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Questionable Bookkeeping?

Money-Losing Postal Service Used Accounting Trick to Pay Out Bonuses

W A S H I N G T O N, Jan. 28 — Enron's troubles are not the same as the United States Postal Service's difficulties — not by a long shot. But newly released federal audits show the Postal Service also used questionable bookkeeping analysis to change the perception of its performance. Despite the efforts of more than 800,000 employees, the Postal Service is losing money. Yet audits by Inspector General Karla Corcoran show 80,000 postal managers received $805 million in bonuses while the service was losing $2 billion between 1998 and 2000.

It's called pay for performance, a way to make employees accountable. It worked fine in earlier years while the Postal Service was making a profit. But when it lost $2 billion between 1998 and 2000, officials found it hard to justify bonuses.

So postal executives decided to find a way. The method they chose was to artificially adjust the books for inflation, turning a billion-dollar loss into a $1.7 billion gain. They used a term pioneered in private business called "economic value added."

‘Why Are You Paying Out Bonuses?’

The change was not reported on the books but was used to trigger the bonuses under the banner of pay for performance.

This raised a question by Inspector General Corcoran: "If you have no net income, why are you paying out bonuses?" She called the pay-out unreasonable.

"It's not reasonable because they're using an inflation adjustment factor … and the CPI [consumer price index] to adjust what their revenue would be. There's really no justification for [this adjustment]."

The Postal Service says it actually saved money this way because it no longer has to pay big cost of living raises or automatic pay raises, mechanisms relinquished some years ago in exchange for the bonus plan. Some managers complain that they are short-changed by the bonus plan.

Was Extra Pay Justified?

Was it justified in awarding the extra pay? Supporters point out that amounted to about $2,500 or less for each of the 80,000 supervisory or managerial personnel.

A spokeswoman affirmed the pay and the principle of bonuses while admitting that the service has lost money.

"When the economy suffers," says Judy de Torok, media manager, "the Postal Service suffers."

Reminded that postal managers did not suffer because they still got bonuses even when business was down, de Torok insisted: "The financial performance of the institution is just one of several factors that go into the funding formula for pay for performance."

She cited faster mail delivery, better customer service, and greater workplace safety.

But Graef Crystal, a compensation analyst and columnist for Bloomberg News, calls the inflation-adjusted numbers "phony as a three-dollar bill."

Crystal, a veteran expert in the field of pay and benefits in New York and California, says the Postal Service should accept the reality of its financial condition.

Says Crystal: "A bonus plan, to my way of thinking, ought to operate on the principle that you live by the sword, you die by the sword."

-- Anonymous, January 28, 2002

Answers

And they can't even afford the sword.

LOL

This does not surprise me in the least!

-- Anonymous, January 28, 2002

What a hoot. If I'm reading this correctly, they are saying that since they can no longer pay out COLA and automatic pay raises *to managers* they are using the phoney baloney, smoke and mirrors, inflation index to create a "virtual" profit, thus qualifying the bonuses. Cool. At this rate they should be able to show that they are beating the pants off UPS and FedEx now, and that their managers should be getting the same compensation as those private competitors.

-- Anonymous, January 28, 2002