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1981 Report of the Auditor General of Canada

Introduction

13.1 We have conducted a comprehensive audit of the Post Office Department operating as a department of the Government of Canada under the Post Office Act, R.S.C. 1970, c. P-14 . The Canada Post Corporation Act, S.C. 1980- 81, c. 54 , which received Royal Assent on 23 April 1981, established the Post Office as a Crown corporation. Its proclamation in force, effective 16 October 1981, repealed the Post Office Act.

13.2 This chapter contains the principal observations and recommendations arising from our audit. Our audit focus was primarily on key processes used by management to direct and control the operations of the Post Office. The survey undertaken in the Department by the Office of the Comptroller General on Improvement in Management Practices and Controls (IMPAC) covers many of the same areas. Management's progress in implementing the IMPAC Action Plan has been taken into consideration in formulating our observations and recommendations.

13.3 The observations and recommendations in this chapter are also applicable to the Post Office as a Crown corporation, and we believe that action in implementing corrective measures should be followed up by Parliament.

13.4 We appreciate the co-operation that was extended to us by the staff of the Department throughout our audit.

The Department

History and Objectives

13.5 The Post Office has existed as a government department since Confederation. The basic function of transmitting letters has changed very little since then. Operations have expanded to provide other services such as priority post, electronic mail (telepost) and philatelic issues. To cope with increased mail volumes for the traditional mail services, operations have been mechanized in the last decade.

13.6 The objective of the Department, as stated in the 1980-81 Estimates, is "to provide postal services to the people of Canada at rates which will provide a standard of service adequate to meet their needs without incurring subsidization from general taxation other than that required to cover losses specifically identified in relation to other government objectives".

13.7 The Post Office is similar to other government departments in that it provides a public service, but it has the characteristics of a commercial enterprise in that it charges the user for services provided. These characteristics have been recognized by Parliament in converting the Department into a Crown corporation.

Organization

13.8 Exhibit 13.1 sets out the plan of organization under which the Post Office operates. The Headquarters staff in the functional units -- Marketing, Operations, Corporate Affairs, Personnel, and Finance and Administration -- are headed by Assistant Deputy Postmasters General, who support the Deputy Post-master General as chief operating officer. Headquarters' role is primarily long-range planning, development of strategies, policies and guidelines, and relations with central agencies. It also collects and processes corporate information to assist the Deputy Postmaster General in monitoring regional operations.

(Exhibit not available)

13.9 The Post Office has a decentralized organizational structure in that responsibility for postal service operations in the four regions has been delegated to Regional General Managers who report to the Deputy Postmaster General. Regional operations are further sub-divided into 14 districts, each headed by a Director reporting to a Regional General Manager. The Regional General Managers and some of the District Directors have support staff corresponding to the five functional units at headquarters. The District Directors are responsible for managing day-to-day postal operations at 29 postal plants and over 8,000 post offices.

Operating and Resource Highlights

13.10 The Post Office is one of the largest commercial operations in Canada. As stated in the Department's 1980 Annual Report, it delivered 6.4 billion pieces of mail during 1979-80, an average of 25 million pieces each working day. This involves a network of about 14,500 letter carrier routes serving over 6 million points of call, and more than 5,000 rural and suburban routes serving over 1 million households. In addition, the Post Office operates a fleet of 3,800 vehicles to collect and deliver mail as well as a large transportation network to move mail between major centres in Canada.

13.11 The net cost of the Post Office program, as presented in the 1980-81 Estimates, is $412 million, based on costs of $1.9 billion and postal revenues of $1.5 billion. In addition to the postal revenues referred to above, the Post Office also operates a money order system which handles cash transactions of about $2.5 billion annually. The authorized person-years and expenditures, by activity, and the activity description as contained in the Estimates are as follows:

Person-years
authorized

Budgetary
Expenditures
(thousands of dollars)

Marketing 6,845 $ 211,429
Mail processing 25,054 612,244
Mail transportation 151 165,627
Mail collection and delivery 22,077 575,411
Technical operations support 1,727 67,674
Administration

4,463

146,381

60,317

1,778,766

Services received without charge

159,297

$ 1,938,063
    - Marketing. Includes sales at postal and philatelic counters, market research, product development, pricing, customer relations and sales promotion.
    - Mail processing. Includes all manual and mechanical mail handling and processing within post offices.
    - Mail transportation. Includes the movement of mail between post offices, either inter-city or international, by air, land, rail or water services.
    - Mail collection and delivery. Includes gathering mail from street letter boxes and postal stations for processing in postal plants and delivery of mail to postal customers by various delivery modes.
    - Technical operations support. Includes technical support functions such as engineering, operations research, systems research, quality assurance, computer services, management services, coding and mechanization, security services, operations policy and evaluation.
    - Administration. Includes corporate-wide functions of a general management or administrative nature such as corporate planning, public affairs, international affairs, personnel, finance and administrative support functions.
    - Services received without charge. Includes principally accommodation and employee medical benefits.

Environment

13.12 In providing a national postal service to over 23 million Canadians, the Post Office operates in an environment in which many demands, some of them conflicting, are placed upon it. Serving a population dispersed over a geographical area of about 3.8 million square miles requires a complex collection and distribution network. While the population is mainly concentrated close to Canada's southern border, it is also spread widely in rural, remote and isolated areas. Furthermore, demographic changes create pressures on the network, making it difficult to balance the needs of one area against another and at the same time maintain an adequate level of service nationally.

13.13 The Post Office provides a national postal service to individual Canadians and also to business and government. The latter two provide almost 75 per cent of postal revenues. The Post Office must be capable of meeting the needs of all postal users, although their needs may not necessarily be the same.

13.14 The objective of providing an adequate level of service to all Canadians places severe service demands on the Post Office. Its high visibility generates public and political pressures. Given that it handles 25 million pieces of mail each working day, even a small percentage of lost, delayed or damaged mail results in public complaints and adverse publicity. The same can be true if there is a proposal to make a change in the level or cost of a service, such as closing a post office or increasing postal rates.

13.15 Unlike most other government departments, the Post Office operates in a competitive environment where alternatives are available to users, especially commercial postal users. There are directly competing alternatives such as courier services and other alternatives such as telephone and telex. Changes in information flow technology, such as computer communication, are also having a competitive influence on the Post Office.

13.16 During the past decade, there has been a pronounced increase in the volume of business handled by those organizations in direct competition with the Department. Perceptions of unreliable service and threats of labour disruptions have led the public to use competitive services, particularly within and between major urban areas. To maintain its position, the Post Office must provide a competitive service and also keep pace with changes in technology.

13.17 Although operating in a competitive commercial environment requiring flexibility to adapt to change, as a Department of the federal government the Post Office's adaptability has been restricted by the regulations and requirements of other government departments and central agencies such as Treasury Board and the Public Service Commission in such areas as staffing, labour negotiations and planning. Growth in mail volume, the introduction of mechanization, changes in the working environment and the involvement of agencies outside the Post Office have all contributed over the years to a deterioration in labour relations. The Government expects that conversion of the Department to a Crown corporation will help remedy this situation.

Audit Scope

13.18 Our audit was designed to assess whether there were key management processes in place to ensure economic, efficient and effective operation of the Post Office and adequate accountability reporting to Parliament. We examined first whether clear objectives had been established for the Department and whether management had reasonable procedures to measure and report on the achievement of those objectives. We next assessed whether appropriate procedures were in place to plan, direct and control the diverse activities of the Post Office.

13.19 On an operational level, we examined the adequacy of managerial controls over the major postal operations of sorting mail in postal plants, transporting mail between major urban centres, and delivering mail by letter carriers. We also tested the Post Office's system for measuring mail service reliability.

13.20 Because of the critical impact of labour relations on the success of the postal service, we reviewed Post Office programs for effecting improvements in employer-employee relations and management's preparation for collective bargaining. In addition, we examined the adequacy of procedures relating to human resource planning and training.

13.21 We also examined management controls over the key areas of electronic data processing, revenue protection and money order liability, and internal audit.

