Nonappropriated Funds: Opportunities to Improve DOD's Concessions
Committee (Letter Report, 04/30/98, GAO/NSIAD/AIMD-98-119).

Pursuant to a legislative requirement, GAO reviewed the Department of
Defense (DOD) Concessions Committee's operations, focusing on the
Committee's: (1) financial operations; (2) oversight and management; and
(3) contributions to morale, welfare, and recreation (MWR) funds.

GAO noted that: (1) the Concessions Committee's financial statements are
audited by an independent public accounting firm, and those financial
statements have consistently received unqualified opinions; (2) as a
result, GAO did not independently review the Committee's financial
operations; (3) GAO reviewed an independent public accounting firm's
work for the last 2 fiscal years; (4) GAO's review disclosed no
instances where the firm did not comply in all material respects with
generally accepted government auditing standards; (5) the Committee is
not subject to the reporting and oversight requirements of other
nonappropriated fund instrumentalities; (6) although the Committee's
operations are reviewed by a senior official in the Office of the
Secretary of Defense, the Committee has not been required to submit
financial information to Force Management and Policy; (7) therefore,
Congress does not receive information on its activities; (8) also, the
Committee's governing directive does not specify the procedures by which
the Committee is to manage its day-to-day operations or criteria for
determining the types of sales activities it may engage in; (9) in the
absence of specific operating procedures, the Committee has followed
Army regulations for nonappropriated fund instrumentalities; (10) while
GAO did not find any instances where the Committee deviated from the
Army regulations, the absence of mandatory operating regulations
represents a weakness in management controls; (11) although the
Committee has chosen to follow these regulations, it is not required to
do so and therefore cannot be held accountable for deviations; (12)
although the amount available for MWR contributions is directly linked
to the Committee's decisions to retain earnings for reserves and
equipment, there is no written policy to guide its members in making
these decisions, and GAO could find no documentation supporting how the
decisions were reached; (13) although the Committee has a capital
expenditure budget, it does not have a long-term operating budget for
use in making these decisions; (14) at GAO's suggestion, the Committee
has indicated it will prepare a 5-year operating budget that will
identify the minimum level of cash reserves that are needed to cover
current operations; (15) the Committee also plans to review its
long-term capital expenditure budget in light of the ongoing Pentagon
renovations; and (16) these actions may result in identifying additional
resources that could be made available to MWR funds.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD/AIMD-98-119
     TITLE:  Nonappropriated Funds: Opportunities to Improve DOD's 
             Concessions Committee
      DATE:  04/30/98
   SUBJECT:  Reporting requirements
             Financial statement audits
             Accountability
             Nonappropriated federal funds
             Financial management
             Concessions contracts
             Congressional oversight

             
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Cover
================================================================ COVER


Report to Congressional Committees

April 1998

NONAPPROPRIATED FUNDS -
OPPORTUNITIES TO IMPROVE DOD'S
CONCESSIONS COMMITTEE

GAO/NSIAD/AIMD-98-119

GAO/NSIAD-98-119

Nonappropriated Funds

(709302)


Abbreviations
=============================================================== ABBREV

  DOD - Department of Defense
  MWR - morale, welfare, and recreation

Letter
=============================================================== LETTER


B-278782

April 30, 1998

Congressional Committees

In its June 16, 1997, report on the National Defense Authorization
Act for Fiscal Year 1998, the Committee on National Security, House
of Representatives, expressed concern that certain nonappropriated
fund activities at the Pentagon reservation were being operated
without adequate congressional oversight and coordination.  The focus
of the Committee's concern was the Department of Defense (DOD)
Concessions Committee, which, through its concessionaires, generated
sales of approximately $30 million in fiscal year 1997.  The report
directed us to perform a comprehensive review of the Concessions
Committee's operations.  This report responds to that direction and
addresses the Concessions Committee's (1) financial operations; (2)
oversight and management; and (3) contributions to morale, welfare,
and recreation (MWR) funds. 


