FINAL DECISION UNDER THE DEBT COLLECTION ACT OF 1982

Petitioner, Gloria Hall, the postmaster at Morganza, Maryland, filed this Petition on November 8, 1996, after receiving a Notice of Involuntary Administrative Salary Offsets, dated October 28, 1996, from the Manager, Post Office Operations, Capital District. The Notice stated the Postal Service’s intention to withhold $22,455.92 from

Petitioner’s salary to cover a shortage in her account, revealed by a February 23, 1995 audit.

A hearing was held in Washington, D.C. on December 16, 1996. The Postal Service presented testimony from Postal Inspector Spencer Jones; Shirley Ellis, who performed the count of Petitioner’s stock on February 23, 1995; and Mary Ann Booker, Manager of Post Office Operations for the Capital District. In addition to her own testimony, Petitioner presented the testimony of Elizabeth Hammond, who assisted Petitioner in reviewing records after the shortage was discovered. Both sides also presented documentary evidence. Both sides elected to submit written arguments after receipt of the hearing transcript. Those arguments were filed and have been considered. The following findings of fact are based on the entire record, including observation of the witnesses and their demeanor.

FINDINGS OF FACT

1. Petitioner has worked for the Postal Service for twenty-six years, and has been the postmaster at Morganza, Maryland for twenty-two years. (Tr. 60-61).⁽¹⁾

2. Morganza is a small, rural village, and the post office itself is very small - occupying one room of a frame house. (Tr. 39-40). During the time pertinent to this case, the only people employed at the post office were Petitioner and one clerk, Janice Johnson, who had worked there for eight years. Prior to 1989, the total revenue taken in at the Morganza Post Office was less than $20,000 per year. In 1989, a bulk mail business called Mail America, which was located a few miles away, began buying large quantities of stamps at Morganza. Annual revenue increased dramatically each year, to a high of nearly $1.5 million in 1994. (Tr. 73-74, 82-83; Pet. Ex. 6).

3. Prior to December 1994, there had not been an outside audit of the Morganza Post Office for fifteen years, but it was Ms. Hall’s practice to do an annual inventory of her stock shortly before Christmas. When she did her December 1994 inventory, the count was approximately $23,000 short. Ms. Hall and Ms. Johnson recounted the stock and examined their records, but could find neither the stock nor a paperwork error. (Tr. 62).

4. Ms. Hall then asked Elizabeth Hammond, another postmaster in the area, to help go over the Morganza records. Ms. Hammond spent more than a week helping Ms. Hall and Ms. Johnson review and reconstruct records in an attempt to "find" the missing stock. They were unsuccessful. Ms. Hammond found Morganza’s record keeping to be "impeccable," although Ms. Hall was not keeping a "stock book."⁽²⁾ (Tr. 39). On January 9, 1995, Ms. Hall reported the matter to Mr. Harry Smith, then Manager of Post Office Operations for the Capital District, and also asked Mr. Smith to send a Mr. Bownes from the finance office in Washington, D.C. to review Morganza’s records. (Tr. 11-12, 37, 62-67; Rx. 1). Mr. Bownes came to Morganza on February 14, 1995, and took some records with him back to his office. It is unclear to what extent Mr. Bownes conducted an independent review of these records, or to what extent he examined the possibility of duplicate billing from the offices that supplied Morganza with stamp stock, but he also was unsuccessful in finding anything to explain the shortage.

5. On February 23, 1995, Mr. Bownes sent Ms. Ellis to Morganza to count the Morganza stock. Ms. Ellis found that Ms. Hall’s record books, i.e. her account books showing receipts and disbursements, were "fine," but that the stock was short $23,655.92. (Tr. 20-24, 27-28; Rx. 2).⁽³⁾ Ms. Ellis found no evidence of "double billing" from the stock supplier. (Tr. 27).

6. One of the theories offered by Petitioner to explain the shortage is that Mail America may have picked up more stamps than they paid for, on or about October 12, 1994. It was Mail America’s practice to order stamps as they needed them, never far in advance. If time was short, Petitioner would make an "emergency" order, by telephoning her supplier in Capital Heights, Maryland. The stock she ordered would then be delivered that same day. (Tr. 44, 53, 94-95). If Mail America was not picking up stock the same day it arrived, Petitioner’s practice was to store it in the various lockable containers she had available. These included two file cabinets and the window drawers. (Tr. 93-94). On October 12, 1994, in response to an order from Mail America, the Morganza office received a shipment of $97,290.00 of stamps. This was in the form of 141 coils of 23 cent stamps, 3000 stamps per coil. (Tr. 44-45, 81; Pet. Ex. 5). When the Mail America representative arrived to pick up the stamps, however, their requirement had decreased, and they purchased only $73,830.00. (Tr. 44, 96). A receipt for that amount, showing sale of 107 coils, was signed by Janice Johnson on October 12, 1994. (Pet. Ex. 4).

