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Improvements, but More Actions Are Required' which was released on 
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United States General Accounting Office: 
GAO: 

Report to the Chairman and Ranking Minority Member, Special Oversight 
Panel on Morale, Welfare, and Recreation, Committee on Armed Services, 
House of Representatives: 

March 2002: 

Defense Management: 

Proposed Lodging Policy May Lead to Improvements, but More Actions Are 
Required: 

GA0-02-351: 

Contents: 

Letter: 

Results in Brief: 

Background: 

Proposed Policy Change Impacts the Marine Corps' MWR Program: 

Proposed Policy Change Based on Resolving a Perceived Regulatory 
Conflict and Achieving Other Management Objectives: 

DOD Guidance Allows Services to Build PCS Lodges in Excess of Official 
Traveler Needs: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments: 

Appendix I: Scope and Methodology: 

Appendix II: Comments from the Department of Defense: 

Appendix III: Staff Acknowledgments: 

Tables: 

Table 1: Magnitude of DOD's TDY and PCS Lodging Programs: 

Table 2: Summary of All Marine Corps Reported MWR Sales and Profits 
for Profitable Activities in Fiscal Year 2000 at Installations with 
PCS Lodges: 

Table 3: Percent of Appropriated Support to MWR Provided by Services 
for Fiscal Year 2000: 

Table 4: PCS Lodging Room Rates - Fiscal Year 2000: 

Table 5: Estimated New PCS Lodge Construction—Increasing Room 
Inventories in Fiscal Years 1996-2000 and Fiscal Years 2001-2005: 

Table 6: Difference Between PCS Lodging Occupancy by Official and 
Unofficial Travelers - Fiscal Year 2000: 

Abbreviations: 

DOD: Department of Defense: 

MWR: morale, welfare, and recreation: 

OSD: Office of the Secretary of Defense: 

PCS: permanent-change-of-station: 

TDY: temporary duty: 

United States General Accounting Office: 
Washington, DC 20548: 

March 18, 2002: 

The Honorable Roscoe G. Bartlett: 
Chairman: 
The Honorable Robert A. Underwood: 
Ranking Minority Member: 
Special Oversight Panel on Morale, Welfare, and Recreation: 
Committee on Armed Services: 
House of Representatives: 

The military services principally operate two types of hotels, or 
lodges, to support official travelers. The first, called permanent-
change-of-station lodges, primarily supports military personnel and 
their families who are moving to new duty stations. These lodges are 
intended to provide military travelers and their families with a 
clean, affordable place to stay while they prepare to move and while 
they wait for permanent quarters at their new duty stations. The 
second type of lodge, called temporary duty lodges, primarily supports 
military and civilians temporarily traveling on official business. 
[Footnote 1] Permanent-change-of-station lodges are the subject of a
proposed policy change by the Department of Defense and are the focus 
of this report. The department's current policy permits these lodges 
to be managed as part of morale, welfare, and recreation programs, 
which include such things as libraries and gymnasiums. The proposed 
policy would change this practice by requiring separation of lodge 
revenues from those used for morale, welfare, and recreation purposes. 

In a report provided May 2, 2001, to the Senate and House Committees 
on Armed Services and signed by the acting assistant secretary of 
defense for force management policy, the department based its proposed 
policy revision on a perceived need to align policy for permanent-
change-of-station lodging with the Joint Federal Travel Regulation. 
The department believed that its current policy was in conflict with 
the requirements of the regulation and that the policy change would 
resolve the conflict by removing permanent-change-of-station lodging 
revenues from morale, welfare, and recreation programs. In our 
discussions with the department, it also saw the proposed policy 
change as a first step to achieve other management objectives, 
including making the services' lodging programs more consistent with 
each other, reducing room rates for lodging, and improving lodging 
facilities. Further, the department wanted greater assurance that the 
military services are building new lodges primarily to support the 
needs of official military travelers and their families. 

You requested that we review the proposed policy change. As agreed 
with your office, this report addresses the following questions: 

* What will be the potential impact of the proposed policy change on 
the military services' morale, welfare, and recreation programs? 

* What is the basis for the proposed policy change, and will it help 
the department improve management including the quality and 
consistency of the services' lodging programs? 

* Are the services' plans for building new permanent-change-of-station 
lodges consistent with current department guidance, and will the 
proposed policy change this guidance? 

To answer these questions, we interviewed key officials in the Office 
of the Secretary of Defense who are responsible for developing lodging 
policies and appropriate headquarters personnel for each of the 
military services. We also visited 16 military installations to 
determine how the lodges were being locally managed and supported and 
to observe their physical condition. We also sought information on 
future lodging construction plans to meet the needs of permanent-
change-of-station travelers. More information on our scope and 
methodology is included in appendix I. 

Results in Brief: 

Except for the Marine Corps, the proposed policy change will not 
impact the services' morale, welfare, and recreation programs. Only 
the Marine Corps currently uses permanent-change-of-station lodge 
earnings to support its morale, welfare, and recreation programs. From 
fiscal years 1996 through 2000, the net profits reported by the Marine 
Corps' lodges steadily increased from about $1.8 million to about $5.1 
million, and are considered an important source of funds for the 
Marine Corps' morale, welfare, and recreation programs. Marine Corps 
officials do not believe the policy change is required and said that, 
if implemented, the Corps would have to make changes, such as reducing 
quality-of-life programs at some installations or seeking additional 
appropriations to compensate for the loss of this revenue. For this 
reason, they may ask for a waiver from the policy if it is 
implemented. If the department adopts the new policy, the Marine Corps 
might need a temporary waiver giving it time to develop funding 
options for its morale, welfare, and recreation programs and to 
maintain a healthy lodging program. However, various alternatives are 
available that could negate the need for a permanent waiver such as 
increasing the use of appropriated funds in line with the practices of 
the other services. On October 1, 2000, the Army took a number of 
steps to ensure it would be in compliance with the proposed lodging 
policy should it be adopted. This action included creation of a single 
lodging fund for both permanent-change-of-station and temporary-duty 
lodge revenues separate from its morale, welfare, and recreation fund. 
However, we believe one step that the Army has taken-—authorizing its 
installations to impose a surcharge on some users of the lodges that 
is then used to help support local morale, welfare, and recreation 
activities-—violates department and Army regulations, which require 
that revenues from lodges be used only for lodging programs. The Air 
Force and Navy do not use lodging revenues to support their morale, 
welfare, and recreation programs. As a result, the proposed policy 
change would not affect these programs. However, the Navy has not 
created a consolidated lodging fund for both permanent-change-of-
station and temporary duty lodges, as seems to be suggested by the 
department's May 2 report addressing the proposed policy. 

The proposed policy is predicated on resolving a perceived regulatory 
conflict and achieving other management objectives. Department 
officials believe separation of permanent-change-of-station lodging 
funds from morale, welfare, and recreation funds is required in order 
to resolve a conflict with the Joint Federal Travel Regulation. 
However, we do not believe the regulation applies to lodging 
management, since it deals with allowances and reimbursement of 
expenses for uniformed service members traveling on orders. At the 
same time, the lodging-policy proposal is within the department's 
discretion and could be a first step toward achieving a number of 
planned management improvements across the services. However, the 
change, by itself, is likely to have little direct effect on the 
department's broader management objectives. These include
(1) making the lodging programs more consistent across the military 
services, (2) reducing lodging rates where appropriate, (3) improving 
the overall quality of lodging facilities, and (4) eliminating the 
construction of new permanent-change-of-station lodges that may exceed 
the needs of official travelers. While the proposed policy would 
require revenues to be used exclusively to support lodges, it would 
not change other department guidance that gives the military services 
wide discretion in managing their lodging programs, including 
permitting morale, welfare, and recreation programs to operate 
permanent-change-of-station lodges. Department officials said that the 
lodging policy is only the first step in their plans to improve the 
lodging program and that they will eventually need to recommend 
further changes to the department's guidance to address these other 
issues. Until these changes are made, however, the lodging programs 
may continue to be managed in a widely divergent manner. 

Regarding the last question on building plans, the services' plans for 
building new permanent-change-of-station lodges are consistent with 
department guidance. The proposed policy change will not, by itself, 
change that guidance. However, the department has two sets of guidance 
in this area. Following the first set, the Air Force and Army base 
their permanent-change-of-station construction or expansion plans on 
the number of military and civilian personnel traveling on official 
orders. Following the second set, however, the Navy and Marine Corps 
base their plans on a patron base beyond the needs of these types of 
official travelers. Specifically, the guidance allows them to also 
consider the demand of other eligible travelers, such as members of 
the armed forces and their families not on orders and retired members 
of the armed forces and their families. While available data indicate 
that all the services have recently constructed or plan to construct 
new permanent-change-of-station lodges, the Navy and Marine Corps are 
planning to significantly increase the total number of rooms despite 
relatively low occupancy rates for patrons on official orders. From 
2001 through 2005, for example, the Navy plans to add 940 permanent-
change-of-station rooms at 15 installations at an estimated cost of 
$121.4 million, although its overall occupancy rate for patrons on 
permanent-change-of-station orders was only 23 percent in fiscal year 
2000. Over the same time period, the Marine Corps also plans to add 
237 rooms at seven locations, although its overall occupancy rate for 
patrons on permanent-change-of-station orders was only 31 percent in 
fiscal year 2000. Department officials are aware that the Navy and 
Marine Corps are expanding lodging capacity beyond the needs of 
official travelers but said they cannot revise or disapprove 
construction projects as long as the services have sufficient 
financial resources and are complying with applicable DOD guidance and 
instructions. They pointed out, however, that this excess capacity has 
a cost, in the form of higher average room rates, which eventually 
must be borne by the operating components that pay the travel costs of 
individual travelers. 

We are making recommendations for executive action designed to help the
Department of Defense improve its lodging-program management and 
ensure compliance with regulatory requirements. In commenting on a 
draft of this report, DOD concurred with three of our recommendations
and partially concurred with the fourth. 

Background: 

The Department of Defense's (DOD) lodging programs were established to
maintain mission readiness and improve productivity. They were 
intended to provide quality, temporary lodging facilities and service 
for authorized personnel and to reduce official travel costs for DOD's 
mobile military community. DOD's lodging programs are classified as 
either permanent-change-of-station (PCS) or temporary duty (TDY). The 
major differences between PCS and TDY lodges are the number of rooms 
(fewer PCS rooms); the type of traveler they primarily serve; and 
their primary source of funding and support. TDY lodging typically 
receives more appropriated funding than does PCS lodging, which relies 
primarily upon nonappropriated funds generated from lodge operations. 
Historically, DOD's lodging programs have had varying linkages to the 
department's morale, welfare, and recreation (MWR) programs. 

