Tag Archive: Kathleen Watson

I received a follow up comment from “An Old Navy Man” today.  He states:

“I guess Lawhorn will have to share underwear with Cole and Hellman now.  The Beltway rumor is that Vince Taylor was encouraged to move on.”


Original Post – story



There’s an old Navy story about a ship’s Captain who inspected his sailors.  Afterward he told the first mate that his men smelled bad.  Perhaps it would help if the sailors would change underwear occasionally.  The first mate responded “Aye, aye sir, I’ll see to it immediately!”


The first mate went straight to the sailor’s berth and announced, “The Captain thinks you guys smell bad and wants you to change your underwear.”  The first mate continued, “Watson, you change with Sterling.”  “Taylor you change with Cole.”  “Lawhorn you change with Hellmann.”


The moral of the story-   someone may come along and promise change, but don’t count on things smelling any better.


It’s time for the Office of the Secretary of Defense to hand the Industrial Security mission back to the Government Contracting Authorities.


From an old Navy man


Use this link to read article at the post and the comments following it:


Here are comments posted about this story as of 10-10-10:



DSS has long being the dumping ground for “entitled” personnel in the DOD that needed to be pushed up (promoted) but were not considered for vital national security positions. Following a push to rid the organization of the “old guard” (former DOD intelligence and security males) the Clinton Administration pushed for and got more women in upper management positions and as new hires. The old system of hiring military veterans from the intel and security arena no longer applied.

Consequently after many mishaps with the new management personnel pushing out the legacy staff, DSS went though a series of Directors, all without a clue to the actual mission of the service. The name was changed on a whim from the Defense Investigative Service to the Defense Security Service or DSS, thereby forcing the DOS’s Diplomatic Security Service (DSS) to change their acronym.

The dual mission of the service was never understood by management and the Industrial Security side of the service which had 15% of the service assets and its mission to protect government classified information at contractor facilities were shunted aside for the larger Investigations side of the house.

Only later when after a series of new directors (and new senior staff, usually old friends brought in) came the realization that the investigative side of the service (3,000 agents) would be going to OPM and all that would remain was the 500 or so Industrial Security Representatives. A realization was also made that the number of 500 field representatives could not justify the extremely high amount of SES, GS-15, and GS-14 positions at the headquarters of DSS.

At that point the decision was made to hire more field representatives, but instead allowed transfers from the investigative side to the industrial side.

What was not understood was that the experienced representatives had been pressured to retire early leaving only inexperienced reps and with the influx of investigative agents into the industrial side, there was no one left with any experience.

Also not understood by DSS management was that the years it takes to train a field rep. The industrial reps required years as a physical security, information security, computer security, signals or electronic security, as well as an understanding of business structures and the impact of foreign owners.This requires years of experience (think experience in military service).

What Kathleen Watson inherited was a dysfunctional agency with an inexperienced middle management and unknowing senior management.

The field reps on hand were largely inexperienced and untrained. Coupled with a management with an attitude, security issues were not recognized nor addressed, and unfortunately in many instances, ignored or covered up.

My suggestion would be to go back to the pre70’s approach to have each user agency with classified at contractor locations do their own security assessment.

Posted by: dodavatar | October 5, 2010 10:10 PM |


forget about classfied information, where will they get money for pens and paperclips?

