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Commissary Savings Study Was Incomplete: Auditors

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A commissary patron shops at the Camp Humphreys, South Korea, store. Tanya Im/Army

The Defense Department failed to provide Congress with a complete picture of what it would take to eliminate taxpayer funding of the commissary system while still keeping stores open and patron savings at current levels, according to a report released this week.

The Pentagon was required by Congress in the 2016 National Defense Authorization Act to produce a plan to achieve "budget neutrality." In the plan, released in June, officials said that there is no way to do so without closing stores or raising prices, but offered some ways the department could instead save $2 billion over five years.

But Government Accountability Office auditors found that the Pentagon didn't give a basis for the proclamation that what Congress was asking for is impossible. And the $2 billion savings over five years conclusion, government researchers found, also lacked a clear reasoning.

"A way to think about it is: [DoD] partially did what Congress mandated them to do," said Brian Lepore, who directs GAO's defense capabilities and management office and wrote the report. "Part of the way we wanted to look at this is 'did they fully answer the question?' or 'did they partially answer the question?' Even if you just say 'no I can't achieve budget neutrality,' that's an answer. The question: is it a full answer?"

The Pentagon's $2 billion in savings figure was guesswork, the GAO report says. To meet the Congress's requirements, officials need to explain how they arrived to that number.

"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," the report says. "Without information to support DOD's conclusion ... 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 decision makers cannot evaluate the effectiveness of DoD's efforts to achieve cost savings without reducing patron benefits."

The commissary annually receives about $1.3 billion in taxpayer funding, which pays for costs like store operations, employee salaries and shipping groceries to overseas locations. Goods are sold at cost plus a 5 percent surcharge, which pays for store maintenance and construction. A pilot program set to begin next year will test raising the prices of some goods to offset those costs.

The DoD agreed with the GAO's criticisms, and took the unusual step of including additional data and research in their response to the findings included in the released report.

"The Department's assessment that budget neutrality is not possible is based on comparative analysis," the response says. "Profit and loss entities (such as the defense exchange system and commercial grocers) fund their operating costs out of gross profits ... the defense commissary system does not generate any gross profits, due to the mandated pricing model."

In their response, department officials further clarified the options for finding that budget neutrality: increase prices or eliminate all operating costs by closing the system entirely.

Although the Pentagon also concurred with the report's finding that they did not have a clear basis for their $2 billion in savings over five years estimate, they did not offer in their response a clarified breakdown. Instead, they noted that they came to the number by examining recommendations made in a separate commissary report released late last year by the Boston Consulting Group.

Commissary advocates said the report shows that Congress does not have enough information from the department to carry out any plans for commissary cuts while still maintaining savings.

The report "has confirmed our fears that the Defense Department's plans have little basis in data, merit, and are deficient of methodical analysis," stated Candace Wheeler, a spokesperson for The Coalition to Save Our Military Shopping Benefits, which lobbies on behalf of the commissary.

"The GAO report should remind Congress and Executive Branch policy-makers to move carefully in order to protect troop-generated exchange funding from being diverted to pay what have traditionally been legitimate taxpayer obligations," she stated.

-- Amy Bushatz can be reached at amy.bushatz@military.com. Follow her on Twitter at @amybushatz.

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