and results to date related to e-commerce initiatives. During the course of our review, we identified areas where USPS can improve its management of its e-commerce activities, and this report discusses these areas as well.<br><br> An additional objective was to describe USPS 9 views on how major federal laws and regulations apply to its e-commerce initiatives and to identify legal issues that have been raised concerning its e-commerce activities. USPS is in the early stages of developing its current e-commerce program. We previously reported on USPS 9 new products and services, including several e-commerce activities piloted or implemented during fiscal years 1993 through 1997.<br><br> 1 Since then, USPS has discontinued its earlier e- commerce activities, some of which have helped USPS develop new e- commerce-related products and services. 1 U.S. Postal Service: Development and Inventory of New Products (GAO/GGD-99-15, Nov.<br><br> 24, 1998). B-285058 Page 2 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws To address the objectives of this review, we reviewed USPS documents and the information available on USPS 9 Internet site. We also held discussions with USPS officials responsible for e-commerce activities.<br><br> We reviewed the material obtained for internal consistency and completeness, but we did not verify the information provided by USPS. We also obtained legal information and analysis from USPS on laws and regulations that may apply to USPS 9 e-commerce activities. We did not verify or evaluate the legal information, although we checked the citations to laws and regulations that were used in this report.<br><br> A more detailed description of our scope and methodology for this review is included in appendix I. We conducted our review at USPS headquarters in Washington, D.C., between January 2000 and August 2000 in accordance with generally accepted government auditing standards. We requested comments on a draft of this report from the Postmaster General and from the Chairman of the Postal Rate Commission (PRC).<br><br> USPS 9 and PRC 9s written comments are discussed near the end of this letter. Since the beginning of 2000, USPS has taken a number of steps to develop and implement its e-commerce activities. Some key actions included developing a definition of its e-commerce initiatives, identifying its e- commerce and related initiatives, outlining its overall goals and strategies, establishing expected performance, and providing some information on results to date.<br><br> How USPS defines its e-commerce activities is fundamental when determining what USPS is doing in the e-commerce area. USPS defined its e-commerce initiatives to include products and services that (1) require the use of the Internet and (2) generate revenues for USPS from user charges or license fees. USPS defines its e-commerce initiatives as a subset of its broader eBusiness activities that involve the use of new technology.<br><br> USPS identified seven e-commerce initiatives that were either planned or implemented as of September 2000. These seven initiatives are generally intended to facilitate the movement of messages, merchandise, and money. For example, to facilitate the movement of messages, USPS introduced the PosteCS initiative, an Internet-based global document delivery system implemented in May 2000.<br><br> To facilitate the movement of merchandise, USPS introduced the Stamps Online initiative in December 1998 that enables customers to purchase stamps, philatelic products, and other USPS products. USPS also plans to expand this initiative to include a Virtual Store that would offer USPS merchandise and other stamp products for sale via the Internet. To facilitate the movement of money, Results In Brief B-285058 Page 3 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws USPS introduced its eBillPay initiative, an electronic bill presentment and payment service, in April 2000.<br><br> USPS also identified three initiatives that it refers to as gray area initiatives. Gray area initiatives are related to e-commerce initiatives but either would not generate revenues for USPS from user charges or license fees or would not require use of the Internet. USPS is also developing other initiatives, which it refers to as infrastructure initiatives, to support its e-commerce and related initiatives.<br><br> For example, USPS has identified an electronic mailbox, which is a concept in the early development stage that could link electronic and physical addresses, as an infrastructure initiative. USPS outlined the purpose and direction for its eBusiness and e-commerce areas and stated that its overall goal is to use the best technology, including the Internet, to provide customers with expanded universal access and choices on how they do business with USPS. USPS also explained that the criteria for these initiatives are that they be universally available, designed to fulfill customer and marketplace needs, offer customers voluntary choices, be secure and private, provide financial benefits to customers and USPS, and be consistent with the USPS 9 mission.<br><br> USPS identified eight strategies for accomplishing its eBusiness goal and its related e-commerce goal. Examples of these strategies were using the Internet as a cost-effective channel, providing security and privacy for customers, minimizing USPS investments and risks, and pursuing partnerships and alliances with industry. In May 2000, USPS established a management process for reviewing and approving e-commerce initiatives that is different from the review and approval process for other new products.<br><br> The e-commerce review process was designed to result in quicker approval of initiatives than USPS 9 review and approval process for new products. The new process requires a business proposal and plan, a public affairs/communication plan, periodic monitoring, and approval by top management or USPS 9 Board of Governors (BOG). Some e-commerce initiatives were launched before the new process was introduced and were therefore subject to USPS 9 former approval process.<br><br> USPS also provided information on its performance expectations and results achieved for e-commerce initiatives implemented to date. During our review, we identified a number of problems and inconsistencies in the information provided by USPS. We are making recommendations to USPS that address these issues.<br><br> First, during the B-285058 Page 4 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws course of our review, USPS inconsistently applied its definition of e- commerce in identifying its initiatives and provided inconsistent information on the status of its initiatives. These inconsistencies made it difficult to ensure we had a complete and accurate picture of USPS 9 e- commerce activities. Second, USPS did not consistently adhere to its process requirements and did not always document the review and approval of its e-commerce initiatives.<br><br> Consequently, it is not clear whether USPS management properly reviewed and approved e-commerce initiatives to ensure that they support USPS 9 overall mission and goals. Finally, we identified deficiencies in the financial information USPS provided for its e-commerce activities that raised concerns about the accuracy and completeness of USPS 9 financial reporting for its e- commerce activities. Further, we do not believe the e-commerce financial data that USPS provided was sufficiently complete and reliable to be used to assess USPS 9 progress toward meeting its overall financial performance expectation that revenues generated by e-commerce products and services in the aggregate are to cover USPS 9 direct and indirect costs as well as make a contribution to overhead.