13.22 Finally, we assessed the adequacy of the Post Office's reporting to Parliament on the results of its operations and the achievement of its objectives.

13.23 Our audit included work at Headquarters and fieldwork in all regional offices and, on a selective basis, in district offices and other postal facilities.

Summary of Audit Observations

13.24 Managing such a large and complex organization as the Post Office, which is both labour-intensive and decentralized, requires effective management control processes. Although elements of adequate management control systems exist in the Department, there were deficiencies in key management processes that need corrective action to ensure that due regard for economy, efficiency and effectiveness is achieved. Department senior management was well aware of most of the deficiencies and, through its IMPAC Action Plan and other corrective measures, had taken steps to remedy many of them. The following is a summary of our audit observations on each of our main areas of inquiry.

13.25 Program effectiveness. The objective of the Post Office is to provide an adequate standard of service without incurring subsidization other than that for losses specifically relating to other government objectives. The Post Office has identified a number of losses relating to other government objectives, such as publication mailings which are now subsidized, and is in the process of identifying further government objectives and their associated costs and revenues for which subsidization could be obtained. Until it has completed this process, the Post Office will not be in a position to measure and report on whether it has achieved its objective.

13.26 Reliability of service. The Post Office has defined adequacy of service in terms of speed, reliability and availability. The systems for measuring adequacy of service were not sufficiently accurate or sufficiently comprehensive to provide an effective means of evaluating the Post Office's total service performance. As an example, we tested the reliability of the principal system for measuring first class mail service delivery. Our test indicated that the Post Office system, if used for public reporting, would significantly overstate service performance for local mail delivery for the three cities tested by us. For first class mail forwarded between these cities, our test results were not significantly different from those of the Post Office's measurement system.

13.27 Corporate planning and control. Planning was carried out throughout the Post Office in a detailed fashion and within a clearly defined framework. However, the planning cycle lead time was too long, the business and financial planning phases were not sufficiently integrated, and there was not an adequate cost system for determining the financial implications of plans.

13.28 Inadequate cost information and weaknesses in the performance measurement system made it difficult for managers to decide on appropriate trade-offs between conflicting performance goals and also made it difficult to hold managers accountable for the results of these decisions.

13.29 Mail processing. There were weaknesses in the systems for planning and controlling the processing of mail in postal plants. The systems generally did not provide adequate cost information. Further, engineered work standards were not generally used for staffing and productivity improvement purposes.

13.30 National mail distribution. From a national perspective, we found that procedures were appropriately designed to meet the needs of a distribution system. The cost and efficiency of transporting mail between major cities were generally well controlled.

13.31 Letter carrier service. The Post Office has a system for assigning work to letter carriers and structuring their routes for an eight-hour work day. However, the Department's own studies suggest that the majority of letter carriers are able to accomplish their assigned work in less than the allocated time through various time-saving practices or by working at a pace faster than the standard. Although the letter carriers may not walk their routes exactly as designed, they are delivering the mail assigned to them each day. Having letter carriers walk their routes as structured would not improve efficiency or result in more mail being delivered.

13.32 We noted several potential areas for increasing economy and efficiency in the provision of letter carrier service. The Post Office was aware of these areas, but action in most of these cases would involve changes to the collective agreement with letter carriers.

13.33 In addition, the Post Office has identified other possibilities for cost savings, but these would entail a reduction in the present level of letter carrier service.

13.34 Labour relations. The Post Office has introduced a number of innovative labour relations and communications programs to improve this aspect of postal operations. Unions and management have demonstrated a willingness to co-operate by participating in consultations. There was, however, a need for greater participation by managers at all levels in the improvement of labour relations and communications programs and for increased training of first line managers to enable them to promote a more co-operative work environment.

13.35 Collective bargaining. The management process included a formal approach to the identification of issues to be negotiated. These issues were used to develop general strategies and objectives for annual negotiations consistent with long-term labour relations goals and strategies. However, objectives for negotiations were not established beyond the current year. As a Crown corporation, the Post Office will have greater opportunity to establish goals for future negotiations and to develop strategies for dealing with management and union proposals.

13.36 Human resource planning. The Post Office had satisfactory human resource planning procedures to identify shortages and surpluses for senior management positions. There was a need, however, to develop procedures to forecast long-term shortages and surpluses for all major groups of employees and to use engineered work standards, where appropriate, to project human resource requirements.

13.37 The post Office as a Crown corporation. As a regionalized organization, delivering 80 per cent of mail within 200 miles of the point of origin, the Post Office has the opportunity to respond to local needs. However, because the postal service is national, there is a need for some form of centralized control and systems to co-ordinate the operations of the regions. Although the reporting systems have a national orientation, largely in response to central agency requirements, management of operations is at a local level. The reporting systems, therefore, do not adequately meet the needs of operational managers. Conversely, although the Headquarters group is responsible for providing national co-ordination and direction, it perceives that it has only limited control, except through the Deputy Postmaster General, over field operations. The balancing of central control with local autonomy is a matter that needs to be carefully addressed by the new Canada Post Corporation.

13.38 Also of major consequence are the matters of postal rates, levels of service and improvements in service reliability, labour relations and productivity. These issues must be addressed and answered if the Post Office is to achieve its objective of financial self-sufficiency as a Crown corporation. Changes in these areas will require a high degree of co-operation between management and employees and between the Post Office and the public.

13.39 The Canadian public's loss of confidence in its postal service is based partly on unrealistic demands that the Post Office be all things to all people, partly on misconceptions, and partly on real evidence of poor service. To restore full respect will require not only improvements in mail reliability but also a public perception of a generally well managed institution.

13.40 Conversion to Crown corporation status is expected to have a positive effect on employer-employee attitudes and give management more flexibility, but these expectations should be followed up by Parliament.

Observations and Recommendations

Program Effectiveness

13.41 The objective of the Post Office is to supply postal services to the people of Canada at rates which will provide a standard of service adequate to meet their needs, without incurring a loss. There may, however, be subsidization to cover losses specifically attributable to meeting other government objectives.

13.42 In carrying out its mandate, the Post Office needs processes to:

    - identify what types and levels of service Canadians desire; and
    - determine standards of service and rates to meet the needs of Canadians without incurring a loss.
13.43 To determine its effectiveness, the Post Office needs satisfactory procedures to:

    - measure the level of service actually provided against the standards; and
    - quantify the extent to which losses are due to meeting other government objectives.
The focus of our audit was, therefore, to assess whether the Post Office had satisfactory procedures in place to evaluate its program effectiveness.

13.44 Postal needs of Canadians. The Post Office has defined postal needs in terms of speed, reliability and availability of postal services to the public and has developed service standards in these areas. In establishing the standards, it has given consideration to available resources, operational feasibility, competitive services, standards set by other postal administrations and market surveys of user needs.

13.45 As discussed later under Corporate Planning and Control, the Department's costing system was inadequate to support management in its analysis of trade-offs between users' needs, service standards, postal rates, operating costs and revenues.

13.46 Measuring performance. The Post Office has national systems in place to measure performance regularly in terms of the speed and reliability of a number of postal services, including approximately one-half of first class mail and all of fourth class mail. Second and third class mail was measured infrequently on a national basis. Our audit of the national system that measures performance of first class mail revealed a number of weaknesses. These are reported later under Measuring Service Reliability. The mail that was regularly measured represented only about a third of the total mail volume.

13.47 Without regular measurement of performance of all major services, the Post Office cannot evaluate whether it is meeting its service standards or the postal needs of Canadians. Performance information is required for use in determining trade-offs among level of service, rates and cost.

13.48 The performance of all major services should be regularly measured, the results compared to established standards of service, and appropriate action taken when there are significant differences between actual and standard.

13.49 Availability of service refers to the ease of access to postal services. Although national directives had been prepared on the aspects of service availability related to letter carrier delivery service, street mail box collection service and operations of post offices, no aspects were being formally monitored on a national basis except the number of delivery points not receiving letter carrier service. In this case, a national system is in place to report the number of delivery points which could have been, but were not, receiving letter carrier service because of resource constraints. For other aspects of service availability, the Post Office had generally relied on complaints from users to gauge their satisfaction or dissatisfaction and the appropriateness of national directives.