   BACKGROUND
------------------------------------------------------------ Letter :1

The Concessions Committee succeeded the Pentagon Post Restaurant
Council, which was established in 1942 by the Secretary of the War
Department.  The Council managed the cafeterias and allied
operations, including a drugstore, newsstand, and shoe shine and
repair shop.  The Committee was created and operates pursuant to the
Secretary of Defense's statutory authority under 10 U.S.C.  133 and
is responsible for providing for the administration, operation, and
control of services deemed essential to the health, welfare, and
morale of employees and for the convenience of the government.  The
Committee is a nonappropriated fund instrumentality serving civilian
and military employees in the Pentagon and the Navy Annex. 

Specifically, the Committee issues contracts to others for the
provision of all food services, 331 vending machines, and 33
activities providing retail goods and personal services.  (See app. 
I for a listing of activities.) During fiscal year 1997, these
activities generated sales of approximately $30 million, resulting in
nearly $3.3 million in revenues for the Committee.  The Committee
uses its revenues to provide funding to six civilian MWR funds
benefiting military and civilian employees working in the Pentagon
and the Navy Annex after paying its operational costs.\1 The MWR
funds use the contributions from the Committee to pay administrative
and operating expenses and to subsidize welfare and recreation
activities, including discount tickets to sporting and cultural
events and group events. 

The Director of Administration and Management, Office of the
Secretary of Defense, is responsible for overseeing the Committee's
operations.  The Committee has eight members, including
representatives from each of the military services and the Office of
the Secretary of Defense (see app.  II).  The Committee employs four
full-time staff, paid from nonappropriated funds, including a
business manager who is responsible for day-to-day operations.  The
current manager, who had extensive experience with the Army and Air
Force Exchange Service, has been employed in his current capacity for
more than 10 years. 


--------------------
\1 The six MWR funds are the Office of the Secretary of Defense/Joint
Staff, Army, Navy, Air Force, Defense Information Systems Agency, and
Defense Intelligence Agency. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

The Concessions Committee's financial statements are audited by an
independent public accounting firm, and those financial statements
have consistently received unqualified opinions.  As a result, we did
not independently review the Committee's financial operations.  We
reviewed the independent public accounting firm's work for the last 2
fiscal years.  Our review disclosed no instances where the firm did
not comply in all material respects with generally accepted
government auditing standards. 

The Committee is not subject to the reporting and oversight
requirements of other nonappropriated fund instrumentalities. 
Specifically, Department of Defense regulations require other
nonappropriated fund instrumentalities to submit financial reports to
the Office of the Assistant Secretary of Defense (Force Management
and Policy).  In addition, the military exchange services prepare
annual reports that are submitted to the Congress.  Although the
Committee's operations are reviewed by a senior official in the
Office of the Secretary of Defense, the Committee has not been
required to submit financial information to Force Management and
Policy.  Therefore, the Congress does not receive information on its
activities. 

Also, the Committee's governing directive does not specify the
procedures by which the Committee is to manage its day-to-day
operations or criteria for determining the types of sales activities
it may engage in.  In the absence of specific operating procedures,
the Committee has followed Army regulations for nonappropriated fund
instrumentalities.  While we did not find any instances where the
Committee deviated from the Army regulations, the absence of
mandatory operating regulations represents a weakness in management
controls.  Although the Committee has chosen to follow these
regulations, it is not required to do so and therefore cannot be held
accountable for deviations. 

Although the amount available for MWR contributions is directly
linked to the Committee's decisions to retain earnings for reserves
and equipment, there is no written policy to guide its members in
making these decisions, and we could find no documentation supporting
how the decisions were reached.  Although the Committee has a capital
expenditure budget, it does not have a long-term operating budget for
use in making these decisions.  At our suggestion, the Committee has
indicated it will prepare a 5-year operating budget that will
identify the minimum level of cash reserves that are needed to cover
current operations.  The Committee also plans to review its long-term
capital expenditure budget in light of the ongoing Pentagon
renovations.  These actions may result in identifying additional
resources that could be made available to morale, welfare, and
recreation funds. 


   FINANCIAL DATA REFLECT A
   PROFITABLE OPERATION
------------------------------------------------------------ Letter :3

The Concessions Committee does not receive appropriated funds.  It
generates its revenues, about $3.3 million for fiscal year 1997,
primarily by charging concessionaires and others a fee for operating
in the Pentagon or the Navy Annex. 

