U.S. Postal Service:
Post Office Changes Suggest Cost Savings, but Improved Guidance, Data, and Analysis Can Inform Future Savings Efforts
GAO-16-385: Published: Apr 29, 2016. Publicly Released: Apr 29, 2016.
What GAO Found
The U.S. Postal Service (USPS) had largely completed Post Office Structure Plan's (POStPlan) implementation prior to a 2014 POStPlan arbitration decision and expected millions in cost savings. Specifically, under POStPlan, USPS planned to reduce hours at about 13,000 post offices (from 8- to 2-, 4-, or 6-hours of retail service a day) and to staff them with employees less costly than postmasters. Prior to the arbitration decision, USPS had reduced hours at most of these offices and taken steps to make the staffing changes. For example, it replaced many career postmasters with non-career or part-time employees by offering separation incentives or reassignments. In July 2012, USPS estimated POStPlan would result in about $500 million in annual cost savings.
USPS determined that, while the 2014 arbitration decision significantly affected planned staffing at POStPlan post offices and estimated savings, POStPlan was the correct operational decision for USPS and its stakeholders. The arbitrator ruled that many offices be staffed by bargaining-unit employees, such as clerks, rather than the generally less costly employees USPS had planned to use. As a result, USPS estimated in June 2015 that POStPlan would now result in annual savings of about $337 million or 35 percent less than the about $500 million it expected.
USPS's original and post-arbitration decision estimates of expected POStPlan cost savings have limitations that affect their reliability. USPS officials noted that they do not have strict guidance on when a rough savings estimate is adequate versus when a more rigorous analysis is appropriate. Specific limitations include:
- imprecise and incomplete labor costs, including errors in underlying data;
- lack of a sensitivity review; and
- the exclusion of other factors that affect net cost savings, particularly the potential impact of reduced retail hours on revenue.
For example, USPS's post-arbitration-decision estimate relies, in part, on its calculations of actual savings achieved due to POStPlan. While POStPlan most likely resulted in some savings, GAO found errors in the underlying salaries and benefits data used that may understate or overstate the amount of savings achieved. Additionally, while USPS later (i.e., after it developed its savings estimates) conducted analyses of changes in revenue, GAO found these analyses were limited because USPS's calculations of changes in revenue at POStPlan and non-POStPlan post offices were inconsistent with its definition of what constitutes a POStPlan office. As of March 2016, USPS was taking steps to understand the scope and origin of the errors in its salaries and benefits data, but its time frame for resolving the issue remains unclear, as does whether USPS subsequently intends to update its calculations of actual savings achieved. Internal control standards state that program managers and decision makers need quality data and information to determine whether they are meeting their goals. Without reliable data and quality methods for calculating the potential savings USPS expects to achieve through its initiatives, the actual savings they achieve, and the effects on revenue, USPS officials and oversight bodies may lack accurate and relevant information with which to make informed decisions regarding future cost-saving efforts in a time of constrained resources.
Why GAO Did This Study
USPS continues to experience a financial crisis and has undertaken many initiatives to reduce costs. In May 2012, USPS announced POStPlan, which aimed to reduce retail hours at post offices and use less costly labor. However, an arbitrator ruled in September 2014 that USPS must reverse several of these staffing changes. GAO was asked to review the arbitration decision's effects on POStPlan staffing and cost savings.
GAO examined: (1) USPS's actions to implement POStPlan before the decision and expected savings, (2) the decision's effects on POStPlan's staffing and savings, and (3) whether USPS's POStPlan cost-savings estimates are reliable. GAO reviewed relevant POStPlan documentation and data; compared USPS's POStPlan cost-savings estimating process to GAO's data reliability and cost- estimating guidance and internal control standards adopted by USPS; and interviewed officials from USPS, its regulatory body, and postmaster associations.
What GAO Recommends
To ensure that USPS has quality information regarding POStPlan, GAO recommends that USPS establish guidance that clarifies when to develop savings estimates using a rigorous approach; resolve errors in labor data and, as appropriate, recalculate actual savings achieved; and take steps to improve revenue analyses. USPS disagreed with some of GAO's findings but neither agreed or disagreed with the recommendations. GAO continues to believe its recommendations are valid as discussed further in this report.
For more information, contact Lori Rectanus at (202) 512-2834 or firstname.lastname@example.org.
