Background USPS undertakes capital-spending projects for a number of reasons and  more than one reason may apply to a single project. According to USPS  documentation on its capital spending processes, these reasons include:  to support USPS’s organizational objectives and strategic plan,  to help sustain existing operations and meet USPS’s universal service  obligation,  to protect the health and safety of employees and customers or meet  legal requirements, or  to generate a positive return-on-investment—such as by increasing  revenues or decreasing costs—thus improving USPS’s finances. USPS generally categorizes its capital spending in four broad categories:  vehicles, facilities, information technology and other, and mail processing  equipment, as shown in figure 1. USPS has processes for setting an annual capital-spending budget and  approving specific capital projects. USPS prepares an annual capital- spending budget as part of its annual organization-wide budget.  According to USPS documentation on its capital spending process, and  USPS officials the process includes the following steps:  In advance of each fiscal year, USPS’s Finance and Planning  Department reviews estimated revenues and expenses to determine  an appropriate total capital-spending budget. Next, USPS’s Executive Leadership Team and the leadership of  relevant departments develop requests for each department’s  estimated capital-spending needs for the upcoming year, including a  ranking of desired projects. These lists provide information on  projects’ purposes, estimated capital and operating expenses,  potential return-on-investment, and relationship to USPS’s strategic  initiatives. The Finance and Planning Department then reviews these lists in light  of the previously determined total capital-spending budget and sets a  capital spending budget for each of the broad categories of capital  spending. The Executive Leadership Team votes on this preliminary capital  spending budget, which, if approved, is included in the organization- wide budget that is subject to approval by USPS’s Board of  Governors. The budget approved by the Board of Governors  includes the total and categorical capital-spending budget, but does  not include approvals for specific projects. According to USPS officials, USPS also uses these capital-spending  requests, along with other information, such as historical capital-spending  data and information on already identified specific future capital-spending  projects, to annually update a 10-year projection of capital spending.  USPS uses this 10-year projection to estimate USPS’s potential future  capital spending and requirements for capital project cash outlays. USPS also has processes for approving specific capital projects. Project  sponsors—those departments that wish to undertake a capital-spending  project—must obtain approval from different groups within USPS to  initiate capital projects. According to USPS documentation, the level of  approval required depends on the estimated total cost of the project: Total costs over $5 million: The project sponsor must submit a DAR  to USPS’s Investment Review Committee for review. DARs contain  estimated project cost, return-on-investment, and other information  used to justify the project. If the committee approves, it makes a  recommendation to the Postmaster General for final approval. USPS’s  Office of Inspector General also reviews and assesses the adequacy  and the depth of the information in the DAR, assesses whether the  project is in USPS’s best business interest, and may provide input to  the Investment Review Committee, which may take that information  into consideration when reviewing projects. Total costs from $1 million to $5 million: The project sponsor must  submit a DAR to USPS’s Technical Review Committee for review and  approval. Total costs under $1 million: The project is reviewed by USPS’s  Finance and Planning department, and approval is subject to the level  of budgetary resources available. USPS does not require a DAR for  these projects, although the process involves other documents, such  as a one-page “Justification of Expense” that is required for many of  the projects. USPS faces organization-wide uncertainty that may affect its capital  spending. We define “organizational uncertainty” as those uncertainties— such as business, budgetary, legislative or regulatory, or other  conditions—that may affect USPS’s ability to remain competitive and  achieve its mission. For example, in the absence of adequate revenues  that would cover all of USPS’ expenses, these uncertainties may affect  the extent to which USPS can undertake its identified capital-spending  plans. According to USPS, organizational uncertainties include the  following: Business uncertainty includes potential changes to USPS’s business  and the market for its products and services. Such uncertainty may be  affected by changing customer preferences—such as continuing  diversion of First Class Mail to electronic alternatives (e.g., e-mail or  online banking)—and increased competition for package shipments. Budgetary uncertainty includes potential uncertainty and changes to  revenues and expenses that affect USPS’s finances. Legislative or regulatory uncertainty includes potential actions  intended to address