Audit Report – NO-AR-14-008 – 05/27/2014
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BACKGROUND:
The U.S. Postal Service contracts for transportation on over 15,000 highway contract routes (HCR) by identifying miles to be driven and negotiating a base operating rate per mile. Fuel is a major component of HCR total costs. The Postal Service negotiates annual fuel allotments based on miles per gallon (MPG), considering past suppliers’ MPG contracts, and general vehicle and route type. In fiscal year (FY) 2012, HCRs used over 242 million gallons of fuel, costing about $926 million.
Our objective was to assess MPG used in the HCR program.
WHAT THE OIG FOUND:
We found the Postal Service’s average MPG for HCRs was as much as 2.2 MPG below industry averages and as much as 4.1 MPG below industry leaders. This occurred because the Postal Service has no procedures in place to ensure contracting officers consider industry averages and specific vehicle classifications when determining MPG, nor does it document why MPG for some suppliers are below industry averages. Further, it does not have a comprehensive strategy to ensure that HCR contractors either use the most fuel-efficient vehicles in the industry or absorb the cost of using less efficient vehicles instead of passing that cost on to the Postal Service.
We determined the Postal Service incurred unnecessary fuel costs of about $48.3 million annually for FYs 2012 and 2013 and could avoid costs of about $48.3 million annually if it contracts for future fuel gallons based on at least industry MPG averages. Further, if the Postal Service uses industry advanced fuel-efficient practices, it can reduce its carbon footprint, conserve non-renewable energy resources, and save an additional $46.7 million annually in fuel costs.
Finally, establishing HCR MPG below the industry average results in excessive annual fuel allottments. This can create an environment for fraud, waste, and abuse. The risk is that suppliers may use excess gallons for non-Postal Service operations, which is prohibited. Consequently, we made several referrals to the Office of Investigations for supplier contracts with low MPG patterns.
WHAT THE OIG RECOMMENDED:
We recommended the vice president, Supply Management, develop procedures to ensure industry MPG averages and more specific vehicle classifications are used to determine allotted HCR fuel gallons. We also recommended the vice president, Supply Management, in coordination with the chief sustainability officer and suppliers, develop a comprehensive strategy for the use of advanced fuel-efficient technology in vehicles and equipment.