When Glen Walker accepted the job of CFO of the U.S. Postal Service more than a year ago, he said he was surprised at how much its systems, processes, and people were like those of a large corporation. In fact, it made him more comfortable with his decision to become a public servant.
But things have gotten slightly more complicated, Walker revealed in an interview with CFO.com last week. Four months after the former Whirlpool executive landed the USPS job, Congress sent him a welcome basket in the form of The Postal Accountability and Enhancement Act of 2006.
Some of the goodies contained therein: a new regulatory overseer called the Postal Regulatory Commission, with enhanced powers; a stipulation that an accounting system be developed to split the assets and liabilities of the agency’s market-dominant (standard mail, flats, letters) and competitive (express packages) product lines; a cap on rate increases for the market-dominant product line that is tied to the Consumer Price Index; and a demand that the Postal Service comply with provisions of Sarbanes-Oxley by 2010. Oh, and there was the usual proviso that the agency cut $1 billion in expenses for the year.
“It was a lot of rules and regulations,” says Walker. “CPI is now at 2.5% — our costs have to stay under that level.”
To prepare for Sarbanes-Oxley, Walker has spent 2007 identifying, planning, and organizing key controls the USPS will test in the coming year. The postal service will also begin documenting processes and remediating in 2008, and is hiring CPAs from the private sector.
But expense cutting is the short-term focus. Since 79 percent of the USPS’s total cost base is labor, and the agency’s union contracts prevent layoffs, Walker has pushed to reduce the use of overtime. Working with Deputy Postmaster General and COO Pat Donahoe, he is slicing the $5 billion annually spent on excess hours by conducting biweekly operating reviews and developing models to match expected mail volume with the assignment of postal carriers. Walker is also targeting misuse of sick leave. “A tenth of a point reduction in the percentage of employees taking sick leave is $50 million,” he says.
Adding to Walker’s mission is that on the revenue side the use of first-class mail (the USPS’s most profitable product) is on the decline, largely due to the adoption of email and other communications technologies. Last May, in addition, 20 percent to 40 percent increases on certain packages and flats reduced the volumes of such mail sent by businesses. “In some cases what used to be a flat — like a broker’s statement — they’re folding in half and putting them in letter-size [envelopes] to get a cheaper rate,” Walker says.
The change threw off Walker’s revenue forecast, and the USPS had to adjust its models.
By all appearances, Walker himself has done some adjusting. His take on things now: “There are a number of differences [in the public sector]. Inside the beltway, everything you do is very public…. There are many interested parties you have to address before you can move forward and implement change.”
Click here for a 2006 CFO.com interview with Walker shortly after he landed the USPS job.