13.50 Although some studies had been conducted, such as those relating to street letter boxes, the cost and revenue implications of these directives had not all been assessed. There was no formal method of ensuring that the directives were appropriate, were being followed or were revised as required.

13.51 Procedures should be instituted, where practical, to monitor adherence to national directives on service availability, assess their cost and revenue implications, and evaluate their continuing appropriateness.

13.52 Other government objectives. As part of its objective, the Post Office is charged with not incurring subsidization from general taxation other than that required to cover losses specifically identified in relation to other government objectives. The Post Office has identified a number of losses related to other government objectives, such as publication mailings which are now subsidized, and is in the process of identifying further government objectives and their associated costs and revenues for which subsidization could be provided. Without clarification and costing of all other services provided by the Post Office in support of other government objectives, it is not possible to determine the costs and revenues related solely to postal services. Therefore, this lack of cost and revenue information makes it difficult to hold management accountable for the extent to which the stated objectives have been achieved.

13.53 The Post Office should identify, to the extent practicable, all services that are in support of other government objectives and determine the costs and revenues reasonably attributable to them.

Corporate Planning and Control

13.54 In a department as large and decentralized as the Post Office, effective corporate planning and control processes are essential. We reviewed the systems and processes by which management gives overall direction and control to the Post Office. We also examined the information available for planning, procedures for preparing plans, and processes for making, implementing and monitoring planning decisions. Of specific interest were:

    - the processes for identifying postal needs of Canadians, including the types of services demanded, the subsequent translation of these needs into services and the related standards of service;
    - the process for establishing long-term strategies and goals; and
    - short-term planning of departmental operations and the monitoring of achievement against the operational plans.
13.55 Our audit was of the corporate planning and control system as it was prior to 31 March 1981. Since then, the Post Office, through its IMPAC Action Plan, has taken steps to remedy many of the deficiencies noted below. Management also recognizes the need for an effective planning and control process if the Department's transformation into a Crown corporation is to meet the objectives set for the Corporation.

13.56 Planning process. The Post Office's planning cycle consisted of three main phases: corporate, business, and financial. Corporate planning was the phase in which senior management established overall objectives and strategies and set corporate performance goals. This first phase, which took roughly five months, started some 29 months before the applicable fiscal year. It culminated in the Deputy's written request for business plans initiating the second phase.

13.57 Business planning, the second phase, began 23 months before the fiscal year covered by the plan. The major product of business planning was a set of independent standard performance goals against which performance is measured, covering such items as service level, mechanized yield, person-year usage, overtime, productivity, mail volume, revenue and expenses. Specific performance goals were established in the business plans for each area of operation. This phase took 10 months.

13.58 The final phase, financial planning, began 19 months before the applicable fiscal year and partially overlapped the business planning process. In this phase, regions and directorates calculated the resources required to implement the proposed business plans. This was decided largely on the basis of resource ceilings established by Treasury Board in the fall before the start of each fiscal year. Financial planning was geared to the government-wide Program Forecasts and Main Estimates planning cycle and requirements which constrained the development of a more suitable planning process for the Post Office.

13.59 Senior management devoted considerable attention to planning, and responsibility for it was reasonably well established, agreed to and implemented. The Post Office assessed its environment, surveyed user needs, evaluated corporate strengths, weaknesses, opportunities and threats, and analysed costs and benefits of proposed services. Management made considerable effort to understand its environment and markets. However, there were weaknesses in this assessment because senior managers did not have adequate background information on matters such as resource restrictions, service level trade-offs and operational and cost implications of various courses of action.

13.60 There were annual analyses of strengths, weaknesses, opportunities and threats for individual products and segments of postal operations. During the corporate planning phase, an overall assessment of the Post Office was prepared by the Marketing and Operations Directorates.

13.61 For short-term operational planning purposes, senior management set objectives and goals more than two years in advance of the applicable fiscal year. To do so, they had to make predictions and assumptions about events two to three years in the future. This long lead time increased the risk that predictions would be faulty and that the assumptions on which the Department's plans were based would be invalid by the time of plan execution.

13.62 Similarly, in the business planning phase, program commitments were made more than 12 months before the start of the applicable fiscal year -- before resourcing was fully established under financial planning and before person-year allocations had been fixed by Treasury Board. Managers were, therefore, making commitments to programs without fully knowing what resources were required or available. Further, because business planning preceded financial planning and dealt more with performance goals than resourcing, there was inadequate integration of business and financial planning.

13.63 The allocation of person-years across the organization had become an inflexible process. Business and financial plans were not adjusted during the period of their execution. An effective planning system should be dynamic and have enough flexibility to reflect changed conditions such as increased mail volumes or changes in product mix. Under a fixed system, variances from plan might give rise to misleading explanations or provoke inappropriate corrective actions. The extent to which an organization can or should react to significant environmental changes should be the criterion for designing a planning system.

13.64 The planning process was further handicapped by the lack of an adequate costing system whereby the costs of specific operations could be forecast to permit managers to calculate the costs and benefits of alternatives to existing services or of proposed new services.

13.65 The Post Office should revise the planning process to:

    - provide management with the environmental, resourcing, operational and other information it requires as input to its planning decision-making process;
    - shorten the planning cycle so that decision points are closer to the start of the applicable fiscal year;
    - permit better integration of business and financial planning; and
    - permit adjustment to plans and budgets to reflect current environmental and operating conditions.
13.66 The Post Office should develop an appropriate cost accounting system.

13.67 Controlling. The Post Office had a system for monthly reporting of actual results against predetermined performance goals. This information, when reviewed by the senior management group in its monthly meeting, was about six weeks old. On occasion, the financial component of the monthly reports was even older. For some of the performance measures reviewed, such a delay was not significant, but for others a prompter review was required. However, operating managers had their own local systems to report results on a more timely basis.

13.68 Although the monthly reports did provide a comparison of actual results against individual performance goals, there was no single comprehensive measure, in dollars or other terms, to assess the efficiency or economy of operating performance on an overall basis. There was, in effect, no "bottom line". Because there was no composite measure for all goals, it was difficult to evaluate the efficiency or economic consequences of having met some of the standard performance goals, but not others. As a Crown corporation with the objective of financial self-sufficiency, there will be a need for greater attention in the future to financial performance.

13.69 Because there was potential conflict between performance goals, such as reducing person-years while increasing level of service, it was unlikely that all goals could be simultaneously achieved. The costing and reporting systems did not provide managers with appropriate information for making trade-offs between the performance goals or for allocating and managing resources.

13.70 The monthly reporting process for the standard performance measures should be revised to ensure that the most appropriate and timely information is being presented, taking into consideration the need to give managers at all levels better information with which to determine trade-offs between performance goals and to assist them in making operational decisions.

Management of Mail Operations

13.71 The basic sequence of operations for first class mail within a city is as follows:

Day 1, morning and afternoon:
    - collection of mail from street letter boxes and post offices and delivery by truck to mail processing plants.
Day 1, evening and night:
    - receipt by processing plant of locally collected mail and mail sent from other cities; sorting of mail by mechanical or manual means; mail destined within the surrounding urban area (local mail) delivered by truck to postal stations; mail for other centres (forward mail) transported by air, rail or road to the processing plant servicing the destination area.
Day 2, early morning:
    - receipt of sorted mail at local postal stations and distribution to letter carriers who organize the mail according to the sequence of their routes.
Day 2, morning and afternoon:
    - delivery of mail by letter carriers.
13.72 The collection, processing and delivery of mail in any postal system is complicated by several factors:

    - dramatic changes in volume within the week and between seasons, making it difficult to schedule both staff and production;
    - variety in the size and shape of mail, much of which is not within the dimensions of standard mail acceptable to the sorting machines, thereby causing a high level of rejects;
    - the variety of mail services, each with a different speed and cost, which complicates production and transportation scheduling;
    - the number of handling processes that can be automated to only a limited degree, requiring a large labour force; and
    - commitment to deliver mail to nearly every address in the country, requiring a massive distribution network.
13.73 Even with the construction of mechanized mail processing plants, the introduction of a postal code, and campaigns by the Post Office to standardize mail, a significant portion of all mail and a large portion of mail which should be acceptable to the mechanical sorters (machineable mail) has to be manually sorted. A major contributor is the mailing habits of the public, such as using odd sized envelopes, improperly addressing letters, and mailing in the late afternoon. An additional factor is the priority given by the Post Office to meeting delivery deadlines that can involve manually sorting machineable mail that might otherwise be delayed.

