t.~M-ED STATES GENERAL P,CCOWY::G OFFICE wASHlNz=i --x--a,D.C. 23:&3 ./I.-. 1377 _. * 1 Illllllll lllll IlllIlllllllllllll 1111111111 LM102500 Ill1 Ill1 3 GC%ERAL CX%FPtKM~-i- The Honorable Richardson Preyer Chairman, Scbcom;,littee on Government Information and Individual Rights Committee on Government Operations House of Zepresentatives Dear :-it, Chairman: On September 7, 1916, the Subcornqittee requested an audit of the third-class nonprofit classif ication to determine whether all organizations presently using preferential postal rates should le~itimazely be doing so, Et wzs subsequently agreed that our review would be done at the Baltimore Service Center and limited to determine (I.) the criteria used by the Postal Service in granting reduced third-class rates to nonprofit orqanizations, (2) whet’ler selected organizations were qua1 if ied for reduced rates, and (3) the number and nature of requests for reduced rates that were rejected by the BalLimore Postal Service Cknter and appealed to Postal Service Headquarters. From June 21, 1975, to September 30, 1976, the Baltimore Post Office received $23 million in revenues from third-class permit mailings. Thirteen perceilt--$3 mill ion--of this revenue came from mailings by nonprofit organizations who are entitled to reduced rates. (See app. I.) Our reviews of the file folders for 110 selected nonprofit organizations showed that the Service followed its criteria for granting reduced third-class rates. We could not deter- mine, however, how many applications r’or reduced rates were denied by the Baltimore Center and subsequently approved at the Postal Headquarters. The results of our work are discussed in greater detail in the following sections. GGD-73-53 creatinc~ tne United States Postal Service states that the responsibility for establishing classes of mail and setting appropriate rates for their delivery and transportation is vested with the ?ostal Service Eoarci of Governors. Under this author ityr certain categories of nonprofit organizations, when approl.ed p are permitted to mail at reduced second- and third-clacs postage rai’ies. The reduced rates for third-class bulk nonprofit postage are about one -third the rate for reg- ular third-class mail. (See app. 1.) TLe Postal Serli;e estimated that revenue foregone 1/ in fiscal year 1976 <or third-class bulk reduced rate mailings amounted to about $293 million. This znount was included in the Service’s .rievenue Foregone Appropriations for riscal year 1976. The Postal Service requirements and procedures for application for and approval of reduced third-class rates are published in the Postal Service Hanual. To qualify, an organization must --not be organized for profit. --not have any net income benefiting private stockholders or individuals, and --meet the definitions for one of the eight categories of organizations set forth in the Manual. The definitions of the eight kinds of organizations that may qualify (religious, educational, scientific. philanthropic, agricultural, labor3 veterans, and fraternal] are described in the Service Hanual. The Hanual alto contains the provision that organizations. although properly defined in any of the first four nonprofit categories (religious, educational, scientific, philanthropic), will not qualify if a substantial part of their activity is politically related. Appendix II lists ewmples of organizations that may and those that may not qualify ior reduced third-class postal rates. l/Revenue foregone refers to the amount appropriated amually To the Service by Congress as reimbursement for revenue not recxived by it in providing certain postal services at reduced rates. 2 The Festal Service requires an applicant to cubmis, cv ide:-kce cfiowing the: the organization is nonprofit and, if 2vc?ilable * a certificate of Fxesption fron Federal iTiCGiZfZ t2X. The Festal Service also suggests the ap~PiP;llt rub-ilit .* eviri~non, .d_ such as a cozy of the oraanization’s charter, constitution, bylaws, bulletins, or progress* as proof of eh.igibiLity for reduced ?ostal rates. %hen a~ organization submits proof it has received income tax exerr.ption I?ndcr 26 u.s.c, 501(c)(3), (5). (81, or (191, it will be considered as qualifyir,g for special third-class rates unless some other evidence discloses some basis for disqualificat;on. (See app, III.) To determine whether the Postal Service followed its criteria for granting reduced third-class rates, we seiected (1) 100 organizations randomly from the 1,841 nonprofit organizations approved since 1952 and authorized to deposit third-class reduced rate mail at the Baltimore Post Office and (2) the LO largest volume nonprofit organizations mailing from Baltimore dcring 1976. (See app. IV for a list of selected organiza+ions,) Eased on the information contained in the organizations' individual files, all the organizations meet the