some of USPS’s financial challenges. For  example, postal reform legislation has been introduced that, if  enacted, could improve USPS’s financial position. Both H.R. 756 and  S. 2629 propose to relieve USPS of some of its retiree health and  pension obligations and provide a reinstatement of a partial rate  surcharge. Similarly, the Postal Regulatory Commission—an  independent establishment of the executive branch that regulates  USPS— is considering providing USPS with additional flexibility on  pricing, which could also improve USPS’s finances. According to USPS documentation on capital-spending processes as well  as DARs for individual capital-spending projects, capital-spending  projects also can face project-specific risks, such as the following: Technological risks, which include complexity, quality, and  security concerns: For example, capital projects deploying new  technology intended to increase operational efficiency may face the  risk that the new technology could become obsolete given future  technological advances. Operational risks, which include maintenance and performance  of projects: For example, equipment purchased as part of a capital  project could involve the risk that it may not perform as expected. Integration risks, which include network and system integration  and user acceptance of projects: For example, a project involving  new retail technology may face the risk that USPS’s customers will  not accept the new technology, and, as a result, the project does not  meet its target for customer use. USPS Plans to  Increase Capital  Spending, but  Business  Uncertainties Will  Likely Involve  Prioritization against  Other Business  Needs and among  Capital Projects According to USPS, the organization has critical capital-spending needs  after years of reduced capital spending. Starting in fiscal year 2009,  USPS sharply decreased its capital spending for several years, in  response to decreased volume and revenues; however, USPS now plans  to increase its spending. Specifically, USPS projects average annual  capital-spending cash outlays of $2.4 billion from fiscal years 2018  through 2028—about 70 percent more than the average of $1.4 billion  from fiscal years 2007 through 2017. (See fig. 2.) While this projected  spending is largely driven by plans to acquire a new fleet of delivery  vehicles, USPS also projects increased spending in the other categories  of facilities, information technology, and mail-processing equipment. In  addition, while some of USPS’s planned capital spending is intended  specifically to generate a return-on-investment—such as by increasing  revenues or decreasing costs—much of USPS’s planned capital spending  is to help sustain operations. Specifically, according to our analysis of  USPS data, roughly 80 percent of USPS’s projected capital spending for  fiscal year 2018 is for projects intended to help sustain operations. Vehicles: Spending  Planned to Replace Aging  Fleet In its latest projection of capital spending, covering fiscal years 2018  through 2028, USPS projects an annual average of roughly $821 million  on capital spending for vehicles, primarily driven by a multi-year  acquisition of new delivery vehicles starting in fiscal year 2019. According  to USPS officials, USPS decided a number of years ago to defer  purchasing new delivery vehicles and instead continued using and  maintaining its existing fleet. Because USPS started acquiring most of its  existing delivery fleet in 1987, the majority of its delivery vehicles are  several decades old. USPS officials said these vehicles incur high  maintenance costs, averaging about $4,500 per vehicle annually. In acquiring new vehicles, USPS plans to take a number of steps to  ensure that the vehicles best meet the organization’s needs. According to  USPS officials, it will spread the acquisition over multiple years to avoid a  large cash outlay in any given year and to enable USPS to modify the  vehicle purchases over time to take advantage of any technological  changes, such as advances in alternative fuel technologies. Officials  added that USPS is considering vehicles that will encourage operational  efficiencies. For example, USPS is considering taller vehicles that will  better allow carriers to handle trays of mail and packages. The officials  also noted that USPS may consider different vehicle designs for different  market needs. The officials said that USPS is currently testing various  vehicle prototypes and has not decided on any one vehicle design at this  time. In total, USPS projects that its acquisition of new delivery vehicles  will require about $5.7 billion in capital-spending cash outlays distributed  over a number of years. In addition to its planned future acquisition of delivery vehicles, USPS has  also conducted smaller acquisitions of vehicles in recent years. According  to USPS officials, in the past few years USPS has been replacing most of  its non-delivery vehicles and will have done so by 2019, while also  purchasing a small number of delivery vehicles to replace ones that have  exceeded their useful life or will serve route growth. For example, in  April 2017 USPS approved a capital spending project to purchase more  than 2,000 cargo vans used to transport large volumes of mail from postal  plants to post