13.74 The Post Office provides Canadians with the following seven major postal services:

    - First Class - correspondence, post cards, business reply mail, printed accounts, receipts, cheques and other financial instruments.
    - Second Class - registered newspapers and periodicals.
    - Third Class - greeting cards, advertising matter (both addressed and unaddressed), small parcels up to 500 grams, books and unregistered periodicals.
    - Fourth Class - parcels weighing between 500 grams and 16 kilograms.
    - Priority Post - next day delivery in Canada for users under individual service contracts.
    - Telepost - electronic mail communication service in which messages, via CN/CP telecommunications network, are delivered by hand from a designated post office.
    - Special Services - registered mail, certified mail, money orders, special delivery, C.O.D., insurance, etc.
13.75 In addition to classes, mail is also defined in terms of being standard or non-standard. Standard mail is mail meeting predetermined size, weight and thickness requirements. It is machineable provided that it is also properly addressed, including postal code, although addresses can be typed or neatly hand written. Mail is perfectly machineable if it meets the tight tolerances on size, type face, position of postal code, etc. required by the optical character reading equipment. Non-standard mail is mail not meeting these requirements.

13.76 We reviewed several of the key processes used to manage the major postal operations of the Post Office to assess whether due regard for economy and efficiency had been observed. We concentrated on:

    - mail processing - the procedures in place to manage processing plant operations on a day-to-day basis;
    - national mail distribution - the management controls to plan and monitor the movement of mail between major centres in Canada;
    - letter carrier service - the basis of assigning work to letter carriers; and
    - service reliability - the national systems to measure the performance of mail services against the delivery standards set by the Post Office.
13.77 Mail processing in postal plants. We reviewed the systems and procedures by which plant management plans, controls and improves the processing of mail through the mechanized postal plants.

13.78 In the 25 major urban centres across Canada, there are 29 mechanized plants -- 27 letter processing facilities and 2 bulk mail plants for parcels and containers. These plants are large industrial sites employing from 500 to 2,000 workers.

13.79 At least a third of the total Post Office complement of 60,000 person-years is involved in mail processing. The plants are the points in the total mail collection, processing, transportation and delivery system where bottlenecks are most likely to occur. They are also one of the areas in postal operations with the greatest potential for productivity improvement.

13.80 Because most organizations mail in the late afternoon, the Post Office schedules collections to bring mail to the processing plants in the early evening. To meet delivery standards, it has set processing deadlines that require the mail to be out of the plants, particularly mail that is to be forwarded to another city, by the early hours of the following morning. Accommodating the public's mailing habits and meeting service standards, therefore, result in a narrow time limit for processing and impose severe production demands on the processing plants.

13.81 We found that there was no national policy on whether there should be an operational planning and control system in each plant or on what the basic objectives and elements of such a system should be. There was, however, a national guideline outlining how such a system could work, and recent business plans of the plants have included improvements in their planning and control systems. The complexity of the system required depends on the size of the plant and the mixture of mail it receives. However, because plants have been developing or upgrading their own systems, the extent of operational planning and control varied from plant to plant. The basic elements of forecasting, scheduling and monitoring were generally in place at the plants visited, but there were weaknesses and inconsistencies in carrying out these functions.

13.82 The introduction of large mechanized plants and new procedures has made changes necessary in the traditional roles and relationships of operational management, production planning and control units in the plants, and mail processing management at the district level. These changes have resulted in divided responsibility among them for planning, scheduling and control. This has led to a weakening of these functions and to duplication of information and effort.

13.83 There are clauses in the collective agreement with inside workers, such as those relating to the use of part-time and casual workers, daily sick leave and measuring productivity that, in the opinion of management, restrict the ability of plant managers to make the best use of resources and to manage consistently with due regard to economy and efficiency.

13.84 In general, the operational planning and control systems did not provide plant managers with adequate cost and productivity information for assessing performance and evaluating the efficiency of alternative processing methods. For example, in those situations where there was a choice between not meeting service standards or doing so but incurring extra costs, the system did not highlight the extra costs involved.

13.85 In many instances, adequate data on forwarded mail volumes were not communicated to other plants, particularly those in different districts, making it difficult for the receiving plants to plan and control their activities.

13.86 Because of the importance of mail processing plants in the total postal system and the extent of their use of person-years, effective operational planning and control procedures are essential.

13.87 The Post Office should ensure that appropriate operational planning and control procedures are in place in all plants and that roles and responsibilities in relation to these functions are clearly defined and communicated to all concerned.

13.88 Our audit disclosed that engineered work standards were generally not available and, where they were available, were generally not being used for staffing, scheduling operations or monitoring performance. The Department, therefore, did not know the extent to which:

    - plant capacity was being efficiently utilized;
    - standards were being met; and
    - human resource savings could be achieved through productivity improvement.
13.89 The mechanization program begun in the early 1970s is nearing completion. Two prerequisites for the success of the program, acceptance of the postal code and start-up of all plants, have been realized. One of the key justifications for introducing mechanization was to achieve savings in human resources. Studies by the Post Office show that although there have been some savings in this area, they have not been as large as originally anticipated. The use of engineered work standards in productivity improvement programs could help in achieving further human resource savings.

13.90 Engineered work standards should be developed for all major mail processing functions and should be used to determine the extent to which productivity improvements can be achieved and to assist in staffing and production planning.

13.91 National mail distribution. This section of our audit assessed the planning and monitoring of the movement of mail between major centres in Canada. A large amount of the mail is processed and forwarded by the mail processing plants to plants in other cities across Canada. Mail is transported by air carriers and railways and, to a limited extent, by road. The two main factors affecting the choice of transport are the class of mail and the distance between cities. Other considerations are the schedules and capacities of air carriers.

13.92 Canada's size and weather conditions make planning and control of inter-city transportation a key element in postal operations. From a national perspective, we found that the procedures in place were appropriately designed to meet the needs of a distribution system.

13.93 Transportation services were generally acquired with due regard to economy, and the associated contracts were administered satisfactorily. The Post Office had recently achieved annual savings of approximately $650,000 without affecting the level of service by converting some highway service to rail and by changing the frequency of shipments and the size of the units.

13.94 The emphasis placed on meeting local service standards gave higher priority to processing and monitoring local mail than forwarded mail. However, systems implemented recently should improve controls to ensure that forwarded mail meets time and processing standards.

13.95 Letter carrier service. We reviewed the procedures used to structure letter carrier routes and to manage letter carrier operations.

13.96 To reach the 6.3 million potential points of call five days a week, the Post Office employs about 18,000 letter carriers to cover approximately 14,500 established routes and to provide assistance and relief for illness and leave. Included in the established routes are 234 business routes providing two deliveries a day and 287 with three deliveries a day.

13.97 A letter carrier's work day includes sorting and preparing mail as well as delivering it. It is based on a standard of 480 minutes and is structured by a comprehensive system, using work method study and measurement techniques to arrive at time values for each task.

13.98 The volume of mail, the number and type of delivery points and the terrain are considered in structuring a route. The volume of mail for a route is determined by an actual count of mail delivered over a two-week period and adjusted for seasonal fluctuations. Included in the 480 minutes are transportation allowances to get letter carriers from the depot to their routes and a round trip for lunch, and personal allowances for rest periods and wash ups.

