1. Prepared by
With the Assistance of
Chris Paterson
JP Ducasse
Combating Revenue Leakage

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

4. Steps in the right direction
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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. 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 few
examples

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.
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7. Global posts’ top concerns :
identification and controls, HR
issues, streamlining operations
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Top 5 concerns
expressed by
Posts worldwide

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
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9. Combating revenue leakage
A framework
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Measure &
Identify
Leakage
Establish
Mitigation
Policies
Combat
Leakage

10. Measuring and identifying leakage
Methodological 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

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.
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Measure &
Identify
Leakage
Audit
Existing
Systems

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.
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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. 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

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
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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

15. Combating revenue leakage
A framework
15
Measure &
Identify
Leakage
Establish
Mitigation
Policies
Combat
Leakage

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
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Establish
Mitigation
Policies

17. Combating revenue leakage
A framework
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Measure &
Identify
Leakage
Establish
Mitigation
Policies
Combat
Leakage

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 ?
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Combat
Leakage

19. 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

20. 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

21. 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, 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. 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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