DOD Lodge Program: 

The assistant secretary of defense for force management policy is
responsible for establishing uniform policies for service lodging 
programs. DOD's lodging programs are classified as TDY or PCS on the 
basis of the type of traveler they primarily serve. Table 1 shows the 
magnitude of DOD's lodging programs. 

Table 1: Magnitude of DOD's TDY and PCS Lodging Programs: 

Military service: Air Force[A]; 
TDY: Number of installations with TDY lodges: 94; 
TDY: Number of rooms: 29,923; 
PCS: Number of installations with PCS lodges: 77; 
PCS: Number of rooms: 3,390. 

Military service: Army[B]; 
TDY: Number of installations with TDY lodges: 77; 
TDY: Number of rooms: 17,794; 
PCS: Number of installations with PCS lodges: 61; 
PCS: Number of rooms: 3,819. 

Military service: Navy[C]; 
TDY: Number of installations with TDY lodges: 77; 
TDY: Number of rooms: 22,140; 
PCS: Number of installations with PCS lodges: 41; 
PCS: Number of rooms: 2,552. 

Military service: Marine Corps[D]; 
TDY: Number of installations with TDY lodges: 17; 
TDY: Number of rooms: 3,271; 
PCS: Number of installations with PCS lodges: 12; 
PCS: Number of rooms: 749. 

Military service: Total; 
TDY: Number of installations with TDY lodges: 265; 
TDY: Number of rooms: 73,128; 
PCS: Number of installations with PCS lodges: 191; 
PCS: Number of rooms: 10,510. 

[A] Air Force data as of September 2000. 

[B] Army data as of June 2000. 

[C] Navy data as of May 2001 and PCS room data as of June 2001. 

[D] Marine Corps data as of September 2001. 

Source: Data provided by each service. 

[End of table] 

TDY lodges serve mainly individual military or civilian travelers who 
are temporarily assigned to a duty station other than their home 
station. In addition, they can serve military personnel and their 
families who are changing permanent duty stations. On a space 
available basis, they also serve military retirees and other people 
authorized by installation commanders. Room rates at these lodges are 
set at the lowest rate possible to reduce travel costs yet recover 
authorized nonappropriated fund expenses. While departmental 
regulations state that the cost of major upgrades and new lodges is 
expected to be paid with appropriated funds, in recent years some 
services have added a surcharge[Footnote 2] to the nightly room rate, 
which they accumulate and use for lodge construction and major 
renovation. The revenues from TDY lodging must be maintained in a 
separate nonappropriated fund account, designated as a lodging or 
billeting fund, and used only to operate and maintain the lodging 
facilities. Prior to 1991, Army TDY lodges were part of its MWR 
program. However, based on a GAO report[Footnote 3] that found the 
Army was overcharging TDY travelers to subsidize MWR activities, the 
Army, in 1991, established a separate lodging fund for TDY lodging 
revenues. 

PCS lodges primarily serve military personnel or DOD civilians 
(traveling outside the continental United States) who are changing 
permanent duty stations and their families. On a reservation basis, 
PCS lodges can also accommodate families, relatives, and guests of 
hospitalized military or their families and official guests of the 
installation as determined by the installation commander. On a space 
available basis, they can serve other authorized patrons, such as 
civilian PCS (personnel traveling inside the continental United 
States); military and civilian TDY personnel; military members not on 
official travel; military retirees; and relatives and guests of 
service members assigned to the installation. According to DOD's 
current guidance,[Footnote 4] the military services can choose how 
they provide PCS lodging services: (1) through a lodging or billeting 
fund with all of its revenue used to support lodging activities, as do 
the Air Force, the Army, and the Navy or (2) through an MWR fund as 
does the Marine Corps. When services are provided through an MWR fund, 
revenue is deposited into a single MWR installation account[Footnote 
5] and used for the benefit of the local MWR program. The Marine Corps 
PCS lodging program is currently the only DOD lodging program 
operating in this manner. The cost of new PCS lodge construction for 
all the services is paid with nonappropriated funds, but the 
department's regulations permit some maintenance and repair to be paid 
with appropriated funds. 

Because the department allows the services to choose their method of 
managing PCS lodging, it has two sets of instructions providing 
guidance on managing lodging operations. One applies to PCS lodges 
operated as revenue-generating MWR or exchange service[Footnote 6] 
activities, and the other applies to all lodges not operated as such. 
Both sets of instructions implement policy, assign responsibility, and 
prescribe procedures for operating the lodges. However, the 
instructions differ in their program goals and authorized patronage, 
allowing wide latitude in the operation of PCS lodging programs. 

MWR Programs: 

DOD's MWR program provides for the physical, cultural, and social 
needs and the well-being of service members, their families, and 
eligible civilians by providing an affordable source of goods and 
services like those available to civilian communities. DOD has 
determined that these programs are vital to mission accomplishment, 
are an integral part of the non-pay compensation system, and provide 
quality-of-life benefits for authorized patrons. The services' MWR 
programs—-such as gymnasiums, fast food operations, and libraries-—are 
intended to provide a sense of community among patrons in order to 
make individuals more satisfied with military life and to attract 
people to military careers. 

MWR programs receive financial support primarily from two sources: 
nonappropriated funds—-generated from profitable business activities 
such as retail outlets, restaurants, and golf courses-—and funds 
appropriated by Congress. DOD regulations classify MWR activities into 
three categories, which relate to the degree of appropriated fund 
support they are expected to receive. 

* Category A activities-—such as athletic fields, gymnasiums, and 
libraries—-are considered the most essential to supporting MWR. Such 
activities promote the physical and mental well-being of the military 
member, supporting the basic military mission. They are generally not 
expected to support themselves financially. Accordingly, DOD policy 
provides that a minimum of 85 percent of total expenditures should 
come from appropriated funds. The use of nonappropriated funds is 
limited to specific instances where appropriated funds are prohibited 
by law or where nonappropriated funds are essential to operate a 
facility or program. 

* Category B activities—-such as swimming pools, automotive hobby 
shops, and child care centers-—are closely related, in terms of 
mission support, to those in Category A. These activities provide, to 
the extent possible, the community support systems that make DOD 
installations temporary hometowns for a mobile military population. 
DOD views these activities as having a limited ability to generate 
nonappropriated fund support and thus requiring less appropriated 
support than activities in Category A. The DOD standard for 
appropriated fund support is a minimum of 65 percent of total 
expenditures. 

* Category C activities-—such as golf courses, clubs, and bowling 
alleys—are revenue--generating activities. Although they may lack the 
ability to completely sustain themselves, they are expected to 
generate enough income to cover most of their operating expenses. In 
many cases, they also generate enough income to help support Category 
A and B activities. Thus, they may receive limited support from 
appropriated funds. 

DOD has established separate but similar classifications for its 
lodging program. TDY lodges are classified as Category A activities 
and are thus authorized a higher degree of appropriated support. PCS 
lodges may be classified, at the option of the service, as either 
Category A or Category C activities. In the past, the Army, Navy, and 
Marine Corps operated PCS lodges as Category C activities. In these 
cases, the lodges were part of the services' MWR programs and lodging 
revenues were often used to financially support other MWR programs. 
Currently, the Marine Corps' lodging program is the only one that 
still has any significant financial connection with MWR operations. 
DOD's proposed change to its PCS lodging policy is intended to sever 
this last connection and ensure that no PCS lodging revenues are used 
to support MWR programs.[Footnote 7] This change, if adopted, would 
require the services to deposit all PCS lodging revenues into a 
lodging fund separate from the MWR fund, which would be dedicated to 
supporting the service's lodging program. 

Proposed Policy Change Impacts the Marine Corps' MWR Program: 

Except for the Marine Corps, DOD's proposed policy change will not 
impact the services' MWR programs. The Marine Corps still uses PCS 
lodging earnings to help support its MWR programs. Without these 
earnings, Marine Corps officials told us that they would have to seek 
additional appropriations or local installations would have to make 
changes to their MWR programs that could affect the quality of life of 
marines and their families. Therefore, Corps officials may request a 
waiver from the policy if it is adopted. However, the Corps has 
options that could lessen the effect of the policy on both its MWR and 
lodging programs if necessary. With regard to the Army, prior to 
October 2000, the Army also used PCS lodging funds to support its MWR 
program. Presuming adoption of the policy change, the Army took a 
number of actions to minimize the impact on its MWR program. 
Therefore, it will no longer be affected by the policy change. 
However, as part of these provisions, the Army now permits its 
installations to charge its patrons not on official orders, such as 
military retirees, a surcharge that can be used by the local 
installation's MWR program. This practice violates department and Army 
regulations. According to DOD, the Navy and Air Force PCS lodging 
programs already conform to the proposed policy, which would then have 
no impact on their MWR programs. 
 
The Marine Corps May Request a Waiver If Proposed Policy Is 
Implemented: 

The Marine Corps has 14 PCS lodges at 12 of its 19 installations. 
Since 1996 the PCS lodges have reported steadily increasing earnings. 
For example, in fiscal year 1996 they reported a net profit of about 
$1.8 million, and by fiscal year 2000, they reported a net profit of 
about $5.1 million, which was used to operate the lodging program as 
well as help support MWR programs at the local installations. Marine 
Corps officials believe that the proposed policy is inappropriate for 
the Marine Corps, considering its size, decentralized organization, 
and the manner in which it operates its MWR and its TDY lodging 
programs. In addition, they believe that the lodges are a good source 
of future revenue for the MWR programs. 

If these lodging earnings are no longer available to the MWR programs, 
Marine Corps officials said that they would have to make changes to 
their MWR programs, such as reducing the quality-of-life services, 
raising rates, or seeking additional appropriations to compensate for 
lost revenues. Additionally, they are concerned that some of the 
lodges will not be able to operate profitably if they are removed from 
the MWR program. Currently, the MWR program provides the funds needed 
to expand, renovate, and construct new lodges. Without this support, 
officials said some installations might not be able to afford to 
renovate or build new lodges. They were also concerned that the 
proposed change might result in additional costs for overhead and 
common support and were unsure whether a separate lodging fund would 
be able to reimburse the MWR fund for the value of the lodging assets 
previously financed and built by the MWR fund. For these and other 
reasons, Marine Corps officials said they may ask for a waiver if the 
policy is implemented. 

Earnings from what the Marine Corps terms its MWR business activities, 
[Footnote 8] including its PCS lodges, help to support a number of MWR 
programs that cannot support themselves. In fiscal year 2000, the 
Marines' MWR business activities at installations that had PCS lodges 
reported profits of approximately $49 million. (See table 2.) 

