John Hemming's Web Log John's Reference Website
Sunday, March 23, 2008
  Sub Post Offices - the management accounting error
There is a considerable amount of debate about sub-post offices again with many Labour MPs saying one thing in constituencies and doing another in the House of Commons.

The irony of this issue is that it relates to a misunderstanding and false management accounting in the "Counter Revolutions" report from the Cabinet office early this decade.

The "problem" for the post office network relates to the marginal contribution to overheads from each office for Post Office Ltd. It does not relate to the viability of individual sub-post offices (or at least it doesn't for 95% of the closures).

Postmasters are offered 28 months revenue to close when sale of the franchise would only get 24 months. That buys their silence.

Larger offices cost according to Post Office limited much the same as smaller offices for them to manage. The real rub is in the allocation of fixed central costs (this can be estimated from the report). These should be allocated by turnover, but are in fact allocated on a per office basis. This is wrong in an accounting sense and results in a decision making process that each time drives down the size of the network.

What should happen is a new model of sub-post office which operates on a more efficient basis from the centre. I do make this point in The House from time to time, but the Ministers just look confused.
 
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