stream. Our Mark II facer - canceler machmes, wbch are used m larger
offices, are now sensitive to lummescent mks Most of our stamps are V%agged17
vvlth lummescent mks and we are workmg toward the use of such mks 111postage
meters. Ths rltaggmg’l facilitates facmg and cancelmg and !lflagsll those
envelopes which bear no stamps or stamps whch are not r%.ggedll -- such as
tradmg 5tamps     Thus, it asds ldentlficatlon of unpaid -- though not necessarily
of short- pad -- mall




                                     26
                                                              APPENDIX II
                                                                   Page 1

                 GAO EVALUATION OF AGENCY COMMENTS


HANDLING CHARGEON SHORT-PAID AND UNPAID MAIL
      The Postmaster General said that 39 U S C 4110 was
      quite clear In that lt provided that "the Postmaster
      General 'may waive the collection    of any charges when
      he deems a waiver to be In the interest     of the Govern-
      ment' (underscoring    provided)  " He said that,  In view
      of this language, It was dlfflcult    to conclude that
      any restrlctlon   was placed upon the Postmaster Gen-
      eral's  waiver authority.

       As previously     discussed In this report,        our review of
the leglslatlve      history    of the act of April 9, 1958, Indl-
cated that It was the Intent           of the Congress that additIona
costs incurred     by the Department In detecting          and collect-
ing postage due on short-pald           and unpaid mall be recovered
from postal patrons through a handling charge.               Moreover,
we did not find any lndlcatlon           of congressional    Intent     that
the waiver authority         should be so flexible,     or could be so
interpreted     and applied,      as to negate the collection       re-
quirement by walvlng collection           actlon over a substantial
period of time.        Over 12 years have now elapsed since the
waiver was invoked by the Department

      The Postmaster General said that,    since the new U S
      Postal Service had been authorized,     the effectiveness
      of 39 U.S C. 4110 was of llmlted    duration.

       The Postal Reorganlzatlon      Act (84 Stat. 719) approved
August 12, 1970, provides for creating           the United States
Postal Service as an independent         self-supporting    establlsh-
ment in the executive      branch of the Government to furnish
postal services    throughout    the United States        The provl-
slons of the Postal Reorganlzatlon         Act, which will super-
sede the existing     provisions    of 39 U.S C 4110, will become
effective   on July 1, 1971.

      Although the provisions   of the Postal Reorganlzatlon
Act ~1x1 supersede the provlslons     of 39 U S C 4110, we be-
lleve that,   as a prudent business practice,     the Department
should assess a charge to recover its added cost of han-
dling and collecting    postage due on short-pald    and unpaid


                                      27
APPENDIX II
     Page 2

mall,  irrespective    of whether there 1s a legal requirement
to do so, unless the Postmaster      General determlnes    that It
would not be In the Government's      best Interest    to collect
the charge       Such collection would assist    the Postal Ser-
vice to comply with the legal requirement        in the new act
that It be self-supportlng.

      The Postmaster     General stated that the occurrence   of
      frequent   rate increases   over the past 12 years had
      inhibited    the lmposltlon   of a handling charge for
      short-paid     and unpaid mall because the Department did
      not want to aggravate adverse reactions      by patrons and
      because rate increases might easily result       In honest
      mistakes on the part of patrons

        Although    we understand    the Department's desire to
avoid adverse       reactions   by postal patrons to the lmposltlon
of a handling        charge during periods of adlustment    to in-
creased postal        rates,  we believe that the Department was not
Justified     in   lnvoklng,   in all cases, the waiver authority
of 39 U.S C.       4110 for a period of over 12 years

      The Postmaster   General said that the Department had
      sollclted  patron cooperation   In a number of programs,
      such as ZIP coding, which benefited      the Department
      but added to patrons'    cost of mailing

       One of the primary lncentlves      which the Department of-
fers to mailers   to obtain their     cooperation    and assistance
In such programs as the ZIP program IS improved mall proc-
essing and delivery     service     We recognize   that such cooper-
ation may increase costs to the mailer and reduce costs to
the Department      Such cooperation,     however, usually     results
In a mutual benefit     to the Department and the mailers
The Department incurs lower mall processing          and delivery
costs,   and the mailers    receive faster    mall service

      The Postmaster   General said that the Department had
      been able to collect    short-paid postage from address-
      ees but that It had encountered    great resistance     when,
      for a brief  period in 1958, It had tried    to collect    a
      handling charge from addressees      He expressed the view
      that the lmposltlon   of a handling charge would result       In
      an increase   In the amount of mall refused by addressees



                                   28
                                                         APPENDIX II
                                                              Page 3
     and a concomitant     increase    in the Department's    han-
     dling expenses.