Posted by: beltwaybandit2 | October 6, 2010 1:41 PM  


RECOMMENDATION:  A few years ago, the military departments (Army, Navy, Air Force) expressed their concerns about the performance of Defense Security Service (DSS) and proposing the disestablishment of DSS and having the military departments assume the security oversight of the contractors.The USD(I) looked at the proposal and decided to continue security oversight with DSS and to maintain the status quo. At the time, the military departments were not specific in how they would implement the security oversight.Maintaining DSS is the focus of its senior management and not the mission to protect the classified.There needs to be some consideration again to disbanding DSS and having the military administer their classified in the hands of cleared defense contractors. This may be the best alternative if DSS does not return to their stated mission and re-establish their integrity. As a veteran, taxpayer, & concerned citizen, it is recommended that DSS be disestablished and the military departments assume the functions and responsibility for the National Industrial Security Program (NISP) for these reasons:
ABUSE OF POWER:Former agency Dir. Kathleen Watson and her subordinates have successfully rid the organization of knowledgeable personnel. Watson actively participated in the ugly treatment of employees in this process. Her Director of Field Operations, Richard Lawhorn conducted the purge with malice and forethought. He doles out promotions or creates “do little” positions to keep his select employees beholden or “loyal” to him. Long time industrial security field staff or field office chiefs/middle managers with experience were shut out from promotions. Lawhorn’s management selectees have less than 2 years experience with DSS or are from the ranks of the unemployed and are desperate for a job. Once employed or promoted these persons may be called upon to lie about someone targeted for removal. Then another such beholden or “loyal” employee will swear to the lie and is subsequently rewarded with an appointment to a position such as Field Office Chief, Regional Director, or Deputy of this or that created SES position. This orchestrated duplicity is how Lawhorn has ensured the loyalty of his management staff. They are loyal to him for the sake of job retention and not mission driven. This environment is ripe for DCIPS abuse and that has already been demonstrated.
DSS has a daunting task with over 12,000 CDCs in the NISP and 400 field personnel to implement the program. There are another 400+ HQ employees and managers that never set foot in the field. The agency has been understaffed for years and minimal efforts have been made to actively recruit let alone retain qualified candidates. This has become a national security vulnerability.DSS needs to return to its mission of protecting the warfighter by securing the classified and be lead by persons with ethics and integrity; OR it needs to be dissolved and the mission returned to the military departments.

Posted by: TracyVerdi | October 6, 2010 11:15 PM


I agree with much of what dodavatar said. There are a couple of additions and clarifications I wish to add.

The period of time I view as the era of PSI trying to co-opt the entire agency, roughly from the early 1990’s to the mid 2000’s (reference the A-76 Studies). Even before PSI was sent off en masse to OPM, there were problems. In some cases, PSI employees with no understanding of the importance of the Industrial Security Mission were put in place as Office Chief’s of combined PSI/ISP offices.

There appeared to be some insider good old boys thing going on with at least some of those office chiefs. From what I have learned, a lot of waste, fraud, abuse and just plain arrogant irresponsible actions were committed during that time by them.

PSI managers made a run for ISP program money, and took it at will at the local/regional office level. ISP employees were left with insufficient funds to meet the requirements of their stated official mission. ISP reps were not given what they needed to do their jobs, and then were beat up by managers for not doing their jobs. There are many compelling and quite horrifying stories that employees from those years can relate.

These ISP reps suffered at the hands of these unqualified office chiefs, who made up what they did not know about the National Industrial Security Program with bullying and empire building.

This went on for some time, and no one in upper agency management did anything to address the problems, seemingly because the good old boy network extended into upper management. Richard Lawhorn was in management at that time, and was fully a part of those shenanigans. Some of the others were forced out or allowed to retire, as the corrupt and destructive management behavior continued. Richard Lawhorn is still there; it appears to me he has built himself an empire which has allowed him to remain pulling the strings and manipulating the workplace for the field offices, while directors have come and gone.

Hiring people who have the prerequisite knowledge, skills, ability and the aptitude and attitude to continue to learn new information, develop new specialized skills and expertise is extremely important in the type work that DSS ISR’s must do if they are to fulfil their real mission, as defined by Executive Order 12829 and delegated by OSD. I do not agree that military experience is necessarily the key to being a competent and skillful ISR. DSS has hired former military into ISR and other positions, but that background is not a guarantee of ability to excell in performing challenging ISR responsibilities.

The reinvention effort of the 1990’s though not all negative, opened the doors to major problems,of increasing influence of contractors on the inspection and oversight roles of DIS/DSS employees. It appeared to this observer that there was a a lot of revolving door use between DSS and defense contractors as well. Quality training in DSS has ceased to exist.

