USPS OIG Report: Highway Contract Route Irregularity Reporting – Jacksonville NDC

Background

In fiscal year (FY) 2016, the U.S. Postal Service spent over $3 billion for about 8,700 highway contract route (HCR) contracts. The Postal Service uses these competitive fixed-price contracts to transport mail between post offices, network distribution centers (NDC), and other designated stops.

A contract irregularity occurs when an HCR contractor does not satisfactorily perform a contracted service. The irregularity is either non-chargeable when the contractor is not at fault or chargeable when the contractor is at fault.

In FYs 2015 and 2016, the Postal Service reported about 958,000 irregularities nationwide (about 360,000 non-chargeable irregularities and over 598,000 chargeable irregularities). The Postal Service received over $46 million in reimbursements for the chargeable irregularities.

We judgmentally selected the Jacksonville NDC for review because it had the highest reported increase in irregularities (about 162 percent) between FYs 2015 and 2016. The Jacksonville NDC reported about 26,000 irregularities (6,000 were non-chargeable and about 20,000 were chargeable).

Each NDC reports HCR irregularities using the Yard Management System (YMS). The system automatically creates a Postal Service (PS) Form 5500, Contract Route Irregularity Report, when an NDC irregularity occurs. HCR irregularities commonly include missed, late arriving, and late departing trips. The YMS uses scanning to track HCR vehicles entering the facility yard, docking at the facility, and leaving for another facility.

Once the YMS produces a PS Form 5500, NDC administrative officials (AO) are responsible for determining if the irregularity in question is non-chargeable or chargeable. The AO is also responsible for taking corrective action, calculating and submitting reimbursement requests, and elevating unresolved irregularities to the contracting officer. HCR past performance was supposed to be considered during contract award decisions.

Our objective was to assess the effectiveness of the Postal Service’s irregularity reporting process for HCRs at the Jacksonville NDC.

What the OIG Found

We determined the Postal Service’s irregularity reporting process for Jacksonville NDC HCRs was ineffective.

The AOs submitted reimbursement requests for only three of the 19,591 YMS chargeable irregularities reported during FYs 2015 and 2016 at the Jacksonville NDC. Supply Management said they could only charge for missed trips.

We estimated the Postal Service, on average, incurred questioned costs of almost $200,000 annually for FYs 2015 and 2016 by not submitting reimbursement requests for 19,588 YMS-produced irregularities. If the Jacksonville NDC improves its process for reporting chargeable irregularities, the Postal Service could receive annual reimbursements of almost $200,000.

In addition, there could be more irregularities than the almost 26,000 reported in FYs 2015 and 2016. When the YMS is not operational, vehicle operations analysts (VOA) are supposed to manually create a PS Form 5500; however, they did not do so and there were no procedures or supervisors on hand to ensure submission by the VOAs. As a result, we could not quantify the magnitude of the undocumented irregularities and the Postal Service may not be receiving reimbursement for all chargeable irregularities. We will address this issue in future audit work.

We also identified 45 Jacksonville NDC HCR contracts costing over $46.2 million that renewed without the required review of chargeable irregularities. NDC personnel said they destroyed all PS Forms 5500 at the end of each fiscal year because there was inadequate storage space and they were unaware of the one-year retention policy. However, the one-year retention policy does not allow for contract renewal review of chargeable irregularities because the HCR contract terms range from two to four years.

What the OIG Recommended

We recommended management:

  • Update PS Handbook PO-501, Highway Contract Route Administration, dated June 1981, with instructions for classifying and charging irregularities, and establish manual procedures for submitting a PS Form 5500 when the YMS is not operational.
  • Provide annual AO and VOA training for classifying irregularities.
  • Amend the Electronic Records Information Management System PS Form 5500 one-year retention schedule to match HCR contract terms.
  • Establish a process to ensure there is supervisory oversight of AO and VOA responsibilities for classifying and submitting chargeable irregularities.
  • Ensure adequate storage is available to meet current retention requirements for PS Forms 5500.
  • Evaluate the electronic retention of PS Forms 5500.

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