       We recognize that it may be impracticable        to collect
the handling charge from addressees,        and this is, in part,
the reason why we are recommending that short-paid          and un-
paid mail be returned      to the senders, when practicable,       for
collection    of the deficient   postage and the handling charge.
We believe that the financial      responsibility    for postage
due and the handling charge should be placed on the sender

       Further,   about 13 percent of all mail is personal cor-
respondence and the remaining 87 percent is primarily         busi-
ness mail       Returning  short-paid  and unpaid mail to the
senders, mostly business firms,       may deter such firms from
entering     such mail into the postal system and thereby reduce
costs to the Department for detecting        and handling mall with
insufficient     postage

      Concerning the Department's   comment that the lmposi-
tion of a handling charge would increase its handling ex-
penses, we believe that it would be reasonable to consider
such expenses in determining    the handling charges to be
assessed against senders of short-paid      and unpaid mail

FORWARDINGMAIL TO ADDRESSEE
OR RETURNING IT TO SENDER

      The Postmaster General said that forwarding       postage-
      due mail to the addressee was the most expedient and
      economical method of processing     such mail in a large-
      volume operation,   such as the Post Office Department,
      because (1) it facilitated    swift transmission     of the
      mail and (2) it avoided the criticism      that, for modest
      sums of money, the Department delayed delivery        of
      pieces of mail that had important     time value.

      We agree that the Department's     present policy for han-
dling short-paid     and unpaid mail probably facilitates       swift
transmission    of such mail to addressees and avoids the crlt-
icism that the Department is delaying       important   time-value
mail for modest sums of money. The policy,         however, results
m addltlonal     costs over and above normal mail-processing
costs that are not recovered,      and the policy does not pro-
vide a deterrent     to the mailing of short-paid     and unpaid mail.


                                  29
APPENDIX II
    Page 4

     The Postmaster General stated that forwarding          postage-
     due mall to the addressee was the only practicable           way
     to handle mall without       a return   address or mall whose
     short-paid    or unpaid condltlon     was first  discovered   at
     the office    of destination       He also said that a system
     for returning    short-paid    and unpaid mall to the sender
     could be unintentionally       or intentionally   rendered in-
     operative   by failure     to provide a return   address
     Thus, a return-to-sender       system would not deter the
     conscious offender

      We recognize   that the only practicable    way of handling
a short-paid   or unpaid letter    which has no return    address
IS to forward it to the addressee and request him to pay the
postage due and the handling charge.       Department officials
advlsed us that the Department did not have data on the
volume of short-paid     and unpaid mail without   return   ad-
dresses, but they expressed the oplnlon that a very small
percentage   of mall did not have return    addresses.

       We do not agree that mail should be forwarded to ad-
dressees because the mall’s      short-paid    or unpaid condltlon
was first   discovered   at the office    of destlnatlon.     We be-
lieve that,    as a general rule,    a short-pald    or unpaid letter
that has a return     address should be returned       to the sender.
Such a policy would serve as a deterrent          to the sending of
short-paid   and unpaid mall since senders would be faced with
the return   of such mall If detected.

OFFSETTING EFFECT OF POSTAGEOVERPAYMENTS

     The Postmaster    General stated that,    although there
     were pieces of short-paid     mall entering    the system,
     there were also pieces of mall with excess payments.
     This factor,   though never measured, serves to off -
     set the loss of revenues suffered      through insufficient
     payment of postage

       The postal laws generally   require   that the proper
amount of postage be prepaid at the time of mailing.         In
our opinion,    the fact that certain   patrons overpay their
postage does not excuse other patrons who underpay postage
required   by law to be paid at the time of mailing.




                                30
                                                            APPENDIX II
                                                                 Page 5

DETECTION BY CARRIERS

      The Postmaster    General said that,      since postal rates
      were based on piece weight,      It was impracticable        to
      place the burden of detecting       insufficient    postage     ’
      upon the carriers       To do so would require      an increase
      in the carriers’    in-office  time with corollary       In-
      creases In postal labor costs and would necessitate
      the issuance to the carriers       of scale equipment.