Although the Committee does not directly receive any appropriated
funds, it (1) received equipment, with a net book value of $349,997,
in 1992 and 1996, when it assumed certain operations previously
performed by appropriated activities and (2) has the benefit of a
board of directors and legal counsel whose salaries are paid for by
appropriated activities--a practice that is consistent with other DOD
nonappropriated fund instrumentalities.  Serving as a committee
member is a collateral duty for all of these personnel. 

Between fiscal year 1994 and 1997, the Committee used, on average,
over 76 percent of its revenues to pay its expenses, including
general and administrative costs, and operating expenses associated
with the food service and other concessionaire operations.  The
remaining funds were available for funding future operations, capital
expenditures, and contributions to civilian MWR funds.  The Committee
prepares annual financial statements that detail its revenues and
expenses and that are audited by an independent public accounting
firm. 


      INDEPENDENT FINANCIAL
      STATEMENT AUDITS PERFORMED
---------------------------------------------------------- Letter :3.1

The Committee received unqualified opinions on its fiscal year 1997
and 1996 financial statements based on audits performed by the
independent public accounting firm.  Our review of the audit reports
and supporting workpapers did not identify any instances where the
audits appeared to deviate from generally accepted government
auditing standards.  The independent public accounting firm, which
specializes in nonappropriated fund MWR audits, has audited the
Committee's financial statements for the past 50 years.  The
partner-in-charge of the audits since 1993 could not recall any
significant reportable problems identified during work at the
Committee. 

Findings or recommended operational improvements identified during
the audits that do not affect the reliability of financial statements
are generally communicated through management letters.  On February
16, 1998, the independent public accounting firm issued a management
letter to the Committee resulting from its fiscal year 1997 audit. 
The accounting firm recommended that, for internal control purposes,
more than one person be involved in processing cash receipts from
temporary concessionaires,\2 the food service inventory process be
moved closer to year end, and a new general ledger account be created
to report bad debt expense.  The Committee Chairman told us he agreed
with the recommendations and asked the business manager to provide
information on implementation plans.  No management letter was issued
for fiscal year 1996. 


--------------------
\2 Temporary concessionaires accounted for approximately 3 percent of
the Concessions Committee's revenue in fiscal year 1997. 


      COMMITTEE'S OPERATIONS
      GENERATE REVENUE AND NET
      INCOME
---------------------------------------------------------- Letter :3.2

The Committee's revenues have averaged $2.8 million a year since 1994
while its expenses have averaged $2.1 million.  From fiscal year 1994
to 1997,\3 the Committee declared MWR contributions ranging from
$500,000 to $625,000.  MWR contributions, as a percentage of net
income during the same period, ranged from a high of 102 percent in
fiscal year 1994 to a low of 77 percent in fiscal year 1997. 
Earnings that were not used to pay expenses or MWR contributions were
retained by the DOD Concessions Committee for future use in
purchasing new equipment, funding renovations, and paying operating
expenses.  Table 1 documents concessionaire sales and the Committee's
revenues, expenses, net income, MWR contributions declared, and MWR
contributions declared as a percentage of net income. 



                                         Table 1
                         
                             Concessions Committee Financial
                          Statistics: Fiscal Years 1994 through
                                           1997

          Concession
             aire                            Concessions Committee
          ----------  -------------------------------------------------------------------
                                                                                      MWR
                                                                    MWR     contributions
Fiscal                                                     contribution   as a percentage
year           Sales     Revenues  Expenses\a  Net income  s declared\b     of net income
--------  ----------  -----------  ----------  ----------  ------------  ----------------
1994      $26,939,39   $2,584,240  $2,092,054   $492,186\      $500,000               102
                   1
1995      25,976,784    2,497,988   1,938,646     559,342       500,000                89
1996      27,329,737    2,684,071   2,013,186     670,885       525,000                78
1997      29,823,130    3,266,424   2,450,836     815,588       625,000                77
=========================================================================================
Total     $110,069,0  $11,032,723  $8,494,722  $2,538,001    $2,150,000                85
                  42
-----------------------------------------------------------------------------------------
\a Expenses include adjustments for gains or losses from furniture
and equipment disposal. 

\b In general, the Committee declares its MWR contributions in 1 year
for distribution in the next. 

Source:  DOD Concessions Committee information. 


