that the veterans have all been properly identified and that few problems exist in this area.

PRICE REDUCTIONS

Among the major recommendations to the military departments was one which urged that efforts be made to reduce the prices of exchange items without regard to "profits." The Departments of the Army and the Air Force implemented this recommendation by approving a program of price reductions in selected lines of merchandise both in the United States and overseas. This has resulted in corresponding reductions in the amount of funds available to the welfare and recreation programs of the Army and Air Force. The Department of the Navy believes that prices can be reduced to the extent that appropriated funds are made available for providing and maintaining welfare and recreation facilities. Since these two policies have been in effect for some time, it will no doubt be of value to the subcommittee to hear of the results of their implementation from the representatives of the military departments.

INVESTMENT PROGRAMS

The subcommittee recommended that a full accounting of the military department nonappropriated fund investment programs be made to the House Armed Services Committee. We provided, in response to this recommendation, the detailed position of each military department concerning the need and justification for these investment programs.

Subsequent to hearings held in 1970, both the Department of the Army and Department of the Air Force reported that steps were being taken to convert the revenue available for welfare and recreational programs into actual programs on a more rapid basis. Such improvements will reduce the amount of the temporary investments.

It is the position of the military departments, concurred in by the Office of the Secretary of Defense, that the investment programs are a necessary integral part of the overall management of nonappropriated funds. In the continuing reviews of these programs and in the subsequent information provided to the House Armed Services Committee the necessity of these limited investment programs has been reaffirmed.

The bulk of the funds temporarily invested represent exchange dividends awaiting distribution. While the amount of such investments could be reduced by distributing the funds involved to the individual recreational fund accounts, the need to manage the temporary excess of funds would still exist. We believe that the centralized accomplishment of this function is in the best interest of the military personnel. The Department of the Army has also applied this concept, on a voluntary basis, to its mess accounts. As a result of combining these latter funds with the central welfare funds, a somewhat higher level of temporary investments is maintained by the Department of the Army. The military departments, in their overall attempts to improve the various aspects of the management of nonappropriated funds activities, are expected to move further toward central management of funds.

Although the specific investment programs of the military departments differ somewhat, their common basic purpose is to provide the necessary liquidity for the recreation funds and at the same time accrue some income from their temporary investment. In this regard no securities are being purchased by the military departments for long-term investment purposes. Nominal amounts of long term bonds are purchased, particularly by the Department of the Army, to be held for short periods in order to provide optimum returns.

AAFES PROCUREMENT

The subcommittee recommended that the Army and Air Force Exchange Service orient the consolidated procurement program to the best interest of exchange customers by permitting any qualified bidder to submit an offer for any portion of the requirement. The AAFES has reported that, where appropriate, a provision to allow offerors to submit offers on less than the total requirement has been incorporated in all solicitations.

AAFES OVERSEAS OPERATIONS

Another recommendation of the subcommittee was that all overseas exchange operations should be placed under the operational control of the Chief of the Army and Air Force Exchange Service. This change has been approved by the Chiefs of Staff of the Army and Air Force. The Commander, AAFES, assumed control of overseas exchange systems on January 26, 1972.

AAFES ADVISORY COMMITTEE

Noting that the Navy resale system utilizes the services of an advisory committee comprised of civilian experts in the merchandising field, the subcommittee recommended that AAFES appoint a similar advisory committee. The applicable regulations have been revised to permit the addition of four civilian advisers to the Board of Directors of the Army and Air Force Exchange and Motion Picture Service. Candidates for these positions are now being selected.

ENLISTED CLUB OPERATION

It was suggested by the subcommittee that a study be made of the possibility of assigning the responsibility for the operation of enlisted clubs to the AAFES. This suggestion has been carefully studied by the firm of Booz, Allen & Hamilton and it was determined that such an action would not be the optimum solution. The decision was made to establish a centralized club system and a directorate has been established within the Office of the Deputy Chief of Staff for Personnel in the Army to develop detailed plans for implementing this decision.

SURCHARGE FOR CONSTRUCTION

In connection with the operation of commissary stores by the military departments, the subcommittee recommended that procedures be developed for the use of a small increase in the surcharge for

commissary construction purposes. The military departments have differing views as to the need for an increase in the surcharge for this purpose and in the need for legislation to provide an increase. At the present time, the differences among the military departments are under review.

ARMY STOCK FUND

The subcommittee found that the Army Stock Fund procedures were not responsive to the needs of the commissary store system. In response to this recommendation, the Department of the Army now furnishes stock fund acquisition advice to field commands for the entire year rather than on a quarterly basis. In addition, commanders have been directed not to divert funds earmarked for commissary stock funds to other stock funds. These actions will preclude the recurrence of the events which prompted the subcommittee's comments.

COMMISSARY CAREER PROGRAMS

Another recommendation of the subcommittee in connection with commissary operations was that the services develop better career opportunities for personnel assigned to the commissary resale function. Each of the services is in the process of initiating or expanding programs for the development of career training so that personnel employed in or assigned to the commissary function will be adequately trained for their duties and will be prepared for promotion. to more responsible positions. While these are necessarily long-range actions, the services are acting in the direction indicated by the subcommittee.