offices and other facilities, and about 375 spotter vehicles  used to move trailers among docks at processing facilities. In May 2017  USPS approved a capital spending project to purchase approximately  8,000 off-the-shelf delivery vehicles needed to serve route growth and  replace existing high-maintenance-cost vehicles. (See fig. 3.) Facilities: Spending  Primarily Intended for  Repairs of Existing  Facilities USPS projects an annual average of about $607 million in capital  spending for facilities from fiscal years 2018 through 2028. According to  USPS officials, USPS faces little need for capital spending on new facility  construction given changes to USPS’s business such as decreasing mail  volumes. As a result, most of USPS’s projected capital spending is for  rehabilitation and repair of existing facilities, such as the replacement of  roofs or heating, ventilation, and air-conditioning systems needed to  sustain operations. For example, in December 2016, USPS approved ca  capital spending project to replace the roof at a mail processing facility in  Tulsa, Oklahoma. USPS had concluded that the roof was in a state of  failure, and there were no economically feasible repair options. In  addition, in 2017 USPS approved about a capital spending project to  repair facilities in the U.S. Virgin Islands damaged during Hurricane  Maria. Although most facilities spending is related to rehabilitation and repair,  some USPS capital spending is on new facilities. According to USPS  officials, new facilities projects are generally approved because of the  need to completely replace an existing facility that is beyond repair or to  construct a new facility that will replace multiple existing facilities. For  example, in May 2017 USPS approved a capital spending project to  construct a mail-processing facility in Nashville, Tennessee. The facility is  intended to replace and close four existing facilities which will eliminate  space deficiencies, reduce transportation costs, and improve operating  efficiencies. In addition, according to USPS officials, USPS may need to  make capital spending investments to facilities to accommodate growth in  package volume, should that growth continue. Information Technology  and Other: Spending  Intended to Support  USPS’s Network and  Cybersecurity Efforts USPS projects an annual average of about $541 million in capital  spending for information technology and other capital projects, such as  customer support equipment, from fiscal years 2018 through 2028.  Information technology spending, which makes up an average of 98  percent of the projected spending in this category from fiscal years 2018  through 2028, is intended to maintain the infrastructure used to support  USPS and provide security from cyber-threats, among other things. According to USPS officials, while it is difficult to project capital spending  on information technology because future needs are uncertain, they can  more accurately predict some future needs, such as hardware  replacement. For example, there is a baseline of projected costs to  replace servers because USPS knows the length of the technologies’  useful lives and when they will need to be replaced. According to USPS  officials, while much of its capital spending on information technology is  intended to replace outdated servers and other hardware, some spending  is for developing new information technology systems. For example, in  March 2017 USPS approved a capital spending project to purchase 67  video conferencing systems intended to increase productivity and  encourage collaboration among USPS offices. In addition, USPS officials  told us that in recent years USPS has undertaken more capital spending  than expected on cybersecurity, a trend that will likely continue for the  next few years. According to a DAR for cybersecurity investments, USPS  is undertaking such investments to proactively identify and respond to  security threats that have the potential to cause financial or other damage  to the organization’s assets or employees, including threats that could  disrupt or destroy information. Capital spending on information technology can also support USPS  strategic goals and provide a positive return-on-investment. For example,  in January 2017 USPS approved an additional capital spending to  support development of its Informed Visibility program, which is a system  that provides tracking and reporting of mail shipments for commercial  mailers. According to the Informed Visibility DAR, these capabilities will  provide users with access to valuable business information, helping  improve operational efficiencies and marketing, among other things.  