--------------------
\3 In fiscal years 1996 and 1997, the Committee withheld $50,000 per
year of declared MWR contributions for distribution in future years
when reductions in income were anticipated due to the renovation of
the Pentagon. 


      REVENUES ARE PRIMARILY FROM
      CONCESSIONAIRE CONTRACTS
---------------------------------------------------------- Letter :3.3

All of the Committee's revenues result from fees it charges
concessionaires for operating in the Pentagon and the Navy Annex. 
The Committee does not engage in resale activities.  Rather, the
Committee competitively solicits proposals, seeking a fee arrangement
that is based on the type of activity--a percentage of sales and/or a
flat fee that is based on space occupied.  Following its review of
the competitive proposals, it makes a tentative selection that is
submitted to the Director of Administration and Management, Office of
the Secretary of Defense, for final approval.  Once approved, the fee
arrangement becomes part of the contractual agreement between the
Committee and the concessionaire.  During fiscal year 1997,
concessionaire activities accounted for over $3.1 million of the
Committee's total $3.3 million in revenues.  Interest earnings
accounted for most of the remaining revenue. 


      MOST EXPENSES DIRECTLY
      RELATE TO CONCESSIONAIRE
      ACTIVITY
---------------------------------------------------------- Letter :3.4

The Committee's major expenses involve food service concessions
expenses, such as depreciation and equipment repair and maintenance;
other concessions expenses, such as space rent,\4 parking lot costs,
and vending commission expenses; and administrative and general
expenses, such as salaries and benefits.  During fiscal year 1997,
expenses totaled about $2.5 million (76 percent of total revenue), of
which $2.1 million represented concessionaire expenses and $0.4
million represented administrative and general expenses. 


--------------------
\4 Space rent represents the Committee's payments to the Washington
Headquarters Services for costs associated with buildings operations,
including utilities and depreciation.  This expense is set at
37.5 percent of the Committee's prior year revenue. 


   REPORTING AND OVERSIGHT
   REQUIREMENTS DIFFER FROM OTHER
   NONAPPROPRIATED FUND
   INSTRUMENTALITIES
------------------------------------------------------------ Letter :4

In its June 16, 1997, report, the National Security Committee, House
of Representatives, expressed concern that the Concessions Committee
was operating without adequate congressional oversight and
coordination.  Although the Committee's operations are reviewed by a
high level official within the Office of the Secretary of Defense,
the Committee is not subject to the reporting and oversight
requirements of other nonappropriated fund instrumentalities. 
Information on the financial activities of the other nonappropriated
fund instrumentalities is reviewed centrally within the Office of the
Secretary of Defense and submitted to the Congress through the
military services. 

Other nonappropriated fund instrumentalities are required to submit
financial data to the Office of the Assistant Secretary of Defense
for Force Management and Policy,\5 which uses this information to
perform statistical comparative analyses and to monitor the
performance indicators.  These instrumentalities also submit
information through the heads of their military components that is
consolidated into reports to the Congress.  For example, the Army and
Air Force Exchange Service prepares an annual report summarizing its
resale and concessions activities in the United States and overseas. 

The Committee's operations are overseen by the Director,
Administration and Management, Office of the Secretary of Defense. 
The Director's responsibilities include approving the minutes of all
Committee meetings and all contracts and other transactions that
exceed $2,500.  The Director is the final decisionmaker for all
business activities.  Reports of the Committee's activities and plans
are not submitted to any other offices within the Office of the
Secretary of Defense or included in any external reports.  Similarly,
the Committee's financial statements are not submitted to any other
office or consolidated into external financial reports. 


--------------------
\5 Financial Management of Morale, Welfare, and Recreational
Activities, DOD Instruction 7000.12, May 27, 1987. 


   OPERATING PROCEDURES ARE NOT
   SPECIFIED
------------------------------------------------------------ Letter :5

The Committee's current operating guidance does not specify the
procedures by which the Committee is to exercise its authority or the
types of goods and services that can be offered by concessionaires. 
In the absence of specific operating procedures, the Committee has
elected to follow Army regulations applicable to nonappropriated fund
instrumentalities.  While the Committee has chosen to follow these
regulations, it is not required to do so and therefore cannot be held
accountable for deviations. 

