A REPORT TO THE BOARD OF REGENTS OF 

THE SMITHSONIAN INSTITUTION 

June 18, 2007 

The Honorable Charles A. Bowsher 

The Honorable Stephen D. Potts 

A.W. “Pete” Smith, Jr. 

"This new era also demands from public (as well as private) organizations increased fiscal 

accountability. We must use our resources efficiently and intelligently both to husband them and 

to underscore our credibility to those who provide them -- the government and our donors." 

Michael Heyman, former Secretary, Smithsonian Institution

Counsel

Paul Martin Wolff, Williams & Connolly LLP 

Stephen P. Sorensen, Williams & Connolly LLP 

James P. Joseph, Arnold & Porter LLP 

Consultant

Cleve E. Corlett 
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TABLE OF CONTENTS

Page

EXECUTIVE SUMMARY .............................................................................................................1

A. Overview.................................................................................................................1 

B. Summary of Committee Findings...........................................................................3 

1. Mr. Small’s Compensation Far Exceeded the Compensation of Prior Secretaries 3 

2. The Terms of Mr. Small’s Compensation Were Not Fully Disclosed to the Board

................................................................................................................................ 4 

3. Private Grants and Contributions and Business Revenues Have Declined During 

Mr. Small’s Tenure, Making the Smithsonian More Reliant on Federal 

Appropriations and Grants..................................................................................... 5 

4. Mr. Small’s Expenses Were Not Reviewed for Reasonableness........................... 7 

5. Mr. Small and the Deputy Secretary Have Been Absent from the Smithsonian for 

Substantial Periods Due to Vacation and Compensated Service on Corporate 

Boards .................................................................................................................... 7 

6. Mr. Small’s Disposition Was Ill-Suited for the Position of Secretary................... 8 

7. The Board Exercised Inadequate Oversight Over Mr. Small ................................ 9 

8. The “Gatekeepers” of the Smithsonian Were Marginalized................................ 10 

9. The Smithsonian’s Internal Financial Controls and Audit Function Are 

Inadequate ............................................................................................................ 11 

10. Smithsonian Business Ventures Has Operated with Insufficient Oversight from 

the Board or Senior Smithsonian Management ................................................... 11 

11. The Smithsonian Appears to Remain a Strongly Ethical Institution Despite the 

Problems with the Office of the Secretary and SBV ........................................... 12 

C. Summary Of Recommendations ...........................................................................12 

1. The Regents Must Act Quickly to Address the Governance Crisis..................... 13 

2. The Expenses of Mr. and Mrs. Small Should be Subject to an Audit for 

Reasonableness and the Expenses of Senior Management Should Be Subject to 

Annual Audits ...................................................................................................... 13 

3. The Compensation of the Secretary Should be Reasonably Competitive and 

Transparent and Take Into Account the Smithsonian’s Unique Nature .............. 14 

4. The Smithsonian’s Policies Should Be Consistent With Federal Regulations and 

its Salary Schedule Should be Consistent With Government Salary Schedules.. 14 

5. The Smithsonian Should Have an Active Governing Board with a Chairman Who 

Can Provide the Time and Proper Oversight ....................................................... 16 

6. The Role of the Chief Justice and Vice President Should Be Clarified............... 18 

7. Congressional Regents Should Accept Fiduciary Responsibilities ..................... 19 

8. The Board Should be Expanded or Reorganized to Allow for the Addition of 

Regents with Needed Expertise ........................................................................... 19 

9. Internal Financial Controls, Audit Functions and the Role of the General Counsel 

and Inspector General Must be Strengthened ...................................................... 20 

10. Smithsonian Executives Should Be Permitted to Participate in Only Nonprofit 

Board Activities Subject to Prior Approval ......................................................... 21 
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11. The Selection of the Next Secretary Must Reflect the Governance Challenges 

Facing the Smithsonian........................................................................................ 22 

12. Achieving Effective Oversight and Governance at Nonprofit Organizations May 

Ultimately Require Legislative Action ................................................................ 22 

BACKGROUND ON INDEPENDENT REVIEW COMMITTEE ..............................................24 

A. Formation of IRC..................................................................................................24 

B. Scope of Review ...................................................................................................26 

C. Review Process .....................................................................................................26 

STANDARDS FOR REVIEW ......................................................................................................28 

A. The Smithsonian’s Legal Status............................................................................28 

B. Governance and Applicable Fiduciary Duties ......................................................28 

C. Applicable Tax Laws and Principles ....................................................................31 

D. Smithsonian Policies.............................................................................................33 

E. Best Practices in Nonprofit Corporate Governance..............................................33 

COMPENSATION AND PERFORMANCE OF MR. SMALL ...................................................34 

A. How Secretary Small’s Initial Compensation Package was Established..............35 

B. The Housing Allowance .......................................................................................43 

C. The Use of Compensation Consultants.................................................................46 

D. Performance of Mr. Small.....................................................................................52 

EXPENSES OF THE SECRETARY.............................................................................................57 

A. Mr. Small’s Expenses ...........................................................................................57 

B. Mr. Small’s Entertainment Expenses....................................................................63 

C. Mrs. Small’s Travel Expenses ..............................................................................64 

BOARD OVERSIGHT OF MR. SMALL.....................................................................................67 

A. Mr. Small’s Compensation Was Not Approved by the Board for the 2000-2003 

Period ....................................................................................................................67 

B. The Board Failed to Respond to “Red Flags” and Exert Necessary Oversight ....68 

PARTICIPATION ON OUTSIDE BOARDS AND ABSENCES FROM THE SMITHSONIAN 

OFFICES ...........................................................................................................................73 

A. Mr. Small’s Board Service....................................................................................73 

B. Mr. Small’s Leave from the Office.......................................................................77 

C. Ms. Burke’s Outside Activities.............................................................................78 

INTERNAL FINANCIAL CONTROLS.......................................................................................81 

A. No Review of Secretary’s Expenses .....................................................................81 

B. No Approval for Exceptions to Smithsonian Policies ..........................................82 

C. Inadequate Record Keeping..................................................................................82 

D. Insufficient Accounting Resources .......................................................................83 

E. Ineffectiveness of Accounting Staff......................................................................83 

ROLE OF THE “GATEKEEPERS”..............................................................................................84 
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A. Role of the Smithsonian Inspector General ..........................................................84 

B. Role of the General Counsel .................................................................................85 

ROLE OF OUTSIDE AUDITOR..................................................................................................88 

SMITHSONIAN BUSINESS VENTURES ..................................................................................90 

OVERALL ETHICAL TONE AT THE SMITHSONIAN ...........................................................91 

RECOMMENDATIONS...............................................................................................................92 

1. The Regents Must Act Quickly to Address the Governance Crisis..................... 92 

2. The Expenses of Mr. and Mrs. Small Should be Subject to an Audit for 

Reasonableness and the Expenses of Senior Management Should Be Subject to 

Annual Audits ...................................................................................................... 92 

3. The Compensation of the Secretary Should be Reasonably Competitive and 

Transparent and Take Into Account the Smithsonian’s Unique Nature .............. 93 

4. The Smithsonian’s Policies Should Be Consistent With Federal Regulations and 

its Salary Schedule Should Be Consistent With Government Salary Schedules. 96 

5. The Smithsonian Should Have an Active Governing Board with a Chairman Who 

Can Provide the Time and Proper Oversight ....................................................... 99 

6. The Role of the Chief Justice and Vice President Should Be Clarified............. 102 

7. Congressional Regents Should Accept Fiduciary Responsibilities ................... 104 

8. The Board Should be Expanded or Reorganized to Allow for the Addition of 

Regents with Needed Expertise ......................................................................... 104 

9. Internal Financial Controls, Audit Functions and the Role of the General Counsel 

and Inspector General Must Be Strengthened ................................................... 105 

10. Smithsonian Executives Should be Permitted to Participate in Only Nonprofit 

Board Activities Subject to Prior Approval ....................................................... 106 

11. The Selection of the Next Secretary Must Reflect the Governance Challenges 

Facing the Smithsonian...................................................................................... 107 

12. Achieving Effective Oversight and Governance at Nonprofit Organizations May 

Ultimately Require Legislative Action .............................................................. 107 
 

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EXECUTIVE SUMMARY

A. Overview

The Independent Review Committee came to its task with a deep affection for the 

Smithsonian Institution.1 It is the Committee’s hope that its work will help restore the people’s 

trust in the Smithsonian and bring to an end the adverse media and public attention of the past 

several months. Although the Smithsonian is in the midst of a governance crisis, the IRC 

believes the Institution itself appears sound and that its problems can be solved expeditiously if 

the Regents recognize the urgency of the situation and commit sufficient time and resources to 

correcting the matters. The Committee recognizes that the Board of Regents, through its 

Committee on Governance, has begun this process by developing an initial set of reform 

initiatives. 

In reviewing the operations of the Smithsonian during the tenure of Lawrence M. Small 

as Secretary, with a particular focus on his compensation, benefits and expenses, the IRC has 

determined that the problem was not one merely of misunderstood guidelines, nor was it one 

only of poor decisions in spending Smithsonian funds on expensive or lavish travel, 

entertainment and personal needs. The problems go much deeper than this. Mr. Small’s 

management style – limiting his interaction to a small number of Smithsonian senior executives 

and discouraging those who disagreed with him – was a significant factor in creating the 

problems faced by the Smithsonian today. In addition, Mr. Small limited the flow of information 

so as to prevent the Board from hearing criticism of his stewardship. 

 

1

 The Committee is referred to in this Report as the “IRC” or “Committee” and the Smithsonian as the 

“Smithsonian” or “Institution.” References to the “Board” are to the Board of Regents of the 

Smithsonian. 
 

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The Committee, however, believes that the resignation of Mr. Small has not, by itself, 

remedied the problems at the Smithsonian. The Smithsonian must correct the underlying 

deficiencies in its organizational structure, decision-making and financial controls that allowed 

inappropriate management conduct to go undetected. As noted by the Office of the Vice 

President in its letter to the Committee, the current situation presents the Smithsonian with an 

opportunity to bring its management in line with best practices and to revamp the composition, 

selection and duties of the Board of Regents. 

The root cause of the Smithsonian’s current problems can be found in failures of 

governance and management. The governance structure of the Institution is antiquated and in 

need of reform. The relationship between the Board of Regents and Mr. Small, as Secretary, was 

contrary to effective oversight. At a time when organizations are expected to operate with 

increasing transparency, the operation of the Smithsonian, and especially the actions of Mr. 

Small and those who reported directly to him, had become increasingly secretive. Mr. Small 

created an imperialistic and insular culture in the Office of the Secretary in which the Secretary, 

rather than the Board, dominated the setting of policy and strategic direction for the Smithsonian. 

The Board of Regents allowed this culture to prevail by failing to provide badly needed oversight 

of Mr. Small and the operations of the Smithsonian. The Board did not look behind the tightly 

controlled data provided by Mr. Small. Nor did it engage in the active inquiry of Mr. Small and 

Smithsonian management that would have alerted the Board to problems. 

As a result of the corporate scandals of the early part of this decade and the adoption of 

the Sarbanes-Oxley Act of 2002, boards of directors have become increasingly active in the 

oversight of management and in the development of strategy and long-term plans for 

organizations they control. Many nonprofit institutions have also updated their governance 
 

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practices following the adoption of Sarbanes-Oxley. Historically, the Smithsonian Board of 

Regents appears not to have taken a strong oversight role. Mr. Small’s predecessor tried to 

increase the involvement of the Regents in the affairs of the Smithsonian, but found a limited 

interest on the part of the Regents in taking a more active role. During Mr. Small’s tenure, some 

changes were made to the Smithsonian’s governance that brought it more in line with best 

practices. Over the last several years, for example, the Board, to its credit, has held planning and 

strategy sessions and has established committees on audit, compensation and governance. These 

efforts, however, did not go far enough. The governance structure of the Institution needs more 

comprehensive reform. The Committee hopes that the findings and recommendations of this 

Report will aid the Smithsonian in its efforts at such reform. 

B. Summary of Committee Findings

1. Mr. Small’s Compensation Far Exceeded the Compensation of Prior 

Secretaries

Historically, the Secretary of the Smithsonian received total compensation near 

the mid-point of comparable positions, with modest annual increases. In contrast, Mr. Small’s 

total starting compensation – $536,100 – was forty-two percent higher than the compensation of 

his predecessor, and by the time he left office this year, Mr. Small’s total compensation – 

$915,658 – was almost 21⁄2 times the compensation of his predecessor. What made Mr. Small’s 

initial package so much larger than that of his predecessor was a $150,000 annual payment styled 

as a housing allowance. 

Mr. Small’s initial compensation package would have been reasonable had the 

$150,000 housing allowance been a true housing allowance and not simply additional salary. 

The language of Mr. Small’s contract read as if this housing allowance was to reimburse Mr. 
 

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Chart 1

Total Compensation of the Smithsonian 

Secretary

(thousands)

$-

$250

$500

$750

$1,000

1994

1996

1998

2000

2002

2004

2006

Small Hired 

Small for his out-of-pocket housing costs in making his home available for Smithsonian business 

and social functions. An individual who played a key role in the initial financial negotiations 

with Mr. Small conceded that the language of the contract was misleading and that the housing 

allowance was, in fact, a “packaging device” for delivering Mr. Small additional compensation 

in a manner that would conceal the true size of his pay. 

Another troubling aspect of 

Mr. Small’s compensation was the fortyfive percent increase in base salary – from 

$330,000 to $480,000 – he received in 

2001. The then-Executive Committee 

increased Mr. Small’s base salary, at his 

request, to put him in the 75th percentile of 

what Smithsonian management had chosen 

as comparable institutions. The selection of the 75th percentile applied only to Mr. Small’s 

compensation. Compensation for the rest of the Smithsonian senior staff remained close to the 

50th percentile. 

2. The Terms of Mr. Small’s Compensation Were Not Fully Disclosed to the 

Board

Mr. Small’s initial compensation package was negotiated between Mr. Small and a small 

number of Regents, none of whom is currently on the Board. The Committee found no evidence 

that the Board of Regents as a whole ever learned the terms of Mr. Small’s initial compensation 

package. In fact, contrary to the requirements of the Smithsonian’s governing documents, the 

full Board did not formally approve the terms of Mr. Small’s annual total compensation until 
 

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Chart 2

Private Funds Raised at the Smithsonian 1990-

2006 ($ millions)

0

50

100

150

200

250

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

HEYMAN SMALL 

2004, and some Regents did not learn all the details of Mr. Small’s compensation until they read 

about it in the recent press accounts. 

3. Private Grants and Contributions and Business Revenues Have Declined 

During Mr. Small’s Tenure, Making the Smithsonian More Reliant on 

Federal Appropriations and Grants

One of the reasons for hiring Mr. Small was the belief that his business 

background and connections would allow him to increase the Smithsonian’s private fundraising 

and business income and thereby reduce the Smithsonian’s reliance on federal monies. There is 

a perception among many of the individuals interviewed by the IRC and the public that Mr. 

Small succeeded in those efforts. Certain Regents have defended Mr. Small’s actions by 

pointing to this success, going so far as to as to suggest that his excesses might be excused in 

light of the fact that he raised over a billion dollars for the Smithsonian. This justification is 

wrong for two reasons. First, the IRC 

rejects the idea that success is in any way 

a license for inappropriate behavior. 

Second, as shown by Chart 2, private 

funds raised annually from donors have 

actually declined over the course of Mr. 

Small’s tenure. Funds contributed by 

private sources peaked in 2000, and 

thereafter the amount of private funds committed to the Smithsonian began to decline, reaching a 

low of $88 million in 2003. Although Mr. Small was involved in finalizing a gift of $80 million 

from The Behring Foundation in 2000 and gifts of $30 million and $45 million from the Donald 

Reynolds Foundations in 2001 and 2005, respectively, those donations originated from the work 
 

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of others. Private funds raised in 2006 improved to $132 million, but that figure is about ten 

percent lower than the amount raised in 1999, the year before Mr. Small took over. The 

evidence collected by the Committee regarding comparable nonprofits does not show a similar 

decline in fundraising over the same period. 

As Chart 3 shows, business revenue has dropped by a similar percentage during 

Mr. Small’s tenure. This drop in business revenue has been further exacerbated by increased 

operating expenses (most notably senior executive salaries) at Smithsonian Business Ventures. 

In contrast, funds from federal appropriations and governmental grants have increased more than 

sixty percent over the same period. The Smithsonian informed the IRC that the increase in 

federal appropriations reflects, in significant part, the opening of two new museums and 

increased spending 

for anti-terrorism 

measures following 

9/11, and noted that 

the Smithsonian’s 

federal staff has 

decreased by about 

five percent since 

2000. Nevertheless, 

the net effect is that the Smithsonian became more dependent on taxpayer funds during Mr. 

Small’s tenure. 

Chart 3 

Smithsonian Sources of Funds, 1999-2006

($ millions)

0

200

400

600

800

1999

2000

2001

2002

2003

2004

2005

2006

Source: Smithsonian Audited Financial Statements

Private Grants &

Contributions

Business

Revenue

Federal

Appropriations

& Grants
 

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4. Mr. Small’s Expenses Were Not Reviewed for Reasonableness

Nonprofit organizations like the Smithsonian must properly document expenses 

incurred in the conduct of the organization’s activities to evidence reasonableness and relation to 

the organization’s mission. With respect to Mr. Small’s expenses, the Smithsonian failed to do 

so. Until the recent review completed by Cotton & Co., there had been no review of Mr. Small’s 

expenses by either the Chief Financial Officer or internal or external auditors of the Smithsonian. 

Instead, Mr. Small and his staff exercised sole discretion in determining which expenses would 

be charged to the Smithsonian. At the beginning of 2000 and 2001, Mr. Small was given by his 

chief of staff signed blank expense authorizations. Thereafter, while the Smithsonian had 

detailed guidelines and policies for business expenses, Mr. Small exempted himself from these 

policies. 

5. Mr. Small and the Deputy Secretary Have Been Absent from the 

Smithsonian for Substantial Periods Due to Vacation and Compensated 

Service on Corporate Boards

The records provided by the Smithsonian show that from 2000 through 2006 

Mr. Small and Sheila P. Burke, the current Deputy Secretary, were absent from the Smithsonian 

for about 400 and 550 work days, respectively, as a result of vacation time and time spent 

serving on corporate and other boards and performing other non-Smithsonian-related duties. 

This level of absenteeism was not prohibited by the Smithsonian leave policy because Mr. Small 

and Ms. Burke were allowed unlimited leave. Mr. Small appears to have taken nearly 70 weeks 

of vacation over his seven years (or nearly 10 weeks per year). In addition, he spent 64 business 

days serving on for-profit corporate boards for which he earned approximately $642,925 in cash 

compensation, $3.3 million in stock compensation and $1.8 million in stock option 

compensation. 
 

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Ms. Burke appears to be have been out of the office for about 400 business days 

(or about one-quarter of the work days) during her tenure because of her service on boards and 

her other non-Smithsonian activities. For her corporate board service, Ms. Burke earned 

approximately $1.2 million in cash compensation, $3.5 million in stock compensation and $5.6 

million in stock option compensation. Her total compensation for outside board service was 

more than three times the compensation she received from the Smithsonian over the same period. 

The Committee is cognizant of her reputation for hard work, long hours, willingness to return 

phone calls promptly, and ready response to email, even when she is away from the office. Still, 

the IRC believes that any person who holds the job of Deputy Secretary and Chief Operating 

Officer should expect to spend full time at the Smithsonian without the distraction of extensive 

outside activities. 

6. Mr. Small’s Disposition Was Ill-Suited for the Position of Secretary

In selecting Mr. Small as Secretary, the Regents hoped that his experience in the 

business world would bring talents that complemented the Smithsonian’s existing expertise in 

science and the arts. As one now looks back over his tenure, it is clear, however, that his attitude 

and disposition were ill-suited to public service and to an institution that relies so heavily, as the 

Smithsonian does, on federal government support. The mismatch between Mr. Small and the 

Institution appeared as early as the initial negotiations with Mr. Small when he made it clear that 

if he and his wife were not allowed to travel in first class, it would be a “deal breaker.” Over the 

years, Mr. Small placed too much emphasis on his compensation and expenses. Rather than 

seeing this as an indication of the need for careful oversight, the Regents involved in Mr. Small’s 

compensation, to the contrary, became complicit in Mr. Small’s desire to maximize his personal 

income and have the Smithsonian pay his expenses. 
 

-9- 

7. The Board Exercised Inadequate Oversight Over Mr. Small

The Board frequently deferred to the Secretary, allowing him to run and 

dominate the meetings, set the agendas, and determine who would contact the Regents and what 

information would be provided them. With limited and controlled information provided by the 

Secretary, the Regents were unable to engage in real and effective debate. During Mr. Small’s 

tenure, it appears that the Board reported to him rather than the Secretary reporting to the Board. 

The Committee was told by a Regent that Mr. Small “did not listen to the opinions of the 

Regents” and “did not seek input from the Regents in decision making.” Another Regent 

commented that Mr. Small did not seek advice, only approval. 

In the place of full Board oversight, the Executive Committee, on numerous 

occasions, agreed to compensation requests from Mr. Small without engaging in its own analysis 

of the reasonableness of those requests. In 2001, for example, as discussed above, the thenExecutive Committee acquiesced to a request by Mr. Small for a forty-five percent increase to 

his salary without questioning the need for the increase and without consulting with the full 

Board. More recently, when asked, the Board retroactively approved actions of the Secretary 

that were contrary to Smithsonian guidelines and to contractual arrangements, in almost all 

situations without adequate investigation or analysis. The Board often minimized Mr. Small’s 

mistakes, glossed over or ignored criticism of him, and offered post-hoc justifications for his 

improper acts even in the face of new revelations and Congressional scrutiny. 

As early as 2001, there was public criticism of actions taken by Mr. Small that 

should have raised questions about his ability to manage the Smithsonian effectively. For 

example, several newspaper articles questioned Mr. Small’s use of a privately chartered plane for 

Smithsonian business. Yet the minutes and transcripts of the Board meetings give no indication 
 

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that the Regents at the time ever discussed, let alone investigated, this or any other adverse 

comments. Had the Board done so, it would have learned that Mr. Small did not pay for the 

plane as he claimed, but rather the Smithsonian paid for it and management directed accounting 

staff to alter its accounting records after the fact. 

The Board also had no involvement, either before or after the fact, in setting the 

terms of the employment for Ms. Burke, the Deputy Secretary and the Institution’s number two 

official. (Ms. Burke became the Deputy Secretary in 2004. Prior to that, her title was Under 

Secretary for American Museums and National Programs.) The basic terms and policies of her 

service were set solely by Mr. Small and, in most instances, were known only to her and Mr. 

Small. Despite the fact that Ms. Burke disclosed her outside board service on her conflict of 

interest forms submitted to the Office of the Secretary, Mr. Small failed to provide these forms or 

the information regarding Ms. Burke’s outside board service to the Board. 

8. The “Gatekeepers” of the Smithsonian Were Marginalized

The General Counsel and the Inspector General of the Smithsonian should serve 

“gatekeeper” roles by monitoring compliance of senior management with laws and policies. The 

General Counsel and the Inspector General did not play these monitoring roles because Mr. 

Small isolated them from not only the Board of Regents but also from having any meaningful 

oversight of the Secretary’s office. Additionally, over time Mr. Small significantly reduced the 

budget and staff of, among others, both the Office of General Counsel and the Office of 

Inspector General. Neither the General Counsel nor the Inspector General made adequate efforts 

to overcome the isolation from the Board or the diminution of their respective roles. The Chief 

Financial Officer was also ineffective in monitoring financial matters of the Office of the 

Secretary. 
 

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9. The Smithsonian’s Internal Financial Controls and Audit Function Are 

Inadequate

Internal financial controls are systems of policies and procedures that create 

reliable financial reporting, promote compliance with laws and regulations and achieve effective 

and efficient operations. The Smithsonian’s internal financial controls have been inadequate to 

achieve these goals for a number of reasons. First, the Smithsonian has not committed sufficient 

resources to the accounting and audit functions. Second, the Smithsonian lacks comprehensive 

and formal accounting procedures and policies. Third, the Smithsonian has not complied with its 

own policies and procedures with respect to accounting for expenses. Finally, the Smithsonian’s 

outside auditor had not been vigorous in monitoring the Smithsonian’s implementation of 

recommendations contained in its management letters until early 2007, when it finally noted that 

insufficient accounting resources and staff capacity at the Institution constituted a “reportable 

condition.” 

10. Smithsonian Business Ventures Has Operated with Insufficient Oversight 

from the Board or Senior Smithsonian Management 

In the course of its review, the Committee has become aware of significant 

failures of internal controls and inappropriate conduct at Smithsonian Business Ventures 

(“SBV”), the Smithsonian division responsible for managing the commercial activities of the 

Smithsonian. Senator Grassley has indicated his desire for the Committee to conduct a review of 

the senior management of SBV and the appropriateness of compensation and benefits paid to 

senior management of SBV. While the Committee agrees that such a review is necessary and 

warranted, it is beyond the scope of the Committee’s review. There appear to have been severe 

failures in oversight of SBV by Smithsonian senior management and the Board. It also appears 

that neither the Board nor the Smithsonian executives who sat on the SBV board, including the 
 

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Chief Financial Officer and the Deputy Secretary, provided oversight of SBV, even though all 

acknowledged the widespread allegations of inappropriate activity and failures of internal 

controls at SBV. 

11. The Smithsonian Appears to Remain a Strongly Ethical Institution Despite 

the Problems with the Office of the Secretary and SBV

The ethics of an organization usually reflect the attitude and behavior of those in 

senior management. There was a clear indication that Mr. Small deemed himself outside the 

Smithsonian’s otherwise recognized ethics standards. Accordingly, given the “tone at the top” 

set by the Office of the Secretary, one might expect to find the absence of internal controls and 

ethical lapses to be pervasive at the Smithsonian. While it did not undertake a comprehensive 

review, the Committee did not find evidence that indicated that there are major internal control 

issues at the Smithsonian as a whole, other than in the Office of the Secretary and at Smithsonian 

Business Ventures. Nor did the Committee find evidence to indicate that the strong ethical 

principles that have characterized the Smithsonian over the years have been compromised. 

C. Summary Of Recommendations

 The Committee recommends that, wherever possible, the Board of Regents should 

implement the following recommendations by reorganizing its internal governance structures and 

procedures. The Committee, however, offers no legal opinion as to whether these 

recommendations can be implemented solely by the Board of Regents. If the implementation of 

any recommendation requires legislative action, the Committee urges the Board of Regents to 

seek Congressional assistance promptly and for Congress to act with all deliberate speed to enact 

necessary legislation. 
 

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1. The Regents Must Act Quickly to Address the Governance Crisis

The current crisis of governance at the Smithsonian and the resulting loss of 

public confidence necessitate urgent action by the Regents. To restore public and Congressional 

confidence, the Regents must devote substantial time and resources over the next several months 

to considering and then implementing a comprehensive program to improve governance. With 

diligence, the IRC believes the necessary governance changes can be implemented by the end of 

the year. 

2. The Expenses of Mr. and Mrs. Small Should be Subject to an Audit for 

Reasonableness and the Expenses of Senior Management Should Be 

Subject to Annual Audits

The Committee did not conduct a complete audit of Mr. Small’s expenses. 

Rather, the Committee reviewed the work of Cotton & Co. and the supporting materials. The 

Cotton & Co. review was a limited review based on information and policy interpretations 

provided by the Smithsonian. Thus, there has been no independent audit of the expenses of 

Mr. Small. If for no other reason than potential tax liabilities, the Committee recommends that 

the Smithsonian have an independent auditor perform an audit of Mr. Small’s expenses and those 

of his wife. The Committee believes this audit could be done expeditiously because a significant 

amount of information has already been collected by Cotton & Co. The Committee also 

recommends that the Audit and Review Committee of the Smithsonian undertake to have the 

expenses of senior management audited on an annual basis for compliance with Smithsonian 

policies and reasonableness. 
 

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3. The Compensation of the Secretary Should be Reasonably Competitive 

and Transparent and Take Into Account the Smithsonian’s Unique Nature

The Committee recommends that compensation for the Secretary be competitive 

with similar CEO roles at comparable nonprofits focusing on a comparison group that includes a 

significant number of institutions (such as major state universities) that principally rely, as the 

Smithsonian does, on public funds. Historically, the Smithsonian appears to have had little 

difficulty in attracting qualified Secretaries at such compensation levels. It is the Regents’ 

responsibility to determine this amount, and the Committee considers it beyond its mandate to 

provide specific guidance as to the appropriate compensation level. In determining this level, the 

Committee urges the Regents to consider developing a compensation philosophy that is 

transparent, reasonably competitive and reflective of the special nature of the Smithsonian. 

Working at the Smithsonian is a privilege. Serving as its Secretary is an honor. Compensation 

levels should reflect this. The Committee sees no reason why the Secretary should be given 

special travel privileges, perquisites or other benefits that are not available to other executives of 

the Smithsonian, except where the Board makes a determination in advance that such perquisites 

and benefits are reasonable and appropriate. 

4. The Smithsonian’s Policies Should Be Consistent With Federal 

Regulations and its Salary Schedule Should be Consistent With 

Government Salary Schedules

The Committee is concerned about the tendency of the Institution to embrace 

those federal regulations it finds convenient while ignoring others. For example, at times, the 

Smithsonian denies requests filed under the Freedom of Information Act (“FOIA”) on the 

ground that it is not a federal entity, while, at other times, it grants FOIA requests. The IRC 

recommends that the Smithsonian affirmatively adopt policies to promote openness, 
 

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transparency and effective governance consistent with federal regulations, such as FOIA, the 

Privacy Act of 1974, Chief Financial Officer Act of 1990, the Sunshine Act, personal financial 

disclosure requirements, the Ethics in Government Act and conflict of interest rules. If the 

Smithsonian does not so act, Congress should consider appropriate legislation. 

The IRC finds that there has been a marked disparity in the salary structure of the 

Smithsonian due, in part, to the fact that most employees are bound by government pay scales 

while others are employed by the Smithsonian trust and are paid on a separate scale. 

Additionally, the Committee learned that, for the purpose of raising the salaries of certain 

individuals who worked closely with the Secretary, positions were transferred from government 

pay scales to the trust. 

To bring better balance to the Smithsonian’s salary structure, the Committee 

recommends that the Smithsonian develop one comprehensive salary structure for all 

Smithsonian employees, rather than having a separate structure for trust employees. To the 

degree possible, this structure should align with the salary structure that incorporates standards of 

the federal senior executive service (“SES”) or its equivalent. To be competitive in attracting 

talented museum curators or scientists, the Smithsonian should also be allowed, on a very limited 

basis, to exceed federal salary limitations in order to ensure that they can hire highly qualified 

individuals for key positions. Those paid above federal SES levels should be limited in number, 

perhaps 40 or 50. The needs of the Smithsonian when it comes to compensation should be well 

thought out, open to Congressional and public scrutiny and not arbitrary. 

In determining the salaries of the Secretary and those who are paid above 

government salary limitations, careful attention should be paid to developing appropriate peer 

group analysis and maintaining reasonable ratios between these salaries and those governed by 
 

-16- 

federal pay structures. The IRC recognizes that there is significant competition for museum 

curators, directors and scientists, but it recommends that the Smithsonian strive to pay at the 50th

percentile, recognizing that a job with the Smithsonian carries great prestige to the outside world 

and offers the opportunity to make substantial contributions to the arts and sciences. It is also 

recognized that there may be instances that call for travel and expense guidelines to be exceeded. 

These should be carefully controlled and should be subject to prior approval. The Board should 

maintain oversight of these instances and make sure that they are in fact the exception and not 

the rule. So that the Secretary and Deputy Secretary set an appropriate example, the expenses of 

the Office of the Secretary should be audited annually and reviewed by the Audit and Review 

Committee of the Board. 

5. The Smithsonian Should Have an Active Governing Board with a 

Chairman Who Can Provide the Time and Proper Oversight

The Committee proposes the governing structure of the Smithsonian be 

reorganized by establishing a Governing Board as a major component of the Board of Regents 

that would take on primary fiduciary responsibility for overseeing the Smithsonian. Being a 

fiduciary carries with it a major commitment of time and effort, a reputational risk and, 

potentially, financial liability. 

The IRC recognizes the historical value of having the three branches of 

government represented on the Board. Fiduciary constraints, however, require that the 

Smithsonian be run by a governing board whose members act as true fiduciaries and who have 

both the time and the experience to assume the responsibilities of setting strategy and providing 

oversight. Time is a major factor. For an organization as complex as the Smithsonian and with a 

budget surpassing $1 billion a year, the Regents should expect to meet at least six times each 
 

-17- 

year. As discussed further below, the Committee recognizes and agrees that the governmental 

Regents play an important substantive, as well as symbolic, role at the Smithsonian. 

The establishment of a Governing Board would in many ways formalize the 

Smithsonian’s informal governance structure in which a “Committee of the Whole” meets in 

advance of the Board of Regents meeting to have a vigorous and probing discussion of issues 

requiring Board consideration. Under this present system, the Board of Regents meetings that 

follow have been formal proceedings to approve what had been discussed by the Committee of 

the Whole. The proposal of the IRC would formalize this process by establishing within the 

Smithsonian’s governance documents a recognition that the Governing Board members would be 

the Regents responsible for the oversight of the Smithsonian and its management. 

The Governing Board should have its own Chairman who would handle issues 

requiring the attention of the Board where items would be discussed and debated and where 

reports would be received from officers such as the Inspector General, Chief Financial Officer, 

General Counsel, Ethics Officer and museum and scientific project leaders. The IRC believes 

strongly that an organization with a budget as large and with operations as complex as the 

Smithsonian requires the services of a chairman who can devote far more time to the operations 

of the Board than can the Chief Justice. 

While meetings of the Governing Board should be open to those whose 

knowledge or reports are important to deliberations of the Governing Board, the Board should 

reserve, at every meeting, time for an executive session where issues involving management, 

including the Secretary’s performance, can be freely and openly discussed without the presence 

of employees. The Committee also recommends that the Executive Committee be enlarged to 

five members and its activity limited in practice to handling routine affairs of the Board between 
 

-18- 

meetings and when special meetings, either in person or telephonically, cannot be arranged. All 

actions of the Executive Committee should be presented to the full Governing Board for review. 

6. The Role of the Chief Justice and Vice President Should Be Clarified

Historically, the Chief Justice has been elected to serve as the Chancellor. In that 

role, the Chief Justice would preside over the second part of the Board meeting where discussion 

and formal votes would be taken on those issues requiring action of the Board of Regents. Under 

the IRC proposal, however, the Chief Justice would not be considered a fiduciary Regent. Only 

fiduciary Regents would vote. The IRC recommends such a unique structure because it believes 

the historic role played by the Chief Justice in governance of the Smithsonian should not lightly 

be discarded and because the Chief Justice has made it clear he wishes to remain associated with 

the Institution. The Committee believes, however, that if governance of the Smithsonian is to be 

updated, it will require a commitment of time on the part of every Regent that far surpasses that 

which has been expected in the past. The Committee also questions if it is appropriate for the 

Chief Justice to have fiduciary obligations to a separate entity, even if that entity is closely linked 

to the government, and to assume the legal and reputational risks associated with being a 

fiduciary. The Committee believes that it is not feasible to expect the Chief Justice to devote the 

hours necessary to serve as a fiduciary Regent. 

The same situation applies to the Vice President. Under the IRC’s proposal, the 

Vice President would continue to serve as a Regent in a non-fiduciary capacity, and would chair 

meetings of the Board in the absence of the Chief Justice. If neither the Chief Justice nor the 

Vice President were present at a meeting of the Board, the Chairman would preside. 
 

-19- 

7. Congressional Regents Should Accept Fiduciary Responsibilities

A clear understanding needs to be reached regarding the role of the 

Congressional Regents. Service as a Regent must require that all members of the Board, 

including members of Congress, be willing and able to assume a role with clear fiduciary 

responsibilities and to devote the time necessary to carry out those duties personally. So that 

there will be neither an actual nor an appearance of conflict of interest, the IRC believes that any 

Congressional Regent who serves on one of the Congressional authorizing or appropriations 

committees with authority over the Smithsonian should recuse himself or herself from 

Congressional votes involving Smithsonian financial matters. 

8. The Board Should be Expanded or Reorganized to Allow for the Addition 

of Regents with Needed Expertise

The Board must expand the level of expertise among the Regents on key issues, 

especially financial management and facilities and museum management, and ensure that the 

Regents who are appointed have sufficient time and attention to dedicate to the Smithsonian. To 

achieve this expansion of current expertise and ensure that Regents are active and engaged, the 

Committee recommends the Regents consider the following: (1) if current Regents have 

sufficient time and interest in continuing to serve; (2) adding to Board Committees – such as 

Audit and Review, Governance and Compensation and Human Resources – non-Regent 

members with special expertise; (3) employing outside experts to advise the Board and its 

Committees in specific subject areas; and (4) increasing the total number of citizen Regents from 

9 to 11 by either adding two additional citizen Regents or reducing the number of Congressional 

Regents from six to four - two from the House and two from the Senate. 
 

-20- 

To make sure that the Smithsonian Board is made up of individuals capable of 

providing the necessary expertise, the Regents should adopt a nominating process that allows for 

a broader field of candidates. In looking at candidates, those charged with picking future 

Regents should note the necessity for expertise in financial management, investment strategies, 

audit functions, governance, compensation, and facilities management, as well as an interest in 

and a devotion to the arts and sciences. Contributions to the Smithsonian should not be the 

determining factor for service on the Board, but only one of many factors considered in the 

selection of Regents. Care should be taken to avoid appointing Regents who have clear personal 

and professional ties to the Secretary that may compromise the Board’s independence. 

In addition, if the Smithsonian desires to have positions for individuals that honor 

them for their contributions to the arts and sciences, including their financial generosity, it should 

establish non-fiduciary advisory boards for the Institution in general as well as for its various 

museums and divisions. The National Board, now primarily a development group, could have its 

scope expanded. The formerly active but now moribund Smithsonian Council could be revived 

to bring together distinguished scientists, academics, and museum directors to advise the 

Smithsonian and its constituent parts on programs, policy, and long range planning. Having both 

a vibrant Board and Council should help curb the extensive criticism the Smithsonian received 

during recent years regarding the conditions on certain donations and the scope and content of 

certain shows and displays. 

9. Internal Financial Controls, Audit Functions and the Role of the General 

Counsel and Inspector General Must be Strengthened

The Smithsonian’s system of internal controls and audit needs to be strengthened 

through additional resources, adoption of best practices and retention of personnel with 
 

-21- 

substantial experience in the financial and audit area. In February 2007, KPMG identified the 

inadequacy of the Smithsonian’s accounting staffing and resources as a “reportable condition.” 

The Committee understands that the Smithsonian is in the process of selecting an outside auditor, 

and the Committee recommends that the Smithsonian expeditiously implement the 

recommendations of this auditor, as well as those recommendations contained in prior 

management letters. In addition, the Committee recommends that (1) the Smithsonian provide 

the General Counsel’s office and Office of the Inspector General with the necessary tools and 

resources to perform their gatekeeper and guardian functions, (2) the General Counsel serve as 

the Smithsonian’s corporate secretary and (3) the Smithsonian ensure vigorous compliance with 

the Inspector General Act. 

10. Smithsonian Executives Should Be Permitted to Participate in Only 

Nonprofit Board Activities Subject to Prior Approval 

As a general rule, the Smithsonian has been careful in monitoring the outside 

work of its employees. The exceptions have been Mr. Small and the Deputy Secretary, both of 

whom have been allowed to collect significant compensation for service on the boards of forprofit corporations. As discussed above, these outside commitments have taken these individuals 

away from the Smithsonian during working hours for significant periods of time. The Board 

must develop a uniform policy on outside work. The IRC recognizes that arguments can be 

made in favor of allowing an organization’s senior executives to serve on the boards of for-profit 

corporations. The benefits of doing so, however, accrue primarily to the individuals and only 

secondarily to the Institution. Accordingly, the IRC recommends that the Board prohibit its 

executives from serving on the boards of for-profit corporations. 
 

-22- 

With respect to nonprofit boards, the Regents should control and require prior 

approval of any outside activities, including service on any other professional service boards and 

teaching and lecturing obligations, weighing carefully the time commitments needed and the 

benefits to the Smithsonian. Any compensation received by any Smithsonian employee for 

service on any outside board or organization should not be kept by the individual, but should be 

turned over to the Smithsonian for the benefit of the Institution. 

11. The Selection of the Next Secretary Must Reflect the Governance 

Challenges Facing the Smithsonian 

Being Secretary is a difficult and time consuming job. The Secretary oversees a 

complex amalgam of museums, research centers, a zoo, retail shops, restaurants and buildings. 

The Secretary is the caretaker for one of the great names in the science and arts. It is also a job 

with great challenges, prestige, and opportunities to have a lasting mark on our national heritage. 

Business skills are valuable to the Smithsonian and efforts to introduce business planning and 

measurement tools should be encouraged. But what must be avoided in picking the next 

Secretary is the manner in which Mr. Small operated. The Secretary must work for the Board. 

The Secretary must set the ethical tone, not sidestep it. The operations of the Smithsonian, 

especially the Secretary’s office, should be open and transparent. 

12. Achieving Effective Oversight and Governance at Nonprofit 

Organizations May Ultimately Require Legislative Action

Unfortunately, the problems at the Smithsonian are not unique. As the media and 

Congressional oversight committees have made clear, there have been similar problems at 

several large tax-exempt organizations, including major museums and universities, not to 

mention the income and expense excesses and governance issues at for-profit companies. This 

raises the issue of effective management of nonprofits and how governance at these entities 
 

-23- 

should be structured, the responsibilities of their boards of directors and trustees, and how 

oversight of these organizations should be provided. The IRC believes that boards of nonprofits 

– especially large nonprofits – should move to reform their governance structures to bring them 

into line with best practices that have been well documented. These include the financial 

management and audit requirements in the Sarbanes-Oxley legislation, as well the recent 

Securities and Exchange Commission requirements for disclosure of the total compensation of 

senior executives. Some nonprofits have made progress in these areas, while others have not. 

Failure to take voluntary action will likely lead, ultimately, to action by Congress, state 

legislatures, and the courts to impose reforms from without, just as was done in the case of the 

corporate world. 
 

-24- 

BACKGROUND ON INDEPENDENT REVIEW COMMITTEE

A. Formation of IRC

In February 2007, The Washington Post began a series of articles reporting the history of 

compensation and benefits for Lawrence M. Small, Secretary of the Smithsonian Institution. 

Beyond these news stories, Senator Charles Grassley, R-Iowa, the Ranking Minority Member of 

the Senate Finance Committee, posed a number of specific questions to the Smithsonian about 

the compensation and benefits granted to Mr. Small, and asked for a number of documents 

related to these matters. 

Following the initial news stories and the letter from Senator Grassley, Roger Sant, the 

Chair of the Executive Committee of the Board of Regents asked Charles A. Bowsher, former 

Comptroller General of the United States, to chair a committee to review issues raised by the 

news reports and by Senator Grassley. Mr. Bowsher was appointed by President Reagan and 

served as Comptroller General of the United States and as head of what was then known as the 

General Accounting Office for fifteen years between 1981 and 1996. Before that he was 

associated with Arthur Andersen & Co. for 25 years except for four years when he served under 

the administrations of former Presidents Lyndon Johnson and Richard M. Nixon as Assistant 

Secretary of the Navy for Financial Management. 

Mr. Bowsher agreed to chair such a committee on condition that he would be allowed to 

choose other members of what became known as the Independent Review Committee and that 

the Committee be allowed to select counsel of its own choice to assist in the review. When these 

requests were accepted, Mr. Bowsher asked these two individuals to join him on the IRC: 

• Stephen D. Potts is chairman of the Ethics Resource Center. He 

served as director of the U.S. Office of Government Ethics under Presidents 
 

-25- 

George H.W. Bush and William J. Clinton between 1990 and 2000. He 

previously served as a partner at the Washington law firm of Shaw, Pittman, 

Potts & Trowbridge. 

• A.W. “Pete” Smith, Jr. is a retired executive with extensive 

experience in both the private and public sectors. He served as chief executive 

officer of the Private Sector Council, a nonprofit organization dedicated to 

improving the management of the federal government and previously served as 

president and chief executive officer of Watson Wyatt Worldwide, human 

resource consultants, where he worked for 30 years. 

To assist the IRC with its inquiry, Mr. Bowsher engaged the services of Paul Martin 

Wolff and Stephen P. Sorensen of Williams & Connolly and James P. Joseph of Arnold & 

Porter, LLP. Cleve E. Corlett, retired director of external affairs of GAO, was retained as a 

consultant. The Smithsonian Board of Regents formally announced the creation of the IRC on 

March 19, 2007. 

From the beginning, the Committee insisted that it be granted unfettered access to 

documents and that it be allowed to interview current employees of the Smithsonian Institution. 

The Smithsonian and its counsel have worked diligently to provide all information requested by 

the Committee. In addition, the Committee made it clear that, while this report would be 

submitted for comment to the Regents, the Committee would retain authority for the final 

content of this report. 
 

-26- 

B. Scope of Review

The Board of Regents asked the Committee to conduct an independent examination of 

the Secretary’s compensation and expenses and related Smithsonian governance. The following 

areas were beyond the IRC’s purview and so were not examined by the IRC: 

• Management of the Smithsonian physical operations; 

• Management of the Smithsonian museums or research programs; 

• Smithsonian Business Ventures or any retail operations of the Smithsonian; 

• General policies and systems for Smithsonian personnel; and 

• General financial controls and systems. 

The IRC did not conduct an audit of the Secretary’s expenses. The Committee reviewed 

the report prepared by Cotton & Co., as well as drafts of that report and the materials relied upon 

by Cotton & Co. in preparing its report. Cotton & Co. did not look behind those materials or do 

any testing, nor did the Committee. Therefore, the Smithsonian has yet to determine whether 

these expenses of the office of the Secretary were incurred for Smithsonian business purposes 

and were reasonable. It would be prudent for the Smithsonian to have an independent auditor 

make such a determination to avoid any potential adverse tax consequences. 

C. Review Process

The IRC received the full cooperation of the Smithsonian, its employees and Regents. 

The IRC examination included a review of over 15,000 pages of documents and 46 in-person or 

telephonic interviews. The IRC met with all of the current Regents except for the Vice 

President, whose office, however, sent the Committee a thoughtful letter raising a wide range of 
 

-27- 

governance issues.2

 In addition, the Smithsonian facilitated access to former Board members, 

current and former employees and other stakeholders. All of the people interviewed by the IRC 

were cooperative and forthcoming with information. Interviewees also were advised that 

specific comments would not be ascribed in this report to any named individuals. Two 

individuals – Lawrence Small and Mr. Small’s personal assistant – did not accept the invitation 

to meet with the IRC.3 

Documents were obtained from a variety of sources. The Smithsonian provided, among 

other items, Board minutes, correspondence, financial materials and internal governance 

documents. The IRC also reviewed legislative materials relating to the Smithsonian and 

applicable statutory provisions. In addition, the IRC consulted legal, academic and other 

professional sources, materials obtained from leading governance-related organizations, 

governance-related materials from other nonprofit organizations and studies of federally 

chartered nonprofits and other federally chartered entities. 

