USPS OIG Report: Internal Controls Over Segmented Inventory – Houston Long Point Station


segmented-inventoryThe U.S. Postal Service Office of Inspector General (OIG) uses tripwires to identify financial anomalies. Tripwires are analytic tools combining specific behaviors that provide strong indicators of improper activity. The OIG’s Perfect Count Tripwire identified that the Houston Long Point Station in Houston, TX, reported four perfect inventory counts from April 1, 2015, to March 31, 2016. Perfect count means the Postal Service did not report any overages or shortages of retail floor stock.

Segmented inventory consists of retail floor stock (stamps sold on the retail floor), unit reserve stock (stamps used to replenish those sold on the retail floor), cash, money orders, and stamps assigned to retail associates (RA). Inventory can be transferred between segments; therefore, all segments of inventory must be counted to ensure accuracy. Postal Service managers are responsible for timely and accurate counts of all segmented inventory.

An office with at least $100,000 in annual revenue and three employees overseeing segmented inventory is unlikely to go 12 consecutive months with no overage or shortage of retail floor stock.

The objectives of this audit were to determine whether accounting records for segmented inventory at the Houston Long Point Station were accurately presented and whether internal controls were in place and effective.

What the OIG Found

The accounting records for segmented inventory at the Houston Long Point Station were not always accurately presented, and internal controls needed improvement.

We verified the office reported four perfect counts of retail floor stock from April 1, 2015, to March 31, 2016. Two additional perfect counts were posted on May 24, 2016, and July 28, 2016. However, on August 2, 2016, and August 3, 2016, we conducted independent counts and identified:

  • A retail floor stock overage of stampstotaling $2,687;
  • 400 booklets of Forever stampsvalued at $3,760 missing from unitreserve stock;
  • Redeemed stamp stock valued at$180 that was not included in theinventory records; and
  • 1,499 missing domestic moneyorders with a potential value of$54,276 (we referred this to theOIG’s Office of Investigations forfurther review).

These issues occurred because the station manager did not include all stamp stock in his inventory count and adjusted the count records to make perfect counts. Further, the station manager stated he thought he might have transferred stamps to the retail floor without recording the transfer but could not explain the 1,499 missing money orders.

In addition, we determined the station manager did not return or destroy 154 bait money orders (used to trace items in the event of theft) and 73 obsolete international money orders valued at $2,643. He also did not properly record counts of other segments such as unit reserve stock, cash drawers, and reserve cash. We valued the 1,499 missing domestic money orders and 73 obsolete international money orders at $56,919.

We further identified:

  • Two RA cash drawers with a shortage of about $65 and an overage of about $28.
  • Unsecured retail floor stock stamps left overnight at the retail counter, redeemed stamps mixed with funds collected by the office employees for charity, and stamps unsecured inside the vault area.
  • Two RAs were missing the required duplicate key and password envelope, and four RAs did not have up-to-date password envelopes. These are used by the station manager to access and count the cash drawer when the RA is not present.

If controls over inventory and cash are not followed, there is an increased risk of undetected theft of money orders, stamp stock, and cash.

As a result of this audit, management destroyed the bait money orders and returned the international money orders to the Stamp Distribution Center. In addition, management issued a letter of warning to the employee responsible for leaving stamps unsecured and created all the required envelopes to secure employees’ keys and passwords. Furthermore, management secured the vault area and removed the charity fund from it. Finally, on September 9, 2016, management located all 1,499 missing money orders.

What the OIG Recommended

We recommended management establish a process to ensure employees follow the required procedures for inventory counts, daily cash drawer close-out, and returning non-saleable stamp stock. We also recommended management enhance oversight and security procedures for all accountable items, including cash, money orders, and stamp stock.

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Source: USPS Office of Inspector General

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