The Committee derives its operating authority from a DOD directive.\6
This directive authorizes the Committee to "operate directly or
through an independent contractor restaurants, cafeterias, snack
bars, and dining rooms in the Pentagon Building." It also authorizes
the Committee to provide commercial type concessions.  The directive
does not specify the procedures by which the Committee is to plan,
organize, direct, and control day-to-day operations, nor does it
provide specific guidance on the types of goods and services that can
be offered through its concessionaires. 

In the absence of required operating procedures, and based on
directions provided by the Deputy Chief of Staff of the War
Department in 1942, the Committee has historically followed the Army
Regulations 215 Series--Nonappropriated Fund
Instrumentalities--Morale, Welfare, and Recreation with its
subsections that prescribe procedures for day-to-day operations
involving personnel practices, contracting, and accounting and
reporting.  The purpose of these regulations is to establish policies
and procedures governing Army MWR activities and nonappropriated fund
instrumentalities to include those for which the Army has been
designated executive agent. 

The June 16, 1997, report on the National Defense Authorization Act
for Fiscal Year 1998, by the Committee on National Security, House of
Representatives, also expressed concern that the Concessions
Committee may not be operating in consonance with congressional
resale policy.  Our work indicates that the Committee is not required
to follow DOD regulations governing resale policy.  The Concessions
Committee's legal counsel told us that the Committee is not a resale
activity because it operates through concessionaires and does not
engage in direct sales.  Although the Committee is not required to
so, the business manager told us that the Committee has elected to
follow DOD Directive 1330.9 (Dec.  15, 1986), which establishes
uniform policies for operating armed services exchanges.  This
regulation lists the authorized types of goods and services that can
be offered for resale by the military exchanges. 


--------------------
\6 In 1951 DOD Directive 5140.2 established guidance for the newly
named DOD Concessions Committee.  This directive was superseded in
August 1958 by DOD Directive 5120.18, which was revised in April 1980
and October 1997. 


   NO WRITTEN POLICY FOR
   CALCULATING MWR CONTRIBUTIONS
------------------------------------------------------------ Letter :6

There is no written policy or long-term operating budget to guide the
Committee's members in deciding annual contributions to MWR funds,
and we found no documentation discussing how decisions were reached. 
Over the past 4 fiscal years, the Committee has contributed fewer
dollars as a percentage of its income to the MWR funds, while
significantly increasing the amount retained as reserves.  The
Committee Chairman told us the members' decisions were guided by the
need to fund planned capital improvements and maintain stable MWR
contributions during the Pentagon renovation.  However, without
proper long-term operating budgets, the extent to which such reserves
are necessary is not clear.  If the Committee's need for reserves are
overstated, additional resources could be made available to MWR
funds. 

Annually, the Committee decides how much of the year's net income
will be distributed to MWR activities and how much will be reserved
for future needs.  According to the Committee Chairman, this decision
is based on a number of factors, including known capital expenditure
requirements and the needs of the MWR funds.  Once the Committee
decides on the division of its net income, it requests approval from
the Director, Administration and Management, Office of the Secretary
of Defense.  The approved MWR contribution is stated in the
Committee's minutes, but there is no discussion supporting how the
members arrived at this decision. 

As of September 30, 1997, the Committee had a total of $3.2 million
in cash reserves--$1.3 million that was not designated for a specific
purpose but would be available for payments of future operating
expenses and MWR contributions and $1.9 million for the repair,
maintenance, and replacement of equipment.  Although the Committee
does not have a long-term operating budget for estimating its future
operating cash reserve needs, it does have a capital expenditure
program budget, which estimates it will need $3 million through
fiscal year 2002 and another $1.6 million beyond that date to fund
equipment and related expenditures. 

Despite the current balances in its reserves, the Committee is
concerned about its ability to fund planned capital improvements and
maintain stable MWR contributions during the planned 10-year
renovation of the Pentagon.  As a result, the Committee withheld and
placed in reserve $50,000 of declared MWR contributions in both
fiscal years 1997 and 1996.  The Committee did this to enable it to
have extra funds available to supplement MWR contributions in future
years when reductions in income are anticipated.  Specifically, the
Committee anticipates income will decrease during the renovation of
the Pentagon because 20 percent of the Pentagon staff will be
temporarily relocated to office space outside of the building. 