 

2

 Exhibit 1. 

3

 The Committee invited Gary Beer, the Chief Executive Officer of SBV, to meet with the Committee in 

early May. The Committee did not receive a response from Mr. Beer until June 12, 2007, by which 

time the Committee was finalizing its review. Mr. Beer’s counsel provided the documents attached as 

Exhibit 2. 
 

-28- 

STANDARDS FOR REVIEW

A. The Smithsonian’s Legal Status

The Smithsonian is a trust instrumentality that was established by Congress in 1846 to 

hold in trust property donated by James Smithson and to carry out the provisions of his will for 

the “increase and diffusion of knowledge.”4 Like other quasi-governmental entities, the 

Smithsonian, though a creation of federal law, has an independent organizational existence and is 

not an agency of the United States government. 

The legal status of the Smithsonian has been raised periodically in lawsuits against the 

Smithsonian. Federal courts have considered the Smithsonian to be an establishment, agency or 

authority of the federal government in some circumstances, but not others.5

The Smithsonian is unique among quasi-governmental organizations in that, while most 

of its employees are treated as federal employees with all the protections, benefits and 

restrictions applicable thereto, a limited number of employees are considered to be employed by 

the Smithsonian trust. 

The Smithsonian’s main source of funds is the federal government, which currently 

provides more than seventy percent of the Smithsonian’s budget. This reliance on federal 

funding has been increasing in recent years. 

B. Governance and Applicable Fiduciary Duties

The structure, organization, management and oversight of the Smithsonian were 

established by federal statute in 1846, providing that the Board of Regents shall be the governing 

 

4

 The Smithsonian Act of August 10, 1846, as amended and codified, 20 U.S.C. §§ 41-67. 

5

 For example, the Smithsonian has been deemed to fall within the definition of “federal agency” for 

purposes of the Federal Tort Claims Act, and so entitled to immunity against a defamation action under 

that statute. See Expeditions Unlimited Aquatic Enterprises, Inc. v. Smithsonian Inst., 566 F. 2d. 289 

(D.C. Cir. 1977) (en banc). 
 

-29- 

body.6

 The Board has the responsibility for appointing the Secretary, who is charged with 

managing the operations of the Smithsonian. 

Unlike the vast majority of nonprofit organizations whose governance is informed by 

applicable state statutes and common law of fiduciary duties, there is no developed body of 

federal common law setting forth the duties and obligations of the Board. Nonetheless, it is clear 

that the Regents are fiduciaries of the Smithsonian. First, the Regents are trustees charged with 

managing the original Smithson trust for the benefit of the American people.7 Second, the 

Regents are analogous to directors of a nonprofit organization and therefore must fulfill the 

fiduciary duties of directors. While trustees and directors are both subject to duties of loyalty 

and care, the trustee is expected to satisfy a higher standard with respect to both duties.8 The 

fiduciary duties of the Regents are spelled out clearly in Smithsonian Directive 150: 

The Board of Regents bears the responsibility of the United 

States as trustee for carrying out the Smithsonian bequest and 

the public trust for which it provided. The primary obligation 

of the Board of Regents is to manage the resources of the 

Institution for the benefit of all mankind.9

The standards applied to the Regents derive from trust law: 

A trust is a fiduciary relationship whereby a trustee holds and 

administers property for stated purposes on behalf of named 

beneficiaries. A trustee who holds legal title to trust property 

can use that property only in accordance with trust purposes to 

serve trust beneficiaries. In addition, a trustee must exercise 

prudent oversight of trust assets, keep strict accounts, make 

 

6

 20 U.S.C. §§ 41-67. 

7

 A trustee has a “fiduciary relationship with respect to property, subjecting the person by whom the title 

to the property is held to equitable duties to deal with the property for the benefit of another.” 

RESTATEMENT (SECOND) OF TRUSTS 2 (1957). 

8 See George B. Bogert & George T. Bogert, THE LAW OF TRUSTS AND TRUSTEES §394 (Rev. 2d 1994) 

(higher standard of care and stricter duty of loyalty generally imposed upon trustees under trust law 

than on trustees or directors under nonprofit corporation statutes). 

9

 SMITHSONIAN DIRECTIVE 150, Smithsonian Institution Origins, Governance, and Relationship to the 

Federal Government (April 16, 1996), attached as Exhibit 3. 
 

-30- 

every effort to further trust purposes, and account for 

stewardship of the trust to all proper authorities.10 

The duties required of one in such a fiduciary capacity are well established in the law. 

The duty of care generally describes the level of attention required of a director in all matters 

related to the organization.11 This duty of care is perhaps more accurately described as a “duty to 

be informed.” A director has the responsibility to become informed about an issue before 

making a business decision relating to the issue.12 A director will fulfill the duty of care if, prior 

to making a decision, he or she seeks out and considers all material information reasonably 

available to him or her. To fulfill the duty of care, the directors should follow deliberate 

procedures and consult with appropriate committees, officers or employees of the organization or 

other outside experts in making corporate decisions. This often means going beyond what is 

provided to the board by in-house staff, including consulting with outside experts, talking 

directly to, and questioning, employees with knowledge of the facts and, above all, asking 

thoughtful and probing questions. Board members may not simply rely on the word of senior 

management without further inquiry. 

The duty of loyalty requires a director to act in the interest of the entity rather than in the 

personal interest of the director or some other person or organization.13 More importantly, the 

duty of loyalty encompasses an obligation of directors and key employees with financial or other 

decision-making authority to avoid conflicts of interest. For a director, a violation of this duty 

may result in personal liability for a breach of fiduciary duty. For the organization, such a 

 

10 Id.

11 See 3A William Meade Fletcher, FLETCHER CYCLOPEDIA OF THE LAW OF CORP. § 1029 (duty of care 

requires that directors perform their obligations with a minimum standard of care). 

12 See id. § 1034.80 (director’s failure to make a reasonable inquiry may constitute breach of duty of 

care). 

13 See id. § 837.60 (duty of loyalty mandates that best interest of the corporation take 

 precedence). 
 

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breach may allow a court to void the corporate transaction in which a conflict was present.14 

There have been no allegations, nor is the IRC aware of any evidence whatsoever, that any 

Regent violated this duty of loyalty. 

These duties of care and loyalty are heightened for the Regents due to their status as 

trustees of the Smithsonian trust. In short, Regents owe the highest possible fiduciary duty to the 

Smithsonian and the American people. 

C. Applicable Tax Laws and Principles

The Smithsonian is treated as an organization exempt from taxation under 

section 501(c)(3) of by the Internal Revenue Code of 1986, as amended (“Code”). Accordingly, 

certain provisions of the Code dealing with compensation and expenses apply to the 

Smithsonian. 

Code section 4958 imposes a tax on excess benefit transactions for those organizations 

which are exempt from taxation under Code sections 501(c)(3) or 501(c)(4).15 In general, an 

excess benefit transaction is any transaction in which an economic benefit (including 

compensation) is provided to or for the use of any “disqualified person,” if the value of the 

economic benefit provided to the disqualified person exceeds the value of the consideration 

(including the performance of services) received by the organization in return for such benefit. 

The intermediate sanction excise tax, therefore, may be imposed on a senior executive who is 

paid excess compensation by a nonprofit organization, with compensation including not just base 

salary, but all other forms of compensation, including bonuses, benefits, and deferred 

compensation. 

 

14 See id. § 916 (transaction voidable where unfair to the corporation or entered into in bad 

 faith). 

15 See also Treas. Reg. § 53.4958-1T et seq. 
 

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The specific excise taxes imposed by section 4958 are the following: 

• On the disqualified person who engages in an excess benefit transaction, 

twenty-five percent of the excess benefit amount; 

• On the disqualified person, two-hundred percent of the excess benefit 

amount, if the excess benefit transaction is not corrected after notice from 

the IRS; and 

• On any organization manager who knowingly participates in an excess 

benefit transaction (including individual board or compensation committee 

members who approve the payment of excessive compensation to a 

disqualified person), ten percent of the excess benefit amount. (The 

aggregate tax imposed on all organization managers for any one excess 

benefit transaction may not exceed $20,000.) 

The Code requires that travel expenses not be “lavish or extravagant under the 

circumstances,” though “lavish” and “extravagant” remain undefined in the tax code or in 

regulations.16 Travel expenses that are paid or reimbursed but not properly documented or 

“lavish or extravagant” are treated as taxable compensation to the individual so benefiting. In 

addition, the payment of travel for an employee’s spouse may also be treated as taxable 

compensation. If a public charity provides a compensation benefit to a disqualified employee or 

his or her spouse, the charity is required to provide contemporaneous written substantiation (e.g., 

a Form W-2, Form 1099 or written employment agreement) of its intent to treat such payment as 

compensation. If the organization fails to indicate in such a contemporaneous writing that it is 

providing an economic benefit in return for services, the compensation paid will be treated 

 

16 Code § 162(a)(2); Treas. Reg. §§ 1.162-2, 1.162-17. 
 

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automatically as an “excess benefit.”17 Board members and executives of charitable 

organizations who approve or receive excessive travel benefits are subject to penalties under the 

Code.18 The audit committee should have responsibility for ensuring compliance. The IRS has 

provided detailed guidance for managers of charitable organizations in avoiding lavish, 

extravagant, or excessive expenditures.19 

D. Smithsonian Policies

The Smithsonian has its own compensation and expenses guidelines. In particular, the 

Smithsonian has a travel policy that requires all Smithsonian employees to comply with the 

Federal Travel Regulation, as well as policies and procedures for the use of the various 

Smithsonian funds. The Smithsonian also has a conflicts of interest policy. 

E. Best Practices in Nonprofit Corporate Governance

Governance of nonprofits has come into focus in recent years following the passage of 

the Sarbanes-Oxley Act of 2002 and in light of recent conflicts of interest and improprieties at 

prominent nonprofit organizations. The last few years have witnessed substantial work in 

corporate governance of nonprofits, and the IRC’s review and recommendations benefited from 

this work.20

 

17 Code § 4958(c)(1)(A); Treas. Reg. § 53.4958-4(c)(1). 

18 Code §§ 4941, 4958. 

19 IRS Publication 463, “Travel, Entertainment, Gift and Car Expenses” (2006). 

20 See, e.g., Panel on the Nonprofit Final Report to Congress Nonprofit Sector, Strengthening 

Transparency, Governance and Accountability of Charitable Organizations, 2005.
 

-34- 

COMPENSATION AND PERFORMANCE OF MR. SMALL

Allegations of excessive compensation paid to Mr. Small were part of the impetus for the 

formation of the IRC. In reviewing the compensation of Mr. Small, the IRC found it instructive 

to consider the compensation of the Smithsonian Secretary over recent history. 

Historically, 

compensation for the 

Smithsonian Secretary 

was generally 

conservative. As 

Chart 4 shows, from 

the mid 1980’s through 

the hiring of Secretary 

Small in 2000, the base 

salary of the Secretary increased at a relatively modest pace. Secretary Robert M. Adams was 

also provided a pension of ten percent of pay and lived in a house owned at the time by the 

Smithsonian. Secretary Michael Heyman declined a housing allowance. He did receive a 

modest pension benefit equal to 2.5 percent of his salary for each year of service. 

By the end of the 1990’s, as Secretary Heyman was preparing for retirement, the former 

Executive Committee determined that a salary of approximately $300,000 would probably be 

required to attract a well-qualified successor.21 Mr. Heyman’s salary was raised to $300,000 in 

 

21 See April 6, 1999 memorandum from Jim Hobbins to the Executive Committee of the Board of 

Regents, attached as Exhibit 4. 

Chart 4: Historical Compensation of the 

Smithsonian Secretary (thousands)

$-

$200

$400

$600

$800

$1,000

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Source: Smithsonian Data 

Small Hired 
 

-35- 

1999, and Mr. Small’s salary was purportedly set at $330,000, a ten percent increase over 

Mr. Heyman’s 1999 salary, when he assumed office in early 2000. 

A. How Secretary Small’s Initial Compensation Package was Established

A very small group of Regents, supported by the Executive Assistant to the Secretary, 

James Hobbins22, were involved in recruiting and hiring Mr. Small as Secretary. It is not clear, 

however, how certain elements of compensation ended up being included in Mr. Small’s total 

compensation. What is clear is that these Regents, none of whom is currently on the Board, used 

the different compensation benefits provided to prior Secretaries as a guide, with base pay, 

pension and housing being the starting points in formulating the total package. Each part of Mr. 

Small’s compensation, however, was increased above what each prior Secretary had received, 

and Mr. Small was allowed to “double-up” on certain benefits provided to prior Secretaries. 

Although Secretary Adams received all three elements (base pay, pension and housing), his base 

salary, when adjusted in constant dollars, was significantly lower ($180,000) than his successors. 

Secretary Heyman did not need or want Smithsonian-provided housing, so he received only base 

pay and a pension, with his base pay being adjusted very slightly upward. 

When hired, Mr. Small’s total compensation, included, in addition to a competitive base 

salary which was set at ten percent above the final salary of Secretary Heyman, a payment “in 

lieu of pension” equal to seventeen percent of his annual base pay.23 Mr. Small was also granted 

a “housing allowance” of up to $150,000 per year.24 Mr. Small’s insistence on a large payment 

in lieu of pension is noteworthy because he was, at the time, already receiving pensions from 

 

22 Mr. Hobbins has been at the Smithsonian for more than forty years and in that position since 1980. 

23 Exhibit 5. 

24 Id.
 

-36- 

both Fannie Mae and Citicorp.25 Counting the “in lieu of pension” payment and the housing 

allowance, Mr. Small’s total cash compensation for his first year – 2000 – came to $536,100, 

over sixty percent higher than both the $330,000 figure that was publicly disclosed and Mr. 

Heyman’s compensation in the previous year. Mr. Small’s employment agreement also 

stipulated that he “fly” first class, and that his spouse’s travel expenses be paid when “her 

presence is appropriate.”26 Neither of these benefits had been accorded to the prior Secretaries. 

If Mr. Small had not received a housing allowance and had received only a modest 

pension benefit, his initial compensation package would have been reasonable. But there was a 

clear intent of the small group involved with hiring Mr. Small to increase his compensation 

substantially and “package” it in a way that would mask the substantial increase in compensation 

as compared with Mr. Small’s predecessor. 

The Committee was told by individuals directly involved in negotiating Mr. Small’s 

initial compensation that there was concern, among the limited number of former Regents 

involved in setting Mr. Small’s compensation, that there would be adverse publicity if the 

Smithsonian announced that Mr. Small was being hired at a salary in excess of $500,000 a year. 

Rather than characterizing Mr. Small’s annual salary as $536,100, which was his true cash 

compensation, the then-Executive Committee announced Small’s salary at $330,000 (a ten 

percent increase over Heyman’s total cash compensation) and then paid him additional cash 

compensation of $206,100 in payments for housing and in lieu of pension. When discussed with 

 

25 According to Fannie Mae’s May 18, 2000 proxy statement, Mr. Small’s estimated annual retirement 

benefits for his nine years of service was $581,836 per year, assuming full vesting at normal retirement 

age. It appears from the proxy that Mr. Small was 90 percent vested in his pension, which would result 

in an annual benefit of more than $500,000 for life. Based on Citicorp’s federal securities filings, Mr. 

Small’s Citicorp pension is approximately $400,000 per year. 

26 Employment Agreement ¶ 8, attached as Exhibit 5. 
 

-37- 

the press, the $330,000 base salary was generally presented as Mr. Small’s compensation, and 

the press generally reflected this figure.27

In his second year (2001), Mr. Small’s base salary jumped about forty-six percent, from 

$330,000 to $480,000, an increase for which there is little documentation other than a memo 

from Mr. Hobbins approving the increase and a short summary of the Executive Committee’s 

actions, also prepared by Mr. Hobbins.28 The large increase in base salary had the ripple effect 

of increasing Mr. Small’s payment in lieu of pension from $56,100 to $81,600. Beginning in 

2002, Mr. Small’s housing allowance was also linked to his base salary and increased each year. 

Together with his pension payment and housing allowance, Mr. Small’s compensation for his 

second year – 2001 – was now $711,600, nearly two times greater than the total compensation 

Mr. Heyman received in the same position only two years prior.29 This $150,000 increase in 

base salary was approved by the then-Executive Committee without informing the full Board and 

without decreasing the $150,000 housing allowance, which was, in effect, simply additional cash 

compensation. 

The Committee learned that Mr. Small requested that the Executive Committee increase 

his base salary by $150,000 in 2001. One Regent involved in the discussions explained that 

Mr. Small indicated such an increase was necessary because his salary was “compressing” the 

 

27 “Small will be taking quite a salary cut. He made $4.2 million plus housing in 1998 [from Fannie 

Mae]. The Smithsonian salary is $333,000 [sic]. ‘I have been extremely fortunate,’ he says. ‘I am 

perfectly fine with reducing my salary.’ ” Jacqueline Trescott, Player: Lawrence Small Knows 

Finances, But That’s Not The Richest Part of the Experience He Brings to the Smithsonian, WASH.

POST, Jan. 25, 2000, at C1. 

28 Exhibit 6. 

29 The large increase in Mr. Small’s compensation had an additional cost for the Smithsonian. Former 

Secretary Ripley had been promised an annuity equal to 80 percent of the current Secretary’s base pay, 

plus another 20 percent of the current Secretary’s base pay as an annual payment for “research 

support.” Thus, Mr. Ripley was being paid at a $480,000 annual annuity rate in 2001 when his highest 

salary as Smithsonian Secretary was $100,000. The Smithsonian’s Chief Financial Officer and the 

Regents appear to have been unaware of this. 
 

-38- 

salaries of museum heads and senior executives of the Smithsonian below market. The IRC was 

told that Mr. Small claimed that his request for a salary increase of almost fifty percent was “not 

about the money” for himself, but rather was a way to revamp the salary structure for the entire 

institution, thus enabling the Smithsonian to recruit and retain the best and the brightest. 

This increase, as discussed in contemporaneous documents, was also to recognize the 

performance of Mr. Small and to bring the Secretary’s compensation in line with what the 

Executive Committee deemed to be the prevailing market rate of the 75th percentile for 

comparable positions.30 The increase in Mr. Small’s compensation was also justified as a reward 

for his ostensibly raising $200 million in his first year as Secretary.31 It was originally 

considered that Mr. Small’s salary would be increased by only $50,000, with the remaining 

$100,000 to be paid as a one-time bonus.32 Mr. Small indicated that he would give the $100,000 

back to the Smithsonian in the form of a leadership donation. This approach was ultimately 

scrapped, and Mr. Small’s base salary was instead increased by $150,000.33

In reaching this decision, the Executive Committee, none of whom is currently on the 

Board, relied on a compensation study presented by Towers Perrin (discussed further below) that 

concluded that the market rate comparison at the 75th percentile for presidents of research 

universities and executives at select nonprofit organizations was $670,835 (excluding housing). 

 

30 Exhibit 7. 

31 Id. 

32 Exhibit 8. 

33 Mr. Small made cash donations to the Smithsonian totaling $2,938 and donations of stock totaling 

$426,356 over the course of his tenure as Secretary. 
 

-39- 

Table 1 

Mr. Small’s Compensation, 2000-2007 

Year Base Salary Housing 

Allowance 

Payment in Lieu

of Pension 

Total 

Compensation 

2000 $ 330,000 $ 150,000 $ 56,100 $ 536,100 

2001 $ 480,000 $ 150,000 $ 81,600 $ 711,600 

2002 $ 502,896 $ 157,155 $ 85,492 $ 745,543 

2003 $ 518,486 $ 162,027 $ 88,142 $ 768,655 

2004 $ 541,351 $ 140,977 $ 92,030 $ 774,358 

2005 $ 573,832 $ 179,322 $ 97,551 $ 850,705 

2006 $ 596,785 $ 186,495 $ 101,454 $ 884,734 

2007 $ 617,672 $ 193,022 $ 105,004 $ 915,698 

Neither Mr. Small nor the then-Executive Committee considered recharacterizing as base 

salary Mr. Small’s $150,000 housing allowance, which would have allowed the salary scale of 

other Smithsonian employees to move upward, without raising Mr. Small’s salary. As for the 

rationale that the 2001 increase in base compensation would allow the Smithsonian to raise the 

compensation of other Smithsonian employees, the IRC notes that the Executive Committee, at 

the time it increased Mr. Small’s salary, accepted Mr. Small’s recommendations to make the 

following adjustments in compensation for the top 31 Smithsonian employees: 16 received no 

salary increase, 1 received an increase of 21 percent and the remaining 14 received an average 

increase of 9.8 percent.34 These salary adjustments could have been made under the salary 

structure in existence before 2001 and certainly without any adjustment to Mr. Small’s salary. 

As these numbers show, though Mr. Small’s base salary was increased by more than 40 percent, 

he did not decompress senior executive salaries. 

 

34 Exhibit 7. 
 

-40- 

Driving this high level of compensation was Mr. Small’s own expectations. First, 

Mr. Small requested the $150,000 raise in 2001 using an argument that should have been 

questioned by the Executive Committee. Second, the Committee was told in its interviews that 

Mr. Small had very high expectations for his compensation and benefits even before he was 

hired. Among other things, when he was negotiating his employment contract, he made clear 

that his contract must provide him with the right to “fly” first class. In fact, the IRC was told that 

Mr. Small stated that first-class travel was a “deal breaker.” 

Mr. Small appears to have aggressively guarded each and every element of what he 

viewed as his rightful compensation package. For example, after the Regents learned earlier this 

year the true nature of Mr. Small’s housing allowance and the details of his total compensation 

package, there was an attempt to clarify certain terms of his employment agreement. 

Mr. Hobbins, assisted by Mr. John Huerta, the Smithsonian’s General Counsel, drafted clarifying 

amendments to Mr. Small’s employment agreement. These provided: (1) increases to Mr. 

Small’s housing allowance at the discretion of the Regents (rather than being linked to the 

Secretary’s salary as had become the custom, though not required by his 1999 employment 

agreement), (2) clarification that first-class travel includes the use of car services and premium 

hotel accommodations (rather than simply allowing Mr. Small to “fly first class”), and (3) 

limitations on the Smithsonian’s payment of Mrs. Small’s travel to “bona fide and official 

business of the Institution” (rather than paying for Mrs. Small’s travel “where her presence is 

appropriate”). Mr. Small’s response to these proposed changes was as follows: 

I’m not willing to discuss giving up one iota of what the Institution 

agreed to provide me before I came to work . . . . It would represent 
 

-41- 

the highest form of naiveté to think . . . I would entertain some form 

of “give-up.”35

Mr. Small further demanded that the Smithsonian pay for legal counsel should he find 

counsel necessary. Mr. Small suggested that, if his first-class travel were limited in any way, the 

Smithsonian could increase his housing allowance by the value of the estimated first-class travel 

expenses that he and his wife might incur for Smithsonian business each year. Most disturbing 

from a governance perspective, Mr. Small instructed Messrs. Hobbins and Huerta to keep these 

issues from Mr. Sant, the Chair of the Executive Committee. 

I do not want any of my comments passed along to Roger [Sant]. 

This is strictly a discussion that you [Mr. Huerta], Jim [Hobbins] and 

I are having. We shouldn’t go to Roger [Sant] until we are 

completely comfortable that any proposed amendment is good for the 

Institution, good for me, is economically equivalent to the existing 

arrangement and operative practices and protect everyone from 

adverse consequences.36

His closing remark to Mr. Huerta is perhaps the most telling about Mr. Small’s attitude regarding 

his own compensation and the oversight authority of the Board: “These problems should be 

settled before we go back to the Board. It’s not right to toss any perceived problems in their 

lap.”37 

These remarks are typical of an attitude that was confirmed in the IRC interviews and 

other information. Evidence collected by the Committee indicated Mr. Small considered himself 

to be in charge of his own compensation. The Board was not to consider the terms of his 

employment, and Mr. Small expected the Smithsonian staff to help him manage the approval 

process with the Board to achieve this. 

 

35 Exhibit 9. 

36 Exhibit 10. 

37 See id.
 

-42- 

Another factor that led Mr. Small’s compensation to grow so significantly was that only a 

few people were involved in negotiating his initial contract and, until quite recently, in fully 

discussing and understanding the full scope of his total compensation package. The full Board of 

Regents was apparently not aware of the details of Mr. Small’s employment arrangements until 

2007 because, prior to 2004, his compensation increases were approved by the Executive 

Committee only, not the full Board. In the early years of Secretary Small’s tenure, the members 

of the Executive Committee appeared willing to acquiesce to Mr. Small’s demands without 

questioning the justification or appropriateness for providing such benefits. 

Mr. Small’s employment agreement was largely negotiated without the assistance of 

either internal Smithsonian legal counsel or external counsel. Rather than engage outside 

counsel to represent the Smithsonian in its negotiations with Mr. Small, the record shows the 

agreement was drafted by Mr. Hobbins (who is not a lawyer), and provided to the General 

Counsel and other lawyers in the General Counsel’s office before it was finalized, but after the 

terms had been worked out with Mr. Small. This put the Smithsonian legal department in the 

position of negotiating against its eventual boss. The General Counsel and one of his staff 

members offered very minor suggestions, all of which were incorporated into the final 

agreement. Even considering the agreement in light of comparable agreements in 1999, the 

agreement is inadequate at best, with key terms and provisions both vague and internally 

contradictory. 

Despite the awkward position in which the General Counsel found himself, the IRC 

believes he should have more vigorously represented the interest of the Smithsonian in this 

situation. Had the Board engaged outside legal counsel, the IRC believes the issues relating to 

housing and travel would more likely have been addressed appropriately. 
 

-43- 

B. The Housing Allowance

Unlike his predecessor, Secretary Small was provided with an allowance for housing. In 

particular, Secretary Small’s Employment Agreement provide as follows: 

The Secretary shall make his personal residence available for 

official Smithsonian hospitality and will receive a housing 

allowance not to exceed $150,000 per year in compensation for up 

to fifty percent (50%) of the actual costs of his housing. Payment 

of these funds will be made by the Smithsonian to the Secretary 

monthly upon his presentation monthly of records of housing, 

operating and maintenance expenditures including but not to be 

limited to: homeowner’s insurance, utilities, ordinary maintenance 

and cleaning, grounds service, real estate taxes, mortgage interest 

or equivalent costs of home ownership, etc., but not capital 

expenditures. 

Despite this language, which contemplates a reimbursement of Mr. Small’s actual costs incurred 

as compensation for use of his house for Smithsonian entertainment, the Committee was told that 

it was understood by all those involved in the negotiation of Secretary Small’s agreement that 

because Mr. Small owned his home outright, the housing allowance was a means to increase 

compensation to the Secretary. 

The payment to Mr. Small of this housing allowance of $150,000 – which was increased 

beginning in 2002, and which reached $193,000 in 2007 – highlights not only the flaws in the 

Smithsonian’s compensation system, but also Mr. Small’s control over the Smithsonian and the 

Board on this issue and the failure of the Regents to understand and limit Mr. Small’s 

compensation. 

The employment agreement provides that, in return for making “his personal residence 

available for official Smithsonian hospitality,” Mr. Small was to receive a housing allowance of 

up to 50 percent “of the actual costs of his housing.” (Emphasis added.) Before Mr. Small could 

receive such payment, he was required, according to the terms of this agreement, to present each 
 

-44- 

month “records of housing operating and maintenance expenditures including but not limited to: 

homeowner’s insurance, utilities, ordinary maintenance and cleaning, grounds service, real estate 

taxes, mortgage interest or equivalent costs of home ownership, etc., but not capital 

expenditures.” In an email dated January 11, 2000, Mr. Hobbins confirmed to Yong Lee, 

Mr. Small’s personal assistant, that Mr. Small would “be reimbursed” for his housing “upon the 

Secretary’s presentation in writing of accounts and receipts.”38 Based on Mr. Small’s 

employment agreement, therefore, in return for use of his house for Smithsonian entertaining, the 

Smithsonian initially understood that Mr. Small was to be reimbursed for actual housing 

expenses, upon presentation of receipts. 

Within a month of assuming the position of Secretary, however, Mr. Small “establish[ed] 

the procedure” for the “monthly payment of the housing allowances.”39 This procedure, which 

appears to have been created by Mr. Small, did not require Mr. Small to present any receipts, nor 

provide any evidence of use of his house for Smithsonian entertaining. Rather, Mr. Small, who 

owned outright not only his house, but also a personal gallery of artifacts located in an apartment 

near his home, calculated a “virtual mortgage” payment on both the house and gallery. He used 

a hypothetical mortgage rate of 8.5 percent40 on an assumed principal amount of $4 million. The 

cost of this virtual mortgage would be $340,000 per year, 50 percent of which is $170,000, 

$20,000 more than the cap on his housing allowance. In a February 10, 2000 letter to Messrs. 

Hobbins and former Congressman Barber Conable, then a citizen Regent, Mr. Small concludes 

 

38 Exhibit 11. 

39 Exhibit 12. 

40 While an 8.5 percent mortgage rate was consistent with the market in February 2000, this hypothetical 

rate remained constant despite the large drop in mortgage interest rates after 2000. 
 

-45- 

that “[s]ince the 50% share of my calculated cost of ownership exceeds the Smithsonian’s 

housing allowance, I would ask for the maximum $150,000 per year, or $12,500 per month.” 

It went without saying that Mr. Small expected these payments without “presentation 

monthly of records of housing operating and maintenance expenditures” as required by his 

employment agreement. The payment procedure established by Mr. Small failed to take into 

account the requirement in his employment agreement that he be reimbursed only for “actual

costs of his housing.” (emphasis added.) Yet, these payment procedures, apparently, were 

accepted by the Smithsonian without question, despite the fact that Mr. Small’s interpretation 

that he was to be paid for a “virtual mortgage” is not supported by his written employment 

agreement and contradicts the interpretation set forth by Mr. Hobbins in his January 2000 email 

to Mr. Small’s assistant. Thus, Mr. Small very quickly turned the reimbursement payments for 

use of his house described in his employment agreement into additional salary. This additional 

salary went up each year. 

There was no need for a housing allowance in the first place. Unlike previous Secretaries 

who received a housing allowance, Mr. Small already resided in Washington when he assumed 

the Secretary position. He had no extraordinary expenses associated with moving to a location 

where housing costs are far higher than the national average in order to accept the position of 

Secretary. His annual retirement benefits from Citicorp and Fannie Mae totaled nearly a million 

dollars. 

The fact that the housing allowance was actually additional salary is also made manifest 

by the fact that Mr. Small rarely used his house for entertaining Smithsonian donors or potential 

donors. As Mr. Small himself explained in an email to The Washington Post, “[g]iven the 

exciting new museums and modernized exhibits which opened over the last several years, it 
 

-46- 

became overwhelmingly clear it was far more compelling and cost-effective to entertain donors 

and potential supporters in the Smithsonian’s unique settings than in a private home.”41 In his 

seven years as Secretary, Mr. Small held 23 Smithsonian events at his house or gallery, five of 

which were “staff development” events for a very small number of Small’s senior staff. In total, 

Mr. Small entertained 47 donors and potential donors at the 18 fund-raising events held at his 

house from 2000-2007, most of which occurred in the early years of his tenure. Over this same 

period, Mr. Small received, based on documents provided to the Committee by the Smithsonian, 

$1,198,715 in housing allowance from the Smithsonian. Calculated as a per person venue fee for 

fund-raising, this works out to be over $25,000 per potential donor or almost $70,000 per fundraising event. The characterization of the $150,000 cash payment (growing to over $190,000 at 

the time of Mr. Small’s resignation) as a housing allowance, rather than additional base salary, 

appears to the Committee to be part of an overall compensation package that was fundamentally 

deceptive from the beginning and which has created many of the compensation-related problems 

that, in recent months, have confronted the current members of the Board ─ most of whom never 

knew the details of Mr. Small’s compensation or saw his contract. 

C. The Use of Compensation Consultants

In 2000, Secretary Small directed the management of the Smithsonian to hire 

independent compensation consultants to evaluate management compensation at the Institution. 

After he was hired, but before he started work at the Smithsonian, Mr. Small made clear that the 

Smithsonian needed to develop a systematic approach to benchmarking executive compensation 

with a defined group of comparable nonprofit organizations. Mr. Small brought a “for-profit” 

 

41 James V. Grimaldi and Jacqueline Trescott, Small's House Rarely Used For Business, WASH. POST, 

Apr. 19, 2007, at C1. 
 

-47- 

mind set to the Smithsonian’s compensation practices, suggesting that the executive 

compensation specialists at Fannie Mae, Small’s then-employer, could be of assistance.42 His 

stated purpose was to provide the Regents with comparable information on management pay in 

what he considered to be peer institutions, a review process that continued throughout his tenure. 

While formalizing this process and providing the Regents with comprehensive 

information on management compensation was a good idea, it appears that the process actually 

put in place was not objective and became used primarily as a method of justifying substantial 

compensation increases for Secretary Small and his management team. The process was not 

used by the Regents for a thorough discussion of compensation strategy or what would constitute 

reasonable compensation for these individuals. 

The first study done by the outside consulting firm of Towers Perrin, presented in 

September 2000, appears to have been primarily intended to justify the substantial 2001 increase 

in Secretary Small’s compensation. Both this first Towers Perrin study and the subsequent study 

carried out in 2002 raise a number of issues: 

• Towers Perrin was hired by Smithsonian management, and not the 

Regents or the Compensation Committee. This gave management undue control 

over the outcome of the study. 

• As stated clearly in the compensation reports, management provided the 

comparable organizations, a decision that significantly influenced the results of the 

study. The group of comparables was comprised of major research universities and 

large nonprofit organizations. Different groups of universities and nonprofits 

 

42 Exhibit 13. 
 

-48- 

would have produced different results, with lower market rates for the positions 

surveyed, including the Secretary. 

For example, the Towers Perrin 2002 report on the Secretary’s 

compensation showed median cash compensation for comparable positions to be 

$515,000 in large nonprofits, $530,000 in select universities, and $350,000 in 

public universities, which, like the Smithsonian, receive substantial public 

funding and therefore are more appropriate comparisons. At the time, the 

Secretary’s base pay was $480,000 just below the median of the first two groups, 

but forty-four percent above the median for public university presidents. Mr. 

Small’s actual cash compensation, including his housing allowance and payments 

in lieu of pension, was well above the median of all comparable groups. 

• Documents received from the Smithsonian show that, in the early years of 

Secretary Small’s tenure, the Smithsonian management (and the consultants they 

employed) were targeting compensation for the Secretary at the 75th percentile, 

rather than the median or average compensation for comparable positions. 

• The findings in the Towers Perrin report used the following as 

“comparable” nonprofit institutions: the Ford Foundation, the J. Paul Getty Trust, 

the National Geographic Society, the Metropolitan Museum of Art, the American 

Museum of Natural History, The Carnegie Corporation of New York and the 

Kennedy Center for the Performing Arts. The Committee was told that the 

comparison group was hand-picked by Smithsonian management. The average 

compensation for this group (salary, bonuses, fees, and severance payments) was 

reported as $487,200 in 2000 and the 75th percentile was $544,900. None of these 
 

-49- 

organizations, however, receives the substantial majority of its budget from 

government sources, and so needs to be as sensitive to government budgetary 

concerns and salary needs as does the Smithsonian. 

• Both Towers Perrin reports (and the later Watson Wyatt reports) compared 

base compensation for Secretary Small to the cash compensation received by 

Presidents or Executive Directors in the survey sample, without including the 

substantial value of his housing allowance and payments in lieu of pension. It is 

true that college and university presidents often receive free housing, but this 

housing usually requires the president to live on campus, to be available around the 

clock and to use the house for frequent entertaining. This was not the case with the 

housing allowance accorded Mr. Small, who used his home infrequently for 

entertaining. 

• By not treating the housing allowance as additional cash compensation, 

Mr. Small’s total compensation was significantly understated. 

The Towers Perrin firm was replaced by Watson Wyatt (hired through a competitive 

bidding process) in 2004 and 2006.43 The Watson Wyatt relationship was similar to the Towers 

Perrin relationship. Watson Wyatt was hired by Smithsonian management (the Human 

Resources Department), not the Regents or their Compensation Committee. The peer group was 

defined by management, with no input from the Regents or from the Watson Wyatt consultants. 

In line with typical governance practices, the Watson Wyatt consultants encouraged 

Smithsonian management to provide them direct access to the Regents, but were denied this 

 

43 IRC member Pete Smith was employed by Watson Wyatt from 1968 to 1999. During his tenure at 

Watson Wyatt, the Smithsonian was not a client of the firm. Mr. Smith has had no formal relationship 

with Watson Wyatt since July of 1999. 
 

-50- 

access and during their involvement had only one brief meeting with the Smithsonian’s 

Compensation Committee. This meeting typified the strong influence that management 

exercised over Regents’ discussions: 

• Smithsonian management including Mr. Small and Chief Operating 

Officer Sheila Burke were present throughout the meeting. 

• The questions asked by the Committee members were good ones: Was the 

data aged appropriately? What was the source of the data, and was the comparison 

group reasonable? Did their approach and methodology correspond to accepted 

industry standards? 

• The consultant’s response to each of these questions, appropriately, was 

yes. But there were deeper questions that needed to be asked: Was the Secretary’s 

compensation reasonable? Why was the housing allowance excluded from the 

comparisons? Why was this peer group used, and would the result have been 

materially different if a different peer group was used? 

The consultants should have urged the Committee to meet in executive session to discuss 

these questions, but undoubtedly it was difficult to do so given their limited assignment 

(basically to “crunch the numbers,” as they put it) and given the fact that both Mr. Small and Ms. 

Burke were in attendance. 

In the IRC’s view, this situation is a clear demonstration of how governance at the 

Smithsonian appeared to be improving, while the decision making process remained overly 

controlled by the Secretary and his staff. The Regents believed they were doing the right thing, 
 

-51- 

but they were not being served as effectively as they could have been by the consultants and they 

were being misled by management. 

When Watson Wyatt was retained, the target for the Secretary’s compensation was 

dropped from the 75th percentile to the 50th percentile of the comparison group. This drop, 

however, did not result in a reduction in Mr. Small’s salary because the median compensation 

ranges shifted significantly upward. The Smithsonian achieved this by changing its group of 

comparable nonprofits. While public universities represented twenty percent of the original 

group of comparables, this percentage was dropped to eight percent in the later study. As 

presidents of public universities were generally the lowest compensated executives in the 

Smithsonian’s comparison groups, this reduction had the effect of increasing the study’s median 

compensation significantly. 

The Smithsonian’s compensation strategy under Mr. Small is also troubling. In the early 

years of his tenure, the documentation the IRC received states that the strategy for the Secretary 

was to pay him at about the 75th percentile of the survey comparisons, while the strategy for 

other key executives was to pay them at the 50th percentile, raising questions of equity. 

There are other issues of internal fairness. Comparisons for scientists and museum 

directors and others directly carrying out the mission of the Smithsonian show that their salaries, 

on average, are generally below the survey targets, while senior executives in the “Castle” – Mr. 

Small and the other senior executives – were generally above the survey averages. Put simply, 

this is bad compensation policy – it demoralizes regular employees when their leader is paid at 

the 75th percentile of market while everyone else is paid at the mid-market range. 

To be fair to the Regents currently serving the Smithsonian, recent increases in Secretary 

Small’s base compensation since 2002 have been reasonable, generally at the level of 
 

-52- 

comparable percentage increases in base salaries in any sector, and often at or below the 

percentage increase being given to federal employees. A Regent who joined the Board in 2002 

and who approved a modest increase in the Secretary’s base salary may have believed that there 

was no reason to worry about unreasonable compensation. By 2002, the Secretary’s total 

compensation was already well above the 75th percentile, and this should have been brought to 

the Regents’ attention or uncovered by them long before Senator Grassley and the media raised 

this issue. 

D. Performance of Mr. Small

The Committee heard from many individuals involved with the Smithsonian that 

Mr. Small, whatever his short-comings, was a prodigious fund-raiser for the Smithsonian. For 

example, the Committee heard on numerous occasions the statistic that Mr. Small had raised 

more than a $1 billion, which was an 

amount that exceeded all the funds 

raised previously in the history of the 

Smithsonian. The Committee does 

not believe that success in 

fundraising has any bearing on its 

analysis of the governance issues 

discussed in this report, as fundraising success should not excuse 

failures to satisfy fiduciary duties. 

That said, to the extent that fund-raising is a metric to be used by the Board in assessing and 

rewarding the performance of the Secretary, the Committee deemed it appropriate to consider 

Chart 5

Private Grants and Contributions to the 

Smithsonian 1990-2006 (millions)

0

50

100

150

200

250

1990

1992

1994

1996

1998

2000

2002

2004

2006

Source: Smithsonian Audited Financial Statements

Small's First Year 
 

-53- 

Mr. Small’s fund-raising record at the Smithsonian. This section provides a historical 

perspective on private fundraising at the Smithsonian, and shows that annual private fundraising 

actually declined during Mr. Small’s tenure. 

Prior to the late 1990s, the Smithsonian had raised very little in the way of private 

donations, and had no real institutional capacity for fundraising. In fact, prior to 1994, the year 

in which Mr. Heyman became Secretary, the Smithsonian appears to have raised less than $350 

million in its entire history. As Chart 5 shows, the average amount raised annually for the years 

1990 through 1997 was less than $50 million. 

After taking over as Secretary in 1994, Mr. Heyman increased the effectiveness of the 

central fund-raising capacity that had been sorely lacking at the Smithsonian. Prior to Mr. 

Heyman’s tenure, fundraising was mostly decentralized, with individual museums bearing the 

burden of raising funds for themselves. 

The steep increase shown in Chart 5 that begins in the 1997-98 period demonstrates 

fundraising success from Mr. Heyman’s efforts. From 1997 to 1999, he tripled the amounts 

raised from private sources. During his six-year tenure, he raised more than $400 million in 

private grants and contributions. Mr. Heyman could thus claim, as Mr. Small did, that he had 

raised more money for the Smithsonian during his tenure than had been raised in the history of 

the Smithsonian theretofore. 

Mr. Heyman’s most notable success was the Steven Udvar-Hazy gift for the Air & Space 

Museum at Dulles Airport. Although the Udvar-Hazy pledge was fulfilled during Mr. Small’s 

tenure, the gift from Mr. Udvar-Hazy was raised during Mr. Heyman’s tenure. 

Mr. Heyman also laid the groundwork for several other large gifts that would come into 

the Smithsonian during Mr. Small’s tenure. For example, Mr. Heyman developed a relationship 
 

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Chart 6

Smithsonian Sources of Funds, 1999-2006

(millions)

$0

$200

$400

$600

$800

$1,000

$1,200

1999

2001

2003

2005

Source: Smithsonian Audited Financial 

Statements

Federal Appropriations

& Grants

Business Revenue

Private Grants &

Contributions

with Kenneth Behring, a California philanthropist, which ultimately resulted in gifts of $20 

million in 1998 and $80 million in 2000. During Mr. Heyman’s tenure, the Smithsonian 

developed a relationship with the Lemelson Foundation that resulted in gifts of $54 million in 

1994, $5 million in 1998, $5 million in 2000 and $14.6 million in 2001. 

When Mr. Small became Secretary in 2000, he inherited from Mr. Heyman a functioning 

centralized fund-raising capacity and pipeline that had already been developed. As Chart 5 

shows, 2000 was the high point of fund-raising success for the Smithsonian. This spike in 

private donations largely reflects the $80 million gift from Mr. Behring for the National Museum 

of Natural History. In 2001, the Smithsonian received a gift of $30 million from the Donald W. 

Reynolds Foundation to purchase the Lansdowne Portrait of George Washington as a result of 

the public plea on the “Today” show from Marc Pachter, Director of the National Portrait 

Gallery for financial help. The 

Donald W. Reynolds Foundation 

contributed an additional $45 

million in 2005 for the renovation 

of the National Portrait Gallery. 

Even including these large 

gifts, the amount of private funds 

contributed to the Smithsonian 

began to decline after 2000, 
 

-55- 

reaching a low of $88 million in 2003, even though smaller contributions remained constant or 

increased slightly.44 Private funds raised in 2006 improved to $132 million, though that figure is 

still about ten percent lower than the amount raised in 1999 during Mr. Heyman’s last year as 

Secretary. Notwithstanding this decline, Smithsonian data show that gifts under $5 million have 

been rising over the same time period.45 This overall decline in annual fundraising at the 

Smithsonian over this period stands in contrast to the fundraising record of comparable 

institutions that saw their fundraising improve over the same period.46 

As private contributions have receded in recent years, the Smithsonian has come to rely 

more heavily on the Federal government for its funds. In 1999 federal appropriations and grants 

constituted approximately fifty-four percent of the Smithsonian’s revenue. By 2006, this 

proportion of federal funds had increased to about two-thirds. As Chart 6 shows, federal funding 

increased from $470 million in 1999 to about $760 million in 2006, an increase of about sixtyone percent. The Smithsonian informed the IRC that the increase in federal appropriations 

reflects, in significant part, the opening of two new museums and increased spending for antiterrorism measures following 9/11, and noted that the Smithsonian’s federal staff has decreased 

by about five percent since 2000.47 

In contrast, over the same period the Smithsonian’s business revenue dropped by ten 

percent from $217 million to $194 million and private grants and contributions dropped by nine 

percent from $151 million to $137 million. If these two sources of funds for the Smithsonian 

 

44 Exhibit 14. 

45 Id. 46 Exhibit 15. 

47 A summary of the Smithsonian’s sources of funds provided to the IRC by the Smithsonian is attached 

as Exhibit 16. 
 

-56- 

continue to decline, the Smithsonian will necessarily come to rely even more on federal funds for 

more of its operations. 
 

-57- 

EXPENSES OF THE SECRETARY

A. Mr. Small’s Expenses

Mr. Small made perfectly clear in 1999 to the Regents working out the terms of his 

employment agreement that it was absolutely necessary that he travel first class. There appears 

to have been no consideration by Mr. Small that the Smithsonian was a nonprofit organization, 

funded primarily with taxpayer dollars, and no apparent sensitivity to the public perception of 

what many Smithsonian employees and visitors might consider lavish travel expenses. 

Mr. Small also seemed unwilling to consider using his own funds or frequent flyer miles 

to upgrade to first class when available, as his predecessor often did and as many in the nonprofit 

world did in 1999 and do today. The Regents involved in contract discussions with Mr. Small 

appear to have acquiesced to Mr. Small’s demands without questioning the appropriateness or 

potential adverse publicity of such an arrangement. 