<br><br> USPS believes that it has broad statutory authority to offer e-commerce products and services in ways that it finds appropriate to its assigned functions and in the public interest. USPS also believes that the law provides discretion to its BOG to determine whether particular new services are appropriate and in the public interest. According to USPS, numerous federal laws and regulations apply to its e-commerce products and services, but it has a different legal status from its private sector competitors in some respects.<br><br> For example USPS has reported that federal privacy laws afford USPS e-commerce customers greater protection than is provided for customers of private sector providers. Further, USPS told us that public interest, universal service, antidiscrimination, and other policy provisions of the Postal Reorganization Act of 1970 2 provide consumer protections in connection with its e-commerce products and services, but many other federal consumer protection laws are inapplicable. However, some federal consumer protection laws may apply to USPS in certain circumstances, and others may apply to USPS contractors or financial institutions that help USPS offer e-commerce products and services.<br><br> Further, USPS reported that the Postal Inspection Service, a part of USPS that is responsible for enforcing postal laws, has authority and responsibility to investigate violations of law that involve USPS e-commerce products and services. In addition, USPS told us that the antitrust laws and general competition-related statutes do not apply to 2 P.L. 91-375.<br><br> B-285058 Page 5 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws USPS, with the exception of the advertising and competition provisions of the Lanham Act. 3 However, USPS stated that the Postal Reorganization Act of 1970 prescribes competition-related factors that must be considered with regard to USPS e-commerce activities. USPS also said that in some cases, major federal regulations apply to its e- commerce products, including regulations adopted by USPS and other federal agencies, such as Department of the Treasury and Federal Reserve regulations related to USPS 9 eBillPay initiative.<br><br> However, it also noted that the ability to make generalizations about how regulations apply to USPS is somewhat limited. Finally, USPS reported that its activities in the e- commerce area are generally not subject to administration policies that apply to other executive branch agencies. We did not evaluate USPS 9 legal analysis or attempt to obtain others 9 views within the scope of this review.<br><br> However, we note that USPS, some competitors, and other stakeholders have conflicting views on the extent of USPS 9 legal authority to offer e-commerce products and services and under what circumstances it should offer such services. The appropriate role of USPS has been debated for many years and continues to be debated in the context of proposals for comprehensive legislation to reform the nation 9s postal laws. In addition, some specific concerns have been raised about USPS e-commerce activities that also relate to emerging e- commerce issues, such as the privacy of consumer information and what new e-commerce products are subject to PRC review.<br><br> In commenting on our draft report, USPS generally agreed with the facts and endorsed the report 9s recommendations. However, USPS noted differences in perspectives related to some of the concerns we discussed. Specifically, USPS stated that its senior management had reviewed and approved all of its e-commerce initiatives before implementation.<br><br> If so, such approvals were not fully documented. PRC generally agreed with the report 9s analysis of the issues and further commented on USPS 9 pricing policy for its e-commerce initiatives. We have reported that USPS may be nearing the end of an era as it faces growing challenges from competition, notably from private delivery companies and electronic communications alternatives such as the Internet.<br><br> 4 USPS and other stakeholders agree that growth in USPS 9 core 3 15 U.S.C. § 1125(a). 4 U.S.<br><br> Postal Service: Challenges to Sustaining Performance Improvements Remain Formidable on the Brink of the 21st Century (GAO/T-GGD-00-2, Oct. 21, 1999). Background B-285058 Page 6 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws business of delivering First-Class Mail has already been affected by the rapid growth of the Internet, electronic communications, and electronic commerce.<br><br> USPS expects that competition will lead to substantial declines in its First-Class Mail volume in the next decade and a consequent loss of revenues. Should this occur, USPS will likely face unprecedented challenges as it seeks to fulfill its primary mission of providing universal postal service at reasonable rates while remaining self-supporting from postal revenues. Thus, USPS may be at a crossroads in its ability to meet its mission of providing affordable, readily accessible, universal postal services over the long term.<br><br> Although USPS has achieved its best ever financial and service performance over the past 5 years, it has fallen short of its revenue targets for the first three quarters of fiscal year 2000. USPS recognizes that it faces challenges from a dynamic and versatile marketplace, changing customer demands, and more alternative delivery options that provide greater choices for customers. As an example of trends that have affected USPS 9 mail volumes, at the federal level, government agencies are mandated to move as quickly as possible to reduce paperwork and to adopt electronic billing and payment.<br><br> Of the 880 million Social Security checks, tax refunds, and other payments sent by the Department of the Treasury in fiscal year 1999, 68 percent were sent electronically, not mailed. According to USPS, this cost $180 million in lost First-Class Mail revenue. Further, according to a postal operations survey conducted by the American Bankers Association, the banking industry reduced its mail volume in 1999 by almost 18 percent compared to its 1996 level.<br><br> Although it is difficult to predict the timing and magnitude of further mail volume diversion and potential financial consequence, USPS has begun to plan how it would address such a scenario. The Postmaster General recently explained that USPS 9 strategy to deal with its competitive challenge is a combination of aggressive cost-cutting and new revenue generation. 5 According to USPS, in addition to minimizing costs, the Internet offers unparalleled opportunities to grow long-term revenue through enhanced and new services.<br><br> 5 The Annual Report of the Postmaster General, Hearing before the Subcommittee on International Security, Proliferation, and Federal Services of the Senate Committee on Governmental Affairs, July 13, 2000. B-285058 Page 7 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws The history of USPS 9 involvement in e-commerce related products and services began with a brief foray in 1982 when it introduced its Electronic Computer-Originated Mail (E-COM) service. 6 However, E-COM generated much controversy and scrutiny from PRC, the Federal Communications Commission (FCC), and Congress.<br><br> In a report by the House Committee on Government Operations, the oversight committee concluded that the rates charged did not cover the cost for this initiative. 7 USPS discontinued E- COM service in September 1985. More recently, during fiscal years 1993 through 1997, as noted in our 1998 report, USPS engaged in research and development efforts related to e-commerce activities.<br><br> 8 Since our previous report was issued, the exploratory e-commerce efforts have been discontinued or evolved into more recent initiatives, which are discussed later in this report along with other new e-commerce initiatives. 