Recommendations for Executive Action
Status: Closed - Implemented
Comments: In 2012, the U.S. Postal Service (USPS) announced the Post Office Structure Plan (POStPlan) initiative, through which it aimed to reduce hours at thousands of post offices and staff them with lower-paid employees, thus resulting in an estimated $500 million in annual cost savings. After a 2014 POStPlan arbitration decision significantly affected planned staffing at POStPlan post offices, USPS revised its cost-savings estimate and estimated that POStPlan would result in annual savings of about $337 million as opposed to the about $500 million it expected. In 2016, GAO reported that both USPS's original and post-arbitration-decision estimates of expected savings had limitations that affect their reliability, including, for example, the lack of a sensitivity review and the exclusion of other factors that would be necessary to consider the net cost savings of the POStPlan initiative. USPS officials acknowledged that their original cost-savings estimate was not sophisticated and characterized it as a rough estimate. They also acknowledged the limitations of their post-arbitration-decision estimate, noting that there was no strict guidance or thresholds that govern when cost-savings estimates should be rigorous versus when it was sufficient to use a less-rigorous approach. Finally, they said that in cases such as POStPlan, there was no legal requirement to produce cost-savings estimates or to use a particular methodology, so they made judgmental decisions. Consequently, GAO recommended that USPS establish guidance that clarifies when USPS should develop cost-savings estimates using a rigorous approach versus when it is sufficient to develop a rough estimate. In 2017, GAO confirmed that within USPS's Five-Year Strategic Plan for fiscal years 2017 to 2021, it established a "Ready Now, Future Ready" strategy which--via the corresponding planning process and controls--incorporates guidance for USPS management and staff to follow when considering, developing, refining, and approving initiatives, including financial analysis and any cost-savings estimates. For example, the guidance contains provisions for validating the methodology, comprehensiveness, and rigor testing of financial projections such as cost-savings estimates. USPS officials noted that this guidance would encompass any new initiative at USPS. As a result, USPS now has the guidance it needs to develop cost-savings estimates and determine the appropriate rigor required for any initiative. This will help ensure that USPS's methods for calculating the potential savings it expects to achieve through its initiatives provide USPS officials and oversight bodies with quality information with which to make informed decisions regarding USPS's future cost-saving efforts.
Recommendation: The Postmaster General should direct executive leaders to establish guidance that clarifies when USPS should develop cost-savings estimates using a rigorous approach that includes, for example, a sensitivity analysis and consideration of other factors that could affect net costs and savings, versus when it is sufficient to develop a rough estimate.
Agency Affected: United States Postal Service
Status: Closed - Implemented
Comments: In May 2012, the U.S. Postal Service (USPS) announced the Post Office Structure Plan (POStPlan) initiative, through which it aimed to reduce hours at thousands of post offices and staff them with lower paid employees, thus resulting in labor cost savings. According to USPS as of October 2015, it had saved $306 million in labor costs from fiscal year 2012 to June 2015 as a result of POStPlan. However, in April 2016, GAO reported that the accuracy of USPS's calculations of actual savings achieved may have been limited by errors in the underlying salaries and benefits data USPS used in its calculations. According to USPS officials, these errors may have been caused by employees' workhours being incorrectly recorded when employees worked in more than one post office, which meant that employees' workhours had to be transferred from one office to another. GAO found that these errors may have resulted in limitations in USPS's calculations of actual savings achieved and may have understated or overstated the amount saved. When the GAO report was issued, USPS officials were taking steps to understand and assess the cause of the errors, but the time frame for identifying and resolving the issue was unclear, and it was also unclear if USPS subsequently intended to update its calculations of actual savings achieved upon resolving the issue. Consequently, GAO recommended that USPS continue to take steps to assess and resolve the salaries and benefits data errors and, subsequently, update its calculations of actual cost savings achieved due to POStPlan as appropriate. In 2016, GAO confirmed that USPS had completed its assessment and resolved the errors in its salaries and benefits data. Specifically, USPS identified the source of the errors and provided documentation detailing the system and process changes to resolve the errors. For example, USPS provided documentation that it had modified its system code to allow for the accurate combination of workhour transfers so that data can be properly recorded. USPS also provided documentation confirming it matched these data to reconciled reports to ensure that workhour transfers were properly accounted for. USPS officials said--and GAO agreed--that due to system limitations USPS cannot apply these changes to previous data. As a result, USPS will not be able to update the calculations of prior cost savings achieved. However, more importantly, going forward, USPS is better positioned to have more accurate, reliable data on the actual savings achieved via the POStPlan initiative as well as ensure that USPS officials and oversight bodies have accurate relevant information they need to make informed decisions regarding this initiative
Recommendation: The Postmaster General should direct executive leaders to continue to take steps to assess and resolve the salaries and benefits data errors and, subsequently, update calculations of actual cost savings achieved due to POStPlan as appropriate.
Agency Affected: United States Postal Service
Comments: According to USPS officials as of June 2017, USPS has updated the calculations in its re-occurring POStPlan revenue analyses to reflect the inconsistencies GAO identified and has had internal discussions to consider at what benchmark it would be appropriate to develop an approach for these analyses that more fully considers POStPlan's effects on retail revenue across USPS. As of August 2017, this recommendation remains open pending additional documentation from USPS supporting its statements about the updates to its revenue analyses and additional information from USPS about the results of its benchmarking considerations.
Recommendation: The Postmaster General should direct executive leaders to verify that calculations of changes in revenue at POStPlan post offices in USPS's revenue analyses are consistent with USPS's definition of POStPlan post offices and take steps to consider when it may be appropriate to develop an approach for these analyses that will allow USPS to more fully consider the effects of POStPlan on retail revenue across USPS.
Agency Affected: United States Postal Service