Prepared by

With the Assistance of

Chris Paterson

JP Ducasse

Combating Revenue Leakage

Webinar Outline

� Leakage – definition and overview

� Overview of a general framework to combat leakage

� Measuring leakage

� Establishing mitigation policies

� Combating leakage

� What you should consider

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Combating revenue leakage Definition*

� Combating revenue leakage consists of

engaging in activities that help a Post:

� Collect all the postage revenue owed to it, and

� Curb the sources/reasons of leakage.

� Leakage stems from one of four main risks

� Counterfeit (e.g., illegal issues, fake imprints)

� Bypass mail (e.g., mail inducted without any form

of payment)

� Shortpaid or underpaid (e.g., mail tendered with

insufficient postage)

� Problems related to billing or postage collection

(e.g., bad cheques; accounting errors)

� Combating revenue leakage consists of setting

policies to mitigate the sources of risks

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* Source: UPU Consultative Committee – Postal Revenue Protection Working Group

Steps in the right direction

4

But room for improvement

Recent trends

• Global awareness of leakage

issues has increased (75% of posts

admit they experience leakage)

• Posts have heavily invested in

revenue protection technology,

making some channels more

secure (meters, stamps)

• Verification technologies (e.g.,

OCR-based) becoming more

effective and/or more affordable

and scalable

• Not all posts have established a well-

structured revenue protection function

• Fraudsters too leverage technologies...

• New products may not be ‘leakage-free’

• ROI of technology solutions is still an

issue, e.g., for smaller posts

• Mail acceptance and verification is still

very much manual and time consuming,

and often plagued with inconsistencies in

performance.

A broader choice of technologies is now available to fight leakage

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Evidencing

• Deployment of digital meters in smaller emerging markets

• Anti-fraud security measures (special inks, holograms…) for stamps

Acceptance/verification

• E-documentation

• Sorters/counting machines for piece count (for sampling, verification or terminal dues purposes)

• Modular dimensions/weight/data capture solutions for use in post offices

Processing

• Lower-end sorters suitable for mid-tier posts

• Large CFC with on the fly weighing of parcels or letters• Capability to trace back an item to a specific sender

Billing/reconciling software solutions

(e.g., USPS Permit RP project)

A fewexamples

Two main challenges

� Measuring and identification is difficult� A touchy issue : leakages relate to posts’ weaknesses - a mix of fraud

and (operational or accounting) issues;

� Amounts recovered are just the tip of the iceberg;

� Posts use multiple channels and processes;

� Data sources are diverse (spot checks, sampling, data from operations

and from accounting systems) and don’t necessarily match.

� There is no off the shelf mitigationOptimal responses will depend on :

� Products’ terms and conditions (e.g., preparation requirements);

� Product and channel mix (stamps, permit mail, metered mail, web

based payments), letters vs. parcels…

� Post’s use of technology (sorting, barcoding, accounting systems) vs.

use of manual processes.

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Global posts’ top concerns : identification and controls, HR issues, streamlining operations

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Top 5 concerns expressed by

Posts worldwide

Typical leakage issues

Problems

� Accuracy of discounts claimed vs. postage paid (non-compliance with preparation requirements)

� Actual number of bulk mail items entered vs. number on mailing statement

� Underpaid (shortpaid) mail

� Bulk mail deposited at “wrong” places (e.g., collection boxes) – “bypass mail”

� Malicious duplication of e-parcels / PC postage/meter imprints (fraud)

� Errors/discrepancies in reconciliation/invoicing/payment process

Multiple root causes

� Overly complex (or poorly understood) product terms and conditions

� Fraud (on the part of mailers or postal staff)

� Acceptance, verification and billing processes poorly documented OR not followed by postal staff

� Poorly designed or executed sampling plans

� Lack of integration of the Post’s information systems (data from operations, accounting) – islands of automation in oceans of paper forms

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Combating revenue leakageA framework

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Measure & Identify

Leakage

Establish Mitigation Policies

Combat Leakage

Measuring and identifying leakageMethodological approach

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Measure & Identify

Leakage

• Identify critical dimensions of the mail flow to ensure adequate representation

• Develop a targeted working plan

• Which measurements? When? How? By whom?

• Conduct pilot studies to:

a. Generate optimal

sample sizes

(Understand

variability);

b. Assess the

constraints for

sampling

• Physical sampling is administered

• Engage in real time revenue leakage estimation

• Update skips quarterly to retain optimum currency and integrity

• Leakage estimation is not revenue recovery

• Effective estimation precedes and facilitates recovery.

• Random monitoring of physical sampling.

• Validating data integrities ensures sampling occurs as intended.

Audit Existing Systems

Identify Critical

Dimensions

Develop a Sampling Regime

Sampling and

Estimation

Monitoring &

Validation

Audit Existing Systems

� Existing revenue recovery mechanisms tend to exhibit a bias to higher

risk customers which is at odds with a simple random sampling approach

across the entire mail flow.

� Assess the appropriateness for leakage measurement of the existing

revenue checking system, if it does exist.

� Systems configured for revenue recovery only may not be suitable for

measurement.

� Effective leakage measurement depends on identifying the critical dimensions of the mail flow.

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Measure & Identify

Leakage

Audit Existing Systems

Identify the critical dimensions

� How then do we identify the criticaldimensions of the mail flow?

� A stratification process delineates the levels where leakages emanate from.

� There is a need for adequate sampling across each of these dimensions.

� This then provides postal organizations with an estimate of revenue leakage at each dimension.

� In understanding revenue leakage at these sub-levels then combative policies may be devised to target problematic areas.

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Measure & Identify

LeakageDefining ObjectivesPhysical Sampling and

estimation process.

