This month, I am taking a break from our postal policy discussion to inform my readers on the front line of a recent push by the Postal Inspection Service to enforce compliance with Move Update regulations. While I can't give you legal advice in this column, current regulations and statutes do provide some guidance in helping you assess the potential exposure facing you or your customers.
I have the greatest respect and admiration for Postal Inspectors. "The United States Postal Inspection Service has a long, proud and successful history of fighting criminals who attack our nation's postal system and misuse it to defraud, endanger or otherwise threaten the American public . . . . Postal Inspectors are federal law enforcement officers who carry firearms, make arrests and serve federal search warrants and subpoenas."
For decades, Postal Inspectors have demonstrated bravery and professionalism fighting criminals in cases involving child exploitation rings, identity theft, mail scams, drug trafficking and other fraudulent schemes that operate through the mail. But in the past year, the Inspection Service has re-trained a cadre of Postal Inspectors and sent them out to "fight . . . criminals who attack our nation's postal system" by failing to fully update new addresses under Move Update.
While the Inspection Service has always had authority to investigate and assess revenue deficiencies, since January the number of revenue deficiency investigations involving Move Update compliance has ballooned. Some say that Postal Service recoveries for alleged Move Update "noncompliance" are already in the millions, certainly a help to the bottom line given the Postal Service's current cash flow crisis.
Here's the Inspection Service's argument: Large mailers of First Class Mail are eligible for work sharing discounts only if they meet certain address hygiene conditions, including complicated Move Update requirements. Most large mailers choose to run NCOALink every 95 days in order to comply with Move Update. But compliance requires more than just running NCOA - mailers must go back and update their address lists by replacing the NCOA-matched old addresses with the new addresses. Even if a mailer thinks - or knows - it has other sources of information that provide more reliable or updated addresses than the NCOA system (such as direct communication with a customer), it can't just ignore the NCOA reports. At the very least, it needs to document why it is not making each address change or formally apply to the Postal Service for an exception - prior to being audited.
Here's the catch: The Postal Service acknowledges that in any large mailing, there will always be some pieces that have old addresses, and it thus has a certain tolerance level of noncompliance. But if your Move Update compliance falls below that (unspecified) tolerance level, based on an (unspecified) number of samples pieces, then every piece in that mailing will be assessed the full rate, not just the percentage of noncompliant pieces. And the Inspection Service may well impose this surcharge on every one of your mailings for an entire year. To calculate your "revenue deficiency exposure," multiply $.07 (the average difference between full and discounted rates) times your total pieces over the year.
But that's not all. You run another risk under the False Claims Act, 31 U.S.C. Section 3729, et. seq. If you "knowingly" ignore updating addresses returned by NCOA, the Inspection Service may contend that you have "defrauded the government" under the False Claims Act. The law specifies that "[n]o proof of specific intent to defraud is required," and "knowingly" does not required "actual" knowledge: "deliberate ignorance" or "reckless disregard" is enough. Under the False Claims Act, your exposure skyrockets to (a) the full rate surcharge for every piece of discounted mail in the past six years, plus (b) up to $11,000 for each mailing statement submitted during that time period, plus (c) the sum of (a) and (b) times three for treble damages.
While the Inspection Service's enforcement efforts have thus far targeted First Class Mail, it is likely that they will be expanded to Standard Mail under the new Move Update requirements for Standard Mail. In fact, a few months ago, in a little-noticed filing, the Postal Service asked for and obtained PRC approval for a "Move Update Noncompliance Charge for Standard Mail pieces" to become effective on January 4, 2010, that would "[a]dd $.07 per piece in a mailing that does not comply with the Move Update standards."
So I have two pieces of common sense (non-legal) advice for my readers: The first is prevention: Read the fine print certification on the Postage Statements that you sign and then calculate your potential exposure. So that you can sleep at night, reassure yourself that you or your vendor is in full compliance with Move Update. The second piece of advice is damage control: If a Postal Inspector knocks on your door, remember the Miranda case and say nothing until you contact your lawyer - anything you say can - and probably will - be used against you.
