Inventory Management: Vulnerability of Sensitive Defense Material to
Theft (Letter Report, 09/19/97, GAO/NSIAD-97-175).

Pursuant to a congressional request, GAO reviewed the actions taken by
the Department of Defense (DOD) to correct weaknesses cited in GAO's
September 1994 report on the military services' most sensitive category
I missiles and to determine if problems still remained. GAO also
reviewed DOD's oversight of category I rockets and the vulnerability of
category I missiles and rockets and category II grenades, mines, and
explosives to theft from U.S. military arsenals by terrorists or
extremists.

GAO noted that: (1) DOD has taken actions to improve the oversight of
category I handheld missiles; (2) it conducted a worldwide inventory of
handheld missiles; established a new baseline inventory count as of
December 31, 1994; and implemented procedures to track changes to the
baseline; (3) DOD also established procedures to check containers to
ensure that each had a missile and verify serial numbers; (4) DOD
reemphasized physical security procedures to be followed at its
facilities; (5) despite DOD's progress toward better oversight of
handheld missiles, some weaknesses remain; (6) adjustments continue to
be made to the baseline as additional missiles are located and errors
are discovered; (7) discrepancies still exist between records of the
number of missiles and GAO's physical count; (8) the missiles may be
vulnerable to insider theft because DOD is not always selecting a
representative sample of containers to be opened during maintenance
checks; (9) some facilities are not fully complying with DOD physical
security requirements; (10) although GAO was able to match the physical
count of AT4 and light antitank weapon (LAW) rockets at each site
visited with the item manager's records, GAO also found oversight
weaknesses with the category I rockets; (11) the Marine Corps reported
three AT4 rockets missing from shipments returning from the Gulf after
Operation Desert Storm; (12) the Naval Criminal Investigative Service
reached no conclusions on whether the rockets were missing, lost, or
stolen, and the investigations were closed; (13) the services have
different procedures and requirements for maintaining oversight of the
rockets; (14) DOD's accounting and related systems, including its
logistics systems, are not integrated; (15) in accordance with the Chief
Financial Officer's (CFO) Act of 1990, each agency is to establish an
integrated financial management system; (16) establishing an integrated,
general ledger controller system, which ties together DOD's accounting
systems with its logistics and other key management systems, is critical
if DOD is to effectively ensure oversight and control over its sensitive
material; (17) GAO did not find any documentation that terrorists or
other extremists had stolen any category I handheld missiles or rockets
or category II munitions or explosives from DOD arsenals; (18) some
weapons continue to be vulnerable to insider theft as quantities of
various category II items have been stolen by uniformed or DOD
civilians; and (19) DOD and intelligence sources did not have any
indication that the stolen items were intended for terrorists.

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

 REPORTNUM:  NSIAD-97-175
     TITLE:  Inventory Management: Vulnerability of Sensitive Defense 
             Material to Theft
      DATE:  09/19/97
   SUBJECT:  Missiles
             Military inventories
             Terrorism
             Inventory control systems
             Logistics
             Facility security
             Larceny
             Weapons
IDENTIFIER:  Stinger Missile
             Dragon Missile
             Javelin Antitank Weapon
             C-4 Explosive
             Redeye Missile
             AT-4 Weapon System
             Desert Storm
             Bofors Infantry Light and Lethal Antitank Weapon
             
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Cover
================================================================ COVER


Report to the Ranking Minority Member, Committee on Governmental
Affairs, U.S.  Senate

September 1997

INVENTORY MANAGEMENT -
VULNERABILITY OF SENSITIVE DEFENSE
MATERIAL TO THEFT

GAO/NSIAD-97-175

Vulnerability of Sensitive Defense Material

(709239)


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

  CFO - Chief Financial Officers
  DOD - Department of Defense
  LAW - light antitank weapon

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


B-276452

September 19, 1997

The Honorable John Glenn
Ranking Minority Member
Committee on Governmental Affairs
United States Senate

Dear Senator Glenn: 

As you requested, we reviewed the actions taken by the Department of
Defense (DOD) to correct weaknesses cited in our September 1994
report on the military services' most sensitive category I missiles
and to determine if problems still remain.\1 We also reviewed DOD's
oversight of category I rockets and the vulnerability of category I
missiles and rockets and category II grenades, mines, and explosives
to theft from U.S.  military arsenals by terrorists or extremists. 


