This is the accessible text file for GAO report number GAO-05-470R 
entitled 'Policy and Criteria Used to Assess Potential Commissary Store 
Closures' which was released on April 26, 2005.

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov.

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately.

April 26, 2005:

The Honorable John Warner:
Chairman:
The Honorable Carl Levin:
Ranking Minority Member:
Committee on Armed Services:
United States Senate:

The Honorable Duncan Hunter:
Chairman:
The Honorable Ike Skelton:
Ranking Minority Member:
Committee on Armed Services:
House of Representatives:

Subject: Policy and Criteria Used to Assess Potential Commissary Store 
Closures:

As part of its pay and benefits package for service members, the 
Department of Defense (DOD) operates supermarket-type stores called 
commissaries to provide service members and their families with 
groceries and authorized household supplies at the lowest practical 
price. The Defense Commissary Agency (DeCA), DOD's designated agency 
for managing commissary stores, operates 273 commissary stores in the 
United States and abroad. To ensure efficient operation of the 
commissary stores, all commissary stores are assessed annually to 
determine whether there should be any operational changes or possible 
store closures. The Office of the Under Secretary of Defense (Personnel 
and Readiness), which has oversight responsibility for DeCA operations, 
can either endorse or change the results of the assessments or direct 
additional actions. In August 2003, the Office of the Under Secretary 
of Defense (Personnel and Readiness) proposed that the military 
services consider the closure of 14 commissary stores not previously 
under consideration for closure. Subsequently, various members of 
Congress raised questions about these proposed actions, including 
whether DOD's policy and criteria for deciding whether to close 
commissary stores adequately considered the impact on quality of life 
of service members and their dependents. Congress, in enacting the 
fiscal year 2005 defense authorization act, included a provision 
mandating that quality of life be a primary consideration in the 
closure decision-making process.

In response to a mandate in the Ronald W. Reagan National Defense 
Authorization Act for Fiscal Year 2005,[Footnote 1] we examined DeCA's 
policies and process for analyzing commissary stores for potential 
closure. Our objectives were to review (1) the policy and criteria used 
to analyze potential commissary store closures, determining whether 
these policies and criteria are consistent with the policies on 
preserving quality of life for the armed forces, and (2) any studies or 
assessments conducted to close commissary stores.

We performed our work at DeCA headquarters located at Fort Lee, 
Virginia; DeCA-East, Virginia Beach, Virginia; the Commissary Operating 
Board (COB); and the Office of the Under Secretary for Defense 
(Personnel and Readiness). To address our objectives, we reviewed 
regulations, policies, and guidance related to the closure of 
commissary stores. We also reviewed a March 2005 policy memo that 
implements the congressional direction contained in the Ronald W. 
Reagan National Defense Authorization Act for Fiscal Year 2005. In 
addition, we reviewed commissary store performance assessments for 
fiscal years 2001 through 2004 and discussed data reliability with 
officials in the Office of the Secretary of Defense. Finally, we 
interviewed officials at DeCA headquarters, the COB, and in the Office 
of the Under Secretary of Defense (Personnel and Readiness) regarding 
how they balance business and quality of life factors in making 
decisions about whether to close commissary stores. We determined that 
the data used were sufficiently reliable for the purposes of this 
review. We conducted our review from January through April 2005 in 
accordance with generally accepted government auditing standards.

Summary:

Based on a recent legislative requirement, the Office of the Secretary 
of Defense issued new policy guidance in March 2005 to reinforce and 
ensure that quality of life will be a primary consideration in all 
future assessments of commissary operations. No assessments have been 
conducted under the revised guidance.

Annual assessments of commissary stores' performance have been 
conducted in recent years to determine whether operational changes were 
needed or whether potential store closures should be considered. 
Consistent with the criteria in effect at that time, each assessment 
considered both quality of life and business factors. After reviewing 
DeCA's fiscal year 2002 annual assessment in August 2003, the Office of 
the Principal Deputy Under Secretary of Defense (Personnel and 
Readiness) proposed that DeCA consider closing 14 commissary stores 
primarily because financial goals were not met or because too few 
active-duty personnel were present. This decision was apparently 
inconsistent with DOD policy requiring that quality of life and 
business factors be considered in the aggregate. Significant concerns 
were expressed by the military services and members of Congress over 
the closure of the 14 stores. DOD subsequently decided to keep the 14 
stores open, 6 because of their improved financial performance and 8 
because of quality of life concerns and other factors. DeCA 
headquarters did not recommend any store closures in the 2004 
assessment process, the results of which are currently being reviewed 
within the Office of the Under Secretary of Defense (Personnel and 
Readiness).

