Originally created 12/27/96

Internal audit shows Postal Service overspent ad budget by $90 million



WASHINGTON - The Postal Service spent nearly $90 million over its budget for advertising this year, The Washington Post reported.

The overspending paid for a highly successful ad campaign aimed at boosting sales of Priority Mail, the Postal Service's two-to-three-day, $3-per-item service.

The ads generated $500 million to $700 million in additional postal revenue and increased Priority Mail volume by more than 20 percent in a month-to-month comparison, the Post said.

"No one can argue with the success of those ads," postal spokesman Roy Betts told the newspaper.

But because of the ads, according to Mr. Betts, Federal Express has brought a lawsuit against the U.S. Postal Service in the Western District court of Tennessee in Memphis, where Fed Ex is based.

And the National Advertising Division of the Council of Better Business Bureaus Inc. have called the ads misleading.

The campaign featured direct price comparisons to Federal Express and United Parcel Service delivery, in addition to a number of points of comparison among the three services.

NAD noted that the services are different in that Priority Mail is a non-tracked, non-guaranteed postal service that is delivered "on average" between two and three days. The other two services are tracked and guaranteed to be delivered in two days.

The Postal Service spent $232.4 million, compared with a $143 million advertising budget, said the Post, which obtained a copy of an unreleased internal audit.

No one has been punished for the excessive spending, and when Loren E. Smith, the senior vice president responsible for the overspending, resigned under pressure in October, he got a $94,000 severance package and praise from his boss, Postmaster General Marvin T. Runyon.

Mr. Smith defended the spending, saying the ad campaign was the most successful ever. "Quite frankly, you ought to be throwing a parade for everybody in the marketing department," he told the Post, which reported it in Wednesday's editions.

In fact, the post office handled a record amount of mail in fiscal 1996 and earned a profit of $1.57 billion, second only to the record $1.77 billion it earned in 1995.