--------------------
\1 Inventory Management:  Handheld Missiles Are Vulnerable to Theft
and Undetected Losses (GAO/NSIAD-94-100, Sept.  16, 1994). 


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

DOD defines category I items as those that are highly explosive,
extremely lethal, portable, and a potential threat if they were to be
used by unauthorized individuals or groups.  Category I missiles and
rockets are nonnuclear and handheld.  The missiles are the Stinger,
Dragon, and Javelin; the rockets are the light antitank weapon (LAW)
and the AT4.\2 The Stinger can destroy aircraft in flight, and the
Dragon and Javelin missiles and the LAW and AT4 rockets can pierce
armor.  Category II munitions and explosives are hand or rifle
grenades, antitank or antipersonnel mines, C-4 explosives, TNT, and
dynamite.  See appendix I for pictures of the
category I missiles and rockets. 

In September 1994, we reported that many serious discrepancies in the
quantities, locations, and serial numbers of handheld category I
missiles indicated inadequate management oversight for these lethal
weapons.  Further, we reported that the services did not know how
many handheld missiles they had in their possession because they did
not have systems to track by serial numbers the missiles produced,
fired, destroyed, sold, and transferred.  At that time, we could not
determine the extent to which any missiles were missing from
inventory.  We also stated that security measures were not uniformly
applied at all locations where missiles were stored.  Our report
contained several recommendations to the Secretary of Defense to
correct these problems.  In addition, the Army Inspector General
conducted two follow-up studies and found similar problems.\3


--------------------
\2 The Redeye missile was included in our 1994 report but not this
report because DOD removed that missile from its inventory after
1994.  Likewise, the Javelin missile is included in this report but
not the 1994 report because DOD recently added that missile to its
inventory. 

\3 Follow-Up Inspection of Army Corrective Actions to GAO Report on
Handheld Missiles Inventory Management (June-Nov.  1996) and Special
Assessment of Army Corrective Actions to GAO Report on Handheld
Missiles Inventory Management (May-June 1995), Army Inspector
General. 


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

DOD has taken actions to improve the oversight of category I handheld
missiles.  It conducted a worldwide inventory of handheld missiles;
established a new baseline inventory count as of December 31, 1994;
and implemented procedures to track changes to the baseline.  DOD
also established procedures to check containers to ensure that each
had a missile and verify serial numbers.  In addition, DOD
reemphasized physical security procedures to be followed at its
facilities. 

Despite DOD's progress toward better oversight of handheld missiles,
some weaknesses remain.  Adjustments continue to be made to the
baseline as additional missiles are located and errors are
discovered.  Discrepancies still exist between records of the number
of missiles and our physical count.  Also, the missiles may be
vulnerable to insider theft because DOD is not always selecting a
representative sample of containers to be opened during maintenance
checks.  In addition, some facilities are not fully complying with
DOD physical security requirements. 

Although we were able to match the physical count of AT4 and LAW
rockets at each site visited with the item manager's records, we also
found oversight weaknesses with the category I rockets.  The Marine
Corps reported three AT4 rockets missing from shipments returning
from the Gulf after Operation Desert Storm.  The Naval Criminal
Investigative Service reached no conclusions on whether the rockets
were missing, lost, or stolen, and the investigations were closed. 
Moreover, the services have different procedures and requirements for
maintaining oversight of the rockets.  The Marine Corps maintains
oversight and visibility of its weapons by serial number, whereas the
Army and the Navy currently manage their rockets by production lot
and quantity.  Because the Marine Corps manages its rockets by serial
number, it would be able to accurately identify the missing rockets
upon recovery.  The Army is presently developing a system that will
identify by serial number the last accountable location of an AT4 in
the event that it is lost or stolen and recovered by law enforcement
or other organizations. 

Another issue related to accountability over sensitive defense
material relates to the financial management system.  Our reports
have repeatedly pointed out that DOD's accounting and related
systems, including its logistics systems, are not integrated.  In
accordance with the Chief Financial Officers (CFO) Act of 1990, each
agency is to establish an integrated financial management system. 
Establishing an integrated, general ledger controller system, which
ties together DOD's accounting systems with its logistics and other
key management systems, is critical if DOD is to effectively ensure
oversight and control over its sensitive material. 

We also did not find any documentation that terrorists or other
extremists had stolen any category I handheld missiles or rockets or
category II munitions or explosives from DOD arsenals.  It is more
likely terrorists would seek such items from sources other than DOD
arsenals.  However, some weapons continue to be vulnerable to insider
theft as quantities of various category II items, including grenades,
C-4, and TNT, have been stolen by uniformed or DOD civilians.  DOD
and intelligence sources did not have any indication that the stolen
items were intended for terrorists. 


   DOD HAS IMPROVED OVERSIGHT OF
   CATEGORY I MISSILES
------------------------------------------------------------ Letter :3

DOD has taken actions to correct the deficiencies cited in our
September 1994 report.  In that report, we recommended that DOD
conduct independent worldwide inventories of category I missiles to
establish a new baseline number.  DOD established the new baseline
number as of December 31, 1994, as shown in table 1.  The Army, the
Navy, and the Marine Corps are the primary purchasers of category I
missiles; consequently, our review and the prior report focused on
their inventories. 



                                Table 1
                
                  DOD Baseline Inventory of Category I
                     Missiles (as of Dec. 31, 1994)

                                          Inventory balance
                                --------------------------------------
                                                      Marine       Air
Type of missile                     Army      Navy     Corps     Force
------------------------------  --------  --------  --------  --------
Stinger                           31,029        \a    10,226       216
Redeye                             2,427        \a        24         0
Dragon                            23,838        \a    14,148         0
======================================================================
Total                             57,294        \a    24,398       216
----------------------------------------------------------------------
\a These numbers are classified. 

Source:  Office of the Under Secretary of Defense. 

Our prior report also recommended that DOD establish procedures to
track, document, and report additions to and deletions from the new
inventory baseline.  Since that time, the Army has begun modifying
its automated system--the Standard Army Ammunition System--to report
changes to the inventories of Stinger, Dragon, and Javelin missiles
by serial number.  The modification to the system is designed to
provide item managers at all Army commands with 24- to 72-hour
notification of changes to the inventory.  In the interim, the Army
has implemented manual reporting procedures to track handheld
missiles on a monthly basis.  This temporary system has a 30- to
45-day time lag in reporting changes to the missile inventory.  The
Navy and the Marine Corps have also implemented automated systems to
track category I missiles.  The Navy's automated system is intended
to provide information within 24 to 48 hours on where a given missile
is located, and the Marine Corps' system is intended to provide such
information within 24 hours. 

In addition, our prior report recommended that DOD establish
procedures to include a random sampling of missile containers during
inventories to ensure that they contain missiles.  The services have
since established procedures to verify the presence of missiles
inside their containers during maintenance checks.  Finally, our
report recommended that DOD reemphasize security procedures and
reexamine the current security policy.  In response, the services
reemphasized physical security regulations for all category I
munitions. 


   WEAKNESSES STILL EXIST IN DOD'S
   OVERSIGHT OF CATEGORY I
   MISSILES
------------------------------------------------------------ Letter :4

Although the services established a baseline inventory count of
category I missiles as of December 31, 1994, updates to the baseline
continue to be made as additional missiles are located or errors are
discovered.  Discrepancies existed at some sites between records of
the number of category I missiles in their inventories and our
physical count, but we were able to reconcile the discrepancies
manually.  Even though missile containers are being opened and serial
numbers are being verified, random checks are not being performed
because the services stated that they would be too costly.  Also, DOD
has not fully complied with physical security regulations at all of
its sites. 


      CATEGORY I MISSILE BASELINE
      MAY STILL BE INACCURATE
---------------------------------------------------------- Letter :4.1

Army officials stated that, because of prior reporting, weaknesses
involving the handheld missile inventory, they cannot fully assure
that the category I missile baseline is completely accurate.  The
baseline had to be updated several times since its establishment
because additional missiles were located.  In February 1996, the Army
discovered it had not counted 3,949 missiles during the initial
inventory, which increased its baseline by almost 7 percent.  Some of
the missiles had been in transit and were not counted by either the
shipping or receiving parties.  Other missiles were being used by the
Signal Communications Electronics Command in Fort Monmouth, New
Jersey, for test purposes but were not included in the initial
baseline inventory. 

A Stinger missile had been at a storage facility in Kuwait since
September 1992.  Pakistanis discovered the missile during post-Desert
Storm cleanup operations, and Kuwait did not return it to the United
States until April 1996.  However, the Army had previously reported
that 6,373 Stinger missiles were shipped to and subsequently sent
back from the Persian Gulf.  Thus, the Army did not realize that this
missile had been missing from inventory until after it was
discovered. 

Also, errors in the initial inventory count have affected the
baseline.  For example, two missiles on the Army item manager's
contractor database actually belonged to another country through the
Foreign Military Sales program.  These missiles, which were included
in the baseline number, were at the contractor's facility for repair. 
At the time of our visit, one of the missiles was still at the
facility, and the other had been fixed and returned.  The item
manager stated that the contractor was not reporting to her the
number of missiles received, completed, and returned.  However, as a
result of our finding, the contract has been modified to provide the
item manager a monthly report of the missiles received at the
contractor's facility and the missiles transferred from the
contractor's facility to a DOD facility. 


      DISCREPANCIES FOUND BETWEEN
      THE PHYSICAL COUNT OF
      MISSILES AND RECORDS
---------------------------------------------------------- Letter :4.2

In our September 1994 report, we noted that records of the number of
category I missiles in some sites' inventories did not match our
physical count.  This problem still exists at the Army and Marine
Corps sites we visited, but we were able to reconcile the
discrepancies manually.  At a Navy storage site, we found no
discrepancies between the item manager's records and our physical
count. 

At the Army military storage location we visited, we found
discrepancies between the item manager's records and the missiles we
counted at the storage facility.  All of the missiles that were on
the item manager's records, but not at the storage location, had been
issued to units for training.  We used the Army's monthly interim
reports to reconcile the discrepancies.  We verified that these
missiles had in fact been expended during training exercises.  The
item manager still had the missiles on the records because of the lag
time in receiving the interim reports. 

We also found five discrepancies with our missile count at a Marine
Corps site that we visited.  All of the discrepancies involved the
serial numbers.  One missile was not on the item manager's records
because the wrong serial number was keyed into the system.  Two
missiles were upgraded and their serial numbers changed; the new
serial numbers, however, were not yet changed on the database that we
used to conduct our reconciliation.  Two of the six digits in one
missile's serial number were apparently transposed on the container. 
Finally, one missile's correct serial number was in both the depot's
and item manager's systems, but the wrong number was apparently
stenciled on the container. 

We also found discrepancies at two contractor facilities where both
the Stinger and Dragon were being upgraded or modified.  Most of the
discrepancies were due to the lag between the time we received the
database and the time we performed our physical count.  Many missiles
on the item manager's records had already been sent to the DOD
storage sites by the time we conducted our inventory count.  We
verified that the DOD storage sites had received the missiles. 

However, we found four additional missiles at one of the contractor
facilities that were not on the item manager's records.  The item
manager had recorded that one of the missiles, still at the
contractor's facility, was made non-lethal (demilitarized).  Eight
additional missiles were also listed as being at that contractor's
facility, but six were actually at another location, and two belonged
to other countries, as stated previously, under the Foreign Military
Sales program. 

Finally, we noted a practice during this review, in addition to those
that have been previously mentioned, that complicates serial number
tracking:  giving new serial numbers to missiles that have been
upgraded.  Stinger missiles that are undergoing a technical upgrade
will be given new serial numbers once the upgrade has been completed. 
According to a Production Assurance and Test Division official, U.S. 
Army Missile Command, the justification for changing the serial
numbers was that the missiles would, in effect, become new missiles,
since they would be broken down into major component parts and
reassembled with different components.  Both the old and new serial
numbers would then be cross-referenced.  However, a Quality Assurance
official, U.S.  Army Missile Command, stated that he had opposed
changing the serial numbers because it would be harder to track the
life cycle of the missiles and that cross-referencing old and new
serial numbers would create additional bookkeeping and the potential
for transposition and other errors.  Instead of changing the serial
numbers, the upgraded missiles could be distinguished by adding a
suffix to the serial number. 


      MISSILE CONTAINER CHECKS ARE
      NOT DONE RANDOMLY
---------------------------------------------------------- Letter :4.3

Even though the services have established procedures to verify the
presence of missiles inside their containers, a representative sample
is not always being selected, according to the services, because it
would be too costly.  For example, an Army official said that during
maintenance checks only the missiles that are easy to access in a
storage facility are selected to be opened.  This methodology does
not provide complete assurance that missiles are not being stolen
because it may not deter insider theft.  Moreover, opening a
representative sample of missile containers helps to obtain assurance
that all reported missiles do exist, are held by the services, and
are owned by DOD.  This check improves the accuracy of the missile
inventory reports for item managers as well as DOD's financial
statements required by the CFO Act. 

We opened 108 missile containers to verify the presence of the
correct missile in each container.  Figures 1 and 2 show opened
Stinger and Dragon missile containers.  All containers had a missile,
but the serial number on one container did not match the one on the
missile.  Neither the item manger nor the site officials could
determine the reason for the mismatch.  In another instance, a
contractor official discovered that a missile going through an
upgrade did not have the same serial number as its container.  The
correct container was at the storage depot, and the missile inside
belonged in the container located at the contractor's facility. 

   Figure 1:  Opened Stinger
   Missile Container

   (See figure in printed
   edition.)

   Figure 2:  Opened Dragon
   Missile Container

   (See figure in printed
   edition.)

Also, according to an Army policy notice, the sample size and the
results of missile container checks are to be reported to the item
managers.  However, we found that Army item managers were not
receiving this information.  As a result of our finding, the Chief of
Staff, Army Materiel Command, issued a memorandum reemphasizing the
reporting requirement. 


      NOT ALL SITES COMPLY WITH
      SECURITY REGULATIONS
---------------------------------------------------------- Letter :4.4

Some of the sites we visited were not in full compliance with service
or DOD security regulations.  Personnel at one Army location were not
inspecting all vehicles leaving the storage area.  The Army Inspector
General's 1996 report also noted that not all sites were fully
enforcing physical security regulations. 

The Army Inspector General included the National Guard in its
follow-up review of handheld missiles.  In its report, the Inspector
General noted that National Guard sites were storing category I
Dragon missiles in violation of DOD and Army physical security
policies.\4 Both of these policies permit the National Guard to use
the missiles for training purposes only and store them temporarily at
Guard installations.  However, the Inspector General found that some
sites had the Dragon missile in storage for many years. 

As a result of the Inspector General's report, the Army National
Guard was directed to return the Dragon missiles to the storage
sites.  Since that time, all missiles have either been returned or
used for training.  The National Guard requested approval to
permanently store Dragon missiles at selected sites.  The Army denied
this request because some storage sites were not in compliance with
its physical security regulations.  For example, armed guards were
not used to prevent unauthorized access of the storage structures
when intrusion detection systems were inoperable.  However, if a site
can meet physical security regulations, the Army stated it would
reconsider a request only to temporarily store Dragon missiles at
selected sites. 

Contractors are required to follow DOD Manual 5100.76, Physical
Security of Sensitive Conventional Arms, Ammunition, and Explosives,
for their security guidelines.  These regulations are not as
stringent as the Army's physical security regulations.  For example,
Army regulations require that storage sites be secured with two locks
and keys and that no one person have possession of both keys at the
same time.  DOD regulations permit one lock and key, which allows
single individuals access to storage sites. 

We noted the following conditions, among others, at one of the
contractor facilities we visited: 

  -- The entrance to the storage area was not locked. 

  -- No guard was available to check vehicles entering or exiting the
     storage area. 

  -- There was no clear zone outside the security fence.  (This area
     was cleared, however, after our visit.)

  -- One employee had keys to operate the locks to the storage site,
     security fence gate, and gate to a perimeter road that led to
     the main road.  This employee also had the code for calling in
     to security to deactivate the intrusion detection system.  We
     observed this employee leave the storage site in a truck,
     proceed to unlock the perimeter gate, and exit.  We believe that
     allowing one person such access leaves the missiles more
     vulnerable to theft.  After bringing this concern to the
     attention of the Commander, Army Materiel Command, a memorandum
     was issued requiring that the security requirements of Army
     Regulation 190-11 and the Army Materiel Command supplement
     requiring that storage sites be secured with two locks and keys,
     among other things, be included in contracts for activities
     involving category I munitions. 


--------------------
\4 For physical security requirements of category I missiles, the
Army National Guard was operating under DOD Directive 5100.76 until
September 1996 when it began operating under Army
Regulation 190-11, Physical Security of Arms, Ammunition, and
Explosives. 


   OVERSIGHT WEAKNESSES ALSO EXIST
   FOR CATEGORY I ROCKETS
------------------------------------------------------------ Letter :5

The services have different procedures and requirements for
maintaining oversight of AT4 and LAW rockets.  The Army and the Navy
manage AT4 and LAW rockets by production lot and quantity.  The
Marine Corps maintains oversight and visibility of AT4 rockets (it
does not have any LAW rockets) by serial numbers.  Although we found
no missing rockets in our physical count, three AT4 rockets that were
sent to the Persian Gulf for Operation Desert Storm are missing from
the Marine Corps' inventory.  The investigations were closed on these
three missing rockets, but no conclusions were reached by the Naval
Criminal Investigative Service on whether the rockets were missing,
lost, or stolen.  The Marine Corps adjusted their physical inventory
to reflect the decrease of the three AT4 rockets.  However, the
serial numbers will remain within its accounting and reporting system
should these rockets be recovered. 

The Army manages AT4 and LAW rockets by production lot and quantity. 
However, the Army item manager's oversight of the AT4 rocket extends
only to the quantities that are issued to the various major commands. 
Each major command then redistributes AT4 rockets to the
installations within that command, and oversight for installation
inventories is maintained by the major command.  The item manager,
therefore, does not know the quantities of AT4 rockets at the
installation level. 

The Army is developing a system, called Unique Item Tracking, for all
of its category I munitions, including the AT4.  This system is
intended to provide weekly reports showing the serial number of each
munition by location.  The purpose of the system is to identify the
last accountable location of a weapon in the event that it is lost or
stolen and recovered by law enforcement or other organizations. 
However, the system will not include the LAW rocket, since it is
being phased out of the inventory, and most LAWs do not have serial
numbers. 

The Navy also manages AT4 and LAW rockets by production lot and
quantity.  The Navy item manager does not oversee the rockets by
serial number because it is not a requirement.  This situation could
be problematic if a rocket is missing because the Navy does not have
a system in place to identify the missing rocket by serial number. 
However, some storage locations report AT4 rockets by serial numbers
in addition to production lot and quantity. 

We conducted a physical count of AT4 and LAW rockets at Army, Navy,
and Marine Corps storage sites and were able to match the physical
count with the item managers' records.  We also opened 89 containers
to verify the presence and correct serial number of each rocket.  We
did not note any violations in the physical security regulations at
the sites we visited. 


   INTEGRATED ACCOUNTING AND
   LOGISTICS SYSTEMS WILL HELP
   ENSURE EFFECTIVE ACCOUNTABILITY
   FOR SENSITIVE ITEMS
------------------------------------------------------------ Letter :6

Another issue related to accountability over sensitive defense
material relates to the financial management system.  In accordance
with the CFO Act of 1990, each agency is to establish an integrated
financial management system.  Establishing an integrated, general
ledger controller system, which ties together DOD's accounting
systems with its logistics and other key management systems, is
critical if DOD is to effectively ensure oversight and control over
its sensitive materials.  For example, an integrated accounting and
logistics system will automatically update both sets of records when
missiles or other sensitive inventory items are purchased and
received.  In addition, carrying out rudimentary controls, such as
periodically reconciling DOD's accounting and logistics records, will
help oversee and identify any unaccounted for in-transit items. 
Audit reports have repeatedly pointed out, however, that DOD's
existing accounting and related systems, including its logistics
systems, are not integrated and lack a general ledger.\5

As part of DOD's efforts to reform its financial operations, the DOD
Chief Financial Officer has stated that DOD will develop property
accountability systems that will meet the federal government's system
requirements.  If properly designed and implemented as part of a
DOD-wide integrated financial management systems structure called for
under the CFO Act, these systems will be integral to ensuring
effective accountability over DOD's sensitive inventories of missiles
and rockets and other sensitive material. 


--------------------
\5 Defense Financial Management (GAO/HR-97-3, Feb.  1997). 


   NO EVIDENCE OF THEFTS FROM U.S. 
   MILITARY ARSENALS BY TERRORISTS
   OR EXTREMISTS
------------------------------------------------------------ Letter :7

We did not find any documentation that terrorists or other extremists
had stolen category I handheld missiles or rockets or category II
grenades, mines, and explosives from DOD arsenals.  Intelligence and
DOD officials said that it is more likely that terrorists would seek
handheld surface-to-air missiles or other munitions from sources
other than DOD arsenals.  International terrorist groups receive
financial aid and other forms of assistance from several nations.\6
The Secretary of State has determined that these countries have
repeatedly provided support for acts of international terrorism by
supplying, training, supporting, or providing safehaven to known
terrorists. 

Intelligence officials told us that there are a variety of places
around the world for terrorists to obtain weapons.  For example,
several countries besides the United States, including Bulgaria,
China, Egypt, France, Japan, Czech Republic, Pakistan, Poland,
Romania, Sweden, and the United Kingdom produce handheld
surface-to-air missiles.\7

Terrorists tend to favor small conventional weapons--handguns,
rifles, grenades, machine guns, or explosives--because they can be
easily transported and hidden from view.  C-4 plastic explosives can
be purchased from several countries.  In addition, law enforcement
officials told us that extremist groups have made their own C-4. 
Terrorists have used plastic explosives.  For example, less than one
pound of Semtex, similar to C-4, was used to bring down Pan Am Flight
103 over Lockerbie, Scotland, in 1988. 

There have been thefts of category II munitions and explosives by
uniformed and DOD civilian employees that involved quantities of
items such as grenades, C-4 explosives, and TNT.  We previously
reported that military inventories remain more vulnerable to employee
theft than outside intrusion.\8 Table 2 shows the types and
quantities of category II items reported missing, lost, or stolen
from 1993 to 1996.  Some of the weapons were recovered.  According to
a law enforcement official, DOD could not determine whether any of
the unrecovered stolen DOD weapons were in the hands of terrorists or
other extremists. 



                                Table 2
                
                    Quantity and Type of Category II
                   Munitions and Explosives Reported
                   Missing, Lost, or Stolen From DOD
                         Between 1993 and 1996

                                                            Army
Munitions/                                      Marine      National
explosives              Army        Navy        Corps       Guard
----------------------  ----------  ----------  ----------  ----------
Grenade(s):             12/96:      03/96:      02/95:      08/95: 16
hand or rifle           One         150         Four
                        04/94:      08/95: 50
                        One         (case)
                        10/93:      07/94: 25
                        One         03/93: 50
                        02/93: One  (case)
                                    02/93: 30

Mines: antitank or      None        None        03/94: One  None
antipersonnel                                   claymore

C-4 explosive           12/96: 3-   10/96: 2-   None        12/96: 1-
                        3/4 lbs.    1/2 lbs.                1/4 lbs.
                        03/96: 5    04/95: 5
                        lbs.        lbs.
                        06/93: 2-
                        1/2 lbs.

TNT                     04/93: Two  None        03/94: 1-   12/96: Two
                        lbs.                    lb block    1 lb.
                                                            blocks,
                                                            04/96:
                                                            Three
                                                            sticks

Military dynamite       None        02/96:      None        None
                                    Twelve
                                    sticks
----------------------------------------------------------------------
Source:  Our analysis based on Army, Navy, and Marine Corps
information. 


--------------------
\6 For purposes of administering the Export Administration Act, the
Omnibus Diplomatic Security and Anti-Terrorism Act and other laws,
the Secretary of State has determined that Cuba, Iran, Iraq, Libya,
North Korea, Sudan, and Syria support and sponsor international
terrorism.  (See 15 C.F.R.  752.4, 22 C.F.R.  126.1, and 31 C.F.R. 
596.201.)

\7 Jane's Land Based Air Defence (1996-97). 

\8 Small Arms Parts:  Poor Controls Invite Widespread Theft
(GAO/NSIAD-94-21, Nov.  18, 1993) and Inventory Management: 
Strengthened Controls Needed to Detect and Deter Small Arms Parts
Thefts (GAO/NSIAD-91-186, July 17, 1991) . 


   CONCLUSIONS AND RECOMMENDATIONS
------------------------------------------------------------ Letter :8

We recognize that DOD has made significant strides in gaining
visibility and accountability over its handheld missile inventory. 
DOD has implemented several recommendations from our prior work and
has already taken action to correct some of the problems we cite in
this report.  We believe, however, that DOD can take some additional
actions to further improve physical security and ensure accurate
reporting of its inventory of missiles and rockets.  Therefore, we
recommend that the Secretary of Defense direct the Secretaries of the
Army, the Navy, and the Air Force and the Commandant of the Marine
Corps to

  -- develop a cost-effective procedure for periodically revalidating
     the category I inventory baseline by, for example, matching item
     managers' records with site records annually at a representative
     sample of storage sites;

  -- develop a cost-effective procedure for opening containers of
     missiles and rockets, for example, by selecting a representative
     sample of pallets, rather than individual missiles and rockets,
     to inspect;

  -- manage category I rockets by serial number so that the item
     managers will have total visibility over the numbers and
     locations of rockets;

  -- establish procedures for ensuring that serial numbers are not
     changed during upgrades and modifications of category I missiles
     and rockets; and

  -- continue to emphasize compliance with physical security
     requirements. 


