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The USPS Inspector General Weighs In on the First Quarter

Front View Of Capital BuildingFor several weeks we have basically been hearing the same thing from all the USPS experts and that is, ‘don’t be overly optimistic with the United States Postal Service’s first quarter numbers for FY 2016’ and I would agree. Any attempt to forecast the next 3 quarters from the single busiest shopping period of the year would be foolhardy at best.

The overly optimistic seem to be conveniently forgetting how middle east manipulated oil markets are causing — for the moment — extraordinary low oil prices; with the result of putting extra spending money into the consumer’s pockets.

I’m encouraged that the USPS Office of the Inspector General is taking a more pragmatic approach to the numbers, tempered by looking at the long term objectives of the Postal Service. As more and more US oil companies go out of business, be prepared for the price of oil to go up just as quickly as the price went down. This will have a direct impact on operating costs of the USPS. As oil goes up in price so will interest rates and the economic cycle continues…

From: USPS OIG Website

It’s hard to know whether the U.S. Postal Service should have as its theme song “We’re in the Money” or “Brother, Can You Spare a Dime?” Its just-released financial results for the first quarter of fiscal 2016 suggest both are accurate – depending on how you read the statements.

Spurred by record volume of holiday packages, the Postal Service had operating revenue of $19.3 billion from September through December 2015, an increase of 3.3 percent over the same period last year. Controllable income totaled $1.3 billion – that’s income that covers the Postal Service’s operational expenses but not large prepayments into a retiree health benefit fund. It reported $307 million in net income for the period.

Looks good so far, right? Well, not so fast. Postal officials said finances may not be as rosy as they appear. Officials noted most of the net income resulted from a $1.2 billion favorable change in workers’ compensation due to changes in interest rates. This is a factor outside the Postal Service’s control. It got another boost from the exigent postage rates that are set to expire in April. Without these favorable impacts, the organization would have reported a net loss of about $700 million in the first quarter, postal officials noted.

It’s not easy for customers to know exactly what the Postal Service’s financial position is – something Inspector General David Williams discussed in recent testimony to the Senate Committee on Homeland Security and Governmental Affairs.

“It is very difficult to decide what is actually needed to stabilize the infrastructure when prefunding activities are commingled with actual ongoing financial operating data,” Williams said about the $5 billion prefunding payments the Postal Service is required to make each year into the Retiree Health Benefit Plan. These payments show up as annual losses in financial statements even if no cash is spent.

“Most stakeholders are simply lost attempting to understand postal financial reports,” he said.

Worse, though, this muddled financial picture “causes confusion about the road ahead for the Postal Service,” Williams’ testimony says. The United States needs to invest in the postal infrastructure if it intends to keep pace with the rest of the world and support innovators, citizens, and businesses, he concluded.

As the USPS continues to find its place in the modern world of the internet, electronic devices and consolidation of resources, I would not underestimate this Constitutionally base entity. There is much more interesting innovation to come!