The Defense Department's plan for saving money on commissary operations is thin on details, and decision-makers will need these details to evaluate whether the savings come at the expense of customer benefits, according to a new report from government auditors.
The Wednesday report from the Government Accountability Office echoes concerns expressed by family advocates and members of industry that defense officials were embarking on wholesale changes to the commissary benefit without a clear analysis of how the changes would affect the benefit -- particularly if prices are increased.
The GAO report "has confirmed our fears that the Defense Department's plans have little basis in data, merit, and are deficient of methodical analysis," said Candace Wheeler, spokeswoman for The Coalition to Save Our Military Shopping Benefits, in a statement. The coalition is a group of about 25 military and veteran organizations and groups representing members of industry that do business with commissaries and exchanges.
"The GAO report makes it clear that DoD doesn't have enough information to know how its proposed changes will affect the resale system," stated Joyce Raezer, executive director for the National Military Family Association, one of the coalition organizations. "We're concerned about the long-term impacts on a benefit that thousands of service members and families rely on."
The GAO auditors analyzed DoD's plan submitted to Congress in May for cost savings. Congress had tasked DoD to develop a plan to achieve "budget neutrality" in the commissary and exchange systems by Oct. 1, 2018 – to operate without any taxpayer dollars and without negatively affecting commissary and exchange benefits. That mandate came after increased efforts within DoD to drastically reduce the taxpayer subsidy in the face of continuing budget pressures. DoD had proposed in 2014 and 2015 to gradually cut $1 billion from the commissary agency's $1.4 billion annual operating budget.
The military exchanges receive about $400 million annually in taxpayer dollars, used to fund their support of military members in contingency operations and to pay for shipping products to exchanges outside the continental U.S. so that the cost of shipping is not included in the customer's price.
In their "budget neutrality" plan to Congress in May, DoD officials said the only way to entirely eliminate taxpayer funding for commissaries is to shut them all down. That's not an option, nor is drastically increasing prices, DoD officials said. But in the GAO report, auditors said the May plan "states that DoD will not be able to achieve budget neutrality, but does not provide detailed information on why budget neutrality is not possible."
In their response to GAO, DoD noted through a variable pricing program, they would have to increase commissary prices across the board by about 25.5 percent to generate the profit necessary to pay for operating commissaries, and that wouldn't meet the requirement to maintain the current level of savings.
Commissary agency officials report that customers save an average of 30 percent compared with civilian grocery stores. Commissary products are sold at cost, plus a 5 percent surcharge used to pay for construction. Congress has given defense officials the authority to test a program where commissaries could mark up prices to make a profit that would be used to pay for operating expenses.
DoD is developing a pilot program to test that variable pricing. Another test will involve selling private label items -- also known as generics, or what shoppers at private-sector outlets would consider store brands.
The GAO report also criticized DoD for including expectations of $2 billion in savings over five years in their May plan. Auditors say the plan didn't "include any assumptions, a methodology, or specific time frames related to cost savings initiatives that would lead to the $2 billion savings."
The DoD plan "represented an early stage in the evolution of a complex excursion into 'unchartered territory,' a complete restructuring of the highly-legislated defense commissary system," wrote Peter Levine, acting undersecretary of defense for personnel and readiness, in his response to the GAO report.
The compressed timeline for the congressionally-mandated DoD plan, as well as for the GAO review, prevented DoD from providing details about the initiatives, he wrote.
"As these savings initiatives are fleshed out, the Department will provide additional information to Congress with regard to data, assumptions, and methodology," DoD officials wrote in their response to GAO.
The estimate of potential savings was based on a report by the Boston Consulting Group, according to the DoD response. Officials responded that the leaders of the commissary and exchange systems and the DoD deputy chief management officer "worked collaboratively" to develop a budget proposal, resulting in the $2 billion estimate.
But sources said exchange and commissary officials had limited input into the DoD plan and the estimate.
The GAO auditors specifically recommended that the defense secretary direct officials from the commissary and exchange systems to provide details supporting DoD's conclusion about not being able to operate without taxpayer dollars, and to provide details supporting the feasibility of cutting the $2 billion. Exchange and commissary officials should identify specific measures to ensure that as DoD is conducting pilot programs, it is fulfilling the requirement to maintain the customer savings, maintain customer satisfaction and continue to provide high-quality products, the report states.
Karen Jowers covers military families, quality of life and consumer issues for Military Times. She can be reached at