Posted by: gfs2010 | October 7, 2010 1:57 AM


If anyone can contribute to real factual information about past and present waste, fraud, and abuse within Defense Security Service, or other DoD agencies, please comment at the Washington Post article site, or email me at this site or you may go to Project On Government Oversight (pogo.org), and anonymously leave a message there for Nick Schwellenbach.  Ongoing investigations will be aided by additional reports of information and additional investigations could be inspired.  I believe there are a lot of you out there, including retired or former DoD employees who know a lot about these problems.   Thanks, GFS

Outgoing DSS Director, Kathleen (Kathy) Watson has stated in her farewell letter that the new acting Director of DSS in October when she leaves will be Barry Sterling.   -GFS

 As a start, here is what is posted on the Defense Security Service Website:

Barry E. Sterling

Chief Financial Officer

Defense Security Service

Barry E. Sterling, a member of the Senior Executive Service, is the Chief Financial Officer of the Defense Security Service. In this position, he is the primary advisor to the Director, DSS, in the areas of budget formulation, budget execution, financial management and policy, financial systems, and financial/cost reporting.  Additionally, he provides executive leadership to the agency’s safety, logistics, nationwide facility management programs, the Strategic Management Office, and manages the Base Realignment and Closure (BRAC) Program.  Prior to this assignment, Mr. Sterling was assigned to the Deputy Under Secretary of Defense for Intelligence Counterintelligence and Security (DUSD(I) CI&S) where he formulated and executed the DUSDI financial program and provided financial oversight of the Defense Security Service and The Counterintelligence Field Activity.

Mr. Sterling is a retired U. S. Air Force Officer who during his Air Force career performed management assistance services, spearheaded Wing and Command level Management Information Programs, cost and economic analysis, and developed and administered cost analysis policy for 120 analysts at Headquarters Air Education and Training Command (AETC) and its 13 bases; interpreted, clarified and supplemented Air Force guidance on budget policy and procedures, tracked congressional, DoD and Air Force budget actions and developed the AETC financial plan and oversaw the execution of over $4 Billion in multiple appropriations.

Mr. Sterling commanded the 325th Comptroller Squadron where he provided financial services, budgeting and accounting of 34 appropriations exceeding $360 million.  He also served as a Senior Financial Manager, Secretary of the Air Force Financial Management, performing strategic planning activities and conceived and managed manpower policy for all 13,000 Air Force Financial Management and Comptroller positions Air Force wide.

He served as the Comptroller and Director of Financial Management for Headquarters Air Force Office of Special Investigations (HQ AFOSI) where he developed and defended a $325 million budget supporting Counterintelligence, Counterespionage, Force Protection and Security and investigative activities.  He was the Secretary of the Air Force Inspector General’s (IG) representative to the Headquarters Air Force Resource Management program providing oversight and input to SAF/IG’s financial program and provided oversight to the (HQ AFOSI) and Air Force Inspection Agency.  He also was the SAF/IG representative to the USAF Group and USAF Board representing SAF/IG input into the Air Force Corporate Structure making resource decisions affecting all Air Force entities upon his retirement from active duty.

Prior to his military career, Mr Sterling was a Vice President/Branch Manager for a large Florida Bank managing all branch financial operations. He has had a 30-year career in financial management.  He holds a Bachelor’s degree from the University of Maryland and a Master’s degree from Central Michigan University both in business.  He also holds a Florida Bankers Association School of Banking Branch Management Institute degree.

Current as of September 2009

I received this recently from an anonymous source.  I can understand why so many people wish to remain anonymous with all the mistreatment of federal employees going on out there.  Considering the changes happening at the highest levels in DSS recently, it seems to me that the comments of this reader are worth considering carefully.  GFS


G Florence,

The Joint Strike Fighter, BAE and DSS article by Nick Schwellenbach, which you reference, is a good investigative report.  Thank you for posting it on your blog.  DSS’s problems are not yet adequately addressed. 