According to the DAR, Informed Visibility will also provide a positive  return-on-investment by eliminating some redundant costs and programs. Mail-Processing  Equipment: Projected  Spending Intended to  Increase Automation and  Efficiency USPS projects an annual average of about $464 million on capital  spending for mail-processing equipment from fiscal years 2018 through  2028. USPS intends to maintain or replace existing aging equipment  used to process mail and purchase new equipment that USPS expects  will increase efficiency and provide other business benefits. According to  USPS officials, equipment projects can also generate a positive return- on-investment in a number of ways, such as by increasing automation to  reduce costs or by improving customer service. For example, in August  2017 USPS approved a capital spending project to provide new control  systems for about 1,000 bar code sorter machines that USPS expects will  decrease mail-processing costs. Some of USPS’s mail-processing equipment investments may also  specifically address the growing market for package shipments. For  example, in July 2017 USPS approved a capital spending project for  upgrades to automated package-processing machines—upgrades  intended to reduce package-handling costs and improve collection of data  on when and where packages are processed. USPS first deployed these  machines in 2004. According to the DAR, by 2017, the machines were  nearing the end of their useful life, resulting in reduced reliability. USPS’s Projected Capital  Spending Will Likely  Involve Prioritization  Decisions Although USPS is projecting increased capital spending over the next 10  years, it has reported that it faces uncertainties, such as the level of future  revenues, that could affect its ability to undertake planned and projected  spending. USPS faces continuing declines in First Class Mail volume, and  while it has experienced increased volume in packages, future increases  in package volume are uncertain. Specifically, according to USPS,  some of its major shipping customers are now building their own delivery  capability that may enable them to divert some package shipments away  from USPS. USPS has also stated that it faces challenges in ensuring  that future operations generate sufficient revenues to support planned  capital spending and that it is constrained in its ability to reduce costs. We have previously testified that USPS continues to face a serious  financial situation with insufficient revenues to cover its expenses. This uncertain financial outlook may result in USPS changing its current  capital-spending plans, including setting new priorities across its planned  projects and other business needs. These prioritization decisions can  involve tradeoffs among projects and between capital and operations  spending. USPS has already faced these types of tradeoffs, as in fiscal  year 2017, when it did not make $6.9 billion in required prefunding  payments for retiree health and pension benefits, stating that it lacked  sufficient cash to make those payments while ensuring it could continue  to provide service, and stating that it required sufficient cash reserves for  capital spending. While USPS officials noted that USPS must always  make prioritization decisions regarding capital spending, its financial  future may make such decisions more critical given its currently projected  increased capital spending. For example, unless USPS increases its  revenues or decreases other expenses, such prioritization decisions may  involve USPS undertaking less future capital spending than it currently  projects over the next 10 years. Further, even if USPS’s financial situation  were to dramatically improve, USPS may not necessarily undertake more  capital spending than currently projected, because of significant other  business needs, such as funding operating expenses. Should USPS  have more resources than expected in the coming years, though, USPS  may be able to make fewer tradeoffs regarding capital spending. Various Processes  Support USPS’s  Ability to Address  Uncertainties and  Risks That Affect  Capital Spending USPS Has Processes  Designed to Identify  Uncertainties and Risks  That Affect Capital  Spending USPS has processes that can help it to identify uncertainties and risks  that could affect its capital spending and adjust its spending to changing  circumstances. USPS has adopted the Committee of Sponsoring  Organizations of the Treadway Commission’s (COSO) internal control  framework, which includes how organizations should address  uncertainties and risks. Specifically, this framework states that  organizations should identify uncertainties and risks to the achievement of  their objectives and analyze these uncertainties and risks to determine  how they should be managed. Additionally, COSO’s internal control  framework asserts that organizations should not only identify and analyze  uncertainties and risks but also assess any changes in conditions that  could affect the organization including its capital spending. Identifying and Analyzing  Organizational Uncertainties USPS has processes for identifying and analyzing organizational  uncertainties, such as business and budgetary uncertainties, which can  affect capital spending. These processes align with aspects of COSO’s  internal control framework. For example, according to USPS  documentation on its strategic-planning process, USPS conducts a  business environment assessment and an enterprise risk assessment  every 3 years to identify its organizational uncertainties, such as the effect  of changes in the number of delivery points or mail volume. Additionally,  USPS has processes to analyze the effects of its organizational  uncertainties. For example, some department managers analyze the  potential effects of organizational uncertainty by modeling different  scenarios to help inform their department’s capital-spending decisions.  