13.99 The route measurement system is designed to allocate an eight-hour work day to a letter carrier if the tasks are performed as laid out in the structured design. However, departmental studies indicate that a majority of letter carriers take only five to six hours to do their assigned work on most days. Because they can go home after their mail has been delivered, letter carriers have an incentive to reduce their 480 minutes of structured work in various ways. These time savers include taking short cuts by walking across lawns and driving their own cars to and from routes rather than taking public transportation. They may also not take all the personal time allowances included in the structured route, and they may work at a pace faster than the standard. Although letter carriers may not necessarily walk their routes exactly as designed, they are delivering the mail assigned to them each day. Having letter carriers walk their routes as structured would not improve efficiency or result in more mail being delivered.

13.100 Daily mail volumes fluctuate throughout the week. In the original design of the route measurement system, these fluctuations were taken into consideration by calculating overtime averaged over a 40-hour work week. However, the collective agreement with letter carriers now calls for the payment of overtime on a daily basis. As a result, letter carriers are paid overtime on high volume days when they work more than eight hours, and are paid for a full day on low volume days when they work fewer than eight hours.

13.101 To clear mail backlogs, plants may work overtime on weekends. In anticipation of expected higher volumes caused by these processing backlogs, letter carriers are called in early and paid overtime on the following Mondays. However, the higher volumes had already been taken into consideration in establishing the routes. We noted that for some periods during the year in certain areas of the country payment of this overtime occurred fairly regularly.

13.102 Most routes contain a daily transportation allowance of 80 minutes or less for the -letter carriers to travel, generally by public transportation, to and from their routes. Because of a provision in the collective agreement, the Post Office cannot change the mode of transportation of a route governed by the use of public transportation for which the total transportation allowance is 80 minutes or less. As a result, the Department is unable to reduce overall letter carrier costs even though opportunities for savings have been identified in this area.

13.103 Many of the routes have not been completely remeasured since the inception of the route structuring system 10 years ago. The degree of error in the original measurement of the routes has, therefore, not been quantified and corrected except in isolated instances.

13.104 The Post Office should review its present procedures relating to the provision of letter carrier service with a view to increasing economy and efficiency.

13.105 The Post Office has considered several alternatives to the present level of service relating to letter carrier delivery, including:

    - reduction of multiple delivery on many business routes;
    - alternate day delivery on residential routes;
    - delivery to the residential property line rather than the front door; and
    - delivery to groups of boxes rather than residences.
13.106 In some cases, the present level of service would be reduced and, although considerable savings might be made, reduced revenues might also result. Depending on how they were introduced, however, these alternatives could have serious implications for collective bargaining.

13.107 Measuring service reliability. We reviewed the extent to which the Post Office measured and reported on the service reliability, that is speed and consistency of delivery, of its major postal services. In particular, we assessed the adequacy of the National Evaluation of Postal Services (NEPS) system which measures service performance for first class mail. As part of our review, we carried out our own test of mail service in and between three cities.

13.108 Reliable information on the quality of mail service is critical to the Post Office if it is to meet its objective of providing a reliable mail service to Canadians. Even if 95 per cent of the mail is delivered on time, as many as 800,000 of the 16 million pieces of first class mail delivered each day in Canada would arrive late, giving rise to a potential cause of customer dissatisfaction. Reliable information is required not only for public reporting purposes, but also for internal managerial use. Quality of service is an area of interest to Parliament and to mail users.

13.109 The Post Office systematically measures on a national basis the local and forward mail performance of first class machineable mail, fourth class mail, priority post and telepost. It also tests second and third class mail on an irregular and localized basis and has procedures for co-operative testing with a number of large volume mailers. Despite these efforts, it has limited its systematic measurement of mail performance to approximately one third of its annual mail volume. The largest portions of mail not systematically measured are the manually processed first class mail, which accounts for approximately half of the first class volume, and most of the third class mail. The Post Office did not regularly publish the results of its mail performance tests. When the Department did release performance figures, they were usually NEPS results.

13.110 The Post Office should ensure that it has appropriate measurement systems in place to monitor service performance for each of its major postal services.

13.111 The Post Office should report publicly the mail performance of its major postal services at least annually.

13.112 The Post Office has established service standards for certain of its postal services. For example, the following standards apply for first class standard mail:

    - 1-day (overnight) delivery within a local area and between about a dozen traditionally paired cities, such as London and Hamilton;
    - 2-day delivery between most other cities in Canada; and
    - 3-day delivery, principally between cities located on opposite coasts of Canada.
13.113 A comparison of the Post Office's national performance goals established against these standards and actual national results for the year 1980-81 follows:

Performance Goals and Actual Results
for First Class Standard Mail for 1980-81

Percentage of Mail Delivered
Within Time Prescribed:
Local Mail Forwarded Mail

Performance
Goal

Actual
Results

Performance
Goal

Actual
Results

April to November

95%

89%

90%

66%

December

50

73

50

60

January to March

90

87

85

59

13.114 Principally for managerial purposes, the Post Office uses the NEPS system to measure first class mail performance. It is an extensive testing system which provides management with a regular reading on the trends of the Department's service performance. The system also highlights areas of the country where there are service problems.

13.115 In our opinion, when the Post Office reports on the quality of its mail service, the public would expect the measuring system to test:

    - the type of mail the public most frequently uses; and
    - the processes through which the mail is most likely to pass.
13.116 On this basis, we found that NEPS had the following weaknesses which reduced its appropriateness for reporting publicly the quality of mail service:

    - The full mail operation was not measured, in that collection from street letter boxes, delivery to the processing plants and delivery by letter carriers were excluded.
    - The Post Office sampled with perfectly machineable mail, which was not representative of all types of standard mail capable of machine processing.
    - The sample mail was not representative of the split of first class mail between manual and mechanical processing since less than 20 per cent of NEPS test mail was manually sorted while the average for first class mail was about 50 per cent.
    - The system did not measure the length of delays or the amount of mail that was lost or damaged.
    - In publicly reporting performance goals and actual results, the Post Office had generally not fully disclosed the limitations of its measurement process nor had it fully explained the meaning of its figures.
13.117 To assess whether these factors might have an impact on the results reported by NEPS, we developed an independent statistically-based test to measure:

    - the mail performance of local first class mail in the cities of Toronto, Ottawa and Vancouver, which account for approximately 30 per cent of the NEPS mail volumes, for the months of January and February 1981; and
    - the performance of mail forwarded between each of the three cities for two weeks in each of the months of January, February and April 1981.
13.118 The purpose of our test was to determine the extent of any difference between the results of the Post Office's measurement and our results, given that, in contrast to the Department's methods, we:

    - measured the total mail process from pick-up at street letter boxes through to delivery at household and business addresses; and
    - expanded the types of test mail to include handwritten and typed addresses, different coloured but standard sized envelopes and stamped and metered mail.
13.119 In summary, the results of our tests were as follows:

    - For forwarded mail performance, our results were essentially the same as those reported by NEPS for the three months tested.
    - For local mail, our test indicated a lower mail performance for the three test cities for the two months tested than that reported by NEPS.
More complete details of our findings are noted below.

13.120 The results of our test of forwarded mail service reliability between the three cities compared to the results reported by the Post Office were as follows:

Forwarded Mail Reliability Tests - First Class Mail

Number of
Letters in Sample

Results
(% delivered on time)

Combined results for all three
test cities:

Dept's.
NEPS Test

OAG's
Test

Dept's.
NEPS Test

OAG's
Test

     January 1981 595 497 51% 51%
     February 1981 594 487 53 51
     April 1981 588 512 50 49

13.121 The differences between the Department's NEPS test for the three test cities and our results are not statistically significant.

13.122 The results of our test of local service reliability compared to those of the Post Office are shown in Exhibit 13.2. Observed differences as shown in this exhibit are the simple arithmetical differences between the results of our tests and those of the Department. They are the best estimates of the true differences which could occur between our results and those of the Department because of the differences in our testing methodology.

(Exhibit not available)

13.123 However, because the tests were based on statistical samples rather than a complete count of all mail delivered during the test period, the measures of difference could be affected by chance occurrences and random events. The potential effect of chance can be statistically calculated and applied to the observed differences to yield the minimum probable differences shown. It is very likely that the real differences between our results and those of the Department are at least as large as the minimum probable differences.