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

In commenting on a draft of this report, DOD concurred with all of
our recommendations (see app.  II).  DOD noted that it had already
begun taking action to address several of the recommendations.  For
example, the services have developed or are developing procedures for
revalidating the category I baseline.  DOD also plans to issue
guidance to manage category I rockets by serial numbers, develop
procedures to ensure that serial numbers are not changed during
upgrades and modifications of category I missiles and rockets, and
continue to emphasize compliance with physical security requirements. 

DOD concurred with our recommendation to develop a cost-effective
procedure to open containers of missiles and rockets.  DOD's response
also cited various existing regulations, which require that samples
selected for inspection be representative of the entire lot under
evaluation.  We discussed the comments with an official from the
Office of the Secretary of Defense and pointed out that during our
review we found that this was not always being done.  For example, an
Army official told us that some inspectors only select and inspect
the missiles that are easy to access in a storage facility.  The
Office of the Secretary of Defense officials agreed to issue guidance
reinforcing the need to follow these procedures. 


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

We met with officials from the Office of the Secretary of Defense,
the Army, the Navy, the Marine Corps, and the National Guard
regarding the oversight and physical security of category I missiles
and rockets and the physical security of category II weapons.  We
discussed the actions taken to correct problems cited in our 1994
report. 

We also met with officials from the intelligence and law enforcement
agencies to discuss the vulnerability of category I missiles and
rockets to theft by terrorists and other extremists and obtain
information on
category I and category II weapons that are missing, lost, or stolen. 
We excluded the Air Force because of the limited number of missiles
and rockets in its possession and because that service was not
included in our prior report.  Based on initial discussions on the
scope of our work, the Army Inspector General added the National
Guard to its follow-up review of handheld missiles.  Because the
Inspector General went to the same sites that we planned to visit, we
did not visit any National Guard sites. 

To determine whether changes made to the oversight of category I
missiles have improved the services' visibility over these missiles,
we physically counted about 15,000 Stinger, Dragon, and Javelin
missiles by serial number at selected Army, Navy, and Marine Corps
storage sites and two contractor facilities.  We selected sites that
had a comparatively high incidence of problems found during our first
review.  We opened
108 missile containers to ensure that a missile was in the container. 

To inventory the missiles, we used the item managers' automated
database.  We then entered this information into a notebook computer. 
On site, as we physically inventoried, we entered into the computer
the serial number of each of the missiles at that location.  This
information was automatically compared against the database from the
item managers.  Missiles that were not in the database or at the
storage location were reconciled with site and item manager
information. 

We also counted 6,637 AT4 and LAW rockets at randomly selected Army,
Navy, and Marine Corps storage sites.  At these locations, we opened
89 containers (which contained different quantities of rockets
depending on the type) and physically verified the presence of 403
AT4s and 261 LAWs.  We used the same procedures as the missiles to
inventory the rockets at the Marine Corps storage site.  At the Navy
and the Army rocket storage sites, an automated database of serial
numbers was not available from the item managers.  At these two
locations, we matched the inventory count against the item manager's
or major command's records. 

We tested the reliability of the systems' data by physically counting
the missiles and rockets and matching the count to the item managers'
records; however, we did not test whether the information was
provided to the item managers within 24 to 48 hours. 

We conducted our review from September 1996 to July 1997 in
accordance with generally accepted government auditing standards. 


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

Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 30 days from its issue date.  At
that time, we will send copies to the Secretaries of Defense, the
Army, the Navy, and the Air Force; the Commandant of the Marine
Corps; the Director, Office of Management and Budget; and other
interested congressional committees.  Copies will also be made
available to others upon request. 

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

Sincerely yours,

David R.  Warren, Director
Defense Management Issues


PICTURES OF THE CATEGORY I
STINGER, JAVELIN, AND DRAGON
MISSILES AND THE AT4 AND LAW
ROCKETS
=========================================================== Appendix I



   (See figure in printed
   edition.)




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



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

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

Charles I.  Patton, Jr.
Nomi R.  Taslitt
Waverly E.  Sykes, Jr.
Marilyn K.  Wasleski
David W.  Rowan
Arthur L.  James, Jr.
Marjorie L.  Pratt
Yolanda C.  Elserwy

DALLAS FIELD OFFICE

Jack L.  Kriethe
Kimberly S.  Carson
Jeffrey A.  Kans
Oliver G.  Harter

NORFOLK FIELD OFFICE

Sandra D.  Epps
Tracy W.  Banks


*** End of document. ***