Estimate Revenue Leakage Risk

Letters ParcelsConceptualisation will differ slightly in content to Letters.

M

A

I

L

T

Y

P

E

Facilities by

Geographical

Location

M1Bulk

Facility

Sort Center

Delivery Unit

Segmented Sampling Frame

Adopted to ensure each critical component in the

composition of mail is captured.

M2

Mn

Level 1 Stratification ensures each

lodgement facility is captured across each

wide geographical unit.

Level 2 Stratification:Ensure each product segment relevant to a specific facility is

captured.

Time Dependant ElementsCross representation of time of the day, days in the week,

months and quarters of the year.

Time Dependant Elements

Identify Critical

Dimensions

Develop a sampling regime

� Determine optimal sample sizes on a rolling basis using

� The underlying sample data

� Advanced distribution-free statistical methodologies

� Seek to estimate leakage at 95% confidence and within +/-5% precision

� Design a sampling system that is capable of dealing with the practical

impediments of data collection, that may alter the degree of data integrity

� Tight processing windows

� Resourcing constraints

� Sample space issues.

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Develop a Sampling RegimeMeasure &

Identify Leakage

Implement an estimation framework

� Collect, record, and transmit sample

information to generate final estimates at a

variety of levels

� Integrated algorithms can generate final

estimates at a variety of levels

� Take action via policy responses to

mitigate revenue leakage in a targeted

manner

� The rolling nature of the estimation facilitates the benchmarking of policy effectiveness

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Implement Estimation FrameworkMeasure &

Identify Leakage

Sample

Compute Estimates

Define Policies

Processing Center

Letters Flats Parcels

Stamped%

Leakage

%

Leakage

%

Leakage

Metered%

Leakage

%

Leakage

%

Leakage

Permit%

Leakage

%

Leakage

%

Leakage

Combating revenue leakageA framework

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Measure & Identify

Leakage

Establish Mitigation Policies

Combat Leakage

Effective revenue protection policies have impacts across the board

� Customer relations� Impact on mailers’ mail production processes, training requirements, compliance costs

(new investment)� Changes to terms and conditions impact product convenience and demand

� Business processes� Impact on quality of service and personnel costs (overtime)� Major initiatives such as “seamless acceptance” impact work positions (e.g., for

verification clerks)� Impact on information systems (turning new data into revenue recoveries…)

� Technology solutions� A different response for each channel (e.g., retail vs bulk mail)� Measuring the ROI of proposed technology solution vs. improving/fine-tuning current

processes

� People and training� Rev Pro awareness + training on current and new processes � Setting KPI and monitoring compliance with processes� Foster cooperation between R&D, marketing, operations, and finance

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Establish Mitigation Policies

Combating revenue leakageA framework

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Measure & Identify

Leakage

Establish Mitigation Policies

Combat Leakage

Discussing “acceptable” tolerance levels – Royal Mail

Background

� Royal Mail “reversions” have increased dramatically as part of its program to improve operational efficiencies.

� Mailers called for more “transparency” and “proportionality” (of fines) while RM insisted 100% compliance was needed for both revenue protection and operational purposes.

� In 2012 industry outcry prompted RM to launch industry-wide discussions .

� There is no “perfect mailing”

� What evidence should be provided by the Post’s revenue protection teams to mailers ?

� Which mail attributes should rev pro teams focus on ?

� RM has temporarily lifted specific non-compliance penalties (on sealing specs).

Policy Implications

Review terms and conditions and make them more explicit to increase transparency ?

Reposition/strengthen revenue protection units on customers’ premises ?

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Combat Leakage

Detecting unpaid/underpaid mail: PostNL

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Moving from manual to automated detection of underpaid mail (19 CFC being installed)

Automated recovery process for single piece mail : payment card, online payment by recipient

Policy implications Need to balance identification

costs with recovery costs.

Combat Leakage

Balancing technology and better controls : SAPO (South African Post)

Bulk mail is #1 priority, other streams will follow

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� First mile automation: electronic manifesting (‘eBDN’)

� Optimized sampling plans and processes

� Well-trained regional revenue protection teams

� 2 to 3 m USD recovered every year

Policy implications: developing revenue protection capability as a step-by-step journey

Combat Leakage

Posts in Least Developed Countries still need to lay the ground work

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Combat Leakage

� Carrying out revenue protection audits � To identify/confirm main issues� To assess robustness of current controls

� Prepare and execute revenue protection plans

� Documenting current product terms and conditions, productspecifications, and ensuring they are met;

� Documenting processes and standards (including sampling)communicating on them, monitoring compliance;

� Training staff along the revenue protection along the value chain/creating teams;

� Putting in place management processes/measurement and reporting systems to ensure that revenue protection is managed appropriately and leakage detected;

� Longer-term, considering the RoI of low-cost technology / rev pro devices – from cardboard letter scales to lower-end sorters to digital meters at counters.

Policy implications

In LDCs streamlining current processes is a priority,

not technology

� Traditional bulk mail acceptance

� Paper or electronic (e-Doc) documentation submitted with mailing

� Acceptance clerk samples mailing, and verifies documentation for accuracy

� Acceptance of statement = proof of mailing and payment

� Mailing is inducted after acceptance

� Seamless acceptance� On the fly verification from scans during

processing

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Source : USPS (2012)

Policy Implications - Building mailers’ confidence in new tracking/reporting system- Joint post/industry collaboration is essential (e.g., MTAC in the U.S.)- Automation is just part of the equation, adaptation of information systems is key + HR implications

Revenue protection moving forward : Eliminating manual verification ?– U.S.P.S.

Combat Leakage

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