Military Banking:

Solicitations, Fees, and Revenue Potential

NSIAD-99-72: Published: Apr 15, 1999. Publicly Released: Apr 15, 1999.

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Pursuant to a legislative requirement, GAO provided information on the Department of Defense's (DOD) domestic banking program on military bases, focusing on whether: (1) domestic military bases have followed DOD procedures to provide for open solicitations in obtaining banking services; (2) on-base financial institutions face competition for banking services from other financial institutions and charge fees competitive with other banks; and (3) opportunities exist for DOD and military bases to generate additional revenues from banking services on military bases and how this might affect banking services and customers.

GAO noted that: (1) in the 15 instances where domestic military bases sought banking services since 1996, the military services openly solicited proposals from financial institutions and selected from among the proposals to authorize a bank or credit union to operate on the base, as required by DOD regulations; (2) 11 of the solicitations resulted in 2 or fewer responses; (3) in a few instances where no proposals were received, DOD had to take special action to obtain banking services; (4) GAO learned of no unsolicited proposals from financial institutions to provide banking services on other bases; (5) when a base received more than one proposal, commanders cited a range of factors on which they based their selection decisions, such as fees, operating hours, or services; (6) the applicable regulations and instructions do not contain specific guidance for this selection process; (7) solicitations did not specify selection criteria or the weights associated with various factors considered; (8) the lack of clear selection criteria makes it difficult to know the basis for selection and ensure fairness in the selection process; (9) financial institutions on military bases face significant competition both on and off the base; (9) less than half of DOD's personnel use an on-base financial institution as their primary banking provider, according to a 1997 DOD survey; (10) on many bases, a bank and a credit union compete for business with each other and with off-base financial institutions; (11) fees charged by base financial institutions were close to the national average and within the range charged by all banks, on or off base; (12) a few options exist for potentially generating additional revenues for DOD from financial institutions operating on its bases; how successful such options would be is unclear, and customers and banking services could be adversely affected; (13) given that many banks' lease agreements on military bases extend to 25 years, DOD could raise an unknown amount of additional revenue by incorporating in new leases and operating agreements the requirement to periodically renegotiate lease payments based on changes in fair market value, although there is some risk that lease payments might decline; (14) DOD could negotiate automated teller machine (ATM) fee-sharing arrangements, as is sometimes done in the private sector; (15) DOD could competitively solicit ATM placements apart from other banking services; (16) the amount of additional revenues that could be obtained would vary by market conditions, including customers' reactions to likely increases in ATM charges.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD included in draft regulations published August 11, 1999, the recommended requirement that solicitations for financial institutions on installations include factors and weights that will be used to make selections.

    Recommendation: The Secretary of Defense should direct that forthcoming regulations governing banking on military bases require base commanders to ensure that solicitations for banking services include information on factors and weights to be used in choosing among competing proposals and that the evaluation of proposals and the selection of on-base financial institutions be based on those factors and weights.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: Under procedures in place at the time of GAO's review, lease amounts remained constant through the life of a lease. In response to the recommendation, the Air Force stated that it agreed with and is in conformity with the recommendation and now typically includes a provision for adjustment of lease terms at the end of each 5-year period in long-term leases.

    Recommendation: The secretaries of the military departments should consider including in new long-term lease arrangements provisions for periodically renegotiating fees based on updated fair market value to better ensure that the government is obtaining payments commensurate with the current value of the property.

    Agency Affected: Department of Defense: Department of the Air Force

  3. Status: Closed - Implemented

    Comments: The Navy concurred in principle with the recommendation. However, it stated that the decisions concerning adjustments to lease consideration are made on a case-by-case basis and depend on the unique circumstances of each lease.

    Recommendation: The secretaries of the military departments should consider including in new long-term lease arrangements provisions for periodically renegotiating fees based on updated fair market value to better ensure that the government is obtaining payments commensurate with the current value of the property.

    Agency Affected: Department of Defense: Department of the Navy

  4. Status: Closed - Implemented

    Comments: The U.S. Army Corps of Engineers, responding for the Army, stated that it concurred with the recommendation and is implementing the requirement by issuing 5-year outleases or including a condition in leases stating that the rental will be redetermined every 5 years based on an appraisal.

    Recommendation: The secretaries of the military departments should consider including in new long-term lease arrangements provisions for periodically renegotiating fees based on updated fair market value to better ensure that the government is obtaining payments commensurate with the current value of the property.

    Agency Affected: Department of Defense: Department of the Army

 

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