Background:

Commissary stores are located in 46 states and 14 foreign countries. 
Headquartered at Fort Lee, Virginia, DeCA is DOD's designated agency 
for managing commissary stores worldwide. As of September 30, 2004, 
DeCA had 273 stores with annual sales of about $5 billion. The COB, 
which consists of representatives from each of the military services, 
has day-to-day operational oversight responsibilities for DeCA. The 
Under Secretary of Defense (Personnel and Readiness) exercises overall 
supervision of the commissary store system.

DeCA's mission is to provide beneficiaries with groceries and 
authorized household supplies at the lowest practical price, charging 
patrons only for the cost of goods plus a 5 percent surcharge. The 
funds generated by the surcharge are used to acquire (including 
acquisition by lease), construct, repair, maintain, and equip the 
physical infrastructure of commissary stores and central product 
processing facilities. Additionally, the recovered cost-of-goods sold 
is rolled over to purchase replacement inventory. In fiscal year 2005, 
DeCA also received about $1.2 billion in direct appropriations from 
Congress for its annual operating expenses. This appropriation pays for 
employees' salaries, transportation, some above-store-level information 
technology, and other expenses. Any savings in stores' operating costs 
do not affect the cost of merchandise sold in the commissary stores 
because such savings reduce the need for appropriated funds.

All commissary stores have been subject to annual performance 
assessments to determine whether there should be any operational 
changes or possible store closures. Since fiscal year 2001, DOD's 
policy required these assessments to consider both quality of life and 
business factors, as seen in table 1.[Footnote 2]

Table 1: Selected Assessment Criteria for Commissary Stores:

Factor: Quality of life; 
Criteria: * Presence of an active duty mission and at least 100 active 
personnel assigned to the installation; * Capacity of other 
commissaries in the area to adequately support the customer base within 
a reasonable distance. Reasonable distance and time are defined as 20 
miles or 30 minutes travel one way; * Proximity to alternate civilian 
shopping.

Factor: Business case; 
Criteria: * Unit cost of operations; * Historical and projected sales 
data; * Fifteen year forecast of the installations' patron demographics 
and mission changes; * Funding needed to sustain efficient and 
effective operations of an existing commissary.

Source: GAO analysis of DOD data.

[End of table]

The annual assessment process includes the collection of sales and cost 
data for each store. Information is also collected on patron 
demographics, projected mission and force structure changes at the base 
where the commissary store is located, proximity to the nearest 
commissary and alternative commercial stores, and remoteness of the 
installation. Based on these assessments, DeCA headquarters recommends 
any needed store closures, the creation of combined stores, as well as 
any changes in store operations to the COB.[Footnote 3] The COB can 
either endorse or change the proposed actions, based upon the judgment 
and needs of the participating service representatives. The COB then 
forwards the recommendations to the Principal Deputy Under Secretary of 
Defense (Personnel and Readiness) for final approval. The Principal 
Deputy Under Secretary of Defense can either endorse or change the 
proposed action or recommend additional actions.

New Policy Guidance Issued:

In March 2005, DOD issued new policy, based on congressional direction, 
to ensure that quality of life is a primary factor considered in 
evaluating whether commissary stores should be closed and that the 
quality of life of active-duty service members' dependents and members 
of the reserve components is also considered. No assessments of 
commissary stores have been conducted under the new policy.

Results of Prior Assessments:

Prior to the issuance of new policy, DOD's policy and criteria for 
assessing the potential closure of commissary stores required that both 
quality of life and business factors be considered, which is consistent 
with DOD's policies to preserve quality of life for service 
members.[Footnote 4] The quality of life factors consider the number of 
active duty personnel, remoteness of the duty stations, distance to the 
nearest alternative commissary store, and availability of civilian 
shopping facilities, while the business factors include the current and 
projected sales and cost of operations. DOD's policy required that the 
criteria should be applied in the aggregate for the commissary store 
program and not in isolation. Thus, a commissary store with high 
operating costs relative to sales, but in a remote location, might not 
be closed because of the negative effect closure would have on active-
duty service members' quality of life.