       We do not advocate that complete responsibility      for
detection     of all short-paid   and unpaid mail be placed upon
the carriers,     and we recognize   that it would be unreasonable
to expect all such mail to be detected by carriers          W$ be-
lieve,    however, that carriers    should be expected to detect
obvious cases of short-paid       and unpaid mail which have been
processed through the system undetected

       As stated on page 16 of this report,         carriers    detected
only four of 592 pieces of short-paid          and unpaid mail, which
we had previously    identified.      Thus it appears to us that
carriers   are not reporting     obvious cases of insufficient          pre-
paid postage inasmuch as many of the 592 pieces of mall were
unpaid or obviously     short-paid.     We believe    that the Depart-
ment should emphasize to carriers        their   responsibility      to
detect and report    short-paid     and unpaid mail.

DEPARTMENT’SEFFORTS TO COLLECT
FULL POSTAGEREVENUES

      The Postmaster       General said that any prudently       run
      postal    administration    would pursue the protection        of
      its revenues and that the Department had made extensive
      collection    efforts    where deficiencies    were substantial.
      He said also that the proper collection           of postage was
      covered during the Department’s          audit inspections     of
      post offices.

       Department officials      advised us that during fiscal         year
1969 postal    inspectors   collected    deficient    postage of about
$172,000 in 148 cases and that during fiscal            year 1970 they
collected    about $47,000 in 86 cases.         Moreover,   for fiscal
year 1970 the inspectors       detected   revenue deficiencies       total-
ing about $387,000 in 813 cases and collection             action  is in
process on these cases.


                                      31
APPENDIX II
    Page 6

        A Department offlclal           stated that these ldentlfled        de-
flclencles      resulted      from examlnatlons       of large malllngs     of
first-,     second-,     third-,     and fourth-class     mall but that
there was no written            requirement    that audit lnspectlons
cover lndlvldual         short-pald      or unpaid first-class      letters
or small malllngs          of other classes of mail           He said that
postal Inspectors         were supposed to generally          review ordinary
first-class       mall when time permitted          but that there were no
speclflc     lnstructlons         concerning this matter.

       Although the postal   inspectors    cover certain    aspects of
the proper collection     of postage during their      audit lnspec-
tions,    we believe that our review lndlcates      that the Depart-
ment needs to take other actions        as described on page 17 to
Improve its management control       over the collection     of post-
age e
                                                      APPENDIX III
                                                           Page 1

             PRINCIPAL MANAGEMENTOFFICIALS OF

                THE POST OFFICE DEPARTMENT

    RESPONSIBLE FOR THE ADMINISTRA?ION OF ACTIVITIES

                 DISCUSSED IN THIS REPORT


                                           Tenure of offlce
                                           From             -To
POSTMASTERGENERAL
   Wlnton M. Blount                  Jan      1969      Present
   W. Marvin Watson                  APr      1968      Jan.    1969
   Lawrence F. O'Brien               Nov.     1965      Apr.    1968
   John A Gronouskl                  Sept.    1963      Nov     1965
   J Edward Day                      Jan      1961      Al-x    1963
   Arthur E. Summerfield             Jan      1953      Jan.    1961

DEPUTY POSTMASTERGENEML
   E T. Klassen                      Feb.     1969      Jan       1971
    Frederick C. Belen               Feb.     1964      Jan.      1969
    Sidney W. Bishop                 July     1963      Feb.      1964
   Vacant                            July     1962      July      1963
   Haran W. Brawley                  Jan.     1961      July      1962
   John M McKlbbln, Jr.              Oct.     1959      Jan.      1961
    Edson 0. Sessions                Sept.    1957      Oct.      1959

ASSISTANT POSTMASTERGENERAL, BU-
  REAU OF OPERATIONS (note a)
    Frank J. Nunlist                 Apr.      1969     Present
    Vacant                           Dec.      1968     Apr.    1969
    Wllllam M. McMlllan              Feb       1964     Dec.    1968
    Frederick C. Belen               Mar.      1961     Feb.    1964
    Bert B. Barnes                   Nov.      1959     Mar.    1961
    John M. McKlbbln, Jr.            Feb.      1957     Oct.    1959

ASSISTANT POSTMASTERGENERAL, BU-
  REAU OF FINANCE AND ADMINISTlbl-
  TION (note b)
    James W. Hargrove                Feb       1969     Present
    Ralph W Nicholson                Mar       1961     Feb     1969




                              33
APPENDIX III
     Page 2

                                                  Tenure of offlce
                                                  From            -To
ASSISTANT POSTMASTERGENERAL, BU-
  REAU OF FINANCE AND ADMINISTRA-
  TION (note b) (contmued)
    Vacant                                  Jan      1961     Mar       1961
    Hyde Gillette                           Feb      1957     Jan       1961

aBureau of Post Office      Operations   prior     to July   1,
 1957.

bBureau of Fmance   prior     to April   26, 1964




                                   34