9 The nature of the competition that USPS faces in the e-commerce area is broader than its competition in other service delivery areas, such as for domestic letter mail and parcels. Not only does competition in the e- commerce area include USPS 9 traditional competitors, such as the major private express delivery companies 4FedEx, and United Parcel Service (UPS) 4it also includes such competitors as technology companies, financial institutions, and foreign postal administrations.<br><br> Further, within the e-commerce area, competitors may differ for different types of services, such as electronic messaging, or e-mail, electronic bill presentment and payment services, and electronic retail sales involving the purchase and return of goods. For example, in the electronic bill presentment and payment area, competitors are numerous and often include partnerships among financial institutions, billers, consolidators, and technology companies. In the retail area, on-line sales are expected to grow substantially over the next few years, which would entail a dramatic rise in parcel shipments and returns.<br><br> Thus, although USPS expects more opportunities to expand in this 6 This service preceded current hybrid mail services, such as Mailing Online, and allowed mailers to transmit the text of letters over telephone lines to computers located in 25 specially equipped post offices. The letters were printed, stuffed into envelopes, and mailed as First-Class mail so they could be delivered within 2 days. 7 Postal Service Electronic Mail: The Price Isn 9t Right, Forty-First Report by the Committee on Government Operations, House Report No.<br><br> 97-919, 97th Congress, 2d Session, Oct. 1, 1982. 8 Our previous report (GAO/GGD-99-15) discussed USPS e-commerce-related initiatives under which the Electronic Postmark and Certificate Authority systems were developed.<br><br> 9 Discontinued e-commerce related initiatives that were described in our 1998 report included the following: Deliver America, Electronic Commerce Services, Global ePost, Post Office Online, and , WEB Interactive Network of Government Services (WINGS). B-285058 Page 8 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws area, it also faces competition from its traditional competitors 4FedEx and UPS 4and newly emerging alternative delivery options. For example, private start-up dot.com companies are also competing for this retail delivery business by providing same-day delivery, particularly on a regional basis, for Internet purchases of goods, such as groceries, CDs, videos, and books.<br><br> The competitive landscape is very fluid in the e- commerce area, where new competitors may rapidly appear and disappear. Another challenge for USPS in the e-commerce area is keeping up with changing customer demands. USPS 9 customers are generally categorized into two major groups: households and businesses .<br><br> Although businesses generate most mail, households are the recipients of most of the mail generated by businesses. 10 USPS recognizes that its customers are becoming more demanding and selective and are interested in expanding their access to choice, convenience, service, and value. For example, some mailers have noted that mail-based billings and payments are more costly to process than electronic versions.<br><br> As the dynamic development of electronic commerce continues to unfold, consumers, businesses, and governments are working hard to understand and adapt to the many benefits and challenges associated with the Internet and related new technology. For USPS, the challenges include providing more convenient access to its products and services and thus rethinking how to change the organization to adapt old processes and practices to new technology, as well as addressing new customer expectations and greater competition in providing customer services. Congress is closely monitoring how government organizations adapt in this new environment and has held numerous oversight hearings to discuss emerging issues, such as privacy, consumer protection, open access, and competition.<br><br> USPS has taken a number of steps since the beginning of 2000 to develop and implement its e-commerce activities. Some key actions taken include developing a definition of its e-commerce initiatives, identifying its e- commerce and related initiatives, outlining overall goals and strategies, establishing processes for approving and implementing e-commerce initiatives, and providing some information on expected performance and results to date. How USPS defines its e-commerce activities is fundamental when determining what USPS is doing in the e-commerce area and what 10 In 1998, in the United States about 53 percent of mail traffic was from businesses to households, 5 percent from households to businesses, 3 percent between households, and 38 percent between businesses, according to USPS.<br><br> USPS Activities in the E-Commerce Area B-285058 Page 9 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws process is to be followed in reviewing and approving e-commerce initiatives. The development of goals and strategies is key to understanding what USPS expects to achieve in this area. The review and approval processes are to establish accountability for management and oversight of the e-commerce initiatives.<br><br> Information on performance targets and results is to provide a basis for determining if the actual performance of the e-commerce initiatives is meeting intended targets. USPS 9 definition of its e-commerce initiatives has two components 4those products or services that (1) require the Internet to do business and (2) generate revenue to USPS through user charges or licensing fees. USPS defined its e-commerce initiatives as a subset of its broader ceBusiness d environment, which included other categories of related initiatives that may involve use of new technology.<br><br> For example, related initiatives include ceService d initiatives that are to be value-added services or enhancements to existing services, and for which revenues are to be reported with existing products and services. Other related initiatives referred to as cgray area d initiatives did not meet the requirements of the e- commerce definition. Another category called cinfrastructure d initiatives included information technology systems and other technology initiatives that are required to support eBusiness initiatives.<br><br> USPS 9 distinctions among these categories illustrate that USPS activities involving the Internet include more than just its designated e-commerce initiatives. In May 2000, USPS provided us the following information on how its e- commerce initiatives relate to its broader eBusiness activities and strategy: cOur eBusiness strategy is voluntary and is intended to improve capabilities not only for our customers, but also for our 800,000 employees, business partners, and suppliers, too. Our eBusiness initiatives will have an ePeople, eService, and eCommerce component.<br><br> ePeople efforts will keep employees better informed, provide a full range of 8self-services, 9 reduce administrative tasks, and increase access to development opportunities. eService initiatives will enhance features, access, and information about core products and services. eCommerce initiatives are new, Internet-based products and services for consumers, businesses, and government entities.