DOD Commissaries and Exchanges: Plan and Additional Information Needed on Cost Savings and Metrics for DOD Efforts to Achieve Budget Neutrality [Reissued on November 14, 2016]
Highlights
What GAO Found
The Department of Defense's (DOD) May 2016 report on commissaries and exchanges does not provide a plan for achieving budget neutrality, which DOD interprets as ending the use of appropriated funding for commissaries and exchanges by October 2018. The report states that DOD will not be able to achieve budget neutrality, but does not provide detailed information on why budget neutrality is not possible. According to the report, DOD cannot achieve budget neutrality without reducing patron benefits; however, the report does not include cost estimates, assumptions, or specific details about trade-offs or limitations that would clarify DOD's conclusion that budget neutrality is not possible. Instead, DOD's report states that DOD expects to achieve an estimated $2 billion in reductions over a 5- year period from fiscal year 2017 through fiscal year 2021. However, the report does not include any assumptions, a methodology, or specific time frames related to cost savings initiatives that would lead to the $2 billion savings. According to DOD officials, the cost savings amount was an arbitrary estimate, and they did not develop details on the steps they would take to achieve $2 billion in savings. Without information to support DOD's conclusion related to achieving budget neutrality and a plan for achieving an alternative reduction in cost savings, the department lacks the assurance that its cost savings target is an accurate and achievable cost savings estimate, and decisionmakers cannot evaluate the effectiveness of DOD's efforts to achieve cost savings without reducing patron benefits.
GAO's analysis found that DOD's report fully addresses three of the seven mandated elements and partially addresses the remaining four. Although DOD's report discusses the seven mandated elements, GAO found that including additional information would have made the report more consistent with relevant generally accepted research standards and would have made the report more useful to decision makers. For example, the report did not fully include information about assumptions and anticipated cost savings associated with establishing common business processes at commissaries and the exchanges. According to DOD officials, DOD is in the early stages of developing efforts that could include an estimated cost savings target, and DOD did not have time to include additional information in the report.
In addition, GAO found that DOD's report discusses the three mandated benchmarks for customer satisfaction, quality of products, and patron savings but does not define specific metrics for each of the benchmarks. For example, DOD has not defined customer satisfaction relative to maintaining a “high level” of satisfaction or determined what results would qualify as meeting that benchmark. In another example, DOD has not determined whether the commissaries and exchanges are to use the last available savings rate or the average savings rate over the past 5 years as the metric for a sustained patron savings rate. Without specific metrics to assess the mandated requirements related to customer satisfaction, product quality, and patron savings, DOD cannot effectively assess its performance in meeting the benchmarks for success.
Why GAO Did This Study
Given budget constraints, DOD is reviewing opportunities for efficiencies in its commissaries and exchanges, which provide reduced- price groceries and services for the military community. In fiscal year 2015, $1.3 billion in appropriated funds were used for DOD commissaries and exchanges. The National Defense Authorization Act for Fiscal Year 2016 mandated that DOD report on its plan for budget neutrality, and included a provision for GAO to assess DOD's report.
GAO evaluated the extent to which DOD's report (1) includes a plan to achieve budget neutrality and (2) addresses seven mandated elements and three mandated benchmarks to ensure the maintenance of customer satisfaction, quality of products, and savings that commissary and exchange patrons are to realize.
GAO compared DOD's report with the mandated elements and benchmarks, generally accepted research standards, and federal internal control standards, and interviewed DOD officials.