The report just scratches the surface of a large and systemic problem in DSS.  Director Kathleen Watson told the OIG that “DSS has a thorough and fundamentally sound facility inspection process which was only marginally diminished by the failure to systematically collect, analyze, and retain BAE’s required reports.” 

As the director, Kathy Watson paid the price for bad DSS inspection work and sloppy documentation.  The problem has not gone away with Kathy Watson leaving DSS.  The real problems and responsibilities rest upon the shoulders of Rick Lawhorn, the DSS Director of Field Operations.  To the public and the defense contractors Rick Lawhorn eloquently speaks to quality and timeliness of inspections and inspection reports.  But in reality, Lawhorn has stressed “metrics” or numbers to his DSS regional directors and field office chiefs. 

Many Action Officer positions and deputy management positions were created to micromanage the industrial security representatives doing the inspection work.  It seems like there are more managers sitting around staring at an ever-increasing number of individual manager created Excel spreadsheets than there are field people doing the work.

This has created a DSS management atmosphere where everything becomes top priority, and everything must be done in a timely fashion.  It is not possible to do everything all at once, particularly when more and more is being added to the list and the work force is still insufficient for the workload. 

This has also created an atmosphere where employees are working many undocumented hours to try to remain successful at their jobs.  This environment has lead to employee burnout and high turnover within many of the DSS field offices. 

DSS management and Rick Lawhorn seem to believe that there is a limitless supply of highly trained industrial security representatives just waiting for the opportunity to work for DSS, so the pattern of heavy-handed DSS micromanagement of employees continues on, chasing more and more people who have knowledge and experience out of DSS.

Former and current DSS employees have reported many of these instances to the DoD inspector general’s office.  The DoD inspector general’s office seems to have a high success rate of dismissing these reports without further investigation, which points to another Nick Schwellenbach article that you reference about the DoD inspector general’s office failing in its mission.  Nick Schwellenbach’s article references a Senator Grassley report that says the DoD IG in numerous instances has failed to follow up on serious evidence of wrongdoing, especially in the vulnerable area of defense contracting.

Another Former DSS Employee

I hear from my beltway sources that today, Kathleen (Kathy) Watson announced that she was leaving as Director of Defense Security Service.  I understand she did not announce what her next endeavor would be.  Those that are curious about such things should be watching closely.  There has been a pattern of people leaving DSS and taking lucrative defense contractor jobs with contractors that have been “overseen” by DSS. 

I hope the Department of Defense Inspector General’s Office is paying attention and will continue to investigate such things and keep an eye on where she goes and under what sort of agreement. 

And by the way, someone should also be looking closely at Richard Lawhorn, who has been very skillful I hear at keeping himself below the radar, with plausible deniability.  Directors have come and gone; Lawhorn has remained.

Following the failures mentioned previously in this blog regarding DSS management’s handling of the DSS mission, and treatment of employees, I was sent this information.

I have heard from sources through the Beltway that Kathleen Watson’s  resume is currently out to industry and other government agencies.  Has anyone else heard these same rumors?  GFS

Update:  8-29-10

I have also heard changes are happening for Richard Lawhorn.  It is not clear if he is being promoted or forced out.  It is also not clear if someone might be moving him sideways and out of the line of fire, now that DSS is the subject of DoD IG investigations. 

The cavalier treatment of field employees continues, including “forced overtime” without pay, remote temporary assignments to other field offices, which make no practical sense other than as apparently as a tool to further harass and stress out employees.  It does not appear anyone is taking action to stop these wayward and mean spirited managers at this point.  Anyone have any perspective or more stories of the situation?  -GFS

There are a number of troubled agencies, I’ve been monitoring lately.  One of the ones that is most troubling is the Defense Security Service (DSS).  (You can use the search on this blog and see how many articles or comments I’ve posted about DSS and read them all.) 

I recently heard from my sources within the DSS, (an agency which has oversight of defense contracts bid and won by various defense contractors), that the Director, Kathleen Watson and their Director of Field Operations, Richard Lawhorn, have made staff assessment visits the highest priority in the Defense Security Service.