7. Ms. Johnson, when interviewed by Inspector Jones in January 1996, said that she and Ms. Hall were always very careful about verifying the amounts of stock in the shipments they received, and in verifying with Mail America the amounts that were turned over to Mail America. Because of this, she thought it was not probable that Mail America received extra stamps, although it was possible. (Rx. 1). Ms. Hall and Ms. Johnson told Ms. Hammond the same thing in January 1995, when Ms. Hammond was examining records and procedures. (Tr. 47). Ms. Johnson also told Ms. Hammond, however, that the Mail America representative was allowed to come behind the service counter, pick up the boxes himself and carry them out. (Tr. 47). The size of the October 12, 1994 shipment would have consisted of about seven boxes, each being 1'x1'x18" and the boxes would have been stacked behind the counter. Assuming that Mail America took only the $73,830.00 they paid for, one or two boxes would have remained - to be secured in one of the locked containers. (Tr. 96-98). There was no evidence presented that either Ms. Hall or Ms. Johnson remembers doing that. The possibility suggested by Petitioner is that Mail America may have picked up the whole shipment, and that this was not noticed by Ms. Johnson who was busy performing all post office functions by herself.⁽⁴⁾ The fact that Ms. Johnson signed the receipt indicates that Petitioner was not in the office at that time. During this time period, Petitioner was sometimes away from the office for special Postal Service projects assigned to her. (Tr. 77-78). Even though there is no indication that accountability for the Morganza main stock was ever transferred from Petitioner to her, Ms. Johnson was permitted to receive these large stock shipments for the Morganza office, and to carry out the sales transactions with Mail America, from that stock. (Tr. 85; Pet. Ex. 2). According to Ms. Hall, one of the reasons Mail America did so much business with Morganza, even though they were closer to the Leonardtown Post Office, is that the Leonardtown Postmaster had not authorized anyone else in his office to conduct such transactions when he was absent. (Tr. 74). Telephone inquiries by Ms. Hall to Mail America in January 1995, after she discovered the shortage, were fruitless.

8. In March 1995, Postal Inspector Jones was asked by Mr. Smith to investigate the shortage at Morganza. (Tr. 7-8). On March 15, 1995, Jones spoke with David Bownes, who repeated what he, Bownes, had been told by Ms. Hall and Ms. Hammond, and added that he had checked all the records he could think of and found nothing to account for the shortage. Jones did no independent review of the records. Jones interviewed Petitioner on April 26, 1995, and interviewed Ms. Johnson on January 5, 1996. He did not interview anyone from Mail America. He did not know if there are records available to compare the amount of postage used by Mail America with the amount purchased by Mail America, and the inspection service did not look into that. (Tr. 12-16).

9. The ultimate conclusion of the investigation was that there was a shortage, but no determination could be made as to what caused it. (Tr. 8-10; Rx. 1).

DECISION

Respondent’s position is simply that the audit of Petitioner’s account showed a shortage, and as postmaster, as well as being the custodian of all the stock at Morganza, Petitioner is liable for the shortage.

Petitioner first argues that there may have been no real loss, but only a paperwork error on the part of those who supplied her office with stamp stock. The record provides no support for this theory, however. Several people, including Petitioner herself, spent time searching for such an error, but none was found.

Petitioner’s second argument, which presents the essential issue to be determined, is that she followed proper procedures, and exercised reasonable care under the circumstances.

Two standards, from Handbook F-1, Post Office Accounting Procedures, are applicable. Section 131 describes the circumstances under which a postmaster will be held liable for a financial loss:

When an accountable financial loss occurs and evidence shows the postmaster conscientiously enforced United States Postal Service policies and procedures in managing the post office, the Postal Service grants relief for the full amount of the loss. When evidence fails to show the postmaster met those conditions, the Postal Service charges the postmaster with the full amount of the loss.