These issues were compounded by the failure of the Smithsonian to enforce the contract 

terms as drafted. Mr. Small’s employment agreement states that he is “authorized to fly first 

class.”48 (emphasis added). This was interpreted by Mr. Small to mean first class 

accommodations, as well as other travel amenities, despite Smithsonian policies to the contrary. 

While there is no support within the written agreement for Mr. Small’s interpretation, no one – 

not the Regents, the Compensation Committee, the Audit and Review Committee, the Chief 

Financial Officer, the General Counsel, nor the outside auditors – questioned Mr. Small’s 

expansion of his contract rights. 

One clear example of Mr. Small’s excessive travel expenses and his disregard for 

Smithsonian policy was his chartering a private jet, at a cost of $14,000, to fly to San Antonio, 

 

48 Employment Agreement ¶ 8, attached as Exhibit 5. 
 

-58- 

Texas to receive a “Golden Plate Award” from the American Academy of Achievement49 on 

Saturday, May 5, 2001 and return to Washington the next day to attend a Board of Regents’ 

committee meeting on Sunday and a Board meeting on Monday. Mr. Small's stated rationale for 

using a charter jet, rather than flying commercial, available at a fraction of the cost, was his need 

to attend the Board committee meeting scheduled for Sunday afternoon. Even though a 

commercial flight was available that would have allowed Mr. Small to return to Washington late 

Sunday morning, with two hours to spare before the committee meeting and 20 hours before the 

Board meeting, he rejected this option, the IRC learned, because he feared any delay, either in 

San Antonio or in making a connecting flight, would make him miss or be late for the committee 

meeting.50 

When The Washington Post reported on the extravagance of this chartered flight, it noted, 

on the basis of statements from Smithsonian personnel, that Mr. Small had paid for the jet 

himself out of a separate fund he had personally funded at the Smithsonian. There was, however, 

no such fund, and the flight was paid for from several Smithsonian funds. Moreover, 

Smithsonian management had directed accounting staff to alter its accounting records.51 

The IRC analyzed the recent investigation of such expenses by the Smithsonian’s 

Inspector General.52 In the summer of 2006, the Smithsonian chose Cotton & Co. for a review of 

 

49 The American Academy of Achievement is an organization headed by Northern Virginia 

businesswoman Catherine Reynolds and her husband Wayne which, according to press accounts, was 

established to honor "superachievers." A few days after Mr. Small received the award, Mrs. Reynolds 

announced a $38 million gift from the charitable foundation that bears her name to the Smithsonian to 

create a hall of achievement for prominent Americans. The gift was later withdrawn after strong 

objections from Smithsonian curators and others. 

50 Exhibit 17. 

51 Exhibit 18. 

52 The current Inspector General was provided a draft of the Report and an opportunity to comment. She 

provided written comments to the Committee, which are attached as Exhibit 19. The Committee gave due 
 

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the following: (1) whether the expenses of Small and Gary Beer, the Chief Executive Officer of 

Smithsonian Business Ventures had been properly accounted for and (2) whether the expenses of 

the Secretary and the Chief Executive Officer of SBV have been reasonable in the context of the 

purpose of the expense and the mission of the Smithsonian and SBV, respectively. 

The statement of work called for Cotton & Co. to opine as to the reasonableness of 

expenses.53 Cotton & Co. and the Inspector General,54 however, later agreed that Cotton & Co.’s 

work instead would be limited to a review of whether expenses and compensation of the 

Secretary and Chief Executive Officer of SBV conformed to Smithsonian’s agreed-uponprocedures (“AUP”). In contrast to an audit, an AUP engagement does not determine whether 

expenses are properly incurred and recorded in an absolute sense, but rather whether the 

expenses were incurred and recorded in accordance with an organization’s policies. 

This limiting of Cotton & Co.’s engagement had two undesirable effects. First, it meant 

that the Smithsonian would not obtain a professional opinion as to whether the expenses and 

compensation of the Secretary were reasonable. Second, by using an AUP, it afforded the 

Smithsonian an opportunity to influence the results in a manner that would have been precluded 

had the original request been honored. 

If the clear meaning of “fly first class” were applied to Mr. Small’s travel expenditures, 

his expenses for accommodations, food, car services and other items would have been limited to 

the Federal Travel Regulation limits. 

 

consideration to these comments, but disagreed with them, and determined that no changes to the Report 

were warranted. 

53 Exhibit 20. 

54 Initially, the Smithsonian CFO intended to oversee the work of Cotton & Co. It was later agreed that 

such oversight role was best handled by the Inspector General. 
 

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A November 30, 2006 draft of the Cotton & Co. report shows that expenditures of 

$43,310 in Mr. Small’s mixed travel and other expenses (travel costs, furniture for the 

Secretary’s office, catering, florists and other costs) were unsupported or had inadequate 

support.55 In addition, Cotton & Co. identified $54,911.97 in travel costs (primarily car services, 

the charter flight from San Antonio and some hotel costs) that it deemed unallowable under its 

understanding of Smithsonian policies, plus another $68,665.40 in “other” unallowable expenses 

(more catering, a portion of expenses incurred by Mrs. Small on a trip to Cambodia with 

Smithsonian donors, florist charges, and Citibank credit card charges for which the Cotton & Co. 

report provides no description).56 The total charges in the November 30, 2006 draft of the 

Cotton & Co. report that were either unallowable, were not supported or were inadequately 

supported came to $210,197.89. 

Cotton & Co. and the Acting Inspector General provided the November 30, 2006 draft 

report to the Secretary for comment and response. Under normal procedures, the Secretary 

would have been limited to calling any factual inaccuracies to the Acting Inspector General’s 

attention and commenting on the report. The Acting Inspector General and Cotton & Co. would 

have determined if changes should have been made to the report and then they would have issued 

it. 

Instead there were significant back-and-forth discussions among the Acting Inspector 

General, Cotton & Co. and the Secretary’s office regarding his expenses, with the Secretary’s 

staff suggesting several rounds of changes to the draft report and arguing that “fly first class” in 

 

55 Exhibit 21. 

56 Id.
 

-61- 

the Secretary’s employment agreement permitted Mr. Small to first class accommodations and 

meals, as well as car services whenever he traveled.57 

Eventually, Roger Sant, as Chair of the Executive Committee, signed a letter to Cotton & 

Co. dated December 7, 2006, drafted by Mr. Small’s office, confirming that the “fly first class” 

provision permitted “the Secretary to be reimbursed for travel expenditures in excess of the 

Federal Travel Regulation limits, such as hotel daily ceilings and ground transportation choices, 

without requiring prior or specific justification or approval for those expenditures.”58 In this 

letter, Mr. Sant also acknowledges that the Smithsonian selected the transactions for review by 

Cotton & Co. and the Acting IG and that the Smithsonian confirmed that such transactions were 

business related.59 

Similar to Mr. Sant’s representations, Mr. Small, Ms. Alice Maroni, the Chief Financial 

Officer, and Mr. Andrew Zino, the Comptroller, also acknowledged in a letter to Cotton & Co., 

dated January 4, 2007, that “[w]e are responsible for selecting the transactions for review” and 

ensuring that those transactions are business related.60 From the Committee’s interviews, it 

appears that the Smithsonian staff selected the transactions for review and determined the 

business nature of such transactions, without discussion or input with the Executive Committee 

or the other Regents. 

Following the back-and-forth discussions among Cotton, the IG and the office of the 

Secretary, the scope of the Cotton review and its findings were substantially narrowed. In the 

Cotton & Co. report dated December 22, 2006, which was provided to the Audit and Review 

 

57 A sample of email correspondence is attached as Exhibit 22. 

58 Exhibit 23. 

59 Id.

60 Exhibit 24. 
 

-62- 

Committee with a transmittal letter from the Acting Inspector General61, Cotton reported 

unsupported expenses or those with inadequate support for mixed travel and other costs had been 

reduced from $43,310.49 to $28,565.58.62 Unallowable travel expenses were reduced from 

$54,911.97 to $21,689.21 (primarily by removing costs for car services), and “other” 

unallowable expenses were reduced from $68,665.40 to $67,845.61.63 In all, because of the 

objections of the Secretary and the representations from Mr. Sant, Ms. Maroni and Mr. Zino, the 

total of expenses that were either unsupported or which lacked adequate support, or which were 

unallowable, was reduced by nearly half, from $210,197.89 to $118,120.19. 

The Committee would have expected the Acting Inspector General, as an independent 

internal investigator, to have determined the scope, transactions and standard of review, rather 

than having the key elements of the investigation determined by members of Mr. Small’s 

executive team. The Cotton & Co. report should have stated specifically that a large number of 

transactions were treated as “authorized” solely because the Secretary and the Smithsonian’s 

Executive Committee agreed that they interpreted “fly first class” to have a much broader 

meaning than the normal meaning of the words. The final Cotton report does not clearly state 

that the conclusions in the report were derived from these post-hoc interpretations by the 

Smithsonian. 

Because at the time the report was being prepared neither the Acting IG nor the auditors 

from Cotton & Co. had a reporting relationship to the Board or the Audit and Review 

Committee, the Acting IG may have felt that she lacked the authority to reject the Secretary’s 

suggestions. The Committee, however, would have expected the Acting IG to have followed a 

 

61 Exhibit 25. 

62 Exhibit 26. 

63 Id.
 

-63- 

more traditional and appropriate approach in preparing the report. Similarly, the Audit and 

Review Committee should not have permitted the scope and results of the review to be so 

influenced by Smithsonian management. 

B. Mr. Small’s Entertainment Expenses

The initial rationale that Mr. Small was to have a housing allowance because he would 

use his home and gallery for entertainment had long been ignored by the time of the Cotton 

report. Mr. Sant, in his December 7, 2006 letter, stated that “the employment agreement was 

intended to compensate the Secretary for imputed mortgage interest.” Because Mr. Sant was not 

on the Board at the time the 1999 agreement was signed, he apparently relied on others at the 

Smithsonian to provide him with this interpretation. It appears that, when he signed this letter, 

Mr. Sant did not have all the background information and relevant facts regarding the housing 

allowance and Mr. Small’s very limited use of his residence for entertaining. 

Apparently as a consequence of these assertions that the housing allowance was 

“intended to compensate the Secretary for imputed mortgage interest” with no reference to the 

original justification that Mr. Small would use his home for entertainment, the review by the 

Acting Inspector General and Cotton investigators of entertainment expenses was as limited as 

the review of Mr. Small’s travel expenditures. 

As discussed above, Mr. Small did a negligible amount of Smithsonian entertaining at his 

house, and the Committee believes that the housing allowance is properly classified as cash 

compensation, rather than as an entertainment expense. It is difficult for the Committee, in the 

limited time available and without a forensic audit, to determine the reasonableness of Mr. 

Small’s entertainment expenses. 
 

-64- 

The Cotton report and the information culled by Cotton & Co. do provide limited access 

to information regarding Mr. Small’s entertainment expenses. First, as with all of Mr. Small’s 

expenses, the recordkeeping is incomplete, and there is insufficient detail to analyze the business 

purpose of many of the Secretary’s expenditures. Second, a number of the entertaining expenses 

incurred by Mr. Small appear to be for internal staff-related events. It is unclear if Cotton & Co. 

reviewed all the records relating to entertainment of donors and potential donors in its limited 

“agreed-upon procedures” review. Finally, what is clear is that there was no collection or 

analysis of entertainment expenses of the Office of the Secretary by the accounting staff, the 

Audit and Review Committee, or the Board of Regents on any regular basis, if at all. 

C. Mrs. Small’s Travel Expenses

The Committee has a number of serious concerns about Mrs. Small’s travel on behalf of 

the Smithsonian.64 Mr. Small’s employment agreement permits him to receive reimbursement 

for the costs of Mrs. Small’s trip for the Smithsonian where “appropriate.” The Committee 

understands that the Smithsonian did not analyze Mrs. Small’s travel to ensure that the payment 

of her expenses were not taxable to Mr. Small under the Internal Revenue Code. Even if 

properly paid for by the Smithsonian under Mr. Small’s contract, the reimbursements from the 

Smithsonian may still be taxable income to Mr. Small. Because the Smithsonian staff was not 

permitted to review any aspects of Mr. or Mrs. Small’s travel and the Regents did not make any 

inquiries into such matters, there was a complete lack of oversight to ensure compliance with the 

income tax rules relating to Mrs. Small’s travel. 

 

64 The Committee has attempted to piece together Mrs. Small’s total travel expenses. Without doing an 

audit of the travel expenses of the Office of the Secretary, it is difficult to know the exact amount of her 

travel expenses paid for by the Smithsonian. 
 

-65- 

When an employer pays the travel expenses of an employee’s spouse who travels with 

the employee on official business, this benefit is excludable from tax only if the spouse performs 

a bona fide business function on the trip. To the extent that there is no business purpose for the 

spouse’s travel, the spousal travel expenses paid by the employer are includable in the 

employee’s taxable income, and reportable on that employee’s Form W-2 and on the tax-exempt 

organization’s Form 990. 

The courts have used a two-part analysis in determining whether a spouse has satisfied 

the business purpose test: (1) the dominant purpose of the spouse’s travel must serve the 

employer’s business, and (2) the spouse must actually spend a substantial amount of time 

assisting the accomplishment of the employer’s purpose. The performance of simply “social 

function[s]” does not satisfy the business purpose test. Therefore, to be considered a bona fide 

business purpose, the spouse must do more than socializing or performing services of incidental 

benefit to the organization. 

Where the spousal travel is taxable income to the employee and there is no 

contemporaneous written substantiation showing the tax-exempt organization’s intent to treat the 

payment as consideration for services (for example, on the employee’s Form W-2 or in his or her 

employment agreement), such payment is treated as an automatic excess benefit transaction 

(with penalties being imposed on board members or senior executives who approved the 

reimbursement) unless the organization can establish that the payment was received in exchange 

for other consideration. 

Therefore, to ensure that no excess benefit transactions have taken place, Mrs. Small’s 

prior travel should be reviewed to determine whether it satisfies the business purpose test 
 

-66- 

described above.65 If Mrs. Small’s travel is found not to have had a bona fide business purpose 

and it was not previously documented as compensation (i.e., on Mr. Small’s Form W-2 or on the 

organization’s Form 990), then Mr. Small’s Form W-2 and the organization’s Form 990 should 

be amended to reflect this increased income. If these amendments are made prior to the 

beginning of any IRS examination of Mr. Small or the Smithsonian for the years in which these 

benefits were provided, then they would not be considered an “automatic excess benefit” subject 

to penalties and reportable as an excess benefit on the organization’s Form 990. 

 

65 The Committee understands that the Smithsonian has begun this process. 
 

-67- 

BOARD OVERSIGHT OF MR. SMALL

Through late 2006, the impression the IRC has from its interviews and research is that 

the Board failed to exercise sufficient oversight. The Committee was told that Secretary Small 

worked to cut off direct communications between the Regents and senior Smithsonian 

management. He exercised strong control over the information being presented to the Regents. 

He attended all Committee meetings and, according to some, even ran some of them. The 

Committee was told that Mr. Small actively forbade employees from sharing concerns with the 

Regents and, to some extent, from even communicating with them. He would not permit the 

General Counsel, the Inspector General or the CFO to contact the Board directly. He even 

refused the Inspector General’s request to send her audit reports to the Board. 

A. Mr. Small’s Compensation Was Not Approved by the Board for

the 2000-2003 Period

For the years 2000 through 2003, the Board did not formally approve the Secretary’s 

compensation. The Office of the Secretary appears to have taken the position that the Executive 

Committee had the authority to approve the Secretary’s compensation as a result of its power to 

act on behalf of the Board when the Board is not in session. This position is contrary to the 

Smithsonian’s Charter and Bylaws, as well as sound corporate governance principles. The 

Committee finds it troubling that the Executive Committee followed this procedure and that the 

full Board never questioned the practice. 

The Smithsonian Bylaws, like the bylaws of many organizations, permit the Executive 

Committee to act between board meetings on matters that do not require full Board approval: 

The Executive Committee shall have and may exercise all powers 

of the Board of Regents when the Board of Regents is not in 

session, except those expressly reserved to itself by the Board of 
 

-68- 

Regents, provided that all such proceedings shall be reported to the 

Board of Regents when next the Board meets.66

This grant of interim authority, however, does not apply to approval of the compensation of the 

Secretary because the Smithsonian Charter reserves that power to the Board: “The Secretary and 

his assistants shall, respectively, receive for their services such sum as may be allowed by the 

Board of Regents.”67 

The Smithsonian’s auditors requested evidence that the Secretary’s compensation was 

approved by the Board in 2003.68 The IRC has found no such evidence. The full Board of 

Regents first approved Mr. Small’s compensation in 2004. Based on interviews and evidence 

collected, the Regents were not provided with full details of Mr. Small’s compensation and the 

Regents understood that Mr. Small had received only modest increases in compensation, keeping 

his total compensation below the 50th percentile. As discussed above, this was not correct. 

Mr. Small’s total cash compensation, $774,358 in 2004, was well in excess of the 50th percentile 

of the comparison group hand-picked by Smithsonian management. 

B. The Board Failed to Respond to “Red Flags” and Exert Necessary Oversight

Based on the limited information presented to the Board by Smithsonian management, it 

might have been reasonable for the Regents to assume that things at the Smithsonian were 

generally going well. But throughout Secretary Small’s tenure, a number of serious issues were 

raised that should have prompted detailed questions from the Board, if not an external review by 

the Inspector General or an outside auditor. 

As early as 2001, The Washington Post and others in the media questioned Mr. Small’s 

excessive spending, noting, as discussed above, the use of a privately chartered plane for 

 

66 Smithsonian Bylaws § 3.01, attached as Exhibit 27. 

67 Smithsonian Charter § 48, attached as Exhibit 28. 

68 Exhibit 29. 
 

-69- 

Smithsonian business. Yet the minutes and transcripts of the Board meetings give no indication 

that the Regents ever discussed, let alone investigated, the chartered plane incident. Had the 

Board done so, it would have learned, as the Committee did, that there was a viable commercial 

flight available (contrary to Mr. Small’s claim), Mr. Small did not pay for the plane as he 

claimed, but rather the Smithsonian paid for it, and Smithsonian management instructed the 

accounting staff to alter travel reimbursement records to obscure this fact. 

In May 2001, Mr. Small negotiated a gift of $38 million from the Catherine B. Reynolds 

Foundation to finance a permanent exhibition at the National Museum of American History to 

commemorate the achievements of prominent Americans.69 The gift was highly criticized by a 

group of Smithsonian’s curators and scholars who questioned the degree of control Ms. Reynolds 

would have over the project (including the power to recommend 10 of the 15 members of the 

panel that would determine which individuals would be featured in the exhibition, as well as 

other supervisory powers in the development of the exhibition).70 Although Mr. Small and other 

top-ranking Smithsonian officials claimed that the Smithsonian would have ultimate control over 

the nature of the exhibit, the Smithsonian community was up-in-arms regarding the loss of 

curator control of a major exhibit. Due to the controversy, Ms. Reynolds withdrew the gift in 

February 2002.71 Small’s handling of the gift was considered a “debacle”72 and led outsiders to 

question Mr. Small’s abilities to lead the Smithsonian.73 In response, the Regents revised grant 

 

69 Jacqueline Trescott, Smithsonian Toasts $38 Million Donor, WASH. POST, May 10, 2001 at C3. 

70 Jacqueline Trescott, Smithsonian Gifts With Strings Alarm Some Scholars; Secretary's Dealings With 

Big Donors Questioned by Staff, WASH. POST, May 26, 2001 at C1. 

71 Jacqueline Trescott, Smithsonian Benefactor Cancels $38 Million Gift, Wash. Post, Feb. 5, 2002 at A1; 

see also 60 Minutes – CBS News, Who is Catherine Reynolds? (Dec. 2002), available at

http://www.cbrf.org/video/60min.html. 

72 Larry Van Dyne, Money Man, WASHINGTONIAN, Mar. 2002. 

73 Editorial, Smithsonian Pluses and Minuses, N.Y. TIMES, Feb. 7, 2002 at A28 (“there is reason to 

question [Small’s] leadership”). 
 

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approval processes to include Board approval in certain instances, but there was no additional 

inquiry into the apparent lapses in judgment that lead to the controversy. 

In October 2001, Milo Beach, the long-standing director of the Freer and Sackler 

galleries of Oriental art resigned, citing Small’s preference for “good administrators” over 

scholars, giving the impression, Beach said, that the secretary viewed “the life of the mind with 

astonishing indifference.”74 There was also criticism from within the Smithsonian regarding 

Mr. Small’s oversight, or lack thereof, of the SBV, with a number of museums paying SBV not

to run their museum’s shops and other business ventures. And finally, in 2004, Secretary Small 

pled guilty to the illegal importation of bird feathers into the United States.75 

After these public reports of misconduct, possible unapproved use of funds and 

mismanagement, the Board should have commissioned and overseen an independent, objective 

review of the issues that had been raised, without any involvement of the Secretary. Rather than 

doing this, the Board allowed Mr. Small to maintain control over the Board and its processes. 

Mr. Small continued to dominate committee meetings, set meeting agendas, and determine, 

without informing the Board, who would contact the Regents and what information would be 

provided them. During Mr. Small’s tenure, it often appeared that the Board reported to him 

rather than the other way around. The Committee was told by one Regent that the Secretary “did 

not listen to the opinions of the Regents” and “did not seek input from the Regents in decision 

making.” Another commented that the Secretary did not seek advice, only approval. 

 

74 Larry Van Dyne, Money Man, WASHINGTONIAN, Mar. 2002. 

75 In January 2004, Mr. Small pled guilty to a misdemeanor violation of the Migratory Bird Treaty Act 

arising from his 1998 purchase of a “$400,000 collection of tribal articles that contained 219 items with 

endangered feathers.” Jacqueline Trescott, Smithsonian’s Small Still Awaits Word on Community 

Service, WASH. POST, Feb. 23, 2005, at C1. Small was sentenced to two years’ probation and 100 

hours of community service, and was required to submit letters of apology to national publications. 

Jacqueline Trescott, Small Gets 2 Years’ Probation; Smithsonian Secretary Bought Protected Artifacts, 

WASH. POST, Jan. 24, 2004, at A1. 
 

-71- 

Mr. Small’s management and control of the Board had an adverse impact on effective 

oversight by the Regents. In addition, the former Chancellor of the Smithsonian ran the Board 

meetings on a very tight schedule, limiting the number of comments and questions any Regent 

was permitted to ask and moving quickly through the afternoon agenda. The former 

Chancellor’s desire to avoid lengthy meetings allowed only for limited debate by and discussion 

among the Regents. Therefore, their ability to analyze issues and get behind the wellorchestrated materials provided to them by the Office of the Secretary was compromised. 

It was only after several years that the Smithsonian’s Acting Inspector General and Chief 

Financial Officer finally retained an independent auditor to evaluate the Secretary’s expenses. 

The resulting report, however, as with the compensation consultants’ studies, was controlled by 

Smithsonian management’s formulation of the scope of the assignment. Moreover, after 

receiving the Cotton & Co. report, the Regents passed two resolutions, both of which approved 

retroactively expenses that the Cotton & Co. consultant had challenged. Evidence collected by 

the Committee shows that these resolutions were written in the Office of the Secretary, which, in 

effect, controlled the outcome of this review. 

In defense of the Regents, it must be noted that neither the Secretary’s office nor the 

Acting IG provided the Audit and Review Committee with the full details of the Cotton & Co. 

work. The Regents received only the much-sanitized final report and a transmittal letter from the 

Acting Inspector General, along with an even-more innocuous summary of just over one page 

prepared by the Secretary’s office.76 With this limited information in front of them, the Audit 

and Review Committee approved the resolutions prepared by Mr. Small and recommended them 

to the full Board of Regents. The Committee believes that the members of the Audit and Review 

 

76 Exhibit 30. 
 

-72- 

Committee and the Regents, in fully exercising their fiduciary duties, should have been more 

diligent in understanding how the Cotton & Co. report was prepared, questioning the Acting IG 

and Cotton & Co. investigators and understanding the scope of their investigation, along with the 

limitations placed on, and the assumptions used in formulating, the report. 
 

-73- 

PARTICIPATION ON OUTSIDE BOARDS AND

ABSENCES FROM THE SMITHSONIAN OFFICES

One of the most disturbing failures of governance and oversight uncovered by the 

Committee in its investigation relates to the service on outside boards by Secretary Small and 

Deputy Secretary Burke, the amount of time spent by them, especially Ms. Burke, on these 

outside duties, and the leave policies and practices that permitted the two top executives of the 

Institution to be frequently absent from the office without the knowledge or approval of the 

Board of Regents. Serving on outside boards – profit and nonprofit – may provide benefits to 

senior executives: exposure to leading governance practices, sharpening of strategic planning 

skills, connecting with potential donors and mentors. But the potential for conflicts of interest, 

or perceptions of such conflicts, raises serious issues for those who serve in executive capacities 

at entities largely funded by taxpayer dollars. 

A. Mr. Small’s Board Service

Mr. Small’s contract provided that he could serve on up to two outside boards, and retain 

the income from such service, subject to approval by the Executive Committee and review by the 

General Counsel, as the Chief Ethics Officer.77 Throughout his tenure as Secretary of the 

Smithsonian, Mr. Small served on the Boards of the Chubb Corporation (“Chubb”) and Marriott 

International Inc. (“Marriott”), earning $642,925 in cash compensation, $3.5 million in stock 

compensation and $1.8 million in stock option compensation during this period.78 The 

Committee has not found, and was not provided with, any formal approval by the Executive 

Committee of Mr. Small’s service on the Chubb and Marriott boards or review by the General 

Counsel. Some current and former members of the Executive Committee, and most Board 

 

77 See Employment Agreement, ¶ 9, attached as Exhibit 5. 

78 A chart detailing Mr. Small’s compensation from outside service is listed in Exhibit 31. 
 

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members, admitted knowing, through personal knowledge, press reports or anecdotally that Mr. 

Small served on one or both of these boards, but there was no systematic briefing of, and review 

and approval by, the Executive Committee or the Regents of Mr. Small’s outside board service. 

Based on calendars and other records made available to and collected by the Committee, it 

appears that Mr. Small was absent from the Smithsonian for 64 days for-profit board service 

during his tenure.79 

As an employee of the Trust, Mr. Small was not covered by federal regulations that 

prohibit outside for-profit board service by high-level government officials. In addition, the lack 

of a leave policy for Mr. Small allowed him to take unlimited time off work to fulfill his service 

on corporate boards. The same is true for Ms. Burke. 

In analyzing Mr. Small’s outside board service, it is particularly important to understand 

the issues raised by his service on the Chubb board, and how this was handled by the 

Smithsonian. When he became head of the Smithsonian, Mr. Small was already serving on the 

Chubb board. Ms. Burke was also serving on the Chubb board when she was appointed Deputy 

Secretary and Chief Operating Officer. The Smithsonian purchases insurance from the Chubb. 

It is an obvious conflict of interest for an organization to purchase insurance from a company on 

whose board the organization’s chief executive and chief operating officers sit. To be handled 

properly, such a conflict must be fully disclosed, and the conflicted employees must be removed 

from any involvement in decisions regarding the organization’s dealings with the company on 

whose board these employees sit. When the conflicted employees are the organization’s senior 

executives, the decision for doing business with the company should be removed from lowerlevel employees, who might believe themselves obligated to steer business to a company on 

 

79 See id. 
 

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whose board their superiors serve. The final decision to do business with such a company should 

rest with the organization’s board. This is a “best practice” of governance that the Smithsonian 

did not follow. 

When Mr. Small was chosen as the Secretary in 1999, Wesley S. Williams Jr., the Chair 

of the Search Committee, knew, and at least some other members of the Search and Executive 

Committees appear to have known, that Mr. Small served on the Chubb and Marriott boards. 

There is, however, no indication that all members of the Executive Committee knew of 

Mr. Small’s outside board service or ever formally approved his service on these boards, as 

required by his employment agreement. Nor did the Board inform any members of the 

Smithsonian staff of Mr. Small’s board service or establish any process for monitoring and 

handling conflicts of interest that might arise. 

Senior Smithsonian officials and employees with contracting authority are required to 

complete conflict of interest forms each year. Mr. Huerta, as the Chief Ethics Officer, collects 

these forms (over 1,000 of them each year) and he and his staff review them and follow-up on all 

potential conflicts uncovered through this process. From the time Mr. Huerta joined the 

Smithsonian in 1995 until 2004, he, as the Chief Ethics Officer, did not receive copies of conflict 

forms for the Secretary and his senior staff. These employees would send their forms directly to 

Mr. Hobbins. Mr. Huerta was not allowed to see the disclosure forms or to know their contents. 

In its interviews of current and former Regents, the IRC was told in every instance that the 

conflict forms were not provided to the Board, and none of the Regents recalls being informed 

that such forms were available for their review. It appears, therefore, that the conflict of interest 

forms of senior executives were not being reviewed and potential and actual conflicts were not 
 

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being discussed by the Smithsonian until 2004, when the Board decided that Mr. Huerta should 

receive and review all conflict disclosure forms. 

While Mr. Huerta did not receive conflict of interest forms until 2004, he learned earlier 

from office conversations of Mr. Small’s and Ms. Burke’s service on the Chubb board. Around 

the same time, he also learned of Ms. Burke’s service when she returned from a Chubb board 

meeting to deal with a Smithsonian crisis. After these events, Mr. Huerta asked Mr. Small to 

formally recuse himself and Ms. Burke from the purchase of the Institution’s insurance by 

sending such a letter to Mr. Huerta, as Chief Ethics Officer. Although Mr. Small agreed, 

Mr. Huerta never received such a letter. The Committee understands from its interviews that Mr. 

Small never discussed the request with Ms. Burke. 

Mr. Huerta did contact the Treasurer, who is responsible for purchasing the 

Smithsonian’s insurance. Mr. Huerta told the Treasurer about the conflicts. The Treasurer 

assured Mr. Huerta that neither Mr. Small nor Ms. Burke had ever been involved in the purchase 

of insurance. Mr. Huerta and the Treasurer agreed to wall-off Mr. Small and Ms. Burke from 

any such decisions in the future. Mr. Huerta never contacted Ms. Burke about this issue and 

never asked Mr. Small about it again. 

Mr. Huerta also did not report these conflict issues to the Audit and Review Committee. 

It was his understanding that the Audit and Review Committee saw the disclosure forms each 

year and that the Committee knew that Chubb provided insurance to the Smithsonian. Mr. 

Huerta, therefore, assumed that the Audit and Review Committee, with full knowledge of the 

facts, had chosen not to take any action on the conflicts issue. It is unclear to what extent Mr. 

Huerta’s assumptions were correct. 
 

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B. Mr. Small’s Leave from the Office

The Smithsonian had no uniform leave policy for its senior executives. While leave for 

some senior executives was specified in their appointment letters, neither Mr. Small, nor Ms. 

Burke, had any limits on their leave. From its interviews, the Committee understands that all or 

most of the Regents were never informed and did not know of the absence of a policy or the 

unlimited leave for Mr. Small and Ms. Burke. The absence of a uniform leave policy appears to 

pre-date Mr. Small’s appointment as Secretary. 

The Committee finds a policy of unlimited leave for senior executives unacceptable, 

especially without very close oversight by the Board. According to Mr. Small’s calendar, in 

each full year of his employment except 2006, he took more than 10 weeks of vacation. (In 

2006, he took eight weeks.)80 In addition, he took 64 days of leave during his time with the 

Smithsonian to fulfill his service on the Chubb and Marriott boards. Moreover, it appears that 

Mr. Small did not make himself regularly available during these extended absences from the 

office. The Committee learned from its interviews that Mr. Small was frequently out of the 

office and unreachable when needed for Smithsonian business. 

It is obviously not appropriate for the Smithsonian to have an unlimited leave policy for 

senior staff. The concern is intensified by the fact that the Board was unaware of both the policy 

and the excessive use of personal leave by Mr. Small. Moreover, the difficulties for the 

Smithsonian of an absent chief executive were exacerbated by Ms. Burke’s even more frequent 

absences from the office. 

 

80 A chart detailing Mr. Small’s total time out of office is attached as Exhibit 32. 
 

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C. Ms. Burke’s Outside Activities

More disturbing to the Committee are Deputy Secretary Burke’s extensive outside 

activities and their effect on her ability to focus on the significant duties she has at the 

Smithsonian. While a full-time employee of the Smithsonian, in its second most senior 

executive position, Ms. Burke serves on two outside for-profit boards (Chubb and Wellpoint), 

serves on more than a dozen nonprofit boards and commissions, and continues to serve as an 

active member of the faculty of Harvard’s Kennedy School of Government. 

From 2000 through 2006, these outside activities provided her with $1.2 million in cash 

compensation, $3.5 million in stock compensation and $5.6 million in stock option 

compensation81 – far exceeding her salaried compensation from the Smithsonian, currently 

$400,000 annually. Further, an analysis of her calendar and other data obtained by the 

Committee show that she spent more than 400 work days away from her office performing nonSmithsonian activities.82 This represents almost two full work years or about one-quarter of her 

normal working time during her tenure with the Smithsonian.83 

As promised, the Committee delivered to Ms. Burke’s counsel its preliminary findings 

regarding her outside activities, including both outside board service and leave. In letters to the 

Committee’s counsel, Ms. Burke’s counsel contended that some of the preliminary findings were 

not accurate.84 The Committee reviewed again the available documents, and concluded that 

certain adjustments needed to be made. Those adjustments are reflected in this report. 

 

81 A chart detailing Ms. Burke’s outside compensation is attached as Exhibit 33. 

82 See id. Ms. Burke’s annual vacation, which averaged about four weeks during this time period, is not 

included in this estimate. 

83 Attached as Exhibit 34 is a chart compiled by the IRC detailing Ms. Burke’s total time out of office. 

84 Exhibit 35. 
 

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Ms. Burke told the IRC that she works 24 hours a day, seven days a week and that she is 

and has always been available by email or cell phone whenever Smithsonian staff need to contact 

her. She also states that she always takes work with her on vacation. Those interviewed by the 

IRC indicated that Ms. Burke has a strong work ethic. In interviews with the Committee, many 

employees noted that, unlike Mr. Small, Ms. Burke was available by phone and email when she 

was out of the office. There is, however, no substitute for the in-person presence of an 

organization’s Chief Operating Officer on a daily basis. This position, more than many others, 

requires one’s presence in the office, especially given the size and complexity of the 

Smithsonian. Clearly, Ms. Burke has not been satisfying this very basic job requirement in a 

normal manner. Moreover, the compensation issue here goes well beyond perception. If one’s 

income from outside sources far exceeds the income from his or her main employment, it is 

difficult to believe that the primary employer is getting the full attention it deserves. 

 It is the IRC’s understanding that Ms. Burke’s outside board activities were approved by 

Mr. Small, not the Board of Regents, and there is no indication that the Regents knew the extent 

of Ms. Burke’s outside activities. The IRC questions Mr. Small’s judgment in approving such 

extensive outside commitments and his failure to inform the Board. Moreover, Ms. Burke 

disclosed her outside activities on her annual conflict of interest forms and provided the forms, 

through 2003, to Mr. Hobbins in the Secretary’s office and, from 2004, to Mr. Huerta. There is 

no evidence, however, that these forms were provided to the Board or that the Board was 

informed of the contents of such forms. The Board’s failure to uncover such a significant issue 
 

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highlights the extent to which the Board was kept in the dark and failed to ask very basic 

questions about the Smithsonian’s operations.85 

As a general rule, the Smithsonian has been most careful in monitoring the outside work 

of its employees. The exceptions have been Mr. Small and the Deputy Secretary. As discussed 

above, these outside commitments have taken these individuals away from the Smithsonian 

during working hours for significant periods of time. The Board must develop a uniform policy 

on outside work and the Board itself must carefully monitor this when it comes to the leadership 

of the Institution. The IRC sees little benefit to the Smithsonian in allowing its senior executives 

to serve on the boards of for-profit corporations. Accordingly, as discussed below, the IRC 

recommends that the Board prohibit its executives from serving on the boards of for-profit 

corporations. 

 

85 Ms. Burke’s counsel, in his June 7, 2007 letter to the Committee (attached as Exhibit 35), noted the 

following: 

“I thought it very important that the Committee’s report make plain that Ms. Burke accepted employment 

with the Smithsonian on the express understanding that she could engage in various outside activities, 

including teaching at Harvard University and serving on boards of profit and non-profit organizations.... 

[I]t is essential that the report make clear that Ms. Burke disclosed her outside activities and the 

compensation she received in her annual Smithsonian financial disclosure statement, and that she was 

never asked to curtail those activities.” 
 

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INTERNAL FINANCIAL CONTROLS

Internal financial controls are systems of policies and procedures that create reliable 

financial reporting, promote compliance with laws and regulations and achieve effective and 

efficient operations. These systems should include: 

• handling funds received and expended by the organization 

• preparing appropriate and timely financial reporting to the board 

 and management 

• conducting the annual audit 

• evaluating staff and programs 

• implementing personnel and conflict of interest policies. 

In the nonprofit context, an essential element of good financial controls is a system for assuring 

that expenses are properly documented, support the organization’s mission and are not lavish or 

extravagant. The IRC found that the Smithsonian’s systems for handling the expenses of the 

Secretary and other members of senior management were not adequate for providing this 

assurance. Basic failures of internal controls put the Smithsonian and its Regents at risk of 

liability and adverse publicity. 

A. No Review of Secretary’s Expenses

Basic internal controls require that the expenses of everyone in an organization be subject 

to review by someone in the organization. With respect to the chief executive of an organization, 

such review needs to be done by someone with access to the organization’s audit committee. It 

appears that, until the most recent review by Cotton & Co., neither the Chief Financial Officer 

nor the Inspector General has reviewed the Secretary’s expenses for reasonableness over the last 

seven years. As discussed above, the Cotton & Co. review was not an audit of such expenses 

and the issue of reasonableness had been negotiated out of the review. 
 

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B. No Approval for Exceptions to Smithsonian Policies

The Smithsonian had detailed travel and other expense policies and procedures that 

applied to everyone, including the Secretary. Mr. Small had negotiated a contractual right to first 

class air travel, which would not have been permitted under the Smithsonian’s policies except in 

extraordinary circumstances, though he remained subject to the remainder of the Smithsonian 

policies. The IRC learned that at the beginning of 2000 and 2001 the Executive Assistant signed 

blanket authorizations for Mr. Small.86 The Office of the Secretary has also asserted that Mr. 

Small had the authority to waive the application of the Smithsonian policies as they applied to 

him, though it cited no authority for this position. Such blanket authority eliminated 

accountability and critically undermined the internal controls of the Smithsonian. 

The IRC found that several transactions involving Mr. Small, such as the charter jet to 

and from San Antonio and certain of Mrs. Small’s travel, should have been subject to prior 

review and approval outside the Office of the Secretary. The blanket authority exercised by the 

Office of the Secretary in spending Smithsonian funds without any objective determination as to 

whether these funds were being spent in support of the Smithsonian mission and in accordance 

with Smithsonian policies represented a significant failure of internal controls.

C. Inadequate Record Keeping

Nonprofit organizations must properly document expenses incurred in the conduct of the 

organization’s activities to evidence reasonableness and relatedness to the mission. With respect 

to Mr. Small’s expenses, the Smithsonian failed to do so. The backup documentation to support 

Mr. Small’s expenses was maintained in the Secretary’s office, rather than with the Chief 

Financial Officer, so the Chief Financial Officer essentially had no way to audit the Secretary’s 

 

86 Exhibit 36. 
 

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expenses. There was never a review or even spot-checking of the expense records maintained by 

the Office of the Secretary, 

D. Insufficient Accounting Resources

The accounting staff of the Smithsonian has been reduced by about fifty percent during 

Mr. Small’s tenure. As KPMG noted in its recent audit letter, accounting personnel in the Office 

of the Comptroller were “stretched thin.”87 The IRC is thus sensitive to the fact that the 

accounting staff was trying to fulfill its increasingly more difficult internal financial control 

responsibilities with less and less resources. It was particularly troubling to learn that the 

Smithsonian had reduced its accounting personnel at the same time that it was implementing a 

new accounting system, as the implementation of new systems generally requires a ramp-up of 

personnel. 

E. Ineffectiveness of Accounting Staff

The IRC found no evidence that anyone on the accounting staff of the Smithsonian, 

including the Chief Financial Officer, ever raised any concerns that the Office of the Secretary 

was compromising the Smithsonian’s internal controls. Raising such concerns about an 

organization’s chief executive, while undoubtedly difficult and fraught with personal risk, is 

nonetheless the correct action for a chief financial officer. 

In 2002, the Audit and Review Committee considered whether any parts of the SarbanesOxley legislation should be adopted by the Smithsonian. It appears that the Board took no action 

to implement any aspects of this legislation.

 

87 Letter from KPMG to The Audit and Review Committee of the Board of Regents and the Inspector 

General, dated February 20, 2007, attached as Exhibit 37. 
 

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ROLE OF THE “GATEKEEPERS”

A. Role of the Smithsonian Inspector General

The Office of the Inspector General (“OIG”) in the Smithsonian Institution is an 

independent, objective office within the Smithsonian. The OIG is charged with conducting and 

supervising audits and investigations relating to Smithsonian programs and operations and 

preventing and detecting fraud, waste, and abuse in Smithsonian programs and operations. The 

Inspector General at the Smithsonian is subject to provisions of the Inspector General Act of 

1978, as amended, which provides what is expected of an Inspector General:88

• Independence to determine what reviews to perform. 

• Access to all information necessary for the reviews. 

• Authority to publish findings and recommendations based on 

our reviews. 

For the period 2000 to the present, there have been three Inspectors General at the 

Smithsonian. Thomas Blair served as the Inspector General through the end of 2004. Debra 

Ritt, the former Deputy Inspector General at the Department of Transportation, served as 

Inspector General from January 2005 through June 2006. A. Sprightley Ryan, the current 

Inspector General, previously served as counsel to the former Inspector General on a part-time 

basis, and became Acting Inspector General in July 2006. She was appointed Inspector General 

in March 2007. Ms. Ritt told the IRC that it became evident that she could not carry out the full 

duties and responsibilities of an IG, and she left the Smithsonian after 18 months. 

From 2000 until 2006, the OIG performed no audits or investigations of any matters 

relating to executive compensation or expenses at the Smithsonian. This absence of activity by 

 

88 5 U.S.C.A. Appx. §1 (2001). 
 

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the OIG is surprising. First, the Inspector General is expected to perform periodic audits of 

expenses to satisfy his or her obligation to detect fraud. Second, public allegations regarding the 

inappropriate use of Smithsonian funds for travel by the Secretary’s office should have prompted 

an investigation by the OIG. In particular, in August of 2001, The Washington Post reported that 

a Smithsonian spokesperson had stated that Small had created a discretionary fund with his own 

money “to pay for extraordinary expenses,” and had used $14,600 from this fund to pay to 

charter a Learjet.89 This is inaccurate because the jet was paid for with Smithsonian funds. The 

Committee finds it very troubling that these public allegations of wrongdoing did not prompt an 

OIG investigation. 

Until June 2006, the Inspector General reported to the Secretary rather than the Board of 

Regents. In 2006, Mr. Small moved the OIG’s office out of the District to Crystal City in 

Virginia. Removing the Inspector General from the Smithsonian’s central offices has the 

inevitable effect of eliminating the day-to-day interactions with Smithsonian staff that are 

conducive to the effective performance of the OIG’s duties. Moreover, not having the OIG 

present in the Smithsonian’s central office would also appear to violate at least the spirit of the 

Inspector General Act of 1978, as amended, which requires the Secretary to “provide the [OIG] 

with appropriate and adequate office space at central and field office locations.”90

B. Role of the General Counsel

The General Counsel should serve a “gatekeeper” role by monitoring compliance of 

senior management with laws and policies. This is particularly true at the Smithsonian where the 

General Counsel also serves as the Chief Ethics Officer. The General Counsel, however, did not 

 

89 WASH. POST, Aug. 7, 2001, at C3. 

90 5 U.S.C.A. Appx. § 6(c) (2001). 
 

-86- 

play this monitoring role because Mr. Small not only isolated him from the Board of Regents, 

but also blocked him from having any meaningful oversight of the Secretary’s office. The 

Smithsonian’s own Charter further inhibited the General Counsel from playing the gatekeeper 

role because it designates the Secretary, rather than the General Counsel, to be the corporate 

secretary of the Institution.

A telling example of Mr. Small’s isolation of the General Counsel and his office 

occurred within weeks of the new Secretary’s arrival at the Smithsonian. Soon after Mr. Small 

took office as the Secretary, he came, at Mr. Huerta’s invitation, to talk at a staff meeting of the 

General Counsel’s office. One of the staff attorneys asked Mr. Small how he saw the role of the 

Office of General Counsel under his leadership. It was reported to the Committee that Mr. Small 

responded that he did not think that lawyers served a constructive purpose and that the lawyers at 

the Smithsonian should, in effect, keep out of his way. The Committee was told that members of 

the General Counsel’s office felt this set the tone for Mr. Small’s interaction with the legal 

department throughout his tenure. 

Another example of how Mr. Small ignored and worked around concerns raised by the 

General Counsel’s office occurred as soon as he was hired. As one Smithsonian employee put it, 

right from the beginning, Mr. Small demonstrated an attitude that the rules did not apply to him. 

One of the first exhibits to be mounted under Mr. Small’s leadership was an exhibit on the 

American Presidency. There was an amount budgeted for this exhibit that was approved by the 

Board of Regents. Prior to Mr. Small, if there were any significant deviations from a budget 

item approved by the Board, the staff was required, by the terms of the Board resolution, to go 

back to the Board for approval for a revised budget. 
 

-87- 

In planning the exhibit, Mr. Small announced his plan to reallocate funds to the exhibit 

from other budget items. According to information provided to the Committee, the General 

Counsel informed Mr. Small that he had to obtain Congressional permission and approval from 

the Board or the Executive Committee for such reallocations. Mr. Small was described as “mad” 

that a staff member had raised a roadblock to Mr. Small’s plans, and he refused to go back to the 

Board. He did seek Congressional authorization, but his request was denied.91 

As with the accounting and finance and other staff, the staff of the General Counsel’s 

office was cut during Secretary Small’s tenure, as the size and complexity of the workload 

increased. This had the adverse effect of limiting the General Counsel’s office involvement in 

governance and ethics issues. The much-reduced staff of the General Counsel’s office was fully 

occupied with the day-to-day crises of providing legal support to a $1 billion-a-year Institution. 