For example, USPS officials stated that the vehicles department models  the interactions among key variables—such as stabilizing or declining  mail volume, route structures, and vehicle cargo sizes—as it considers  various vehicle acquisition options. In addition, USPS facilities  department officials told us that they plan to develop on a model to  consider how key variables, such as mail volume, affect USPS’s facility  needs. In addition to identifying and analyzing the potential effects of  organizational uncertainties, USPS also has processes for assessing  changes in these organizational uncertainties. For example, USPS  documentation shows that USPS leadership holds a monthly business  review meeting in which officials discuss any changes in internal  conditions, such as labor costs, or external conditions, such as mail  volume, that could affect the organization and, when applicable, how  these conditions could affect capital spending. Officials told us that USPS  also distributes a survey every 18 months to internal and external  stakeholders to obtain perspectives on changes, if any, in some of the  conditions addressed by USPS’s strategic plan. The survey also covers  other conditions such as uncertainty about the extent to which USPS will  have funds to maintain, repair, and replace infrastructure. Identifying and Analyzing  Project Risks Individual capital projects face inherent risks—such as technological,  operational, and integration risks. We found that USPS’s capital-spending  processes align with aspects of COSO’s internal control framework by  incorporating processes to identify and analyze project-specific risks  through the use of DARs. As discussed earlier, USPS’s capital spending  processes require DARs to justify proposed capital projects with total  costs of $1 million or more. Specifically, internal USPS guidelines state  that DARs should identify the technological, operational, and integration  risks that could affect capital projects and any tradeoffs related to  potential alternatives to the proposed capital project. For example, we  reviewed one DAR for mail-processing equipment that explained that the  project has a low level of operational risk noting that the new equipment  will not require training for operators, thus avoiding potential costs and  delays associated with training. Another DAR we reviewed for a project  intending to improve the customer experience and reduce costs through  more efficient staffing at retail locations identified integration risks and  noted that the project's proposed deployment schedule might not allow  time for delays. USPS leadership may also request additional analyses to  verify, or support, information in a DAR before deciding whether to  approve a project. For example, according to documentation we  reviewed, USPS leadership recently requested that its Finance and  Planning division review economic data, such as population growth rates,  to confirm the economic growth projections used in support of a DAR for  a new facility in Bismarck, North Dakota. USPS Has Processes  Designed to Respond to  Identified Uncertainties  and Risks That Affect  Capital Spending We found that USPS has processes that are designed to help it respond  to identified organizational uncertainties, specifically future budgetary  uncertainty. According to OMB’s Capital Programming Guide, capital  spending “...should be consistent with the level of future budgetary  resources that will be available.” USPS officials said USPS seeks to  minimize the budgetary uncertainty that capital spending will outpace  available resources by developing its annual capital-spending budget as  part of USPS’s overall annual budget. As a result, USPS can determine  an annual capital spending budget based on the most recent conditions,  including the most recent revenue forecasts, and consider possible  tradeoffs—such as those between capital spending and other spending  needs such as operating expenses. Further, while the creation of a  capital-spending budget establishes capital-spending levels, the process  does not commit capital spending on any particular project. Instead,  USPS reviews and approves new capital projects throughout the fiscal  year, allowing USPS to make capital spending-decisions based on its  most current financial condition, which may have evolved during the fiscal  year. After USPS has set the annual capital spending budget, USPS’s capital- spending process also allows the organization to respond to any changes  in its financial outlook, business environment, or other organizational  uncertainties that might occur during the fiscal year. As stated previously,  USPS’s capital spending budget establishes capital spending levels for  the fiscal year and does not include approvals for specific projects.  