Military Exchange Systems

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.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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