I have the greatest respect and admiration for Postal Inspectors. "The United States Postal Inspection Service has a long, proud and successful history of fighting criminals who attack our nation's postal system and misuse it to defraud, endanger or otherwise threaten the American public . . . . Postal Inspectors are federal law enforcement officers who carry firearms, make arrests and serve federal search warrants and subpoenas."
For decades, Postal Inspectors have demonstrated bravery and professionalism fighting criminals in cases involving child exploitation rings, identity theft, mail scams, drug trafficking and other fraudulent schemes that operate through the mail. But in the past year, the Inspection Service has re-trained a cadre of Postal Inspectors and sent them out to "fight . . . criminals who attack our nation's postal system" by failing to fully update new addresses under Move Update.
While the Inspection Service has always had authority to investigate and assess revenue deficiencies, since January the number of revenue deficiency investigations involving Move Update compliance has ballooned. Some say that Postal Service recoveries for alleged Move Update "noncompliance" are already in the millions, certainly a help to the bottom line given the Postal Service's current cash flow crisis.
Here's the Inspection Service's argument: Large mailers of First Class Mail are eligible for work sharing discounts only if they meet certain address hygiene conditions, including complicated Move Update requirements. Most large mailers choose to run NCOALink every 95 days in order to comply with Move Update. But compliance requires more than just running NCOA - mailers must go back and update their address lists by replacing the NCOA-matched old addresses with the new addresses. Even if a mailer thinks - or knows - it has other sources of information that provide more reliable or updated addresses than the NCOA system (such as direct communication with a customer), it can't just ignore the NCOA reports. At the very least, it needs to document why it is not making each address change or formally apply to the Postal Service for an exception - prior to being audited.
Here's the catch: The Postal Service acknowledges that in any large mailing, there will always be some pieces that have old addresses, and it thus has a certain tolerance level of noncompliance. But if your Move Update compliance falls below that (unspecified) tolerance level, based on an (unspecified) number of samples pieces, then every piece in that mailing will be assessed the full rate, not just the percentage of noncompliant pieces. And the Inspection Service may well impose this surcharge on every one of your mailings for an entire year. To calculate your "revenue deficiency exposure," multiply $.07 (the average difference between full and discounted rates) times your total pieces over the year.
But that's not all. You run another risk under the False Claims Act, 31 U.S.C. Section 3729, et. seq. If you "knowingly" ignore updating addresses returned by NCOA, the Inspection Service may contend that you have "defrauded the government" under the False Claims Act. The law specifies that "[n]o proof of specific intent to defraud is required," and "knowingly" does not required "actual" knowledge: "deliberate ignorance" or "reckless disregard" is enough. Under the False Claims Act, your exposure skyrockets to (a) the full rate surcharge for every piece of discounted mail in the past six years, plus (b) up to $11,000 for each mailing statement submitted during that time period, plus (c) the sum of (a) and (b) times three for treble damages.
While the Inspection Service's enforcement efforts have thus far targeted First Class Mail, it is likely that they will be expanded to Standard Mail under the new Move Update requirements for Standard Mail. In fact, a few months ago, in a little-noticed filing, the Postal Service asked for and obtained PRC approval for a "Move Update Noncompliance Charge for Standard Mail pieces" to become effective on January 4, 2010, that would "[a]dd $.07 per piece in a mailing that does not comply with the Move Update standards."
So I have two pieces of common sense (non-legal) advice for my readers: The first is prevention: Read the fine print certification on the Postage Statements that you sign and then calculate your potential exposure. So that you can sleep at night, reassure yourself that you or your vendor is in full compliance with Move Update. The second piece of advice is damage control: If a Postal Inspector knocks on your door, remember the Miranda case and say nothing until you contact your lawyer - anything you say can - and probably will - be used against you.
Joy Leong, Principal, The Leong Law Firm, can be contacted at joy@joyleong.com.
