The OIG’s Oversight of the U.S. Postal Service’s Delivering for America Plan

- Office of Audit -

March 31, 2021 - June 30, 2024

U.S. Postal Service Office of Inspector General

USPS released a 10-year strategic plan, titled Delivering for America (DFA), in March 2021 to address annual financial losses, unmet service performance goals, and diminishing market relevancy as consumer behaviors have changed.

We performed this review to assess its impact on Service, Financial Performance, Sustainability, and its Labor force. We plan to issue this report every six months as it will highlight our oversight over the DFA plan.

^{DFA Plan Progress}

Passage of the Postal Service Reform Act of 2022 which eliminated the retiree healthcare prefunding mandate and launched Medicare integration.
Pricing flexibility instituted.
Shipping offerings simplified and USPS Ground Advantage launched.
Initial network changes were implemented.

Challenges of the DFA

Implementation of network changes, particularly the large facility modernization efforts, has been very challenging and has resulted in negative service impacts to communities.

Communication, internally to employees and their leaders on expectations and workflow, and externally to customers
and stakeholders on changes and potential impact, needs to be significantly strengthened for USPS to achieve success with implementing these historic and complex changes to its logistics network.

a row of colorful mail boxes sitting next to a bush

Key Pillars of OIG Oversight

Service

USPS determines service performance by measuring mail from collection to delivery, and its universal service obligation is designed to ensure all customers receive a minimum
level of service at a reasonable price.

Financial Impacts

The DFA plan includes $24 billion in revenue improvements, $34 billion in management cost savings, $44 billion in regulatory changes, and $58 billion in legislative and administrative actions to improve financial performance.

Sustainability Efforts

USPS set a DFA goal of environmental stewardship, which includes reducing greenhouse gas emissions, energy, fuel, and waste.

Labor Management

USPS stated in its DFA plan it wants to be an “employer of choice” that hires, develops, and retains the most capable and diverse employees.

Network Modernization

The DFA plan will invest $40 billion in capital investments, including creating a modernized and consolidated network based around Regional Processing and Distribution Centers (RPDC), local processing centers (LPC), and Sorting and Delivery Centers (S&DC).

As of May 2024, there were eight fully or partially open RPDCs with five more planned for construction, 12 fully or partially open LPCs, and 55 active S&DCs with another 28 planned to be opened by the end of fiscal year 2024.

Service

USPS has struggled to meet the service standards for First-Class Mail since fiscal year (FY) 2013 as seen in the graph below.

Historical Performance of First-Class Mail

On October 1, 2021, USPS modified those service standards from one-to-three-day to one-to-five-day to allow more flexibility with less expensive ground transportation.

We conducted audits related to the DFA's strategies to modernize the USPS’s network while maintaining expected service levels and reducing costs in the transportation network.

While USPS had successes centralizing its delivery functions; updating its operations at larger facilities including RPDCs and LPCs was significantly more challenging. We found 1) managers did not consistently adhere to regionally integrated operating plans 2) delayed mail awaiting processing and dispatch and 3) safety and security concerns.

USPS has shifted a significant proportion of its volume from air to surface transportation and USPS is beginning to see measurable declines in transportation costs, but we found opportunities exist for USPS to better manage its volume as it moves through its updated network.

USPS' Local Transportation Optimization (LTO) initiative, now known as the Regional Transportation Optimization, which reduces transportation trips to and from select delivery units from 2 to 3 trips per day to 1 trip, was rolled out at over 2,000 sites, as of the end of July 2024 and seen in the map below.

At the time this report was completed, the operational, service, and customer impacts of the LTO initiative were not yet fully known and USPS paused further LTO implementation from September 2024 to November 2024, as it processed Election Mail.

Financial Impacts

USPS has accumulated over $98 billion in losses since FY 2007, which includes the implementation of the Postal Accountability and Enhancement Act, the Great Recession, and the COVID-19 pandemic.

Congress provided $10 billion from the CARES Act to cover costs due to the COVID-19 pandemic and $3 billion from the Inflation Reduction Act to help with implementation of electric vehicles (EV) and charging infrastructure.

The passage of the Postal Service Reform Act in April 2022 required new retirees and their dependents to participate in Medicare starting in 2025, which is estimated will save USPS $5.5 billion between 2025 and 2031.

USPS also outlined $40 billion in capital investments over the plan's initial 10-year period. As of the end of FY 2023, USPS spent $6.7 billion and committed $12.4 billion.

