Speed  n [from Latin spes hope] 1:  the act or state of moving swiftly 2:  the standard of the United States Postal Service in moving America's mail.

The Audit and Finance Committee assists the full Board of Governors in fulfilling its fiduciary responsibilities. The Chairman of the Board of Governors selects the members of the Committee for each calendar year. This year, the Committee, whose members are Governors Dyhrkopp, McWherter and I, met nine times in conjunction with the regularly scheduled monthly Board meetings.

The Audit and Finance Committee’s primary responsibility is oversight of the integrity of Postal Service financial statements. The Committee regularly receives financial reports and reviews the soundness of the internal accounting and control practices and major financial statement accruals. The certified public accounting firm responsible for an independent audit of Postal Service financial statements reports to the Board through the Audit and Finance Committee. Additionally, the Committee oversees postal rate case development, cash management and overall financial performance with particular attention to model performance and variance between forecast and actual results.

During 2002, the Committee continued to focus attention on Postal Service debt. At the Board’s direction, capital investments financed with debt have been limited to equipment with high return on investment, employee and customer safety and infrastructure improvements that are absolutely necessary to do business. These policies along with breakthrough productivity improvement by management have resulted in the first overall reduction in outstanding debt in five years.

One of the most significant actions taken by the Board of Governors this year was the award of a new audit contract. In July the Board announced the selection of Ernst & Young LLP as its independent auditor to perform external auditing services. The Audit and Finance Committee conducted a competitive selection process, and the entire Board of Governors participated in final interviews. The external auditor reports to the Board, not management, as would be required for a private sector corporation of our size and complexity. Also, the auditor will perform no consulting work for the Postal Service for the duration of its auditing contract.

2002 was a year in which accounting irregularities were discovered at a number of well-known companies. Some involved outside auditors. The Audit and Finance Committee conducted an evaluation of its charter and procedures including a review by the former Chairman of the National Association of Corporate Directors. The Committee’s charter and procedures are continually refined to ensure they reflect best corporate practice.

Ernst & Young LLP presented their work plan for the financial statement audit, and we concurred with the scope and materiality levels established. We met jointly and independently with Ernst & Young LLP, the Inspector General (OIG), management and the General Counsel to discuss the progress of the audit. We ensured independence and objectivity in the OIG and external audit programs.

Shortly after the end of the year, the Office of Personnel Management (OPM) released the results of a new analysis of Postal Service funding for the Civil Service Retirement System (CSRS). The analysis shows that the Postal Service is much closer to fully funding future CSRS pension obligations than previously estimated. Although this could potentially lead to reduced CSRS pension expenses, legislation will be required to authorize OPM to change the Postal Service’s funding schedule. This development is further discussed in the Management Discussion and Analysis and in Note 11 of the Financial Statements.

Accordingly, the Committee recommended, and the Board approved, the financial statements for 2002.


Ernesta Ballard
Chairman, Audit and Finance Committee
December 10, 2002