<br><br> All will be supported using an infrastructure that will link our core production processes, equipment and complete the development of a common information platform. d In a July 14, 2000, letter to us, the Deputy Postmaster General explained the category referred to as gray area initiatives as initiatives that chave a current revenue model or financial arrangement that does not accurately meet today 9s definition for eCommerce. d He stated that cThese initiatives that fall into the 8gray area 9 today may, in response to the changing needs USPS Definition of E- Commerce Initiatives B-285058 Page 10 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws of our customers and the marketplace, become clearer as to direct financial contribution in the future. d USPS does not consider products and services to be e-commerce initiatives if they involve use of the Internet but either do not generate revenues or the revenues generated are related to existing core products and services. USPS considers these products and services to be value- added services or enhancements to existing services. For example, customers can use the Internet to access information about USPS products and services, look up ZIP codes and post office locations, download labels for mailing packages, and check the status of certain items mailed without paying any fees.<br><br> Customers can also use the Internet as an alternative channel to access existing core products and services, such as Priority and Express Mail, to confirm delivery or arrange for package return. The revenues from these enhancements are to be reported with those from existing core products and services. USPS also identified another category of initiatives related to Internet activities 4infrastructure initiatives 4which includes information technology systems or services that are required to support eBusiness initiatives.<br><br> One example of a proposed infrastructure initiative would be an electronic mailbox that could link electronic and physical addresses. This initiative is currently in the early development stage and is identified by USPS as an infrastructure, not an e-commerce, initiative. USPS explained that its proposed electronic mailbox would not generate revenues as a free-standing service, but it may be offered in conjunction with other e- commerce services in the future.<br><br> USPS identified seven e-commerce initiatives as well as three gray area initiatives planned or implemented as of September 2000 to facilitate the movement of messages, merchandise, and money in ways that require the use of the Internet and generate revenues for USPS. Table 1 provides a list and descriptions of USPS 9 e-commerce initiatives as well as gray area initiatives. As discussed later, however, it appears that USPS may not have consistently applied its e-commerce definition in identifying those initiatives.<br><br> USPS Identified Seven Current E-Commerce Initiatives B-285058 Page 11 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws Initiative Description of initiative Intended customers Status E-Commerce initiatives Electronic Postmark (EPM) Creates a secure electronic time and date stamp for electronic communications and provides evidence of any tampering. USPS is seeking business partners to integrate EPM into their products, services, and systems. Revenue to date has been generated from businesses that incorporated EPM with their services.<br><br> EPM also has been used with the PosteCS initiative. Financial, legal, medical, governmental, and educational organizations Implemented 4/00. ePayments Provides integrated ePayment solutions: (1) eBillPay 4consumers paying bills, (2) businesses sending bills, (3) consumers paying each other, and (4) consumers receiving financial statements.<br><br> eBillPay services are currently offered through a partnership with a private company. The eBillPay service is to be offered to new customers at no charge for the first 6 months. Revenue is to be generated by user fees.<br><br> Consumers and businesses eBillPay was implemented 4/00. The rest of the services are in the planning stage. Internet Change of Address and Move- Related Products and Services (MoversNet) MoversNet includes three products and services: the hard copy publications 4Movers Guide and Welcome Kit 4 and the Internet application called MoversNet.com.<br><br> Currently MoversNet.com allows downloading a form for customers to submit changes of physical addresses and is accessible via the USPS Web site and via direct link. It is offered through a strategic alliance with a private company. Future MoversNet enhancements, which are to involve integration into a proposed MoversGuide Web site, are to allow additional services, such as electronic changes to physical addresses, e-mail addresses, and electronic accounts; ordering various services (e.g., power, electric, water, cable, newspaper, and long-distance telephone service); and new security features, such as credit card verification.<br><br> Revenue to date has been generated by commissions from USPS 9 partner. All postal customers MoversNet was implemented summer 1996. Enhancements to MoversNet were scheduled for implementation in 9/00.<br><br> NetPost.Certified Is to provide confidential, ensured delivery of electronic documents to the government. A completed electronic delivery is to be certified back to the sender via an electronic receipt containing a USPS electronic postmark that provides legal proof of filing. Revenue is to be generated from transaction fees from government agencies.<br><br> Organizations that file information with the government Not implemented. NetPost Mailing Online Is to allow mailers to electronically transmit their documents, correspondence, newsletters, and other First-Class Mail and Standard A mail (primarily advertising mail), along with mailing lists, to USPS. Electronic files would then be securely distributed to printing contractors who print documents, insert them into addressed envelopes, sort the mailpieces, and transport the mailing to post offices for processing and delivery.<br><br> Revenue is to be generated by printing and mailing fees paid by users. Small Office and Home Office (SOHO) customers To be implemented 9/00. Table 1: USPS E-Commerce and Gray Area Initiatives as of September 2000 B-285058 Page 12 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws Initiative Description of initiative Intended customers Status PosteCS Provides a secure, private, Internet-based document delivery system.<br><br> Users establish secure links using Secure Socket Layer (SSL) protocol. They then upload a file(s) to the PosteCS server using desktop software. To receive PosteCS messages, the recipients need only to have access to e-mail and an Internet browser.<br><br> USPS has joined with Canada Post and LaPoste of France to provide this service globally. Also, the EPM initiative was used as part of PosteCS. Revenue is to be generated by user fees.<br><br> Large to medium-size businesses and SOHOs Implemented 5/00. Stamps Online/Virtual Store Stamps Online allows the purchase of stamps and other existing USPS products. After the Virtual Store is implemented, postal customers are to be able to purchase stamps, philatelic products, phone cards, and other USPS merchandise via the Internet, including new products not currently available.<br><br> Revenue to date has been generated from the face value of postage stamps and from other existing USPS products ordered via the Internet. All postal customers Stamps Online implemented 12/98; Virtual Store implementation planned in 2000. Gray area initiatives Returns@ease Enables customers to return Internet-purchased merchandise.<br><br> Using a Merchandise Return Application Program Interface, businesses can authorize customers to download a postage- paid label directly from their Internet sites. The program is designed to make returning items bought via the Internet, through catalogs, and by phone easier for both buyers and sellers. Revenue is generated from user fees and postage.<br><br> Online merchants Implemented 11/99. Dinero Seguro" Allows electronic fund transfers from the U.S. to Mexico.