One tangible result of these cuts was the elimination of ethics training for employees by the 

General Counsel’s office. These cuts also made it difficult for the General Counsel to maintain a 

rigorous ethics program and prohibited him from having a dedicated lawyer responsible for 

ethics, conflicts of interest and governance issues, which, in the Committee’s view, can only 

strengthen oversight within the Institution. 

 

91 Exhibit 38. 
 

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ROLE OF OUTSIDE AUDITOR

KPMG has served as the outside auditor for the Smithsonian for the last thirteen years. 

The IRC has reviewed the audited financial statements and KPMG management letters for the 

reporting years 2000-2006. 

During that period, KPMG did not audit the expenses of the Secretary, either on its own 

initiative or at the request of the Board or the Audit and Review Committee. To its credit, as 

early as 2000, KPMG recommended that the Smithsonian “assign a high priority to obtaining 

funding for a new core financial system and to developing a timetable for implementation of that 

system.”92 In 2002, the Smithsonian began to implement the KPMG recommendation by 

installing the PeopleSoft system. The Smithsonian accounting staff was reduced by almost half 

in the same year. This reduction in staff, coming at a time when staff needed to be increased to 

implement the new system, should have been a warning that there were inadequate resources for 

the implementation of the new system. 

The chronic understaffing of the accounting department over the 2000-2006 period was 

not consistently noted by KPMG until its most recent management letter, when such 

understaffing had finally risen to the level of a reportable condition: “The reportable conditions 

noted during our audit ... relate to the accounting resources and staff capacity.”93 

The Smithsonian also failed to implement another recommendation made by KPMG in 

2002: 

The Smithsonian’s practices for communicating and documenting 

accounting policies and procedures have generally been 

informal. . . . We believe the Smithsonian would benefit from a 

 

92 KPMG letter to The Audit and Review Committee of the Board of Regents dated April 4, 2001, 

attached as Exhibit 39. 

93 KPMG letter to The Audit and Review Committee of the Board of Regents dated February 20, 2007, 

attached as Exhibit 37. 
 

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more formal approach to the documentation of its accounting 

policies and procedures. Accordingly, we recommend that the 

Smithsonian consider assigning a team to assume responsibility for 

developing a comprehensive accounting policies and procedures 

manual in 2002. This manual would provide information about the 

application of significant accounting policies and guidance on 

related procedures, including requirements for documentation of 

the review/approval procedures performed. It could be made 

available on the network and would provide a valuable reference 

source for accounting and management personnel and a useful 

training tool for new employees or employees who change 

responsibility.94

While the Smithsonian agreed with this recommendation, it apparently took limited action to 

develop the policies and procedures manual. Although the KPMG engagement partner had an 

annual meeting with Mr. Small, very limited progress resulted over a six year period. Five years 

after its first recommendation, KPMG was still calling for the development of the manual.95 The 

Smithsonian, though supporting the concept of such a manual, did nothing, stating that 

“[f]unding and staffing limitations will limit our ability to develop and finalize this manual in the 

near term.”96

In sum, while KPMG noted the weakness in internal controls at the Smithsonian as early 

as 2000, it was not an effective advocate for reform and action with its client. Suggestions were 

ignored. Yet KPMG waited over five years, until February 2007, to label the inadequacy of 

accounting resources and staff a “reportable condition.”97 The IRC is concerned that KPMG 

may have had a complacent relationship with the Smithsonian. 

 

94 KPMG letter to The Audit and Review Committee of the Board of Regents dated April 9, 2002, 

attached as Exhibit 40. 

95 KPMG letter to The Audit and Review Committee of the Board of Regents dated February 20, 2007 

(“we recommend the Smithsonian develop a plan and timetable for compiling and maintaining an 

accounting policies and procedures manual in 2007.”), attached as Exhibit 37. 

96 Id.

97 “Reportable conditions” under standards established by the American Institute of Certified Public 

Accounts are matters that, in the judgment of the auditor, relate to significant deficiencies in the design 
 

-90- 

SMITHSONIAN BUSINESS VENTURES

In the course of its review, the Committee understands that there have been significant 

failures of internal controls and inappropriate conduct at SBV. For example, the Inspector 

General, in her review of executive compensation, found that SBV’s accounting system had 

weaknesses.98 

Senator Grassley has indicated his desire for the Committee to conduct a review of the 

senior management of SBV and the appropriateness of compensation and benefits paid to senior 

management of SBV. While the Committee agrees that such a review is necessary and 

warranted, it is beyond the scope of the Committee’s review. Based on the information collected 

by the Committee, however, there was inadequate oversight of SBV by Smithsonian senior 

management and the Board. Neither the Board nor the Smithsonian executives who sat on the 

SBV board, including the Chief Financial Officer and the Chief Operating Officer, has taken 

appropriate actions to remedy the deficiencies in governance and accounting controls at SBV, 

even though all acknowledged the widespread allegations of inappropriate activity and failures of 

internal controls at SBV. 

 

or operation of internal control and could adversely affect the organization’s ability to record, process, 

summarize, and report financial data consistent with assertions of management in the financial 

statements. Id. 98 Smithsonian Institution, Office of the Inspector General, Executive Compensation at Smithsonian 

Business Ventures I, Report No.A-06-02, January 19, 2007. As of the date of this report, the Inspector 

General had not released the second part of her report on SBV. 
 

-91- 

OVERALL ETHICAL TONE AT THE SMITHSONIAN

The ethics of an organization usually reflect the attitude and behavior of those in senior 

management. There was a clear indication that the Secretary and those whom he selected 

deemed themselves outside the Smithsonian’s otherwise recognized ethics standards. 

Accordingly, given the “tone at the top” set by the Office of the Secretary, one might expect to 

find the absence of internal controls and ethical lapses to be pervasive at the Smithsonian. While 

it did not undertake a comprehensive review, the evidence the Committee did collect indicates 

that there does not appear to be major internal control issues at the Smithsonian as a whole, other 

than in the Office of the Secretary and at Smithsonian Business Ventures. Similarly, the 

Committee found no evidence to indicate that the strong ethical principles that have 

characterized the Smithsonian over the years have been compromised. 
 

-92- 

RECOMMENDATIONS

 The Committee recommends that, wherever possible, the Board of Regents should 

implement the following recommendations by reorganizing its internal governance structures and 

procedures. The Committee, however, offers no legal opinion as to whether these 

recommendations can be implemented solely by the Board of Regents. If the implementation of 

any recommendation requires legislative action, the Committee urges the Board of Regents to 

promptly seek Congressional assistance. 

1. The Regents Must Act Quickly to Address the Governance Crisis

The current crisis of governance at the Smithsonian and the resulting loss of public 

confidence necessitate urgent action by the Regents. To restore public and Congressional 

confidence, the Regents must devote substantial time and resources over the next several months 

to considering and then implementing the chosen governance recommendations from the IRC 

and the Smithsonian’s Committee on Governance. To the extent that any of the 

recommendations discussed in this Report require Congressional action, the Regents should ask 

Congress to act quickly to address these recommendations with appropriate legislation. If the 

Regents meet regularly over the next few months, the IRC believes the necessary governance 

changes can be implemented by the end of the year. 

2. The Expenses of Mr. and Mrs. Small Should be Subject to an Audit for 

Reasonableness and the Expenses of Senior Management Should Be Subject 

to Annual Audits

The Committee did not conduct a complete audit of Mr. Small’s expenses. Rather, the 

Committee reviewed the work of Cotton & Co. and the backup materials for its review. Thus, 

there has been no independent audit of Mr. Small’s expenses. If for no other reason than 

potential tax liabilities and automatic excess benefit excise taxes, the Committee recommends 
 

-93- 

that the Smithsonian have an independent auditor perform an audit of Mr. Small’s expenses, as 

well as those attributable to Mrs. Small. The Committee believes this audit could be done 

expeditiously because the bulk of the work has been completed by Cotton & Co. 

The Committee also recommends that the Audit and Review Committee of the 

Smithsonian undertake to have the expenses of senior management audited on an annual basis 

for compliance with Smithsonian policies and reasonableness. 

3. The Compensation of the Secretary Should be Reasonably Competitive and 

Transparent and Take Into Account the Smithsonian’s Unique Nature

Arguments have been made for a wide range of “appropriate” compensation levels for 

the Smithsonian Secretary. At the low end, some people have questioned why the Secretary 

should earn more than the Vice President of the United States (currently $215,700), or 

alternatively the President ($400,000). The rationale is that no federal employee earns more than 

these positions, and since more than seventy percent of the Smithsonian’s budget comes from the 

federal government, these limits should apply as well. At the other extreme, others have argued 

that the Secretary should receive the salary of comparable for-profit CEO’s. 

The IRC finds neither of these extremes persuasive. The salaries for the President and 

Vice President of the United States in no way reflect the enormous responsibility and influence 

of these positions. Further, it is not uncommon in government-sponsored organizations to have 

individuals with specific abilities paid more than the leader of the related government. In many 

states, for example, the heads of the state universities are paid salaries well in excess of the 

Governor, and the coach of the football or basketball team is compensated well in excess of the 

university president. 
 

-94- 

Nor is comparison with the private sector appropriate. In the private sector, an individual 

capable of leading an organization as vast and complex as the Smithsonian would probably earn 

total compensation (salary, incentive compensation, stock compensation, and benefits) well in 

excess of $1 million per annum.

The Smithsonian is not a private enterprise. Most of its funding is provided by the 

federal government with substantial help from private donors. Many of the individuals working 

there – scientists, curators, employees at the National Zoo, former Secretaries and others – have 

done so because of a love of their profession and the institution. Earnings are not their first 

priority. They recognize that as part of a nonprofit organization they cannot expect to earn what 

they could in the private sector. The Regents and the next Secretary should think this way as 

well. The Committee believes that such high compensation is inappropriate for a nonprofit 

executive, especially for an executive working at a nonprofit that receives significant 

government funding. 

Given the special nature of the Smithsonian and the honor associated with being its 

Secretary, we acknowledge that a well-qualified individual, ready for a new phase in his or her 

career, might offer to serve as Secretary for a nominal salary. If this occurs it should be 

understood that the search for a new Secretary is not in any way limited by this possibility and 

that the Secretary’s salary does not limit paying appropriately competitive salaries for other 

important positions at the Smithsonian – the undersecretaries, museum directors, key scientists, 

and other key staff members. 

We consider it beyond our authority to provide specific guidance as to the specific 

compensation level for the next Secretary. However, in determining this level, we recommend 

that the Regents develop a compensation philosophy that is: 
 

-95- 

• Transparent. Whatever compensation is provided the Secretary, the 

amount of compensation and its elements should be reported clearly in 

filings with the federal government and in the Smithsonian’s annual 

report. The Regents should go beyond the minimum IRS requirements for 

reporting compensation on the Form 990, perhaps using a format similar 

to the “Compensation Disclosure and Analysis” now required by the SEC, 

clearly describing the organization’s compensation philosophy, the 

process used to determine executive pay, and each element of 

compensation for top officers. 

• Reasonable. The Secretary’s compensation, and that of other senior 

positions at the Smithsonian, should be at levels that people with an 

understanding of general compensation practices for nonprofit managers 

in the Washington metropolitan area will agree are reasonable. Given the 

variety of views on what positions are worth, we do not expect that 

everyone will believe that whatever the Secretary is paid will be 

reasonable. But the Secretary’s compensation should appear reasonable to 

the Congressional Committees responsible for Smithsonian oversight and 

to the public at large. In setting the salary, the Regents and all other 

stakeholders, including Congress, must acknowledge that the Smithsonian 

is a remarkably varied and complex institution and that the leadership of 

the Smithsonian requires a range of knowledge, experience and skills – an 

understanding of science and art, the ability to manage complex 

organizations, the ability to raise substantial funds, diplomacy in dealing 

with Congress and other stakeholders, and the ability to integrate different 

organizational units while respecting their individuality. 

• Competitive. One of the most important decisions the Regents will make 

is determining an appropriate comparison group on which to base the 

Secretary’s compensation package. One could selectively pick nonprofits 

– the Kennedy Center and the Getty Museum come to mind – to justify a 

very high level of compensation for the Secretary. The Committee feels 

that rather than a selective comparison, the appropriate group should 

include museums, universities, and other major nonprofits in the 

Northeastern United States with budgets of the size of the Smithsonian 

and activities of similar scope. Universities in the comparison group 

should emphasize public institutions, which like the Smithsonian receive 

substantial funding from governments. 

• Pegged at the 50th percentile (or median). Smithsonian documents 

show that in the beginning of Secretary Small’s tenure, the Executive 

Committee targeted all management compensation at the 50th percentile. 

At Mr. Small’s urging, this was changed early on to the 75th percentile and 

a skewed comparison group was selected by Smithsonian management. 

This is not an acceptable approach. The Smithsonian’s management 
 

-96- 

compensation should be targeted at the median. Targeting the median 

compensation will also have the effect of lessening the impact of 

“outliers” in the peer group – both on the high and low side – from having 

a significant effect on determining the appropriate compensation level. 

• Reflective of the special nature of the Smithsonian. Working at the 

Smithsonian is a privilege. Serving as its Secretary is an honor. If a 

candidate for the Secretary position cannot be hired without offering 

compensation that pushes the limits of reasonableness, he or she is not the 

right person for this position, regardless of qualifications. 

• Direct. As with other Smithsonian employees, the Secretary should be 

compensated through salary, pension, and health benefits alone. As is the 

practice in some nonprofits, the Board may want to provide some 

additional pension benefit beyond the level capped by IRS regulations. 

But unless a housing supplement is required to compensate the new 

Secretary for moving from a location with a much lower cost of living 

than that of Washington, D.C., there is no need for a housing allowance. 

And if a housing supplement is provided, its purpose should be transparent 

– it should not be justified as reimbursement for entertaining potential 

donors. 

• Limited Perquisites. The Secretary should be given no special travel 

privileges, or any other perquisites or benefits that are not available to 

other executives of the Smithsonian, except where the Board makes a 

determination in advance that such perquisites and benefits are reasonable 

and appropriate. 

4. The Smithsonian’s Policies Should Be Consistent With Federal Regulations 

and its Salary Schedule Should Be Consistent With Government Salary 

Schedules

The Committee is concerned about the tendency of the Institution to embrace those 

federal regulations it finds convenient while ignoring others. For example, the Smithsonian 

sometimes denies requests filed under FOIA on the ground that it is not a federal entity, while, at 

other times, it grants FOIA requests. The IRC recommends that the Smithsonian affirmatively 

adopt policies to promote openness, transparency and effective governance consistent with 

federal regulations, such as FOIA, the Privacy Act of 1974, Chief Financial Officer Act of 1990, 

the Sunshine Act, personal financial disclosure requirements, the Ethics in Government Act and 
 

-97- 

conflict of interest rules. If the Smithsonian does not so act, Congress should consider 

appropriate legislation. 

 At the Smithsonian, some employees are paid using government salary schedules 

while others are paid from the Smithsonian trust. A further complication is that federal 

Smithsonian employees are prohibited from earning compensation greater than that provided by 

the federal General Schedule, which currently caps the salary of Senior Level/Senior Technical 

employees at $154,600 per year (exclusive of bonuses), lower than federal SES employees in 

federal agencies who can earn up to $168,000 (exclusive of bonuses). Apparently, this 

regulation is the result of a determination by the Office of Personnel Management that, since the 

Smithsonian is not a federal agency and since the SES compensation schedule applies by law 

only to federal agencies, the higher SES pay levels are not available to Smithsonian employees. 

The IRC recommends that the Smithsonian adjust its salary structure to pay employees up to the 

maximum of the SES schedule where appropriate, with Congressional approval if necessary. 

 In recent years, some employees have been moved out of the federal general 

schedule pay system and rehired by the trust at much higher salaries. Smithsonian management 

has argued that since trust employees serve at the pleasure of the Secretary (and thus do not have 

the employment protections that employees paid by the federal schedule enjoy), their 

compensation should be higher. This has often resulted in paying salaries for some positions (in 

areas such as finance and government relations) that are unnecessarily higher than those paid in 

much larger federal agencies. This can only cause morale issues. Allowing use of the SES pay 

scales would help alleviate this problem. 

 The Committee recommends that the Smithsonian provide employee 

compensation and benefits as follows: 
 

-98- 

• The salary structure would align with that provided to federal employees, 

with pay and bonus opportunity similar to the federal structure from the 

entry level through the Senior Executive Service. 

• All Smithsonian employees would be covered by similar health benefits, 

retirement benefits, and time off policies as federal employees, with these 

benefits adjusted accordingly whenever changes were made in the 

corresponding federal programs. 

• The Smithsonian would be permitted to pay salaries above the maximum 

limits in the federal program for those filling certain positions. In addition 

to the Secretary, this could include such positions as the undersecretaries, 

museum directors, top scientists, and others where independent 

compensation analyses indicate that median pay in comparable nonprofit 

organizations is materially higher than existing maximum federal salaries. 

• A limit should be placed on the number of Smithsonian employees that 

can exceed the federal maximums – perhaps 40 to 50 – with the 

understanding that this limit could be increased as the Institution grows, or 

to reflect unusual increases in competition for key personnel. Approval by 

the Regents should be required for a position to be paid above the federal 

ceiling. 

• Those employees in positions paid above the federal ceilings serve at the 

pleasure of the Secretary (or the Regents, in the case of the Secretary). 

Whether the Regents accept the recommendations above, the Institution must harmonize 

compensation and benefit programs throughout the Institution. The Board of Regents should 

address compensation in the following ways: 

• The Compensation Committee should be independent, both in fact and 

perception, from the Secretary. The Secretary should not be a member of 

this Committee, and there should be no current or past interlocking 

relationships between the Secretary and any Committee member. 

• The Compensation Committee should formally review all elements of 

compensation for Smithsonian senior management positions at least 

annually. 

• Any changes in the Secretary’s compensation and benefits should be 

reviewed and approved by the full Board of Regents, not just the 

Compensation Committee or the Executive Committee. 
 

-99- 

• Any compensation consultant hired to evaluate management compensation 

at the Smithsonian should be retained by and report directly to the 

Compensation Committee (or the full Board of Regents). To be effective, 

the consultant will also have to work with management, but the contract 

should be with the Regents, and important decisions on compensation 

philosophy and peer group selection should be made in conjunction with 

the Regents. 

• At least every other year, an independent qualified compensation expert 

should be asked by the Regents to provide an opinion on the 

reasonableness99 of the Secretary’s total compensation package. This 

opinion should be made public. 

• Transparency should be a guiding principle. Decisions on compensation 

for Smithsonian executives should be made with the expectation that they 

will generally appear reasonable to reasonable observers, including donors 

and federal oversight committees. 

5. The Smithsonian Should Have an Active Governing Board with a Chairman 

Who Can Provide the Time and Proper Oversight 

The Board of a nonprofit organization must “oversee the operations of the organization 

in such manner as will assure effective and ethical management.”100 The Board is charged with 

overseeing the management of the Smithsonian, while the Secretary’s responsibility is to run its 

operations.101 As part of its governance role, the Board must provide oversight of operations, set 

strategy and monitor the implementation of the strategic plans. This relationship between the 

 

99 In accordance with the IRS “Intermediate Sanctions” regulations. 

100 American Bar Association, ABA Coordinating Committee on Nonprofit Governance, Guide to 

Corporate Governance in the Wake of Sarbanes-Oxley 17, 19 (2005). 

101 See, e.g., BoardSource, The Source: Twelve Principles of Governance That Power 

Exceptional Boards Principle 1 (2005) (“Nonprofit boards have primary legal responsibility for 

governance - the exercise and assignment of power and authority - of their organizations. 

Boards reserve to themselves organizational oversight and policy setting, and delegate to the 

chief executive responsibility for managing operations and resources.”). 
 

-100- 

Board and the Secretary is a “constructive partnership” in which the Board sets strategic plans 

and then delegates operations to the Secretary.102

Experts in the area of nonprofit governance have identified a series of functions that form 

the core of a nonprofit Board’s responsibilities and that the IRC believes apply well to the 

Smithsonian: 

• determining the organization’s mission; 

• reviewing and monitoring implementation of strategic plans; 

• selecting, compensating and evaluating the organization’s chief 

executive; 

• evaluating the performance and establishing the compensation 

of the senior leadership team; 

• planning for management development and succession; 

• overseeing the integrity and reliability of the organization’s 

finances; 

• overseeing management in its operation of the organization and 

its programs; 

• overseeing legal and ethical compliance; and 

• identifying, cultivating and soliciting donor support for the 

organization.103

In light of the demands these responsibilities place on directors in the post-SarbanesOxley governance environment, the IRC believes the Smithsonian should consider, as the Office 

of the Vice President suggested to the IRC, “what if any changes . . . the Institution [should] 

seek with respect to the existence, composition, selection or functions of the Board of 

Regents.”104 The time commitment necessary to fulfill the fiduciary responsibility placed on 

 

102 BoardSource, The Source: Twelve Principles of Governance That Power Exceptional Boards Principle 

1 (2005). 

103 See, e.g., BoardSource, The Source: Twelve Principles of Governance That Power Exceptional Boards

(2005). 

104 Letter from David Addington, Chief of Staff to the Vice President, to Charles A. Bowsher dated May 

18, 2007, attached as Exhibit 1. 
 

-101- 

the directors of an organization as large and complex as the Smithsonian is significant. In light 

of the demanding nature of the jobs of the modern Vice President and Chief Justice, the IRC has 

serious doubts that individuals in these positions will have the time, attention and qualified staff 

necessary to fulfill their fiduciary duties. 

The IRC believes the Smithsonian could preserve its unique historical structure, yet at the 

time same time, address the pressing need for active oversight, through the establishment of a 

Governing Board that would take on the fiduciary responsibility for overseeing the operations 

and management of Smithsonian. The IRC recommends that the Governing Board meet no less 

frequently than every other month. The Governing Board should, as the current Board does, also 

govern through active committees, particularly through the Audit and Review, Human Resources 

and Compensation and Nominating and Governance Committees. The Governing Board would 

consist of all Regents except the Chief Justice and Vice President. Service as a Regent must 

require that all members of the Governing Board, including members of Congress, be willing and 

able to assume a role with clear fiduciary responsibilities and to devote the time necessary to 

carry out those duties personally. 

The establishment of a Governing Board would formalize the Smithsonian’s informal 

governance structure under which the “Committee of the Whole” meets in advance of the Board 

of Regents meeting, while the Board of Regents meetings that follow, in contrast, have been 

formal proceedings to approve what had been decided by the Committee of the Whole. 

The Governing Board would have a Chairman who should handle day-to-day issues 

requiring the attention of the Board and preside over initial meetings of the Board, where all 

actionable items would be discussed and debated and reports from, for example, the Inspector 
 

-102- 

General, Chief Financial Officer, General Counsel, Ethics Officer and museum and scientific 

project leaders, and others would be received. The Chairman’s duties would include: 

• Communicating to the Secretary the policies and programs 

adopted or approved by the Board. 

• Reporting to the Board the conduct and management of 

 the affairs of the Smithsonian. 

• Chairing and presiding over the Governing Board. 

• Communicating with the Chancellor regarding Smithsonian matters. 

The Governing Board should reserve, at every meeting, time for an executive session 

where issues involving management, including the Secretary’s performance, can be freely and 

openly discussed without the presence of employees. 

The IRC also recommends that the Executive Committee be enlarged to five members, 

and its activity limited in practice to handling routine affairs of the Board between meetings and 

when special meetings, either in person or telephonically, can not be arranged. All actions of the 

Executive Committee should be presented to the Governing Board for review. 

6. The Role of the Chief Justice and Vice President Should Be Clarified

Historically, the Chief Justice has been elected to serve as the Chancellor. Under the 

IRC’s proposal, the Chief Justice, while not on the Governing Board, would continue to serve as 

Chancellor. In that role, the Chancellor would preside over the second portion of the Governing 

Board meeting where discussion and formal votes would be taken on those issues requiring 

action of the Board of Regents. Only those Regents who serve on the Governing Board, 

however, would vote. The IRC recommends such a unique structure because it believes the 

historic role played by the Chief Justice in governance of the Smithsonian should not lightly be 
 

-103- 

discarded and because the Chief Justice has made it clear he wishes to remain associated with the 

Institution. 

The Committee also believes, however, that if governance of the Smithsonian is to be 

updated, it will require a commitment of time on the part of every Regent that far surpasses that 

which has been expected in the past. The Committee believes that it is not feasible to expect the 

Chief Justice to devote the hours necessary to service as a fiduciary Regent. The Committee also 

questions if it is appropriate and necessary for the Chief Justice to have fiduciary obligations to a 

separate entity, even if that entity is closely linked the government, and to assume the legal and 

reputational risks associated with being a fiduciary. 

The same situation applies to the Vice President. Under the IRC’s proposal, the Vice 

President would continue to serve as a Regent in a non-fiduciary capacity, and would chair 

meetings of the Board in the absence of the Chief Justice. If neither the Chief Justice nor the 

Vice President were present at a meeting of the Board, the Chairman would preside. 

If the Smithsonian desires to have positions for individuals that honor them for their 

contributions to the arts and sciences, including their financial generosity, it should establish 

nonfiduciary advisory boards for the Institution in general as well as for its various museums and 

divisions. The National Board, now primarily a development group, could have its scope 

expanded. The formerly active, but now moribund Smithsonian Council could be revived to 

bring together distinguished scientists, academics, and museum directors to advise the 

Smithsonian and its constituent parts on programs, policy, and long range planning. Having both 

a vibrant Board and Council should help curb the extensive criticism the Smithsonian received 

during recent years regarding the conditions on certain donations and the scope and content of 

certain shows and displays. 
 

-104- 

7. Congressional Regents Should Accept Fiduciary Responsibilities

A clear understanding needs to be reached regarding the role of the Congressional 

Regents. Service as a Regent must require that all members of the Governing Board be willing 

and able to assume a role with clear fiduciary responsibilities and to devote the time necessary to 

carry out those duties personally. So that there will be neither an actual nor an appearance of 

conflict of interest, the IRC believes that any Congressional Regent who serves on one of the 

Congressional authorizing or appropriations committees with authority over the Smithsonian 

should recuse himself or herself from votes in Congress involving Smithsonian financial matters. 

8. The Board Should be Expanded or Reorganized to Allow for the Addition of 

Regents with Needed Expertise

The Board must expand the level of expertise among the Regents on key issues, 

especially financial controls and facilities and museum management, and ensure that the Regents 

who are appointed have sufficient time and attention to dedicate to the Smithsonian. 

While a larger board may be necessary to ensure the range of perspectives and expertise 

required for some organizations or to share fundraising responsibilities, some experts believe that 

effective governance is best achieved by a smaller board with more active participation from 

each member.105 To achieve this expansion of current expertise and ensure that Regents are 

active and engaged, the Committee recommends the Regents consider the following: (1) if 

current Regents have sufficient time and interest in continuing to serve; (2) adding to Board 

Committees – such as Audit and Review, Governance and Compensation and Human Resources 

– non-Regent members with special expertise; (3) employing outside experts to advise the Board 

 

105 See American Bar Association, ABA Coordinating Committee on Nonprofit Governance, Guide to 

Corporate Governance in the Wake of Sarbanes-Oxley 21 (2005); Discussion Draft, U.S. Senate 

Finance Committee, at 13 (2004) (suggesting that the size of nonprofit boards be set at “no less than 

three members and no more than fifteen”). 
 

-105- 

and its Committees in specific subject areas; and (4) increasing the total number of citizen 

Regents from 9 to 11 by either adding two additional citizen Regents or reducing the number of 

Congressional Regents from six to four – two from the House and two from the Senate. 

To make sure that the Smithsonian Board is made up of individuals capable of providing 

the necessary expertise, the Regents should move to a nominating process that allows for a 

broader field of candidates. In looking at candidates, those charged with picking future Regents 

should note the necessity for expertise in financial controls, investment strategies, audit 

functions, governance, compensation, and facilities management, as well as an interest in and a 

devotion to the arts and sciences. Contributions to the Smithsonian should not be the 

determining factor for service on the Board, but only one of many factors considered in the 

selection of Regents. Care should be taken to avoid appointing Regents who have clear personal 

and professional ties to the Secretary that may compromise the Board’s independence. 

9. Internal Financial Controls, Audit Functions and the Role of the General 

Counsel and Inspector General Must Be Strengthened

The Smithsonian’s system of internal controls and audit needs to be strengthened through 

additional resources, adoption of best practices and retention of personnel with substantial 

experience in the financial and audit area. In February 2007, KPMG identified the inadequacy of 

the Smithsonian’s accounting staffing and resources as a “reportable condition.” The Committee 

understands that the Smithsonian is in the process of selecting an outside auditor, and the 

Committee recommends that the Smithsonian expeditiously implement the recommendations of 

this auditor, as well as those recommendations contained in prior management letters. 

Corporate governance principles require that the general counsel of an organization be 

the gatekeeper of information for the Board and a guardian of the Board’s independence. The 
 

-106- 

General Counsel of the Smithsonian has been hindered from playing this role due to lack of 

regular, direct access to the Board. The Committee recommends that (1) the Smithsonian 

provide the General Counsel’s office and Office of the Inspector General with the necessary 

tools and resources to perform their gatekeeper and guardian functions, (2) the General Counsel 

serve as the Smithsonian’s corporate secretary and (3) the Smithsonian ensure vigorous 

compliance with the Inspector General Act. 

10. Smithsonian Executives Should be Permitted to Participate in Only 

Nonprofit Board Activities Subject to Prior Approval

Generally, the Smithsonian has been careful in monitoring the outside work of its 

employees. The exceptions have been Mr. Small and the Deputy Secretary, both of whom have 

been allowed to collect significant compensation for service on the boards of for-profit 

corporations. As discussed above, these outside commitments have taken these individuals away 

from the Smithsonian during working hours for significant periods of time. The Board must 

develop a uniform policy on outside work. The IRC acknowledges that there are arguments for 

allowing an organization’s senior executives to serve on the boards of for-profit corporations. 

The benefits of doing so, however, accrue primarily to the individual and only secondarily to the 

organization. Accordingly, the IRC recommends that the Board prohibit its executives from 

serving on the boards of for-profit corporations. 

With respect to nonprofit boards, the Regents should control and require prior approval of 

any outside activities, including service on any other nonprofit or professional service boards and 

teaching and lecturing obligations, weighing carefully the time commitments needed and the 

benefits to the Smithsonian. Any compensation received by any Smithsonian employee for 
 

-107- 

service on any outside board or organization should not be kept by the individual, but should be 

turned over to the Smithsonian for the benefit of the Institution. 

11. The Selection of the Next Secretary Must Reflect the Governance Challenges 

Facing the Smithsonian

Being Secretary is a difficult and time consuming job. The Secretary oversees a complex 

amalgam of museums, research centers, a zoo, retail shops, restaurants and buildings. The 

Secretary is the caretaker for one of the great names in the science and arts. It is also a job with 

great challenges, prestige, and opportunities to have a lasting mark on our national heritage. 

Business skills are valuable to the Smithsonian and efforts to introduce business planning 

and measurement tools should be applauded. But what must be avoided in picking the next 

Secretary is the manner in which Mr. Small operated. The Secretary must work for the Board. 

The Secretary must set the ethical tone, not sidestep it. The operations of the Smithsonian, 

especially the Secretary’s office, should be open and transparent. 

The Board will be well served, when picking the next Secretary, if it follows the words of 

former Secretary Michael Heyman: “This new era also demands from public (as well as private) 

organizations increased fiscal accountability. We must use our resources efficiently and 

intelligently both to husband them and to underscore our credibility to those who provide them – 

the government and our donors.” 106

12. Achieving Effective Oversight and Governance at Nonprofit Organizations 

May Ultimately Require Legislative Action

Unfortunately, the problems at the Smithsonian are not unique. As the media and 

Congressional oversight committees have made clear, there have been similar problems at 

 

106 I. Michael Heyman, Installation Address, September 19, 1994. (available at 

http://www.150.si.edu/chap13/install.htm), attached as Exhibit 41. 
 

-108- 

several large tax-exempt organizations, including major museums and universities, not to 

mention the income and expense excesses and governance issues at for-profit companies. This 

raises the issue of effective management of nonprofits and how governance at these entities 

should be structured, the responsibilities of their boards of directors and trustees, and how 

oversight of these organizations should be provided. The IRC believes that boards of 

nonprofits – especially large nonprofits – should move to reform their governance structures to 

bring them into line with best practices that have been well documented. These include the 

financial management and audit requirements in the Sarbanes-Oxley legislation, as well the 

recent Securities and Exchange Commission requirements for more transparent disclosure of the 

total compensation of senior executives. Some nonprofits have made progress in these areas, 

while others have not. Failure to take voluntary action will likely lead, ultimately, to action by 

Congress, state legislatures, and the courts, to impose reforms from without, just as it did in the 

case of the corporate world. 
A REPORT TO THE BOARD OIi` REGENTS OF 

THE SMITHSONIAN INSTITUTION 

EXHIBITS 

June ~8, 2007 
EXHIBIT 1 
MFIY-17-2007 23:20 OVPCOS 2024555429 P.82/03 

OFFICE OF THE VICE PRESIDENT 

WASHIN~i~DN 

May is, 2007 

The Honorable Charles A. Bowsher 

Chairman, Independent Review Committee 

Smithsonian Institution 

4503 Roxwood Road 

Bcthcsda, Maryland 20816 

Dear Mr. Bowsher: 

Thank you for your letter of April 30, 2007 advising that the Smithsonian Institution Board of 

Regents has asked your Committee to conduct an independent examination of the Secretary's 

compensation and expenses and related Smithsonian governance. Your letter indicated that you 

would welcome any recommendations that the Office of the Vice President might have for 

improving the governance ofthe Smithsonian Institution. The Smithsonian Institution is one of 

the finest educational institutions in the Nation, cherished by Americans; the Committee's 

primary objective should be to eIlswe that, consistent with the law, it remains so. 

The law constitutes the Smithsonian Institution an ''establishmen~ ... for the increase and 

dil~sion of knowledge" (20 TJ.S.C. 41 ) and puts its business in the hands of a Board of Regents 

consisting of eight very senior Federal officials and of nine other persons appointed by 

enactment of laws (20 U.S.C. 42). The nature of the ''establishment'' is somewhat unclear in the 

law; in same respects the law treats the Institution like a government entity and in other respects 

the law treats it like a private entity. The Institution receives and uses both appropriated funds 

and non-appropriated funds. The Institution has employees who are treated as employees of the 

United States and employees who are not. 

According to the courts, the Institution is part of the United States, but it is not part of the 

executive branch. See, for example, Dqnp v. Smithsonian Institution, 125 F. 3d 877, 879 (D.C. .. 

Cir. 1997), crn. denied, 524 U.S. 977 (1998)("11 is plain that the Smithsonian is not an i: 

establishment in the executive branch."); O'Rourke v. Smithsonian Institution Press. 399 F. 3d 

1 13 (26 Cir. 2005), cerl. d~nibu: 126 S. Ct. 338 (2002)(1nstitution is part of"the United States" 

for purposes of U.S. Court of Federal Claims exclusive statutory jurisdiction over s~ts for 

copyright infringement by the United States). The Office of Legal Counsel oPthe Department of 

Justice, in an opinion dated April 25, 1997, stated its view "that the unique, hybrid nature of the 

Smithsonian recluires that its legal or governmental status must be assessed from the particular 

standpoint of the constitutional, statutory or regulatory scheme in which questions arise and that 

broad gc~ralizations regarding the Smithsonian's status are inappropriate." 
MRY-17-2067 23:~0 OVPCDS 20~45664~9 P.03/03 

l'he Committee may wish to consider the following questions in the course of the Committee's 

work: 

Ltnal Nature. What aspects of the complex legal nature of the Institution benefit the 

institution, what aspects of it burden the Institution, and what if any changes to it should the 

Institution seek? Should the Institution seek to become in its entirety a government agency, 

should the Institution seek to become in its entirety a private non-profit educational 

institution, or should it continue to have bath go>vrmment-like and private-like aspects coexisting in the same Institution? 

Management Practices: Public or Private or Both. Should the Institution adjust some or all 

of its management practices to be more like those of a government agency? Should the 

Institution adjust some or all of its management practices to be more like those of a private 

non-profit educational institution? Can the Institution currently manage effectively and 

without confusion or error the co-existence of both govenrment-like and private-likt 

practices within the institution and, if not, what changes should the Institution make in its 

training, standards of conduct, and management practices to achieve that objective? 

Board of Regents. Does the presence of eight senior Federal officials on the Board of 

Regents (Vice President, Chief Justice, three Senators, and three Representatives) benefit or 

burden the Institution? Does the selection process for the non-Federal regents (i.a., 

appointment by passage of a law) benefit or burden the Institution? What if any changes 

should the Institution seek with. respect to the existence, composition, selection or functions 

of the Board of Regents? 

Manar~ement and Accounting for Resources. Are the Institution's budgeting and accounting 

functions, and associated management con~ols, well-designed to ensure the lawful and 

erTectivc use orthe Institution's appropriated funds, non-appropriated funds, and property? If 

not, what changes should the Institution make? 

Prime Resource: Talented YeoP~c. Are the Institution's arrangements for personnel hiring, 

training, management, and compensation well-designed to attract and retain the talented, 

experienced er~ployees tl~e Insritution aeeds? If not, what ohanges should the Institution 

make') 

The Cl'fice of the Vice President appreciates the opportunity to assist in identifying issues that 

the Committee may wish to address. The Committee's dedication to ensuring that the 

Smithsonian remains one of the Nation's premier institutions "for the increase and diffusion of 

knowledge" is respected and appreciated. 

LO~i~David 

S. Addingtonae;i~Q

Chief of Staff to the Vice President 

TnTFII P.A~~ 
TEXHIBIT 2 
O Smithsonian Business Ventures 

Gary Beer 

I~Iemo 

Date: June 14, 2007 

To: Stephen Sorensen 

Williams & Connolly LLP 

725 12th Street, NW 

Washington, DC 20005 

From: Gary Beer 

Subject: Independent Review Committee 

I have not been asked to review the draft report or been privy to its contents and it has been 

my understanding that the Committee's work did not include matters related to SBV. I 

recently attended a staff briefing where some of the general themes were discussed and the 

Acting Secretary has asked me to consult inpreparing a response on behalf of the 

Institution to a Committee inquiry regarding historical SBV performance, which we are 

pleased to provide. 

I am confident that a critical analysis of both market conditions and business results under 

SBV stewardship demonstrates a clear record of stable growth in the Smithsonian's core 

business, despite a cataclysmic decline in museum visitation since 9/1 1, and very significant 

long-term opportunity that has been created by new businesses that SBV has established, and 

without financial risk to the Institution. If on receipt of the Institution's response concerning 

SBV revenue and profit growth, there are further questions, I would welcome the opportunity 

to address them. In the interim, I have attached for the Committee a copy of a recent 

memorandum which was provided to the Governance Committee of the Board of Regents 

regarding the mandate of Smithsonian Business Ventures. 

SMITHSONIAN INSTITUTION 

OfficeoftheCEO 

1000 Jefferson Drive SW Room 124 

Washington DC 20560-0038 

202-633-5169 Telephone 

202-786-9147 Fax 
Smithsonian Business Ventures 

Gary Beer 

M.emO 

Date: Mayl, 2007 

To: Regents Sant, Spoon, and Stonesifer; and Acting Secretary Samper 

Cc: John Huerta, Sheila Burke 

From: Gary Beer 

Subject: Smithsonian Business Ventures' mandate 

On Friday, I received a communication from General Counsel John Huerta apprising me that 

the Governance Committee would be requesting supporting rationale for the human 

resources and compensation, finance and accounting, capital investment, and IT systems of 

Smithsonian Business Ventures (SBV), which are operated separately or differently fi·om the 

central administration of the Institution. We will work to develop documentation 

expeditiously to support your analysis of this issue. I am writing to provide some important 

context for you to have as the Regents and the Acting Secretary explore the question noted 

above and other fundamental questions pertaining to SBV that arise. 

Current Environment 

As you well know, along with the recent change in leadership, there have been many 

questions raised about the appropriate balance of public and private sectors. The Regents and 

the Acting Secretary need to be aware that the last year of scrutiny on SBV has created 

considerable instability in the SBV management organization and there is increasing 

business risk in the current operating environment. Over the past year, SBV management has 

responded to a major GAO investigation of the Showtime agreement, and a large scale 

internal audit of executive compensation. Neither of these inquiries identified any 

wrongdoing or material business deficiency. Notwithstanding, the internal audits and 

inquiries continue and the legitimacy of the reasonable non-profit business practices 

employed by SBV remains implicitly in question. 

This material instability at SBV could impair what are today a set of operating business units 

producing $170 million in revenue and projected to provide $25 million in unrestricted fUnds 

to the Institution. Uncertainty about the fUture of business operations at the Institution has 

become an obstacle for retention and recruitment of management and in some areas there are 

challenges in conducting day-to-day business. Long-term new initiatives for growth are 

nearly impossible in the current environment. 

Going Forward 

I believe that the Governance Committee and the Regents should very promptly address the 

core question of whether the Smithsonian is prepared to operate in the commercial 

marketplace, and determine whether the current Regents still hold the view that aunit driven 

by professional business managers and operating with a business culture, systems and 

practices continues to be the right approach. Only when those questions are answered can 

SMITHSONIAN ~STITUTION 

Office ofthe CEO 

1000 Jefferson Drive sW Room 124 

Washington DC 20560-0038 

202-633-5169 Telephone 

202-786-9147 Fax 
essential details, such as choosing between alternative systems or policies, be sensibly 

assessed. 

When I was recruited to the Institution in 1999 by Secretary Heyman and Wes Williams to 

organize Smithsonian Business Ventures, my mandate was to establish business practices to 

improve existing operations and create an entrepreneurial organization to develop new 

business. While SBV was not conceived as a separate entity, the Regents clearly intended to 

have SBV operate as an accountable business enterprise, and authorized the Secretary to 

recruit professional managers ~om the marketplace, establish a Board of Directors, and 

create financial and management systems customary in the private sector. 

If these questions from the Governance Committee are to be simply about tactics and 

execution instead of questions of the fundamental mandate and principles of SBV, then a 

statement ~om the Regents supporting the original mandate would be invaluable to 

maintaining stability. If the mandate itself is in question, then we should begin immediately 

to address the retention issues associated with such a change and begin to set new business 

goals going forward; allowing for proper financial and organizational transition plans to be 

put into place. The alternative is to risk financial losses that may occur if these businesses do 

not have adequate management in place, or the ability to compete in the marketplaces in 

which they operate. 

There are immediate issues as well that need to be considered. The Acting Secretary is keenly 

aware of the shortfalls of current Institutional policy for revenue sharing of museum business 

income and efforts to address this problem are long overdue. The current initiative to 

evaluate the outsourcing of museum retail stores has overshadowed that dilemma and is a 

critical decision concerning the Institution's core business that warrants the consideration of 

the Regents. In addition, we have expressed to the Secretary that compliance with FOIA will 

have a significant dampening effect on Smithsonian business activity, current and future, that 

needs to be addressed. 

The external members of the SBV Advisory Board are a small group of talented business 

professionals that have shown significant dedication and commitment to the success of SBV 

and have been very helpfUl to me. I believe the SBV Advisory Board has found itself 

increasingly stretched to cope with the myriad challenges frpm outside and inside the 

Institution that are either beyond their authority as an advisory group or are matters of public 

policy outside the purview of business decision-making. The questions expected to come 

from the Governance Committee will, rightly or wrongly, be interpreted by our staff and 

Board as further question marks regarding SBV's mandate and mission. 

I know that the SBV Board of Directors would join me in expressing support for a reassessment by the Regents and our commitment to supporting Acting Secretary Samper to 

effect the best possible outcome for the Institution. The next meeting of the SBV Board of 

Directors will be on May 14, and I hope that a dialogue with the Secretary and the Regents 

can be accommodated at that time. 

I appreciate your consideration and look forward to discussing these issues with you. 
EXHIBIT 3 
8 

SMITHSONIAN DIRECTIVE 150 

April 16, 1996 

Smi~hsonian SMITHSONIAN INSTITUTION ORIGINS, 

Institution GOVERNANCE, AND 

RELATIONSHIP TO THE FEDERAL 

GOVERNMENT 

Background 

History 

Board of Regents 

Responsibilities of the Regents as Trustees 

Institutional Relationship to the Federal Government 

Stewardship 

Background Unique within the Federal 

establishment, the Smithsonian 

Institution is a charitable trust with a 

statutory charter approved by Congress 

and the President in 1846. How this 

public trust came to be created by the 

Government, yet without the function of 

governing, is a story told against the 

backdrop of more than a century and a 

half of the Nation's history and shaped 

by standards imposed by Law on those 

who manage charitable trusts. Those 

standards guide every Smithsonian 

activity, whether its interaction with 

the Congress, the management of its 

resources, or its relationships with the 

myriad of constituencies surrounding it. 

The relationship of the Smithsonian 

Institution to the Government of the 

United States is, at first glance, familiar 

and, indeed, conventional. That 

relationship and the processes devolving 

from it have many ramifications for the 

Institution and a profound effect on its 

operations, requiring, among much else,. 

that the Smithsonian justify extensively 

its policies and plans to the Congress 

and to the Administration. 
An examination of the nature of the 

Smithsonian and its development reveals 

that those ramifications are elements -- 

and not the entire story -- of a complex 

Institution that is neither an agency of 

the Government nor even within the 

Executive Branch. Neither, as some may 

believe, are there two Smithsonians -- 

one Federal and one Trust -- nor is the 

Institution a hybrid, having a Federal 

side and a Trust side and changing 

identity to suit its advantage. 

History The Institution originated in the mind of 

James Smithson, an English scientist who 

died in 1829. He had never visited the 

United States, but apparently had great 

faith in this country because in his will 

he provided that: 

In the case of the death of my ... 

nephew without leaving a child 

·which occurred] ... I then 

bequeath the whole of my 

property.., to the United States of 

America, to found at Washington, 

under the name of the Smithsonian 

Institution, an Establishment for 

the increase and diffusion of 

knowledge among men. 

In essence, the Smithson will named the 

United States as trustee of a sizeable 

sum of money if the United States would 

agree to establish the Institution and 

administer it as a research and 

educational organization to benefit all of 

mankind, not just the people of the 

United States. The Smithson bequest 

amounted to more than half a million 

dollars, a magnificent sum in the early 

1800s, and the matter was taken very 

seriously by the Government. In 1835, 

President Jackson wrote to Congress: 

The Executive having no authority 

to take any steps for accepting the 

trust and obtaining the funds, the 

papers ... are communicated ... 
with a view of such measures as 

Congress may deem necessary. 

By the Act of July i, 1836, Congress 

accepted the trust and pledged the faith 

of the United States that all monies 

received for the trust would be 

separately accounted for, applied to the 

establishment of the Institution for the 

purposes set forth by Mr. Smithson, and 

serve the beneficiaries he named. 

