Audit Report – DR-AR-15-001 – 11/13/2014
A Contract Postal Unit (CPU) is a Postal Service retail unit located inside a private business and operated by nonpostal employees. CPU suppliers operate under either a firm-fixed price or performance-based contract to provide a range of retail products and postal services. Management prepares revenue forecast and cost estimates to determine contract type. CPU services include selling stamps and providing domestic mailing services such as First-Class Mail. In fiscal year (FY) 2013, over 2,700 CPUs generated about $539 million.
Postal Service policy requires officials to evaluate CPUs annually to ensure they are cost effective and increase the return on investment. Officials should mainly consider performance-based/automated CPUs with annual revenue of less than $100,000. The evaluations should identify non-productive CPUs, changing market conditions, and return on investment.
Our objective was to assess CPUs’ revenue performance for FYs 2011 through 2013.
What The OIG Found
An average of 98 percent of CPUs reviewed either broke even or generated a positive cash flow during the past 3 fiscal years. However, an average of 2 percent of CPUs (49 of 2,337) had a negative cash flow totaling $1,257,742. Further, 469 CPUs generated less than $100,000 in annual revenue for the 3 fiscal years reviewed.
Officials did not always conduct annual evaluations or assess contract type to optimize revenue performance. The Postal Service could save an estimated $2,324,403 by improving oversight and converting firm-fixed-price CPUs, where cost effective, to performance-based CPUs.
We also informed management that payments were made totaling $160,425 to one CPU supplier for 1 year after the contract termination date. District and Category Management Center officials did not stop contract payments. The Postal Service and the supplier negotiated a settlement of $112,506, which the Postal Service received on June 11, 2014.
What The OIG Recommended
We recommended the vice president, Retail and Customer Service Operations, conduct annual evaluations and convert firm-fixed-price CPU contracts to performance-based contracts when it is cost effective.