Project sponsors must obtain approval from different groups within USPS  to initiate capital projects. USPS may approve less capital spending for  capital projects than budgeted for at the start of the year. Our analysis of  capital-spending cash outlays from fiscal year 2007 through 2017 shows  that on average, USPS spent about 18 percent less than was budgeted  for at the start of each year. According to USPS officials, capital  spending can be below budgeted levels for a variety of reasons. USPS  may shift strategic priorities based on business conditions and cancel or  delay some planned projects that it determines are no longer aligned with  its priorities. For example, USPS canceled a previously approved  centralized distribution facility project in Brooklyn, New York, and decided  to look for less costly alternatives to support the area’s increased  package processing needs. Also, officials stated that projects could come  in below budget because of a reduction in project scope or because a  multi-year project falls behind schedule and has less cash outlays in a  given year than were planned. In other instances, USPS’s capital-spending approval process provides  flexibility to re-allocate capital funds as USPS identifies and assesses  changing conditions that affect the organization, or when contingencies or  emergencies arise. For example, according to USPS officials, as USPS  monitors the economic indicators that affect its business, the indicators  may signal an increase in package volume. USPS might respond by  allocating more capital toward additional purchases of package-sorting  equipment. According to USPS officials, USPS’s capital-spending  process also allows USPS to respond to contingencies. In fiscal year  2017, USPS approved capital spending to repair facilities in the U.S.  Virgin Islands damaged during Hurricane Maria. (See fig. 4.) In the event  that such unplanned projects arise to repair damages or are required for  safety, project sponsors can expedite the capital spending approval  process, such as by submitting an advance funding request to USPS. In addition to having processes to respond to organizational uncertainties,  we also found that USPS has processes for responding to the risks  affecting individual capital projects. According to USPS documentation,  capital projects with total costs of over $5 million are reviewed at certain  stages in their implementation to assess any changes, including changes  in the return-on-investment, timeline, and performance of the projects.  USPS may alter project specifications or time frames to respond to these  changes. During the implementation stage of some major capital projects,  such as the installation of mail-processing equipment, departments may  initially test a limited number of units with the option to request the  purchase of additional units if the tests are successful. Additionally, some  major capital projects, such as the replacement of USPS’s delivery  vehicles, require acquisitions over multiple years, which, USPS officials  told us, can be used to limit risk. As mentioned earlier, USPS is planning  to replace its fleet by purchasing vehicles over a number of years,  potentially allowing it to capitalize on technological advances that may  develop over the time period. After a capital project is complete, USPS has a process for reviewing the  results as a way to inform and improve future capital-spending decisions,  including better addressing project risks. USPS’s capital-spending  process requires USPS to evaluate capital projects with total costs over  $25 million after project completion, reviewing the cost, schedule, and  performance results of these projects. For example, in November 2017,  USPS discussed the results of two package processing and sorting  projects that experienced delays associated with accommodating new  equipment at the facilities due to design issues. As a result, USPS  recommended that project sponsors conduct more research about any  site-specific risks before submitting a DAR for future package processing  and sorting projects. In addition, USPS’s Office of Inspector General  prepares an annual capital-project-compliance report that evaluates the  soundness of USPS’s capital spending. According to USPS officials, the  organization considers the results of these reports and seeks to address  any resulting recommendations. For example, we reviewed  documentation explaining that, in response to one recent Office of  Inspector General recommendation, USPS stated it would revise its  capital spending guidance to define review and approval procedures,  validation, and compliance report requirements for all investments. Agency Comments We provided a draft of this report to USPS for review and comment.  USPS provided a written letter (see appendix II) in which USPS provided  no comments. Via email, USPS also provided technical comments, which  we incorporated as appropriate. We are sending copies of this report to interested congressional  committees and the Postmaster General. In addition, the report will be  available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact  me at (202) 512-2834 or rectanusl@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff that made key contributions to this  report are listed in appendix III. Appendix I: Objectives, Scope, and  Methodology Our objectives for this report were to (1) describe the U.S. Postal  Service’s (USPS) projected capital spending over the next 10 years and  (2) assess whether USPS’s processes support its ability to address  uncertainties and risks that affect its capital spending. For our second  objective, our scope was limited to assessing whether USPS had  designed processes; that is, we did not assess the quality of any analyses  that USPS conducted regarding