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This year, the Committee oversaw the completion of the multi-year modernization of most postal accounting systems. As recommended by the Committee and approved by the Board, the Postal Service began the process of voluntary adherence to those provisions of the Sarbanes-Oxley Act that are applicable to a non-publicly traded company.
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. Governors James C. Miller, S. David Fineman, and I are the current members of the Committee. Governor Albert V. Casey served on the Committee as Chairman until his death on July 10, 2004. Governor Fineman joined the Committee on July 23, 2004, and I succeeded Governor Casey as Committee Chairman and designated financial expert at that time.
In 2004, the Board approved changes to the Committee's charter that make it consistent with rules adopted by the New York Stock Exchange and approved by the Securities and Exchange Commission. At the Committee's recommendation, the Board updated its bylaws to make clear that responsibility for the selection of the Board's independent audit firm is vested with the Governors and is appropriately insulated from management, although it should be noted that this has always been the case in practice.
Fulfilling its primary responsibility, oversight of the integrity of Postal Service financial statements, the Committee periodically reviews the soundness of internal accounting and control practices and major financial statement estimates and 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 Postal Service Inspector General reports to the Governors and is represented at all Committee meetings.
The Committee monitors financial performance, debt levels and cash management. 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.
The Committee met five times in 2004. During the year, the Committee reviewed the Postal Service's use of the "savings" realized under Public Law 108-18 (P.L.108-18), the Postal Civil Service Retirement System Funding Reform Act of 2003, to reduce debt, as prescribed by the Law. The Committee reviewed Postal Service methodologies for evaluating the costs and benefits of various types of capital investments as well as the selection of appropriate discount rates for capital investments and long term leases. Also relating to capital investments, the Committee directed that post-implementation reviews of capital investments be provided on a regular basis. During the year, the Committee also reviewed the assumptions underlying estimates of the magnitude of long term financial obligations to fund retirement and workers' compensation programs.