Audit Report – SM-MA-14-006 – 09/30/2014
Highway Contract Routes (HCRs) transport mail between post offices or other designated points and make up the largest group of transportation contracts in the U.S. Postal Service. Annual (regular) HCR contracts are competitively awarded and generally have fixed prices, with automatic prorated monthly recurring payments. Between April 1, 2012, and March 31, 2014, the Postal Service paid about $4.3 billion for 20,420 HCR contracts excluding voyager card fuel payments.
We conducted this review as a follow-up to our September 30, 2010, audit, Certification for Electronic Payments (Report Number CA-AR-10-006). In that audit, we found Postal Service officials did not certify about $4.8 billion in annual HCR payments from April 1, 2008, to March 31, 2010, due to insufficient oversight of the certification and electronic payment process. We recommended management implement procedures to receive invoices for annual HCR services and verify that services were rendered prior to payment. Management did not agree with our recommendation but indicated that by October 2014, they would implement a process to pay HCR suppliers based on actual miles driven.
Our objectives for this review were to evaluate whether the Postal Service has improved oversight of its annual HCR electronic payment process and to identify industry best practices.
What The OIG Found
The Postal Service still needs to improve oversight of its HCR electronic payment process. It will not meet its 2014 goal of implementing a process to pay HCR suppliers for actual miles driven due to delays in piloting a system to track transportation movement. Management encountered issues surrounding the supplier payment process and incorporating operational data and service requirements into the pilot. Also, they have not identified software that will integrate HCR tracking with supplier payments.
Management indicated they have no immediate plans to change the current payment process and, as a result, contracting officers still rely on a “pay and chase” process. This process requires administrative officials to manually submit notifications of payment adjustments for omitted services after payments have been made, which puts the Postal Service at an increased risk of issuing payments for services not rendered. Without matching planned and actual HCR services performed prior to payment, the Postal Service cannot guarantee the amount paid to suppliers is accurate. The Postal Service paid nearly $2.15 billion annually for 20,420 contracts between April 1, 2012, and March 31, 2014, without verifying that payments matched the services performed. We did not assess the impact of the $2.15 billion on the Postal Service’s financial statements. This amount represents the annual value of the HCR contracts in our review and does not necessarily indicate an actual loss to the Postal Service.
We benchmarked against 10 organizations that have integrated payment systems and identified best practices such as the use of global positioning systems and other software and processes that match actual mileage to accounting system data. These processes could help improve oversight of the HCR payment process.
What The OIG Recommended
We recommended management revise and implement a plan to integrate HCR tracking and payment technology in the Postal Service’s HCR payment process and take into account industry best practices when doing so.