risks or any determinations that USPS  made regarding capital-spending projects as this was beyond the scope  of our review. Such assessments are routinely conducted by the USPS  Office of Inspector General. To address USPS’s planned capital spending over the next 10 years, we  reviewed USPS data on capital spending from fiscal years 2007 through  2017 and USPS documentation on projected capital spending from fiscal  years 2018 through 2028. In both cases, we focused on a fiscal year’s  actual or projected capital-spending cash outlays—or the amount of cash  spent on capital projects—as opposed to capital-spending commitments  made in that fiscal year. For historical data, we used data from USPS’s  annual budgets, known as Integrated Financial Plans, for fiscal years  2008 through 2018. Each annual budget contains data on actual capital  spending levels from prior fiscal years. The annual budgets generally  report capital spending in four broad categories: vehicles, facilities,  information technology and other, and mail-processing equipment.  Because the categories used in past annual budgets were not consistent,  we recategorized some years’ spending to be consistent. Specifically, we  considered “mail-processing equipment” or “equipment” as part of “mail- processing equipment.” We considered “infrastructure and support,”  “information technology and other,” and “customer service and support  equipment” as part of the “information technology and other” category.  The past budgets consistently used “facilities” and “vehicles” categories.  We obtained input from USPS officials on our recategorizations. To  determine the reliability of these data, we reviewed the data for any  obvious errors, reviewed relevant documentation, and interviewed  officials. We determined that these data were sufficiently reliable for the  purposes of reporting on USPS’s past capital spending. For information on USPS’s projected capital spending from fiscal years  2018 through 2028 we reviewed USPS’s 10-year capital-spending  forecast for those years, which USPS created in 2017. This 10-year  forecast is a projection of capital spending, but is not a commitment for  any level of investment. The 10-year forecast categorizes capital  spending projects into the following categories: construction and building  purchases, building improvements, mail processing equipment, vehicles,  capitalized software, customer service equipment, and postal support  equipment. For our analysis, we combined “postal support equipment,”  “information technology,” and “customer service equipment” into one  overall “information technology and other” category, and “construction  and building purchases” and “building improvements” into one overall  “facilities” category. USPS officials agreed with this approach. To  determine the reliability of these data, we interviewed USPS officials,  reviewed data for any obvious errors, and reviewed relevant  documentation. We determined that these data were sufficiently reliable  for the purposes of providing information on USPS’s projected capital  spending. In addition, we interviewed four USPS vice presidents in  charge of the departments that correspond with the four broad categories  of capital-spending investments about historic, ongoing, and projected  capital spending. We also selected and reviewed a non-generalizable sample of 14  Decision Analysis Reports (DAR)—internal USPS documents used to  justify and obtain approval for some proposed capital-spending projects— of the 66 approved by USPS for fiscal year 2017 and part of fiscal year  2018. USPS requires DARs for all proposed capital spending projects  with a total project cost of at least $1 million. The DARs contain  information on, among other things, project specifications, purpose, risks  and tradeoffs, and timeframes. We reviewed the DARs for this and other  information; we did not review the quality of the analyses contained in the  DARs. We obtained a list of all approved DARs for fiscal years 2017 and  2018 and selected DARs of the two largest and two smallest capital  projects by total value in each of the four categories (i.e., vehicles,  facilities, information technology and other, and mail processing  equipment). Because the vehicles category had only two approved  DARs at the time we received the list of approved DARs from USPS, we  reviewed 14 DARs instead of 16. While the information from our reviews  cannot be generalized to all DARs, the information provides insights into  USPS’s reasons for undertaking capital spending projects. To assess whether USPS has processes that support its ability to  address uncertainties and risks that affect its capital spending, we  reviewed USPS documentation, including USPS’s policies and  procedures for capital spending, internal guidance documents, and others  related to processes that affect its capital spending. We identified criteria  for addressing uncertainties and risks, including those specific to capital  spending. Specifically, we identified criteria from the Committee of  Sponsoring Organizations of the Treadway Commission’s (COSO)  Internal Control-Integrated Framework (the internal control standards  adopted by USPS) and the Office of Management and Budget’s Capital  Programming Guide. COSO Principle 7 states, “The organization  