<br><br> Dinero Seguro", which means cSure Money, d is a money-by- wire service that can be used to transfer money from designated U.S. postal locations to more than 1,300 Bancomer Bank branches in Mexico. This initiative uses telephone lines instead of the Internet and is to become part of a planned Sure Money® service.<br><br> a Revenue is generated by Dinero Seguro" through money-wire transfer fees. Americans of Mexican origin, most recently immigrants Implemented 6/96. PC Postage Allows customers of private companies to purchase and print stamps onto labels and envelopes using their computers and the Internet.<br><br> Private companies sell PC Postage products after USPS certifies that these products meet USPS standards. USPS receives revenue from the face value of postage stamps. SOHO market Implemented 8/99.<br><br> a USPS has identified additional target countries, which it plans to include in an expansion effort to this initiative, referred to as Sure Money®. Source: USPS documents. B-285058 Page 13 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws USPS provided several reasons for its involvement in e-commerce activities.<br><br> Some of these reasons are echoed in the overall goals and strategies that USPS has developed for its eBusiness and e-commerce areas. To carry out these goals and strategies, USPS has established an eBusiness Integration team that is responsible for eBusiness implementation planning and for developing an eBusiness strategic plan. In addition, the eBusiness Opportunity Board (e-BOB) was established to provide operational oversight in the eBusiness area and to review the performance of e-commerce initiatives.<br><br> Many postal stakeholders are interested in how USPS sees its e-commerce activities relating to overall USPS mission and goals. To better understand USPS 9 purpose and expectations for the e-commerce area, we asked postal officials why USPS is involved in the e-commerce area. USPS officials and documents cited the following reasons for its participation in the e- commerce area: cUSPS involvement in eCommerce is responsive to its obligations as a public service.<br><br> Like other government agencies, it must use information technologies to provide traditional services to the citizens of the United States more effectively and efficiently. d cUSPS involvement follows from the mission of the United States Postal Service, as established by the Postal Reorganization Act of 1970 . . .<br><br> The use of modern communications technology such as the Internet to provide traditional postal services such as delivery of bills or messages is little different from adopting the new technologies of the railroad or the airplane to provide prompt, reliable and efficient delivery services. d cIn addition to gaining new efficiencies, our eCommerce initiatives seek to grow the revenue of the USPS to replace some of the revenues from traditional mail volume lost to the competition from technological substitutes. This revenue is essential to maintaining the ability of the USPS to support the infrastructure developed to provide universal service. d cUSPS participation in this market is seen by many as critical to addressing the issue of the 8digital divide 9, or the significant portion of the American population that will not have complete access to the Internet. This is the core of the USPS mission of binding the nation together and providing services to all communities. d cThe Postal Service is a national institution, known and trusted by Americans; it is a neutral party with a universally understood public service mandate; it protects the privacy of customer 9s information; it is a long-lived, stable institution that can be relied on for the long term as an EBP [electronic bill payment] provider; and it is known for providing value. d cThe Postal Service is uniquely positioned to preserve the security and privacy of confidential information.<br><br> The Postal Service has in-house law enforcement personnel who can investigate criminal or civil offenses that occur in connection with transactions sponsored by the Postal Service. d USPS Goals and Strategies for E-Commerce Area B-285058 Page 14 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws To better understand USPS 9 direction for its e-commerce activities, we asked USPS officials about their goals and strategies for the e-commerce area. In response, USPS provided us with some general guidance that e- BOB had recently approved for the eBusiness and e-commerce areas. In a June 21, 2000, internal memorandum, the Deputy Postmaster General outlined the overall criteria, goals, and strategies for USPS 9 eBusiness area as follows: " USPS eBusiness Criteria: cNew USPS initiatives will be universally available, designed to fulfill customer/marketplace needs, offer customers voluntary choices, be secure and private, provide financial benefits to our customers and the USPS, and be consistent with the mission of the Postal Service. d " USPS eBusiness Goal: cTo increase the value, availability, and affordability of our products and services for all customers (both senders and receivers) by continuing to use the best available and emerging technologies, including the Internet.<br><br> Provide customers with expanded universal access and choices on how they elect to interface and do business with the U.S. Postal Service. d " USPS eCommerce Goal: cUse the internet channel to offer new and enhanced products and services that provide the U.S. Postal Service with revenue such as license fees and user charges. d " USPS eBusiness Strategies: 1.<br><br> Develop and implement a customer interface/channel to the USPS, which provides seamless physical and electronic mailbox coverage. 2. Use the Internet as a cost effective communications channel for customers, suppliers, business cpartners, d and employees.<br><br> 3. Capitalize on USPS 9 tradition of providing security and privacy for customers. 4.<br><br> Leverage USPS 9 brick and cmotor d assets, i.e., 38,000 postal facilities and 200,000 vehicles, as well as USPS 9 daily delivery infrastructure. 5. Pursue eCommerce and eService opportunities that meet USPS criteria and have the potential for business growth.<br><br> 6. Minimize (especially in the short term) USPS investments and financial/business risks. B-285058 Page 15 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws 7.<br><br> Pursue partnerships/alliances with industry leaders having cunique d technology, management, marketing, and sales skills and resources necessary to be successful in this marketplace, including cQuick to Market d capabilities. 8. Establish structures to assure that costs and revenues associated with electronic services and products are tracked and allocated.<br><br> To better understand how USPS is implementing and managing its e- commerce activities, we asked how responsibilities were assigned. The Postmaster General explained organizational responsibilities in a memorandum dated February 24, 2000, in which he announced that e-BOB would be responsible for the following: " reviewing eBusiness opportunities and approving those that meet a set of established criteria; " allocating resources against approved eBusiness pursuits; " ensuring that complete, cross-functional implementation plans are in place; " providing oversight by measuring performance against established goals; and " seeing that the organization reacts rapidly to changes in the marketplace. The Postmaster General also announced that the Deputy Postmaster General would chair e-BOB, and the Chief Technology Officer would serve as vice chairperson.