Military Supply System: A Security Risk? : Immense Inventory Could Be Soft Underbelly of Defense Structure

In drab depots and windowless warehouses, in the dark holds of ships and on the back lots of bases at home and abroad, America’s military supply system is swollen with stockpiles of 4.4 million different types of weapons, equipment and spare parts worth a staggering $132 billion.

And this inventory--embodying some of the nation’s most sophisticated and sensitive technology--has quadrupled in size and scope during the last five years as President Reagan rebuilt the nation’s arsenal.

Even as it provides sinew for new military power, however, a Times investigation has found the supply system so vulnerable to penetration by thieves and foreign agents, so troubled with sloppy bookkeeping, inadequate controls and outmoded computers, that dark questions arise:

--Is the supply system the soft underbelly of national security, an inadequately guarded back door to the wealth of advanced technology on which America’s military might largely depends?

--Equally ominous, do thefts of such prosaic military hardware as booby traps and small missiles suggest the nation’s own arsenal could become a supply depot for terrorists and others?

--Or, in time of crisis, are the Pentagon’s endless warehouses and storage yards such an unmanageable morass that they could hamper the armed forces’ ability to respond?

The answers to these questions are not entirely reassuring.

Senior Pentagon and military officials insist that classified weapons and parts are well protected and say they see no evidence of stepped-up Soviet efforts to seek military secrets through the supply system. However, high-ranking officials admit that they were startled by recent thefts of advanced military parts and equipment that the Pentagon had never thought it necessary to protect. And the evidence of theft, equipment losses and hopelessly muddled records in the supply system is so overwhelming that no one can say with certainty what has or has not been compromised.

Thus, although top Pentagon officials emphasize that vigorous efforts are under way to correct the problems, there is uneasiness in the middle echelons of civilian and uniformed management at the Defense Department and at military installations across the country, as well as in Congress and the cloistered offices of Washington think tanks. There is a seed of fear that unexpected vulnerabilities may exist, both to outside penetration and the system’s own internal functioning.

Concern is also voiced that many of the problems are too ingrained and too intractable to be corrected in this decade.

The Times investigation--based on scores of interviews and examination of hundreds of documents--has found an interlocking web of problems:

--Supply system managers were completely surprised when it was discovered that Iranian agents had penetrated military security as part of a multibillion-dollar effort to obtain U.S. equipment for Iran’s war against Iraq.

Theft of missile and aircraft parts had never been considered a threat. In the past, Pentagon supply managers seemed more worried about someone stealing candy bars than inertial guidance systems for the Ayatollah Ruhollah Khomeini’s U.S.-made warplanes.

“It was a threat that we had not recognized before,” said James H. Reay, deputy director of supply management at the Pentagon. “There’s no doubt we were somewhat behind the power curve. . . . I think we’re catching up fast.”

--Thefts of components for weapons systems were partially masked by huge “inventory adjustments” made routinely by the Pentagon.

Last fiscal year, the five arms of the Defense Department’s supply system (Army, Air Force, Navy, Marines and Defense Logistics Agency) reported losing or misplacing items valued at more than $1 billion--$1,021,876,000, to be more precise. On the other hand, they also reported finding $1,013,697,000 in equipment, parts and supplies they did not know they had.

Thus, officials point with pride to a net loss of only $7 million--rather than viewing the more than $2 billion in annual adjustments as a sign of what one internal audit report called “total turbulence in inventory records.”

--Military supply operations depend on computers so outdated, ungainly and error-prone that, one expert said, “It is little wonder the supply system is a mess.”

The 1960s-era computers are older than some of the persons running them and “have so many Band-Aids and have been patched up so many times that no one knows why things go wrong,” another investigator said.

One Navy officer offered this analogy: “If an airline had our system and you were a passenger who bought a ticket and then wanted to confirm your reservation using the computer, you would have to wait in line at the airport for three days.”