Writing as chairman of the Select 

Committee of the House of 

Representatives that prepared the 1836 

legislation, John Quincy Adams 

observed : 

It is, then, a high and solemn trust 

which the testator has committed 

to the United States of America, 

and its execution devolves upon 

their Representatives in Congress 

duties of no ordinary importance. 

In the commission of every trust, 

there is implied tribute of the soul 

to the integrity and intelligence of 

the trustees; and there is also an 

implied call for the faithful 

exercise of those properties to the 

fulfillment of the purpose of the 

trust. 

Your Committee are fully 

persuaded, therefore, that... the 

Congress of the United States, in 

accepting the bequest, will feel in 

all its power and plenitude the 

obligation of responding to the 

confidence reposed by him, with 

all the fidelity, disinterestedness 

and perseverance of exertion 

which may carry into effective 

execution the noble purpose of an 

endowment for the increase and 

diffusion of knowledge among 

men. 
Ten years elapsed as Congress debated 

the form that the Smithsonian should 

take. The Act of August 10, 1846, 

provided the basic charter for the 

Institution as it.exists today and vested 

huthority for management of the 

Smithsonian in a Board of Regents. 

Board of Members of the Board of Regents are 

Regents drawn from all three branches of 

Government, as well as from the private 

sector. They include the Chief Justice of 

the United States, the Vice President, 

three members of the Senate, three 

members of the House of 

Representatives, and nine citizens. 

The Board of Regents bears the 

responsibility of the United States as 

trustee for carrying out the Smithson 

bequest and the public trust for which it 

provided. The primary obligation of the 

Board of Regents is to manage the 

resources of the Institution for the 

benefit of all of mankind. 

Responsibi lities The responsibilities imposed on a 

of the Regents trustee have their roots in English 

as Trustees ' common Law. A trust is a fiduciary 

relationship whereby a trustee holds and 

administers property for stated purposes 

on behalf of named beneficiaries. A 

trustee who holds Legal title to trust 

property can use that property only in 

accordance with trust purposes to serve 

trust beneficiaries. In addition, a 

trustee must exercise prudent oversight 

of trust assets, keep strict accounts, 

make every effort to further trust 

purposes, and account for stewardship 

of the trust to all proper authorities. 

These obligations were well understood 

by the Congress in 1836 as it considered 

acceptance of the Smithson bequest and 

in 1846 as it created the Institution. In 

assuming responsibility for the Smithson 

trust, Congress acknowledged that its 

management had to be separated from 

the functions of Government and that 
Smithsonian assets had to be devoted 

solely to trust purposes and accounted 

for separately from those of the 

Government. 

The charter of the Smithsonian reflects 

those commitments. The Board of 

Regents benefits from representation 

from all three branches of Government, 

yet the Institution is not part of any 

branch. If it were, the composition of its 

Board of Regents and their method of 

appointment would be inconsistent with 

provisions of the U.S. Constitution. 

The Board of Regents alone is 

responsible for setting Institution policy 

and for overseeing the management of 

Smithsonian assets: the collections, the 

buildings of the Institution, and the 

funds available to it. With this 

independence, however, come the 

obligations imposed by law on all 

trustees: to exercise good judgment in 

carrying out trust purposes, to be 

faithful to the trust and its 

beneficiaries, to exercise prudent 

oversight of trust activities, to maintain 

strict records of trust assets, and to be 

prepared to justify stewardship to all 

proper authorities. 

Institutional From the inception of the trust, the 

Relationship to Government was generous in its support. 

the Federal It was deemed appropriate that the 

Government United States pay the expenses of 

securing the Smithson bequest in the 

English courts and of transporting it to 

this country so that the trust fund. itself 

would not be diminished. The 

Smithsonian "Castle" was paid for from 

the interest that had accrued on the 

Smithson money between 1838 and 

1846. When the Castle was completed 

and collections then under the control 

of the Government were accepted for 

the new Institution, the Government 

paid the costs of moving and installing 

the collections, as well as $4,000 
annually for their care. 

Over the years these annual payments 

increased as the Smithsonian grew. For 

the first thirty years or so, the funds 

were included in the budget of the 

Department of the Interior, which 

reimbursed the Institution. About 1880, 

however, the Congress, the Secretary of 

the Smithsonian, and the Secretary of 

the Interior agreed that it would be 

more efficient for the money to be 

appropriated to the Institution, thus 

beginning the Smithsonian's direct 

participation in Federal funding 

processes. 

The increasing Levels of financial 

support for the Institution and the 

additional functions, consistent with and 

under the general authority of the Board 

of Regents, that have been approved by 

the Congress have not in any way 

altered the trust nature of the 

Smithsonian or transformed it into an 

agency of the Government. 

Stewardship The Institution's activities are supported 

by funding from a variety of sources: its 

endowments, which include the original 

Smithson bequest; gifts; grants and 

contracts; revenue-producing activities; 

and Federal appropriations. The source 

of funds does not alter the 

responsibilities of the Board of Regents 

to set policy for and oversee the 

management of Smithsonian activities 

and to be accountable for the proper 

use of those funds. 

Responding to the Congress and to the 

Administration in the course of the 

Federal budget and appropriations 

processes is one manifestation of the 

Smithsonian's compliance with its trust 

obligation for stewardship and 

accountability. Another is in the daily 

extension of activities that increase and 

diffuse knowledge among the public that 
visits the Institution's sites on the Mall 

and elsewhere and through printed, 

electronic, and other means to people 

around the world. 

CANCELLATION: None. 

INQUIRIES: Office of Planning, Management and 

Budget (OPMB). 

RETENTION: Indefinite. Subject to review for 

currency 24 months from date of 

issuance. 

FILING: File sequentially with other current 

directives. 

COPIES: Print file or contact OPMB. 

UPDATED: 10-22-97. 
EXHIBIT 4 
Smithsonian Institution 

Office offhe Secrefary 

1000 Jefferson Drive, SW, Room SI215 Phone (202) 357-1869 

Washington, D:C-20560 Fax (202) 786-2515 

MEMORANDUM April 6, 1999 

TO: Members of the Executive Committee of the Board of Regents 

FROM: Jim Hobbins 

SUBJECT: Compensation of Secretary Heyman 

Item #4 of Secretary Heyman's employment agreement with the Executive Committee of 

the Board of Regents states that, 

The Secretary's performance will be reviewed annually by the 

Executive Committee of the Board of Regents, which will report to 

the Board of Regents. The Executive Committee may consider 

increases in salary based on this performance appraisal and 

consistent with the compensation of the heads of comparable notfor-profit institutions. 

The accompanying pages recite the history of adjustments to the Secretary's 

compensation since 1984 and provide the context of salaries and benefits of selected university 

presidentsand chief executive officers of certain not-for-profit organizations according to a 

published report and other research. This information is provided to assist the Executive 

Committee's consideration of a salary adjustment to maintain reasonable parity and reward 

superior performance. 

Three years ago at this time the Executive Committee agreed in principle that we should 

follow a strategy of increasing the level of the Smithsonian Secretary's compensation to that of 

comparable organizations over the next several years, so that the compensation level will not be 

an obstacle in the recruitment of Secretary He-yman's successor in 1999. An ultimate goal of 

$300,000 tin 1996 dollars, to be consistent) and reasonable benefits, the Committee thought, 

would seem to match levels of compensation at some major universities as well as the National 

Academy of Sciences and the National Gallery of Art. 

As in the past, my involvement in this initiative has not been solicited by the Secretary in 

any way. 

IRC7557 
-2- 

Bistorv of Adiustments to the Secretary's Compensation 

For Robert McC. Adams (Secretary, 1984-1994) 

Date New Compensation Effective Date 

2/9/84 $110,000 + 15% deferred 8/15/84 

1/3/86 $120,000 + 10% deferred 9/16/85 

1/5/87 $130,000 + 10% deferred 9/15/86 

1/21/88 $140,000 + 10% deferred 9/14/87 

1/18/90 $150,000 + 10% deferred 1/18/90 

1/23/91 $167,000 + 10% deferred 1/23/91 

1/23/92 $180,000 + 10% deferred 1/23/92 

12/13/93 $200,000 + 10% deferred 1/1/94 

Note: In accordance with his 1984 employment agreement with the Executive Committee, Secretary 

Adams was provided with deferred compensation as noted and a retirement annuity sufficient to pay 

annually an amount equaling .025 x number of years of service x final salary tin other words, 25% of 

final salary after ten years); while he was given other benefits which are standard for Smithsonian staff 

(such as health and life insurance), he did not receive standard Smithsonian retirement benefits. He was 

given the use of a Smithsonian-owned and -maintained home. 

For I. Michael Heyman (Secretary, 1994-present) 

Date New Compensation Effective Date 

5/25/94 $200,000 8/14/94 

5/6/96 $230,000 5/6/96 

4/24/97 $260,000 5/1/97 

4/23/98 $280,000 5/1/98 

Note: In accordance with his 1994 employment agreement with the Executive Committee, Secretary 

Heyman is to be provided with a retirement annuity sufficient to pay annually an amount equaling .025 x 

number of years of service x final salary. He receives no deferred compensation. While he is provided 

other benefits which are standard for Smithsonian staff(such as health and life insurance), he does not 

receive standard Smithsonian retirement benefits. Unlike his predecessor, he lives in rented quarters and, 

as he chooses, has been provided neither a house nor a housing allowance by the Smithsonian. 

Com~arable Executive Salaries and Benefits 

Except as noted, the following figures were gleaned from the September 24, 1998, 

Chronicle of Philanthropy and are indicative of compensation paid in 1996-97, as reported on 

Internal Revenue Service forms 990. I have added my own calculation of the percentage of 

change in the total of pay and benefits from the previous year. 

IRC7558 
-3- 

Pav Benefits -%Chan~e 

Universities 

Columbia University $430,000 $28,457 +14.7% 

Cornell University $199,580 $137,175 +5.8% 

Duke University $315,000 $26,738 +5.2% 

Harvard University $270,057 $28,107 +4.9% 

Princeton University $341,850 $39,888 +6.3% 

Stanford University $3 57,73 5 $40,260 +5.0% 

University of California - Berkeley' $271,400 n/a +18.0% 

University of Michigan2 $287,375 n/a +4.5% 

University of Pennsylvania $498,536 $16,342 +32.9% 

University of Southern California $337,500 $41,626 +5.2% 

Yale University $350,000 $97,265 +10.4% 

Other Ornanizations 

American Museum of Natural History $379,707 $18,333 +18.4% 

Colonial Williamsburg Foundation $264,801 f n/a - 4.9% 

Metropolitan Museum of Art $271,085 $27,345 +6.5% 

National Gallery ofArt3 $344, 129 n/a +5.0% 

New York Public Library $348,922 $7,219 +3.4% 

U.S. Holocaust Memorial Museum $257,892 $9,500 63.5% 

National Academy of Sciences4 $317,400 n/a -c-4.0% 

Institute of Medicine $314,301 n/a +6.8% 

Natl. Academy of Engineering $300,000 n/a +8.3% 

The average change in the foregoing subset of organizations was 1 1.2%, but it should be 

noted that this list includes compensation adjustments stemming from changes in leadership. If 

one were to discount the two highest and lowest changes, the average change for 16 members of 

this group is 8%. An 8% increase in the Secretary's salary would be $22,400, for a total of 

$302,409 per year. 

1This is current salary, obtained from the university. 

2This is current salary, obtained from the university. 

3This is an estimated current salary, based on the Gallery's General Counsel's estimate of a 5% 

increase in October, 1998. The Director of the National Gallery of Art is also provided an interest-free 

mortgage loan of $1,130,000. 

4This compensation is current. The President of the National Academy of Sciences is given use of 

an apartment and a leased automobile. Information provided by the National Academy's Office of Human 

Services. 

IRC7559 
EXHIBIT 5 
SMITHSONIANNSTITUTION - EMPLO YM~NTA GREEMENT FOR THE SECRETAR Y 

1 The Secretary will serve at the pleasure of the Board of Regents for a presumptive term 

of ten years, which may be reviewed and extended by the Board annually thereafter. 

2. The Secretary will be expected to comply with the Smithsonian's Standards of Conduct 

and to submit annual statements of financial interests to the Personnel Committee of the 

Board of Regents. 

3. The base salary of the Secretary will be $330,000 annually as of January 23, 2000. 

Payment of salary will be made bi-weekly. 

4. A total of seventeen percent (17%) of base salary will be paid to the Secretary per annum 

in lieu of pension. This payment will be made bi-weekly only during the Secretary's 

term of employment. 

5. The Secretary will be entitled to reasonable annual and sick leave. The Secretary may 

elect medical, dental, life insurance, and other benefits on the same terms as other Trust 

Fund employees of the Smithsonian. 

6. The Secretary's performance will be reviewed annually by the Executive Committee of 

the Board of Regents, which will communicate that performance review to the Secretary 

and which will reporto the Board of Regents. The Executive Committee may consider 

increases in salary based on this performance appraisal and consistent with the 

compensation of the heads of comparable not-for-profitnstitutions. 

7; The Secretary shall make his personal residence available for official Smithsonian 

hospitality and will receive a housing allowance not to exceed $150,000 per year in 

compensation for up to fifty percent (50%) of the actual costs of his housing. Payment of 

these funds will be made by the Smithsonian to the Secretary monthly upon his 

presentation monthly of records of housing operating and maintenance expenditures 

including but not to be limited to: homeowner's insurance, utilities, ordinary 

maintenance and cleaning, grounds service, real estate taxes, mortgage interest or 

equivalent costs of home ownership, etc., but not capital expenditures. 

8. The Smithsonian will provide fdr the Secretary's reimbursement for reasonable costs for 

official travel and official entertainment, consistent with its policies for such 

expenditures. The Secretary is authorized tofly first class. The Secretary also is 

authorized to travel with his spouse at Smithsonian expense where her presence is 

appropriate. The Smithsonian will also provide a suitable car and driver for 

transportation to local official functions; this is not to include daily commuting between 

home and work. 

9. The Secretary will contribute to the Smithsonian, for the Office of the Secretary 

discretionary fund, honoraria from his speeches, conference participation and related 

IRC0438 
-2- 

educational and not-for-profit activities. At the same time, it is understood that the 

Secretary may continue to accept income from service on as many as two corporate boards as long as such service does not interfere with the effective prformance of his official dutiesand does not conflict with the interests ofthe Institution. Consistent with 

the Smithsonian's Standards of Conduct,he specific boards on which the Secretary will 

serve will be approved by the Executive Committee of the Board of Regents and 

reviewed the General Counsel, who is the Smithsonian's Ethics Officer. 

10. This employment agreement may be amended by mutual consent ofhe Secretarynd the Chairman ofthe Executive Committee of the Board of Regents, which Committee shall 

report. changes to the Board of Regents. 

September 28, 1999 

M. Small, Secretary-elect Barber B. Conable, Jr. 

Executive Committee 

IRC043 9 
illi 

Amendment To Employment Agl.eement OF Secl-etaly of Smithsonian Dted 9/28/99 

WHEREAS, on September 28~ 1999, the Smithsonian Institution, a trust established by the Congress of the United States in i 846 (the "Smithsonian"), and Lawrence M~ Small ("Small"), entered into an employment agreement pursuant to which Small would serve as the chief executive officer, formally known asthe Secretary of the Smithsonian Institution; and

WHEREAS, Small is currently the Secretary Elect of the Smithsonian and is scheduled to

commence his Secretarial duties on January 24, 2000; and 

WHEREAS, it~is essential that the Smithsonian retain and attract as its Secretary the most capable person available; and 

WHEREAS, both the Smithsonian and Small recognize the increased risk of litigation and other claims being asserted against the Secretary; 

NOW, THEREFORE, in consideration of the premises above stated and of Small agreeing to serve the Smithsonian as Secretary o, at its request, withoth~r entities, and intending to be legally bound hereby, the parties hereto agree to amend the Employment Agreement of September 28, 1999 C'Indemnification Agreement") as follows: 

i. Indemnification. 

--- 

(a) TheSmithsonianshall indemnifySmall, to the fullest extent permitted by applicable law, if he was or is a party or is threatened to be made a party to any threatened, pendin~ or completed action, suit or proceedin,u, whether civil, criminal, administrative, arbitrative or Investigative (other than an action by or in the right of the Smithsonian), against expenses (including attorney's fees), judgments, fines, penalties and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or nqt opposed to the best interests of the Smithsonian, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conductwas unlawful; provided however that no indemnification shallbe made in 

respect of any claim, issue or matter as to which Small shall have committed intentional, willfUl 

or reckless misconduct or gross negligence in the perfordlance of his duty to the Smithsonian unless and only to the exte~nt that a court of competent jurisdiction shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the 

case, Small is fairly and reasonably entitled to indemnity forsuch expenses which the court shall deem proper. 

(b) The termination or abatement ofa claim, threatened claim, suit or other proceeding by way ofajudgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent is not, of itself, determinative that Small did not meet the standard of conduct described in this section. 

2. Additional I~CIPmnif;r~,;n·1 Notwithstanding any other provision of this -------~1 

Indemnification Agreement, ifSmall has been successful, on the merits or otherwise, in the defense of any action, suit or proceeding referred to in Section 1 of this Indemnification Agreement to which he Was a party, he shall be indemnified against expenses (including 

IRC0440 
Page 2 

Amendment To Employment Agreement Of Secl·etaly of Smithsoriian Dated 9/28/99 

H:\WPFILES\indwnnification.sec.ag.wpd Novzm~er 12; 1999 (5:04PM) 

attorneys' fees) actually and reasonably incurred by him in connection with such action, suit or· 

proceeding. 

3. Procedure. Any indemnification under this Indemnification Agreement (unless 

ordered by a court) shall be made by the Smithsonian only as authorized in the specific case upon 

a determination that indemnification of Small is proper in the circumstances because he has met 

the applicable standard of conduct set forth in Section 1 of this Indemnlfication_ Such 

determination shall be made ~1) by the Board by a malority vote ofa quorum consisting of 

Regents who were not parties to such action, suit or proceeding, or (2) if such a quorum is not 

obtainable, or, even if obtainable, a quorum of disinterested Regentso directs, by independent 

legal counsel in a written opinion. In the event that Small disagrees with a determination under 

Section 1 as to indemnification by the Regents or the independent legal counsel, such matter may 

be submitted to binding arbitration for a de novo determination of indemnity according to this 

Indemnifrcation Agreement pursuant to the procedural rules of the American Arbitration 

Association. 

4. Advances of Expenses. Reasonable expenses incurred in defending any 

threatened, pending or completed civil or criminal action, suit or proceeding shall be paid by the 

Smithsonian in advance of the final disposition of such action, suit or proceeding, if Small shall 

undertake to repay such amount in the event that it is ultimately determined, as provided herein, 

that Small is not entitled to indeemnffccatoon Advances of expenseshall be made promptly and, 

In any event, within 90 days, upon Small's written request. Notwithstanding the foregoing, no 

advance shall be made by the Smithsonian if a determination isreasonably made at any time by 

the Board by a maj ority vote of a quorum of disinterested Regents, or (if such a quorum is not 

obtainable or, even if obtainable, a quorum of disinterested Regents so directs) by independent 

legal counsel in a written opinion, that, based upon the facts known to the Board or counsel at the 

time such determination is made, Small acted in bad faith and in a manner opposed to the best 

interests of the Smithsonian, or Small intentionally, willfully, recklessly or through gross 

negligence breached his duty to the Smithsonian, or, with respect to any criminal proceeding, that 

Small believed or had reasonable cause to believe his conduct was unlawful. 

5. Nonexclusivitv and Continued Indemnification. The indemnification and 

advancement of expenses provided by this Indemnification Agreement shall not be deemed 

exclusive of any other rights of Small to which he may be entitled under any insurance or other 

agreement, vote of Regents or otherwise, both as to actions in his official capacity-and as to 

actions in another capacity while holding the office of Secretary, and shall continue as to Small 

once he has ceased to be Secretary and shall inure to the benefit ofSmall's heirs, executors, 

administrators or legal representatives. 

6. Reliance. It is hereby expressly recognized that the Secretary has agreed to serve as 

Secretary of the Smithsonian in reliance on the provisions ofthis Indemnification Agreement and 

that the Smithsonian is estopped to contend otherwise. Additionally, it is hereby expressly 

recognized that any service by the Secretary as a director, trustee, officer or employee of any 

Smithsonian entity which is a subsidiary or affiliate of the Smithsonian (or other entities 

controlled by the Smithsonian) is at the request of the Smithsoniand, to the extent permitted by 

IRC0441 
Page3 

Amendment To Employment Agl·eement Of Secretary of Smithsonian Dated 9/28/99 

H:\WPFILES\indemnification.sec.agr.wDd Novem~er 12; 1999 (5:04PM) 

law, the Secretary isentitled to indemnification hereunder in connection with such service, 

including service on any entity by which the Secretary is a an exofficio member, officer or 

trustee, such as the Woodrow Wilson Center for Internatronai Scholars, the John F. Kennedy 

Center for the Performing Arts or the National Gallery of Art. 

7. Liability IrtJ·urance. To the extent the Smithsonian maintains an insurance policy or 

policies providing directors' and officers' Liability insurance, comprehensive general liability 

Insurance, errors and omissions insurance or coverage for other risks, the Secretary shall be 

covered by such policy or policies, in accordance with its or their terms, to the maximum extent 

of the coverage available for any Secretary, officer or Regent of the Smithsonian. 

8. Ame~zdme~zrs. No supplement, modification or amendment of this Indemnification 

Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of 

any of the provisions of this Indemnification Agreement shall be deemed or shall constitute a 

waiver of any other provisions hereof(whether or not similar) nor shall such waiver constitute a 

continuing waiver. 

9. No Duplicatiout qfPaynzc?ntsl -The Smithsonian shall not be liable under this 

Indemnification Agreement to make any payment in connection with any claim made by the 

Secretary·to the extent the Secretary has otherwise actually received payment by or through the 

Smithsonian (under any insurance policy, bylaw or otherwise) of the amounts otherwise 

indemnifiable hereunder. 

10. Spec~ic Pe~fornzance. The parties recognize that if any provision of this 

Indemnification Agreement is violated by either the Smithsonian orthe Secretary, the other party 

may be without an adequate remedy at law. Accordingly, in the event of any such. violation, the 

aggrieved party shall be entitled, if it so elects, to institute proceedings, either in law or at equity, 

to obtain damages, to enforce specific performance, to enJoin such violation, or to obta~n any 

relief or any combination ofthe foregoing as the aggrieved party may electo pursue. 

11. Severability and lirteupretafion. In case any provision in this Indemnification 

Agreementshall bedetermined atany time to be unenforceable in any respect, the other 

provisions shall not in any way be affected or impaired thereby, and the affected provision shall 

be given the fullest possible enforcement in the circumstances, it being the intention of the 

Smithsonian toafford indemnification and- advancement of expenses to the Secretary in his 

capacity as a Secretary or in the other capacities specified above, to the fullest extent permitted 

by law. 

It witness whereof, the parties have signed this Indemnification Agreement on this 

/Y T~ day of_D~-~t~rXrre in the year 199PLawret~ce M. Small Barber B. Conable, Jr. 

S btary Elect Executive Committee 

IRC0442 
EXHIBIT 6 
'O Smithsonian Institution Memo 

Office of the SeEretar)' 

Uate lanuary 18, 2001 

1·o Carolyn Jones, Office of Human Resources 

Front !im HEd Knapp, C 

"~P"/ 

Subjec~~ Salary li~rSrease for the Secretary 

On January 1 i, 2001, the Regents' Executive Committee, meeting in its capacity 

as ihe Smithsonian's compensation committee, increased Secretary Small's base sala~ 

from $330,000 to $480,000 effective January 14, 2001. 

By the Executive Committee's action on the Secretary's salary, and in accordance 

with the Regents' retirement provisions for Secretary Emeritus Ripley, Mr. Ripley's 

annuity should also be raised tit is calculated as 80% of the incumbent Secretary's salary), 

as should his annual allocation for research support (which is calculated as 20% of the 

incumbent Secret-uv's salary). Please put these changes into effect as of January 14, 2001, 

as well. 

I wouid be pleased to answer any questions you may have. By separate note I will 

let Mr. Ripley know of these actions. 

smithsonian Institution Building Room 215 

1000 jefferson I)rive SW 

Washington DC 20560-0016 

202.357.1869 Telephone 

202~786.2515 Fax IRC8912 
EXHIBIT 7 
,James hR. Hobbins-DraftMemo Page 1 

From: James M. Hobbins 

To: Wlliams. Wes 

Date: 2/12/01 3:59PM 

Subject: Draft Memo 

Wes, 

Following this is at least a starter for you. 

Jim 

FortheRecord 

From: Howard. Baker, Chairman of the Regents' Executive Comndttee 

cc: William H. Rehnquist 

Wesley S. Williams, Jr. 

Lawrence M. Small 

James WI. Hobbins 

On January 11, 2001, the Regents' Executive Committee met for the first time, at Secretary 

Small's suggestion, as a Compensation Committee. Secretary Small observed that the Executive 

Committee had-taken responsibility in the past for setting and adjusting the compensation of the Secretary 

and had advised and consulted with the Secretary on the compensation of the Under Secretary and 

occasionally other senior officers. The Executive Committee agreed that it would be prudent to establish 

the precedent of this meeting as the Compensation Committee to consulwith the Secretary on his 

recommendations for top earers at the Smithsonian and to consider in executive session an adjustment 

in the Secretary's compensation. 

The Secretary made it clear at the outset that he is motivated by the idea that, if the Smithsonian 

is to be able to recruit superior talent in its senior ranks, the compensation of Smithsonian professionals 

needs to be competitive in the market (This rationale was spelled out in a one-page "Smithsonian 

Institution Executive Compensation philosophy" that the Secretary provided to the Committee.) 

Accordingly, as he discussed with this Committee one year ago, he commissioned a study by Towers 

Penin to compare compensation of the positions of his senior staff with comparable positions throughout 

the country. The Secretary's goal is to gain acceptance- that Smithsonian senior staff compensation 

should equate to the 751h percentile of comparable positions in the marketplace. 

Turning first to the senior staff, the Secretary presented to the Committee compensation analyses 

for the top 30 earners. He provided their names, tides, professional backgrounds, and compensation 

histories since 1998, along with a recitation of he Towers Perrin calculation of the 75Uh percentile of the 

Market Rate Comparison. For each individual he provided his recommendation in writing, and he spoke 

with the Committee about each recommendation based on his observations and, where appropriate, those 

of his Under Secretaries. His recommendations included either no increase (16 individuals), a high 

increase of 21.02% of base salary, or increases averaging 9.83% of base salaries for 14 individuals. The 

Committee endorsed these recommendations far implementation as soon as practicable. 

Moving into executive session without the Secretary, the Committee turned its attention to Towers 

Perrin's analysis of the Secretary's compensation. The Committee noted from detail provided that the 

Secretary's current compensation, including salary at $330,000 and benefits at 556,100 but excluding his 

$150,000 housing allowance, totals 5386,100 per year; this could be compared to a Market Rate 

Comparison at the 75Uh percentile salary and benefits totaling $670.835 (again, excluding housing). 

Back-up ana~yses of the compensation of research university presidents and the top executives at select 

not-for-profit organizations was provided and considered by the Committee. 

IRC8910 
iJame5M· Hobb~-~-'D;aftMemo ~_-1 ~ ' ·I- ' . P"e' 2 

The Committee determined that the Secretary's base salary should~be increased by 9150.000 to 

the level of %480.000 effective January 14. 2001. This is in recognition of the Secretary's superior 

performance as well as the prevailing market comparisons. It is also the Committee's understanding that 

the Secreta~y will contribute back to the Institution $100;000 of this increase in 2001 to demonstrate his 

leadership among members of the Smithsonian National Board and other major donors to the 

Smithsonian. Heis not obligated to commit contributions at this level in subsequent years. 

The Committee was of the opinion that the materials provided and the Secretary's 

recommendations were of first-rate quality. The Committee endorsed and decided on these increases 

with utmost confidence that the numbers were reliable and proper for our consideration, setting a 

commendable precedent of superior standards for subsequent years. 

IRC8911 
EXHIBIT 8 
i James M. Hobbins - Larry's Salary Adjustment Page t 

From: James M. Hobbins 

To: Williams, Wes 

Date: 1116/01 3:54PM 

Subject: Larry's Salary Adjustment 

Wes, 

I haven't tried this out on Larry, but it is the product of my discussion with John Huerta. 

Let me know if it's helpful. I think it's a viable solution if you and Larry find it acceptable. 

W~th thanks and t~est eishes, 

Jim 

+*+++*+++++f+++++++++++++++ 

The Executive Committee met in its role as the salary compensation committee of the Board of 

Regents. The Executive Committee appraised he performance of the Secretary forhis first year in office. 

The Executive Committee was provided a compensation survey prepared by Towers Penin. The 

Executive Committee reviewed the compensation survey and noted that the Secretary was appreciably 

underpaid in comparison to College and University Presidents and other not for profit entities at institutions 

of similar complexity, size and prestige as the Smithsonian Institution. 

In recognition of the superb job the Secretary has done in initiating clear 10 year goals for the 

Institution, and his progress toward those goals during the first year, the Executive Committee has agreed 

to increase the base salary of the Secretary from $330,000 per year to 8380.000 per year. Beyond his 

base pay, the Regents are providing the Secretary with an additional $100,000 bonus in recognition of the 

excess of 5200 million that the Secretary has raised for the Institution, which sum shall not be considered 

part of the salary df the Secretary. The Secretary has generously indicated that it is his desire to give this 

sum back to the Instituti;on as part of an exemplary "leadership" donation in order to encourage members 

of the Board of Regents, the National Board and other advisory boards of the Institution, as well as senior 

staff to make similar exemplary gifts to the Institution. The Executive Committee noted that total 

compensation to the Secretary, including salary, bonus and all benefits, places the Secretary in the top 

25% of Chief Executive Officen of similarly situated institutions. 

IRC8909 
EXHIBIT 9 
Page 1 of 1 

Huerta,John 

From: Hobbins, James M. 

Sent: Wednesday, January 24, 2007 6:40 PM 

To: Huerta,John 

Subject: Amending the Secretary's Agreement 

Attachments: Amendment to the Secretary.doc 

John, 

Here's my first draft. I'II look forward to your reactions. 

With thanks and best wishes, 

Jim 

IRC7335 

3/28/2007 
Amendment to the Secretary's Employment Agreement 

The Secretary's employment agreement of September 28, 1999, is amended in two 

respects: 

(1) Paragraph #7 is amended to say, in its entirety, "The Secretary shall make his 

personal residence available for official Smithsonian hospitality and will receive a 

housing allowance supplementing his regular compensation. Payment of this 

allowance will be made by the Smithsonian to the Secretary on a pro-rata basis in 

regular bi-weekly compensation distributions. No accounting of actual housing 

expenses will be required to justify this allowance." 

(2) Paragraph #8 is amended to say, in its entirety, "The Smithsonian will provide for 

the Secretary's reimbursement for reasonable costs for official travel and official 

entertainment, consistent with its policies but not limited by them for such 

expenditures. The Secretary is authorized to fly first class, employ car services 

when traveling, and stay in suitable accommodations. The Secretary also is 

authorized to travel with his spouse at Smithsonian expense where her presence is 

appropriate. The Smithsonian will also provide a suitable car and driver for 

transportation to local official functions, though this is not to include daily 

commuting between home and work." 

Roger W. Sant 

Chairman, Executive Committee 

Board ofRegents 

Smithsonian Institution 

Lawrence M. Small 

Secretary 

Smithsonian Institution 

January 29, 2007 

IRC7336 
Page 1 of2 

Huerta, John 

From: Huerta,John 

Sent: Thursday, January 25, 2007 5:03 PM 

To: Hobbins, James M. 

Cc: Small, Lawrence 

Subject: RE: Amending the Secretary's Agreement 

Attachments: Panel on the Nonprofit Sector.pdf; Amendment to Small Emp Agreemen-l -25-07b.doc 

Jim, 

Attached are the revised amendments to the Secretary's employment agreement. As you will see, I 

dropped a footnote reference to the Panel on the Nonprofit Sector draft standards for travel for nonprofit 

entities. It is not my intention that the footnote be included in the final amendment. I am including it so 

that both the Secretary and the Chairman of the Executive Committee are aware of the evolving 

standards for non-profits in this area of the law. It is important to note that the Internal Revenue Code 

does not define "lavish" or "extravagant," which means that, in the event of an audit of travel expenses 

by the Internal Revenue Service (either as a part of a personal audit of the Secretary or an audit of the 

Smithsonian), the agent would be looking at the travel expenses of other chief executives in the nonprofit arena to determine the standard practice. According to the Independent Sector Report on nonprofits, first class travel should only be used for specified and pre-approved purposes set forth in the 

organization's travel policies, such as flights longer than six hours, overnight flights, etc. Absent an 

exception, the Report advises that board members and eitecutives should make the same arrangements as 

other employees unless the Board makes a specific finding that first class travel is justified by legitimate 

business reasons. The risk to the Secretary from routinely incurring first class travel expenses without 

such a finding by the Board of Regents is that the Internal Revenue Service, in the event of an audit, 

might conclude that such expenses in the context of a non-profit are lavish and extravagant. In that case, 

not only would the amount of the expenses over and above what would otherwise be considered 

reasonable be deemed to be additional compensation to the Secretary (which would result in additional 

taxes due plus penalties and interest, as well as penalties and interest imposed on the Institution for 

failing to withhold appropriate taxes), but it is conceivable that the amounts also could be deemed 

"excess benefit transactions." The consequences of such a finding would be significant not only for the :~ 

Secretary, who would then have to return the excess payments and pay a sizeable excise tax (25% of the 

excess benefit), but liability (10% of the excess benefit) might also rest on the person(s) who authorized 

the payments. In addition, such excess benefit transactions might be required to be reported on the 

Institution's Form 990T. See IRC 4958. 

I am including the Panel on the Nonprofit Sector draft recommendations for your perusal as well. 

As always, I will be happy to discuss the draft agreement with you. I am copying the Secretary on this 

transmittal as I know he will likely be interested in the subject matter and may have questions for me as 

well. 

Best wishes, 

John E. Huerta (huertai~i~si.edu) 

General Counsel, Smithsonian Institution 

(V) 202-633-5099; (fax) 202-357-4310 :4

IRC7337 

3/26/2007 
Page 2 of2 

1000 Jefferson Dr. S.W., Suite 302 

Washington, D.C. 20560-0012 

Mailing Address: 

Office of General Counsel 

P.O. Box23286 

Washington, D.C. 20026-3286 

This electronic transmission and any documents accompanying this electronic transmission may contain 

privileged and confidential attorney-client information, and are intended for the confidential use of the 

recipient(s) named above. ~If you are not the intended recipient, you are hereby notified that any review, 

dissemination, distribution or copying of this electronically transmitted information is strictly 

prohibited. If you have received this electronic transmission in error, please notifjl the sender 

immediately by sending a return message, and destroy the niessage you received. Thank you. 

From: Hobbins, lames M. 

Sent: Wednesday, lanuary 24, 2007 6:40 PM 

To: Huertal lohn 

Subject: Amending the Secretary's Agreement 

John, 

Here's my first draft. I'II look forward to your reactions. 

With thanks and best wishes, 

Jim 

IRC 73 3 8 

3/26/2007 
Amendment to the Secretary's Employment Agreement 

The Secretary's employment agreement of September 28, 1999, is amended in two 

respects: 

(1) Paragraph #7 is amended to provide in its entirety, "The Secretary shall make his 

personal residence available for official Smithsonian hospitality and will receive 

an annual housing allowance in the amount of ~for calendar year 2007, 

which sum may be adjusted in future years as determined in the sole discretion of 

the Board ofRegents. Payment of the housing allowance will be made biweekly." 

(2) Paragraph #8 is amended to provide in its entirety, "The Smithsonian will provide 

for the Secretary's reimbursement for reasonable costs for official travel and 

official entertainment, consistent with its policies for record keeping, but not 

limited by them as to the amount of such expenditures. The Secretary is 

authorized to travel first class, including the use of car services and premium hotel 

accommodations. The Secretary also is authorized to travel with his spouse at 

Smithsonian expense where her presence serves a business purpose. The 

Smithsonian will also provide the Secretary a suitable car and driver for 

transportation to local official functions, though this is not to include daily 

commuting between home and work." 

Roger W. Sant 

Chairman, Executive Committee 

Board of Regents 

Smithsonian Institution 

Lawrence M. Small 

Secretary 

Smithsonian Institution 

January 29, 2007 

IRC7339 
~;;~ 

i 

'::- on~t~er0~tSector 

C4nvencd by INDEP~NDENT SECTWI 

C. PRINCIPLES FOR STRONG FINANCIAL OVERSIGHT 

22. A charitable organization must establish and implement policies that provide 

clear guidance on its rules for pa~ing or reimbursing txpenses incurred when 

conducting business or traveling on behalf of the organization, including the 

tlpes of expenses that can be paid for orreimbursed and ihe documentation 

required. 

Background: 

Public charities and private foundations, Lil;e taxable organizations, are permitted to pay 

for or reimburse ordinary and necessary expenses incurred in caming out the 

organization's acti\ities, including the costs of travel. Expenses for transportation, 

lodging, and meals must be documented to establish that they were incurred in 

connection with the worlr of the organizadon and not thepersonal acti\ities of the 

indi~idual. It also requires that these expenses not be "lavish or estraaagant under the 

circumstances," though i'la\ish" and ''cxtravagant" rcmaid undefined in the tax code or 

in regulations." Current law generally requires that such payments of travel cspcndinues 

for spouses, family members, and others accompanying an- individual tra~eling on behalf 

of the organization must be treated as taxable income to tt;e indi~idual who is traveling 

on behalf of the organization. 

Special rules apply to many types of travel-related espenses·and reimbursement methods, 

including per diem payments, car allowlnces, employer-provided vehicles, securit)· 

elpcnses, and travel expenses of spouses or other family members.'7 Tra~el expenses 

also have specific documentation requirements; for example, proper receipts and an 

indicadon of the business purpose of the travel or expenditure must be pro~·ided.'s 

Taxable organizations also have limitadons on deductions for meals, cn certainment 

expenses, and some travel expenses." 

Travel expenses that are paid or rermbursed but are nor properly documented or are 

'lavish or extravagant" must be treated as additional tasable compensadon to the 

individual bene6ting from them. The law requires public charides intending to neat an 

espenditure as compensation to provide conremporaneous written substandation by 

reporting the amounts on 1 Form W-2, a Form 1099, or a Form 990, or othenvise 

documenting such compensation in writing, othenvise, the compensation will be treated 

automatically as an "escess bene~t"?0 Board members and executives of charitable 

organizations who approve or receivescessi~-e travel benefits are subject to penalties 

under esisdng law.t' 

I" IRC S 162(3)(2);TIeu. Rcg. 99 1.167-7, 1~163,-17. 

'~ Treas. Rcg. 99 1.162·2, 1.132-i. 

ts IRC g 274(d); Treas.lReg. 8~1.274~j, 1.2745T. 

'P IRC g 27-1 and the regulations thereunder. 

" IRC g 49958(c)(1).3); Trezs. Reg. g j3.49584(c)(l). 

21 LRC 59 4941, 4958. 

DRIFTFORPUBL~CCO~Ulh~.NT 33 

IRC7340 
Rationale: 

Charitable organizadons should establish and implement clear tr~cl policies that reflect 

the standards of the organization as to what it considers "rcasonable" cspenditut·es and 

that will guide indi\iduals who may incur travel espendirures while conducting the 

business of the organization These policies should include procedures for properly 

documenting espcnses incurred and thcL organizational purpose. 

Charitable organizations must not pay for or reimburse travel espenditures (not 

including de minimis espenses of chose attending an activity such as a meal function of 

the organization) for spouses, dependents, or others who are accompanying indi\iduals 

conducting blisiness for the organization and who are not themselves conducting 

business for the organizadon. If such e~enscs are paid by the organization, the)· 

generally must, by law, be treated as compensation to the individual traveling on behalf 

of the organization. 

\\;'hile there arF occasions on which travel m~ require the purcllase of tickets and 

accommodations at the last moment and necessitate paying premium prices, as a matter 

of general practice travel policies should ensure thnt the business of the organization is 

carried out in a cost-effectire and efficient manner. The same standards for 

reimbursement of travel espenditures should be applied to the organization's board 

members, officers, staff,·consultants, volunteers, and others tnveling on behalf of the 

organization. Decisions on travel errpenditures should be based on how to best further 

the organization's cl~aritable purposes, rather than on the title or position of the person 

traveling. As a general practice, charitable funds should not be used for premium' or 

first-class travel. However, boards should retain the flesibility to permit first-class or 

premium accommodations or navel when it is in the best interest of the organization. 

Such a policy should be consistcn$ applied and transparent to board members and 

others associated with the organizadon. hIany otganizadons have developed policies that. 

allow for such travel if the flight is longer than sis hours or if an overnight flight ("redeye'? enables the traveler to sleep during the flight and thereby save time and cost: of an 

o\-ernight stay. 

An organization's travel policies should reflect the requirements and restrictions on 

travel espenditures imposed under current law. For elample, policies should make clear 

that personal use of the organization's vehicles or accommodations is prohibited, unless 

the espenditure is treated as compensation. Public charities may permit indiriduals to 

reimburse the organization for the fair market value of the personal use of its property, 

though this option is not always available to private foundations because of restrictions 

on transactions with disqualitiecl persons. 

Federal per diem cites can be a useful guide for charitable organizations, but there are 

many circumstances in which it is not reasonable or even possible to reimburse at federal 

per dicm rates ~vhile conducting the business of the organizadon. In addi~on, federal 

government employees are eligible for t~cl sen·iccs and are al,le to secure special rates 

"l~deral travel regularionr define premium chss trawl as any class of accommodation abo~e coach class, that 

is, first or business class." U.S. GEncr;ll ~ccoundng Ofilce, Travel Casds: Internal Control mcaknesscs It DOD 

Led to Improper Vse of Birsr and Rusiness Class Tnrel," Octol,cr 200J (Gi~-0~-88). 

DR~FTFOR PUBLIC C<)E\·DLI~NT 34 

IRC7341 
for navel and accommodations that are not currently available to chari~able 

organizations. 

The dctailed~ guidance provided in IRS Publication 463: Travel. Entertainment, Gift and 

Car Espenseshould sen·e as a guide for managers of charitable organizations in

avoiding lavish, cstravagant, or excessi~-e e~penditurcs. 

DRII~ FOR PUBLIC CO1LIXIENT 35 

IRC7342 
Amendment to the Secretary's Employment Agreement 

The Secretary's employment agreement of September 28, 1999, is amended in two 

respects: 

(1) Paragraph #7 is amended to provide in its entirety, "The Secretary shall make his 

personal residence available for official Smithsonian hospitality and will receive 

an annual housing allowance in the amount of% for calendar year 2007, 

which sum may be adjusted in future years as determined in the sole discretion of 

the Board ofRegents. Payment of the housing allowance will be made biweekly. 

(2) Paragraph #8 is amended to provide in its entirety, "The Smithsonian will provide 

for the Secretary's reimbursement for reasonable costs for official travel and 

official entertainment, consistent with its policies for record keeping, but not 

limited by them as to the amount of such expenditures. The Secretary is

authorized to travel first class, including the use of car services and premium hotel 

accommodations, consistent with IRC s 162(a)(2).' The Secretary also is 

authorized to travel with his spouse at Smithsonian expense where her presence is 

appropriate. Reimbursement for his spouse's travel expenses shall be deemed to 

be compensation to the Secretary, except when she is conducting bona fide and 

official business of the Institution and the nature of the business and her expenses 

are properly substantiated. The Smithsonian will also provide the Secretary a 

suitable car and driver for transportation to local official functions, though this is 

not to include daily commuting between home and work." 

Roger W. Sant 

Chairman, Executive Committee 

Board ofRegents 

Smithsonian Institution 

Lawrence M. Small 

Secretary 

Smithsonian Institution 

----Section Break (Co~tlnuour)~- 

i See Pa~lel onthe Nonpl·ofit Sectol-. nrafi Pnncioles for SelfReaulation. Section C. Princinles for Strono 

Finoncisl O~ 

_ rrsi·h~, subsection 22. I'or a discur;siou ofthe al,l,licabililv oTIRC. 162(a1(21 to the nonnrofit 

Sector. 

IRC7343 
Page 1 of2 

Huerta, John 

From: Hobbins, James M. 

Sent: Thursday. January 25,2007 5:37 PM 

To: Huerta, John 

Cc: Small, Lawrence 

Subject: RE: Amending the Secretary's Agreement 

John, 

Thanks for your thoughtful work. I hope Larry has the tools with which he can digest your attachments. If this 

turns out to be relatively straightforward, i'd be delighted to reach ~greement between Larry and Roger by 

Monday, January 29'", though honestly there is no compelling reason to rush it. 

With best wishes, 

Jim 

From: Huerta, ;lohn 

Sent: Thursday, ~anuary 25, 2007 5:03 PM 

To: Hobbins, 3ames M. 

Cc: Small, Lawrence 

Subject: RE: Amending the Secretary's Agreement 

Jim, 

Attached are the revisedamendments to the Secretary's employment agreement. As you will see, I 

dropped a footnote reference to the Panel on the·Nonprofit Sector draft standards for travel for nonprofit 

entities. It is not my intention that the footnote be included in the final amendment. I am including it so 

that both the Secretary and the Chairman of the Executive Committee are aware of the evolving 

standards for non-profits in this area of the law. It is important to note that the Interrial Revenue Code 

does not define "lavish" or "extravagant," which means that, in the event of an audit of travel expenses 

by the Internal Revenue Service (either as a part of a personal audit of the Secretary or an audit of the 

Smithsonian), the agent would be looking at the travel expenses of other chief executives in the nonprofit arena to determine the standard practice. According to the Independent Sector Report on nonprofits, first class travel should only be used for specified and pre-approved purposes set forth in the 

organization's travel policies, such as flights longer than six hours, overnight flights, etc. Absent an 

exception, the Report advises that board members and executives should make the same arrangements as 

other employees unless the Board makes a specific finding that first class travel is justified by legitimate 

business reasons. The risk to the Secretary ~om routinely incurring first class travel expenses without 

such a finding by the Board of Regents is that the Internal Revenue Service, in the event of an audit, 

might conclude that such expenses in the context of a non-profit are lavish and extravagant. In that case, 

not only would the amount of the expenses over and above what would otherwise be considered 

reasonable be deemed to be additional compensation to the Secretary (which would result in additional 

taxes due plus penalties and interest, as well as penalties and interest imposed on the Institution for 

failing to withhold appropriate taxes), but it is conceivable that the amounts also could be deemed 

"excess benefit transactions." The consequences of such a finding would be significant not only for the 

Secretary, who would then have to return the excess payments and pay a sizeable excise tax (25% of the 

excess benefit), but liability (10% of the excess benefit) might also rest on the person(s) who authorized 

the payments. In addition, such excess benefit transactions might be required to be reported on the 

IRC7344 

3/28/2007 
Page 2 of 2 

Institution's Form 990T. See IRC 4958. 