<br><br> Several other postal officers with direct e-commerce responsibilities included the E-Commerce Vice President, the Corporate/ Business Development Senior Vice President, and the Chief Financial Officer/Finance Executive Vice President. According to USPS, other USPS officers with responsibilities for core products and services may also be involved in certain cross-functional activities related to the e-commerce area. In May 2000, USPS established an approval and implementation process for its eBusiness initiatives called the eBusiness Development Review and Approval process (e-BOB process).<br><br> This process covers e-commerce initiatives and is different from the New Products and Service Review and Approval (New Products) process that is to be used for other new USPS products and services. The new e-BOB process was established in recognition of the fast-paced changes in eBusiness and in the e-commerce marketplace. USPS Processes for Approving E-Commerce Initiatives B-285058 Page 16 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws The e-BOB review and approval process was set up as an expedited 120- day, four-step process under which a sponsoring officer guides the proposed initiative through the process.<br><br> The sponsoring officer, in conjunction with a cross-functional team, is required to develop a business proposal and business plan for each initiative. The business proposal is to be reviewed and approved by the sponsoring officer and e-BOB. The business plan is to be approved by e-BOB and the Management Committee 11 and, when considered necessary, the Board of Governors (BOG).<br><br> Final approval of the initiative is determined by e-BOB and the Management Committee and, when considered necessary, by BOG. In instances in which a project contains significant capital investments, the initiative is also to be subject to the headquarters review and approval process for capital projects, which involves approval, if appropriate, by area officials, the headquarters Capital Investment Committee, and final approval by BOG. 12 The New Products process was to be used to review and approve new products, including initiatives to develop new e-commerce products and services, prior to the establishment of the e-BOB approval process.<br><br> According to USPS officials, the principles of USPS 9 CustomerPerfect! Annual Management Cycle guided the development of new e-commerce initiatives. 13 The New Products process required initiatives to have a business proposition statement 4reviewed and approved by the Chief Marketing Officer (CMO) 4and a business plan 4reviewed and approved by the BOG Strategic Planning Committee and the full BOG.<br><br> Under this process, initiatives were to undergo a market test. The results of the market test were to be reviewed by the CMO, the Management Committee, the BOG Strategic Planning Committee, and the full BOG before the initiative was implemented. 11 The Management Committee includes the Postmaster General, Chief Executive Officer; Deputy Postmaster General; Vice President, General Counsel; Senior Vice President, Human Resources; Chief Financial Officer and Executive Vice President,; Senior Vice President, Government Relations and Public Policy; Senior Vice President, Chief Technology Officer; Senior Vice President, Chief Marketing Officer; Chief Operating Officer and Executive Vice President; Senior Vice President, Operations; and the Inspector General.<br><br> 12 Applies to all capital projects exceeding $10 million in total project costs. 13 The CustomerPerfect! Annual Management Cycle is USPS 9 Malcolm Baldrige Award criteria-based management system.<br><br> The CustomerPerfect! management cycle of planning, implementation, and review consists of activities intended to give direction to the organization and to build and sustain improved performance against set goals. The CustomerPerfect!<br><br> process is intended to ensure effective management control through a formalized system of checks and balances that require top management buy-in at four critical stages: (1) concept stage, (2) business plan stage, (3) test stage, and (4) implementation stage. B-285058 Page 17 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws Table 2 compares the e-BOB process with the New Products process. Both approval processes are similar in that they require preliminary proposals for e-commerce initiatives to be presented for approval by USPS officers before further action can be taken on the initiatives.<br><br> Differences between the two processes are primarily in the business plan and market testing stages. For example, as shown in table 2, under the New Products process, the preliminary business plan is to be approved by the Management Committee, the CMO, and finally sequentially by the BOG 9s Strategic Planning Committee and the full BOG. However, under the e-BOB process the preliminary eBusiness plan is to be reviewed first by a cross-functional team, the sponsoring officer, and e-BOB, which is to determine whether Management Committee or BOG action is necessary.<br><br> In addition, the New Products process has a formal market testing stage 4involving approvals by the CMO, Management Committee, and BOG 4which is not included in the e-BOB approval process. 14 14 USPS may conduct research and pilot tests and incorporate the results into the business plan, but these steps are not required under the e-BOB process. B-285058 Page 18 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws eBusiness Development Review and Approval process (5/00) (e-BOB process) New Products and Service Review and Approval process (New products process) Stage Requirements Approval Stage Requirements Approval eBusiness proposal " Present proposal and supporting documentation (e.g., financial statements/preliminary break-even analysis) for review and approval.<br><br> " Present proposal and any recommendations for approval. Sponsoring officer e-BOB a Business proposition statement " Present proposition for new initiative to Chief Marketing Officer (CMO) for review and approval. CMO eBusiness plan " Cross-functional team reviews preliminary business plan, includes independent analysis/external consultant review, if appropriate.<br><br> " Plan and supporting documentation are then revised and submitted for approval by (1) the sponsoring officer and (2) e-BOB. " As necessary, the Management Committee reviews business plan, supporting documentation, and e-BOB minutes and determines whether BOG consideration is warranted. Sponsoring officer Sponsoring officer and e-BOB b Management Committee/ BOG c Business plan " Present preliminary business plan (with Management Committee feedback) for review and approval to Management Committee.<br><br> " Conduct proof of operations test to validate initiative/present results to CMO for review and approval. " Present preliminary plan, including test results, for sequential review and approval by BOG 9s Strategic Planning Committee (SPC) and the full BOG. Management Committee CMO SPC/BOG Not Applicable Market testing " Present results of limited market test to CMO for approval to proceed with major market test.<br><br> " Present proposal to proceed with major market test for sequential review and approval. " Submit major market test results for CMO review and approval to move to initiative implementation. CMO Management Committee/ SPC/BOG CMO Public affairs/ communications event plan " Follow event planning guide if announcement or event is to announce new initiative.<br><br> (Minimum of 6 weeks is required for effective and properly handled announcement.) Public Affairs/ e- BOB Implementation roll out " Finalize plan using market test results and Management Committee feedback. " Present plan, including test results, for sequential review and approval to implement/ roll out. Management Committee Management Committee/ SPC/BOG Table 2: USPS 9 Processes for Review and Approval of E-Commerce Initiatives B-285058 Page 19 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws eBusiness Development Review and Approval process (5/00) (e-BOB process) New Products and Service Review and Approval process (New products process) Stage Requirements Approval Stage Requirements Approval Initiative monitoring " Track quarterly (or more frequently if directed by e-BOB); resulting suggestions and recommendations will affect initiative 9s future direction.