Because of the uncertainties related to the renovation, the Committee
Chairman has asked the business manager to reassess the capital
expenditure program budget.  At our suggestion, the business manager
agreed to request its independent public accountant's assistance in
preparing a 5-year operating budget that would identify the minimum
level of cash reserves needed to cover normal operations.  These
analyses should be documented and should be used in future decisions
regarding reserve amounts and MWR contributions. 


   CONCLUSIONS
------------------------------------------------------------ Letter :7

The Committee provides significant contributions to six MWR funds. 
Its financial operations have been audited, and our review disclosed
no instances where the independent public accounting firm did not
comply in all material respects with generally accepted government
auditing standards.  However, there are opportunities to improve the
Committee's oversight and operations because the Committee is not
subject to the same reporting requirements as other nonappropriated
fund instrumentalities and the Congress does not receive information
on its activities.  Also, the absence of specified operating
procedures, including guidance on the types of goods and services
that can be offered, represents a weakness in management controls. 
Although the amount available for MWR contributions is directly
linked to the Committee's decisions to retain earnings for reserves
and equipment, there is no written policy to guide its members in
making these decisions, and we could find no documentation supporting
how the decisions were reached.  Furthermore, the Committee does not
have a long-term operating budget for use in making these decisions. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :8

We recommend that the Secretary of Defense (1) require the Committee
to comply with the same reporting requirements of other
nonappropriated fund instrumentalities, thereby ensuring that the
Congress has the opportunity to review the Committee's activities;
(2) specify operating regulations to be followed by the Committee in
its day-to-day operations, including guidance on the types of goods
and services that can be offered; and (3) require the Committee to
develop a policy and a long-term operating budget to guide members in
making MWR contributions and cash reserve decisions and to document
in its minutes the rationale for those decisions. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :9

We received written comments on a draft of this report from DOD (see
app.  III.) DOD described actions it plans to take in reference to
our recommendations.  Specifically, it will modify the DOD issuance
governing the operations of the Concessions Committee to (1) require
the Committee to comply with the same reporting requirements of other
nonappropriated fund instrumentalities and (2) specify operating
regulations to be followed by the Committee in its day-to-day
operations, including guidance on the types of goods and services
that can be offered.  Once complete, these actions will satisfy the
intent of our first two recommendations. 

It also will modify the issuance governing the Committee's operations
to make explicit its commitment to contribute all proceeds not
required for the Committee's operations to MWR activities.  When
complete, this action would partially address, but not satisfy, the
intent of our recommendation.  We believe that the Committee also
needs to develop a long-term operating budget for use in making and
documenting its decisions regarding retained earnings and MWR
contributions.  We have revised the third recommendation in the final
report to clearly reflect our intent. 


   SCOPE AND METHODOLOGY
----------------------------------------------------------- Letter :10

Our objectives were to assess the Concessions Committee's (1)
financial operations and audited statements; (2) management and
oversight procedures; and (3) MWR contributions. 

To assess the Committee's financial operations, we interviewed its
business manager, operating accountant, and independent public
accountant.  We reviewed the financial audit reports and their work
papers, unaudited monthly financial reports, and corresponding
year-end Committee meeting minutes for fiscal years 1996 and 1997. 
In addition, we compared the Committee's expected cash reserves to
its budgeted capital expenditures and projected MWR contributions
through 2002. 

To assess the Committee's operations and management processes, we
interviewed the Committee's business manager and officials from
military exchanges and other Defense nonappropriated fund
instrumentalities.  We used flowchart methods to trace and document
the Concessions Committee's management procedures, participated in a
tour of activities, and obtained and reviewed military exchanges' and
other nonappropriated fund instrumentalities' regulations.  We used
this information to compare the Committee's management structure and
operations with those of the military exchanges and other Defense
nonappropriated fund instrumentalities' operations. 

To assess the Committee's MWR contributions, we documented the
amounts provided for the past 4 fiscal years and interviewed the
Committee's business manager to discuss the rationale for those
decisions.  We also interviewed officials from military exchanges and
other Defense nonappropriated fund instrumentalities to discuss their
respective MWR distribution and retained earnings policies.  We
compared these policies to that of the Concessions Committee. 