I understand that “staff assessment visits” mean full scale attacks on local and regional offices of DSS and specifically targeting their field personnel and local/regional office chiefs.)  Due to mismanagement it appears, from the top, many of these offices are understaffed, undertrained, and over-tasked in trying to fulfill their routine mission and jobs, let alone be able to deal with the kind of games now being launched against them by their head office and regional managers.  This appears to be full-scale campaign of retribution being levied against local/regional office field personnel.  I would like to know why.

I have also heard that Watson and Lawhorn are requiring these already understaffed and overworked field offices to assign field personnel to these assessment visits around the country at the expense of accomplishing the agency’s stated mission.  (Read that as real oversight work.)   To this interested observer it appears to be a deliberate sabotaging of the DSS employees ability to do their jobs.  

If any of you have any further details or perspective on what is going on within this very troubled agency, please leave comment or contact me by email through this blog site. 

Thank you,


A concerned citizen emailed me this a short time ago.  It appears that there are some who are trying to make things even less transparent.  The better to commit fraud, waste and abuse with I suspect.  I wonder if  James McNerney had anything to do with this?  This must be stopped.  GFS

The Government Accountability Office (GAO) seriously needs to coordinate with the Department of State and the Directorate of Defense Trade Controls.  If 75 FR 15388, March 29 2010 Public Notice 6931 is allowed to stand, this amendment to the International Traffic in Arms Regulations (ITAR) will further damage and weaken any effective protection of technologies critical to United States national security interests and all the good work that GAO is trying to do under their “High Risk List” program.
There have been many instances where industry has offered too much information and technology to foreign governments and corporations during the solicitation and negotiation phases of the international contracting process.  Once the information and technology have been offered by a U.S. corporation it is almost impossible for the government to then intervene and withdraw that offer.  This appears to be yet one more effort by the Defense Trade Advisory Group’s (DTAG) industrial community members, and the Chairman of the President’s Export Advisory Council (Jim McNerney) to further weaken the export compliance process.
http://www.pmddtc.state.gov/FRN.html  )
U.S. Department of State, Directorate of Defense Trade Controls
Federal Register Notices    2010
75 FR 15388, March 29, 2010, Public Notice 6931.
Amendment to the International Traffic in Arms Regulations: Removing Requirement for Prior Approval for Certain Proposals to Foreign Persons Relating to Significant Military Equipment
The Department of State is amending the International Traffic in Arms Regulations (ITAR) to remove the requirements for prior approval or prior notification for certain proposals to foreign persons relating to significant military equipment at section 126.8 of the ITAR.
DEPARTMENT OF STATE, 22 CFR Parts 124, 126, and 129, [Public Notice: 6931], RIN 1400–AC62, Amendment to the International Traffic in Arms Regulations: Removing Requirement for Prior Approval for Certain Proposals to Foreign Persons Relating to Significant Military Equipment
AGENCY: Department of State.
ACTION: Proposed rule.
SUMMARY: The Department of State is amending the International Traffic in Arms Regulations (ITAR) to remove the requirements for prior approval or prior notification for certain proposals to foreign persons relating to significant military equipment at section 126.8 of the ITAR.
DATES: Effective Date: The Department of State will accept comments on this proposed rule until May 28, 2010.
ADDRESSES: Interested parties may submit comments within 60 days of the date of the publication by any of the following methods:
• E-mail:DDTCResponseTeam@state.gov with an appropriate subject line.
• Mail: Department of State, Directorate of Defense Trade Controls, Office of Defense Trade Controls Policy, ATTN: Regulatory Change, Section
126.8, SA–1, 12th Floor, Washington, DC 20522–0112.
• Persons with access to the Internet may also view this notice by going to the U.S. Government regulations.gov
Web site at http://regulations.gov/index.cfm.
Director Charles B. Shotwell, Office of Defense Trade Controls Policy, Department of State
Telephone (202)663–2803 or Fax (202) 261–8199; E-mail DDTCResponseTeam@state.gov. ATTN: Regulatory Change, Section 126.8.
SUPPLEMENTARY INFORMATION: Effective September 1, 1977, the Department of State amended the International Traffic in Arms Regulations (ITAR) at 22 CFR 123.16, to require Department of State approval before a proposal or presentation is made that is designed to constitute the basis for a decision to purchase significant combat equipment, involving the export of an item on the U.S. Munitions List, valued at $7,000,000 or more for use by the armed forces of a foreign country (42 FR 41631, dated August 18, 1977). Also, 22 CFR 124.06, entitled ‘‘Approval of proposals for technical assistance and manufacturing license agreements,’’ was amended to require similar prior approval requirements with respect to proposals and presentations for technical assistance and manufacturing license agreements involving the production or assembly of significant combat equipment.  ‘‘Proposals to foreign persons relating to significant military equipment’’ became section 126.8 in a final rule effective January 1, 1985 (49 FR 47682, dated December 6, 1984). Section 126.8 did not require prior approval of the Department of State when the proposed sale was to the armed forces of a member of the North Atlantic Treaty Organization (NATO), Australia, Japan, or New Zealand, except with respect to manufacturing license agreements or technical assistance agreements.  A prior notification requirement, instead of prior approval, was added to section 126.8 in a final rule effective March 31, 1985 (50 FR 12787, dated April 1, 1985). Prior notification to the Department of State was required 30 days in advance of a proposal or presentation to any foreign person where such proposals or presentations concern equipment previously approved for export.  The current section 126.8 requires prior approval or prior notification for certain proposals and presentations to make a determination whether to purchase significant military equipment valued at $14,000,000 or more (other than a member of NATO, Australia, New Zealand, Japan, or South Korea), or whether to enter into a manufacturing license agreement or technical assistance agreement for the production or assembly of significant military equipment, regardless of dollar value.  These types of proposals and presentations usually involve large dollar amounts. Before the defense industry undertakes the effort involved in formulating its proposals and presentations, if there is any doubt that the corresponding license application or proposed agreement would not be authorized by the Department of State, the industry may request an advisory opinion (See 22 CFR 126.9). The written advisory opinion, though not binding on the Department, helps inform the defense industry whether the Department would likely grant a license application or proposed agreement.  Currently, the time between submitting a license application or proposed agreement and obtaining a decision from the Department of State whether to authorize such transactions has been decreased sufficiently that requiring prior approval or prior notification for proposals is unnecessary and imposes an administrative burden on industry.

