If Postmaster General Louis DeJoy is displeased by observations about his 10-Year Plan that are not complimentary, he surely will be piqued by an audit report released June 21 by the Postal Service’s Office of Inspector General. In the report, State of the US Postal Service Financial Condition, the OIG sought “to evaluate the financial performance of the Postal Service in relation to its [10-Year Plan] financial projections.” The OIG noted that
“… the Postal Service has a history of financial net losses dating back to 2007, when the Postal Accountability and Enforcement Act came into effect, which was then followed by the Great Recession. The losses from FY 2007 through FY 2023 totaled $98 billion.”
The OIG’s first finding focused on the difference between projections in the 10-Year Plan and actual results.
“We evaluated the financial performance of the Postal Service in relation to its DFA plan projections and determined that the projections are no longer relevant. The DFA plan assumed initiatives would begin in 2021, resulting in projected positive net income starting in FY 2023 or FY 2024. However, two years after the issuance of the DFA plan, in its second-year progress report, the Postal Service forecasted that it could achieve break-even operations by the end of DFA’s 10-year period. But the Postal Service did not update its projected yearly financial results or cash balances through updated P&L or cash flow statements or demonstrate specifically how it would break-even by 2030. The opportunity exists to revise its financial projections to better understand how the Postal Service will achieve its break-even goal.
“In terms of actual performance over the last two years, the Postal Service reported a net loss of $950 million from operations in FY 2022 and a $6.5 billion net loss in FY 2023.
“Actual results varied from the DFA plan projections three years into the plan. In both FY 2022 and FY 2023, actual revenue was higher than the DFA plan projections by over $7.4 billion and $5.6 billion, respectively, but actual expenses also exceeded expense projections by $6 billion and $11.7 billion, respectively.”
The OIG questioned the Postal Service’s explanation.
“The Postal Service stated the differences between actuals and projections were primarily attributed to higher than projected volume in market dominant and competitive mail volume leading to higher expenses to process that volume, higher rates of inflation than projected, and slower than planned progress on DFA initiatives. Generally, we concur with the causes for the differences. The Postal Service experienced higher-than-projected mail volumes; however, when comparing the year over year rates of change between FY 2022 and FY 2023, we identified that the reduction in work hours did not align with the volume decline as assumed in the DFA plan. Further, we could not determine initiatives’ progress because the Postal Service did not track specific initiative progress back to the DFA plan projected savings they determined under each P&L category, instead, tracking to its annual Integrated Financial Plan (IFP). …
“In the DFA plan, the Postal Service built its projections on the assumption that a decrease in volume would result in a comparable decrease in work hours, but actual results show that work hours were not reduced at the same rate as volume. Specifically, when comparing the year over year rates of change between FY 2022 and FY 2023, volume was projected to decrease at 2.7% and work hours were projected to decrease at 2.2%. However, we observed a more drastic rate of change for actual volume: 8.9% decrease in volume associated with a decrease of only 2.3% in actual work hours, signaling a reduction in workhour productivity. …
“It is imperative that the Postal Service reduce its work hours in sync with volume declines, to save labor costs and ensure it is operating efficiently.”
The OIG also found other labor-related costs increased.
“However, inflation also impacted Postal Service expenses, it was most acute in the compensation and retirement expense categories. At the end of FY 2023, the total number of career employees at the Postal Service was approximately 525,000, including an increase of approximately 29,000 (6%) employees due to career conversions. Compensation expense and FERS normal cost expense, per employee, were dramatically higher by 9.1% and 18.2%, respectively, due primarily to the contractual cost-of-living adjustments for approximately 525,000 employees, which includes the 29,000 converted employees now eligible for employer retirement contributions.”
The OIG also found that, while the 10-Year Plan claimed savings to be derived from the implementation of a set of initiatives, the Postal Service did not measure or evaluate the results of those initiatives to validate the projected savings.
“Management stated that slower than planned progress on the initiatives led to the variances between actuals and projections. However, we could not conclude how the initiatives’ results or progress in FYs 2022 and 2023 compared to DFA projected savings because the Postal Service did not track specific initiatives’ progress back to the projected savings they determined under each P&L category in the DFA plan projections. Instead, the Postal Service tracks its DFA initiatives to its annual IFP, which provides projections and targets for the next fiscal year. In FY 2023, the IFP was aligned to the strategic objectives but not the projections of the DFA plan. As we previously reported in July 2022, as the Postal Service implements and revises its DFA plan, it is important to continue to assess its initiatives, monitor progress toward implementation, ensure organizational coordination, and evaluate results.
“Additionally, we reviewed Postal Service communications released in FYs 2022 and 2023 … to determine if we could identify tracking or measurement of initiatives’ progress. We found that none of the communications provided updates on the financial outcomes of all the active initiatives, and when included in Postal Service communications, only select initiatives were discussed. …
“In compliance with the Government Performance and Results Act of 1993, the Postal Service stated it will release an update to the DFA plan in September 2024. This updated DFA plan provides an opportunity for the Postal Service to comprehensively update its financial projections, link initiatives’ financial outcomes to the DFA plan, and communicate progress of initiatives and the initiatives’ impact on DFA strategies and goals. …”
The OIG also commented on the disparity between the end-of-year cash balance projected in the 10-Year Plan and actual results, as well as the need for revenue to support the Plan’s anticipated $40 billion spending on capital projects.
“FYs 2022 and 2023 marked a $950 million operating loss and a $6.5 billion net loss, respectively, for the Postal Service. The Postal Service ended FYs 2022 and 2023 with more cash than projected due to higher cash generated from operating activities in those years. “As of the end of FY 2023, the Postal Service has spent $6.7 billion and committed $12.4 billion out of the $40 billion in capital spending planned for in the DFA. … The Postal Service has not paid $13.7 billion in outstanding liabilities to CSRS fund or $8.8 billion to FERS and has stated that its liquidity remains insufficient to pay all obligations, to make capital investments necessary for continuity of operations, and to prepare for unexpected contingencies. …
“These current and upcoming obligations put further pressure on the Postal Service to achieve financial stability and maintain the liquidity needed to finish its planned $40 billion in DFA capital spending. The Postal Service needs to be transparent with future years’ projections and plan initiatives, so that stakeholders can understand goals and progress made.”
The OIG offered two recommendations:
- “… update and communicate Delivering for America Plan financial projections based on current conditions and environment [and]
- “… develop a plan to track, measure, and communicate progress on initiatives that result from the Delivering for America Plan.”
In response, “Management agreed with recommendation 1 and generally agreed with recommendation 2.”
Though the OIG must base its findings and comments on the facts it encounters during the course of its audits, and maintain an official neutrality in its reports, readers can still perceive behaviors and attitudes that have been the hallmarks of the Postal Service under Louis DeJoy. The centrality of the PMG’s 10-Year Plan to everything the agency does – and everything its executives say – has become more than a core principle for the Postal Service; the Postal Service has made The Plan into biblical dogma. In turn, the USPS sees no need to reconcile the Plan with various other projections; to explain how or on what the forecasts were based; to track results from The Plan’s initiatives; or to be straight with ratepayers about not just where The Plan is succeeding, but also where it’s failing or in need of revision. Being candid and transparent, in the mind of DeJoy et al, is enabling “interference” and unwelcome criticism. On the one hand, the audit may not have been as probing or critical of The Plan as it could have been but, conversely, the OIG deserves credit for trying to pry straight answers from The Plan’s phalanx of evasive and obfuscating defenders.
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