Since 2001, DeCA has recommended the closure of 12 commissary stores. 
Six of these stores were closed because they were on installations that 
closed.[Footnote 5] Three more stores were closed because of aging 
facilities, declining customer base, declining sales, high unit costs, 
and close proximity to another commissary.[Footnote 6] However, the COB 
deferred the recommended closure of two additional stores, which remain 
open because of quality of life, and one store because of prior 
arrangements to support a contractor workforce.[Footnote 7]

After reviewing DeCA's fiscal year 2002 annual assessment, which 
recommended the closure of 2 stores (one on an installation that was 
closing and another because there was less than 100 active-duty 
personnel),[Footnote 8] the Principal Deputy Under Secretary of Defense 
(Personnel and Readiness) recommended that as many as 14 additional 
commissary stores be closed. The operating costs of these 14 stores in 
fiscal year 2002 were about $6.5 million, or less than 1 percent of 
DeCA's annual appropriations. Depending upon improvement in fiscal year 
2003, 6 of these 14 stores were recommended for closure by the 
Principal Under Secretary of Defense because their unit costs were very 
high compared to DeCA's overall unit cost,[Footnote 9] as shown in 
table 2.

Table 2: Unit Cost Comparison for Commissary Stores Recommended for 
Closure:

Commissary: Yuma Proving Ground, Arizona; 
Fiscal year 2002 unit cost: .51.

Commissary: Lakehurst , New Jersey; 
Fiscal year 2002 unit cost: .40.

Commissary: Dahlgren, Virginia; 
Fiscal year 2002 unit cost: .35.

Commissary: Kelley Barracks, Germany; 
Fiscal year 2002 unit cost: .47.

Commissary: Hario, Japan; 
Fiscal year 2002 unit cost: .42.

Commissary: Pusan, Korea; 
Fiscal year 2002 unit cost: .48.

Commissary: DeCA overall unit cost; 
Fiscal year 2002 unit cost: .21.

Source: GAO analysis of DeCA assessment data.

[End of table]

Service officials stated these six commissary stores had existed 
primarily for quality of life reasons and should not be evaluated 
strictly on business factors such as unit cost. They believed that the 
Principal Deputy Under Secretary of Defense (Personnel and Readiness) 
failed to consider the difficulty that patrons could encounter in 
getting to the next nearest commissary due to terrain, urban 
congestion, or security concerns. Likewise, service officials noted 
that service members and their dependents cannot always find products 
in alternate overseas civilian shopping locations that typically could 
be purchased in stateside civilian shopping locations.

The Principal Deputy Under Secretary of Defense (Personnel and 
Readiness) recommended the remaining eight commissary stores[Footnote 
10]--7 overseas and 1 in the United States--for closure because they 
served fewer than 100 active-duty members or there was another 
commissary store in close proximity. Army and Navy officials noted that 
these commissary stores also existed because of other quality of life 
concerns. For example, some of these overseas commissary stores were 
located in housing areas, improving quality of life by providing easy 
and safe access. Army and Navy officials also noted that some families 
overseas only have one vehicle, which is used during the day by the 
active-duty service member, leaving no transportation available for the 
dependents. In other overseas locations, patrons face difficult winter 
conditions, limited public transportation, and dangerous roads, 
especially in remote mountainous terrain. Likewise, for the U.S. 
commissary, Army officials noted that nearest commissary to Dugway 
Proving Ground is over 100 miles away, and alternative civilian 
shopping is nearly 40 miles away. By May 2004, DOD decided that all 14 
commissary stores could remain open because they were now meeting 
financial goals or were needed to maintain quality of life for service 
members.