Table 2: Summary of All Marine Corps Reported MWR Sales and Profits 
for Profitable Activities in Fiscal Year 2000 at Installations with 
PCS Lodges: 

Marine Corps installation: Barstow, California; 
Reported sales: 
All MWR programs: $4,241,000; 
PCS lodges[A]: $47,000; 
Percent[B]: 1.1%; 
Reported profits from profitable activities: 
All MWR programs: $295,000; 
PCS lodges[A]: $14,000; 
Percent[C]: 4.7%. 

Marine Corps installation: Beaufort, South Carolina; 
Reported sales: 
All MWR programs: $9,911,000; 
PCS lodges[A]: $525,000; 
Percent[B]: 5.3%; 
Reported profits from profitable activities: 
All MWR programs: $912,000; 
PCS lodges[A]: $224,000; 
Percent[C]: 24.6%. 

Marine Corps installation: Butler, Japan; 
Reported sales: 
All MWR programs: $40,953,000; 
PCS lodges[A]: $3,709,000; 
Percent[B]: 9.1%; 
Reported profits from profitable activities: 
All MWR programs: $5,661,000; 
PCS lodges[A]: $2,120,000; 
Percent[C]: 37.4%. 

Marine Corps installation: Iwakuni, Japan; 
Reported sales: 
All MWR programs: $32,743,000; 
PCS lodges[A]: $429,000; 
Percent[B]: 1.3%; 
Reported profits from profitable activities: 
All MWR programs: $2,839,000; 
PCS lodges[A]: $243,000; 
Percent[C]: 8.6%. 

Marine Corps installation: Hawaii; 
Reported sales: 
All MWR programs: $67,729,000; 
PCS lodges[A]: $606,000; 
Percent[B]: 0.9%; 
Reported profits from profitable activities: 
All MWR programs: $4,366,000; 
PCS lodges[A]: $215,000; 
Percent[C]: 4.9%. 

Marine Corps installation: Lejeune, North Carolina; 
Reported sales: 
All MWR programs: $133,855,000; 
PCS lodges[A]: $1,409,000; 
Percent[B]: 1.1%; 
Reported profits from profitable activities: 
All MWR programs: $11,163,000; 
PCS lodges[A]: $492,000; 
Percent[C]: 4.4%. 

Marine Corps installation: Miramar, California; 
Reported sales: 
All MWR programs: $10,856,000; 
PCS lodges[A]: $1,424,000; 
Percent[B]: 13.1%; 
Reported profits from profitable activities: 
All MWR programs: $1,744,000; 
PCS lodges[A]: $461,000; 
Percent[C]: 26.4%. 

Marine Corps installation: Parris Island, South Carolina; 
Reported sales: 
All MWR programs: $36,712,000; 
PCS lodges[A]: $357,000; 
Percent[B]: 1.0%; 
Reported profits from profitable activities: 
All MWR programs: $3,146,000; 
PCS lodges[A]: $67,000; 
Percent[C]: 2.1%. 

Marine Corps installation: Pendleton, California; 
Reported sales: 
All MWR programs: $151,513,000; 
PCS lodges[A]: $1,953,000; 
Percent[B]: 1.3%; 
Reported profits from profitable activities: 
All MWR programs: $9,620,000; 
PCS lodges[A]: $509,000; 
Percent[C]: 5.3%. 

Marine Corps installation: Quantico, Virginia; 
Reported sales: 
All MWR programs: $60,961,000; 
PCS lodges[A]: $1,614,000; 
Percent[B]: 2.6%; 
Reported profits from profitable activities: 
All MWR programs: $4,395,000; 
PCS lodges[A]: $482,000; 
Percent[C]: 11.0%. 

Marine Corps installation: 29 Palms, California; 
Reported sales: 
All MWR programs: $51,687,000; 
PCS lodges[A]: $357,000; 
Percent[B]: 0.7%; 
Reported profits from profitable activities: 
All MWR programs: $3,521,000; 
PCS lodges[A]: $82,000; 
Percent[C]: 2.3%. 

Marine Corps installation: Yuma, Arizona; 
Reported sales: 
All MWR programs: $17,147,000; 
PCS lodges[A]: $504,000; 
Percent[B]: 2.9%; 
Reported profits from profitable activities: 
All MWR programs: $1,623,000; 
PCS lodges[A]: $228,000; 
Percent[C]: 14.0%. 

Marine Corps installation: Total; 
Reported sales: 
All MWR programs: $618,308,000; 
PCS lodges[A]: $12,934,000; 
Percent[B]: 2.1%; 
Reported profits from profitable activities: 
All MWR programs: $49,285,000; 
PCS lodges[A]: $5,137,000; 
Percent[C]: 10.4%. 

[A] PCS lodge sales and reported profits are included in MWR sales and 
reported profits. 

[B] GA0 calculation of Marine Corps' reported lodging sales as a 
percent of total reported MWR programs sales. 

[C] GAO calculation of Marine Corps' reported lodging profits as a 
percent of reported MWR profits. 

Source: Marine Corps Community Services data. 

[End of table] 

Profits shown in table 2 are those reported for installations with PCS 
lodges before these profits were used to help support local MWR 
programs that may either collect no revenue, or insufficient revenue, 
to offset their operating costs (e.g., parks and picnic areas, 
swimming pools, and child development centers). After this support was 
provided, the Marine Corps' MWR program reported profits of about $7.8 
million. If the PCS lodging profits of about $5.1 million had been set 
aside to support only the lodging programs, the MWR would still have 
earned about $2.7 million more than MWR expenses. 

The impact of losing PCS lodging earnings varies by installation. As a 
percent of total reported MWR program sales and profits in fiscal year 
2000 (see table 2), PCS lodging was 2.1 percent of sales; but 10.4 
percent of profits. These PCS profits ranged from a low of 2.1 percent 
of the total MWR profits at Parris Island, S. C., to as much as 37.4 
percent at Camp Butler, Japan. All of the installations in table 2 
earned a profit before those profits were used to help support local 
MWR programs. In addition, all but two of the MWR funds would have had 
profits remaining (after paying all MWR support costs) even if lodging 
earnings had not been available to them. The MWR fund at Parris 
Island, S.C., for example, had a net loss of about $940,000 in fiscal 
year 2000 after paying all MWR support costs. Without the $67,000 in 
profits from the PCS lodge, the net loss would have been even greater. 
The MWR fund at Camp Lejeune, N.C., would also have lost money if 
lodging earnings were not included. In fiscal year 2000, its net 
profit was about $68,000 after paying all MWR support costs. Without 
the $492,000 in PCS lodging profits, the fund would have lost about  
$424,000 for the year. Camp Lejeune officials said that this loss 
would have had a significant impact on the quality of life of that 
Marine community. 

According to Marine Corps officials, the impact of separating PCS 
lodging funds from the MWR program would be greater than suggested by 
simply focusing on PCS lodge profits. The officials indicated that 
removal of the PCS lodging funds would eliminate much needed funding 
flexibility and the ability to provide advance funding for future 
activities. Therefore, if the proposed policy is adopted, they said 
that these installations might have to increase fees or eliminate 
certain programs. 

Options to Compensate Marine Corps MWR Fund for the Loss of Lodging 
Revenue: 

The Marine Corps has several options to compensate the MWR fund for 
the lost PCS lodging revenue. Currently the Marine Corps is not 
considering any of these options, which suggests that it is likely to 
request a waiver from the policy if it is adopted. Each of the options 
for maintaining a healthy MWR operation at each Marine Corps 
installation would need to be studied to determine which option or 
which combination would be the most effective. These options include, 
but would not be limited to: 

* reducing or eliminating some MWR services or increasing the 
services' fees; 

* seeking additional appropriations or reprioritizing existing 
appropriations; and; 

* using the potential reimbursement for the net book value[Footnote 9] 
of the lodging assets. 

Marine Corps officials often cited reducing or eliminating MWR 
services as a possible but undesirable outcome of the policy change, 
but they did not specify which services would be reduced or 
eliminated, saying that this would be an individual installation 
decision. They also discussed the potential need to raise the fees 
charged for other MWR services used by Marines and their families. 
These MWR services, especially MWR Category B and C programs, charge 
varying fees to help support the MWR program. Raising the fees and 
reducing or eliminating some of these services is an option for the 
MWR program to offset the loss of lodging revenues. 

A second option available to the Marine Corps would be to seek 
additional appropriations or to reprioritize them. Depending on how 
vital the MWR program is to the military mission, DOD regulations 
permit varying levels of appropriated support. However, as shown in 
table 3, the Marine Corps provided less appropriated support in fiscal 
year 2000 than did the other services for Categories A and B MWR 
programs. 

Table 3: Percent of Appropriated Support to MWR Provided by Services 
for Fiscal Year 2000: 

DOD minimum goal: 
Category A: 85%; 
Category B: 65%. 

Navy: 
Category A: 89%; 
Category B: 66%. 

Army: 
Category A: 90%; 
Category B: 66%. 

Air Force: 
Category A: 96%; 
Category B: 66%. 

Average: 
Category A: 92%; 
Category B: 66%. 

Marine Corps: 
Category A: 76%; 
Category B: 52%. 

Note: Category C programs receive little appropriated support. 

Source: DOD December 26, 2001, MWR Report. 

[End of table] 

According to DOD policy,[Footnote 10] Category A MWR programs (e.g., 
free professional entertainment and physical fitness programs) are 
considered most essential in meeting each of the military services' 
objectives and have virtually no capacity for generating 
nonappropriated revenues. DOD guidance specifies that they are to be 
supported almost entirely with appropriated funds. However, according 
to DOD data, in fiscal year 2000 Marine Corps appropriations paid 76 
percent of Category A expenses compared to an average of about 92 
percent by the other military services. (See table 3.) A portion of 
its lodging earnings helped offset the shortfall. 

Category B MWR programs (e.g., childcare programs and youth 
activities) are similar to Category A programs in importance to each 
service but have some revenue-generating capacity. In fiscal year 
2000, Marine Corps appropriations paid 52 percent of Category B MWR 
expenses, compared to approximately 66 percent by the other services. 
Again, the Marine Corps used a portion of its lodging earnings to help 
offset the shortfall. 

Category C MWR programs (e.g., golf courses and bowling alleys) have 
enough revenue-generating capacity to cover most operating expenses 
and generally receive limited appropriated support. 

Because the Marine Corps has discretion to determine how much of its 
operations and maintenance appropriations will be used to support MWR 
activities, it could look for opportunities to allocate a greater 
portion of these appropriations to support MWR activities at levels 
closer to those provided by the other services. In fact, Marine Corps 
officials said they were taking steps to increase the percentage of 
appropriated support for MWR programs. The Corps also has the option 
to seek additional appropriations from the Congress to make up for the 
MWR program's loss of lodging revenues. 

A third option available to the Marine Corps is to follow a practice 
recently used by the Army-—reimbursing the MWR fund for the value of 
lodge assets previously held in the MWR program. The Marine Corps 
estimates the current net book value of its lodging facilities is 
about $18 million but this could increase as current and planned 
construction projects are completed. Because most of these assets were 
built or obtained with MWR funds, the MWR program may be entitled to a 
reimbursement if the lodging assets are transferred to a separate 
lodging fund. The Army used this approach when it changed its lodging 
program to meet the requirements of the proposed policy. In that case, 
the Army established a multiyear payment schedule to reimburse the MWR 
program from annual lodging receipts. Such a program in the Marine 
Corps could provide a source of annual funds to help compensate for 
lost lodging revenue, at least in the shortterm. 

Options to Ensure Marine Corps Lodges Will Continue to Operate without 
MWR Support: 

The Marine Corps also stated that without continued MWR support, the 
operations of some of its PCS lodges would be negatively affected. 
There are options, however, that could reduce this impact. Each of 
these would need to be studied to determine which or which combination 
would offer the best alternative. The options include, but would not 
be limited to:  

* sharing pooled PCS lodge revenues across all installations and; 

* combining PCS and TDY lodging operations and sharing resources. 

Pooling and sharing of lodging profits across the Marine Corps 
installations (e.g., creating a centrally managed lodging fund) could 
help ensure that money is available to meet all installations' PCS 
lodging needs, including construction or remodeling needs and 
additional support costs. Shortfalls at one location could be met with 
profits from others. The Marine Corps already pools and shares some 
lodging earnings. For example, each MWR business activity (including 
the lodges) contributes to a central MWR construction fund, which is 
shared by all installations. 

Currently, the Marine Corps PCS and TDY lodges (like those of the 
Navy) are managed and operated by two separate organizations. The 
Office of the Deputy Commandant, Installations and Logistics manages 
the Marine Corps' TDY lodges, and the Marine Corps Community Services 
manages its PCS lodges. The Marine Corps could combine its TDY and PCS 
lodging operations similar to those of the Air Force and Army, 
potentially reducing the management and overhead costs associated with 
managing two distinct lodge systems. 

The Army Has Taken Steps to Comply with the Proposed Policy But Is 
Still Using Some Lodging Revenues to Support MWR Programs: 

On October 1, 2000, the Army took steps to ensure it would be in 
compliance with the proposed lodging policy should it be adopted. This 
included creation of a single lodging fund for both PCS and TDY 
revenues separate from its MWR fund. It also authorized its 
installations to impose a surcharge on some users of its lodges that 
is used to help support local morale, welfare, and recreation 
activities. We believe this practice violates DOD and Army regulations. 

Army Made Changes to Comply with Expected Policy: 

Prior to October 1, 2000, the Army operated separate TDY and PCS 
lodging programs. Revenues from the TDY program were deposited into a 
separate lodging fund and used exclusively to support TDY lodges. 
However, revenues from the PCS lodging program were deposited into the 
Army's MWR fund. While this fund, in turn, paid the lodges' operating 
expenses and funded capital improvements, excess lodging earnings were 
used to support other Army MWR programs. 

On October 1, 2000, the Army combined operations of the two lodging 
programs and began depositing all lodging revenues into a single 
lodging fund at each installation.[Footnote 11] Considering potential 
management efficiencies, Army officials believe that the financial 
impact on its overall MWR program would be minimal. They estimated 
that the MWR fund will annually lose lodging earnings of about $5 
million,[Footnote 12] after deducting MWR overhead and 
recapitalization costs. They consider the impact on any particular 
installation to be limited because the loss is shared by the 61 
installations with PCS lodges. Additionally, the Army's MWR 
construction fund will lose about $800,000 annually, representing the 
PCS lodges' historical contribution to the fund, which was based on a 
2-percent assessment of lodging revenues. 

However, the MWR fund will also benefit from the change because it 
will no longer be responsible for maintaining existing or constructing 
new lodges. From fiscal years 1996 through 2000, for example, the MWR 
fund reported spending about $38 million on the construction of new 
PCS lodges. In addition, the Army has estimated that it currently has 
a $635-million backlog of maintenance and repair in its PCS and TDY 
lodges.[Footnote 13] Installation MWR funds will no longer be 
responsible for the PCS portion of this backlog. The Army central 
lodge construction fund will also reimburse each installation MWR 
program for the estimated book value of the PCS lodging assets as of 
October 1, 2000. This is being done in recognition that the assets 
were initially constructed or renovated with MWR funds but that the 
MWR programs would no longer be able to benefit financially from the 
investments. The total reimbursement will be $49.5 million, paid out 
over 6 years. 

Army Improperly Diverts Some Lodging Revenue to MWR: 

To further lessen the impact of the loss of lodging revenue to 
installation MWR programs, the Army permits installations to impose a 
surcharge on patrons not traveling on official orders, such as 
military retirees, and transfer the proceeds to the MWR funds at the 
local installations. Army installations can choose whether to 
participate and can set the surcharge amount. Twenty-three of 61 
installations in the United States and overseas elected to participate 
in fiscal year 2001. The surcharge rates ranged from $1 at West Point, 
N. Y., to $25[Footnote 14] at Army locations at Camp Zama and Kure, 
Japan, and generated more than $1.8 million during fiscal year 2001. 

Under DOD and Army guidance, this transfer of funds to the MWR program 
is prohibited. The transfer violates the provisions of DOD and Army 
regulations, set forth below: 

* DODI 1015.12, Lodging Program Resource Management states that 
nonappropriated funds that are generated from, or associated with, 
lodging programs shall be used only for lodging programs unless they 
are organized as part of the single MWR fund.[Footnote 15] 

* Army Regulation 215-1, MWR Activities and Nonappropriated Fund 
Instrumentalities[Footnote 16] provides that supplemental mission 
nonappropriated funds, such as the funds from lodging operations, will 
not be used to subsidize MWR programs and that such funds can be used 
only for the requirement for which they were established—-in this 
instance, lodging. 

Air Force and Navy MWR Programs Will Not Be Affected by the Proposed 
Policy: 

While the Air Force and Navy manage their PCS lodging programs 
differently, neither provides any lodging revenue to its MWR programs. 
Rather, historically the Air Force and the Navy have deposited all 
revenues into separate lodging funds and reinvested them into the 
lodging programs; therefore they are already in compliance with what 
the proposed policy would require. The Air Force manages TDY and PCS 
lodges as one program, and most management operations are the same for 
both types of facilities. The managing agent is Air Force Services. 
While the Navy already maintains separate accounting of its lodging 
fund from its MWR fund, it has not created a consolidated lodging fund 
for both PCS and TDY lodges as seems to be suggested by the 
department's May 2, 2001, report to the Congress. The Navy's PCS and 
TDY lodges are managed by two separate organizations, which have 
separate lodging funds with distinct management philosophies and 
goals. Navy Exchange Service Command manages the Navy's PCS lodging 
and the Naval Facilities Engineering Command manages its TDY lodging. 

Proposed Policy Change Based on Resolving a Perceived Regulatory 
Conflict and Achieving Other Management Objectives: 

DOD officials provided two primary reasons for changing the PCS 
lodging policy. First, they perceived a need to resolve a conflict 
with the Joint Federal Travel Regulation. In DOD's view, resolution of 
the conflict required separation of lodging revenues from those used 
for MWR purposes. Second, the officials told us the policy change was 
a first step to achieve a number of other management objectives. Our 
analysis indicates that the policy change may serve an important 
management purpose, ensuring that lodging funds are retained and used 
exclusively for lodging programs. However, the change is not compelled 
by requirements of the Joint Federal Travel Regulation. And while 
consistency and achieving other management objectives appear to be 
reasonable, much more will be required to enable DOD to accomplish the 
other management objectives. 

The PCS Policy Change Intended to Resolve a Perceived Conflict with 
Travel Regulation: 

In its May 2001 report to Congress,[Footnote 17] DOD based the 
proposed policy change on a determination that its current PCS policy 
is in conflict with requirements of the Joint Federal Travel 
Regulation. DOD reported that its current policy defines PCS lodging 
as an "unofficial lodging program" while the Joint Federal Travel 
Regulation defines PCS lodges as "official travel government 
quarters." DOD viewed the proposed policy as resolving this conflict 
by removing PCS lodging revenues from MWR programs. 

Although we believe the policy change is within the discretion of the 
department, we do not find a conflict between the department's current 
policy and the Joint Federal Travel Regulation. In our view, the 
regulation deals with allowances for travel and transportation; it 
does not apply to lodging policy. 

The Policy Change by Itself Will Not Allow DOD to Accomplish Most 
Other Management Objectives: 

DOD officials also outlined a number of other management objectives 
they expected to accomplish, aimed at improving management of the 
lodging programs. These included (1) making the programs more 
consistent across the military services, (2) reducing lodging rates 
where appropriate, (3) improving the overall quality of lodging 
facilities, and (4) eliminating the construction of new PCS lodges 
that may exceed the needs of official DOD travelers. The proposed 
policy, however, does not specifically address these objectives. 
Therefore, the policy change, by itself, will not allow DOD to 
accomplish them. Supplemental DOD guidance for operating both TDY and 
PCS lodges will be required. Department officials said that the 
lodging policy is only the first step in their plans to improve the 
lodging program and that they will eventually need to recommend 
further change to the department's guidance to address these other 
issues. 

Create Consistent Lodging Policy and Operations: 

According to officials in the Office of the Secretary of Defense 
(OSD), the military services' PCS lodging programs have evolved over 
time and have widely different operating philosophies and approaches. 
In addition, when DOD revised its lodging policies and implementing 
guidance in 1995 and 1996, they were written so that the military 
services could continue to operate their unique PCS lodging programs; 
they were not written to ensure consistent lodging programs across the 
services. The proposed new policy change does not address this issue. 

Contrasting PCS and TDY lodging programs, OSD officials pointed out 
that TDY lodging guidance ensures greater consistency across the 
services. It requires that the services manage their TDY lodges 
similar to Category A MWR activities. Such lodges are considered to be 
mission-sustaining; can receive appropriated funds for major 
renovations and new lodge construction; and can receive other 
appropriated support typically provided by the local installation 
(e.g., for minor repairs and electricity). The goal of this type of 
lodging program, according to DOD's guidance, is to provide quality 
lodging facilities at the lowest possible price to official
 DOD patrons traveling on orders. This, in turn, reduces the travel 
costs of operational units, allowing use of appropriated funds for 
other purposes. 
 
However, current PCS lodging guidance permits management of lodges as 
Category A mission-sustaining lodges or as Category C revenue-
generating lodges. First, for Category A mission-sustaining PCS 
lodges, the services follow DOD's lodging guidance which is similar to 
guidance followed by TDY lodges. A major difference, however, is that 
the services must use nonappropriated funds (e.g., from lodging 
revenues), not appropriated funds, to renovate or build new PCS 
lodges. The Air Force and Army have combined their TDY and PCS lodging 
programs and operate them as Category A mission-sustaining activities. 
While they maintain some distinctions between the two types of lodges 
(e.g., PCS lodges are designed more for families and generally provide 
some type of kitchen facilities), lodging rates are kept as low as 
possible. Further, generally one organization on each installation 
manages and oversees lodging operations. Revenues in these cases are 
deposited into a single lodging fund and are used only to support the 
lodging programs. 

Second, the services MWR program or exchange service can manage PCS 
lodges as Category C activities. In these cases, DOD's lodging 
criteria are completely different. Most notably, they do not designate 
PCS lodges as mission-sustaining. Rather, they are classified as 
revenue-generating activities that, with some minor exceptions, should 
be financially self-supporting. Consequently, they are expected to 
receive only limited appropriated support. There is also no 
requirement that lodging rates be kept to the lowest possible price. 
The Navy and Marine Corps have separate TDY and PCS lodging programs. 
They manage their TDY programs as the Air Force and Army manage theirs 
but manage their PCS programs as revenue-generating activities. Each 
military installation usually has two lodging organizations, each with 
its own rate structures and funding priorities. The Navy's PCS lodging 
revenues go into a separate lodging fund, while Marine Corps revenues 
go into a single MWR fund. DOD officials said that besides creating an 
inequitable situation among the services, the variety of operations 
makes it practically impossible to collect consistent data and analyze 
the effectiveness of the lodging programs. 

The proposed lodging policy, by itself, will not result in more 
consistent lodging policies and operations among the services. 
Although, the proposed policy would prevent the services from 
operating PCS lodges as Category C MWR activities and require them to 
deposit lodging revenues into "the Military Service's Lodging Fund," 
it would not prevent the services' MWR programs from continuing to 
manage separate PCS lodging programs. DOD's May 2, 2001, report, for 
example, states that the Navy's PCS program will not be affected by 
the change because the Navy already deposits PCS lodging revenue into 
a separate lodging fund. Moreover, if DOD implements the proposed 
policy, OSD officials said that the Navy and the Marine Corps could 
choose to continue to operate separate PCS and TDY lodging programs as 
long as lodging revenues were not used to support MWR programs. Thus, 
the policy would not necessarily resolve DOD's concern about the 
inconsistent management approaches being used by the military services. 

Reduce Lodging Room Rates: 

OSD officials said, and we confirmed, that there is a relatively large 
difference in PCS room rates charged by the military services. As 
shown in table 4 below, the average room rates for fiscal year 2000 
ranged from $27 to $55 (actual room rates ranged between $6 and $105 
overseas and between $15 and $70 domestically). In these officials' 
views, this variation in rates creates an inequitable situation 
between the services that should be resolved. 

Table 4: PCS Lodging Room Rates — Fiscal Year 2000: 

Military service: Air Force; 
Average nightly room rate: $27 
Criteria for room rates: Based on a formula designed to recover 
operating expenses and to  refurbish interiors over a 5-year period; 
Other room rate factors: $6-per-bed-night surcharge to fund needed 
construction and major renovation ($8 overseas)[A]; 

Military service: Army; 
Average nightly room rate: $37[B]; 
Criteria for room rates: Rates varied across installations and were 
designed to help cover lodging and other MWR program costs; 
Other room rate factors: 2% of aggregate installation MWR earnings 
from all MWR activities were collected centrally to pay for 
construction. 

Military service: Marine Corps; 
Average nightly room rate: $44; 
Criteria for room rates: Based on local market survey and designed to 
earn at least a 25% profit; 
Other room rate factors: 2.5% of all lodging revenues is transferred 
to a central fund to support MWR construction and major renovations. 

Military service: Navy; 
Average nightly room rate: $55; 
Criteria for room rates: Designed to be at least 20% lower than local 
commercial room rates and to earn at least a 20-percent profit; 
Other room rate factors: Construction and major renovations are funded 
than local commercial room rates and from current lodge earnings. 

[A] Surcharge amounts are included in the Air Force's room rates. 

[B] Rate is before Army combined PCS and TDY lodging. Average rate for 
fiscal year 2001 is $32 and is based on a formula designed to recover 
only lodge operating expenses and to refurbish lodge interiors over a 
5-year period. This rate also includes a $6-per-bed-night surcharge to 
pay for a lodge modernization plan. 

Source: Data provided by each service. 

[End of table] 

All of the services offer lodging at rates below commercial rates. 
However, higher lodging room rates in some services increase the 
appropriations needed to support PCS travelers. PCS travelers and 
their families[Footnote 18] and a large number of TDY travelers stay 
at PCS lodges. Because these travelers are reimbursed for the actual 
cost of their rooms, higher rates have a direct impact on the 
operation and maintenance accounts of their organizational units. 

As shown in table 4, the services have different criteria for 
establishing PCS room rates. The Air Force uses the same formula as it 
does for TDY rates. This formula is designed to recover current 
operating costs and provide sufficient funds to periodically refurbish 
lodging interiors (e.g., furniture and paint).[Footnote 19] It also 
adds a $6 per-night surcharge (included in the room rates shown 
above), which is collected centrally and used to pay for the expense 
of renovating existing lodges and building new ones. Theoretically, 
this process establishes the lowest possible price needed to meet 
lodging standards. As shown in the footnotes to table 4, the Army has, 
since October 1, 2001, adopted a similar approach to that of the Air 
Force in establishing nightly room rates. It now uses, for example, 
the same type of formula for establishing PCS room rates and charges a 
$6 per night surcharge to fund the construction and renovation of its 
lodges. 

The Navy and Marine Corps have greater flexibility to establish 
lodging rates. Each performs a local market survey and/or attempts to 
establish rates that are lower than the federal per-diem rate but will 
allow them to earn at least a 20-or 25-percent profit. 

The proposed policy change does not specifically address lodging 
rates. There could be some impact on the rates, however, depending on 
how the services choose to implement the new policy. For example, when 
the Army implemented the proposed policy, it combined its TDY and PCS 
lodging programs and began to eliminate distinctions between the two; 
it set a single rate of $32, which includes the $6 per night 
surcharge, for both types of lodges. It is not clear at this time how 
the proposed policy might affect rates charged by the Navy and Marine 
Corps. As discussed in the previous section, the proposed policy does 
not specifically require the Navy to combine its TDY and PCS lodging 
programs, and Navy officials indicated they do not plan to do so. 

Improve Quality of Lodging Facilities: 

OSD officials perceived a wide difference in the quality of PCS lodges 
across the services. They attributed this difference to a number of 
factors, all related to funding. How the proposed policy will affect 
some of these issues is unclear. 

* First, the inconsistent operating and funding arrangements allowed 
by DOD's current lodging guidance allows some services to deposit 
lodging revenues into a lodging or billeting fund while the Marine 
Corps deposits revenues into an MWR fund. This creates an 
inconsistency in how lodging funds can be used. The new policy will 
eliminate this inconsistency. 

* Second, differences exist in how funding is obtained for lodging 
modernization and new construction. Lodging revenues in the Army and
Air Force (which operate their lodges as Category A mission-sustaining 
activities) must be sufficient to fund current operating expenses, 
periodic refurbishment of the lodging interiors, major renovations to 
the building exteriors, and the construction of any new or replacement 
lodges. However, the formula used by these two services to set lodging 
rates does not include factors for renovation or new construction. 
Therefore, the Army and Air Force lodging programs have added a 
nightly surcharge to their room rates to pay for these types of 
capital improvements. The Navy and Marine Corps (which operate their 
lodges as Category C revenue-generating activities) have greater 
flexibility to set lodging rates to generate additional revenue for 
capital improvements or other purposes. 

* Third, the degree of appropriated support provided at the local 
installation level (e.g., minor repairs and grounds maintenance) 
varies greatly. Much depends on other funding priorities at the 
installation and the installation commander's interest and support. 

During our work, we stayed at and/or visited 16 of DOD's 191 
installations with PCS lodges, many of which had more than one PCS 
lodge building. We observed the general quality of the facilities and 
discussed management and funding issues with local managers. While 
this small sample does not allow us to project findings to all PCS 
lodges, our overall impression is that the lodges were generally in 
good condition. While we noted differences in the quality and age of 
the buildings and general appearance of the surrounding grounds, most 
of the interior furnishings were reasonably up to date, and the rooms 
were clean. Naturally, some of the lodges appeared better than others, 
but for our small sample, this did not seem to be related to a 
particular service or method of operation. Rather, it was more a 
product of the lodges' age (some were over 50 years old while others 
had recently been constructed); how recently the interiors had been 
refurbished (each of the services seemed to have a cyclical 
refurbishment plan to keep the interiors fresh); whether the exteriors 
had been adequately maintained or recently renovated; and the degree 
of support and interest by the local installation commander and his 
management team. To illustrate this last point, the PCS lodging 
facilities at Fort Bragg, N. C., appeared to be in very good 
condition. Local lodging managers said they were lucky because a past 
installation commander had considered the lodges to be an important 
quality-of-life issue and made them a priority for funding. Other 
locations we visited had not benefited from this degree of support. 

The proposed policy will ensure that lodging revenues are used 
exclusively for lodging purposes, but the extent to which it will 
change existing conditions and approaches to upkeep and renovation is 
unclear. All the services already have programs underway to either 
renovate or build new or replacement lodges. Because DOD's current 
guidance does not permit the services to use appropriations to fund 
PCS lodge construction, they have used different methods to generate 
needed funds. For example, as shown in table 4 above, the Air Force 
and Army currently charge $6 per room, per night, which is deposited 
into centrally managed construction funds and redistributed on a 
priority basis. Similarly, each Marine Corps lodge deposits 2.5-
percent of its annual revenues into a central MWR construction fund, 
which is redistributed on a priority basis to all MWR programs. The 
Navy's PCS lodging program, which is managed centrally by the Navy 
Exchange Service Command, earns sufficient profits to renovate 
existing lodges and build new ones. As discussed previously, similar 
differences also exist with regard to appropriated fund support at the 
local installation level. Army and Air Force lodges (because they 
operate as Category A mission-sustaining activities) are authorized to 
receive appropriated funding for routine maintenance and other types 
of support. Navy and Marine Corps lodges (because they operate as 
Category C revenue-generating activities) are also authorized some 
indirect appropriated support but generally are expected to be self-
supporting at most installations. These funding differences are 
unlikely to be resolved by the proposed policy change. 

Eliminate Construction of New Lodges That Exceeds the Needs of PCS 
Travelers: 

As discussed in more detail later, OSD officials said that under 
current guidance, they are not able to limit the construction of new 
PCS lodges, particularly in the Navy and Marine Corps, even when it is 
clear that the new lodges are not needed to support PCS travelers. 
Because the Navy and Marine Corps operate their PCS lodges as Category 
C revenue-generating activities, current guidance allows them to 
construct lodges to meet the needs of all authorized MWR patrons, not 
just those of patrons traveling on orders. As a result, they are 
building new lodges, some in recreational areas or in other areas that 
have a high demand by MWR patrons. While the proposed policy will 
prevent the Marine Corps from using PCS lodging revenues to support 
MWR programs, it does not change the guidance relating to the 
construction of PCS lodges. Thus, the Navy, and possibly the Marine 
Corps, may continue to build PCS lodging in excess of demand by 
patrons traveling on government orders. 

Most Management Objectives Necessitate Longer-Term Actions: 

For the most part, the proposed policy does not change the underlying 
DOD instructions and guidance that give the military services wide 
discretion in managing their lodging programs. As a result, the policy 
change, by itself, will not result in the type of managerial 
improvements OSD officials envision for the program. OSD officials 
said they recognized that the proposed policy was only the first step 
in revising the department's lodging operations and that they would 
eventually recommend changing the DOD instructions to address the 
other management issues. Until this is done, however, the lodging 
programs will continue to be managed in a widely divergent manner. 

DOD Guidance Allows Services to Build PCS Lodges in Excess of Official 
Traveler Needs: 

The services' plans for building new PCS lodges are consistent with 
department guidance. However, two sets of OSD policy guidance are 
available to the services in managing their lodging programs-—MWR 
guidance followed by the Navy and Marine Corps, which allows them to 
add new lodging rooms beyond those required to meet the needs of PCS 
travelers, and lodging guidance followed by the Air Force and Army, 
which is oriented to meeting the more limited needs of official 
military and civilian travelers. Each of the services is constructing 
or has plans to construct sizeable quantities of new or replacement 
PCS lodges. 

The Military Services Follow Divergent Guidelines to Justify New PCS 
Lodge Construction Projects: 

DOD has two sets of PCS lodging guidance depending on how the military 
services choose to manage their programs: MWR guidance and lodging
guidance. These different sets of guidance have different program 
emphasis and, more importantly, allow the services to use a different 
authorized patron base to determine how many lodge rooms are needed to 
accommodate travelers. MWR guidance allows construction to support all 
MWR patrons. Lodging guidance allows construction to support only 
patrons on travel orders. 

MWR Guidance and Approach: 

DOD's MWR guidance[Footnote 20] stipulates that PCS lodges are 
provided specifically for PCS personnel and their families but 
identifies a number of other authorized users, including TDY 
travelers, members of the armed forces and their families not on 
official travel, retired members of the armed forces and their 
families, and others at the discretion of the base commander (e.g., 
DOD civilians and their families, other federal employees, guests, and 
even members of the public under some limited circumstances). While 
PCS travelers are given preference, other authorized users can make 
confirmed reservations in advance of their stay. In addition, the 
guidance allows the services to consider all these authorized users 
when determining whether there is a need to expand existing lodges or 
build new ones. 

The Navy Exchange Service Command, which manages the PCS lodging 
program for the Navy, operates the PCS lodging program in accordance 
with this MWR guidance. Therefore, to determine its PCS lodging 
requirements, the Exchange Service tracks total occupancy rates and 
other data that indicate whether there is an unmet demand from any of 
its authorized patrons (e.g., number of people turned away). It then 
assesses the potential return on investment and prepares long range 
plans to build new lodges or expand existing ones at the installations 
with the most need. Navy officials pointed out, however, that the 
installation must approve any expansion or construction plans before 
funds are committed. 

The Marine Corps Community Services, which manages the Corps' PCS 
lodging program, operates the PCS lodging program as a Category C MWR 
activity to earn a profit. Unlike the other services, these profits 
are used to help support Marine Corps MWR programs at the local 
installation level. Capital to renovate or build new PCS lodges comes 
predominately from a MWR construction fund managed centrally at the 
Marine Corps Community Services' headquarters at Quantico, Va. This 
fund receives 2.5 percent of the revenues from all Marine Corps MWR 
business activities (including the PCS lodges) managed by the Marine 
Corps Community Services and redistributes them to the activities 
based on relative priorities and potential return on investment. From 
fiscal years 1996 through 2000, the Marine Corps PCS lodging programs 
contributed about $1.2 million to the fund but received MWR program 
commitments of about $21 million to renovate or build new lodges. 
[Footnote 21] According to a Marine Corps lodging official, to 
determine PCS lodging requirements, the Corps relies on four factors, 
1) condition of current facilities, 2) percent of occupancy and the 
number of reservation requests that could not be filled, 3) return on 
investment of the planned lodging, and 4) availability of housing in 
the local area. 

Lodging Guidance and Approach: 

DOD's lodging guidance[Footnote 22] says that PCS lodges are provided 
specifically for PCS travelers. It also identifies a number of other 
authorized users, such as TDY travelers and relatives and guests of 
military personnel stationed at the installation. The primary 
distinction between MWR and lodging guidance, therefore, is more a 
matter of emphasis. Under the lodging guidance, other authorized users 
stay at PCS lodges on a "space-available basis," which generally means 
they cannot obtain a confirmed reservation until 24 hours before the 
night of the stay, while MWR guidance allows all authorized users to 
obtain reservations in advance. The goal as stated in the lodging 
guidance is "to provide quality lodging facilities and service to 
authorized personnel and maintain maximum occupancy to reduce official 
travel costs." 

Air Force Services, which manages the TDY and PCS lodging programs for 
the Air Force, operates both programs as Category A mission-sustaining 
activities. Because such programs are not designed to generate 
profits, the Air Force added a surcharge-—currently $6 in the United 
States and $8 overseas-—to its nightly room rates to help fund 
construction of new and replacement lodges. This surcharge generated 
about $100 million[Footnote 23] from fiscal years 1996 through 2000. 
Over the last several years, the Air Force has based its PCS 
construction program on a 1995 contractor report that described the 
condition of the Air Force's PCS lodges and recommended a 
comprehensive program to bring them up to standard. This program 
involved the construction of lodges at a cost of about $141 million 
with an additional $224 million in additional requirements not yet 
funded. Air Force officials said that their decision to build new PCS 
lodging capacity is based on estimates of upcoming military personnel 
moves, not on the lodging demands of unofficial travelers. 

The U.S. Army Community and Family Support Center manages the Army's 
PCS and TDY lodging operations.[Footnote 24] In February 2000 it 
approved a "wellness strategy" aimed at addressing an estimated $635 
million backlog of maintenance and repair requirements for its PCS and 
TDY lodges. Currently, the Army funds this strategy and any resulting 
lodge construction and renovation with a $6 per-room, per-night 
surcharge. Because the Army estimates it will take 32 years to 
complete the program at this rate, it expects to increase the 
surcharge incrementally by $1 per year (starting in fiscal year 2003) 
until it reaches $12. According to Army lodging officials, part of 
their wellness strategy includes reviewing the occupancy rates at each 
installation and resizing the number of lodge rooms as necessary. Its 
internal guidance stipulates that "a lodging operation should be sized 
to accommodate 90 percent of its official lodging demand on an annual 
basis." In this case, official lodging demand is defined as PCS 
personnel and their families and TDY personnel, both military and 
civilian. 

Services Are Building or Plan to Build Additional PCS Lodges: 

All of the services have recently built PCS lodges as part of their 
plans to replace or modernize their lodges. However, as shown in table 
5, three of the services are building or have identified building 
plans that lead to a net increase in their inventory of PCS lodging 
rooms in the coming years. 

Table 5: Estimated New PCS Lodge Construction-—Increasing Room 
Inventories in Fiscal Years 1996-2000 and Fiscal Years 2001-2005: 

Net increase in PCS lodging rooms: 

Military service: Navy;  
Fiscal years 1996-2000: 
Reported cost: $42.4 million; 
Locations: 11; 
Rooms: 587[A]; 
Fiscal years 2001-2005: 
Estimated cost: $121.4 million[B]; 
Locations: 15[B]; 
Rooms: 940[B]. 

Military service: Marine Corps;  
Fiscal years 1996-2000: 
Reported cost: $3.0 million; 
Locations: 1; 
Rooms: 36; 
Fiscal years 2001-2005: 
Estimated cost: $24.6 million; 
Locations: 7;
Rooms: 237. 

Military service: Air Force;  
Fiscal years 1996-2000: 
Reported cost: $93.3 million; 
Locations: 16;
Rooms: 540; 
Fiscal years 2001-2005: 
Estimated cost: $47.6 million[C]; 
Locations: 4[C];
Rooms: 180[C]. 

Military service: Army;  
Fiscal years 1996-2000: 
Reported cost: $38.0 million; 
Locations: 6; 
Rooms: 259; 
Fiscal years 2001-2005: 
Estimated cost: None; 
Locations: None; 
Rooms: None. 

[A] The Navy reduced its lodge rooms by 225 rooms at 4 locations 
during this time period. 

[B] The Navy is reviewing two projects in Japan (150 rooms at an 
estimated cost of $27.2 million) and one in Puerto Rico (100 rooms at 
$15.3 million) for their viability. If any of these are not built, the 
numbers will be reduced accordingly. 

[C] The Air Force numbers are only for fiscal years 2001-02. 

Source: Data provided by each service. 