Service’s criteria for reduced third-class rates. None of the files contained any disqualifying evidence. Records at the Baltimore Post Office showed that 70 organizations received tax exemptions from the Internal Revenue Service and 59 organizations submitted charters or bylaws as evidence of their eligibility for reduced postal rates. SERVICE PIONPT’ORS CONTrNUfNG EL%GIBILITY r'OR REDUCED m!I'ES The PostaP Service uses a Hailing Fee Notice as its primary method to insure continuing eligibility of nonprofit organizations authorized to use special reduced third-class bulk rates. A12 mailers are annually required to complete and sign the Wailing Fee Notice and to remit a fee (currently $40) for the privilege of using a bulk meter, permit imprint, or Frecanceled stamp permits. The Notice includes a question as to whether the purpose, function, and nonprofit status of the organization and the exempticn status for Federal tax purposes have changed during the preceding 12 months. If an B-P13874 organization indicates that such a change has occurreds it must provide an explanation of the chanqe. The Posta!. Service also relies on custcmer conplaints, inspection of mailings by rccervinq clerks* and quality control tests of processed mail to insure revenue Fjrotectioit and cozq31. iance with requirements. Baltimore Post Office OffiCiCilS advised us that no records were maintained at Baltimore on i,roblens or abuse of reduced third-class rates. Our samlIe of 110 nonprofit organizations included 3& who mailed at reduced thirti-class rates during 1976. Baltimore Post Cffice records showed that a13 48 had paid the required mailing fee; however, 22 iailed to zespond to the questions as to whetter the organizations’ function had changed during the year. The other 58 mailers answered that thsre were no changes in the nonprofit status during the period e Baltimore Post Office officials advised us that their primary concern had been with the receipt of the fee. As a result of c’ut inquiry, the Baltimore Post Office established followup procedures to insure the completeness of returned notices. NUKBER AND NATURE OF REQUESTS FOR REDUCED THIRD-CLASS RFxTZS REJECTED ANDUSSEQUE~;TLY APPR~ED - CANKiOT BE DETERMINED - The Baltimore Post Office retains those applications for reduced third-class rates which are ultimately denied. There is no separate accounting for appeals that are approved at hsadquarters. The files of organizations with successful appeals are incorporated with the files of all other authorized nonprofit organizations. Our review showed that 32 rejected applications were on file at Baltimore covering the ;?eriod I.979 to 1976. Only two of these applicants had appealed to Postal Service Headquarters. Their appeals were denied. The resulting denial decisions for both applicants indicate that the organization s w*re classified by the Internal Revenue Service as civic leagues, under 26 U.S,C. SOP(c)[Q), and as such did not qualify fo, r third-class reduced rates under Postal Service criteria. B-lfC874 Director F"lailincs (June 21. 1975, tc September ?O, 1976) Per- Per- Per- Revenue cent Pieces cent Pounds cei-it CQIIXler- cial $20,3;8,146 87 206,130,629 56 47,577.130 79 k'sn- profit 2,973,411 13 159.970.308 44 12.563.008 2 Total $23,251,557 366.100.937 100 Z100 60.140.138 a- 100 I_ ., THIRD-CLASS POSTAL FGITES Examples ef Orsanizati~ns That Msy Qualify Mason5 Mosques Knights of Columbus Museums Elks zoos College fraternities Planetariums . Churches Symphony orchestras Synagogues Employee associations Temples ExsmDles of Oroanizations That Pray Not QudlifJ! Automobile clubs Professional associations Business leagues Service clubs: Chambers of comm@Kce Civitan Citizens' an4 civic Kiwanis improvement associations Optimist Individuals RotaKy Mun;cipal, counky. or State Social and hobby clubs governmental bodies Rural electric Mutual insurance associations cooperatives Political organizations Trade associations ., a h APPENDIX 114 APPENDIX III PRS Postal Service !?Y?,mc ) Twe or nature of orqanization nopinrofit categorq 1 Instcumentalities of U.S. 2 Title holding corporation for exempt organization I 3 Relioious, ducationah, charitable, scientific, literary, public - safety p SPCA R, E, S, P 4 Civil leagues, social welfare, * local employees association 5 Labor, agricultural, horticultural organizations L, A 6 Business leagues, chambers of commerce, real estate boards 7 Social and recreation clubs 8 Fraternal beneficiary societies and associations F 9 Voluntary employees’ beneficiary association 10 Domestic fraternal societies and associafions 11 Teachers’ retirement fupld aSSOciatiOR 12 Benevolent insurance associations, mutual ditch or irrigation companies Cemetery companies ;a State chartered credit unions, mutual reserve 15 Mutual insurance companies 16 . Cooperative organiaatioa to finance c*.op operations 17 ** Supplemental