combating revenue leakage 2013 03 18 webinar 2013
DESCRIPTION
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.)TRANSCRIPT
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
2
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
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
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 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.
6
Global posts’ top concerns : identification and controls, HR issues, streamlining operations
7
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
8
Combating revenue leakageA framework
9
Measure & Identify
Leakage
Establish Mitigation Policies
Combat Leakage
Measuring and identifying leakageMethodological 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
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
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.
12
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.
13
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
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
Combating revenue leakageA framework
15
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
16
Establish Mitigation Policies
Combating revenue leakageA framework
17
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 ?
18
Combat Leakage
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
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
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, 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
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
ERROR: stackunderflow
OFFENDING COMMAND: ~
STACK: