European Stars And Stripes (Newspaper) - June 14, 1985, Darmstadt, Hesse                                Page 8 the stars and stripes june Dod orders review of fund investments by Clint Swift Washington Bureau chief Washington the department of defense has ordered the armed services to take a hard look at How they manage no appropriated fund investments in the Wake of the army loss of million when a new Jersey securities firm the review was requested last month by Dan chairman of the no appropriated fund panel of the House armed services a defense department memorandum asked the serv ices to identify funds of or More and provide details of investment professional qualification of fund recent audits of the funds and their and the amounts and circumstances of losses within the last five the dated May asked that the data be provided by a letter from Jerry principal Deputy assist ant Secretary of defense for installations and told Daniel that in the the defense department had made an interim change in instructions regarding such the change says that the Only acceptable collateral is government that the funds May Deal Only with primary dealers of such securities As identified by the Federal Reserve banking system and that the funds must take Possession of the collateral or have it placed with the funds Choice of a third party the army had the million invested with Brusler Schulman companies of when that firm filed for bankruptcy in an investigation by Daniels panel showed that the main reasons for the loss were the army Reliance on the past performance of the firm and failure to take posses Sion of the collateral in the Daniel wrote to the defense the army investment officer told the panel his office had done business with the firm for seven years but had never investigated its financial he said the army used to take Possession of collateral on overnight repurchase agreements but had not done that in the last few even when the Money was placed for a month at a time instead of under the repurchase the army had placed the million with the firm and required million in government securities in the army agreed that the collateral could be placed in a Neutral Bank in new York an army spokesman said that the Way the collateral had been handled was accepted practice permitted under Dod the Security involved should be transferred either to a Dod memorandum asked the services to identify funds of or the investor or to the investors designated trustee not to a trustee chosen by the Daniels letter the securities and Exchange commission is investigating whether the firm also had pledged the securities As collateral in other transactions at the same although the firms assets could be divided among creditors during the bankruptcy Daniel and the Dod consider the Money the army spokesman said records showed that the firm held nearly million in unsecured a spokesman for the army Community and family support which manages the said his Best information was that the army might recover up to half the he said none of the 11 million had been earmarked for specific construction projects and the Impact of the loss probably would be Given the Way construction timetables the loss probably will show up As a reduced rate of return on the investments in the he Daniel said the investment officer was primarily responsible for managing the million army Central welfare and recreation although he did not have specific training in the investments Are approved by the director of no appropriated fund Finan Cial but the officer was not advised by the a Board of trustees or an investment committee of the increased risk when the repurchase agreement was extended from a Day to a Daniel the mar funds auditors had recommended six weeks earlier that the army set up procedures for evaluating the brokers the fund dealt with and keep a list of approved Daniel said that at the time he wrote the army had not implemented that the no appropriated funds in the Central mar fund come from sources such As Post vending a and franchises and Daniel said it was the second such loss in five inaccurate record keeping caused a write off of million in and speculative investments resulted in Cost of the investment portfolio exceeding its Market Price by about million As of about three months the air Force Learned that More than million in no appropriated pension funds might be lost when a Louis credit Union went Bank Daniel asked that the review be completed by 31 and submitted to the panel by assessing the health of mrw Effort is not simple Washington is the department of defences mar Effort its hard to find an answer in the Penta gon or on Capitol the accounting can be there Are eight main categories of welfare and recreation and the air Navy and marines May administer them differ the activities also May vary in whether they Are eligible for appropriated funds or from what source they receive Nona pro printed to Many mar Means arts one problem in assess ing the health of mar is just finding the and child youth pro libraries and music and theater events the stuff of category military general welfare and but mar also encompasses the Mil itary and professional mov ies and liquor in recent the big three sex military general welfare and recreation and clubs have received about 90 percent of the appropriated fund support and spent More than 80 per cent of the no appropriated fund dollars for a May 1984 defense department sum Mary shows that mar costs the depart ment about billion a year billion in appropriated funds tax dollars voted by Congress and billion in Nona pro printed funds primarily from sales at Post liquor stores and clubs and fees from Bowling Golf photo Hobby childcare centers and other last an Independent study of mar financial indicators found it took about 3 percent More tax dollars each year from 1978 to 1983 after inflation to make mar ends one staff member of the mar panel of the House armed services committee said increased Reliance on appropriated funds must be seen As dangerous in the perspective of a Congress that May limit increases in defense spending next year to the rate of in 1976 dollars to remove the effects of appropriated funds used for army mar grew from million in fiscal 1977 to million in the study by Rosebud software of sales at army mar activities grew 35 percent from 1978 to and no appropriated fund dollars used to run mar activities increased 42 the Survey but the amount of appropriated fund support went up 93 percent during the this Means that the sales growth is not keeping up with the increases in Naf expenses and apr appropriated fund sup the report appropriated fund support for air Force mar went up from million in 1976 to million in air Force sales Rose 62 percent during the period and the no appropriated funds share of 60 air Force Exchange figures Are reported with the army since they operate one Exchange use of appropriated funds went up 76 the navys appropriated fund support for mar went from million in 1977 to million in Navy sales remained relatively stable from 1979 to the report and the level of appropriated fund support generally the exception was when appropriated fund support grew 30 percent Over the previous while sales grew Only 3 the marines received million in tax Dollar support for mar in but that had dropped to million in the marines performed the Best during the the report their ratio of no appropriated to appropriated funds use dipped Only once in a trend that otherwise showed steady improvement during the six in 1976 no appropriated fund profit contributions to army welfare and recreation grew from million in 1978 to million in the report contributions to those activities in the air Force grew from million to million during the in the the growth was from million to in the it was from million to Mil a Dod official said there were no Indi cations of severe or sudden changes coming up in the mar income he noted that even though sales have been partly because of the Strong Dollar the army and air Force Exchange service has not Cut in fiscal cafes generated million in 1983 increased Reliance on appropriated funds must be seen As dollars in profit and contributed million in the Navy Exchange made million and contributed Mil the Marine corps Exchange system earned million and turned Over in the army also distributed million from million in package store the air Force gave mar million of million from liquor the Navy of million and the marines of the mar panel and the defense department have two important guidelines for mar activities make them pay for themselves whenever possible and use appropriated fund support wherever a but Only if one problem in assessing the health of mar is just finding the a staff member of the mar panel said appropriated fund support Doest show up conveniently in a single line item in each military department s sup port could come from operations and maintenance building from Mil itary construction and equipment from appropriated fund support takes Dif Ferent it May be represented by the military sea lift comes shipping goods or by the salary of a sergeant first class managing a in cafes reported it received about million in transportation of goods much of it beverages 104 military use of the Auto on Telephone system and the Cost of utilities another difficulty is that the language of the rules on using appropriated funds is Loose enough to be interpreted in different ways by congressional mar offi base commanders or activity manag the panel staffer a Bowling Alley or some other activity May be making a healthy profit and contributing to a base or general welfare he but a closer look May show that the activity is taking advantage of appropriated funds where it  and that Why it looks he said panel staff members make Peri Odic visits to bases to look at the but he said there is no Way they can Monitor activities on All the bases in any regular one area in which mar managers be Lieve the need has far outstripped financial ability is defense department mar officials have told Congress that the services list of facilities they like to build amounts to a backlog of the for say they have million in Bowling crafts Auto Hobby racquetball courts and other facilities they would like to a spokesman to meet its construction the army sets aside nearly All of its share of cafes about million a Dod policy has been that exchanges could be built with tax for at new but cafes officials say the reality is that due to operational requirements with higher practically no appropriated funds Are available for construction of new since an cafes briefing the use of Exchange funds for Exchange construction has become an accepted prac the defense department estimates that mar activities reach 9 million