<br><br> Initiative monitoring " Track continuously against the business plan, perform annual reviews, and improve initiative as indicated. a Approval by e-BOB at proposal stage authorizes seed funding for testing, if applicable, and business plan development. b e-BOB is to (1) approve the plan (2) defer for additional information, or (3) disapprove the plan.<br><br> c Generally, eBusiness initiatives, including e-commerce initiatives, are within management 9s approval authority. Therefore, unless specified in the bylaws, these initiatives require only BOG notification or consideration from an advisory standpoint prior to their contractual commitment or implementation. Source: USPS documents.<br><br> The Deputy Postmaster General explained to us how resource allocation for e-commerce initiatives was unlike that for all other areas in the USPS budget. He said that all of the funding for USPS e-commerce activities was budgeted and kept in one overall fund. He said these funds were not allocated to specific managers until program managers justified the use of funds for specific projects.<br><br> B-285058 Page 20 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws USPS provided some information on the performance targets and results of its e-commerce initiatives to date. USPS also gave us the following explanation in July 2000 of why performance targets for fiscal year 2001 were not provided: cIt is important to recognize that performance targets provided in business plans, DARs [decision analysis reports], and business proposals are projections. They are dependent on Board of Governors 9 approval of the FY 2001 budget in October 2000, as well as on approval of the business plans, where annotated.<br><br> Until approval occurs, we think that it is premature to publicly report quantitative plans or targets for the specific initiatives. However, the aggregate FY 2001 planned revenue for eCommerce initiatives that is being submitted for approval and to PRC totals $104.0 million. Projected expenses specific to eCommerce initiatives total $67.2 million.<br><br> This does not include infrastructure and other costs associated with eCommerce, which will be calculated as part of our ongoing obligation to appropriately report those incurred costs. Similarly, it will differ from the total estimate of $146 million, provided to the Postal Rate Commission, which encompasses our other eBusiness initiatives. d Evaluation of the results of USPS 9 e-commerce initiatives, according to USPS, is generally based on the service performance provided to consumers and businesses and on the basis of revenue, cost, and contribution to financial performance. Postal officials explained that the e- BOB, Management Committee, and depending on the level of investment or potential liability, the Headquarters Investment Committee and BOG, are responsible for evaluating the USPS e-commerce program as a whole as well as the individual initiatives.<br><br> A BOG resolution adopted in June 2000 specifies that csignificant new types of e-commerce initiatives, which have not been previously presented to the Board [of Governors] for review, shall be presented to the Board before being launched. d Initiative reviews by e-BOB are to be conducted on at least a quarterly basis, and quarterly status reports are to be sent to BOG. Table 3 includes information on the performance targets and results, when applicable, for USPS e-commerce initiatives. Performance Expectations and Results B-285058 Page 21 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws Targets and Performance by Fiscal Year Initiative Status of initiative 1996 1997 1998 1999 2000 a Electronic Postmark (EPM) Target Performance Implemented 4/00 Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable $60,000 b $30,000 b ePayments Target Performance (eBillPay) Target Performance Not implemented (except eBillPay) Implemented 4/00 Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Number of users Proprietary MoversNet c Target Performance Enhancements to MoversNet Target Performance Implemented 1996 To be implemented 9/00 Not provided Not provided d Not applicable Not applicable Net contribution $6,107,000 de Not applicable Not applicable Net contribution $2,720,000 e Not applicable Not applicable Net contribution $5,458,000 e Not applicable Not applicable Net contribution $11,104,000 e Not applicable Not applicable NetPost Mailing Online Target Performance To be implemented 9/00 Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable NetPost.Certified Target Performance Not implemented Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable PosteCS Target Performance Implemented 5/00 Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable $493,000 b Not provided Stamps Online Target Performance Virtual Postal Store Target Performance Implemented 12/98 Not implemented Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable Not applicable $4,000,000 f $5,710,000 f Not applicable Not applicable $10,158,000 f $10,561,000 f Not applicable Not applicable Note: cNot applicable d means that the initiative was not implemented.<br><br> a Through February 2000. b Revenue. c Internet Change of Address and Move-Related Products/Services (MoversNet) included the Movers Guide, Welcome Kit, and Moversnet.com.<br><br> d Contribution for fiscal year 1996 was included in data for fiscal year 1997. e Revenues toward net contribution were generated from two hard copy publications: the Movers Guide and the Welcome Kit. Table 3: Targets and Performance of E-Commerce Initiatives, Fiscal Years 1996 Through 2000 B-285058 Page 22 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws f Revenues generated from postage stamps and other existing USPS products ordered via the Internet.<br><br> Source: USPS documents. During our review, we identified a number of inconsistencies and other problems in the information provided by USPS that indicated areas in which it can improve implementation of its e-commerce initiatives. These deficiencies indicate that more effective management and oversight is needed in this area.<br><br> First, during the course of our review, USPS inconsistently applied its definition of e-commerce in identifying its initiatives and provided inconsistent information on the status of its initiatives. These inconsistencies made it difficult to ensure we had a complete and accurate picture of USPS 9 e-commerce activities. Second, USPS had not consistently adhered to its process requirements and did not always document the review and approval of its initiatives.<br><br> Consequently, it is not clear that USPS management properly reviewed and approved e- commerce initiatives to ensure that they would support USPS 9 overall mission and goals. Finally, we identified deficiencies in the financial information provided for the e-commerce activities that raised concerns about the accuracy and completeness of USPS 9 financial reporting for its e- commerce activities. As a result of inconsistencies in the information provided by USPS, we are not sure that USPS provided complete and accurate information on the identification and status of its e-commerce initiatives.