The Audit and Finance Committee assists the Board of Governors in fulfilling its fiduciary responsibilities. The Chairman of the Board selects the members of the Committee for each calendar year. The Committee met six times in conjunction with regularly scheduled monthly Board meetings.

     The Committee's primary responsibility is oversight of the integrity of Postal Service financial statements. The Committee reviews the soundness of internal accounting and control practices and major financial statement accruals. The certified public accounting firm responsible for the independent audit of Postal Service financial statements, Ernst & Young LLP, reports to the Board through the Committee.

     The Committee monitors financial performance, debt levels and cash management. The Committee reviewed and endorsed a management proposal to refinance Postal Service debt, which will substantially reduce interest expense. The Committee has also been monitoring the Postal Service's continuing multi-year program to modernize its accounting systems.

     Each year the Committee reviews analyses of cost and contribution by major category of mail and special service. When omnibus rate changes are required, the Committee monitors management's development of rate case filings.

     During the year, the Committee assessed the impact on Postal Service financial statements of PL 108-18, the Postal Civil Service Retirement System Funding Reform Act of 2003. The legislation reduces the Postal Service's funding requirement for Civil Service Retirement System pensions. Management presented its determination of the pensions accounting treatment resulting from that Act, noting that it changed nothing in the retirement plan. The Board's auditors reviewed management's determination and concurred with management's conclusion.

     The Committee asked management to evaluate its ability to comply voluntarily with the Sarbanes-Oxley legislation as it relates to internal controls. The Committee also reviewed the recommendations of the President's Commission on the United States Postal Service regarding enhanced financial transparency. Management is assessing the feasibility and cost of implementing these recommendations. The Committee will continue to monitor this work.

     Ernst & Young LLP presented their work plan for the financial statement audit, and the Committee concurred with the scope and materiality levels they established. The Committee met jointly and independently with Ernst & Young LLP, the Postal Service's Inspector General, management and the General Counsel to discuss the progress of the audit and ensure independence and objectivity in the audit programs.

     Accordingly, the Committee recommended, and the Board approved, the financial statements for 2003.