	The Service’s Current Financial Situation

Overall, the Service’s financial condition has continued to decline. The Service’s Transformation Plan identified numerous short-term steps the Service plans to take under its existing authority to cut costs and improve productivity. In the long term, the Service’s Transformation Plan recognizes that the Service’s basic business model is not sustainable and that much larger declines in mail volume may be in the offing if mailers increasingly shift to various electronic and other alternatives. However, the Service’s transformation plan had little to say on these matters other than proposing that the Service be transformed into a Commercial Government Enterprise that would act much more like a business, and, as part of that proposal, its board of governors would be “refocused on fiduciary duties.” Under its current framework, the Service is intended to function in a businesslike manner, which raises the following questions related to its governance structure:   What type of governing board would be most appropriate considering the Service’s size, importance, and challenges? It will also be important to have greater clarity about the time frames and financial impact associated with the actions outlined in the Transformation Plan that the Service plans to take immediately. Cost-cutting/productivity: Costs are increasing faster than revenues and are hard to cut. The Service’s business model, which relies on rising mail volumes to cover rising costs, is not sustainable and needs a comprehensive transformation. 11. Appendix II: Postal Service Mail Volume and Revenue Information
What GAO Found

The U.S. Postal Service continues to face financial and transformation challenges. Since GAO placed the Service's long-term outlook and transformation efforts on its high-risk list, the Service's financial situation has continued to decline, and its operational challenges have increased. The Service took a good first step when it issued its Transformation Plan. The plan provides information about the Service's challenges, identifies many actions the Service plans to take under its existing authority, and outlines steps that would require congressional action. The plan does not, however, adequately address some key issues or include an action plan with key milestones. The catastrophic events of September 11 and subsequent anthrax scares, coupled with the recent economic slowdown, have decreased mail volumes and revenues. However, the Service's financial difficulties are not just a cyclical phenomenon that will fade as the economy recovers. The Service's basic business model, which assumes that rising mail volume will cover rising costs and mitigate rate increases, is questionable as mail volumes stagnate or deteriorate in an increasingly competitive environment. The Service's Transformation Plan recognizes that postal costs are rising faster than revenues and identifies many actions that the Service plans to take under its existing authority, notably through cutting costs and improving productivity.