USE OF NONAPPROPRIATED FUNDS

In connection with the Navy's use of nonappropriated funds to support activities normally funded from appropriations by the Congress, the subcommittee recommended that any service presently supporting appropriated fund activities with exchange profits terminate the practice immediately. The Navy has reported that funds to reimburse the Navy Resale Systems Office for anticipated expenses in fiscal year 1972 for support of the commissary store and ship's store programs were requested from and approved by the Congress. It is considered that this action responds to the subcommittee's recommendation. In general, however, it must be pointed out that there is no clearly defined dividing line between programs or activities which are supported by one or the other type of funds. It is not uncommon for nonappropriated funds to be used to support welfare and morale programs which are not adequately funded from appropriated funds.

Mr. Chairman, at this time I would like to make a few brief remarks on several related matters. I believe that each of the topics will be of interest to the members of the subcommittee.

UNREMARRIED WIDOWS

In February of this year, I forwarded to the chairman of the Committee on Armed Services a recommendation for a change in

the Armed Services Exchange Regulations and the Armed Services Commissary Store Regulations. The change concerned the widows of service personnel. At the present time, the widow of a serviceman is authorized exchange and commissary store patron privileges. If she remarries, she irrevocably loses her status as an unremarried widow and, thus, the patron privileges. In a few cases, these remarried widows lose their husbands either through death or divorce.

The change which we propose would restore to this group the resale patron privileges which they had lost upon remarriage. This change would be consistent with Public Law 91-376, which authorized the payment of Dependency and Indemnity Compensation to this same group of widows. In every case, these widows had previously enjoyed the privilege of patronizing military resale facilities, some for a long period of years. Thus, it cannot be said that the privileges would be extended to an entirely new group of patrons. The number of widows involved is estimated at less than 10,000, an insignificant number when compared with other patron groups. This change is recommended for your favorable consideration.

TEMPORARY LODGING FACILITIES

During 1971, the military departments began a program for the construction of temporary lodging facilities (TLF's) at military installations in various parts of the United States. The TLF's are being constructed and operated with nonappropriated funds. The primary purpose for the construction of these facilities is to provide lodgings at reasonable prices for military personnel and their families when they are arriving at or departing from a military installation. Many military installations already have some type of facility which has been used for this purpose, but in many cases these facilities have deteriorated through age and use to the point where they are no longer habitable. In such instances, the temporary lodging facilities will serve as replacements for the outworn buildings.

Because these new facilities are designed primarily for use by families, they have been built to house five persons, rather than the two to four persons of the normal commercial motel. In addition, the majority of the lodging units will be equipped with cooking facilities so that families, particularly those with small children, may enjoy the economies and the convenience of preparing their own meals.

There has been a certain amount of opposition to this construction program, primarily by the hotel and motel industry. We believe that this opposition results largely from a misunderstanding of the size and scope of the program. The number of units involved in these programs is certainly not large enough to pose a threat to the motel industry. In addition, the primary group for which these facilities have been constructed is not affluent enough to patronize commercial motel facilities for long periods or on a frequent basis. For that reason, we do not consider that the TLF's will offer competition to existing commercial motels.

We anticipate the publication in the near future of a Department of Defense directive, prepared under the supervision of the Assistant Secretary for Installations and Logistics. The directive will provide broad policy guidance and will assign to the Assistant Secretary of

Defense, Installations and Logistics, the responsibility for evaluating all the factors associated with these projects and the authority to approve or disapprove them.

An area of past concern to the committee, has been the treatment afforded the employees of nonappropriated fund activities in overseas areas. During the 1970 hearings, concern was expressed that some nonappropriated fund activities employees in Munich were not provided housing which was appropriate to their positions. In part as a result of this interest, that situation was resolved in a manner which was satisfactory to the employees concerned and we have had no indications that similar problems have arisen either in Germany or elsewhere. In general, NAFA employees and employees paid out of appropriated funds are considered as equal members of the team under the terms of DOD directives and instructions.

SALE OF STEREO COMPONENTS

During the 1970 hearings of the Special Subcommittee on Exchanges and Commissaries, the military departments were granted the authority to sell stereo components, with a cost price limit of $200. This authority was later withdrawn when we were notified by Chairman Hébert that the intent of the special subcommittee with regard to stereo components had been misinterpreted. As a result, stereo sound systems are now sold only as self-contained units, not as separate components.

Since the withdrawal of authority to sell stereo components the military departments and my office have received requests both from exchange patrons and from manufacturers to restore such components to the list of authorized items. As a result, a letter containing that recommendation has been forwarded to the committee. Various costprice limitations have been proposed for the several types of equipment involved and each set of limitations would provide a certain level of quality. We hope that the committee will be favorably inclined to the concept of permitting the sale of components; with limitations to be established by the committee which will be fair to all parties with an interest in this matter.

BOOK DEPARTMENTS

At each of their major educational institutions, the Departments of the Army and Air Force operate book departments which have no connection with the Army and Air Force Exchange Service. The Department of the Navy offers a somewhat similar service to the students and the staff of Navy schools through a separate department of the Navy exchange. The Army and Air Force book departments are operated to provide to students and faculty those items and services necessary for educational purposes which are not otherwise conveniently available at reasonable prices and to provide a source of nonappropriated funds for commandants' school mission or welfare funds. Book departments are not intended to compete with nor to duplicate the services provided by the Army and Air Force Exchange Service. The two Departments concerned have promulgated detailed regulations on the operation of these book departments and departmental