Military Exchange Systems:
How They Can Provide More Benefits for Military Personnel
FPCD-80-50: Published: Jul 18, 1980. Publicly Released: Jul 18, 1980.
- Full Report:
Difficulties in recruiting and retaining personnel in the all-volunteer Armed Forces are causing Department of Defense (DOD) officials to seek ways to increase benefits to service personnel and make military life more attractive. Military exchanges provide authorized customers with articles and services at the lowest practicable prices and are a source of funds for other types of morale, welfare, and recreation (MWR) activities. The exchanges are organized into three separate worldwide systems. Consolidation and centralization of these systems and alternative funding practices could reduce costs and improve benefits. DOD did not follow up on previous agency reports which recommended consolidation because they were not convinced that large savings would occur. It believed the consolidated system would be unmanageable and unsupported by Congress, and other matters took higher priority. Some consolidation has taken place by the integration of the Army and Air Force exchange systems and consolidation of the services' catalog business. If DOD did not require exchange systems to help fund other MWR activities, these systems could operate without appropriated-fund support and focus on providing goods and services to military personnel at the lowest practicable prices. This would establish customer-savings goals rather than profit goals. If the exchanges paid all of their expenses now charged to appropriated funds rather than providing funds for other activities, they would have more than enough to be self sufficient. Unless specifically asked, DOD does not inform Congress of the amount of exchange profits, how these funds are distributed, and the use of exchange dividends by the services. DOD officials oppose changing current funding practices primarily because they believe Congress would not fund MWR activities at their current levels. GAO believes Congress would have provided a lesser amount to fully fund activities had DOD justified them for the morale and welfare of service personnel and had it explained that alternative funding was more costly.
The financial advantages and the desirability of consolidating exchange functions have been identified in three other independent studies. In view of the potential for substantial benefits to military personnel, GAO believes it is time for DOD to take a strong leadership role in assessing the benefits of consolidating and centralizing exchange functions in whole or in part. The Coordinating Committee or a similar study group could assess this on a function-by-function basis, followed by promptly identifying the benefits without waiting for the entire exchange system to be reviewed. GAO believes that by changing the funding practices MWR activities could improve benefits to military personnel. Without the requirement to provide funds for other MWR activities, the exchanges could concentrate on their primary mission of providing goods and services to military personnel at the lowest practicable prices.
Recommendation for Executive Action
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Recommendation: To reach a decision on consolidation, the Secretary of Defense should direct the Armed Forces Exchange Coordinating Committee or a similar study group to identify the potential cost savings, the improved benefits to service personnel, and the feasibility of consolidating the three Defense exchange systems in whole or in part. The analyses should include quantifying attainable savings and improved benefits to service personnel, and assessing Defense and service officials' concerns about consolidation and the most appropriate method for addressing them. The Secretary of Defense should eliminate the requirement to distribute exchange profits as a source of funds for other MWR activities; require the exchange systems to reimburse appropriations for costs incurred in support of exchange operations; and budget for and justify to Congress the full cost of activities now partially funded with exchange profits.