Under Section 132, when acting as custodian of the main stock, postmasters, like any other employees assigned stamp accountabilities, "are held strictly accountable for any loss unless evidence establishes they exercised reasonable care in the performance of their duties."⁽⁵⁾

Respondent’s burden of proof, in cases of unexplained shortages such as this, is to establish a loss, and to show that Petitioner was accountable for the stock from which the loss occurred. Petitioner does not dispute the fact that she was accountable for the main stock at Morganza. When a properly conducted inventory, or audit, shows a stock shortage relative to a previously established balance, this constitutes proof of loss unless other evidence raises sufficient doubt about the accuracy of the inventory or the previously established balance. As noted above, even though Petitioner argues that there may have been a paperwork error, there is no such evidence in this case. Once Respondent has met its burden, the burden shifts to Petitioner to demonstrate that she exercised reasonable care. The record does contain some evidence that Petitioner followed accepted procedures in managing her office, and that she exercised reasonable care in handling the stock assigned to her. Both Ms. Ellis and Ms. Hammond vouched for the accuracy and thoroughness of her record keeping. Petitioner testified that she took care in locking up stock shipments when she received them, and both she and Ms. Johnson stated that they were always careful to verify shipments received, and sales to Mail America. Petitioner also testified that, during her twenty-two years as postmaster, she had never before had a shortage. Other evidence, however, precludes a finding that Petitioner exercised reasonable care.

First, even though Petitioner was accountable for the main stock at Morganza, it is clear that she shared both access and administrative responsibility for it with her clerk, Ms. Johnson. This is contrary to Postal Service regulations. Handbook F-1, Subsection 431.31 states, "Only the Main Stock custodian shall have access to the Main Stock." In addition to allowing this improper practice, there is no evidence that Petitioner had a policy of re-checking receipts and sales, such as occurred on October 12, 1994, immediately upon her return to the office. While we do not know that any stock was actually lost on October 12, 1994, the fact that Petitioner deviated from prescribed procedures created a situation which may have increased the likelihood of a loss. This does not demonstrate the exercise of reasonable care.

Second, Ms. Hammond’s testimony about her discussion with Ms. Johnson regarding the October 12, 1994 incident raises a probability that Ms. Hall and Ms. Johnson may not always have been careful in dealing with Mail America. Even assuming they always took care to verify the amount of purchase, to then allow the customer to go to the stock supply and carry out his portion of it himself, rather than hand over the properly verified amount to the customer, is not an acceptable way of handling transactions involving many thousands of dollars. This also does not demonstrate the exercise of reasonable care.

Petitioner argues several other points, most of which are factually correct but not germane to the standards of liability prescribed for stock shortages. For example, the fact that she received no extra training when she began handling much larger amounts of stock and money, the fact that her managers may have been slow to give attention to a tiny office doing a million dollars of business, the fact that she was assigned some projects away from her office, and the fact that the investigation of the loss may have been slow and not especially thorough, do not excuse a failure to exercise proper security over postal stock assigned to her.

Some of these facts constitute extenuating circumstances (see note 6), but they do not change the outcome of this decision.

CONCLUSION

The Petition is denied. Respondent may collect $22,455.92 from Petitioner’s salary.⁽⁶⁾

Bruce R. Houston
Chief Administrative Law Judge

1. References to the hearing transcript are "Tr. _." References to Petitioner's exhibits and Respondent's exhibits will be "Pet. Ex. _," and "Rx. _."

2. A "stock book" would keep track of stamp accountability by denomination, so that the custodian, or an auditor, could see at a glance how many stamps of each denomination should be present at any particular time. Respondent presented no evidence that failure to keep a "stock book" was a violation of regulations. (Tr. 38, 55-56, 87).

3. The PS Form 3294, Cash and Stamp Stock Count and Summary, shows an opening balance of $60,167.23, but only $36,511.31 of stock on hand. Ms. Hall declined to sign the Form 3294 because she disagreed with the accuracy of Ms. Ellis' count. Based on a subsequent count by Ms. Hall in early March 1995, the shortage charged to Ms. Hall was reduced to $22,455.92. (Rx. 1).

4. There is no evidence that comes close to proving that Mail America took more stamps than they paid for on October 12, 1994. Attention was focused on that transaction only because the difference between the amount ordered ($97,290.00) and the amount sold ($73,830.00) is quite close to the amount of shortage discovered in December 1994. (Tr. 44).

5. These same standards are found in the Financial Management Manual (FMM), Sections 341 and 842.

6. There is no indication that Petitioner requested a waiver of this debt, or any portion of it, under the provisions of ELM Section 437, and a Hearing Official has no authority to grant a waiver. See Raymond Voisine, P.S. Docket No. DCA 95-22, March 21, 1995; Karen M. Ennis. P.S. Docket No. DCA-33, August 29, 1989. Nevertheless, even though the evidence has established a loss, and Petitioner's liability, it is appropriate to note that there are a number of extenuating circumstances in this case, some of which have been discussed. In light of Petitioner's long career and apparently good performance, her motivation in the Mail America matter being to provide service to her customer, and the fact that there is nothing suggesting that Petitioner took the missing stock, Postal Service officials may wish to consider whether it is unduly harsh to charge her the full amount.