13.124 Based on our work, we are reasonably confident that there were real and significant differences between our results and NEPS results; NEPS claims a higher local service reliability than our methodology would support. In our opinion, for public reporting, the Department's results would overstate local service reliability for the three test cities in the two months tested.

13.125 For publicly reporting the quality of first class mail service, the Post Office testing procedures should be modified:

    - to measure the performance of mail that is processed manually;
    - to reflect the total mail handling process; and
    - to include the variety of sizes of envelopes, methods of addressing, etc. used by the public.
13.126 For publicly reporting mail service performance on any of its postal services, the Post Office should specifically state the methods used in arriving at its test results.

Payroll Costs Management

13.127 Our audit reviewed the management of labour relations, the preparation for collective bargaining and human resource planning and training.

13.128 Management of labour relations. Labour relations management in the Post Office includes establishing and implementing negotiable terms and conditions of employment and associated redress processes. It also includes other related activities designed to improve relationships between the employer and the employees and their representatives. As part of our audit, we reviewed the programs, processes and activities that have been designed to promote harmonious employee relations and are directly under the control of Post Office management.

13.129 There has been a history of difficulties in labour relations in the Post Office, which have intensified in the last decade, reaching a peak during the period of mechanization. These difficulties have sometimes been complicated by the involvement of central agencies in such areas as collective bargaining.

13.130 Co-operative efforts between employees, their unions and management are being made to improve labour-management relations. In spite of these constructive efforts, improvement in labour relations is still required. Results cannot be expected either quickly or easily.

13.131 A formal written labour relations philosophy has been developed by management and communicated throughout the organization. However, our review revealed that this philosophy had not always been reflected in action plans with specific targets at each level across the organization. There is a need, which is recognized by senior management, to obtain commitment to, understanding of, and acceptance of good labour relations objectives, procedures and plans by supervisors and managers throughout the organization.

13.132 Management has recognized the need to improve labour-management relations. A number of innovative labour relations and communications programs have been introduced in an attempt to achieve improvement. For example, an organization-wide communication program known as Cascade has been used to convey information to postal employees. A process known as Intergroup was also introduced to encourage union representatives and management to meet, discuss common problems and attempt to find solutions. Unions and management have demonstrated a willingness to co-operate by participating in consultations.

13.133 Because of the impact of labour relations on the success of the Post Office, it is important for management to know whether the labour relations programs are having their desired effect. The Post Office has attempted to evaluate these programs in various ways. Most of the approaches to evaluation have not included employee feedback, except for the Intergroup Program, and generally were not performed on an ongoing basis.

13.134 Further, in our opinion, there was a need for greater input from managers, at all levels, in the improvement of labour relations and communications programs. An acceptance of and commitment to these programs by managers, particularly at the supervisory level, is essential to their success.

13.135 A formal survey, including requests for feedback from managers, would be one way of obtaining information on the effectiveness of the programs, as well as encouraging the participation of managers in improving the programs. There are also other yardsticks that would be useful in evaluating labour relations, most of which are being monitored by the Department. These include staff turnover, absenteeism, number of grievances, and so on.

13.136 The Post Office should expand its efforts to evaluate systematically the effectiveness of its labour relations and communications programs.

13.137 Although organizational responsibilities and administrative practices were clearly defined within the Post Office, labour relations specialists were sometimes called on to carry out labour relations responsibilities that had been assigned to line managers. Even though line managers had received some training in this area, they did not believe that it was sufficient to permit them to discharge their responsibilities satisfactorily.

13.138 Senior management recognizes the need to foster constructive attitudes and relationships in the labour relations area to create a more co-operative work environment. A number of training programs designed to achieve such changes are now in place. However, it will take some time for the desired changes to occur and for some line managers to acquire the skills necessary to promote such an environment.

13.139 Line managers should receive additional training to enable them to better carry out the labour relations responsibilities assigned to them.

13.140 Collective bargaining process. Our audit included a review of the processes followed by Post Office management in preparing for collective bargaining and in identifying issues for negotiation. We did not examine actual negotiating processes or their results.

13.141 The Post Office was administering contracts with 29 bargaining units and actively participated in negotiating a number of them. This included collective bargaining for the two largest units, Canadian Union of Postal Workers (CUPW) and Letter Carriers Union of Canada (LCUC), which make up more than two-thirds of the total work force. Collective bargaining was conducted within the framework of the Public Service Staff Relations Act. This Act and several others restricted the items that were open to negotiation.

13.142 A number of groups have played a significant role in the negotiation process, but the Treasury Board, as the employer for government departments, had primary responsibility for collective bargaining. In recent years, Treasury Board has delegated responsibility for the negotiation of certain postal union contracts to Post Office management under very specific bargaining mandates. In spite of this delegation, Treasury Board has remained closely involved in the process because of the concern that precedents could be set for other public service contracts. To obtain clarification of the roles and responsibilities of Treasury Board and Post Office management in the collective bargaining process, we met with Treasury Board representatives. We found that, in the preparation for negotiations, Post Office management carried out the responsibilities delegated by Treasury Board.

13.143 The Department formally sought the views of managers throughout the organization on what issues required negotiation. These issues were used in developing general strategies and objectives to be used in current year negotiations. These negotiation strategies were developed taking into consideration the long-term goals and strategies for labour relations. However, we also noted that goals and strategies for negotiations beyond the current year had not been established.

13.144 As a Crown corporation, the Post Office's responsibilities in the area of collective bargaining will be significantly increased. Thus, the Post Office will have greater opportunity to establish goals for future negotiations and to develop a comprehensive approach to identifying and evaluating the cost, operating and administrative implications of union and management proposals, and strategies for dealing with them.

13.145 Bargaining objectives for future negotiations should be established and strategies for achieving them should be developed.

13.146 Human resource planning. We examined the systems for ensuring that the appropriate number of people are available with the required skills, when and where they are needed.

13.147 In the operational planning process, human resource planning is based on targets and productivity levels determined from historical data, rates and comparisons, and projected changes. Human resource allocations are made to each of the regions in conjunction with the person-year budget approved by Treasury Board. The allocations are then further allotted by the regions to the districts.

13.148 Engineered work standards were not being used to the extent possible to establish human resource requirements, except in the structuring of letter carrier routes. Measured work standards existed in a number of areas and were being implemented for mail service couriers and counter service. Work standards for manual mail processing, which had been developed at one time, were no longer being used. Without work standards, it was not possible to determine if human resource levels were appropriate to ensure economic and efficient operations.

13.149 Engineered work standards should, where applicable, be used as the basis for establishing human resource requirements and making human resource allocations.

13.150 Analyses were carried out to identify potential vacancies for key or senior staff positions and, as necessary, to determine the availability of successors. In many cases, supervisors and managers had been included in these analyses, at least to the extent of identifying shortages or surpluses. No analysis had been conducted and no formal process existed to plan for long-term surpluses or shortages for the majority of other employees. Personnel requirements are changing over time and will continue to do so as technology changes and demographics and related mail volumes shift. This increases the possibility that present human resource planning efforts will not be sufficient to ensure that the personnel requirements imposed by these changes are met.

13.151 The Post Office should implement procedures to forecast long-term shortages and surpluses in all major human resource groups and to develop action plans for dealing with them.

13.152 Training. We reviewed procedures for identifying training needs to meet skill and knowledge requirements to improve job performance and to cope with technological and other changes.

13.153 The responsibility for identifying training needs and for ensuring that training takes place rested appropriately with managers throughout the organization. As a result, a great deal of training was provided to meet local needs. However, no central group was responsible for developing and maintaining an information system on available training programs or for ensuring that the effectiveness of the training provided was evaluated. A central group was responsible for preparing an annual report on the cost of all training.

13.154 Responsibility should be assigned to a central group for developing an information system on available training programs and ensuring that, across the Post Office, training need are identified and the effectiveness of training is evaluated.

Financial Controls, EDP and Internal Audit

13.155 Revenue protection. We examined the procedures and controls for detecting inadequate postage and collecting postage due.

