A two-tiered inspection and distribution system for lumber mills across North America was tough enough to deliver 50 billion board feet in top-notch shape last year. Grading violations were so rare many began to consider the industry's quality-assurance system infallible.

It wasn't.

Not even surprise inspections were enough to foil still-unidentified culprits who slipped millions of board feet of misbranded lumber into the Puget Sound wood market this fall.

The scandal, which has rocked the Northwest lumber industry, intensified late last week as building inspectors continued to discover low-grade lumber from British Columbia that had been marked structurally sound. King County inspectors stopped work on more than 60 buildings at 12 sites last week, and more mismarked lumber was detected Friday by building inspectors in Everett, Bothell, Kent, Federal Way and Seattle.

Building officials acknowledge they still have no idea how long B.C. lumber with phony grade stamps has been in the region, or how much of it might be concealed in structures already occupied.

While officials offer varied opinions on the safety of structures built with lower-grade lumber, they all agree someone, somewhere, stood to make millions of dollars by selling misidentified lumber for as much as five times its actual value. And it happened under the supposedly watchful eye of wood-products regulators.

No one is certain where the low-grade B.C. wood came from. Officials have confirmed only that it was delivered to local apartment complexes by B.B.M. Lakeview Wholesale Lumber Ltd. of Surrey, B.C., a company that pleaded guilty in 1988 to delivering fraudulently upgraded lumber.

Grade marks on the suspect lumber had at some point been sanded off and replaced with stamps indicating a superior, structure-grade quality. The grade-stamp symbol was that of MacDonald Inspection Services, a Coquitlam, B.C., firm that authorizes numerous British Columbia mills to use its name as a guarantee of quality. Code numbers on the stamps indicated the wood came from either Moga Timber Mill Ltd. or A.P. Timber Co. Ltd., two small Surrey mills that apparently sold the lumber to B.B.M.

But officials aren't certain all the low-grade lumber actually passed through those mills. Despite a letter to building-material suppliers from Moga accepting full responsibility for the mismarked lumber, officials speculate the wood might have been marked elsewhere by a stolen or counterfeit stamp.

Lumber companies in the United States and Canada play by the same rules, which are set by the American Lumber Standards Committee, a 23-member board appointed by the U.S. secretary of commerce.

In the case of the B.C. companies, regulation began more than a year ago with a training program for employees Moga and at A.P., said Tom Searles, executive vice president of the American Lumber Standards Committee.

MacDonald Inspection is one of 20 U.S. and Canadian testing organizations authorized by the standards committee to grade, or rate, lumber. MacDonald officials taught A.P. and Moga operators how to grade lumber according to species and quality. Lumber experts say grading is a high-skill game with high stakes: The grade stamped on each board determines its suggested use - and market value.

To ensure its grade label is applied properly, MacDonald officials conduct surprise inspections at all mills under their jurisdiction at least twice a month, spokesman Greg Clarke said. Larger mills are inspected more frequently.

The inspection records of both A.P. and Moga are exemplary, Clarke said. ``Everything is completely in order.''

Lumber is shipped from the mill to wholesalers. In the case of the lower-grade wood, it apparently went from A.P. and Moga to B.B.M., a nearby dealer. B.B.M. sold the lumber to Washington wholesalers, who in many cases arranged for delivery direct to large-scale construction sites in the Seattle area.

B.B.M., as a lumber wholesaler, does not undergo regular inspections, Clarke said. Grading companies inspect lumber at wholesale yards only if they receive complaints, he said, and until late last month none had been received about B.B.M. in the past two years.

None of the suspect lumber was identified in spot checks by the American Lumber Standards Committee, either, in the second tier of the inspection system. That may have happened because most of it was shipped directly and used quickly by fast-working apartment contractors.

Once on the job site, the lumber apparently escaped detection by hundreds of contractors and dozens of city or county building inspectors.

Inspectors and construction workers say spotting misidentified lumber is not easy. By the time buildings receive framing inspections, grade stamps on many of the boards will have been sawed off or placed out of sight.

``It's very, very rare'' for a grade stamp to be abused, let alone for such an extended period, Searle said. Delivery of the bad lumber to this area has been traced to at least August.

``It's curious, to say the least,'' Clarke said. ``If the mill was doing it, we couldn't have gone in there for years in unannounced, surprise inspections and found only good grades.''

If the mismarked lumber was caught by anyone in the Seattle area, it was not reported until a wholesaler, tired of competing with cut-rate B.B.M. prices, finally blew the whistle after inspecting lumber at a building site, say local building-industry sources.

Clarke wouldn't speculate as to how or when the lumber labels were changed, saying he'll wait for results from investigations by Royal Canadian Mounted Police and the standards committee.

But, he said, ``I'm damn well going to find out who's whose been using our credit card - that's what it's like. This is the one indignity a grading company will not tolerate.''

Searle said he won't speculate, either. But, he added, in the few times that grade-stamp fraud has occurred before, it's always been a stolen or counterfeit stamp used outside a regulated mill.

Clarke said he's concerned that the matter will taint not only his company, but the lumber industry in general.

``We've all presumed that everything is straightforward . . . that everyone has played it straight,'' said Clarke, whose company now is in the midst of its own investigation of Moga, A.P. and B.B.M.

``Everyone knows the stamps are sacrosanct.''