--The system’s computer weaknesses offer ample opportunities for criminal activity by insiders. “It is entirely possible for an adroit and knowledgeable storekeeper to enter demands into the system, obtain materials and get shipping orders,” one retired admiral said. “Ultimately, after the part has been shipped, you can destroy all records in the transaction.”

The problems with supply system computers were documented more than a decade ago, but only now is the Pentagon vigorously pursuing a plan to replace them. The new computer system’s cost: $2 billion. The target date for completion: 1991.

--Security surrounding the shipment of all but the most sensitive and classified components is surprisingly loose, largely because there are so many shipments and because the military operates on an honor system.

“We begin with the premise that the guy in the Navy is honest, trustworthy and responsible,” said one commodore.

Thus, cars and trucks leaving supply depots are rarely stopped even for random searches, and sailors on at least one carrier are routinely issued keys to some of the carrier’s 650 supply bays without having to show identification, one former auditor said.

“With the volume we’re doing, we don’t check orders every time” to make certain the shipments get to the authorized destination, added Cmdr. Dan Stone, a San Diego-based inventory control officer.

Thus, although private parcel services like UPS require a signature for each package they deliver, military supply centers throughout the world every day deliver tens of thousands of orders worth millions of dollars to warehouses, piers, ships and installations without requiring anyone to sign for receipt of the supplies, parts or equipment.

--Parts and supplies ranging from aircraft tachometers to toilet paper regularly change hands among Navy personnel in an unauthorized but universally condoned bartering system known as “cumshaw.” Dating back decades and named after the Chinese word kam sia, meaning grateful thanks, the transactions include almost any deal imaginable, from the commanders of two fighter squadrons swapping aircraft parts to keep their planes aloft to a cook bribing a supply officer with a case of shrimp to get a highly valued leather flight jacket.

“Cumshaw happens all the time,” said a Navy officer in San Diego who asked not to be identified. “It goes back years. It’s a tradition. It’s a fact of life in the Navy . . . one of those things that makes the supply system out of balance.”

--Paradoxically, operations of the supply system have been strained and its weaknesses have been magnified by Administration pressures for military readiness--for making certain that U.S. warplanes, missiles, ships and tanks are prepared for combat.

Prodded by their civilian bosses to emphasize readiness and eliminate paper work, the military services routinely allow officers and even supply clerks to go outside normal channels to acquire a variety of equipment and supplies under blanket purchase agreements with private vendors.

For example, one San Diego company that sells furniture, filing cabinets, carpeting and similar items has an agreement under which any of 183 Navy personnel--ranging from the commander of the aircraft carrier Kitty Hawk to a storekeeper at the Naval Recruiting District--can order materials costing up to $10,000 by telephone without a second party verifying that the purchase is legitimate or that competitive bids were sought.

“That’s where the abuse comes from,” said the general manager of the firm, who asked not to be identified for fear of losing Navy business. “There’s too many damn fingers in the pot. It’s like giving a checkbook to everybody in the office and telling them to go rampant.”

The same pressures for readiness have been cited in the recent spate of military procurement scandals but, unlike the headlines and congressional investigations generated by disclosures of excessive prices paid to manufacturers, the shadow of scandal within the Pentagon’s own supply system has gone largely unnoticed.

And, unlike the official hand-wringing over former Navy officer John A. Walker Jr.’s alleged family spy ring, scant attention has been paid to the real and potential breaches of security that have resulted from the supply system’s weaknesses.

Six weeks ago, authorities in San Diego accused seven persons--including two enlisted men in the Navy’s supply system and a civilian employee of a Navy warehouse--of conspiring with an Iranian agent to steal from U.S. military stockpiles an assortment of components for some of the Free World’s most sophisticated combat weaponry, including Phoenix missiles and F-14 jet fighters.

Indictments and government documents charge that the equipment and spare parts were illegally diverted to the Ayatollah’s regime. Iran has been officially classified as a hostile country since 1979, when it took over the American Embassy in Tehran and held most of its occupants hostage until 1981. That designation forbids it from receiving U.S. military materiel.