13.156 The mailer generally determines the postal rate and uses the appropriate postage meter impression or stamp. The same is true of the large volume mailer, who determines the number of pounds or number of pieces in a bulk mailing, applies the rate and enters the total postage charge on a statement of mailing accompanying the mail to the post office or postal facility. Although the Post Office had formulated procedures for detecting inadequate postage and collecting postage due, these procedures were difficult to carry out on a consistent basis because of unclear responsibilities, inadequate training of staff, high volumes of mail at certain times of day and the pressure to meet delivery standards. As a consequence, the Post Office had limited information on the amount of revenue lost, even though it knew the major areas where postage was likely to be inadequate. Under the IMPAC Action Plan, a task force has been assigned responsibility for dealing with this problem and recommending appropriate action.

13.157 Money order liability. The Post Office issues approximately 27 million money orders annually, resulting in cash transactions of about $2.5 billion. It also administers the cashing of a large number of foreign money orders on behalf of other postal administrations. The present money order computer system to control this operation has been in place for approximately ten years. At 31 March 1981, liability for outstanding money orders accounted for about $61 million of the total Post Office liabilities of $76.9 million reported in the Public Accounts of Canada.

13.158 Chapter 6 of our 1977 Report, on the Computer and Information Systems Evaluation (CAISE) study, recommended that the Post Office should implement procedures to reconcile the money order reports to the general ledger in order to ensure the accuracy of reports and to permit the use of computer records to support account totals. This recommendation had not been implemented at the time of our comprehensive audit.

13.159 As part of our audit, we attempted to carry out a reconciliation of outstanding money order files to the general ledger for $55 million of the $61 million outstanding money order liability at 31 March 1981. We originally estimated a potential net difference which indicated the Post Office had understated its money order liability by $5.5 million. Since our audit, additional information has been provided that could affect the reconciliation; therefore, it was not possible to determine the exact difference, if any. The major problem is that the system was designed to ensure that money orders are properly payable and not to facilitate reconciliation between money order files and the general ledger accounts. Also included in the $61 million liability was an outstanding balance of $4.7 million accumulated over many years and representing pre-1970 money orders which we could not verify because the Post Office could not provide supporting documentation.

13.160 The Post Office should establish appropriate accounting controls over money order liability accounts.

13.161 Management of electronic data processing. Our review concentrated on management practices related to the use of EDP resources, particularly in the planning for these resources.

13.162 The Post Office spends approximately $10 million annually and employs 270 persons to design and operate its major financial and national information systems. The financial systems relating to cash receipts, postage meter settings, postal values and money orders record the transactions in more than 8,000 post offices. These systems annually account for cash transactions of approximately $4 billion and control the use of 117,000 postage meters, the sale of 1.4 billion stamps, and the issuance of 27 million money orders. National information systems provide information on mail volumes, marketing, service reliability performance, human resource utilization and personnel.

13.163 At the time of our review, the Post Office did not have a long-range plan that covered systems requirements and development and set out EDP goals and resource requirements. There was no formal basis for setting priorities for systems development. Furthermore, responsibility for ensuring that regular reviews of major computer systems were carried out was unclear, with the result that very few reviews had been conducted. This was also due in part to the lack of available resources.

13.164 A number of the information systems had been developed independently to meet the need for information on volumes, human resource utilization and operating results. Management has accepted that there is a need for an integrated system and a long-range EDP plan, and their development is being addressed in the IMPAC action plan.

13.165 The Post Office should develop a long-term plan and strategy to meet requirements for management information and for related computer processing facilities.

13.166 The Post Office should ensure that all major EDP systems are periodically evaluated.

13.167 Internal audit. Chapter 12 of our 1978 Report gave the results of a government-wide review of internal auditing. We identified the need for comprehensive internal auditing in government and established minimum criteria for the performance of such work. The Post Office internal audit function was included in the 1978 study. As part of our comprehensive audit, we followed up our 1978 findings and found that, although the Post Office had made some efforts to correct the weaknesses observed, further action is still required in the major areas noted below.

13.168 Following our 1978 review, the Post Office issued a new internal audit policy that outlined the reporting relationships within the Department. This policy provided clarification of the previous mandate but continued to restrict audit activities to financial management. The Post Office, in its IMPAC action plan, has a project for revising the mandate of internal audit to provide senior management with an appraisal of all aspects of Post Office activities. The revision of the mandate was deferred pending conversion to Crown corporation status.

13.169 Similarly, the Post Office had indicated its intention of implementing corrective action to overcome the weaknesses noted in the audit planning area. The planned revision to the audit policy provides evidence of this intention, but successful implementation is dependent on the commitment of senior management.

13.170 Our review of the expanded scope mandate for internal audit submitted to the President of the Corporation for approval indicates that if it is implemented senior management should be provided with appropriate information and advice. Also, a strengthened internal audit function should increase the extent to which this Office can rely on internal audit, thereby avoiding unnecessary duplication.

13.171 The Post Office should adopt comprehensive internal audit.

Information for Parliament

13.172 The Office of the Comptroller General has undertaken a project to revise the form and content of the Estimates and the Public Accounts. The Public Accounts Committee, in its report of 23 March 1979, recommended that "all Crown corporations, as defined in the Financial Administration Act, be included in the Estimates, whether or not an appropriation is requested, and a comprehensive overview of its activities be provided by each corporation". The following audit observations should be considered by the Government and the Post Office in decisions about the type of information and level of detail that will be provided to Parliament.

13.173 Achievement of objectives. The current Estimates set out the objective for the Post Office. This objective is reasonably specific from a financial point of view in that the Post Office is to provide postal services "without incurring subsidization from general taxation other than that required to cover losses specifically identified in relation to other government objectives". However, as reported earlier, until the Post Office has completed its identification of all "other government objectives" eligible for subsidization and the associated costs and revenues, it will not be in a position to demonstrate that it is providing postal services on a break-even basis.

13.174 Some information on the achievement of objectives is presented now in the Estimates in a supplementary table where revenue and costs are broken down by classes of mail. The usefulness of this type of information could be enhanced if other government objectives and the associated costs and revenues were identified in the Estimates. This has been done for the subsidy associated with the delivery of publication mailings.

13.175 The other aspect of the objective, "standard of service adequate to meet their (people of Canada) needs", has been defined by the Post Office in terms of speed, reliability and availability of postal services to the public. The Department has developed service standards in these areas. Disclosure of summary information on standards of service should be presented in the Estimates to help Members of Parliament understand this aspect of the objective. If this information were disclosed, information on achievement compared to the standards could also be provided.

13.176 Performance information. Moving the mail involves four basic activities: mail collection and delivery; mail distribution (transportation between post offices); mail processing; and marketing, including counter services. Each can be divided into a number of sub-activities or processes that are carried out at many locations across Canada. For example, the mail processing activity can be subdivided into manual and mechanical mail processing. To help Members of Parliament assess the need for the level of resources requested, the Estimates could show summary data on factors affecting the resource requirements for each activity or process. Examples would be data on projections of volumes of mail that can be sorted by mechanical means and of non-machineable mail, projections of productivity (output compared to input) and projections of efficiency (productivity compared to a standard).

13.177 A comparison of planned results for the Estimates year with forecast results for the current year would be useful in assessing the allocation of resources to the program. Explanations of variances between planned and actual results could then be presented in the Public Accounts or the Annual Report.

13.178 Supplementary information. Assumptions about the future environment of the Post Office that were used in developing its Estimates would also be useful information for Members of Parliament. Such assumptions include forecasts of demographic shifts and changes in mail volumes. Similarly, the Estimates could include summaries of cost-benefit studies of levels and means of providing service where the results of such studies have an impact on the level of resources requested in the Estimates.

13.179 Because of the size of the work force and the fact that salaries and wages are the largest expense incurred by the Post Office, Members of Parliament may be interested in information on salaries and wages and on the major collective bargaining agreements.

Summary of Recommendations and Department's Comments

Program Effectiveness

Recommendation

13.48 The performance of all major services should be regularly measured, the results compared to established standards of service, and appropriate action taken when there are significant differences between actual and standard.