Reissued on November 14, 2016
Recommendations
GAO recommends that DOD provide information to Congress to support its conclusion about budget neutrality; develop a plan for achieving alternative reductions to appropriations; and identify specific metrics for customer satisfaction, product quality, and savings. DOD concurred with GAO's recommendations.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Defense | As DOD assesses potential cost savings under the Defense Resale Business Optimization Board or through other cost savings initiatives identified, the Secretary of Defense, with assistance as necessary from the Director and Chief Executive Officer of the Defense Commissary Agency, the Director and Chief Executive Officer of the Army and Air Force Exchange Service, the Chief Executive Officer of the Navy Exchange Service Command, and the Marine Corps Exchange, should provide information to Congress that includes data, assumptions, and methodology supporting DOD's conclusion for not achieving budget neutrality. |
DOD concurred with this recommendation. In 2018, DOD issued a business case analysis-which included data, assumptions, and a methodology, as we recommended-with options for consolidating commissaries and exchanges in order to achieve cost savings that would reduce the need for appropriations. While the department is no longer pursing budget neutrality, the analysis stated that the recommended option for consolidation would achieve $693 million to-$1.3 billion in savings within 5 years, resulting in reduced need for appropriations. However, we reported in April 2020 that the analysis overestimated savings and underestimated cost estimates. In DOD's written comments on our April 2020 report, the department provided revised savings and costs estimates that addressed the issues we reported. Further, the department is currently working to update the business case analysis with this information and more current data to further improve the estimated savings that the Defense Commissary Agency (DeCA) can achieve. By taking these numerous steps to develop and revise its savings estimates, we believe that DOD has addressed the intent of the recommendation to provide information on its efforts to reduce its need for appropriations.
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| Department of Defense | As DOD assesses potential cost savings under the Defense Resale Business Optimization Board or through other cost savings initiatives identified, the Secretary of Defense, with assistance as necessary from the Director and Chief Executive Officer of the Defense Commissary Agency, the Director and Chief Executive Officer of the Army and Air Force Exchange Service, the Chief Executive Officer of the Navy Exchange Service Command, and the Marine Corps Exchange, should develop a plan with assumptions, a methodology, cost estimates, and specific time frames for achieving alternative reductions to appropriations, to support DOD's efforts to ensure that DOD's cost savings target is feasible and accurate. |
DOD concurred with this recommendation. In May 2018, the Deputy Secretary of Defense issued a memo that directed the then Chief Management Officer to assemble a task force to perform a business case analysis to consider full consolidation of the Defense Commissary Agency (DeCA) and the military exchanges into a single defense resale enterprise to capitalize on synergies and thus reduce appropriated funding needs for DeCA. DOD issued its resulting business case analysis in November 2018. The business case analysis contained assumptions, a methodology, cost estimates, and timeframes, as well as savings that DOD estimated could be achieved through consolidation in order to reduce the need for appropriations. However, we reported in April 2020 that the analysis overestimated savings and underestimated cost estimates. In DOD's written comments on our report, the department provided revised savings and costs estimates that addressed the issues we found in our report. Further, the department is currently working to update the business case analysis with this information and more current data to further improve the estimated savings that DeCA can achieve through better coordination with the exchanges and other various reforms. By taking these numerous steps to develop and revise its savings estimates, we believe that DOD has addressed the intent of the recommendation.
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| Department of Defense | As DOD conducts pilot programs, the Secretary of Defense, with assistance as necessary from the Director and Chief Executive Officer of the Defense Commissary Agency, the Director and Chief Executive Officer of the Army and Air Force Exchange Service, the Chief Executive Officer of the Navy Exchange Service Command, and the Marine Corps Exchange, should identify specific metrics to determine whether DOD has fulfilled the mandated requirement to maintain high levels of customer satisfaction, the provision of high-quality products, and the sustainment of patron savings. |
DOD concurred with this recommendation. In November 2021, as part of an ongoing review of DeCA's performance management and its current reforms intended to improve its business operation, we determined that DeCA (1) has metrics for assessing customer satisfaction resulting from customer surveys, (2) tracks stocking levels and performs category management to assess the provision of high-quality goods, and (3) evaluates the customer savings rate. Further, in meetings with the Army and Air Force Exchange Service, Navy Exchange, and Marine Corps Exchange, we found that each organization tracks pricing comparisons and customer satisfaction and manages goods provision through category management. As DOD has identified specific metrics as we recommended, we consider the intent of this recommendation addressed.
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