[End of table] 

As shown in table 5, the Navy Exchange Service estimates that it will 
spend about $121.4 million from fiscal years 2001 through 2005 for a 
net increase of 940 PCS lodging rooms at 15 Navy installations. These 
numbers do not include additional Navy plans to replace 769 rooms at 
14 installations at an estimated cost of about $84 million, over the 
same period.[Footnote 25] The Marine Corps and the Air Force also have 
plans for new lodge construction. In addition, the Air Force has 
identified the need for $224 million to construct 1,039 new rooms at 
36 bases but is unsure which ones, if any, will be funded. While the 
Army does not have plans for a net increase in PCS rooms, during 
fiscal year 2002, as part of its wellness strategy, the Army plans to 
spend $54 million to renovate or build replacement lodging rooms for 
those that are not considered worth renovating. 

Available data on PCS lodge occupancy rates indicate that overall 
occupancy varies only slightly between the services. For example, 
during fiscal year 2000 the Air Force at 88 percent had the highest 
occupancy rate and the Army at 80 percent had the lowest. However, the 
mix of patrons who are using PCS lodges varies greatly. (See table 6.) 

Table 6: Difference Between PCS Lodging Occupancy by Official and 
Unofficial Travelers — Fiscal Year 2000: 
 
Military service: Navy; 
Official travelers: 
PCS: 23%; 
TDY: 30%; 
Total: 53%; 
Unofficial travelers: 47%. 

Military service: Marine Corps; 
Official travelers: 
PCS: 31%; 
TDY: 14%; 
Total: 45%; 
Unofficial travelers: 55%. 

Military service: Air Force; 
Official travelers: 
PCS: [A]; 
TDY: [A]; 
Total: 95%; 
Unofficial travelers: 5%. 

Military service: Army; 
Official travelers: 
PCS: 54%; 
TDY: 20%; 
Total: 74%; 
Unofficial travelers: 26%. 

[A] Air Force data do not specify whether official travelers are PCS 
or TDY. 

Source: Data provided by each service. 

[End of table] 

The data in table six coupled with the service lodge construction 
plans (see table 5) indicate that the Navy and Marine Corps plan 
significantly more new construction than would be necessary based on 
PCS traveler use. For example, the Navy recently has had plans to add 
110 PCS rooms at the North Island Naval Air Station in California, 
which would have brought its total inventory there to 300 rooms. This 
contrasts with the fact that, in fiscal year 2000, however, only 38 
percent of the occupants were official travelers (11 percent PCS and 
27 percent TDY). The other 62 percent were other authorized travelers. 
In justifying this expansion, Navy officials cited an expected 
increase in Navy personnel in the area and a large number of 
reservation requests. More recently, the terrorist events of September 
11, 2001, are causing the Navy to rethink the size of this project 
based on force protection requirements and environmental issues—issues 
unrelated to PCS occupancy rates. 

OSD Has Limited Control Over the Construction of New PCS Lodges: 

Officials in the Office of the Assistant Secretary of Defense, Force
Management Policy, are responsible for overseeing DOD's lodging 
programs and establishing appropriate policies. In this capacity, they 
have review and approval authority for all major PCS lodging-
construction projects. According to these officials, however, they 
cannot limit construction projects as long as the requesting authority 
has complied with applicable DOD guidance and instructions. They are 
aware, for example, that the Navy and Marine Corps have expanded 
existing lodges and built new ones that exceed the needs of PCS and 
other official travelers. Because DOD's current guidance allows this, 
OSD officials state that they have little recourse but to approve the 
projects as long as sufficient financial resources are available. 

They pointed out, however, that this excess capacity has a cost that 
is borne by DOD. The higher room rates charged by the Navy and Marine 
Corps PCS lodging programs (see table 4) increase DOD travel expenses. 
As we pointed out earlier, this is one of several key reasons DOD 
wanted to change the PCS lodging policy. 

Conclusions: 

Although we do not believe that travel regulations require DOD to 
revise its PCS lodging policy, the department does have the discretion 
to make the proposed change to bring consistency to the program and to 
reach desired management objectives. Although the proposed policy 
change would not impact the other services' overall MWR programs, it 
would impact the Marine Corps' MWR program. However, the Marine Corps 
has several options to help it compensate for potential lost MWR 
revenue and to preserve a financially healthy lodging operation. For 
this reason, if the proposed policy is adopted and the Marine Corps 
requests a waiver, we would support a short-term waiver to permit the 
Marine Corps time to evaluate implementation options. However, we do 
not believe that a permanent waiver is necessary, considering the 
reported amount of lodging earnings involved. While the Navy already 
separates accounting of its lodging fund from its MWR fund, it does 
not currently plan to create a consolidated lodging fund for both PCS 
and TDY lodges as seems to be suggested by OSD's May 2, 2001, report 
to the Congress. Clarification of the intent of the policy guidance in 
this area is needed. In addition, the Army's practice of charging 
unofficial travelers a nightly surcharge that it provides to the local 
installation's MWR fund violates DOD and Army regulations. 

DOD's desired lodging-management objectives—such as consistent lodging 
policy and operations, reduced room rates, improved lodging 
facilities, and limitations on new PCS construction—will not happen 
based simply on the proposed lodging policy change. Such improvements 
would likely require a revision of internal policies and instructions 
for both the TDY and PCS lodging programs. Also, the proposed policy 
leaves in doubt whether DOD expects the services to merge all 
operations of PCS and TDY lodging or if these operations may, in the 
case of the Navy and Marine Corps, continue to operate separately. 
DOD's current lodging guidance permits a wide disparity in operating 
and managing PCS lodging programs. This authorizes the Navy and Marine 
Corps to charge higher rates to help fund the construction of lodging 
accommodations in excess of the need of PCS travelers. These higher 
room rates increase the travel expenses for the department and for 
those of the services' operation and maintenance accounts. DOD 
officials acknowledge that the proposed policy change is but the first 
step in achieving DOD's desired goals. 
 
Recommendations for Executive Action: 

We recommend that the secretary of defense in conjunction with the 
assistant secretary of defense for force management policy take the 
following actions if the proposed policy is implemented: 

* Provide the Marine Corps with a short-term waiver, if requested, to 
permit it time to evaluate policy implementation options and; 

* Clarify the proposed policy with regard to whether DOD expects the 
services to combine PCS and TDY lodging programs and funds or will 
allow these separate operations to continue. 

Regardless of whether the proposed policy is implemented, the 
assistant secretary of defense for force management policy should: 

* Provide the military services with a policy framework including 
improved lodging guidance to help achieve DOD's desired lodging-
program management objectives, including consistent lodging policy and 
operations, reduced room rates, improved lodging facilities, and 
limitations on new construction not focused on official PCS and TDY 
travelers; and; 

* Require the Army to adhere to DOD's and its own regulations by 
discontinuing the transfer of lodging revenues (unofficial-traveler 
surcharge) to installation MWR funds and returning the proceeds 
collected thus far to the Army's lodging fund. 

Agency Comments: 

In commenting on a draft of this report, the assistant secretary of 
defense for force management policy concurred with the first three 
recommendations but partially concurred with the fourth. The assistant 
secretary stated that if the policy is implemented the department will 
(1) provide a short-term waiver so that Marine Corps leadership can 
evaluate policy implementation options and (2) clarify the proposed 
policy regarding whether the services will be directed to combine PCS 
and TDY lodging programs and funds or if the services can continue 
separate operations. Regardless of whether the proposed policy is 
implemented, the assistant secretary stated that the department will 
provide clear policy guidance, expected to be published by September 
30, 2003, to achieve its lodging program management objectives. While 
we commend departmental recognition of the need for additional policy 
guidance to achieve lodging-program management objectives, we would 
urge a quicker time frame than the year and a half the department has 
established for issuing the guidance. 

The assistant secretary also stated the department will require the 
Army to discontinue the transfer of lodging revenues (unofficial-
traveler surcharge) to installation MWR funds. The department does not 
agree, however, that the proceeds already collected should be returned 
to the Army's lodging fund. DOD stated that return of the proceeds 
would create an undue hardship on the MWR program because the funds 
have already been committed. We continue to believe our recommendation 
is sound. The revenues in question were transferred from the Army's 
lodging funds to its MWR funds in violation of clear prohibitions 
contained in DOD Instruction 1015.12 and Army Regulation 215-1. The 
DOD instruction further provides that nonappropriated funds are 
government funds entitled to the same protection as appropriated 
funds. The instruction recognizes an individual fiduciary 
responsibility for properly using nonappropriated funds. The Army 
regulation contains nearly identical provisions and further provides 
that DOD directives and implementing Army regulations have the force 
and effect of law. Under these circumstances, we find no reason to 
modify our recommendation. The department's written comments are 
presented in their entirety in appendix II. 

We are sending copies of this report to the secretary of defense; the 
under secretary of defense (personnel and readiness); the secretaries 
of the Air Force, the Army, and the Navy; the director, Office of 
Management and Budget; and interested congressional committees and 
members. We will also make copies available to others upon request. 

If you or your staff have questions concerning this letter, please 
contact us on (202) 512-8412. Staff acknowledgments are listed in 
appendix III. 

Signed by: 

Barry W. Holman, Director: 
Defense Capabilities and Management: 

[End of section] 

Appendix I: Scope and Methodology: 

To determine the potential impact of the policy change on service MWR 
programs, we interviewed and received briefings on the policy change 
and its impact from key officials in the OSD who are responsible for 
developing MWR and lodging policy and from appropriate military 
service headquarters personnel who manage the services' MWR and 
lodging operations. We also obtained DOD and service headquarters 
overviews of their PCS and TDY lodging operations in addition to their 
policies and regulations that govern MWR and lodge funding and 
operations, as well as nonappropriated funds and nonappropriated fund 
instrumentality management and control. We also obtained and reviewed 
financial reports and other lodging and MWR revenue and expense data. 
In addition, we obtained and reviewed the Marine Corps Community 
Services' Annual Report for 1999, which included an unqualified 
opinion on its financial statements by an independent public 
accountant. We analyzed this information and identified additional 
impacts on both the services' MWR programs as well as their lodging 
programs. We used the impacts on the Army's programs to compare with 
the potential impacts on the Marine Corps' programs and to help us 
propose options for maintaining the health of the Marine Corps' MWR 
and lodging programs. 

To determine to what extent DOD will accomplish its management 
objectives with the policy change, we first interviewed OSD officials 
to determine what they hoped to accomplish with the policy change and 
what they saw as the future of DOD's and the services' lodging programs.
OSD officials were aware that the proposed policy change would have a 
limited effect and discussed this issue with us. We obtained and 
reviewed departmental and service MWR and lodging guidance to 
establish how each service was allowed to operate their PCS and TDY 
lodging programs. We then compared this information with the way in 
which the services were operating their programs to determine whether 
their operations were within departmental guidelines. We identified 
actions likely required to implement DOD's objectives for improving 
management of the lodging program and then compared this to the impact 
of the proposed policy to determine the extent to which the new policy 
would achieve DOD's objectives. 