<br><br> Throughout this review, USPS provided numerous documents related to its e-commerce initiatives that included conflicting information about the identification and status of its e-commerce initiatives. USPS was able to reconcile some of the inconsistencies, but consistency across the organization will be necessary for USPS to provide accurate and complete information on the status of its e-commerce initiatives. As previously mentioned, BOG is to receive quarterly status reports on USPS 9 e-commerce initiatives.<br><br> USPS has struggled to properly classify its e-commerce and other initiatives that relate to its broader eBusiness environment. The initial list of e-commerce and associated infrastructure initiatives that USPS provided to us in April 2000 included 28 initiatives. As of July 2000, the list had been reduced to seven e-commerce initiatives.<br><br> Some of the initiatives on the initial list were dropped because they were identified as infrastructure or enhancements to core products and services, and others are now called gray area initiatives because they did not fit the definition of e-commerce initiatives. In addition, some initiatives are in various stages of development, and their classification may change as their Opportunities for Improving Implementation of E- Commerce Initiatives Inconsistencies in Identifying E-Commerce and Related Initiatives B-285058 Page 23 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws product features evolve. As we discussed the rationale for the classification of specific initiatives with USPS officials, we noted several apparent inconsistencies where initiatives that seemed to have similar characteristics were not treated similarly.<br><br> Some examples of apparent inconsistencies in the application of USPS 9 e-commerce definition 4for products and services that (1) require the Internet to do business and (2) generate revenue to USPS through user charges or licensing fees 4that we brought to the attention of USPS officials were as follows: " GAO: Advertising revenue generated by MoversNet does not appear to be a user charge or a licensing fee 4the two kinds of revenue specifically listed in USPS 9 definition of e-commerce. " USPS Response: MoversNet is a part of the strategic alliance between USPS and its partner. The net contribution generated by the strategic alliance, which is split between USPS and its partner, is treated as revenue to USPS.<br><br> USPS currently views and treats this form of revenue as commissions received from USPS 9 partner for this service, which could be classified as a licensing fee for the use of USPS 9 infrastructure, name, and good will. It has seemed to make sense to manage this initiative as a part of the e-commerce management process. " GAO: According to the explanation provided, MoversNet includes the Movers Guide and the Welcome Kit 4traditional hard copy postal products that do not require use of the Internet.<br><br> Thus, these components would not appear to fit the e-commerce definition. " USPS Response: MoversNet also includes the MoversNet.com application. The components of all three aspects of MoversNet are related and are being managed in conjunction with the electronic application.<br><br> USPS has found it useful to manage together various aspects of some of these e- commerce initiatives, which are being developed as part of the same effort, even though some of the subparts might not independently fit the definition of e-commerce initiatives if considered independently. It makes internal business sense to proceed in this way. USPS recognizes that where charges need to be set and revenues and costs reported and evaluated, care is needed to attribute costs and revenues to the proper activity.<br><br> " GAO: The Stamps Online component of the Stamps Online/Virtual Store initiative appears to fit the definition of an enhancement 4that is, providing front-end or back-end Internet access to core or existing USPS B-285058 Page 24 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws products and services. Revenues from enhancements are to be reported with core or existing products. " USPS Response: StampsOnline revenue was previously reported as revenue diverted from other channels.<br><br> However, USPS plans to expand both product lines and product markets through launch of the Virtual Store. Therefore, USPS continues to include StampsOnline/Virtual Store with listed e-commerce initiatives. " GAO: USPS sold philatelic collectibles on the Internet via eBay from July 7 to July 16, 2000.<br><br> This initiative appears to fit the definition of a USPS e- commerce initiative in that it required use of the Internet and generated revenue to USPS. " USPS Response: These are regarded as asset sales rather than user charges. This program has more in common with other philatelic initiatives than with electronic commerce initiatives.<br><br> Accordingly, it is managed in tandem with other philatelic programs, rather than passing through the e-BOB and related processes for the management of e- commerce initiatives. Our questions and comments and USPS 9 responses to them illustrate the potential for differences in interpretation that may occur. In some cases, it was difficult to understand the rationale for the identification of the initiatives without more clarification from USPS on how it intended to treat the revenue from these initiatives.<br><br> Also, some initiatives were provided in conjunction with other products and services, and it was not clear how the revenues would relate to e-commerce versus other core products or services. Finally, some initiatives were not currently generating revenues, such as eBillPay, but USPS planned to generate revenues from these initiatives in the future. USPS 9 consistent application of its e-commerce definitions is important so that it can maintain complete and accurate information about its e-commerce and related activities.<br><br> USPS also provided conflicting information related to the status of certain e-commerce activities that made it difficult for us to determine when some of the e-commerce initiatives had been implemented. For example, USPS documents provided in April 2000 reported that the Electronic Postmark (EPM) and MoversNet initiatives had been implemented, that is, were made publicly available. USPS documents provided in July 2000 showed that EPM had not been implemented, but USPS has since reported that it was implemented in April 2000.<br><br> Likewise, the July 2000 USPS documents showed that MoversNet was scheduled to be implemented in July 2000. B-285058 Page 25 GAO/GGD-00-188 USPS 9 E-Commerce Activities and Laws USPS documents provided on August 4, 2000, stated that MoversNet had been implemented in the summer of 1996. USPS officials explained that the MoversNet implemented in the summer of 1996 consisted of access via the MoversNet Internet site to a form that could be used to order the hard copy Movers Guide and Welcome Kit and that enhancements to MoversNet were scheduled to be implemented in September 2000.<br><br> The July 2000 documents showed that of the seven e-commerce initiatives, only two 4 eBillPay and PosteCS 4had been implemented. The August 4, 2000, USPS documents stated that five of its seven initiatives 4eBillPay, EPM, MoversNet, PosteCS, and Stamps Online/Virtual Store 4had been fully or partially implemented. Subsequently, BOG approved implementation for NetPost Mailing Online to take effect in September 2000.<br><br> We recognize that activities in this area continue to evolve. However, USPS has had difficulty providing complete and accurate information on initiatives that have been ongoing for some time. USPS has not consistently followed its current or former processes for approving and reviewing e-commerce initiatives.<br><br> Based on information provided by USPS, none of the five e-commerce initiatives fully or partially implemented to date have had all of the required documents or formal approvals fr

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