The Center for Public Integrity posted an article (Nick Schwellenbach) in October of 2008, which  exemplifies the ongoing problems within DoD regarding failed policies and management that have contributed if not caused massive fraud waste and abuse to continue unabated in government contracting and in defense into the present. 

I have written previously about the elements that have contributed to this sorry state of affairs, including undermining of federal field personnel in a variety of ways including withholding necessary training and information, undermining of employees ability to do their oversight jobs by withholding funds for travel and other elements necessary to do their jobs, overloading employees with overwhelming case load assignments, and burying employees in nightmare statistical requirements, and reporting in duplicate and triplicate databases. 

Oversight employees also are selected by the problem management sometimes in strange and inappropriate ways.  Some are not well prepared to step in to the oversight roles they are hired to do.   Combining that with the apparent intent that management has of keeping them barefoot and pregnant, unable to do anything about what they may or may not recognize is wrong when they do go out on inspections and the lack of ongoing appropriate levels of technical training equals a giant trainweck.  Most of this all goes on beneath the public and media radar.  When an employee insists on trying to do the  job they were hired and often took an oath to do, they are targeted and every attempt is made to destroy their career and their lives. 

If someone were deliberately scheming and planning to bring oversight to a grinding halt, it could be no better orchestrated.  At the base of all of this is a multitude of compromised or corrupted managers, revolving door participants with screwed up loyalties, quid pro quo arrangements and what may be bribery in the way of the potential of a lucrative job after govenment service, with any one of  the many defense contractors supposedly overseen by our government employees and managers. 