unemployment benefit trusts Employees@ funded pension trusts Posts or organizatPons of war veterans w Nonprofit cateqories R- Religion P- PhflaRthropfc V- Veterans [I,$ E- Edueationrl A- Agricultural F- Fraternal 1-1 S- Scientific L- Labor 8 Random Sample of A~uroved Organizations Nonprofit category Name (note a) AFGE Local 23113 (American Federation of Government Enl~loyees) L Ahtrua Gurild, Inc. P American Cheaical. Society S American Heart Association, Inc. S American Psychological Association E Amicable Lodge, t25 W,F. and A.M. F Art?ns Players, Inc. E Association of the Hiracu%ous Medal R Baltimore Building and Construction Trade Council L Baltimore City Lodge #3 Fraternal Order of Police F Baltimore 6‘ounty Lodge f-4 Fraternal Order of Police F Baltimore Beritage. Inc. E Baltimore Ostomy Association, Inc. a E Baltimore Urban Coalition, Inc. E Betty Berkowich Fund for Cancer P Bishop Neumann Council 425421 Knights of Columbus F Boys Town of &xyland E Private Wm. J. Buhl 3217 Veterans of Foreign Wars V Cardinal Gibbons Council $2521 Knights of Columbus F ' Catholic Bigh School of Baltimore E Center for Community Organization . E Chesapeake College E Christ Episcopal Church R Chtistus Victor Evangelical Lutheran,Church R Church of the Boly Apostles R Citizens for Washington Bill, Inc. E Commission on Chronic Illness E * Contact Baltimore Teleministries R Danish Seamens Ourch of Baltimore, Inc. R Dumbarten Junior High School E East Baltimore Church of God R Edith Rosen Strauss Organization. Inc. P English Speaking Union of Maryland E Evangelical Luth$rran Church of Our Savior R z/See page 12. 9 APPENDIX IV Yonprof it category (note a) Fedar;;l ;.aw Enforcement Loo;e 2 Fraternal Order of Police F First English Even. Lutheran Churcfr l-4 Franklin Stseet Presbyterian Church R General John Stricker Junior High School. E Grace Bible Baptist Church a Greater Baltimore Medical Center S Hamilton Presbyterian Church R Hebrew Noble Ladies Society of Baltimore, Inc. E Holy Nstivity Lutheran Church . R Hungarian Freedom Fighters Federation E Institutes of Religion end Health R Israel Baptist Church of 3altimore City R Yohn Hopkins Lung Project S Junior Board of Union Hospital The Xorean Presbyterian Church E The Lewis and Harriet Lederer Foundation, Inc. a Linden Heights Methodist Church R Lovely Lane Methodist R Lutheran Social Services of Maryland R Mars Hill Baptist Church R Maryland ChildZen’s Aid Society P Maryland English Journal E Maryland Public Health Association S Maryland State Firemen's Association P Memorial Church (Episcopal) R Metropolitan Senior Citizen5 Center, Inc. B Monroe Street Methodist Church a Mt. Olivet Christian Church w National Bird Watching Society E National Rifle Association E Newman Bookstore of Baltimore R Northwest Health Services, Inc. P Operation H.E.L.P., Inc. R Our Lady of Victory Homes of Charity R Parent Teacher Guild of the Catholic High School of Baltimore E Patapsco United Methodist Church w Philadelphia Baptist Convention, Inc. R Polynesian Youth Crusade R Randall St. Christian Church R Rockefeller University Press s St. Agnes Council 84449 Knights of Columbus F St.-Benedict Church R St. Francis Xavier Catholic Church R St. Johns The Evangelist Church R St. Mathews Lutheran Church R g/See page 12. ~BPENDIX IV APPFYDPX . IV N@r;pEOfi c, cstc@joay Na -u_ n e (note --- a) St. bukes's Church t) St. Pauh*S Lutheran Church ii St, Thomas F!ore Church R Santa Cls;is Anonymotls P Self Eelp, Inc. B Shrine of the F>cred Heart R so'2 iety for Technical Communications E Stra$gbf-;dcc. .sl:rina Associations R Tecpm.Fters - ,:a1 %r..'.:,n if311 b Toastyyzss ; Intcrnakional District 18 . E Trinirsr: IT--'-*i=r~ .< R unicl:i .-e-L i 0,rta.l. P trnitecr .;.~' ci. . 'ddgdi ansldtilte E University* or ;.:tesburgh E P,TatCh%OW@iT Bible and Tra+z'. Society R xestside Church OE Christ R ~omn's Auxiliary of Hercy Hospital P Yeshiva Shearitk Hapleita E AUW, Inc. , E Alumnae Association College OL &~otre Dame of Maryland E American Cancer Society P &seal Service rbvei?ue for 100 erg-.iizations (January P t.z~ Deeemher 31. 1976) $35,857.52 -- Large ;t Volume Organizations *Revenue Nor.profit (January 1 to category October 31, 1976) ~allstirte Fathers R $649;511.51 Korean Relief, Inc. E 89.080.90 Trinity Mission R 65,285.X Holy Trinity Fathers R 34,187.45 World'Mercy Fund R 27.957.56 Jesuit Seminary Gl;ilB E ' 8,051.90 Washington Cathedral 7,286.3-I The Cmferexxe Board s" 6.669.85 Missionhurst R 4p590.78 Augcstinian Recollect Fathers R 4.279.77 589b , 303 34 l @kxqro~it categories R- Religion P- Philanthropic V- 7eter;fns E- Educational a- Agricultural F- Frsizrnal s- Science L- Labor 11
Nonprofit Organizations' Eligibility for Reduced Third-Class Postal Rates
Published by the Government Accountability Office on 1977-06-07.
Below is a raw (and likely hideous) rendition of the original report. (PDF)