DeCA did not recommend any commissary store closures in its 2004 
assessment that is currently being reviewed within the office of the 
Under Secretary of Defense (Personnel and Readiness). However, because 
of existing agreements with the host nations, three overseas commissary 
stores will close in fiscal year 2005, and two other overseas stores 
will consolidate to improve customer service and maximize 
efficiencies.[Footnote 11]

Agency Comments:

In commenting on a draft of this report, the Deputy Under Secretary of 
Defense (Military Community and Family Policy) concurred with the 
report. The department provided various technical comments which were 
incorporated as appropriate. DOD's comments are reprinted in the 
enclosure of this report.

We are sending copies of this report to the Secretary of Defense; the 
Under Secretary of Defense (Personnel and Readiness); the Chairman, 
Commissary Operating Board; the Director, Defense Commissary Agency; 
and the Director, Office of Management and Budget. In addition, the 
report will be available at no charge on GAO's Web site at [Hyperlink, 
http://www.gao.gov] and to others upon request.

Please contact me at (202) 512-5581 if you or your staff have any 
questions concerning this report. Major contributors to this report 
were Michael Kennedy, Paul Gvoth, Julia Matta, and Renee Brown.

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

[End of section]

Enclosure I: Comments from the Department of Defense:

Office Of The Under Secretary Of Defense:
4000 Defense Pentagon:
Washington, D.C. 20301-4000:

April 21, 2005:

Mr. Barry W. Holman:
Director, Defense Capabilities and Management:
U.S. Government Accountability Office:
441 G Street, N. W.:
Washington, DC 20548:

Dear Mr. Holman:

This is the Department of Defense (DoD) response to the GAO draft 
report, "Policy and Criteria Used to Assess Potential Commissary Store 
Closures," dated April 7, 2005 (GAO Code 350629/GAO-05-470R). DoD 
concurs with the overall report. We request that GAO modify the report 
to reflect the recommended technical corrections enclosed.

Thank you for the opportunity to comment on this letter.

Sincerely,

Signed by:

John M. Molino
Deputy Under Secretary of Defense:
(Military Community and Family Policy):

Enclosure: As stated:

(350629):

FOOTNOTES

[1] Pub. L. No. 108-375,  597(b) (Oct. 28, 2004).

[2] Annual commissary assessments are mandated by Armed Services 
Commissary Regulation, DOD 1330.17-R, and the Principal Deputy Under 
Secretary of Defense (Personnel and Readiness) policy memo of June 8, 
2004.

[3] According to DeCA officials, the general policy is to close a 
commissary store on an installation that is closed as a result of base 
closure. However, subject to general and economic criteria, DOD may 
authorize a commissary store to remain open or operate as a downscaled 
commissary or allow the exchange service to operate a combined store to 
serve any remaining active-duty or reservist personnel and retirees.

[4] DOD policy regarding service member quality of life is a result of 
the goals expressed in Department of Defense, A New Social Compact: A 
Reciprocal Partnership Between the Department of Defense, Service 
Members and Families (July 2002). This social compact identifies 
commissary stores as an important nonpay compensation benefit for 
service members and their families.

[5] According to DeCA officials, these six stores were Presidio of San 
Francisco, California; Winter Harbor, Maine; Roosevelt Roads, Puerto 
Rico; Bad Aibling, Germany; Bad Kreuznach, Germany; and Costanzo, 
Italy. 

[6] These three stores were Point Mugu, California; New Cumberland, 
Pennsylvania; and Fort Monroe, Virginia.

[7] These three stores were Fort Greeley, Alaska; Mitchel Field, New 
York; and Sagami Depot, Japan.

[8] These 2 are part of the 12 commissary stores noted above.

[9] Unit cost is determined by dividing store operating costs by annual 
sales.

[10] These eight commissary stores were: Dugway Proving Ground, Utah; 
Idar-Oberstein, Germany; Neubrucke, Germany; Panzer Kaserne, Germany; 
Camp Kure, Japan; Sagami Depot, Japan; Sagamihara, Japan; and Chinhae, 
Korea

[11] Camp Howze, Korea, closed November 30, 2004, and Camp Page, Korea, 
will close March 31, 2005, in accordance with a United States/Republic 
of Korea Land Partnership Agreement, and Rhein-Main, Germany, will 
close September 30, 2005 when the United States Air Force Europe 
relocates its military airlift mission. The Naples and Gricignano, 
Italy, commissaries will be consolidated at Gricignano to meet Navy 
restationing needs.