I am including the Panel on the Nonprofit Sector draft recommendations for your perusal as well. 

As always, I will be happy to discuss the draft agreement with you. I am copying the Secretary on this 

transmittal as I know he will likely be interested in the subject matter and may have questions for me as 

well. 

Best wishes, 

John E. Huerta ~a_i~si~ 

General Counsel, Smithsonian Institution 

(v) 202-633-5099; (fax) 202-357-4310 

1000 Jefferson Dr. S.W., Suite 302 

Washington, D.C. 20560-0012 

Mailing Address: 

Office of General Counsel 

P.O. Box23286 

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From: Hobbins, 3ames M. 

Sent: Wednesday, ~anuary 24, 2007 6:40 PM 

To: Huerta, 30hn 

Subject: Amending the Secretary's Agreement 

John, 

Here's my first draft. I'1I look fonnrard to your reactions. 

With thanks and best wishes, 

Jim 

IRC7345 

3/28/2007 
Huerta,John 

From: Small, Lawrence 

Sent: Thursday, January 25, 2007 6:04 P~n 

To: Hobbins, James M.; Huerta, John 

Subject: Re: Amending the Secretary's Agreement 

Jim/John: From my perspective, the existing employment agreement I have with the 

Institution has worked well over the last seven years, Certainly, the detailed review 

recently completed has shown that I have lived up to the letter and spirit of the deal 

that was made and from my perspective, so has the Smithsonian. 

Consequently, I have no desire to· enter into even the slightest negotiation to "re-cut", 

in any substantive way, the deal that was made. I have no interest in seeking greater 

benefits than those that were committed to me and which have been operative over thelast 

7 years. Similarly, I'm not willing to discuss giving up one iota of what the Institution 

agreed to prdvide before I came to work. 

If the Institution, at some point, comes to the conclusion it isn't comfortable with 

providing a particular part of the agreement in a certain way, than it should figure out 

another way to deliver the same value. It would represent the highest possible degree of 

naivetii to think adiscussion could even be started where, after all that has been 

accomplished over the course of the last 7 years, I would entertain some form of "giveUp. " 

From my point of view, there's no sense in starting the process of amending the current 

agreement to gain clarity without a complete recognition by everyone involved that neither 

I nor the Institution is expected to "give up" anything committed to in the original 

agreement and essentially institutionalized by the practices followed over the last 7 

years. 

And, once again, if there's any apparent complexity to the proposed amendments, such as in 

the wording raised by John, I shall require, as is standard procedure in senior level 

employment contract negotiations, the Institution to provide whatever level of 

independent outside counsel is required to represent me. 

All the best, 

Larry 

Sent from my BlackBerry Wireless Handheld 

----- Original Message ----- 

From: Hobbins, James M. 

To: Huerta, John 

Cc: Small, Lawrence 

Sent: Thu Jan 25 17:37:11 2007 

Subject: RE: Amending the Secretary's Agreement 

John, 

Thanks for your thoughtful work. I hope Larry has the tools with which he can digest your 

attachments. If this turns out to be relatively straightforward, I'd be delighted to 

reach agreement between Larry and Roger by Monday, January 29th, though honestly there is 

no compelling reason to rush it. 

With best wishes, 

1 IRC7346 
EXHIBIT 10 
Huerta, John 

From: Small, Lawrence 

Sent: Thursday, January 25, 2007 7:16 PM 

To: Huerta, John; Hobbins, James M. 

Cc: Lee, Yong 

Subject: Re: Amending the Secretary's Agreement 

John: Raising the tax issue you have put forth by "spelling out in the transmittal what 

the tax ramifications may be if we are not careful" 

and not presenting any recommendations to deal with them, if, in fact, you think they're 

substantive, neither provides good service to the Regents or to the Secretary. You can't 

just say the equivalent of "You should worry about this" and leave things at that, 

expecting that the Secretary should modify 7 years of practice to conform with some new 

interpretation of what's acceptable. 

If first class air travel at all times, as called for by my existing arrangement and 7 

years of practice, for example, poses a problem from your point of view, there's no sense 

in sending any possible amendments to Roger or to me until.you, with help from anyone'you 

wish, come up with some solution to deal with what you perceive might be a problem. 

For example land not having given this matter much thought), the Institution could easily ·: 

make an estimate of the amount of air travel that would be incurred by me and, on 

occasion, my spouse tall for business reasons, of course) for each coming year and simply 

increase, say, my housing allowance by the grossed-up amount. I could then pay for the air 

travel directly. Net result: Icontinue to live by the deal we made, so does the 

Institution, It would be more costly for the Institution but if the judgment of the 

experts, after 7 years of doing it as we have, is that there's an excessive tax risk, then 

the Institution may well have to spend more money to live up to the deal it made. 

I'm not proposing the foregoing. I'm just saying I'm not willing to discuss any amendments 

if there's even the remotest idea on the table that something like the travel arrangement 

that was agreed to back in 1999 is under discussion and there's no alternative for 

providing equivalent economic and functional value and a total indemnity from any adverse 

tax consequences. 

I do not want any of my comments passed along to Roger. This is strictly a discussion that 

you, Jim and I are having. We shouldn't go to Roger until we are completely comfortable 

that any proposed amendmemt is good for the Institution and good for me, is economically 

equivalent to the existing arrangement and operative practices and protects everyone from 

adverse consequences. 

As Jim points out, there's no reason to rush. These issues should besettled before we go 

back to the Board. It's not right to toss any perceived problems in their lap. 

All the best, 

Larry 

Sent from my BlackBerry Wireless Handheld 

----- Original Message ----- 

From: Huerta, John 

To: Small, Lawrence; Hobbins, James M. 

Sent: Thu Jan 25 18:20:14 2007 

Subject: RE: Amending the Secretary's Agreement 

Larry, 

Thank you for your comments. I am a firm believer that you have lived up to the letter and 

spirit of your employment agreement with the Smithsonian Institution. By drafting the 

IRC7357 
revisions, I was responding to a request from Roger Sant (given to me through Jim Hobbins) 

todraft changes to the indicated sections of your employment agreement. I believe that 

Roger was motivated by the comments and recommendations of the Acting Inspector General. 

I wasn't trying to cut back on any of the benefits that you have received as Secretary of 

the Smithsonian Institution. I was attempting tobring clarity by explicitly indicating 

that you were entitled to first class travel, including car service and premium hotel 

accommodations. Your existing agreement did not have that clarity. 

I am only motivated by loyalty to you and the Institution, and I am trying to protect both 

parties by clearly spelling out in the transmittal what the tax ramifications may be if we 

are not careful. 

Obviously, if you and Roger do not wish to amend your employment agreement, neither Jim 

nor I are requiring you to do so. 

Shall I forward your response to Roger directly, along with my transmittal to you, so that 

he will understand why Jim and I are not proceeding with his request? 

Best wishes, 

John E. Huerta (huertaj@si.edu) 

General Counsel, Smithsonian Institution 

-----Original Message----- 

From: Small, Lawrence 

Sent: Thursday, January 25, 2007 6:04 PM 

To: Hobbins, James M.; Huerta, John 

Subject: Re: Amending the Secretary's Agreement 

Jim/John: From my perspective, the existing-employment agreement I have with the 

Institution has worked well over the last seven years. Certainly, the detailed review 

recently completed has shown that I have lived up to the letter and spirit of the deal 

that was made and from my perspective, so has the Smithsonian. 

Consequently, I have no desire to enter into even the slightest negotiation to "re-cut", 

in any substantive way, the deal that was made. I have no interest in seeking greater 

benefits than those that were committed to me and which have been operative over the last 

7 years. Similarly, I'm not willing to discuss giving up one iota of what the Institution 

agreed to provide before I came to work. 

If the Institution, at some point, comes to the conclusion it isn't comfortable with 

providing a particular part of the agreement in a certain way, than it should figure out 

another way to deliver the same value. It would represent the highest possible degree of 

naivetC to think a discussion could even be started where, after all that has been 

accomplished over the course of the last 7 years, I would entertain some form of "giveUp. " 

From my point of view, there's no sense in starting the process of amending the current 

agreement to gain clarity without a complete recognition by everyone involved that neither 

I nor the Institution is expected to "give up" anything committed to in the original 

agreement andessentially institutionalized by the practices followed over the last 7 

years. 

And, once again, if there's any apparent complexity to the proposed amendments, such as in 

the wording raised by John, I shall require, as is standard procedure in senior level 

employment contract negotiations, the Institution to provide whatever level of 

independent outside counsel is required to represent me. 

All the best, 

Larry 

Sent from my BlackBerry Wireless Handheld 

IRC7358 
Huerta, John 

Fromr Small. Lawrence 

Sent: Thursday, January 25, 2007 7:16 PM 

To: Huerta, John; Hobbins, James M. 

Cc: Lee, Yong 

Subject: Re: Amending the Secretary's Agreement c 

John: Raising the tax issue you have put forth by "spelling out in the transmittal what 

the tax ramifications may be if we are not careful" 

and not presenting any recommendations to deal with them, if, in fact, you think they're 

substantive, neither provides good service to the Regents or to the Secretary. You can't 

just say the equivalent of "kou should worry about this" and leave things at that, 

expecting that the Secretary should modify 7 years of practice to conform with some new 

interpretation of what's acceptable. 

If first class air travel at all times, as called for by my existing arrangement and 7 

years of practice, for example, poses a problem from your point of view, there's no sense 

in sending any possible amendments to Roger or to me until you, with help from anyone you 

wish, come up with some solution to deal with what you perceive might be a problem. 

For example land not having given this matter much thought), the Institution could easily 

make an estimate of the amount of air travel that would be incurred by me and, on 

occasion, my spouse tall for business reasons, of course) for each coming year and simply 

increase, say, my housing allowance by the grossed-up amount. I could then pay for the air 

travel directly. Net result: Icontinue to live by the deal we made, so does the 

Institution. It would be more costly for the Institution but if the judgment of the 

experts, after 7 years of doing it as we have, is that there's an excessive tax risk, then 

the Institution may well have to spend more money to live up to the deal it made. 

I'm not proposing the foregoing. I'm lust saying I'm not willing to discuss any amendments 

if there's even the remotest idea on the tabl'e that something like the travel arrangement 

that was agreed to back in 1999 is under discussion and there's no alternative for 

providing equivalent economic and functional value and a total indemnity from any adverse 

tax consequences. 

I do not want any of my comments passed along to Roger. This is strictly a discussion that 

you, Jim and I are having. We shouldn't go to Roger until we are completely comfortable 

that any proposed amendmemt is good for the Institution and good for me, is economically 

equivalent to the existing arrangement and operative practices and protects everyone from 

adverse consequences. 

As Jim points out, there's no reason to rush. These issues should be settled before we go 

back t6 the Board. It's not right to toss any perceivedproblems in their lap. 

All the best, 

Larry 

Sent from my BlackBerry Wireless Handheld 

----- Original Message----- 

From: Huerta, John 

To: Small, Lawrence; Hobbins, James M. 

Sent: Thu Jan 25 18:20:14 2007 

Subject: RE: Amending the Secretary's Agreement 

Larry, 

Thank you ~for your comments. I am a firm believer that you have lived up to the letter and 

spirit of your employment agreement with the Smithsonian Institution. By drafting the 

IRC7357 
revisions, I was responding to a request from Roger Sant (given to me through Jim Hobbins) 

to draft changes to the indicated sections of your employment agreement. I believe that 

Roger was motivated by the comments and recommendations of the Acting Inspector General. 

I wasn't trying to cut back on any of the benefits that you have received as Secretary of the Smithsonian Institution. I was attempting to bring clarity by explicitly indicating 

that you were entitled to first class travel, including car service and premium hotel 

accommodations. Your existing agreement did not have that clarity. 

I am only motivated by loyalty to you and the Institution, and I am trying to protect both 

parties by clearly spelling out in the transmittal what the tax ramifications may be if we 

are not careful. 

Obviously, if you and Roger do not wish to amend your employment agreement, neither Jim 

nor I are requiring you to do so. 

Shall I forward your response to Roger directly, along with my transmittal to you, so that he will understand ~why Jim and I are not proceeding with his request? 

Best wishes, 

John E. Huerta (huertaj@si.edu) 

General Counsel, Smithsonian Institution 

-----Original Message----- 

From: Small, Lawrence 

Sent: Thursday, January 25, 2007 6:04 PM 

To: Hobbins, James M.; Huerta, John 

Subject: Re: Amending the Secretary's Agreement 

Jim/John: From my perspective, the existing employment agreement I have with the 

Institution has worked well over the last seven years. Certainly, the detailed review 

recently completed has shown that I have lived up to the letter and spirit of the deal 

that was made and from my perspective, so has the Smithsonian. 

Cons equently, I have no desire to enter into even the slightest negotiation to "re-cut", 

in any substantive way, the deal that was made. I have no interest in seeking greater benefits than those that were committed to me and which have been operative over the last 

7 years. Similarly, I'm not willing to discuss giving up one iota of what the Institution 

agreed to provide before I came to work. 

If the Institution, at some point, comes to the conclusion it isn't comfortable with 

providing a particular part of the agreement in a certain way, than it should figure out 

another way to deliver the same value. It would represent the highestpossible degree of naivet~ to think a discussion could even bestarted where, after all that has been 

accomplished over the course of the last 7 years, I would entertain some form of "gi~eup. " 

From my point of view, there's no sense in starting the process of amending the current 

agreement to gain clarity without a complete recognition by everyone involved that neither 

Inor theInstitution is expected to "give up" anything committed to in the original 

agreement and essentially institutionalized by the practices followed over the last 7 

years. 

And, once again, if there's any apparent complexity to the proposed amendments, such as in the wording raised by John, I shall require, as is standard procedure in senior level 

employment contract negotiations, the Institution to provide whatever level of 

independent outside counsel is required to represent me. 

All the best, 

Larry 

Sent from my BlackBerry Wireless Handheld 

IRC7358 
EXHIBIT 1~ 
%A;n~:Hobbins-Re:lany's compen~a~tion Page i 

From: JAMES M. Hobbins 

To: Lee, Yong 

Date: 111110010:17AM 

Subject: Re: larry's compensation 

Yong, 

About a week ago I provided a copy of the Secretary's employment agreement to Carolyn to help her 

understand what needs to be arranged. I discussed with her the salary and payment in lieu of pension. 1 

did not go into the housing allowance, as that is an amount, not to be exceeded, to be reimbursed upon 

the Secretary's presentation in writing of accounts or receipts, handled in the Office of the Secretary. 

Having heard nothing further from Carolyn, I assume all's in order. 

Jim 

>>> Yong Lee Oili 1100 09:30AM ,>> 

Hiya Jim: 

Does Carolyn know all of the components of Larry's pay package -like housing allowance; pension 

payments; salary? Shall 1 discuss with her how all the components will be paid? 

Thanks, 

YL 

CC: Trail, Leigh 

IRC8907 
EXHIBIT 12 
~ Smiihsonianloriiruf ion Memo 

Oflice olLhe secretary 

Date February10,2000 

To Jim Hobbins/lcc~Barbej: CSyable) 

From Larry 

subject Disp~ursal/ef Housing Allowance 

i wish to establish the procedure by dhich I will receive monthly payments of the 

housing allowance that is part of my September 28, 1999, employment agreement. As 

you know, Paragraph #7 of that agreement. indicates the following: 

The Secretary· shall make his personal residence available for official 

Smithsonian hospitality and will receive a housing allowance not to exceed 

$1 50,000 per year in compensation for up to fifty percent (50%) of the actual 

costs of his housing. Payment of these funds will be made by the Smithsonian to 

the Secretary monthly upon his presentation monthly of records of housing 

operating and maintenance expenditures including but not to be limited to: 

homeowner's insurance, utilities, ordinary maintenance and cleaning, grounds 

service, real estate taxes, mortgage interest or equivalent costs of home 

ownership, etc., but not capital expenditures. 

Given the conservatively estimated value of my main residence and associated gallery, in 

both of which we will continue to do official entertaining on behalf of the Smithsonian, 

the following computation of monthly costs of home ownership demonstrates that I 

qualify for the full allowance on the basis of these costs alone: 

Value'of residence and associated space $4,000,000 

Equivalent rate of mortgage, per annum · 8.5% 

Calculated cost ofownership, per annum . $340,000 

50% share of annual cost of ownership $ 1 70,000 

Since the 50% share of my calculated cost of ownership exceeds the Smithsonian's 

housing allowance, Iwould ask for the maximum $150,000 per year, or $12,500 per 

month. 

Our signed agreement provides for the disbursal of these funds on a monthly basis. I 

understand that this payment, unlike my direct reimbursements, will be taxable under IRS 

regulations. I will be pleased-to receive $12,500 monthly less standard withholding 

determined by the Comptroller. 

Smithsonian Instilution Building Room 205 

1U00 leT~erson Drive SW 

Washington DC 20~60-0016 

202.357.1846 Telephone SG0328 

202.786.?515 Fax 
8 Smithsonian fnstitution Memo 

Of~ce orthe Secretary 

Dale February10,2000 

To Elard Phillips 

cc Ed Knapp, Yong Lee 

From lim HO~O~ 

Subj,,l Payme~;ltc~itheSecretary's HousingAllowance 

I havejust received the attached memo from Secretary Small on the matter of his 

housing allowance, which you and Idiscussed yesterday. Ashis request represents a 

mortgage payment, it is his preference, from which Itake no exception, toreceive this 

payment by direct deposit in his bank account on the first business day ofeach month. 

Accordingly, his first payment would be due as soon 

as you are able and each subsequent 

payments in the year.2000, for instance, would be March i, April 3, May I,~une 1,July 

3, August I, September 1, October 2, November I,and December i.

If you need additional information to arrange for the direct deposit, please work 

with Yong Lee. She can be reached at 357-1846. 

Many thanks for your help! 

Smithsonian Institution Building Room 215 

1000 lerferson Drive SW 

Washing~on DC 20560-0016 SG0329 

202.3~7.1869 Telephone 

202.786.2515 1~:~( 
IJARES~ Hp6b6- Ri hou~pallmsnca ~- --- -Psg~l 

From: JAMES M. Hobblns 

To: Lee, Yong 

Date: 2/1010011:38AM 

Subject: Re: housing allowance 

Yong, 

If Larry really wants it, I'm sure I can get the Comptroller to pay him as soon as possible and again, 

Prospectively, onthe first business day of each succeeding month. 

Jim 

>>, Yong Lee 02/10100 10:52AM >~> 

Well, that sounds logical to me. But I think Larry will say that the rationale behind paying him the allowance is for carrying the cost of the "mortgage" which if he were to pay for a mortgage, he wouldo 

that the ist of every month for the coming month. 

I just have afeeling that, given his daily questioning of whether or not he received his housing allowance, 

he's expecting It now, not on March 1. If you think we're stretching ittoo much with this, then we can think 

of something else. 

What do you think? 

YL 

""> JAMES M. Hobbins 02110/00 10:35AM >z, 

Yong. 

Can we talk about tirning7 Since the housing allowance ~s supposed to represent compensation for actual 

expenses (even though we're doing it on the basis of a calculated amount), itseemed to ma that it would 

be more in keeping with the employment agreement torequest that each payment should be made on the 

first business day of the month, in recognition of the expenses of the preceding month. This would mean 

a payment on March 1 for February, if you understand me. 

What do you think? Should we discuss7 

Jim 

.~> Yong Lee 02110/00 09:29AM >~> 

Hi Jim: 

Y~u'll have seen Larry note re housing allowance. Can you ask the Comptroller to direct deposit $12.500 

for February as soon as possible, with the rest paid directly the first of every month, as you suggested? 

Thanks, 

YL 

SG0330 
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EXHIBIT 13 
rJ~nrrs~s~T~si;is~REs~i~~'BR~T--~-l`~"l--~-P~I-~l`~----p~,~Ts~ 

From: "Yong Lee" <yong~,lee~fanniemae.com~ 

To: ~newmanc~si.edu>, doconnor~si.edu> 

Sate: 10125/992:31PM 

Sub~ect: MESSAGE FROM LARRV SMALL 

ConnielDennis: 

Just to recap, rs my understandingthe hnro of you are moving forward 

on the foWouilnginitlathres: 

1. Creation of a job description and commencement of an executive 

search for a CFO to supervise as finandd functions, e.g., planning 

and budgeting; cunent CFO's functions; treasury; at al. 

1%1 like to see the job description and the suggested range of the 

compensation package when appropriate. 

2. Same as above for a Chief Information Technology Officer to take 

responsibility for all IT fonctions. 

3. The.development of a systematic approach to benchmarking executive 

c6mpensation with a defined comparator group and the creation of a 

process for doing annual reviews of the Smithsonian's competitive 

position vis-a-vis the comparator group. LonJe Rudln at Fannie Mae 

(the company's executive compensation specialist) stands ready to 

provide the Smithsonian with Uluustativa material. Jim Hobbins has, I 

believe, spoken to her already. Ultbnetely, we will want to do to the 

Regents with a proposal to adopta formal compensation philosophy 

ooven'ng the composition of the comparator group, when, we want to 

position our compensation in that universe and what Ule policies and 

procedures wig be to carry out that philosophy so that we remain at the 

position the Regentshave approved. 

4. To be aligned with the basic premise of the "relnventing government" 

movement we should work with KPMG to benchmark the best processes three 

or Four highly regarded museums use to manage the allocation, use and 

disbursement of"trust monies." There are few people on the face of the 

earth who would view the federal gwremmenPs approach to budgeting and 

spending money as a paragon of efficiency. Consequently, wt should seek 

to take advantage of every reasonable and modem technique developed by 

nongovernment institutions in the management of their private funds and 

develop a set of policies and procedures that allows the "trust side' of 

the house to be far mom agile and lexible than the federal side. 

Obviously, the idea here is to increase the ability of the Smithsonian 

to act decisively and to be able to.get things done more quickly. 

Obviously, nothing should be done which would weaken effective contrd. 

As a "heads-up," I will be very interested in having a professionally 

done attitude survey, or as they call them these days, an ~employee 

perspectives sunray." covering ALL Smithsonian employees as soon as 

possible. To the extent you can get a head start on this, it would be 

great. Hewitt Associates is a firm that does goad work in this area but 

them are plenty of others as well. Having a good handle on employee 

morale as well as what their specific attitudes are about the various 

IRC8893 
·' ~I 

aspects of their employment situation is a must. Furthwmore, i would 

be helpful to see how attitudos vary from unit to un# 

Al the best, 

Larry 

CC: "James M. Hobblns" ~hobbinsj~ylc.si.edu> 

~RC8894 
IEXHIBIT 14 
SI Funds Raised FY90-06 

Adams Heyman Small 

250.00 

200.00 

150.00 

I I L -' ·5,000,000 a

fff 100.00 1 I t 11 01,000,00-

-12% (FY00-

O 100,000- 99

13% (FY00-

50.00 

·10,000-99,999.99 

43% (FY00-0

L?I0-9,999.99 

0.00 -f~a~a~pa~h~i~' 23% (FY00

-Ipb 0"3 ~9" ~4" P P ,·o~" ~·~" ~io~' 92 c·4" ,·9" ,·~" ~ G\o" ~ ~ 
EXHIBIT 115 
Public Contributions* for Selected Institutions 1999-2005, 

Expressed as a Percentane of 1999 Public Contributions 

350.00% 

300.00% 

250.00% 

200.00% ' i 

150.00% 

A 

100.00% 

V 

50.00% 

1999 2000 2001 2002 2003 2004 2005 

*Direct and indirect public support (Form 990 Lines la and 1 b) 
EXHIBIT 16 
SMITHSONIAN INSTITUTION 

10-Year Appropriation History 

(Dollars in millions) (Federal includes Gov't Grants a Contracts) 

FY 1997 FY 1998 FY 1999 F_Y_2000 FY 2001 FY 2002 FY2003 FY2004 

Federal Workforce 

Federal Workforce (FTEs) 4,119 4,180 4,200 4,118 4,040 4,180 4,324 4,245 

Appropriations 

Salaries 8 Expenses 318.5 333.4 351.3 371.2 386.9 420.6 446.1 488.

Facilities Capital 52.9 68.9 60.4 66.9 67.0 97.9 98.8 107

Total Appropriations 371.4 402.3 411.7 438.1 453.9 518.5 544.9 596.

Unrestrcted Trust-Govt Grants & Contracts 56.7 57.3 66.9 68.8 79.8 96.1 108.4 107.

Total Federal(including GrantslContracts) 428.1 459.6 478.6 506.9 533.7 614.6 653.3 704.

TRUST FUNDS 

Unrestricted (exc. Govt Grants 8 Contracts) 79.7 73.6 84.6 91.2 86.6 114.6 97.8 118

Restricted 26 2 53 5 123 6 141.9 135.8 84.3 50.8 84.

Total Trust (excl. Govt Grants & Contracts) 105.9 127.1 208.2 233.1 222.4 198.9 148.6 202.

TOTAL FEDERAL (L TRUST 534.0 529.4 619.9 671.2 676.3 717.4 693.5 799.2 

% Federal 80% 76% 66% 65% 67% 72% 79% 75% 

% Trust 20% 24% 34% 35% 33% 28% 21% 25% 
SMITHSONIAN INSTITUTION 

10-Year Appropriation History 

(Dollars in millions) (Trust includes Gov't Grants 8 Contracts) 

FY 1997 FY 1998 FY 1999 FY 2000 FY 2001 FY 2002 FY2003 FY2004 

Federal Workforce 

Federal Workforce (FTEs) 4,119 4,180 4,200 4,118 4,040 4,180 4,324 4,245 

Appropriations 

Salaries 8 Expenses 318.5 333.4 351.3 371.2 386.9 420.6 446.1 488.

Facilities Capital 52.9 68.9 60.4 66.9 67.0 97.9 98.8 107.

Total Federal 371.4 402.3 411.7 438.1 453.9 518.5 544.9 596.3 

TRUST FUNDS 

Unrestricted-Government Grants & Contracts 56.7 57.3 66.9 68.8 79.8 96.1 108.4 107.7 

Unrestricted-All Other 79.7 73.6 84.6 91.2 86.6 114.6 97.8 118.6 

Restricted 26.2 53.5 123.6 141.9 135.8 84.3 50.8 84.

Total Trust (includes GrantslContracts) 162.6 184.4 275.1 301.9 302.2 295.0 257.0 310.

TOTAL FEDERAL & TRUST 534.0 586.7 686.8 740.0 756.1 813.5 801.9 906.9 

% Federal 70% 69% 60% 59% 60% 64% 68% 66% 

% Trust 30% 31% 40% 41% 40% 36% 32% 34% 
Smithsonian Institution Staffing 

24% decline in staff since FY 1993 

4,900 

4.793 

4.700 

4.500 

4.300 

4.100 

3.900 

3,650 

3.700 

3,500 

FY 1993 N1994 FY1995 FY1996 FY1997 FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 

· Insufficient funds have translated into staff reductions 

· Does not include NMAI increases after 1992, NASM Hazy Center, NMAAHC & AntiTerrorism 
EXHIBIT 17 
C~' ·j?ri~~ 

MEMO: To File 

DATE: June 6, 2001 

FROM: YongLee iCCRE: May 4-6, 2001 trip to San Antonio,-TX 

We decided tobook acharter flight for the Secretary's travel from Washington, DC, to 

San Antonio, TX, outbound on May 4, 2001, and return on May 6, 2001, for the 

following reasons: 

The Secretary had accepted the invitation to be honored at the American Academy of

Achievement ihe fall of2000. At the time ofacceptance, we were not aware of 

any other commitments during the award weekend. The Secretary decided toaccept 

the award because it presented an opportunity for him to talk to a wider audience 

abouthe Smithsonian and for him to talk to potential donors. 

When we were booking travel to San Antonio, we realized that the award ~i~eekend 

was the same as the Regents meeting. The award weekend required the Secretary to 

stay in San Antonio Saturday evening. The Regents meetings began Sunday 

afternoon. The only feasible return flight fiom San Antonio to Washington, DC, 

required a change of planes that would get him into Washingtonly a couple of 

hours before the Regents meeting. There was a very real threathat if there were any 

delays in San Antonio or with his connecting flight, he would have missed the 

Regents meeting. 

Because ofthis, we started looking into charter flights for the return tone way from 

San Antonio to Washington). What we discovered isthat a one-way charter was only 

51,000 less than a round-trip by charter. Also, a commercial one-way outbound 

(from DC to San Antonio) exceeded $1,000. In other words, the cost for a 

commercial one-way outbound and a charter one-way return exceeded a charter 

round-trip. 

Given the significance of the Secretary's appearance in San Antonio and his pivotal 

participation in the Regents' meetings, reserving the charter was the prudent course of 

action. 

IRC9865 
Flight options for the 4th 

Northwest 1050am Natl via Memphis into SAT 306pm 

American 1051am Natl. via DFW into SAT 341pm 

Continental 1120am Natl. via HOU into SAT 316pm 

May 6 

740am depart SAT thru DFW and into Natl. 129pm. 

545am thru D_FW into Natl. 1117am 

620am thr; DFW into Natl. 1159am 

IRC9868 

I 
EXHIBIT 18 
Fvom: 05/17/2007 10:00 #037 P.003~013 

~;: -:iij~.;: ;:."'.'~Y:r:-;R~::~:-)~.~J~i~t~:Lili: :·1:~~: E,:-il~:~:-:~i;i:-~ i.·.-i -:': ;4 :i;:,,::---ii.:::::I .- .::_:'i~ji::-:i ~I-·:II;;·· · ·--r. ·-·~l-r,i· i·;rli': -;;_;~:: 

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i-1s~,~·r~~:I;::~:::i~;·~- "::::i~..:_-:~:::.I-,,

I~ 

1 

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.-·. .:::: : : ;: -; ~ :: ~:j_-.·: ]:/: _;~ : j:· I: : '-: -:::::;::ii:: . :_~~;.·.~-:: -:I 

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: : ::i 
From: 05~17/2007 10:01 #037 P.003/013 

TRAVEL \fOUCHER ~. DEPARTMENT OR ESTABLISHMENT 2 TYPE OF TRAVEL VOUCHER NO. 

BUREAU DNISION OR OFFICE 

~ TEMPORARYDUrY 0164TA10027 

(ReadhivacyAb 1100-OFC OF SECTY PERMANENT CHANGE SCHEDULE NO. Statement o theb~k) ~.· 17 oFsrAnoE( 

5.JaNAME (Lasi.f~s~middle~itia~ '" ' U - I b.SOCIAL SECURITY NO. Is. PERIOD OF TRAVEL 

kFROM TO 

Sinall, Lawrence M. 05/04/01 05/06/01 

cMAILING AM)RESS (Include UP Code) d. OFFICE TELEPHONE NO. -TRAVELAUTHORWTION 

1000 Jefferson Drive, SW 202-~111) NUMBER(S) DATE(S) 

SIE 2051 MRC 016 0164111l0027 

W DC 60 

a. PRESENT DUTY SIATION 05/31/01 LRESIDENCE (CifyandState) 

Washington, DC Washington, DC 110. CHECK HO. . 

8.TRAVUADVANCE IS.CASHPAYIY~KT 

~~. PAID BY 

aOutstanding aR9TEREC~mD 

b. Amount to be 

c Amount due Govemment 

IAttached aChecle nCash) c. 

D. Ba~anc~outstandins I _c~? r, 

12. MVERN~IENT 

TRANSPO~TATIOH I nerEby ~ri~ Ihe united S~e..mlriQm Imy ~p~p~ikrbSrt ~if;n~y~Me , ~a*sWsMIF~ REQUESTS, OR tranportatioI charges described below, purchased !p~gy~i~dSpro~edues TRANSPORTATION 

flCKEIS, F·WR- ISSUING MOM ~- .k . . .2HASED WITH CASH AGENTS CAR- CLASS OF 

IWbynumberbek~w I VALUATION ~ I RIER I SERVICE bATEtJ ; 

and attach Passenger OF TICKET ;ACCOIH- I~SUED 

~Jarinmreverse ( `m 

A~TING CWbSSIFICAT 

0.00 

~dsD p-~1 r4·I-/YV8 ~uL I 

COMMENTS: 

Trip Number II Busines~ nec sity a~d schedul conflicts required alterriative tr 

ansportation riers d/o ace dations a greater cost. 

~3. 1 certify that this vouc)lerls true and conect to the best of my knowledge and belief. and that payment wcredithasn~t~een 

~e~p~pct~l"e When applicable. perdiem daimed is based MI the average cost ofIodgtng Incurred during the period cwered by 

TRAVELER , DAfE AMOUNT SIGN HERE . 1 14711J70 

EJOTE: Fi~sificalkn of an item in 8nexpMseacoou;;i~s~;is~7~(i;i~e~,73~,~;;; (28 U.SC. 2Ei14) and may maun in a fine dnot mom 

~an S1O.OW orimprisonment fwnotmore than Syears orbolh /18 U.SC. 287; id. 1881). 

~4. This Mucheris approved. Long mstancepho~e~a~is~S~any~;e~-f~;i~; 

necessary In the interestof the Gwemment 17. FOR~INANCEOFFICEUSEDNLY (NOTE: nlong distance telephone calls nbN 

are included the approving c~flicial most have been audhori2ed is miting by the 

headol~e deparbnent oragency to sc certify (31 U.SC. bBCaJ.) a IIIFFERENCES. 

nPPRoV~G Leslie Davis Assist o IFANY the ~xplaln DFRCLAL 

IilON HERE . i I ~lpoU~w 

15. LAST PRECEDIFIO VOUCHER PAID UNDER SAME TRAVEL AUTHORIZATION '' 

i. VOUCHER NO. b. TOTAL VERIFIED CORRECT FOR D.O. SYMBOL c MONTH BCHARGE TO APPROPRIATION 

YEAR 

Cerlffier's in~ials; 6. MIS VOUCHER IS CERTIFIED CORRECT AND PROPER FOR PAYMENT c APPUED TOTRAVEL ADVANCE 

~U'FHORIZED (A~opralion sym~ol): ojoo 

:ERTINING 

)FLlCLAL~ ~ IDATE 5 

;tONHERE 14711170 NET TO TRAVELER . 

8. ~E~U)~fj~j~faSSj~f~Af~OVE 

1012-16 NSN7.CdM~Ft·1M1Rn 
INSTRUCTIONS TO TRA IUnllsled items an,sell explanatory) 

SCHEDULE Col. (cl Ifthevoucherlndudes Commembers of employee's oofy (hJ ShowexpenSea, guchaj:laundi~, cle8nln~ pressing of clothes, tips to bellboys, 

(d) Show amouotlncuned brachjneal, 

tax and tips, end delly total 

DF per dlem ellowances for plele Ihnr (0~ mealcost. 

EXPENSES Immediate family, show poiters, etc. (other then f6r mee!s). 

aND members' names, ages, actual Il) Complete,or per diem arid actual expense 

and relationships to am- 111 Show t~tel subsistence expense' incurred for expense travel. 

AMOUNfS expense ~ Showpiliemar~ounl Ilmitedtomarfmum or P-avel onactual expense, show ployee end marllal status Irevel the lesser of the emounilrom cdl. r)) pr rate. 

CLAIMED olchildren (unless Inlor- (nJ Showe~eMe$, such8e:·taxMlmousln8 rare (rr purchased with cash), local or 

mellon Is shown on the long distance telephone calls Rrf Govemment car rental, relocation other than aubs$unce, etc. 

DATE TI;ME DESCRIPTION )I riEMlz~osuesrsTBlcE U(PMSE~ ( ~ (MILEAGE 

D1 (Hoor IDeparlure/arnlvel city, perdiem MEALI : Madt · RATE: 

18 and compdal/on. oroyleeerpleaellon iAd~ObS TOTAL 

an~m) ofexpenses) BREAK- :svsslS- SUBSISTENCE NO- OF MILE

FAST LUNCH DINNER TOTAL . TENCE I-1-r U(PENSE I MILES 

,5/04 D-: RES: Washingto DC 

15/04 A-: SAN- ANTONIO. TX ·O O 

15/04 charter fligi;t ;j 

04 fares from office 

I: 1 II i I I ·I 

15/04 refreshment centerllin' r~omi 

'5/(]5 breakfast w/ Sen. rlgt 

15 05 car service r ii 

15/05 fares from office i. I · 

I I I I · I 

15/06 A: RES t· Washington, 

I: I II I I I -I 

I : 

I i I I 

I ~ 

noddlllonal spce ~ requlre4.conilnue on snolhe~ ~012-A B~ leaving Ihe Ilonl blank. · U__I_·-· ·· TOTALS O 

In compliance with the Privacy Act or ig~N, the lollowhg Inlormatlon crlmlnal,-or regul~tory InvaeUat~onb or when Pursuant toe 

rided: Sollcllancn of the InlonneHon on this form Is authorlred by 5 requirement bythis agency In c~nnedlon - ·hlrlri~ or nrln~ of an Enlergr

Chap. 67 as Implemented by the FederalTravel Resulatlons IFPMR 101 71. employee, the Uuance of a security orlnv~sUBafl~np oflhe oer- (n~ belo

E.O, 11608 Or July 22, 1671; E.O. 1 1012 01 March n, 1862, E.O. 9287 dl lormaoce oToldal·duty whlle:rri G~vemmenl i. Your Social Secuilty thl~~br

,,,,,, I*I, ,,, U.8.C aorllbl nd sl~a.m. ~LOL~Yn~NYl~er(SSWID:IhWLBd ,,, I~i~P~h~l~nlGe~ 

~ the requested Inldrnaflon Is to determlh8 payment or to Revenue Code. (28`U.S.C: IDlllb)-end ei 

Jlglble Individuals for allowable travel andloi ~locatlon ewoenses 1246, for use as a tax payer-anploi,emp number; disclosure 

lnaer appropriate admlnlstratlve authorlrallon end to record end is MANDATORY.ion vouchers ~ivel .riilocetlon allowance 

x,sts of such reimbursements to the Government. The Inlorma8on be expense i~,lmtiursqii~bntwhlch Is; or iilay be..l Incbina. Disclosure of TOTAL 

Ised by officers and employees who have a need for the Inlompalon the you SSN and otharrequest~d intqrinrition is ~vi In dll othei instances: AMOUN

~erlanance of their officleldutles. The' Inlormatlon may beto howev~r. .failure ~o·:pmvldii'~Uie ·then-SSN) iequlred to CLAI

STAN
Fvom: 05/17/2007 ~0:02 #037 P.005~013 

U'I/IOI U,1 ACCOUNTING DETAIL IDoc No: 0164TA10027 

Cqpyright ·1998 Gelco 'Information Network, Inc. ISmall, Lawrene i ___ 

===r============~=====__========,===================~===--======,============= 

ACCOUNTING CLASS CODE · TRIP 1 

OTHEp-409 · 14,711.70 

accsl~ 0.00 0.00 14,711.70 

(Lroa~ization: 1100-OFC OFSECTY 

SPLIT PAY DISBURSEMENTS: 

TOTAL EXPENSES ----~------------------------ 14,711.70 

NON-REIMBURSABLE EXPENSES -------------- 0.00 

TOTAL AMOUNT CLAIMED ----------------------- 14,711.70 

GOV'T ADVANCE OUTSTANDING -- 0.00 

.GOV'T ADVANCE APPLIED· ------ 0.00 

0.00 

NET TO TRAVELER- (GOVT) : --------------------- 14,··7 11 . 70 

-GOV'T CHARGE CARD EXPENSES - 0.90 

: ··GOV-' T--CHA-RGE-- CARD · -AT~·---P;DV-· -- - ---· ··---- -------- --0. 00 

ADD'L GOV'T CHARGE CARD PYMT 0.00 

TOTAL GOV'T CHARGE CARD IIMT 0.00 

PAY TO GOV'T CHARGE CARD-------------------- 0.00 

PAY TO TRAVELER ---------------------------- 14,711.70 
Fr~m: 05~17/2007 10:03 #037 P.006/013 

:J I/IU~UI. UVCUMLt;NT f~lS'I'UHY Ivoucher: 0164TA1U027 

Copyrig~ht·1998 Gelco.Information Network GSD,- Inc. [Small, Lawrene ~ 

=-~==I='=====================,===========,,,=,,,,,,====,2~~~~---~--------------- 

STATUS DATE TIME SIGNATURE NAME 

CREATED 06/19/01 1:40PM LESLIE DAVIS 

SIGNED 06/19/01 1:50PM LESLIE DAVIS 

SIGNED 06/22/01 12:29PM LESLIE DAVIS 

SIGNED 0 6/2 7/ 01 1:39PM LESLIE DAVIS 

SIGNED 07/02/01 5:46PM Lawrence Small 

APPROVED 07/03/01 2:12PM James Hobbins 

PROCESSED 07/06/01 2:25PM Comptroller's Office 

DATA LINK 07/06/01 2:25PM Comptroller's Office 

I certify that the electronic signatures listed above are 

validand on file. 

SIGNED DATE 
Fvom: 05/17/2007 10:03 #037 P.007/013 

Invoice Approval ISA / SIAPISA 

Authorization code.... P Bank....: EFT 

Vendor ..,......,.,, "-- I I IL Pay Code: T 

Invoice............... 01071001 

~ biie-:-DaCe· :-~;~;~:' 

Reason (Close only)... _ 07/10/01 

Total invoice amount.: - $14,711.70 Invoice status.: P 

Total line amount....: $14,711.70 Override bal ok: N 

Di~fe~ence;........: $.00 

'Discount .............: $.00 Tech ent by.: SHARONWEBER 

Retention amount.....: $.00 Tech chg by.: SHARON WEBER 

Net, pending payment: $14,711.70 Tech auth by: SHARON WEBER 

Tech cls by.: 

Payee Name and Address EFT BBnking Data 

Name.....: LAWRENCE M. SMALL RTN..: 

Address 1: ^^' _. Accta: 

Address 2: Type.: 

Address 3: Tin#.: 

City.....: WASHINGTON St: DC Zip code: - It Country: USA 

Next transaction ISA Status: COMPLETE SC / SFSZ 

Pi-Help F2eNext -txn F3rExit F·cl=Prompt F5=Hold txn F6=Change sys 

F7= F8= F9= F10= F11= F12=Main menu 

4-0 1 SIVM ~i6nlli-~,~-~-----~----iS0~50~j~>,~; 
From: 05/1312007 10:03 #037 P.008/013 

~VL ~V: VID~I~IVULI 

PAGEJ ~l-jrf iiead'Privacy Act On Last Page '" I AUTH NO: 0164TA10027 

=-~-=~==========~============~r===========_======================= =--========= 

1) NAME: Small, Lawrence M. 

ADDR: 1000 Jefferson Dri PHONE: 

SIE 205, MRC 016 ~A~IL CD: 

Washington, DC 20560 ORG: 1100-OFC OF SECTY 

TITLE: Secretary 

DUTY: Washington, DC TZ: 6 SEC CLR: 

RES: Washington, DC CARD: CARD HOLDER 

HOURS: 8 

SFS Vendor # Traveler Status employee 

2~ AUTH NO:0164TA10027 DATE: 05/31/01 TYPE: SINGLE TRIP 

3) TRAVEL PURPOSEi OTHER (cite Description) Attend and participate in the American Academy of Achievement'~~Gol~n Flat 

e Awards 

L~~~~~-·--·------------------------------- 

4) GENER~L ITINERARY 

DATE TIME DEPARTED/ARRIVED LOCATIONS PER DIEM RAT~-; 

-----·· ~--------- 

05/04/01 D-RES: Washington,DC 

05/ 04 /01 A-SAN ANTONIO, TX 91/42 ·- 6~ 

05/06/01 A RES: Washington,DC 

05/04/01 ACTUALS: LODGING 357,00 

05/05/01 ACTUALS: LODGING 357 .00 

5) OTHER AUTHORIZATIONS 16) EST COST ADV AMT 

ACTUAL EXPENSES AUTHORIZED I·M&IE 105.00 105.00 

IOTHER 14509.40` 14509.40 

ITOTAL 14614.40 14614 .40 

ADVANCE AUTHORIZED 0.00 

7) ACCOUNTING CLASSIFICATIONS EST COST 

14614.40 

~li~~====~_-========~~========================================================= 

8) REMARKS 

~harter~flight was neces~ar~q~or~Mr. Small to return to DC in time for the Regen 

expenses. 

~c~O;a 

e ,~hv to'jl/ 

~ CI 

Ver=7.1=Copyright 1998 Gelco Information Network GSD, Inc. 10)FITNDS OBLIGATED== 

9) AUTHORIZED BY TITLE · DATE INITIALS DATE 

James Hobbins Exec. Asst. to Sec 

=====================================================================~========== 
From: 05/~7/2007 10:04 #037 P.009/013 

0 6 / 0:6/ O I TRAVEL AUTHORIZATION DOC NO: 0 1 64 TA1 0 02 7 

PAGE~j 2 "" Read Privacy Act On Last Page +f AUTH NO: 0164TA10027 

11) GTR/FICKET NO VALUE CR CLS DATE FROM TO 

===========================================================~==================== 

12) ITINERARY AND TRANSPORTATION EXPENSES - TRIP NO 1 

DATE TIME DEPARTED/ARRIVED LOCATIONS MODE .COST DESCRIPTION 

05/04~01 D-RES: Washington,DC 

05/04/01 A-SAN ANTONIOI TX 

05/06/01 D-SAN ANTONIO, TX 

05/06/01 A RES: Washington,DC 

TOTAL TRANSPORTATION EXPENSES 0.00 

13) SUBSISTENCE AND OTHER REIMBURSABLE EXPENSES 

ACTUAL LODGING MEALS M&IE P-DIEM 

-f~tA-TE--~BjBG~P~-I~c~s ~ R_r. n nr.T.nw RA71F: nTWFR EXPENSES AMOUNT 

05/04 0.00 0.00 31.50 0.00 

charter flight 14509.40 

05/05 0.00 0.00 42.00 0.00 

ACTUAL LDG: 0.00 

05/06 0.00 0.00 31.50 0. 00 

0.00 105.00 14509.40 

;TR7.1=RATE TABLE DATE=05/01/01=Copyright 1998 Gelco Information Network GSD, Inc 

============================__================================================== 

Exception to GSA Form 87 

~n compliance with the Privacy Act of 1974, the following information is 

~rovided: Basic authority for requiring the requested information is contained 

in 5 USC 5701-5733, particularly sections 5721-5733, 30 USC 905and Executive 

)rder 9397. Disclosure of the data by youis voluntary. The principal purpose 

ror collecting the data is to determine the amount to reimburse an employee 

Ior expenses incurred in connection with temporary duty travel. Information 

~ay be transferred to appropriate Federal, State, local or foreign agencies 

Jhen relevant to civil, criminal.or regulatory investigations or prosecutions. 