More recently, a lieutenant colonel--a missile expert assigned to the Army Materiel Command at the Pentagon--was indicted along with six other persons for allegedly joining in a foiled conspiracy to sell thousands of the West’s most advanced missiles to Iran for more than $140 million.

Not Accused of Espionage

Serious as these cases may sound, they are being prosecuted by the Justice Department as larceny, smuggling, fraud or customs violations--not as espionage.

Defense Secretary Caspar W. Weinberger has shrugged off questions about penetration of the supply system, saying: “You are going to have spies and thieves no matter what we do.”

And Adm. James D. Watkins, chief of naval operations, has dismissed media accounts of missing equipment and inventory problems aboard the Kitty Hawk as “over-bloated and unbalanced criticism of relative trivia.”

Certainly, problems in the military supply system are far from new. As every schoolchild knows, Gen. George Washington had severe difficulties providing even the basic necessities of life for his Revolutionary War soldiers at Valley Forge.

Almost two centuries later, however, the nature of the problem has reversed itself. Gone are the shortages of shoes, food and warm clothing that brought suffering to the Continental Army. Today, the military supply system is so overwhelmed by the sheer volume of parts and equipment that it cannot keep track of what it is responsible for, much less ensure that none of it falls into unfriendly hands. In 1965, for instance, auditors found errors in nearly one-third of the Navy’s stock records.

During the Vietnam War, the General Accounting Office repeatedly found substantial differences between stock-record balances and actual quantities on hand throughout the military supply system.

As an example, one officer recalled that a Navy aircraft carrier operating off Vietnam could not seem to maintain spare parts for a crucial but fragile avionics component of its jet fighters. Under harsh combat conditions, the component needed frequent replacement. But no matter how often the vessel stocked up in port, once back at sea, the replacement units always turned up missing.

The explanation, chagrined investigators eventually learned, was what the officer called “just plain ornery criminal behavior.” A Navy technician, fed up with the repetitive repairs, was calmly requisitioning the replacement parts and pitching them overboard--while inattentive supply personnel remained oblivious to what was going on.

Such deficiencies were spotlighted by congressional hearings in the 1970s; by 1982, a House committee declared that “the problem has not been corrected and, if anything, has deteriorated.”

Supply Sloppiness

That year, a study by the House subcommittee on readiness found that six U.S. Navy supply centers lost $330 million in goods during fiscal 1981. At the largest facility, Norfolk Naval Supply Center, losses totaled $174 million, an increase of 284% from the previous year. Missing items included 7,000 pounds of lobster, 12,000 pounds of coffee, a $125,000 computer and six pallets of nuclear fittings valued at $500,000.

By 1983, the GAO weighed in again. The Navy was making progress in straightening out its supply system, it said, but “the magnitude and impact of the inventory accuracy problem in the Army, Air Force and DLA (Defense Logistics Agency) are much greater than recognized.” Records of these three, it added, “significantly understate the true extent of their inventory record inaccuracies.”

Beyond the columns of statistics in the auditors’ reports are instances of supply system sloppiness affecting national defense.

The GAO cited, for example, the case of a transducer, a $677 part that controls the air intake for the engines of the $100-million C-5A, the world’s largest transport plane. Without the part, the huge plane cannot fly. Without the plane, the Air Force cannot meet critical airlift needs in the event of a crisis.

At the San Antonio Air Logistics Center, the GAO said, clerks recorded the receipt of one shipment of 31 transducers four times. Thus, records indicated 124 transducers were on the center’s shelves when only 31 were actually on hand. The clerical error went undetected for two years--until high-priority requisitions began going unfilled. It took 13 months for the manufacturer to replenish the Air Force stockpiles.

“Thus,” the GAO said, “the shortage of the transducer prolonged the repair of inoperable engines and potentially degraded the mission capability of C-5A aircraft for over a year.”

Such reports by auditors and investigators spurred a flurry of activity by the Reagan Administration, which placed the highest priority on military readiness. Pentagon committees and working groups churned out stacks of improvement plans and performance standards.

