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2013 03 18 webinar 2013 combating revenue leakage

  1. 1. Prepared by With the Assistance of Chris Paterson JP Ducasse Combating Revenue Leakage
  2. 2. 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 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 3 * Source: UPU Consultative Committee – Postal Revenue Protection Working Group
  4. 4. 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.
  5. 5. A broader choice of technologies is now available to fight leakage 5 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 few examples
  6. 6. 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 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 operations 7 Top 5 concerns expressed by Posts worldwide
  8. 8. 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 8
  9. 9. Combating revenue leakage A framework 9 Measure & Identify Leakage Establish Mitigation Policies Combat Leakage
  10. 10. Measuring and identifying leakage Methodological approach 10 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
  11. 11. 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. 11 Measure & Identify Leakage Audit Existing Systems
  12. 12. Identify the critical dimensions How then do we identify the critical dimensions 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. 12 Measure & Identify Leakage Defining Objectives Physical Sampling and estimation process. Estimate Revenue Leakage Risk Letters Parcels Conceptualisation 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 Elements Cross representation of time of the day, days in the week, months and quarters of the year. Time Dependant Elements Identify Critical Dimensions
  13. 13. 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. 13 Develop a Sampling RegimeMeasure & Identify Leakage
  14. 14. 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 14 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
  15. 15. Combating revenue leakage A framework 15 Measure & Identify Leakage Establish Mitigation Policies Combat Leakage
  16. 16. 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 16 Establish Mitigation Policies
  17. 17. Combating revenue leakage A framework 17 Measure & Identify Leakage Establish Mitigation Policies Combat Leakage
  18. 18. 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 ? 18 Combat Leakage
  19. 19. Detecting unpaid/underpaid mail: PostNL 19 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
  20. 20. Balancing technology and better controls : SAPO (South African Post) Bulk mail is #1 priority, other streams will follow 20 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
  21. 21. Posts in Least Developed Countries still need to lay the ground work 21 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, 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
  22. 22. 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 22 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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