Ihere is no personal liability to you if you do not furnish therequesfed 

~nformation; however, we shall not be able to reimburse you for your expenses. 
Fvom: 05~17/2007 10:04 #037 P.010~013 

--------______,_ ---r~----1--~ ----~V u~~Lrv ~~~~viluaLIVI1 · ncLWULKI ------- inc. ~'~'UI~~ lymall LI~WL~IIL Lawrene · 

-~--7--~-7'~~L=====~===========================================~===~-=~-=~'====== 

ACCOUNTING CLASS CODE 

TRIP 1 

---~-'------------------- 

MCIE-409 

OTHER-409 105.00 

14,509.40 

accsl 0.00 o.~o I4T6;4Tao 

Organization: 1100-OFC OF SECTY 

I I I · Ih 

- -~'------ ----~I------ -- ·- 
From: 05/17/2007 10:04 #037-P.011/013 

==~==~f=======~===~=====================================~----------------------_ 

j T-P;- _-i------- - -_--------------I---- ----------- -"-'LE========= ============ 

STATUS DATE TIME SIGNATURE NAME 

CREATED 05/32/01 3:12PM LESLIE DAVIS 

SIGNED 05/31/01 3:20PM LESLIE DAVIS 

APPROVED 06/05/01 8:33AM LEIGH TRAIL 

PROCESSED 06/06/01 7:51AM Comptroller's Office 

DATA LINK 06/06/01 7:51AM Comptroller's Office 

r certify that the electronic signatures listed above are 

valid and on file. 

SIGNED DATE 
Fvom: 05~17~2007 10:04 #037 P.012~013 

Invoice Header IHM / SIAPIHM 

Action........ N 

Vendor........ E Name: LAWRENCE M. SMALL 

.Invoice....... 01071001 · ' Invoice status: M 

Document...-;'. .·T··Yr'~Ol Loc 64 Doc ~TA Seq# 10027 Del Loc Del~-.000 Mod# 0000 

~IIOO~'~Document~yendd~~ '-~Ji~i~NCE M..' BMALL 

Sre 401 Org 11-00 Pgm'4001 Acct 6100 O/R-·2111 DsgC IP GL: 211 

UPrj BLoc 

: Inv date; ..-.1·-07/10/01· Terms.. AO - Due date 07/10/01 Bank.'.'.l;.. ·EFT Inv type D 

Inv rev date 07/10/01 Invoice returned date 1099 upd.· N 1099 ed. 

Comment..., TRAVEL··.EXPEN~~S 1042 up~l.:.~N ~ Pay code T 

Notes.... TRAV:·EXP - 0164TA10027 

Totial amt ..· $14;711.70 ~ Tech ent by. 1 SHARON WEBER 

Discount. " -$.00 ·· - Tech chg by.: SHARON''trJEBER 

Retention -· $;0.0 Tech auth by: SHARON WEBER 

Net: pena: Exempt .cd $.00 ` ' Tech cls by.: DEBRA CLAR:K 

1042 tax rate Ctry ed Inc ed Recip ed 

Eff date. 03i~10/01 · Per..,..:- 0110.. 

Hold..... Hold reas Hold rel..... Close reas: C 

Next transaction IHM Status: COMPLETE SC / SFS2 

F1=Help F2=Next txn F3=Exit F4=Prompt F5=Hold txn F6=Change sys 

F7=Backward F8=FortJard F9= F10= F11= F1Z=Main menu 

4-0 1 S~VM 160.111.218.2 DOC~ ' 3/17 
From: 0~17~2007 10:04 #037 P.013~013 

Invoice Approval ~SA / SIAPISA 

Authorization ·code.... C Bank.;.-.: EFT 

Vendor..... ........,, E · i Pay Code:.T 

Invoice.......;-.' .·. .... 01071001 

Effective -.dat~.`. .'.·. ... 07/12/01~ · · .. · · ' · Due··Date·: 

Rea~~n (CTo~de:-:onl'ji)',',' ,"' C 

Tot~l'invoice.'· amount.;: $14,711.70 Invoice status.: M 

Total line amount,.'..: $14,711170 Override bal·ck: N 

I·· .~: Difference. ....·.......: · .· $.00..: 

Discount.....;. ~..·.;.: $.00- Tech ent by.:·SHARONWEBER 

·'Retention.amount .·;.-..: :$;00 Tech chg by..:.·SHAPON.WEBER 

'Nef' ··pending payment: Q.00 Tech auth by: SHARON WEBER 

Tech' cls by.~ 'DEBRA'CLP;RK 

:Pay~e~'Name and' Address EFT BankingData 

Name.''....: LAWRENCE.M. SMALL RTN..: 

Ahdress 1: Acct#: 

Address 2: Type.: 

Address 3: TinB.: 

Cit·y.....: WASHINGTON St: DC Zip code: -- Country: USA 

Next transaction ISA Status: COMPLETE SC / SFS2 

F1=Help F2=Next txn F3=Exit F4=Prompt F5=Hold txn F6=Change sys 

F7= F8= F9- F10= F11= F12=Main menu 

4-0 1 SIVM 160.111.218.2 DOC~ . 3/25 
EXHIBIT 19 
~ Smi~hsanianInstitution 

Office of the inspector General 

June 14,2007 

The Honorable Charles A. Bowsher 

The Honorable Stephen D. Potts 

A.W. "Pete" Smith, Jr. 

Dear Members of the Independent Review Committee: 

I appreciate the opportunity to review your draft Report to the Board of Regents of the 

Smithsonian. I respectfully request that you consider the following corrections and 

comments as you finalize the draft. 

You suggest that, after the selection of Cotton h Co. as the independent accountant to 

review the then-Secretary's compensation and expenses, Cotton & Co.'s engagement was 

"transformed" into an agreed-upon procedures (AUP) review and was therefore more 

limited, and subject to greater inauence by Smithsonian management, than wlou~d have 

been the case "had the original request been honored." (Draft, P. 55). That is inaccurate 

in two respects. First, the engagement was an AUP from the outset. As an AUP, it 

necessarily was limited and defined by the Institut'ion. ·That is the nature of an AUP, as 

explained in Statements on Standards for Attestation Engagements ~SSAE) 10 and 11, 

which are governing standards for auditors in this area. In an AUP, the independent 

accountant or auditor does not select or define the universe of matters to be reviewed, or 

sel~ct or define the criteria. Second, I do not believe that Cotton h Co.'s work was subject 

to influence by Smithsonian management. 

The decision to conduct the review as an AUP`- which was always the intended scope of 

the review - was fully justified by a number of practical considerations. An audit would 

have taken much longer and would have consunied substantially more resources, 

resources we do not have. The decis~ion to conduct this analysis via an AUP enabled our 

office to continue'its ongoing work on matters of great significance and urgently in need 

of correc~ion.l The result of the AUP was that the numerous problems identified in the 

1 During the period when we were overseeing the AUP, we issued a series of three audit reports on security 

issues at the Smithsonian (nos. M-05-05, A-05-06, and A-05-07) and two audit reports on executive 

compensation at the Smithsonian and at Smithsonian Business Ventures (nos. A-06-02 and A-06-06). The 

results of these audits are all available on our website, www.smithsonian.orp~/oig. During ·this same period, 

we also were overseeing the external auditors' performance of the Smithsonian's annual financial statement 

audits as well as external auditors' performance of audits required under the Federal Information Security 

Management Act (FISMA). 

MRC 1204 

PO Box 37012 

Washington DC20013-7012 

202.633.7050 Telephone 

202.633.7079 Fax 
Cotton 8r Co. report and in my transmittal letter were brought to the attention of the 

Regents, the Congress, and the public more quickly than would have Been possible had a 

full audit been.performed. Given the resource constraints on my office, and the 

importance'of timeliness, I believe that the initial decision to conduct an AUP was fully 

appropriate. It is misleading to the reader to criticize procedures that were proper and 

required for an AUP without recognizing that a full audit was never contemplated and 

would have entailed greater delay in bringing these issues to light. 

Cotton 8r Co. followed all professional standards for the AUP engagement, and we 

monitored their work closely and issued a seven-page transmittal letter that included 

seven recommendations for fOllow-up actions by the Board of Regents. You do not 

mention the contents of this letter at ah in your Report. Your omission leaves the 

impression that the Cotton 8r Co. report and our transmittal letter did not question any 

of the Secretary's expenses and that we failed to raise any questions to the Regents. In 

fact, in that transmittal letter, we raised many of the issues that your report discusses,2 

such as the questionable use of trust funds for staff meals; Mr. Small's apparent belief that 

Smithsonian rules did not apply to him; and that Mr. Small's use of a chartered night, 

which we noted as lavish, occurred when a commercial aircraft alternative was available. 

You also do not mention that, with the exception ofour recommendation that the Board 

revise the Secretary's employment agreement, the Regents did not accept the 

recommendations in our transmittal letter, such as·our recommendation that they 

consider asking the Secretary to reimburse the Institution for the night he chartered. 

I think your report does not adequately recognize my duty - an essential part of 

maintaining my statutory independence and impartiality - to listen to comments and 

arguments by all parties involved before we issue an IG report. It would have been 

inconsistent with the standards governing AUPs, as well as Government Auditing 

Standards,S no~ to have engaged in "significant back-and-forth discussions" with the 

Secretary's office and Cotton 8r Co. I do not understand what a more traditional and 

appropriate approach would have been. Following accepted practice, our office and 

Cotton 8r Co. sought documentation, clarification, and explanation from the Secretary's 

office throughout all phases of the engagement, including how the results were presented 

in the report. To suggest, as you do, that it was improper· stands normal IG protocol on 

its head. What would have been improper would have been for as to ignore information, 

2 I am pleased that your report confirmed comments I made in my~April 11, 2007 testimony to the Senate 

Committee on Rules and Administration, such as my observations that the Regents did not have adequate 

informatibn to conduct meaningful oversight, that the Secretary's office limited and polished what the 

Regents were told, and that the Institution did not always adequately consider its status as a trust and 

nonprofit when it came to spending the Institution's funds. I am also pleased that the Committee endorsed 

the conclusions of the two audits we issued in ~anuary 2007 of executive compensation at the Smithsonian, 

including our findings on the disparity in compensation between federal and trust executives, the payment 

of much higher trust salaries for positions that have equivalents throughout the federal government where 

the pay rates are much lower, and our concern that the compensation consultants used by the Smithsonian 

were hired by management rather than the Regents. 

3 Government Auditing Standards (the Yellow Book) devote seven paragraphs in the chapter on standards 

for attestation engagements to the importance of obtaining the views of responsible officials. See paragraphs 

6.44 through 6.50. 
not communicate with the subject of the procedures, and publish a· report full of 

unverified assertions. 

It is incorrect-to state that "key elements of the investigation4 [sic] [were]· determined by 

members ofMr. Small's executive· team." I was responsible for determining how the 

criteria that were ·applied to the transactions should be interpreted. I'made the final 

decisions after fully considering all the evidence (induding the parties' intent, when a 

contra~ct was involved) and measuring it against the criteria that applied. While 

Smithsonian staff prepared the schedules for review (a common· practice, even in audits), 

I had responsibility for what transactions on those schedules would be included in the 

review. I personally went over each line item to make that determination. (As explained 

in our transmittal letter, the initial schedule included hundreds of transactions that were 

not'the Secretary's expenses, such as office supplies and Regents' eapenses.) I made no 

changes to the draft report or the transmittal letter based Solely on Smithsonian staff 

suggestions. In sum, I did "determine[l the scope, transactions and standards of review;" 

I did this within the framework of an AUP, and I did not agree to any changes that, in the 

exercise of my independent judgment, I believed inappropriate. 

You did~ not discuss wifh me or anyone on my staff the various iterations of the report. 

Of course the contents of Cotton & Co.'s report changed as it went through revisions and 

as we gathered more information. I would be happy to go over every irersion of the drafts 

with you and explain how and why I reached the conclusions I did. It is irresponsible to 

suggest that my independence was compromised. I would hdpe that you would not 

attack my integrity in this manner before inquiring further about specifichanges or 

decisions I made. 

Of course I listened to ah affected parties; as I pointed out ribove, that is my obligation. It 

was also my obligation to use my independent judgment, which I did. ·When criteria 

were ambiguous, I did hold discussions with Cotton 8r Co., with the Secretary's office, 

and with the Audit and Review Committee, and then used my best professional judgment 

and communicated my interpretation to Cotton &'Co. We also required the signed 

representation letters on`behalf of the Board of Regents and the Secretary and his staff 

which certi~ed their understandings of the Secretary's employment agreement and, as a 

matter of basic contract law, the understandings of the paities to the contract are to be 

honored where the relevant contractual language is ambiguous. I also applied my best 

professional and independent judgment in determining other applicable~ criteria. For 

example, with regard to car service, the Federal Travel Regulation is ambiguous, not 

expressly prohibiting it, Rather, it sets forth a nexible standard that authorizes so-called 

special conveyances "when determined to be advantageous" to the organization, 

considering cost and other factors such as lost work time. Cotton 8r Co. may have 

initially had a different interpretation, but it was my responsibility to state what the 

4 Please do not describe this review as an "investigation," asyou do on pages 54 and 58 of your report. That 

term has a speci~e meaning in the work of·Inspectors General. The Office of the Inspector General conducts 

investigations into allegations of wrongdoing by individuals. Audits and audit-related work (such as AUPs) 

focus on programs and operations (such as whether expenses are properly accounted for). Our work on the 

Secretary's expenses and compensation was an AUP attestation engagement. Your use of the word 

"investigation" is therefore incorrect and misleading. 
criteria were. Had they not agreed, they would have vi·olated the standards governing 

AUPs. 

Your criticism of the representation letters, which set forth what management and the 

Regents attested to, is also puzzling. Best practices for AUPsS include obtaining a 

representation letter from the parties subject-to the review. The representation letter 

should in~lude, among other things, statements acknowledging responsibility for the 

subject matter and acknowledging responsibility for selecting the criteria - in other 

words, the standards against which the subject matter will be tested - and for determining 

that the criteria are appropriate. That is precisely what occurred with the Cotton 8r Co. 

review. Under.an AUP, we could not have rejected the assertions in those letters, whether 

they were post-hoc or othenvise. Cotton & Co. did state that it obtained these 

clarifications (Cotton & Co. review pp. 2, 4), and I explained in the transmittal letter that 

the representation letters.established the parties' understanding ofthe se~reta~~s 

employment agreement (transmittal letter, pp. 5, 6). 

Finally, I would note that the results of Cotton 8~ Co.'s report and my transmittal letter 

are inconsistent with your suggestion that the Secretary or his staff had improperly 

influenced the review or that my independent judgment was compromised. The review 

identified over $89,000 in unauthorized exp;enses, including an unauthorized cash bonus. 

to the Secretary's Executive· Assistant, and over $28,000 in unsupported expenses. 

Furthermore, my transrilittal letter identified a host of other problems, such as the 

inaccuracy of the Washington Post story in August 2001 about the Secretary's chartering 

an airplane; the Secretary's ·unsupported belief that the rules did not apply to him; the 

possible tax· issues associated with the -Secretai~s chartering of the flight and his wife's 

travel to Cambodia; and many others. Again, by omitting any mention of the findings set 

forth in the final Cotton & Co. report, or in the transmittal letter, you leave the reader 

with ~the impression that the Cdtton & Co. report, and our accompanying transmittal 

letter, found nothing wrong. 

In summary, the AUP was an effective tool that brought to light numerous problems in a 

timely fashion. The AUP was conducted professionally andproperly, and resulted in 

signifi;cant findings regarding the Secretary's compensation and expenses. 

5 See, for example, Wiley Practitioner's Guide to GAAS [Generally Accepted Auditing Standards], section 

2201, Agreed- Uppn Proceduzes Engagements (2006 ed.) 
I would welcome the opportunity to discuss these issues with you fi~rther, as I am not able 

to address them fully in the limited time available. Please do not hesitate to call me if you 

have any questions. 

I appreciate your consideration. 

Very truly yours, 

L·h-~i·-\ 

A. Sprightley Ryan 

Inspector General 

cc - Smithsonian Institution Board of Regents 

Cristi~n Samper K., Secretary 

John E. Huerta, General Counsel 

Celia Ready, Esq. 
EXHIBIT 20 
Purchase Order No: XXXXXXXXXXX 

Statement ofWork 

AgreedUpon Procedures 

Cotton & Company 

Background 

The Secretary of the Smithsonian Institution (SI), on behalfofthe Audit and Review Committee of 

the Board of Re'gents, has requested an independent third party review of the expenditures by two 

parties: the Secretary and the Chief Executive Officer (CEO) of Smithsonian Business Ventures 

(SBV). Areas of expenditures to be reviewed will include all salary, benefits, housing allowances, 

travel expenses, office expenses, entertainment, and any fundraising expenses incurred by the 

Secretary and the CEO of SBV. Additional areas of review will include any honoraria, the extension 

of loans, credit, or cash advances to the Secretary and the CEO of SBV, as well as the granting of 

any housing relocation expenses; automobile allowances or any other form of remuneration or 

compensation paid by SI to the Secretary and by S'BV to the CEO. The review of these 

expenditures, to be managed by the SI Office of the Inspector General (OIG), will be documented in 

reports, to be delivered to the SI Audit and Review Committee. 

Statement ofWork 

Objectives:~ 

Contractor shall review the schedules of expenditures prepared separately by the Chief Financial Officers 

(CFO) of SI and SBV, to the extenthey deem necessary, in order to answer thefollowing two questions: 1) 

have the expenses of the Secretary and CEO of SBV been properly accounted for, and 2) have the expenses 

of the Secretary and CEO of SBV been reasonable in the context of the purpose of the expense and the 

mission of the Smithsonian and SBV respectively. With respect to the Secretarial expense review, the 

Contractor shall also affirm the amounts of and accounting for donations to the Institution made by the 

Secretary, and related matching gifts. Schedules of expenditures will be provided forthe following items: 

· Salary 

Bonuses 

· Benefits (e.g., insurance, retirement) 

· Housing allowances 

· Travel expenses 

· Office expenses 

Entertainment expenses 

· Fund raising expenses 

· Honoraria 

· Loans or cash advances 

· Housing relocation expenses 

· Automobile allowances 

· Otherremuneration or compensation, including severance, deferred compensation 

Review Period 

The review period for the examination of expenditures will be SI and SBV fiscal years beginning with FY 

2000 and concluding with FY 2005 activity. 

i 

Statement ofWork 

Final Dated: July 21,2006 age 1 of2 

--··-- 
Purchase Order No: 

Agreed Upon Procedures Review 

Terms of Engagement 

The contractor's engagement team will have full access to the SI OIG staff. The Inspector General will 

entertain requests on a case-by-case basis for access to work papers associated the other work being 

performed by the GIG. Subjecto a confidentiality agreement, the contractor will be granted appropriate 

access to the relevant financial systems in order to verify fully that records presented to them reflect output 

from the system and that all relevant information is under review. The review will cover approximately 

3,500 transactions. The Institution will provide ail manner of invitations, correspondence, and supporting 

evidence todocument the purpose oftravel as required toconduct a thorough review. The Institution will 

consider on a case-by-case basis requests to contact individuals ororganizations to verify any expense. 

Deliverables 

Separate dliverables shall be provided for the review of the expenditures of both the Secretary and the CEO 

of SBV. 

i. Weekly status meetings with SI and SBV personnel and the OIG to discuss progress on the project 

and any findings, exceptions, or recommendation proposed to date. 

2. Status briefing to describe project status to date shall be given on September 12, 2006. 

3. Final report due date shall be mutually agreed upon. Twenty-five (25) hard copies of the final report 

and an electronic version in a format acceptable toSI shall be provided by the Contractor tothe GIG. 

4. Up to three briefings ofreport results to SI and SBV Senior Management, or as required. 

5. Potential briefing of report results to the SI Board of Regents' Audit and Review Committee. 

6. Onecomplete ·copy of the work papersupporting all findings, conclusions and other determinations 

made due to OIG no later than one week after delivery of the final report. 

Standards 

This review shall be conducted according to professional standards governing agreed-upon procedures. 

Period of Performance 

The period of performance forthis delivery order will begin Suly 24, 2006 (award). End date to be 

determined. 

Statement of Work 

FinalDated: July 21,2006 Page 2 of2 
EXHIBIT 21 
COttO ~~~""" 

Company 4''' Floor P:703.836.6701F: 703.836.05~41 

Alexandria. VA 22314 wwry.cortoncpa.com 

INDEPENDENT ACCOUNTANT'S REPORT ON 

APPLYING AGREED-UPON PROCEDURES 

November 30, 2006 

To the Audit and Review Committee of the Board of Regents: 

Cotton & Company LLP performed the procedures enumerated be~i~Y~ich were 

Smithsonian Institution Office of the Inspector General and the Chief F 

solely to assist you in evaluating compensationf the Secretary of~i~e Institution and in 

determining if travel and other reimbursable expenditures incurred by the ~I~3~ we~ reasonable in 

the context of a business expense related to the Smithson~*~3~f~S,~~ion. The Slr~Sr~j~i was responsible 

for preparing the four schedules provided for our revie~g~:~_~:~;l~m"f~'~pf Exenditc~of the Office of the 

Secretary, Schedule of Compensation for the Secreta~ of the ~i~j~ on, Schedule of 

Housing Allowances for the Secretary of the Smiths~n e of Donations from the 

Secretary to the Smithsonian Institution. p~ ~E ·~ ~ 

We conducted this agreed-upon " with attestation standards 

established by the American Institute q~J~ed Public A~i~i~i~T~its. The sufficiency of these 

procedures is solely the ~r~e~SI~.~j~.s~!ility~:~i~''ft~'~i~:~'~i~:rties specified in this report. Consequently, we make no 

representation rega~-~i~y oflir~j~i~S~s described below either for the purpose for which 

this report has b~jf'~:~'~:~iest`~'-~''~,'i~`~i~i~ other 

The ~n~i~"o~ii~i~-~nidentified its overall~j~j~Rctives as follows: 

·r~z, 

i. Deterrii~i~.~t~nsactions in~iji~ded on the Schedule of Expenditures were properly accounted for. 

2. Determine if~i~i~j~c~;i~ol~5T~ncluded on the Schedule of Expenditures were valid business expenses 

related to the Siii~y~an mission or were not incurred in accordance with Smithsonian policies 

and guidance. 

3. Verify total compensation paid to the Secretary of the Smithsonian, to include, if·applicable: 

Salary 

Bonuses 

Benefits 

Housing allowances 

Honoraria 

Loans or cash advances 

Housing or relocation expenses 

Automobile allowances 
Other remuneration or compensation, including severance and deferred compensation 

4. Verify the total amount of donations or in-kind contributions made by the Secretary to the 

Institution. 

5. Verify the total amount of related matching gifts associated with the Secretary's donations td the 

Smithsonian. 

BACKGROUND AND SCOPE 

The Secretary of the Smithsonian, on behalf of the Audit and Review Committee of the Board of Regents, 

requested an independent third-party review of the Secretary's expend·i~es on. The 

Smithsonian contracted with Cotton & Company to review thef~t~S~itures, Compensation, 

Housing Allowances and Donations prepared by the SmithsoniarL~ Chief Fin~i~s~F~fficer (CFO). The 

period of the agreed-upon procedures was Fiscal Years (FY) 2 

To gain an understanding of the requirements of this agreed-upon p~P~I~es engagem~i~ & 

Company met with the acting Inspector General (IG) and senior m~m other 

components on July 26, 2006, and on subsequent dates as necessa~jji. Wi~i~j~ed schedules prepared by 

the Smithsonian Office of the Chief Financial Officer, as well as the suppd~"~ii~,cum~e~ntation. We also 

interviewed Smithsonian officials who assist with daily aS~ation and op~ij~h~i'fthe Secretary's 

office. 

In addition, we reviewed policies and procedures, re~-S~ces~Ei~ani~ti~:~j~,,~d memorandums providedby 

the Smithsonian as guidance to assist us in aiyeed (See Appendix A for 

a comprehensive list of references and gui We pro~i·a c status updates to the acting IG - 

and Smithsonian staff, as well as the ~ ofour agreed-uponprocedures. 

AGREED-UPON PROCED 

A-i. Trace a~r~j~j~l~i~2~d on th~e of Expenditures' to source documentation 

and determi~ expenditures ~j~perly a~ted for. Document all exceptions. 

The Sch~-~ipentified 1,040 transac'i~ for review. We classified expenses as either travel 

other, except for ~i~insactions for which support (or adequate support) was not 

provided, as 

Number of Dollar Value of 

Cost~`~S~,~f~·rmr~·~" Transactions Transactions 

Travel ~6·C~ 26053 $~5~3~e~2~s~2 

35.28 

Other $" 733~i_ 5~j99~8~2 

0.48 

Unsupported 454 4353~8~492_P~0~Q6, 

58 

Total 1.040 $846.312.34 

The Schedule of Expenditures was prepared by the Smithsonian and was not reviewed by Cotton & Company for 

completeness. 
Of the 454 unsupported transactions, supporting documentation could not be located for 17, and available 

documentation for the other 237 was not adequate to substantiate the business validity of the transaction. 

These unsupported transactions are identified in Appendix B-l. 

A-2. Review supporting documentation for all transactions and identify expenses not fulfilling 

the Smithsonian mission or not incurred in accordance with Smithsonian policies and guidance 

provided by Smithsonian staff. Document all exceptions. 

Smithsonian guidance provided to us is listed in Appendix A. We identified as unallowable 27~6 

transactions totaling $120,735 that did not appear necessary to fulfill the Smithsonian mission or that 

were not incurred within limits prescribed by Smithsonian policies. Detail for those transactions and the 

reason why each item was identified as unallowable is provided in ARl~ix~Z. ~erally, transactions 

were identified as unallowable, because a portion of the amount ex~f~i~i~e~ ~avel Regulations 

(FTR) limits, trust fUnds used could not be used for that type of e~i~ense, or th~i~j~i~je did not represent 

a necessary Smithsonian expenditure. 

B-l. Trace amounts reported on the Schedule of taxable 

reported on IRS Forms 990 (Non-Profit Tax Returns), ement o~f j~Y~S~s and 

Leave, Secretary's IRS Form W-2s ~ecord of Compensation~Bnd ~-~l~yment agreement. 

Amounts shown on the Schedule of Compensation were ~k~l~ed by the abd'~·i~i~:~entation. Amounts 

reported on the W-2s reconciled to the Smithsonian's ~i~e"in"~45~,Earnings andj~T"ave. Amounts 

reported on the Smithsonian's Statement of Earnings~Sld Lea~'~i~~scalgea~-STjasis did not, however, 

reconcile to taxable wage amounts reported on the I~g~ 99~8s 

-FY 2000 F~i~i~zOj~ ;'::; FY~02 .- - ~j~Y ·2003 : FY 2004 · FY; 2005 

Taxable wage amounts 

on Form 990 $356,700 ~ii~i~,904 $74~ij~-~i~~ $746,713 $790,440 $819,323 

Statement of Earnings~ 

and Leave 731.947 745.606 827,196 819,322 

Difference ~ "Y·i~ $6.72~i~I~r$14.122 $_1.107 $(36.756) $1 

B-2. ~i~mounts reported on ~i~Schedule of Housing AUowances3 to supporting 

follows to ensure ~tence of actual expenditures: 

We performed ~-~g verifi 

2 The Schedule of Compensation was prepared by the Smithsonian and was not reviewed by Cotton & Company for 

completeness. 

3 The Schedule of Housing Allowances was prepared by the Smithsonian and was not reviewed by Cotton & 

Company for completeness. 
Type of Reimbursement Verification Performed 

Utilities Traced a sample of2 transactions each year to supporting invoices 

Insurance Traced all transactions to supporting invoices 

Real Estate Taxes Traced all transactions to supporting invoices 

Grounds Service Traced all transactions over $2,000 to supporting invoices 

Cleaning (Housekeepers) Traced total cost to the housekeepers' W-2s and th~ Employment 

Quarterly Contribution and Wage Report (unemployment tax) 

Maintenance Traced all transactions over $2,000 and 5 transactions under $2,000 to 

supporting invoices 

Mortgage Interest or Equivalent No testing was performed 

Cost of Home Ownership* 

* This is an imputed cost on the Schedule ofHous~g Allowan~T~S~ on the 

$3,488,095 estimated market price of the the 

employment agreement was signed and the avera~I~j~ rate of 

30-year fixed-rate mortgage at that time. Because ~i~uted cost 

those assumptions, we did not perform testing on~ 

B-3. Compare the annual housing allowance ceiling las reported on ~·'s employment 

agreement) to costs incurred and imputed as repo·t~ hedule of~3"r~ig· AUowances. 

,~" 

The ceiling identified in the Secretary's employmen~greeme~%'E~'~;i~iE~,rted~as ~150,000 per year...for up 

to fifty percent (50%) of the actual costs of his housi~ Th~ousZ~T~ance ceiling was increased 

each year.as part of the Secretary's compens~pai~lj~e. ~Becaus~f~St~:~iousing allowance is approved 

on ah annual csileridai. yearbasis, wt ceiling ~eadh·:·Calendar year. Based on : 

our transaction testing, we identified did not at~Di~sable ih accordance with the 

Secretary's employment agreement, 

the `i~ers~qnal excess liability coverage for the Secretary. 

insuranci~:~"i~C;1~~liabilit~;~~ over and above that provided by homeowners' 

insurance, and thu~i~ an actua~using cost. 

Maintenance and groi~ costs were claimed for expenses that could be considered 

expenditures, h generally are considered to be purchases of assets with a 

life of more t~ibne year. The employment agreement specifically excludes 

reimbursable housing costs. Capital expenditures identified 

oWs: .i 

replacement ($33,862) 

plantings ($52,000) 

oset installation ($17,458) 

In each year, however, net incurred and imputed costs reported on the Schedule ofaousing Allowances 

exceeded the ceiling allowance. A summary of these costs follows: 
CY 2000 CY 2001 CY 2002 CY 2003 CY 2004 CY 2005 

Costs Incurred $132,441 $192,187 $165,370 $198,506 $198,613 $147,271 

Excess Liability (1,992) (13,929) (11,700) (11,700) (8,168) 

Capital Expenditures (33,862) (24,350) (27,650) (17,458) 

Net Costs Incurred $132,441 $156,333 $151,441 $162,456 $159,263 $121,645 

Imputed Costs 290,208 290,208 290.208 290,208 290,208 290,208 

Total Costs $422,649 $446,541 $441,649 $452,664 $449,471 $411,853 

50% of Total Costs $211,325 $223,270 $220,824 $226,332 $224,736 $205,927 

Ceiling $150,000 $150,000 $157,155 ,172 $179,322 

B-4. Compare the annual housing allowance ceiling las the yment 

agreement) to actual payments made to the Secretary. 

Payments to the Secretary were made periodically, based on the eI~iiploq~i'~f~greement ceiling, instead 

of for documented actual expenses. While incurred and imputed costs did e~j~i~i~c~e ~tring, differences 

were noted between ceilings and actual payments (based~i~:~j~ecretary's St~i~i~ of Earnings and 

Leave), as follows: 

CY 2000 CY 2001 E~fY 2002 ~f~2r~i03 . CY2004 CY 2005 

Ceiling $150,000 $1~o `W~15~55 ~5~27 ·$169,172 $179,322 · 

;:ctuaal;payments rriade · 

totheSecretary 150,000 ~a~ Is~i~i~ 162.027 - 140,977 179.322 

Difference .~. $597 $0 $28.195 $0 

C-l Trace all~nts from-~ule of jac5~ii~s4 (cash or in-kind) to acknowledgement 

letters fron~i~e Smithsonian as vi"Se~z~to accou~ng records documenting receipt of the 

general ledger). Ti~j~all in-kPhd transactions on the Schedule of Donations to 

rting documentatio that transactions were valued appropriately. Trace 

all nt'~tchi~i~t~i~,~,made by third contingent upon the Secretary's donations to available 

supporting crCi~j~i~ow~ation and acc~ting records documenting receipt of the transaction. 

Amounts reported c~i~F~edul~if Donations represented four types of ~transactions, as shown below: 

4 The Schedule of Donations was prepared by the Smithsonian and was not reviewed by Cotton & Company for 

completeness. 
Number of Dollar Value of 

Transaction Type Transactions Transactions 

Secretary's Cash Donation 7 $2,938.31 

Secretary's In-Kind Donation 8 426,355.67 

Third-Party Matching Donation 11 120,000.00 

In-Honor-Of Donations 11 55.000.00 

Total 32 $604.293.98 

We traced all transactions to supporting documentation and traced receipts through the Smithsonian 

general ledger. Amounts were accurately reported and valued. The g~i~le~f~r b~iii~ce for donations 

did not reflect receipts for 2 transactions totaling $321. Transactio~-~as or Or' were not 

contributions of the Secretary or matching contributions; we did,~owever, to supporting 

documentation and verified receipt. ~ 

D-l. Obtain a management representation letter from, the S;d~o~ian manag~n~f~i~ the 

Board of Regents to confirm to the best of their knowledge th~,f~:j~;~'~i~"~tations were ~urate and 

pertained to the period under review. 

We requested and received management representationand 

representatives from the Board of Regents. ~Y f' 

We were notengaged to and did·not the of which would be the 

expression of opinions on the Sc in the Accordingly, we do not express. 

such opinions. Had we performed might have come to our attention 

that would have been r~:~,~..~l~;tt~?~z.~!ou.~Thi~f~;~E~-~is intended solely for the information and use of the 

Office of the Inspe~i~j~ Smit~i"s~j~"J~:~;n~~Boar~ of Regents and is not intended to be and 

should not be u~q~L~j~ anyone`'~p~·~j~fl~these 

COTTO~E~MLIPANY LLP 

Sam Hadley, 

Partner 
a 

APPENDIX A 

ct: 

w; 

REFERENCE MATERIAL AND GUIDANCE ~ED BY THE 

SIVIITHSONIAN INSTITUTI 

s 

-~ ~ a n 

r 
APPENDIX A 

REFERENCE MATERIAL AND GUIDANCE PROVIDED BY THE 

SI\IIITHSONIAN INSTITUTION 

FY 1999 Federal Salaries & Expenses and Unrestricted General Trust Fund Budget Allocations, 

Attachment 6 - Use of Trust Funds for Representational and Special Event Expenses 

Use of Trust Funds for Representational and Special Event Expenses, FY 2005 401 Allocation 

Memorandum 

Trust Budget Allocations and Spending Plans, FYs 2000-2005 

Decision Brief for the Under Secretary, in effect from August 4, 2000 

Smithsonian Institution Travel Policies and Procedures Manual, i~c~jFi-om June 

May 22, 2005 · 

Smithsonian Directive (SD) 312, Travel, May 23, 2005 

Smithsonian Institution Travel Handbook, May 23, 

M. 

Smithsonian Institution Employment Agreement for, 

Smithsonian Institution: Compensation for ecutive Committee of the 

Board of Regents, FYs 2001-2005 

Smithsonian Directive (SD) 213, Trusf~S~fr~I~4~el Handbook,~b"I~imon Types of Incentive Awards 

OIG's Conclusionsi,~,'~a".~2~'~%~~ of Srii~j~i~an~avel Policies, September 28, 2006 

Interpretatio~`Paragraph 7 of Se~ Small's ~i~iployment Agreement, October 11, 1006 
APPENDIX B 

.4;x 

SCHEDULES OF UNSUPPORTED AND UNALLO 

~s~ ~ 
SCHEDULE B-1 

SCHEDULE OF UNSUPPORTED AND INADEQUATELY SUPP6RTED TRANSACTIONS 

Invoice 

Date Vendor Amount Status of Support 

01/05/2000 Fredrick Miley & Assoc. $46.00 Noinvoice,purchase orderonly 

01/05/2000 Fredrick Miley & Assoc. 2,774.50 Noinvoice,purchase orderonly 

01/07/2000 Hedges Original 6,442.80 Noinvoice,purchase orderonly 

01/11/2000 L'enfant AP 327.35 No documentationprovided 

01/11/2000 L'enfant AP 944.43 Noinvoice, memoonly 

01/26/2000 Shepherd Electric Co, Inc. 4,600.00 No invoice, purchase order only 

02/07/2000 SI 202.13 Invoices,~s~E~1~3~,~~; 1 ~E~gible 

02/17/2000 Travel (Citiban~ Account) 212.00 No 

03/01/2000 Travel (Citibank Account) 97.00 Noil7~pice, SFS~ 

03/14/2000 Lawrence M. Small · 124.59 No iri~ice. meis~ onl~i~ 

0311412000 La\~-enceM.Small 142.00 Noini~i~E~;"O··ly~~ 

03/23/2000 Travel (CitibankAccount) 2,493.80 No docif~f~'~'~~onprovided 

03/27/2000 Lawrence M. Small 287.53 No in7~Sji%e~Si~t~only 

03/27/2000 L'enfantP 287.53 No documen~5~E~i"~j~i~t~,rovided 

04/05/2000 August Georges 70.00 Noinvoice, p 

04/05/2000 August Georges 2,043.0_O~J~voice, purcha~i~r only 

04/18/2000 ACE Beverage 138~8 N~i~e, eventsc~i~uleonly 

04/18/2000 Party Rentals, Ltd. 5~3 N only 

04/27/2000 Bernhard Furniture in hase order only 

05/25/2000 Lawrence M. Small 12.50 ji~inv~e, memo only 

04/27/2000 Bernhard Furniture oin order only 

06/09/2000 Lawrence M. Small 277.05 on provided 

~ ~z 443.80 06/27/2000 Lawrende M. Small ice, memo only 

08/31/2000 Palace ... !15.27 Inadequately documentedbusiness purpose 

89~281~888 C,1,~J;~i~s';"Sr,T~ZmS~ ~i~5, T,,~P,.,,t,l,, rln~l.mnn+nrl I~l~~;nn~~llmr\l-·n 

09/25/2000 ~5tii~el (Citiban~"zi~`F~i~'~) ~314 No documentationprovided 

10/03/2000~ravel (Citibank Ac~i~i~ ~00 No documentationprovided 

10/20/2~3~f LawrenceM. Small ~i~ "402.32 No documentationprovided 

10/25~awrence M. Small 108.00 No documentation provided 

10/~VT/20~S~J~ce Florist 117.00 Inadequately documented business purpose 

01/12/2001 "c~j~i~j~t~ (Citibank Acc~f~i~t) 91.50 Noreceipt, wrongreceiptprovided 

04/18/2001 T~S~ji~v~itibank Ac~nt) 91.50 Noreceipt, wrongreceiptpi·bvided 

04/18/2001 Tra~i~i~i~ank ~ount) 91.50 Noreceipt, travelvoucheronly 

09/19/2001 ACE ]T~4S~-~ii~ 3.31 No documentation provided 

09/30/2001 Catering ~E~E~indows 2,487.38 No documentationprovided 

8~29~288~ aes~s~tttrci~;sse~i~t~ ~58~88 T~"~~"..~cOll,, ~n~llmOlnf~rl ~.·~;~o~P nl~m~~P 

03/05/2002 Restaurdtit Associates 100.00 Inadequately documentedbusiness purpose 

04/02/2002 Restaurant Associates 100.00 No documentationprovided 

05/03/2002 Travel (Citibank Account) 150.50 Nodocumentationprovided . 

09/10/2002 Guest Services, Inc. 102.30 No documentationprovided 

09/14/2002 Restaurant Associates 100.00 No documentationtlrovided 

01/17/2003 Citibank 184.00 No documentationwovided 

12/19/2003 Citibank 532.50 No documentationDrovided 

04/06/2004 Palace Florist 18.15 Inadeauatelv documented business purpose 

04/25/2004 Citibank 289.80 No invoice, credit card statement only 

07/25/2005 Citibank~Ettt~t-~Ht~ 135.53 No invoicP credit card statement onl~~Tn 

89/1~C~88~ Asfe~t~es 
I~f~fEfffg

, 

i~Pg ii POPE%PPPD 

~cQ'i3 
SCHEDULE B-2 

SCHEDULE OF UNALLOWABLE TRANSACTIONS 

TRAVEL COSTS 

Invoice Total Unallowable Reason (see 

Date Vendor Amount Amounts Description Legend~ 

05/30/2000 LawrenceM. Small $1,492.92 $455.00 Car service, New York City A 

06/19/2000 LawrenceM. Small 179.77 169.10 Airport transportation, Miami A 

07/13/2000 LawrenceM. Small 673.60 250.38 Car service, New York City A 

09/18/2000 LawrenceM. Small 214.50 214.50 Car service, Seattle A 

10/20/2000 LawrenceM. Small 761.83 355.98 Car service, San Francisco. A 

10/31/2000 LawrenceM. Small 851.19 198.00 Car service,~.~tattl~f~.nd Ne,w,York A 

City 

11/20/2000 LawrenceM. Small 380.68 380.68 Car s~fice, New Y~S~6~y A 

11/20/2000 LawrenceM. Small 432.21 432.21 Car s~vice, San F~fi~ti~. A 

12/15/2000 LawrenceM. Small 428.69 236.21 Car si~e, A~pta A 

01/12/2001 Lawrence M. Small 620.08 406.00 Car er ·2, " A 

0 1/25/2001 Lawrence M. Small 583.09 376.80 Car serS~i~5i~l~w York City A 

02/07/2001 Lawrence M. Small 355.00 330.00 Car sel-sr~ A 

03/06/2001 Lawrence M. Small 247.80 247.80 Car sefirice, I~ A 

03/13/2001 Lawrence M. Small 2,011.02 1,146.89 Car service, Los~-~Se,s and~an A 

04/11/2001 Lawrence M. Small 526.16 292.05~J~ice, New Yor~t~ A 

04/11/2001 Lawrence M. Small 774.09 457.~ C~S~i~j~i~, Neg Yq~ity A 

05/18/2001 Lawrence M. Small 185.00 185~3,~ Clgi s~e~- Yoi~k City A 

05/23/2001 Lawrence M. Small 221.90 221 and to airport A 

06/18/2001 Lawrence M. Small 190.00 ~4~85: York City A 

07/11/2~01 LawrenceM:Small 829.87 ~3~14.00 rz~arse~c~b~.~.Sanl\ntonio· IA 

08109/2001 LawrenceM. Small 202.;5~~ 136.00 ~ San Antonio A 

09/10/2001 Lawrence M. Small 163.40 ~i~ii~j~vice. Jackson A 

10/01/2001 Lawrence M.~r~a~E~~~ l,lT~3~3 ~i~c~Fi;67.10 Car service, New York City A 

12/06/2001 Lawrenc~f~7.00 ~~i~Z.OO Car service, New York City A 

12/06/2001 ~Y~i~i~i~O~ Car service, New York City AAAAAA,A;AAO~ 

12/10/2001 La~nce M. Small Car service, New York City A 

03/11/2002 ~jrenceM. Small `4~1~E~ 2~00 Car seivice, Houston A 

03/15/200~wrence M. Small 7~b~i~ 470.70 Car service, Chicago A 

04/12/2P~i~a H Small 82.80 Car service, Cambridge A 

04/12~a02 r~e M. Small 5T7~ii~5~ 165.60 Car service, Cambridge A 

06/14/2002 L~s%"ii~i~;i~''~PZ~M, Small 1,1~SE~S7 245.00 Car service, Chicago A 

06/28/2002 SI W4~a~Y~-~ ~0~.10 160.10 Car service, New York City A 

08/20/2002 Lawrelii~'~i~:~i~E~.~j~$F·lall ~j~f23.75 609.80 Car service, Las Vegas A 

09/13/2002 Lawrence~il,~i;m~~~l1~,~' 540.90 292.50 Car service, Chicago A 

02/04/2003 Lawrence M~i~i~E~ 720.62 280.00 Car service, Nashville A 

03/14/2003 Lawrence M. Siji~ 623.18 380.00 Car service, Kansas City A 

0312612003 LawrenceM.~f~ll 1,347.98 1,067.45 Car service, Pale Alto A 

04/25/2003 Lawrence M. Small 600.75 352.00 Car service, New York City A 

06/11/2003 Lawrence M. Small 598.66 252.~0 Car service, New York City A 

07/09/2003 Smithsonian 183.50 183.50 Car service, New York City A 

Institution Petty 

Cash 

07/25/2003 Lawrence M. Small 395.28 279.00 Car service, New York City A 

5 The unallowable amount is the portion not claimed within Smithsonian travel policies, which require adherence to 

Federal Travel Regulations. 
SCHEDULE B-2 

SCHEDULE OF UNALLOWABLE TRANSACTIONS 

TRAVEL COSTS (CONTINUED) 

Invoice Total Unallowable Reason (see 

Date Vendor Amount Amount Description Legend) 