Still, a few months ago, Rep. Dan Daniel (D-Va.), chairman of the House Armed Services subcommittee on readiness, found that not much had changed.

Although the Navy was making progress, he wrote in a scathing March 14 letter to Pentagon officials, “the Army, Air Force and DLA have not implemented corrective actions agreed to by the military departments. In effect, improper and ineffective practices still exist and continue to plague supply operations.”

It has taken the shock of discovering the diversion of parts to Iran to jolt the Pentagon into taking a hard new look at the security of its supply system.

Although the FBI, Customs Service and other investigative agencies had known for at least four years that the Ayatollah’s agents were desperately seeking components for the U.S.-made weapons his regime inherited when the Shah of Iran fell, Defense Department officials were surprised that the military supply system was a target of Iranian penetration.

“It’s like being hit in the head with 2-by-4s, the shocks of seeing our supply system dragged through the paper,” said Reay, the Pentagon’s deputy director for supply management.

“Even though we hate to see it, it has had some positive benefits,” such as tighter computer security over parts that, although not classified, could still aid Iran and other enemies.

Diversion Undetected

He now sees how it was possible for the diversion of materiel to Iran to remain undetected for several years, he said.

“Previously, the supply system was oriented toward protecting classified . . . and pilferable items--Army jackets, candy bars, pocket knives, screwdrivers, things which are salable and usable on the outside market.”

Today, he said, “We’ve got a situation that we’ve never had before, in that things like F-14 parts, Phoenix missile parts had no real appeal for criminals up until the last few years--because what would you do with it if you stole it? There’s no market for it. Who would buy an F-14 guidance set unless he had an F-14? Well, now, lo and behold, we have . . . a criminal element that has F-14s and needs” spare parts.

The Iranians “have literally put out shopping lists . . . to the illegal arms merchants around the world, saying: ‘I want these parts, here’s what they are by stock number, here’s the description and I’m willing to pay anything for them.’ ”

“The temptation,” Reay said, is overwhelming for “people who are ship’s storekeepers, warehousemen, who obviously are not in high-income brackets.”

In a nearby Pentagon office, Maurice Schriber, a deputy assistant secretary of defense, has spent much of the last two years wrestling with the embarrassing “horror stories” about procurement of spare parts--$600 for an airplane ashtray, $700 for a pair of pliers, $900 for a toilet seat.

Now, he, too, is immersed in finding out why the military Establishment, besides having paid too much for some spare parts, allowed other, more sensitive parts to be stolen from its supply system--and what can be done about the problem.

“I’ve looked at several systems in the private sector,” he said, “and you can only go so far with systems and procedures and policies, and then you’ve got people. You’ve got a trade-off that you always weigh in the development of a system: How far do I go to make that 100% fail-safe so someone can’t get in and divert supplies?”

On the other side of the country, Peter K. Nunez, the U.S. attorney in San Diego who is prosecuting those charged with stealing parts for Iran, put his finger on the larger, even more disturbing problem: “If these guys could do what they did, what is to prevent someone else from doing it?”

Among some Armed Forces officers, such concerns are overshadowed by a feeling of being whipsawed. One recent morning at the Pentagon, the measured tone of a Navy officer’s voice barely concealed the frustration welling up inside him.

“In the 1970s,” he said, “we couldn’t get parts for our planes or ships. It was this time of austerity. We were being judged on readiness, but no one was helping us to be ready. We had to bend the rules so we could fly or sail. Everybody bent the rules. A whole generation of middle managers bent the rules. If you needed six of something, you’d order 10 so you’d have one if it broke and you were out in the middle of the Indian Ocean.

“Then there was this great push from ’82 to ’84. The political appointees were pushing to get the readiness statistics up, and the spares started going to the field. All of a sudden we had what we needed, more than what we needed, but the ethic still was to bend the rules. . . .

“Then came all this Johnny-come-lately purity and piety in Washington. You push me first to be ready and now you are after me for not crossing all my t ‘s and dotting all my i ‘s. What in the hell is going on?”

