, 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 I 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 I I I I I I I I I I I I I 1 I I I I I I I I I 2 I I I 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
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)