To determine whether the services' plans for building new PCS lodges 
was consistent with department guidance, we assessed authorities 
provided for new construction under existing department guidance with 
the construction plans of each service. To compare construction plans 
with the needs of PCS travelers, we obtained the number and location 
of their lodging facilities; number of rooms, room rates, and official 
and unofficial occupancy rates at each facility; reported past and 
future construction schedules and costs; and reported revenue and 
expenses for each program. We analyzed this information within each 
service and between the services. We then compared each service's 
official and unofficial occupancy rates with their past and future 
plans for construction to give us an indication of which service had 
construction plans that did not match with their official traveler 
occupancy rate. 

We reviewed the proposed policy justification and the Army's use of 
the unofficial traveler's surcharge to determine whether they were 
consistent with law and regulation. 

Our work was performed at the Office of the Assistant Secretary of
Defense Force Management Policy in Washington, D.C.; Navy Exchange
Service Command headquarters in Virginia Beach, Va.; the Food and
Hospitality Branch, Marine Corps Community Services, United States
Marine Corps at Quantico, Va.; the Army Community and Family Support
Center in Alexandria, Va.; and the Air Force Combat Support and
Community Services Office in Crystal City, Va. We also visited the 
following 16 military installations to determine how the lodges were 
being managed and supported and to observe their physical condition: 
Andrews Air Force Base, Md.; Wright-Patterson Air Force Base, Ohio; 
Scott Air Force Base, EL; Fort Meade, Md.; Fort McPherson, Ga.; Fort 
Bragg, N.C.; Fort Belvoir, Va.; Camp Lejeune, N. C.; Quantico, Va.; 
Camp Pendleton, Calif.; Miramar Marine Corps Air Station, Calif.; 
Norfolk Naval Station, Va.; Little Creek Naval Amphibious Base, Va.; 
Oceana Naval Air Station, Dam Neck Annex, Va.; San Diego Naval 
Station, Calif.; and North Island (Coronado) Naval Air Station, Calif. 
We did not independently verify the data the DOD provided. Moreover, 
while our most recent financial audit[Footnote 26] disclosed a 
continuing inability to capture and report the full cost of DOD's 
programs, the data provided by the department is the only data 
available for our analysis. 

We conducted our review from March 2001 through January 2002 in
accordance with generally accepted government auditing standards. 

[End of section] 

Appendix II: Comments from the Department of Defense: 

Assistant Secretary Of Defense: 
Force Management Policy: 
4000 Defense Pentagon: 
Washington, DC 20301-4000: 

March 8, 2002: 

Mr. Barry W. Holman: 
Director, Defense Capabilities and Management: 
U.S. General Accounting Office: 
Washington, D.C. 20548: 

Dear Mr. Holman: 

This is the Department of Defense (DoD) response to the General 
Accounting Office (GAO) draft report GAO-02-35l, "Defense Management: 
Proposed Lodging Policy May Lead to Improvements, But More Actions Are 
Required," dated February 7, 2002 (GAO Code 350050). 

The DoD partially concurs with the draft report. DoD concurs with the 
first three recommendations, but partially concurs with the fourth 
recommendation. The Department will require the Army to discontinue 
the transfer of lodging revenues collected from the surcharge on 
unofficial travelers to installation MWR funds. However, DoD disagrees 
with returning the proceeds already collected by installations, as 
this would create an undue hardship on the MWR program because the 
funds have already been committed. 

Suggested technical changes for clarification and accuracy have been 
provided separately. 

The Department appreciates the opportunity to comment on the draft 
report. 

Sincerely, 

Signed by: 

Charles S. Abell: 

Attachment: As stated: 

[End of letter] 

GAO Draft Report Dated February 7, 2002: 
(GAO Code 350050): 

"Defense Management: Proposed Lodging Policy May Lead to Improvements, 
But More Actions Are Required" 

Department Of Defense Comments To The GAO Recommendation: 

Recommendation 1: The GAO recommended that the Secretary of Defense in
conjunction with the Assistant Secretary of Defense for Force 
Management Policy provide the Marine Corps with a short-term waiver, 
if requested, to permit it time to evaluate policy implementation 
options. 

DOD Response: Concur. The Marine Corps will be provided a short-term 
waiver, if requested, after the proposed policy is implemented to 
permit time for their leadership to evaluate lodging management 
options. 

Recommendation 2: The GAO also recommended that the Secretary of 
Defense in conjunction with the Assistant Secretary of Defense for 
Force Management Policy clarify the proposed policy with regard to 
whether DoD expects the services to combine PCS and TDY lodging 
programs and funds or will allow these separate operations to continue. 

DOD Response: Concur. The DoD agrees to clarify in the proposed policy 
whether the Military Services will be directed to combine PCS and TDY 
lodging programs and funds or be allowed to continue to operate these 
as separate programs with separate funds. 

Recommendation 3: The GAO recommended that the Assistant Secretary of
Defense for Force Management Policy provide the Military Services with 
a policy framework including improved lodging guidance to help achieve 
DoD's desired lodging-program management objectives, including 
consistent lodging policy and operations, reduced room rates, improved 
lodging facilities, and limitations on new construction not focused on 
official PCS and TDY travelers. 

DOD Response: Concur. The DoD will provide clear policy guidance to 
achieve lodging program management objectives. It is expected that the 
new DoD policy will be published by September 30, 2003. 

Recommendation 4: The GAO also recommended that the Assistant 
Secretary of Defense for Force Management Policy require the Army to 
adhere to DoD's and its own regulations by discontinuing the transfer 
of lodging revenues (unofficial-traveler surcharge) to installation 
MWR funds and returning the proceeds collected thus far to the
Army's lodging fund. 

DOD Response: Concur that the Department will require the Army to 
discontinue the transfer of lodging revenues collected from the 
surcharge on unofficial travelers to installation MWR funds However, 
DoD disagrees with returning the proceeds already collected by 
installations, as this would create an undue hardship on the MWR 
program because the funds have already been committed. 

[End of section] 

Appendix III: Staff Acknowledgments: 

Acknowledgments: 

Robert Ackley, Roger Corrado, James Hatcher, M. Jane Hunt, Richard 
Meeks, and Paul Newton made key contributions to this report. 

[End of section] 

Footnotes: 

[1] The services also operate recreational lodging and lodging used by 
those individuals visiting patients in military treatment facilities. 
These lodges have little or no effect on the permanent-change-of-
station lodging program and are not covered in this report. 

[2] The Army and the Air Force have added surcharges while the Navy 
and Marine Corps have not. 

[3] Army Housing: Overcharges and Inefficient Use of On-Base Lodging 
Divert Training Funds, [hyperlink, 
http://www.gao.gov/products/GAO/NSIAD-90-241], Sept. 28, 1990. 

[4] Department of Defense Instruction 1015.12, Lodging Program 
Resource Management, October 30, 1996. 

[5] Each installation has a single MWR account. In addition, there is 
a central MWR construction account that maintains funds collected from 
each installation. These fund are used to address requirements at each 
installation on a priority basis. 

[6] Military exchange services operate a wide range of retail 
activities such as department stores, gas stations, and restaurants. 

[7] The proposed policy change does not restrict the services from 
offering recreational lodging as a component of an installation's MWR 
program. 

[8] The Marine Corps' MWR program has three business activities-—
retail sales, services, and food and hospitality, which includes 
lodging. These activities generate revenues to pay for their own 
operations and use earnings to support other MWR activities that may 
not generate revenues or may generate insufficient revenues to offset 
their costs. 

[9] Net book value represents the original cost of the facilities plus 
any improvements minus the allowable depreciation. 

[10] Department of Defense Instruction 1015.10 Programs for Military 
Morale, Welfare, and Recreation (MWR), November 3, 1995 
(Administrative Reissuance Incorporating Change 1, October 31, 1996). 

[11] The Army also maintains a central lodge construction fund, 
containing funds from each installation with a lodging program, at its 
lodging headquarters in Alexandria, Virginia. 

[12] For example, gross revenues for fiscal year 2000 were about $14 
million, but the MWR programs returned about $9 million to the lodging 
program in various types of support ranging from operating expenses to 
capital improvements. 

[13] Army lodging officials said they could not provide us a breakdown 
of the PCS portion of this backlog without an extensive data-gathering 
effort. 

[14] According to an Army lodging official, the $25 charge is only for 
contractor personnel. 

[15] Oct. 30, 1996; paragraph 4.6. 

[16] Oct. 25, 1998; paragraph 4.7, 4.8, and 4.11. 

[17] Report on Lodging Programs provided to the Senate and House Armed 
Services Committees; May 2, 2001. 

[18] PCS travelers and their families receive a maximum of $180 per 
day for a maximum of 10 days to help them offset the cost of lodging 
and other living expenses. Section 632 of the National Defense 
Authorization Act for Fiscal Year 2002 (Public Law 107-107) increased 
this allowance to $180 per day from $110 per day. The 10-day period 
includes the time military travelers and their families spend while 
they are preparing to move and while they wait for permanent quarters 
at their new duty station. It does not include the PCS travel time 
needed to travel between duty stations. While military travelers are 
also authorized to stay in military lodges while they are enroute to 
their new duty station, they receive a different type of travel 
allowance during this period. 

[19] The Air Force develops 5-year plans to refurbish the interior of 
the lodges. The cost of these plans is built into the rate structure. 

[20] Department of Defense Instruction 1015.10 Programs for Military 
Morale, Welfare, and Recreation (MWR), November 3, 1995 
(Administrative Reissuance Incorporating Change 1, October 31, 1996). 

[21] Over time and with increasing revenues from lodging operations, 
the Marine Corps could in turn devote a greater portion of its lodging 
revenues to meeting non-lodging MWR needs. 

[22] Department of Defense Instruction 1015.12, Lodging Program 
Resource Management, October 30, 1996. 

[23] About $70 million was collected from the surcharge on TDY rooms 
and $30 million on  PCS rooms. 

[24] The Community and Family Support Center is a Field Operating 
Agency under the Army's assistant chief of staff for installation 
management. 

[25] The Navy is reviewing one project in Japan to replace 50 rooms at 
an estimated cost of $10 million for its viability. If this project is 
not built, these numbers will be reduced accordingly. 

[26] DOD Financial Management: Integrated Approach Accountability and 
Incentives are Keys to Effective Reform [hyperlink, 
http://www.gao.gov/products/GAO-01-681T], May 8, 2001. 

[End of section] 

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