And beyond the difficulty of balancing sometimes-conflicting goals, the sheer enormity of the U.S. military supply system suggests the human capacity to create may transcend the human capacity to control.

In San Diego, for instance, seven charcoal-colored metal buildings crammed with aviation parts stretch alongside the 11th and 12th fairways of the Sea ‘n’ Air golf course at North Island Naval Air Station in San Diego. Each building is the size of two football fields, each filled with wooden crates of parts stacked several stories high. It takes 287 civilian employees driving 47 forklifts just to move 35,000 parts in and out each month.

Larger items are stored outside--aircraft engines and helicopter blades, for instance--in metal boxes. Color-coded tags and stickers denote the importance of the part and the day it arrived. If the tag is green, the part came in on a Friday. If the sticker is pink, the part is classified.

Other Supply Centers

Big as they are, the North Island warehouses are but seven of 23 buildings in and around San Diego devoted to storing naval supplies. Moreover, San Diego is only one of the 10 major naval supply centers in this country and abroad.

And the entire naval supply system, with an inventory of $19.5-billion worth of spare and repair parts, has less than one-third of the Pentagon’s total stockpiles.

The heart of this mammoth military supply system is the computer. And, like a critically ill human with heart disease, the supply system’s computer is pumping slowly and erratically, barely able to meet unceasing demands placed upon it.

In San Diego, one Navy officer sighed with exasperation when he described his service’s supply system computer. “On a scale of 100,” he said, “it ranks as about a 2 or 3 in sophistication. It’s hard to manage a system and have good accountability with an archaic computer that’s running a software package with a 1960s intellect.”

If the clumsiness of the Pentagon’s supply computers makes inventory controls difficult, there is also reason to doubt their security. While Pentagon spokesmen express confidence that the system is protected against penetration by outside “hackers,” they acknowledge vulnerability to insiders.

One example is the case of the 31 purloined silver bars.

Five times between July and September, 1983, someone aboard the Kitty Hawk ordered batches of the 10-pound ingots, each worth about $1,000, by typing the 13-digit military national stock number into a computer console aboard the carrier.

The theft of silver bars--discovered purely by accident--involves no direct threat to national security. However, the ease with which so striking a theft was pulled off raises uncomfortable questions about what else may be slipping away undetected.

Navy technicians use silver bars to electroplate parts, but that procedure is never performed aboard aircraft carriers. Because the computerized orders use only codes of numbers and letters, not the actual description of the requisitioned item, no one along the supply chain asked why an aircraft carrier was ordering silver bars.

Although Navy supply computers can be programmed to monitor unauthorized requests and to raise a red flag before these orders are filled, no such safeguards were plugged into the system governing silver bars when the five batches were ordered.

Theft from the military supply system is not uncommon.

In fact, when the FBI set up a “sting” operation at Camp Pendleton to buy stolen items, “there were so many Marines who wanted to sell us stolen gear that they were literally banging down our door,” said FBI Special Agent John M. Kelso Jr. “When we wouldn’t answer, they would pound on the door and say, ‘Hey, we know you are in there! Open up! We’ve got another load to sell you.’ ”

“The military doesn’t know how much of its equipment is actually missing,” Kelso said. “This is as serious a rip-off of the government as the $5 wrench that private contractors charge $500 for. But it’s worse than the $5 wrench deal because, in this case, the government does not know how badly it’s getting ripped off.”

In North Carolina last September, 29 soldiers and businessmen were indicted for pilfering millions of dollars in equipment from the Army’s Ft. Bragg, the Marines’ Camp Lejeune and from two naval air stations. Among the items recovered were ammunition, booby traps and 400 flak jackets.

“The military was as frustrated as we were in trying to plug their leaks,” said Robert L. Pence, special agent in charge of the FBI’s Charlotte office. “They almost all agreed that they just can’t control the problem.”

The potential threat that the porousness of the Pentagon’s supply system poses to the world was underlined by an undercover agent in the state of Washington last year, who “purchased an anti-tank rocket from a biker who was going to use it to (rob) an armored car,” according to a sheriff’s deputy. “The biker said he got it from Ft. Lewis”--the Army’s base near Tacoma.

