Combating Revenue Leakage 2013 03 18 webinar 2013

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Advanced and emerging postal organizations are increasingly vulnerable to various forms of revenue leakage,including no payment, underpayment, counterfeited evidencing. Postal revenue leakage in Europe alone is estimated at over $1.0 billion annually. The question often asked is whether the cost of protection will justify the returns. As new technology solutions emerge, protection from leakage can be better integrated into business processes in order to deter theft. The webinar will discuss practices that can be applied in various environments across postal organizations, and across evidencing channels (bulk-permit, bulk-meter, retail, online postage, etc.)

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Combating Revenue Leakage 2013 03 18 webinar 2013

  1. 1. Combating Revenue Leakage Prepared by With the Assistance of Chris Paterson JP Ducasse
  2. 2. Webinar OutlineLeakage – definition and overviewOverview of a general framework to combat leakage Measuring leakage Establishing mitigation policies Combating leakageWhat you should consider 2
  3. 3. 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* Source: UPU Consultative Committee – Postal Revenue Protection Working Group 3
  4. 4. Recent trendsSteps in the right direction But room for improvement • Global awareness of leakage • Not all posts have established a well- issues has increased (75% of posts structured revenue protection function admit they experience leakage) • Posts have heavily invested in • Mail acceptance and verification is still revenue protection technology, very much manual and time consuming, making some channels more and often plagued with inconsistencies in secure (meters, stamps) performance. • Verification technologies (e.g., • Fraudsters too leverage technologies... OCR-based) becoming more • New products may not be ‘leakage-free’ effective and/or more affordable • ROI of technology solutions is still an and scalable issue, e.g., for smaller posts 4
  5. 5. A broader choice of technologies is now available to fight leakage 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 officesA fewexamples 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) 5
  6. 6. Two main challengesMeasuring 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 mitigation Optimal 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. 6
  7. 7. Global posts’ top concerns : identification and controls, HR issues, streamlining operationsTop 5 concerns expressed byPosts worldwide 7
  8. 8. Typical leakage issuesProblems Multiple root causes Accuracy of discounts claimed vs. postage Overly complex (or poorly understood) paid (non-compliance with preparation product terms and conditions requirements) Actual number of bulk mail items entered vs. Fraud (on the part of mailers or postal staff) number on mailing statement Underpaid (shortpaid) mail Acceptance, verification and billing processes poorly documented OR not Bulk mail deposited at “wrong” places (e.g., followed by postal staff collection boxes) – “bypass mail” Malicious duplication of e-parcels / PC Poorly designed or executed sampling plans postage/meter imprints (fraud) Lack of integration of the Post’s information Errors/discrepancies in systems (data from operations, accounting) reconciliation/invoicing/payment process – islands of automation in oceans of paper forms 8
  9. 9. Combating revenue leakage A frameworkMeasure & Establish Combat Identify Mitigation Leakage Leakage Policies 9
  10. 10. Measure & Measuring and identifying leakage Identify Leakage Methodological approach Audit Identify Develop a Sampling Monitoring Existing Critical Sampling and & Systems Dimensions Regime Estimation Validation• Leakage • Identify critical • Which • Physical sampling is • Random estimation is dimensions of the measurements? administered monitoring of not revenue mail flow to When? How? By physical recovery ensure adequate whom? • Engage in real time sampling. representation revenue leakage• Effective • Conduct pilot estimation • Validating data estimation • Develop a studies to: integrities precedes targeted working a. Generate optimal • Update skips ensures and plan sample sizes quarterly to retain sampling occurs facilitates (Understand optimum currency as intended. recovery. variability); and integrity b. Assess the constraints for sampling 10
  11. 11. AuditMeasure & Existing Systems Audit Existing Systems Identify Leakage 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. 11
  12. 12. IdentifyMeasure & Critical Dimensions Identify the critical dimensions Identify Leakage Defining Objectives Estimate Revenue Leakage Risk Physical Sampling and estimation process. How then do we identify the critical dimensions of the mail flow? Segmented Sampling Frame Letters Parcels Conceptualisation will differ slightly in content to Letters. A stratification process delineates the levels where leakages emanate from. Adopted to ensure each Facilities by Level 2 Stratification: critical component in the Geographical Ensure each product segment composition of mail is Location relevant to a specific facility is There is a need for adequate captured. captured. sampling across each of these Bulk M1 dimensions. Facility M A Level 1 Stratification I This then provides postal ensures each L M2 organizations with an estimate of lodgement facility is Sort Center T captured across each revenue leakage at each dimension. wide geographical unit. Y P E Mn In understanding revenue leakage at Delivery Unit these sub-levels then combative policies may be devised to target problematic areas. Time Dependant Elements Time Dependant Elements Cross representation of time of the day, days in the week, months and quarters of the year. 12
  13. 13. Develop aMeasure & Sampling Regime Develop a sampling regime Identify Leakage 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. 13
  14. 14. ImplementMeasure & Estimation Framework Implement an estimation framework Identify Leakage Collect, record, and transmit sample information to generate final estimates at a Sample variety of levels Processing Center Integrated algorithms can generate final Letters Flats Parcels estimates at a variety of levels Compute Estimates % % % Stamped Leakage Leakage Leakage % % % Metered Leakage Leakage Leakage Take action via policy responses to % % % Permit mitigate revenue leakage in a targeted Leakage Leakage Leakage Define manner Policies The rolling nature of the estimation facilitates the benchmarking of policy effectiveness 14
  15. 15. Combating revenue leakage A frameworkMeasure & Establish Combat Identify Mitigation Leakage Leakage Policies 15
  16. 16. Establish Effective revenue protection policiesMitigationPolicies 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 16
  17. 17. Combating revenue leakage A frameworkMeasure & Establish Combat Identify Mitigation Leakage Leakage Policies 17
  18. 18. Combat Discussing “acceptable” toleranceLeakage 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 ? 18
  19. 19. Combat Detecting unpaid/underpaid mail: PostNLLeakage Moving from manual to automated detection of underpaid mail (19 CFC being installed)Automated recovery process forsingle piece mail : paymentcard, online payment byrecipientPolicy implicationsNeed to balance identificationcosts with recovery costs. 19
  20. 20. Combat Balancing technology and better controls :Leakage SAPO (South African Post) Bulk mail is #1 priority, other streams will follow First mile automation: electronic manifesting (‘eBDN’) Optimized sampling plans and processes Well-trained regional revenue protection teams 2 to 3 m USD recovered every yearPolicy implications:developing revenue protectioncapability as a step-by-stepjourney 20
  21. 21. Combat Posts in Least Developed Countries stillLeakage need to lay the ground work 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, product specifications, 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 21
  22. 22. Revenue protection moving forward :CombatLeakage Eliminating manual verification ? – U.S.P.S. Traditional bulk mail acceptance Seamless acceptance On the fly verification from scans during processing 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 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 22
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