Department's Comment

Our planning contemplates expansion of the present performance measurement program. These enhancements, after careful consideration of costs and benefits, will result in improved availability and quality of information, more meaningful analysis of the results and more effective action in cases of significant deviations from established standards.

Recommendation

13.51 Procedures should be instituted, where practical, to monitor adherence to national directives on service availability, assess their cost and revenue implications, and evaluate their continuing appropriateness.

Department's Comment

Service availability is being monitored periodically through functional audits including continuous analysis of customer reaction. Canada Post plans for improvements in cost and revenue information will provide the basis for continuous and more effective analysis of service availability.

Recommendation

13.53 The Post Office should identify, to the extent practicable, all services that are in support of other government objectives and determine the costs and revenues reasonably attributable to them.

Department's Comment

The Canada Post IMPAC Plan provides for the development and implementation of improved cost accounting systems including the identification of related costs/revenues of services in support of other government objectives. For the interim, Canada Post is looking at means of improving the information relative to product revenue and costs.

Corporate Planning and Control

Recommendation

13.65 The Post Office should revise the planning process to:

    - provide management with the environmental, resourcing, operational and other information it requires as input to its planning decision-making process;
    - shorten the planning cycle so that decision points are closer to the start of the applicable fiscal year;
    - permit better integration of business and financial planning; and
    - permit adjustment to plans and budgets to reflect current environmental and operating conditions.

Department's Comment

All of the suggested improvements identified with respect to the planning process are being addressed in the new planning system now in the process of implementation.

Recommendation

13.66 The Post Office should develop an appropriate cost accounting system.

Department's Comment

The development of an appropriate cost accounting system is one of the major projects identified in the IMPAC Plan, Accounting Projects.

Recommendation

13.70 The monthly reporting process for the standard performance measures should be revised to ensure that the most appropriate and timely information is being presented, taking into consideration the need to give managers at all levels better information with which to determine trade-offs between performance goals and to assist them in making operational decisions.

Department's Comment

The monthly reporting process to provide appropriate and timely information for standard performance measures is subject to continuous review.

Part of this review is the IMPAC - Cost Accounting Project which should assist decision-making in trade-offs between performance goals and resource allocation.

Management of Mail Operations

Recommendation

13.87 The Post Office should ensure that appropriate operational planning and control procedures are in place in all plants and that roles and responsibilities in relation to these functions are clearly defined and communicated to all concerned.

Department's Comment

Canada Post management has taken steps to ensure that in the largest mechanized plants Production Planning and Control systems (PP & C) are in place and operating. A corporate project plan has been developed to reexamine the approach to design and application of national PP & C systems including the smaller plants. This approach will include consideration of policy and procedures, organizational structure, roles and responsibilities, processing priorities and adequate staffing to meet service specifications.

Recommendation

13.90 Engineered work standards should be developed for all major mail processing functions and should be used to determine the extent to which productivity improvements can be achieved and to assist in staffing and production planning.

Department's Comment

Engineered work standards are being developed for major mail processing functions. Upon completion of this developmental phase, these standards will be made available to operating groups in order to assist in staffing and production planning.

Recommendation

13.104 The Post Office should review its present procedures relating to the provision of letter carrier service with a view to increasing economy and efficiency.

Department's Comment

Canada Post is presently engaged in an evaluation of the appropriateness and currency of the procedures related to all standards under the Letter Carrier Route Measurement System (LCRMS). Where applicable route structuring formulae will also be reviewed in concert with contractual agreements.

When this review is completed corrective action will take place as required.

The results of the overall evaluation will ensure that the LCRMS produces a fair and equitable measure of a day's work.

Recommendation

13.110 The Post Office should ensure that it has appropriate measurement systems in place to monitor service performance for each of its major postal services.

Department's Comment

The proposed NEPS External system will provide for a measuring system to monitor service performance for major postal services. This plan is now in the process of economic evaluation.

Recommendation

13.111 The Post Office should report publicly the mail performance of its major postal services at least annually.

Department's Comment

The principle of public disclosure of mail performance results is a matter for continuing consideration and will be recommended to management of the Corporation.

Recommendation

13.125 For publicly reporting the quality of first class mail service, the Post Office testing procedures should be modified:

    - to measure the performance of mail that is processed manually;
    - to reflect the total mail handling process; and
    - to include the variety of sizes of envelopes, methods of addressing, etc. used by the public.

Department's Comment

The Corporation's long-range plans provide for a program to improve mail testing. Specifically, the NEPS External plan designed to provide better testing of the quality of first class mail service using external organizations is being evaluated.

Recommendation

13.126 For publicly reporting mail service performance on any of its postal services, the Post Office should specifically state the methods used in arriving at its test results.

Department's Comment

If a decision is made in future to publicize test results, consideration will also be given to naming a contact who can provide information on the methods used in arriving at the test results.

Payroll Costs Management

Recommendation

13.136 The Post Office should expand its efforts to evaluate systematically the effectiveness of its labour relations and communications programs.

Department's Comment

It is the objective of Canada Post to ensure the commitment and dedication of its employees in attaining corporate goals. A number of strategies have been developed to achieve:

(a) improvements in employee management relations; and

(b) expedient and complete exchange of information.

These activities will be systematically and consistently appraised.

Recommendation

13.139 Line managers should receive additional training to enable them to better carry out the labour relations responsibilities assigned to them.

Department's Comment

Canada Post has plans and strategies identified as "Improvement of Middle Management and Supervisory Effectiveness". These address the topic of managers' training, including the aspect of labour relations. The full implementation of these plans should result in more effective labour relations.

Recommendation

13.145 Bargaining objectives for future negotiations should be established and strategies for achieving them should be developed.

Department's Comment

As a Crown corporation, Canada Post will assume full responsibility over collective bargaining. It is recognized that long-term strategies and objectives for bargaining form a part of the total process and as such will be developed and included in this aspect of corporate responsibility.

Recommendation

13.149 Engineered work standards should, where applicable, be used as the basis for establishing human resource requirements and making human resource allocation.

Department's Comment

Engineered work standards are being developed for major mail processing functions. Upon completion of this developmental phase, these standards will be made available for establishing resource requirements.

Recommendation

13.151 The Post Office should implement procedures to forecast long-term shortages and surpluses in all major human resource groups and to develop action plans for dealing with them.

Department's Comment

Canada Post's current career and succession planning strategies will enable the Corporation to forecast requirements and to develop action plans for human resourcing.

Recommendation

13.154 Responsibility should be assigned to a central group for developing an information system on available training programs and ensuring that, across the Post Office, training needs are identified and the effectiveness of training is evaluated.

Department's Comment

The responsibility for all aspects of training will be included in the role of the Senior Personnel Executive of the Corporation.

Financial Controls, EDP and Internal Audit

Recommendation

13.160 The Post Office should establish appropriate accounting controls over money order liability accounts.

Department's Comment

It is the opinion of Canada Post that sufficient accounting controls and system safeguards exist over money order operations and corresponding liability generated by money order sales. The aspect of reconciliation of money order and other subsidiary accounts to the General Ledger is being addressed by the National Reconciliation Procedures project. The full implementation of these procedures will strengthen the reconciliation process and ensure the propriety of General Ledger account totals.

Recommendation

13.165 The Post Office should develop a long-term plan and strategy to meet requirements for management information and for related computer processing facilities.

Department's Comment

A long-term plan and strategy to meet requirements for management information and for related computer processing facilities have been included in the IMPAC Project and will be integrated in the corporate long-range plans for Canada Post Corporation.

Recommendation

13.166 The Post Office should ensure that all major EDP systems are periodically evaluated.

Department's Comment

Responsibility for this aspect will be included in the new corporate organization.

Recommendation

13.171 The Post Office should adopt comprehensive internal audit.

Department's Comment

The policy statement designed to change the scope of Internal Audit to meet the requirements of the organization, together with the applicable proposed organization and audit plan, are ready and await the approval of the Board of Directors of Canada Post Corporation.