To avoid such potentially catastrophic problems, the Pentagon has instituted special safeguards that should prevent the theft of missiles or classified components for warplanes, according to several officers.

“We have plenty of checks on classified parts and materiel,” one officer said. “We do it manually, not just depending on the computer.”

However, tens of thousands of sensitive parts are unclassified. For example, of all the parts used in the F-14 fighter, only three are classified, according to Capt. Ed Straw of the Naval Supply Command. Only 28 of the thousands of parts in the Phoenix missile system--the Navy’s premier shield against air attacks on aircraft carriers--are classified.

Thus, Straw could announce weeks after the Iranian theft-and-diversion ring was disclosed that “we’ve now completed our inventories and audits of those classified items on both the F-14 and Phoenix and we have no losses . . . so that’s good news.”

Not such good news, though, are questions about whether the supply system is vulnerable to penetration by terrorists or agents for the Soviet Union.

At the Pentagon, supply officer Reay said investigators and policy-makers have analyzed the possibility of the Soviets trying to tap into the supply system to gain parts or entire weapons systems rather than simply plans or blueprints for those weapons.

“We have seen really no indication of an increased Soviet activity,” he said. “The Soviet presence is there. It’s always there. And we emphasize particularly the protection of classified materiel in the supply system.

“And I frankly think that our checks in the area of Soviet interest in the supply system are pretty good.”

A less sanguine view was expressed by Customs Commissioner William von Raab, whose agents have successfully penetrated several of the rings of thieves and smugglers run by Iran. Von Raab is especially disturbed by Iranian agents’ efforts to acquire complete missiles.

After the Pentagon missile expert and other would-be smugglers were indicted Aug. 1, Von Raab said: “If we had lost a total missile system to Iran, there’s no telling where those missiles would show up. It certainly is the kind of equipment that you could easily use to pop an airplane down--or launch into one of our embassies.”

The Iranians, Von Raab said, “have shown themselves not only willing but ready to do that.”

In a subsequent interview, the commissioner was asked to assess the potential vulnerability of the supply system.

“It’s a huge logistics operation, and any operation that size will . . . at times show some vulnerability,” he said. “But I wouldn’t characterize it as vulnerable in the sense that it’s sort of an open door for people to come in and take arms.

“I think that the cases . . . show that people will go after it, but at the same time I think what’s resulted from these cases has been an increased level of vigilance on the part of the military. Any system has to be regarded as vulnerable. It’s just a question of how vulnerable.”

TWO MEASURES OF THE MILITARY SUPPLY SYSTEM Fiscal Year 1984

VALUE OF INVENTORY OF SPARE AND REPAIR PARTS In millions of dollars

Army Navy Air Force Marines

Average inventory $33,383.628 $18,762.009 $19,662.246 $1,585.478 Inventory Gains: 309.824 282.671 232.974 10.703 adjustments Losses: 396.788 237.617 213.524 9.844 Gross adjustments 706.612 520.288 446.498 20.547

ORDERS PROCESSED--AND UNFILLED Number of materiel requistion orders processed 3,901,208 14,523,208 7,101,091 97,375

Number of orders denied because part was out of stock, could not be located, or records were inadequate 34,107 93,995 47,986 1,209

Source: Defense Dept.

TWO MEASURES OF THE MILITARY SUPPLY SYSTEM (Continued) Fiscal Year 1984

VALUE OF INVENTORY OF SPARE AND REPAIR PARTS

In millions of dollars

Defense Logistics Agency DoD Total Average inventory $7,080.827 80,474.188 Inventory Gains: 177.525 1,013.697 adjustments Losses: 164.103 1,021.876 Gross adjustments 341.628 2,035.573

ORDERS PROCESSED--AND UNFILLED Number of materiel

requistion orders processed 18,026,824 43,649,706

Number of orders denied because part was out of stock, could not be located, or records were inadequate 121,538 298,835

Source: Defense Dept.