Report | Feb. 28, 2017

Defense Commissary Agency Purchases of Fresh Produce in Guam DODIG-2017-060

Objective

We determined whether the Defense Commissary Agency’s (DeCA) new fresh fruit and vegetable (fresh produce) local purchase process was more effective than the previous DeCA transportation–funded process in the Pacific Theater. Specifically, we focused on the cost and freshness of the produce purchased between November 2015 and August 2016. DeCA purchases fresh produce from in-country contractors in an attempt to leverage the contractor’s buying power to acquire products in volume from sources grown locally, regionally, or globally at the lowest possible cost. This is the first in a series of audits to review the current contracts for fresh produce used by DeCA in the Pacific Theater.

We performed this audit in response to a reporting requirement contained in House Report 114-537 to accompany the National Defense Authorization Act for FY 2017.

Findings

Under DeCA’s current local purchase process contract for fresh produce in Guam:

  • DeCA’s current fresh produce local purchase process contract in Guam is more cost effective than the previous DeCA funded transportation process. Under the current contract, the contractor covers transportation costs whereas under the previous contract, DeCA paid $25 million to transport fresh produce to Guam from FY 2013 through FY 2015.
  • For the amount of items that we matched between the two contracts, overall average customer prices from November 2015 to August 2016 for 188 fresh produce items increased 7.2 percent, and for 41 bagged salad items, prices increased an average 150.3 percent. However, fresh produce only accounted for 1.3 percent on the calculation of the Guam COLA rate for military personnel in FY 2016. While fresh produce and bagged salad prices for commissary customers increased, prices remained lower than local Guam market prices. Customer prices increased primarily because the DeCA contract required the contractor to incorporate into the price of the produce all costs associated with acquiring produce, including transportation costs.
  • The produce personnel did not routinely document quality problems for fresh produce in the commissary display areas under either contract. However, according to Army food inspectors and DeCA officials, the quality of fresh produce has improved since the beginning of the new contract. In addition, 74 of 89 commissary customers we surveyed stated that the quality of fresh produce was the same or better than the fresh produce sold under the previous contract. DeCA personnel did not routinely document quality problems because DeCA guidance and procedures do not routinely require produce personnel to document quality problems.

As a result of DeCA’s current local purchase process contract, DeCA will save on average $8.3 million per year by not paying transportation costs to ship fresh produce to Guam. In addition, customers paid more for fresh produce under the current contract than under the previous one.

Recommendations

We recommend that the Director, DeCA, reevaluate transportation options to address the price increase of bagged salads at the commissary locations in Guam. In addition, we recommend that the Director, DeCA, require Guam produce personnel to document quality problems with fresh produce in commissary display areas and identify whether problems were related to ordering, product rotation, or receiving for commissary locations in Guam.

Management Comments and Our Response

The Director, Defense Commissary Agency, agreed with our finding and recommendations; therefore, the recommendations are considered resolved.

The Director agreed to address the price increases of bagged salads at the commissary locations in Guam by removing bagged salads from the local purchase contract and re-initiating second destination transportation funding for bagged salads in the Pacific in A pril 2017. We will close this recommendation after we verify that the local purchase contract for Guam was amended to remove bagged salads, and the second destination transportation funding was re-initiated for providing bagged salads to the commissaries in Guam.

The Director also agreed to have the Store Operations Group review and revise Defense Commissary Agency Directive 40-4 to require documentation of quality reviews for fresh produce in the Pacific. In addition, and based on the revised procedures, the Director will require the Store Operations Group to develop additional training for the individuals assigned with the new quality responsibilities. We will close the recommendation after we receive and analyze the revised Directive to ensure that it includes procedures for documenting quality reviews of fresh produce in the Pacific, and verify that the revised Directive is implemented.

This report is a result of Project No. D2016-D000AJ-0186.000.