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. 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. 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. 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. 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. 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. 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. 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.