We conducted research and audits related to financial challenges.

USPS is restricted by law to invest in Treasury securities. If USPS had been able to invest in a simple portfolio comprising 60 percent stocks and 40 percent bonds, we estimated that CSRS, FERS, and RHB would have total retirement assets of $1.2 trillion rather than unfunded liabilities, as shown below.

Liquidity and Retirement Assets and Liabilities in FY 2023

We evaluated FYs 2022 and 2023 actual results against DFA plan projections to identify causes for why USPS has been unable to achieve break-even operations. USPS has been able to achieve substantial revenue growth through price increases on stamps and growing package volume, as shown in the graph below. However, mail volume continued to decline, and USPS has not been able to obtain a comparable decrease in work hours; and severe inflation has impacted costs.

USPS requested an administrative change to receive relief for annual CSRS retirement payments related to legacy Post Office Department employees which had cost them over $3 billion in FY 2023. However, as determined by the Department of Justice this allocation of retiree pension benefit amortization costs cannot be altered without legislative change.

Sustainability

USPS plans to spend over $9.6 billion to electrify its delivery vehicles and procure and construct charging stations. As of February 2024, USPS has spent $112 million and committed $1.1 of the $3 billion in IRA funding provided by Congress.

As of March 2024, the installation of EV charging stations has been completed at six sites, with plans to install 130 different locations by the end of calendar year 2024 and an estimated 800 sites by the end of FY 2028.

USPS’s efforts to electrify its fleet is just beginning and we have outlined comprehensive audit plans to continue reviewing this significant investment. Our initial work found, USPS effectively managed its charging stations testing to ensure it met requirements and short-term performance. We did raise concerns about the secure storage of chargers.

Labor Management

Between FY 2021 and 2023, USPS has converted 155,000 employees from pre-career to career positions.

As part of our oversight, we reviewed aspects of USPS's efforts to provide an engaging workplace. One that supports employee development and retention through improving the hiring process – by experimenting with new technology, eliminating interviews, and creating a more centralized process and reduces turnover for its pre-career employees – by automatically converting pre-career employees to career status after 24 months and developing specific retention programs.

However, challenges remain with filling those positions, high vacancies in certain locations around the country, and the overall retention of USPS’s pre-career workforce. For example, in FY 2023, USPS hired nearly 130,000 pre-career applicants; but 18% did not report for their first day of work and 33% were no longer working after 90 days.

Additionally, between FY 2021 to FY 2023, USPS posted over 700,000 pre-career positions, but more than half did not receive any applications, as seen below.

FY 2023 Highest District Percentages with No External Applications for a Pre-Career Position

Improving Communication

Timely and adequate communication to internal and external stakeholders of changes to the DFA plan enables transparency and stakeholders' confidence in the DFA’s potential successes. We found opportunities for USPS to improve communication to employees who are implementing this plan and stakeholders that are impacted by it.

Opportunities exist for USPS to better communicate plans with its workforce, including training and communicating with local managers at new network sites about changing roles and operational changes. Specifically, at one post office, local management was notified that a large shipper would begin using the unit for package drop shipments eight days later, approximately increasing its volume compared to SPLY by 131%.

A common issue for external stakeholders was that communication did not include sufficient details on the consolidations and timelines to prepare them for the significant changes in processing mail.

As changes continue under the DFA plan, communication regarding updates that impact customers will be crucial, as seen how in the increase in customer complaints for an area covered by a network change, when you compare FY 2023 to FY 2024.

USPS does communicate with its stakeholders in numerous forums and reports; however, as these changes are extensive and complex and have varied impacts, it is crucial that communication is timely and clear on changes to the DFA plan initiatives' outcomes and financial projections.

Concluding Observations

The DFA plan is ambitious, and USPS has made progress in the execution of the plan with the rollout of its modernized and consolidated network processing centers, introducing USPS Ground Advantage, beginning to implement and deploy EV charging infrastructure, and converting pre-career to career employee.

These changes have not been without challenges and service impacts. Customers have felt the changes in their daily lives, in part, due to the rate of price increases and network consolidation efforts.

USPS has provided public-facing status updates each year and released Delivering for America | 2.0 Fulfilling the Promise on September 30, 2024.

We will continue our oversight work over the DFA plan to assess USPS’s progress in implementing its strategic initiatives and identifying opportunities for continuous improvement.