Link to Center for Public Integrity Article: 


A reader sent this in recently.  I have already been trying to find out about Kathleen Watson and Richard Lawhorn, of Defense Security Service, and someone who works for Boeing named Timothy J. McQuiggan.  I haven’t had a lot of luck using normal online search tools, but found out today, I’ve been misspelling Mr. McQuiggan’s name. (See comments on earlier posts from the last couple of weeks.)  

This article is disturbing. I will continue to work on this.   I will check with my contacts I have on the east coast and in the Washington DC area to see if I can find out anything specific, particularly about the truth of what has been happening in DSS, (that this reader is intimating at), but did not leave contact information so I can follow up with him or her.  I understand how intimidated and afraid people in the government and working in industry are now, due to the extreme retribution they face if they try to do something about the unethical or criminal behavior they are observing.  If anyone can enlighten us, please comment or email.  -GFS 


G. Florence-

If the officials,  (that can actually do something), only knew the truth about Watson and the DSS.


U.S. Defense Tech Security Called ‘Swiss



Published: 16 Apr 16:51 EDT (12:51 GMT)

     As the value of the U.S. dollar declines, investing in U.S. defense firms

becomes more attractive to foreign companies. That worries Rep. Duncan

Hunter, R-Calif., who fears more foreign ownership will mean more pilfered

defense technology secrets.

     “This is not irrational fear or veiled protectionism, this is a real national

security concern,” Hunter assured his colleagues on the House Armed

Services Committee April 16. “We are in a period where industrial espionage

is on the rise.”

     But globalization of the defense industry seems


     “We’ve got people with lots of cash” in the rest of the

world, and American companies “that are desperate for cash.” The increase

of foreign entities buying U.S. defense companies “is going to be a problem

for years to come,” Hunter said.

     So, how able is the United States to protect its defense secrets from prying

foreign investors, the Armed Services Committee wanted to know.

Not very, said witnesses from the Pentagon and the Government

Accountability Office (GAO).

     A “safety net” of agencies and policies designed to protect classified

industrial information “right now is Swiss cheese,” said Ann Calvaresi-Barr,

the GAO’s director of acquisition and sourcing management.

It’s not as bad as it was two years ago, said Kathy Watson, director of the

Defense Security Service. But improvements are coming slowly.

     The DSS is a little-known agency within the Defense Department that

determines which defense companies qualify for access to classified

information. It awards clearances to company officials and evaluates “foreign

ownership, control or influence” over U.S. defense companies.

When she took over as director in 2006, Watson said the DSS was

underfunded and understaffed. Today, the agency receives an adequate

budget and has been allotted an additional 145 personnel – but so far, only

about one-third of the new jobs have been filled, she said.

     The agency still relies on paper files scattered among 71 field offices, Watson

said. And while it has a computer system and is entering data, “it’s not the

system of the future,” Watson told committee members.

Calvaresi-Barr said a GAO evaluation in 2005 showed that the Defense

Security Service did not systematically collect and analyze information to

assess the effectiveness of its operations. As a result, the agency does not

know whether certain violations are increasing nor can it identify patterns of

security violations and then plan how to keep classified information from

being compromised, she said.

     DSS agents also lacked basic understanding of complex transactions, such

as the security implications of foreign hedge funds buying interests in U.S.

defense firms. That is increasingly common, and “it’s difficult to know where

the money is coming from and who the players are,” Calvaresi-Barr said.

Watson said DSS employees are receiving more training is those sort of


     The GAO has not re-evaluated the DSS since Watson has begun making

reforms, Calvaresi-Barr said. “We are very pleased” to hear that DSS is

working to strengthen defense industrial security, she said.

     DSS is hardly the only weak link. There are numerous agencies, laws,

regulations, policies and processes intended to protect critical defense

technology, and among them “there are alarming gaps,” Calvaresi-Barr said.