identifies risks to the achievement of its objectives across the entity and  analyzes risks as a basis for determining how the risks should be  managed.” Further, COSO Principle 9 states, “The organization identifies  and assesses changes that could significantly affect the system of  control.” The Office of Management and Budget’s Capital Programming  Guide element I.1.1 states, “The plan should also be consistent with the  level of future budgetary resources that will be available.” We evaluated  USPS’s processes that affect capital spending against these criteria to  determine whether USPS had designed processes to address  uncertainties and risks related to capital spending. We did not review the  capital spending projects USPS has undertaken to determine, for  example, if USPS made appropriate decisions regarding selected  projects. We also interviewed USPS officials regarding USPS’s capital- spending processes. Specifically, we interviewed officials with USPS’s  Capital Investment and Business Analysis Department; Finance and  Planning Department; Technical Analysis, Accounting, and Finance  Department; and the four vice presidents mentioned above about how  they address uncertainties and risks related to capital spending within  their departments. We conducted this performance audit from September 2017 to June 2018  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives. Appendix II: Comments from the U.S. Postal  Service Appendix III: GAO Contact and Staff  Acknowledgments GAO Contact Staff  Acknowledgments In addition to the contact above, Kyle Browning and Faye Morrison  (Assistant Directors); Matthew Rosenberg (Analyst in Charge); Amy  Abramowitz; Sara Ann Moessbauer; Josh Ormond; Joshua Parr; Amy  Rosewarne; and Crystal Wesco made key contributions to this report.  Also contributing to this report were Carol Henn, Sabine Paul, and  Carolyn Voltz.
USPS faces significant financial challenges as it continues to experience declining mail volumes and revenues. Capital spending is needed to support USPS's operations, but can be affected by various uncertainties and risks, such as those related to future business activities and revenues. In the past, USPS has reduced its capital spending in response to declining revenues. GAO was asked to review USPS's capital-spending plans and examine how its capital-spending processes address uncertainties and risks. This report: (1) describes USPS's projected capital spending over the next 10 years and (2) assesses whether USPS's processes support its ability to address uncertainties and risks that affect its capital spending. GAO reviewed USPS data and information on actual capital spending from fiscal years 2007 to 2017 and projected capital spending for fiscal years 2018 through 2028. GAO also reviewed USPS reports on 14 approved capital projects in fiscal years 2017 and 2018, selected to provide a mix of project type and value; examined documentation related to USPS's processes that affect capital spending and compared USPS's processes to internal control standards adopted by USPS; and interviewed USPS officials. On a draft of this report, USPS provided technical comments, which GAO incorporated as appropriate. The United States Postal Service (USPS) projects increased capital spending over the next 10 years. According to USPS, this spending will support its mission and improve its financial position. USPS projects average annual capital cash outlays of $2.4 billion from fiscal years 2018–2028—about 70 percent more than the $1.4 billion average from fiscal years 2007–2017 (see figure). For example, USPS plans to acquire a new fleet of delivery vehicles starting in 2019 to replace its aging existing fleet and plans to purchase new mail-processing equipment to increase efficiency. However, USPS faces a serious financial situation with insufficient revenues to cover expenses. This uncertainty may result in USPS's making capital-spending prioritization decisions that can lead to tradeoffs across planned capital projects and potentially between capital spending and other organizational needs such as operational expenses. Such prioritization could lead to USPS's undertaking less capital spending than currently projected in the absence of increased revenues or decreased expenses. USPS has processes that help it identify the uncertainties and risks that may affect its capital spending and adjusts its capital spending accordingly, in line with internal control standards adopted by USPS. For example, USPS identifies organizational uncertainties, such as mail volumes and revenues, as part of its strategic planning process and considers them when creating its capital spending budget. It also identifies individual project risks through a project review process, and considers tradeoffs inherent in different project scenarios. USPS's processes also allow it to respond to these uncertainties and risks. Specifically, USPS sets a capital-spending budget in its overall financial plan, to help ensure that spending is in line with expected resources. USPS's process also allows it to shift funds if needed, such as to repair a facility damaged during a natural disaster. USPS also reviews individual capital projects during implementation and can change specifications or time frames based on changing circumstances.