Our work was conducted at the Pentagon; Army and Air Force Exchange
Service Headquarters, Dallas, Texas; the Navy Exchange Service
Command's Washington office; and the Committee's independent public
accounting firm.  Our work was also conducted from September 1997 to
March 1998 in accordance with generally accepted government auditing
standards. 


--------------------------------------------------------- Letter :10.1

We are sending copies of this report to the Secretaries of Defense,
the Army, the Navy, and the Air Force; the Chairman of the
Concessions Committee; and the Director, Office of Management and
Budget.  We will make copies available to others upon request. 

Please contact me at (202) 512-8412 if you or your staff have any
questions concerning this report.  Major contributors to this report
are listed in appendix IV. 

David R.  Warren, Director
Defense Management Issues

List of Congressional Committees

The Honorable Strom Thurmond
Chairman
The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate

The Honorable Ted Stevens
Chairman
The Honorable Daniel Inouye
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
United States Senate

The Honorable Floyd Spence
Chairman
The Honorable Ike Skelton
Ranking Minority Member
Committee on National Security
House of Representatives

The Honorable C.  W.  Bill Young
Chairman
The Honorable John P.  Murtha
Ranking Minority Member
Subcommittee on National Security
Committee on Appropriations
House of Representatives


LIST OF TYPES OF CONCESSIONS
ACTIVITIES
=========================================================== Appendix I

Committee Activities at the
Pentagon
----------------------------------  ----------------------------------
Action Resume                       Army/Air Force Mutual Aid
BTG Micro Systems, Inc.             Cards'N Things
Chateau's Ladies Store              Carlson Wagonlit Travel
Cosmetic Center                     Conklyn's Florist
Dental Office                       David Mann Jeweler
Fannie May Candies                  Fort America Military Memorabilia
Gretel's Bake Shop                  H&R Block Tax Service (Seasonal)
Hair Care Center                    Market Center (Periodic Rover)
Market Corner (Periodic Rover)      Market Square (Periodic Rover)
Moto Photo                          Monument Visitor Parking
NationsBank                         Pentagon Book Store
Pentagon Cleaners                   Pentagon Vision Center
Priority Assist Car Buying          Rite Aid Pharmacy
Service                             Shoe Shine/Repair
Sharon Anne Gifts
ARAMARK Corporation

----------------------------------------------------------------------
Committee Activities at the Navy
Annex
----------------------------------  ----------------------------------
Chateau's Annex Ladies Store        Conklyn's Florist
DeFluri's Card and Gift Shop        Hair Care Center
Market Place (Periodic Rover)
----------------------------------------------------------------------

LIST OF CONCESSIONS COMMITTEE
MEMBERS
========================================================== Appendix II

1.  Chairman
Deputy Chief Financial Officer, Office of the Secretary of Defense
(DOD) Comptroller

2.  Representative for Director of Administration and Management,
Office of the Secretary of Defense
Deputy Director, Real Estate and Facilities Directorate, Washington
Headquarters Services, Office of the Secretary of Defense

3.  Army member
Office of the Secretary of the Army, Administrative Assistant

4.  Army member
Chief, Executive Actions Division Management Directorate, Office of
the Chief of Staff of the Army

5.  Navy member
Assistant for Administration, Office of Under Secretary of Navy

6.  Marine Corps member
Secretary of the General Staff, Headquarters United States Marine
Corps

7.  Air Force member
Secretary of the Air Force, Administrative Assistant

8.  Air Force member
Vice Commander Headquarters 11th Support Wing (Air Force District of
Washington)

Legal advisor
Senior Counsel, Office of General Counsel, Washington Headquarters
Services (nonvoting member)

Business manager
(nonvoting member)




(See figure in printed edition.)Appendix III
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
========================================================== Appendix II



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

Barry W.  Holman
Thomas J.  Howard
Kevin B.  Perkins
Lawrence A.  Kiser
Bonita J.  Page

ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION, WASHINGTON,
D.C. 

Lisa G.  Jacobson
Molly B.  Boyle
Evelyn J.  Logue

OFFICE OF THE GENERAL COUNSEL

William T.  Woods
Behn Miller


*** End of document. ***