07/25/2003 Lawrence M. Small $441.00 $441.00 Car service, New York City A 

07/31/2003 Lawrence M. Small 218.00 196.00 Car service, New York City A 

10/30/2003 Lawrence M. Small 1,328.68 761.80 Car service, New York City A 

10/31/2003 Lawrence M. Small 646.89 383.80 Car service, New York City A 

12/10/2003 Lawrence M. Small 352.00 352.00 Car service, Philadelphia A 

12/11/2003 Lawrence M. Small 1,038.99 567.71 Car sez~j~i~ I~i~Yaii ~ A 

01/06/2004 Lawrence M. Small 111.18 111.18 Ca~i~ii~ r~3~ City A 

02/20/2004 Lawrence M. Small 1,140.55 595.63 ~i;~service, S~i~cisco A 

04/20/2004 Lawrence M. Small 421.95 380.80 ~ service, PJi~i~i~f~ity A 

04/20/2004 Lawrence M. Small 1,151.80 637.72 ~i~c>~Terv'l~.~V"am'`F~f~·~:~~ A 

04/29/2004 Lawrence M. Small 749.46 309.40 OP~S~i~ NewYor~c~fi~h~ r~ A 

05/17/2004 Lawrence M. Small 96.40 96.40 C~if~ffij~i~e. New York C~i~ A 

06/30/2004 Lawrence M. Small 212.00 212.00 C~e~S~i~ew York City"" A 

08/31/2004 Lawrence M. Small 186.00 186.00 Cf~ir seni~ York City A 

09/22/2004 Lawrence M. Small 305.00 305.00 Car service~Y_orkClity A 

10/14/2004 Lawrence M. Small 692.70 465.7~~ Car service, H~ A 

10/18/2004 Lawrence M. Small - 1,186.98 7~2~if~ service, Nevir~7~f·k City A 

10/26/2004 Lawrence M. Small 379.80 ?t~9.80 ~i~ervice, Mint~apolis A 

11/01/2004 Lawrence M. Small 2,194.56 1~.00 ~~i~~NeYwYork City A 

02/11/2005 Lawrence M. Small 295.60 ~08 Burnham A 

02/11/2005 Lawrence M. Small . 368.42.s~ 3~3~5.1 Car New York City A 

-02/1112005 LawrenceM.:Small 692.2~ 528. Chicago .'A i 

03/09/2005 Lawrence M. Small 1 943.5S~service, Las Vegas and San A 

~ 

03/17/2005 Lawrence M. ~a~~~ 161.80 Car service, New York City A 

03/17/2005 Lawrence~t~i~S~i~ 400.0~T~J~i~ 180.00 Car service, New York City A 

04/22/2005 Car service, Nashville A 

06/15/2005 La~z'ce M. Small ~9.35 I~j~.OO Car service, Chicago A 

06/15/2005 ~i~-ence M. small -~f~p.OO ~300~00 C, service, Chicago A 

06/15/2005 ~i~ij~wrence M. Small ~t~t~.24 ~ 927.80 Car service, Los Angeles A 

M. Small Y~.55 144.55 Car service, Minneapolis A 

09/19/2005 ~i~i~j~F.eM. Small ~4.00 374.00 Car service, Denver A 

11/30/2000 Cii~i~i~·Sia~i~E~couth ~8.70 1,348.75 Charter flight from B 

Washington, DC, to 

Lackawanna Station, PA 

05/22/2001 Martin Air~S~~ ~i~ 5.50 5.50 Charter flight cost: domestic B 

segment fee 

05/22/2001 Martin Air, Inc. ~ 272.00 272.00 Charter flight cost: net of fuel B 

surcharge and credit for flight 

delay 

05/22/2001 Martin Air, Inc. 650.00 650.00 Charter flight cost: B 

landing/parking 

05/22/2001 Martin Air, Inc. 1,000.00 1,000.00 Charter flight cost: aircraft B 

overnight 

05/22/2001 Martin Air, Inc. 1,011.90 1,011.90 Charter flight cost: Federal B 

excise tax 

05/22/2001 Martin Air, Inc. 11,570.00 11,570.00 Charter flight cost for round B 

trip from Washington to San 

Antonio 
SCHEDULE B-2 

SCHEDULE OF UNALLOWABLE TRANSACTIONS 

TRAVEL COSTS (CONTINUED) 

Invoice Total Unallowable Reason (see 

Date Vendor Amount Amount Description Legend) 

08/20/2002 Lawrence M. Small $1,723.75 $673.50 Hotel, Las Vegas C 

08/20/2002 Sandra H Small 1,040.09 673.50 Hotel, Las Vegas C 

12/11/2003 Lawrence M. Small 1,450.42 1,300.00 Hotel, Hawaii C 

06/15/2005 LawrenceM. Small 1,767.24 710.00 Hotel, Los Angeles C 

12/23/2003 Lawrence M. Small 67.06 67.06 Hotel, Chantilly VA D 

07/15/2004 Sandra H Small 17,274.75 5,764.00E 

$5~i~C~9~61 

OTHER COSTS 

Invoice Total Unallowable Reason (see 

Date Vendor Amount Amount 

02/08/2000 L'enfantAP $2,716.03 $149.05 Lunches gnd fee F, G 

03/01/2000 SI 339.31 47.~F with G 

04/06/2000 Occasions Caterers, Inc. 334.50 ".~" with Policy & G 

05/23/2000 Design Cuisine 414.00 4 G 

05125/2000 SplendidFareCateling 321.05 ~0~13~5 ~4" Lunchb omcer G G 05/31/2000 DesignCuisine 43p.oa~ 430.00 

06/02/2000 DesignCuisine ~~CE~ 414.00 ~reakfast G 

06/10/2000 Design Cuisine 4~9~j~ 405.50 '~t~fi~breakfast G 

06/10/2000 Design Cuisine Staff breakfast G 

06/21/2000 Design '' 421.5~F~421.50 Staff breakfast G 

07/05/2000 Design ~Z~fi~E~21.50 'l's~,.59~ Staff breakfast G 

07/14/2000 ' ' 1.50 ~O Staff breakfast G 

07/25/2000 A~Beverage ~~96 Water, Secretary's direct report G 

dinner 

07/25/200~15~E~J~ Woods 1~00 325.00 Flower arrangement, Secretary's G 

ifts, direct report dinner Inc.,239.00 1,239.00 Catering for the Secretary's direct G 

07/25/2~00 Ltd. .81 580.81 Flatware, tables, china, glassware G 

rental for the Secretary's direct 

report dinner 

07/25/2000 Harvest /A 

Equinox report dinner 

07/26/2000 Susan Gage Cati~ 1,932.00 1,932.00 Catering for the Secretary's G 

direct report 

08/02/2000 Design '' 421.50 421.50 Staff breakfast G 

08/14/2000 DesignCuisine 421.50 421.50 Staff breakfast G 

08/14/2000 Designeuisine 421.50 421.50 Staff breakfast G 

09/15/2000 Design·Cuisine 449.00 449.00 Staff breakfast G 

09/26/2000 DesignCuisine 497.00 497.00 Staff breakfast G 

10/03/2000 DesignCuisine 497.00 497.00 Staff breakfast G 

10/24/2000 Design Cuisine 497.00 497.00 ·Staffbreakfast G 

11/08/2000 Design Cuisine 561.50 561.50 Staff breakfast G 

11/10/2000 Design Cuisine 286.00 286.00 Lunch with Smithsonian G 

management 

01/17/2001 Design Cuisine 505.00 505.00 Staff breakfast G 

01/29/2001 Design Cuisine 497.00 497.00 Staff breakfast G 
SCHEDULE B-2 

SCHEDULE OF UNALiOWABLE TRANSACTIONS 

OTHER COSTS (CONTINUED) 

Invoice Total Unallowable Reason (see 

Date Vendor Amount Amount Description ' Legend) 

02/05/2001 Design Cuisine $497.00 $497.00 Staff breakfast ' G 

02/05/2001 Design Cuisine 739.00 739.00 Staff farewell breakfast G 

02/20/2001 Design Cuisine 497.00 497.00 Staff breakfast ~ G 

03/07/2001 Design Cuisine 497.00 497.00 Staff breakfast G 

03/12/2001 Design Cuisine 497.00 497.00 Staff breakfast G 

03/12/2001 Design Cuisine 497.00 497.00 Staff bres~fast~; i^ G 

03114/2001 DesignCuisine 497.00 497.00 Xa~ G 

03/16/2001 Restaurant Associates 150.00 150.00 L~heon with ~onian G 

direct~:~~ 

04/03/2001 Design Cuisine 533.00 533.00 G 

04/06/2001 Design Cuisine 497.00 497.00 S ~ G 

04/09/2001 Restaurant Associates 1,052.00 1,052.00 Sta~iE~cfast G 

04/24/2001 Design Cuisine 533.00 533.00 G 

04/25/2001 Design Cuisine 533.00 533.00 Sta'ffbre~ G 

04/27/2001 Restaurant Associates 100.00 100.00 Luncheon vc~Ef;T~ctor of~ G 

05/01/2001 Design Cuisine 449.00 449 G 

~I P 05/03/2001 Design Cuisine G · 533.00 

05/08/2001 Design Cuisine 506.00 G 

- 06/05/2001 Design Cuisine 533.00 G 

06/19/2001 Design Cuisine 508.50~j~ Staff G 

06/22/2001 :Design Cuisine 506.~j~"~' 506.00~ ` Sta~E~tjreakfast -· G 

07/02/2001 Design Cuisine · 506.00 ~i~reakfast G 

07/05/2001 Harvest Moon Inc. 1,100.00 ~i~heon for directreports G 

07/10/2001 Design Cuisin~ Secretary's tea for the Under G 

Secretary's staff 

07/1 8/2001 Desipn~E~"m~:~~"'~S~"1~'~5~·2~,~5 33.00 ~Sfr~i~O~ Staff breakfast GGG3GGIGiGESGO 

07/25/2001 A~E~roods Z~:"~:j·~i~;~i~i~~5.00 ~f~E~i~OO Luncheon for direct reports G 

07/30/2001 d~taurant Associates ~1.60 Luncheon with the Under G 

Secretary's directors 

07/31/20~5~ Rentals, Ltd. ~4.56 304.56 China, glassware, flatware, and G 

linens rental for direct reports 

luncheon 

08/03/2001 Rest~'~"j;~n"~4ssociates ~Y~ 294.75 294.75 Luncheon with the Under G 

Secretary's directors 

08/14/2001 DesignC~i~~,J~7 128.00 128.00 Service charges for canceled G 

staffbreakfast 

09/25/2001 Design Cuisine~ 534.00 534.00 Staff breakfast G 

09/28/2001 Design Cuisin~ 555.50 555.50 Staff breakfast G 

10/16/2001 Restaurant Associates 376.00 376.00 Staff breakfast G 

10/26/2001 Design Cuisine 489.00 489.00 Staff breakfast G 

10/31/2001 Design Cuisine 412.00 412.00 Staff breakfast G 

11/02/2001 Design Cuisine 495.50 495.50 StaffbreaMgst G 

12/05/2001 Restaurant Associates 380.00 380.00 Staff breakfast G 

12/14/2001 Restaurant Associates 380.00 380.00 Staff breakfast G 

12/29/2001 Restaurant Associates 350.00 350.00 Service charges for canceled G 

staffbreakfast 

01/09/2002 Restaurant Associates 365.00 365.00 Staff breakfast G 

02/05/2002 RestaurantAssociates 380.00 380.00 Staff breakfast G 

03/04/2002 Restaurant Associates 100.00 100.00 Lunch with HMSG director G 
SCHEDULE B-2 

SCHEDULE OF UNALLOWABLE TRANSACTIONS 

QTHER COSTS (CONTINUED) 

Invoice Total Unallowable Reason (see 

Date Vendor Amount Amount Description Legend) 

05/14/2002 Susan Gage Caterers $1,725.00 $1,725.00 Dinner to welcome new director G 

of development 

05/18/2002 Restaurant Associates 585.00 585.00 Refreshments for direct reports G 

and unit heads 

05/23/2002 Allan Woods 340.00 340.00 Centerpiece, foyer arrangement, G 

Flowers/Gifts, Inc. powd~ll~3~t~;l~m~:S~~ din~SI~:·fo 

~i~lopment 

06/25/2002 Design Cuisine 471.50 471.50brea~F~ls~ G 

06/17/2002 Design Cuisine 406.00 406.00 G 

06/28/2002 SI 281.18 124.50develop~W 

07/06/2002 Restaurant Associates 100.00 100.00 L~j~th SAO directo~i~i~i~ G 

07/20/2002 Restaurant Associates 100.00 100.00 L~che~acting NMNH .G 

director ~5~1~5~ 

09/14/2002 Restaurant Associates 400.00 400.0~a·c~ Office of the S~i~i~aff G 

09/23/2002 Harvest Moon Inc 1,368.00 I.~bo repoytsdirl~ler G 

09/25/2002 Design Cuisine 455.00 G 

09/27/002 DC Party Rental LLC 775.20 china, and G 

for direct reports 

10/24/2002 Allan Woods 300. arrangements for direct G 

dinner 

12/20/2002 Design Cuisin~t~~~ 427.50 Staff breakfast · G 

01/15/2003 100.00 Lunch with NMAH director G 

03/08/2003 Rest~nt Associates``y~~462.00 02/28/2003 ~ Staffbreakfast G 

00.00 ~Y.OO Lunch with development G 

YI~ director 

03/15/2003 Associates 100.00 Lunch with acting NMNH G 

director 

09/19/2003 RestaYuran~-~,I 04/1 Associates 3.006 100.00 Lunch with NMAH director G 

06/28/2003 RY Associates ~ 100.00 100.00 Lunch with NMAH director G 

07/21/2003 453.00 453.00 Staff breakfast G 

07/21/2003 Design 462.00 462.00 Staff breakfast G 

100.00 100.00 Lunch with NMAH director G. 

10/06/2003 Restaurant 100.00 100.00 Lunch with HMSG director G 

10/09/2003 DesigoCuisine~i~T 466.50 466.50 StaffbreakEdst G 

10/24/2003 Restaurant As~i~ciates 350.00 350.00 Farewell lunch for the Under G 

Secretary 

12/04/2003 Restaurant Associates 300.00 300.00 Luncheon with Smithsonian G 

employees 

03/18/2004 Restaurant Associates 100.00 100.00 Lunch with NMAH director G 

05/27/2004 Restaurant Associates 100.00 100.00 Lunch with NMAH director G 

06/09/2004 Restaurant Associates 410.00 410.00 Staff breakfast G 

06/30/2004 Restaurant Associates 100.00 100.00 Lunch with FSG director G 

07/20/2004 Restaurant Associates 100.00 100.00 Lunch with NMAH director G 

6 Actual invoice and amount paid to the vendor were $!00: The $2,083.00 was a system error. 
SCHEDULE B-2 

SCHEDULE OF UNALLOWABLE TRANSACTIONS 

OTHER COSTS (CONTINUED) 

Invoice Total Unallowable Reason (see 

Date Vendor Amount Amount Description Legend) 

07/26/2004 Lawrence M. Small $33.77 $33.77 Breakfast with SBV Board G 

Member 

10/05/2004 Restaurant Associates 488.70 488.70 Staff breakfast G 

11/25/2004 Citibank ` 550.00 100.00 Lunch with NMAH director G 

03/14/2000 Lawrence M. Small 266.59 142;00 Meal in 1999 H 

05/06/2000 ACE Beverage 15.99 15.99 Alcoho!~:~.~,qrelti~!~es I 

05/17/2000 ACE Beverage 160.68 140.88 · I 

07/25/2000 ACE Beverage 193.81 187.85 A1~D~iolic bevers~i~i~,~~retary's I 

report 

09/18/2000 ACE Beverage 437.08 412.81 Al~jS~lic be~er8ges Yb~p, I 

10/10/2000 ACE Beverage 253.33 248.86 Ale~f~F~c~erages I 

11/21/2000 ACE Beverage 539.17 448.09 Alco~i~i~i~erages I 

02/23/2001 ACE Beverage 163.38 163.38 '~' I 

05/24/2001 ACE Beverage 80.94 80.94 Alc~holic ~i~s I 

05/30/2001 ACE Beverage 260.54 238.83 Alcoholic be~i~i~ ~ I 

11/05/2001 ACE Beverage 55.96 55.96~ilcoholic bever~"·l`~t"~]f~'~·Y I 

01/16/2002 ACE Beverage 107.92 107.4·~:;~Y~i~*~'~2~~holic beverae~~i~jy I 

05/14/2002 ACE Beverage 133.14 I 

Alco~'iaE%~~ii~i~ii~'erapes I 

05/31/2002 ACE Beverage 161.27 1 I 

09/24/2002 Ace Beverages 186.04 1 

06/19/2004 Ace Beverages 139.88~i~ 13~8 Q Alcoho~'i~·~i~lirerages .I 

05/3112000 OccasionsCaterers,lnc. 800.0~i~800.00 lunch~on - 

0 1/22/2004 Restaurant Associates 100.00 ifor personal contact ~ J - 

~ 03/18/2004 Restaurant Associates 100.00 ~hforpersonal contact 'J 

04/08/2004 Restaurant Lunch for personal contact J 

05/21/2004 Restauran~s~'~·~C~%i~~ 100.0~;~3~~5~00.00 Lunchforpersanalcontact J 

07/25/2005 Citih~ii;k ~0.00 Lunch for personal contact J 

10/25/2004 Ci 80.00 Lunch for personal contact J 

06/02/2000 AP .50 Cash award to the Executive K 

Assistant to the Secretary 

Florist 6~6~.70 690.70 Floral arrangements to former L 

Smithsonian employees 

07/31/2000 Pa~a'"gs~i3~s~ii~·~st ~54.65 54.65 Floral ar~angement to a L 

Smithsonian employee 

09/15/2000 Palace FI~ir~i~ ~z~E' 164.23 164.23 Floral arrangement to a L 

Smithsonian employee 

09/18/2000 SI 137.56 137.56 Gifts for donors L 

10/31/2000 Palace Florist 276.88 276.88 Floral arrangements to L 

y Smithsonian employees 

11/21/2000 SI 269.85 19.96 Donor gifts L 

11/21/2000 SI 456.02 424.00 Gifts L 

11/30/2000 Palace Florist 275.90 275.90 Floral arrangements to L 

Smithsonian employees 

12/04/2000 SI 318.24 97.60 Donor gifts L 

12/30/2000 Palace Florist 212.95 212.95 Floral arrangement to a L 

Smithsonian employee 

01/31/2001 Palace Florist 119.95 119.95 Floral arrangementto a L 

Smithsonian employee 

02/22/2001 SI 136.85 52.56 Donor gifts L 

02/28/2001 Palace Florist 72.45 72.45 Floral arrangement to a donor L 

04/03/2001 Palace Florist 118.70 118.70 Floral arrangement to a donor L 
SCHEDULE B-2 

SCHEDULE OP UNALLOWABLE TRANSACTIONS 

OTHER COSTS (CONTINUED) 

Invoice Total Unallowable Reason (see 

Date Vendor Amount Amount Transaction Description Legend) 

04/04/2001 SI $48.54 $48.54 Books for a donor L 

05/31/2001 Palace Florist 112.95 112.95 Floral arrangement to a former SI L 

employee 

06/30/2001 Palace Florist 315.95 315.95 Floral arrangement to a Smithsonian L 

employee 

08/01/2001 SI 70.16 15.99 ~dq ~i~icet for L 

Gift for c·. L 

e~· 

10/3 1/2001 SI 349.98 349.98 

12/06/2001 SI 26.00 26.00 Gift~for a donor ~s~ L 

12/31/2001 Palace Florist 325.90 325.90 Flo~.~'~$rraneen~I~itto aY~r~f~j~nian ·E L 

emp 

12/31/2001 Palace florist 338.85 338.85 Floral`~T~i~ements to Smitli~af~j~i~j~ L 

emp 

02/28/2002 Palace Florist 577.70 577.70 FlorararranE~i~s to Smithsonian L 

employee, doni~i~pouse~of 

03/22/2002 SI 71.18 13.69*rCn~'~·~:~~*~~r donor L 

03/22/2002 SI 80.00 40,04r B~i~i~Z~form~ Cha~ ofSNB L 

03/30/2002 Palace Florist 340.90 34~9~ S3ror~i5~e~ents to spouse of L 

~r, and spouse of 

04/30/2002 Palace Floiist -r~-~,,, ,,,,,, .· : 388;85 ~388.85 

~G~l~i~:~~~eS 

06/02/2002 Palace Florist 2 212.95 ~c~ro~ anangements to a Smithsonian L. 

employee 

07/16/2002 Palace Flo~is~F~i~3X.85 "J~i~.85 Floral arrangements to Smithsonian L 

employees and donors 

08/30/2002 Pala~c~orist `V~95 Floral arrangement to a Smithsonian L 

employee 

09/27/2002 ~E~i~ ^ 9.00 Museum ticket for a donor L 

09/3 0/200?~5~·^E~I~a~,F1orist 2~q0 275.90 Floral arrangements to Smithsonian L 

employees 

10/31/2002 Pala~a~ ~.80 501.80 Floral arrangement to a Smithsonian L 

employee · 

11/30/2002 Palace Fl~i~ ~C'285.90 285.90 Floral arrangement to a former L 

Smithsonian employee 

12/31/2002 Palace Florist ~i~ 35.00 35.00 Floral arrangement to a Smithsonian L 

employee 

01/31/2003 Palace Florist ~ 260.90 260.90 Floral arrangements to Smithsonian L 

employees 

03/31/2003 Palace Florist 27.95 27.95 Floral arrangement to a donor L 

07/12/2003 Palace Florist 260.90 260.90 Floral arrangement to a regent L 

08/31/2003 Palace Florist 66.57 66.57 Floral arrangement to a Smithsonian L 

employee 

08/31/2003 Palace Florist 536.80 536.80 Floral arrangement to a Smithsonian L 

employee and a former regent 

10/31/2003 Palace Florist 44.80 44.80 Floral arrangement to a supporter L 

11/30/2003 Palace Florist 224.60 224.60 Floral arrangements to donors L 

12/31/2003 Palace Florist 119.44 119.44 Floral arrangement to a Smithsonian L 

employee 
SCHEDULE B-2 

SCHEDULE OF UNALLOWABLE TRANSACTIONS 

OTHER COSTS (CONTINUED) 

Invoice Total Unallowable Reason (see 

Date Vendor Amount Amount Transaction Description Legend) 

03/31/2004 Palace Florist . $158.05 $158.05 Floral arrangement to former chair L 

ofSNB 

04/06/2004 Palace Florist 242.75 242.75 Floral a~angement to a former L 

Smithsonian employee 

04/21/2004 LawrenceM. Small 257.60 257.60 Gift to chair of SNB L 

06/21/2004 Palace Florist 68.90 68.90 Floral arraneeHlenr~o a former L 

regent 

06/26/2004 Palace Florist 163.95 163.95 FloraldSfianeement ~tj~tbrmer L 

06130/2004 PalaceFlorist 139.90 139.90 Florat·~anpeme~~to a t 

ployee 

07/31/2004 Palace Florist 731.55 731.55 Floral to Smiths'di~i·a'-i~EC~' L 

emp board 

09/15/2004 Palace Florist 114.95 114.95 Floral arrangem~i~jE~i~,Smithsonian L 

!oyee 

12/03/2004 LawrenceM. Small 404.76 404.76.·j~3~ donors L 

12/25/2004 Citibank 1,806.76 664.5~~ S~4i~E~S~hi~e for donor~q L 

01/25/2005 Citibank 114.95 11U to~a Smithsonian LL 01/28/2005 Lawrence M. Small 458.04.51 to a donor · ;L -· I 8·I 

03/25/2005 Citibank 174~ 174.38 '~:~"·~~~)"tj"~~anaement to a Smithsonian L 

04/18/2005 Lawrence M.~g;j~~ ~0.7~i~c~ 20.79 Book for a regent L 

04/25/2005 Citibank~3~i~2.01 ~~.01 Floral arrangements to donors L 

05/25/2005 Citib~2F~S~~-`~^^ ~-'T~i~13 8 ~F~3~L~8~9 Floral arrangement to a Smithsonian L 

employee 

06/22/2005 z~S~enceM. Small 2~112 Floral arrangement to a donor L 

o6/25/2005~·~"~l'~i~utibank 2~ 2'65.31 Floral arrangements to Smithsonian L 

employees 

07/25/2"0b5 Y~f~e 1 1 . 121.51 Floral arrangement to a Smithsonian L 

employee 

08/11/2005 Lawr~ii~P~;~i~f~Smal1 ~8.83 248.83 Gift to former Secretary of L 

osnsizoos CitibankY~Y~36i~Q, ~5~' 492.57 492.57 Floral arrangements to SmithsonianSmithsoni

L 

employees 

09/25/2005 Citibank 64.95 64.95 Floral arrangement to a regent L 

staffer 

$68.665.40 
SCHEDULE B-2 

NOTES 

A. The Secretary used car service during a number of trips. According to the Secretary's 

employment agreement, the Smithsonian only provides a suitable car and driver for transportation 

to local official functions. The Smithsonian travel policy states that travelers should select "The 

mode of transportation that is most advantageous to SI when cost and other factors are 

considered...." We classified the cost of all out-of-town car service for which there was no 

written justification as unallowable. 

B. The Secretary took charter flights ~-om Washington, DC, to Scrantor~ Pennsylvania, on 

November 30, 2000, and from Washington, DC, to San on ~i~8y 22, 2001,to 

attend Smithsonian-related social functions. The permits firstclass seating on flights; it does not, however, authorize c~rter fli 

C. The Secretary claimed actual lodging and meals for his t~S~i~hsonian ~i~t~i~plici~S state 

that the Smithsonian follows the FTR. Smithsonian travel i~'~3~~ do, howeve~~ 

exception to permit actual lodging and per-diem costs for~i~ exceed FT~i~4~fs up to a 

maximum of 300 percent of those limits. The Office of th~j~Insp~i~neral concluded on 

September 28, 2006, that this exception applies to the Secretary's tr~i~pd~ for three of the 

Secretary's trips exceeded 300 percent of the FT~, as foil 

FTR ~i~i~V~E~ V Actual 

Travel Date Loralitv ~hdei~-~ Room Rate 

6/27/02-6/30/02 Las Vegas, ~i~i~ ~7~ $449 

11/20/03-:11/2'i/03 Kauai; $1 $474 $650 

5/25/5-5/27/05 Los Ar~j~CA $10~ $300 $355 

D. The at a hotel in Chantilly, Virginia, for Udvar-Hazy 

events 24 miles from the Secretary's 

W Dc, offic~ consider~-~his official duty station. The Smithsonian's travel 

states that per diem st`Zi~j~l~hen an~ci~mployee dparts his home, office, or duty station. Due 

of the eventsI~-~i~~hantillv destination is considered local travel and thus not 

lodging 

E. The his spou~ttended a Smithsonian National Board (SNB) meeting in China in 

May 2004. 'to the United States, Mrs. Small took a side trip to Cambodia with 

the SNB, but~i~i~fecretary. She later received reimbursement for that trip. The 

Secretary's empr~f~i~t agreement authorizes him to ~b;avel with his spouse at Smithsonian 

expense where h~iresence is appropriate. The Cambodia trip was taken by Mrs. Small alone. 

F. The Secretary received reimbursementfor his membership in the Cosmos Club, which provides 

the option of spousal privilege. The Secretary opted to pay the spousal privilege fee and was 

reimbursed fiom the Smithsonian for the year 2000. The Secretary's employment agreement does 

not authorize spousal privilege at Smithsonian expense, and Mrs. Small was not an employee who 

would be entitled to such membership. 

G. The Secretary frequently worked through lunch or dinner with his staff and charged meal costs on 

these occasions. He also hosted a number of staff breakfasts. The costs of these meals were 

charged to Funds 401~ and 402. FY 1999 Smithsonian guidance on the use of these funds CUse of 

Trust Funds for Representational and Special Event Expenses) states: 
Trustfunds may not be used to cover costs of working luncheons involving only 

SI staff members. 

Further, it states: 

Smithsonian-provided meals are limited to occasions where they arejudged 

essential to efficient, successful completion oftheproject. 

This guidance was updated on December i, 2004, to state that trust fUnds can only be used for 

staff meetings and luncheons if "authorized for use by the Secretary...to support staff 

breakfast/lunch meetings." We classified·all staff meal costs ~n~t~:~ed~.fore~~ecember i, 2004, 

as unallowable. 

H. The Secretary was reimbursed in March 2000 for a 8, 1 a Smithsonian 

employee. The Secretary was not yet a Smithsonian empl~j .b 

reimbursement is unallowable. 

I. Costs ofalcoholic-beverages served atiNlers hosted by~IS~ poid o~f the 401 

Fund. The 1999 Use of Trust Funds for Representational and Spec~i~S~t E~I~Tenses does not list 

alcoholic beverages as an allowable expense, wh~e~E~g~Z~004 version "ej~j~3~Si states that the 401 

Fund cannot be used for alcoholic beverages. 

J. The Secretary was reimbursed for lunches v~i~gers~l ~i~Z~fi~i~hose lunches were not hosted 

for Smithsonian business purpose.~T~i~p'" contact lunches is not 

allowable. 

K. The Secretary awarded a $4,8!~i~bonus to the ~i~i~ire Assistant to the Secretary in June 

2000 to cover p~g~:~!~l,~i~~xpenS~?~;:~?j~_~i~ithsonian bonus policy, Common Types of Incentive 

Awards, ide_~?z~j~'~i~i~i~"~f caski~l~: cash awards for sustained superior performance and 

for spec~j~~or ~;~:i~i~c~:~fi~Execut~··S~:~i~·~,~int's bonus did not qualify under either of these 

and is therefi~i*i~'~i~owable. 

L. ~i~ecretary purchased varii~i~ifts (such as flowers, plants, books, ties, and smithsonite) for 

~ employees, dono~nd others. These gifts were charged against 401, 402, and 801 

1999 Use ofTrus~inds for Representational and Special Event Expenses does not 

list giftr~j~E~c~i~·llowablex~e, while the 2004 version explicitly states that trust funds cannot 

be used fo~t~r any I~bse for Smithsonian staff, volunteers, donors, etc. Therefore, gift 

costs are 
~ 

APPENDIX C 

ACRONYMS USED BY THE SRIITHSONIA~i~3~:ITUTION 

~i~iF~ 

c: 

~ 

~13~ 
APPENDIX C 

ACRONYMS USED BY THE SICIITHSONIAN INSTITUTION 

Acronyms Full Name 

HMSG Hirshhorn Museum and Sculpture Garden 

NASM National Air & Space Museum 

NMAH National Museum of American History 

NMNH National Museum ofNatural History 

SAO Smithsonian Astrophysical Observato~ ~ 

SBV Smithsonian Business Ventures ~·i~j~· 

SNB Smithsonian National Board 
EXHIBIT 22 
921 -Fwd RE RE RE Smithsonian Expenditure Review Draft Report.txt 

From: sprightley Ryan Csprightleyeoig.si.edul 

sent: wednesday, December 06, 2006 8:33 AM 

Ko: Reed, Ellen P. Yu, Hadley, Sam A. 

jubject:Fwd: RE: ~E RE: Ho~~;thsonian Expenditure Review Draft Report 

Attachments: Transactions need business purpose 12 04 06.xls 

>>> Lee, Yong 12/5/2006 4:13 PM >>> 

Hi Sprightley, Here's an amended spreadsheet with business purposes added. 

The only information I don't have in the attached is the justification for the 

palace Florist charges. Because they were carry-forward charges I would have to 

put together all of their invoices to see which~charges were pa~$ when and to see 

what the carry-forward balances are. I will try to re-create this but might not be 

able to because we don't have copies of all of the invoices. I've already called 

Palace about these records but, they can't help because they've unfortunatelistorical data is not accessible any changed their accounting software and their 

more... More than you wanted to know... So, net net, I'11 get back to you re 

Palace charges. 

Thanks, YL 

-----original Message----- 

From: Ryan, spr7ghtley 

sent: Monday, December 04, 2006 1:19 PM 

To: Dav~s Leslie; Lee, Yong; Z~no, Andrew 

subject: ;wd: RE: RE: Smithsonian Expenditure Review Draft Report 

Hello Vong and Leigh, 

~I'm sure you're thrilled that we're emailing you at this po~nt, but could you please check the attached schedule and see if you can address the~r questions. 

vou should read the whole email thread from bottom to top to make sense of it. 

Thanks, 

sprightley 

>>> "Yu, Hong" <hyu@cottoncpa.com> 12/4/2006 1:12 PM >>> 

HiSprightley, 

I talked to Ellen. she said yes to your recommendation and Andy's on donation. we 

will make the changes to our draft. 

I put together information on the transactions that do not have adequate business 

purpose. I think we mentioned that some travel management sheets do not have 

business purpose on to Leslie when we met with her. 

However, I am not 100% sure because Charlene did the review of those transactions. 

Anywa if Vong or ieslie is able to provide business purpose on any, we wi~l be 

very appy to remove them from schedule B-1. 

Thanks, 

Hong 

-----original MessageFrom: Spr~ght~ey Ryan Cmailto:sprightleyeoig.si.edul 

sent: Monday, December 04, 2006 12:27 PM 

To: Yu Hong 

Cc: Re~d, Ellen P. 

) subject: RE: RE: Smithsonian Expenditure Review Draft Report 

Page 1 

r4kl> 
921 -Fwd RE RE RE smithsonian Expenditure Review Draft Report.·txt 

Hong, 

;Ylaybe you could use a different characterization? could you call it "inadequately 

Cor insufficientlyl documented business purpose"? 

Also, for the travel where there was no business purpbse on the travel management 

sheet, did Yong give you any alternative documentation or information? Maybe it 

would help if you could give a little more information on each one. 

Thanks so much, 

Sprightley 

>>> IIYU, Hong" <hyu@cottoncpa.com> 12/4/2006 12:16 PM >>> 

Hi Sprightley, 

Andy is absolutely right on that vong has provided business purpose for all items, 

even the ones that he could not locate invoices for. I went through the transactions 

identified as "undocumented business purpose" 

and noted that many of them are for travels that no business purpose was entered on 

the travel management sheet provided to us, a couple of them are forward balance for 

floral arrangements that we can not determine whom the balance was for, and the ones 

that have two invo~ces on one event. Please let us know if you would like more 

details on each of the transactions identified as "undocumented business purpose." 

Thanks, 

Hong 

-----ori gi nal MessageFrom: sprightley Ryan Cmai~to:sprightleyeoig.si.edul 

Esent: Monday, December 04, 2006 10:41 AM 

To: Reed, Ellen P.; Yu, Hong 

Subject: Fwd: RE: Smithsonian Expenditure Review Draft Report 

Thanks for your two emails. 

Here's one from Andy with some comments on the draft also. 

Thanks again, 

Sprightley 

>>> zino, Andrew 12/4/2006 9:53 AM >>> 

sprightley, 

I am "surprised" by the number of items in Schedule B-1 that are listed as 

Itwas my understanding that Vong had supplied the 

I think s~Uerpose for al 

"undocumented bus~ness rpose" 

business items even the ones we couldn't locate the invoices for. 

w~ll be "upset" wi;h this listing of items. 

on item c-l where donations are discussed, I believe that the comment "The general 

ledger did not reflect receipts for 2 transactions totaling 8321" 

should actually read "The general ledger balance for donations did not reflect 

The transactions got booked; I just didn't "go find them" 

Andy 

Page 2 
921 -Fwd RE RE RE Smithsonian Expenditure Review Draft Report.txt 

i-----origi nal Messase----- 

From: Ryan, spright7ey 

sent: Friday December 01, 2006 4:23 PM 

To: Maroni, ~lice; zino, Andrew; Metzger, Stuart; Gallus, Bruce 

Cc: Huerta, 7ohn 

subject: Fwd: Smithsonian Expenditure Review Draft Report 

>>> "Reed, Ellen P." <ereed@cottoncpa.com> 12/1/2006 1:54 PM >>> 

sprightley, 

Attached is the revised draft report. please let me know if you have 

any questions or comments. 

Thanks, 

Ellen 

Ellen Reed 

Cotton & Company, LLP 

635 slaters Lane, 4th Floor 

Page 3 
921 -Fwd RE RE RE Smithsonian Expenditure Review Draft Report.txt 

Alexandria, vA 22314 

(703) 836-6701 

page 4 
Yage I oil 

From: Lee, Yong CLeeY@si.edu] 

Sent: Wednesday, December 06, 2006 12:14 PM 

i To: Yu, Hong 

Subject: RE: So~Ee for the business purpose 

.i-li Hong! The source for the lunches was the Secretary's calendar. The source for travel also was the 

Secretary's calendar, but in combination with individual itineraries that Leslie prepares for each trip. 

Let me know if you have any other questions. 

Regards, YL 

From: Yu, Hong [mailto: hyu@cottoncpa.com] 

Sent: Wednesday, December 06, 2006 12:07 PM 

To: Lee, Yong 

Subject: Sou~ for the business purpose 

Hi Yong, 

Would you mind tell me that how you obtained business purpose for the lunches and travel transactions that we 

have been working on? We need to document the source of the business purpose. 

Thanks. 

Hong 

file://M:\Smithsonian Expenditure Review\900 -Correspondence\922 -RE Source for the b... 12/6/2006 
Reed, Ellen P. 

'Qm: Sprightley Ryan [Sprightley@oig.si.edu] 

ht: Wednesday, December 06, 2006 10:51 AM 

Reed. Ellen P.; Hadley, Sam A. 

Cc: Stuart Metzger 

Subject: car service, redux 

Attachments: Smithsonian AUP Draft Report 12-5-06 asr comments.doc 

Smithsonian AUP 

Draft Report i... 

Sam and Ellen: 

·Thanks so much for the quick ~urnaround. I greatly appreciated receiving the revised 

draft yesterday. I'm now returning it to you with some suggested revisions to the text 

(visible in "track changes") as well as some comments embedded. 

(l):Re: car service. As I mentioned to Ellen on the phone yesterday, I now believe even 

more strongly that use of car service by the Secretary (Gary Beer is another question 

entirely ...) should not be unallowable. I reached this conclusion not only for the 

reasons I set forth in my email of 12/3, but also because of the language in paragraph 5 

of the representation letter that the Regents will sign and the identical language in 

paragraph 10 of the representation letter that the Secretary and CFO and Comptroller will 

sign: 

IAs party to the Secretary's employment agreement, we assert that the employment agreement 

was intended to allow the Secretary to be reimbursed for travel expenditures in excess of 

~rpical FTR limits, such as hotel daily ceilings AND GROUND TRANSPORTATION CHOICES, 

·'.::hout requiring prior or specific justification and approval for those expenditures." 

,~Qpitaliz~tion added) 

Accordingly, if you agree that this language, along with the reading of the FTR and SI 

travel policy I gave you Sunday night, is sufficient, the whole category "A" of unallowed 

costs would be removed from Schedule B-2 land the rest re-lettered, obviously) 

(2) I understand that Hong is now working on some information that Yong just provided, 

which may result in the removal of a few some transactions from Schedule B-l. 

(3) Any remainingissues I've noted in the draft. 

Finally, I wanted to let you know that I asked Elena DeLeon to approve your request of 

la~t evening for the additional money las well as the extension) for the contract. 

Thanks so much for your forbearance. 

-Spright ley 

C~ 29~ 
Reed, Ellen P. 

.31~3 Sprightley Ryan [Sprightley@oiS.si.edu] 

ht: Wednesday, December 06, 2006 10:59 ANI 

Reed, Ellen P.; Hadley, Sam A. 

Cc: Stuart Me~ger 

Subject: Fwd: car service, redux 

Attachments: Smithsonian AUP Draft Report 12-5-06 asr comments.doc 

Smithsonian AUP 

Draft Report i... date on the draft needs to be changed, too; make it oops, forgot: the 

December 8? Do you think we will have it ready by then to give to the Secretary et al., 

in draft? 

Thanks, 

Sprightley 

~ss Sprightley Ryan 12/6/2006 10:50 AM >>z 

Sam and Ellen: 

Thanks so much for the quick turnaround. I greatly appreciated receiving the revised 

draft yesterday. I'm now returning it to you with some suggested revisions to the text 

(visible in "track changes") as well as some comments embedded. 

(1) Re: car service. As I mentioned to Ellen on the phone yesterday, I now believe even 

more strongly that use 

of car service by the Secretary (GaryBeer is another question 

entirely ..·) should not be unallowable. I reached this conclusion not only for the 

~asons I set forth in my email of 12/3, but also because of the language in paragraph 5 

Ithe representation letter that the Regents will sign and the identical language in 

"pbragraph 10 of the representation letter that the Secretary and CFO and Comptroller will 

sign: 

"As party to the Secretary's employment agreement, we assert that the employment agreement 

was intended to allow the Secretary to be reimbursed for travel expenditures in excess of 

typical FTR limits, such as hotel daily ceilings AND GROUND TRANSPORTATION CHOICES, 

without re4uiring prior ou specific justification and approval'for those expenditures." 

(capitalization added) 

Accordingly, if you agree that this language, along with the reading of the FTR and SI 

travel policy I gave you Sunday night, is sufficient, the whole category "A" of unallowed 

costs would be removed from Schedule B-2 land the rest re-lettered, obviously) 

(2) I understand that Hong is now working on 

some information that Yong just provided, 

which may result in the removal of a few some transactions from Schedule B-l. 

(3) Any remaining issues I've noted in the draft. 

Finally, I wanted to let you know that I asked Elena DeLeon to approve your request of 

last evening for the additional money las well as the extension)· for the contract. 

Thanks so much for your forbearance. 

-Sprightley 
Reed, Ellen P. 

clm: Zino, Andrew [ZinoA@si.edu] 

.it: Friday, December 15, 2006 4:16 PM 

Sprightley~.oig.si.edu 

Subject: RE: more work for you! 

Attachments: Excel 2000 

LMS REPAYMENT 

800.xls (22 KB) 

Sprightley, 

The $800 credit item is already in the "below the line" items. See attached extract from 

the database indicating how it was reflected in the database. 

Even though it was a repayment from the Secretary, the voucher indicated "Occasions 

Reimb" so it appears under that name and not the Secretary's! We somehow came to the 

conclusion it was a below the line item and never "connected it" to the Secretary. Will 

wonders never ceasel With a copy of what you sent me, Sam should be able to "delete" 

this item from the review. If you need anything else just holler. 

Andy 

PS WE have another issue in connection with the report based upon the "difference" of 

$28,195 in CY 2004 as reported in housing allowance payments item # B-4. I will fill you 

in on Monday. 

-----Original Message----- 

rom: Ryan, Sprightley pt:Friday, December 15, 2006 2:24 PM 

,,~: Zino, Andrew 

Subject: more work for you! 

Andy ,~~)got off the phone w/cotton & Co., and am headed out the door for an out-of-office 

~~e~~~esday, Yong provided me with documentationhat the Secretary reimbursed the 

Institution for the $800 lunch on May 15, 2000 that was personal. According to the 

documents, he repaid by check on June 29, 2000, and there is an "Input Voucher" showing 

the entry of the check. What Sam wants to know is if there is a credit entry or whatever 

that they can look at (much like.all those credit~s we put "below the line" awhile back) so 

that they could take this whole transaction out of their review * it's not really an 

expense transaction if it's cancelled out by the reimbursement. I will leave a copy of 

the documentation for you at`our front desk. 

THanks, 

Sprightley 

~9L~ 
Reed Ellen P I · 

ErOm: Sprightley Ryan [Sprightley@oig.si.edu] 

Int: Thursday. December 21, 2006 9:16 AM 

10: Reed, Ellen P.; Hadley, Sam A. 

Stuart Metzger 

,dbject: Fwd: Special review 

2,, Zino, Andrew 12/21/2006 9:13:50 AM ~~~ 

Spright ley, 

We have discovered the "problem" behind the "missing"housing allowance amounts in FY 

2004. It turns out that NFC "miscoded" two housing allowance payments to the regular 

salary line of the Secretary's Earnings and Leave Statement (E & L) We have the 

documentation from NFC which indicates this "miscoding" on their part. The "really 

strange" part of this is that the miscoded amounts don't show up as "visible entries" on 

the E & L and only "show up" in the following E 6r L statement in the year-to-date amounts. 

Unless you reviewed and recalculated your year-to-date amounts, you would never know that 

anything had been added to those amounts other than the currently indicated pay period 

amounts. This ~is amazing that NFC would "process" a transaction in that manner. We are 

preparing a schedule and documentation package for you and the Secretary's office:on this 

issue. 

Based upon this "resolution", there is no need for the Secretary to file an amended return 

since all the ~'s were included on his W-2, albeit, not in the right line items. Since 

all of the payments aretaxable in any event, this is not cause for making any 

adjustments. 

i?dy 

4; ~2. ~ 
Reed, Ellen P. 

erOm: Sprightley Ryan [Sprightley@oig.si.edu] 

nt: Friday. December 22, 2006 11:04 AM 

10: Reed, Ellen P.; Hadley, Sam A. 

~bject: Fwd: Secretary's 2004 P/R Reconciliation 

Attachments: Small.xls 

Small.xls (28 KB) 

,,> Zino, Andrew 12/22/2006 11:02 AM ss> 

Sprightley & Yong, 

Attached is a schedule that reconstructs the Secretary's entire payroll for calendar 2004. 

It "proves" that he did receive all of his housing allowances, all income was reported, 

and that his W-2 is·correct for that year. Classification of the paymentsis "incorrect", 

as previously discussed, but has no real bearing on his tax position. If you require any 

additional info on this issue, kindly let me know. Thanks. 

Andy 

sa ~ 
rage I oil 

Reed, Ellen P. 

From: Lee, Yong [LeeY@si.edu] 

Sent: Friday, December 22, 2006 4:44 PM 

To: Yu, Hong; Reed, Ellen P. 

Cc: Ryan, Sprightley 

Subject: revised housing allowance worksheet 

Attachments: Housing Allowance FYOO to 05 as of 12.22.06.xls 

Hello! Sprightley let me know you would remove mention of the unallowables (capital improvements) in the 

Secretary's housing allowance review if I would send you a revised worksheet without the unallowable elements. 

I have done so and have attached here. The cells I modified are highlighted. Please let me know if you need 

anything else. 

Happy holidays! 

Thanks, YL 

1/10/2007 
Reed Ellen P 

ErOm: Sprightley Ryan [Sprightley@oig.si.edu] 

;It: Monday, December 04, 2006 7:27 AM 

Reed, Ellen P.; Hadley, Sam A. 

SuPject: Re: Secretary's Expenses Review * Second Thoughts 

Sam, 

On the Secretary's expense review: 

point well taken. I apologize if I spoke out of school. I just thought that I would have 

to give guidance, like I did, for example, on the applicability of the travel policy to 

the Secretary and to Oary Beer. In this case, it would be on the intepretation of the 

travel regs, which say (like the FTRs do) that "special conveyances may be authorized," 

and which have lots of wiggle room as to what should be considered ("other factors" 

in addition to cost; "practicable and commensurate with the nature and purpose of the 

trip" and the choice must take into account, among other things, "lost work time") 

I eagerly await your decision. 

On another point, Alice is concerned about the characterization of the Mrs. 

Small's trip to Cambodia, because it sounds like she went off on a lark, rather than to 

accompany Smithsonian National Board members. It is nonetheless (clearly) unallowable, 

but if you were provided documentation as to this purpose (were you?), it would seem 

appropriate to mention it. 

On yet another point, Alice once again pointed to the language in the 401 allocation memos 

about the Secretary (starting with the.12/4/03 one) stating that "In addition to general 

authorized use of allocated central trust funds for representational and special event 

?urposes, these funds are also available to the Office of the Secretary to carryout [sic] 

official duties." So it would seem that he was at least intended to be able to buy 

iers, alcohol, etc., at least beginning then. 

Do be in touch. 

On the SBV side of things ... I have been asking almost every day for that final 

schedule. I will try again today. 

Thanks, 

Spright ley 

,,, ~shadley~cottoncpa.com> 12/4/2006 5:16 AM z~> 

Sprightley, 

Cotton will ponder it some more, and I will inquire with others here (when 

auditing big wigs) I think it might have been better to express your 

concerns to us and OIG staff, before involving SI staff; I still think this is a decision 

that Cotton has to make, specifically without influence (but not information) from the 

auditee. While I realize that Andy and Alice are npt specifically who we are reviewing, I 

just think you hired us to make that determination. 

Anyway, on another flight this morning, but I will gather some any background that I can 

find. 

Thanks, 

Sam 

)~t via BlackBerry from Cingular Wireless 

-----Original Message----- 

From: "Sprightley Ryan" <Sprightleyooig. si.edu> 

c~ :e 
Date: Sun, 03 Dec 2006 23:00:07 

To:cereed~~cottoncpa.com~, <shadley~cottoncpa.com>,"Bruce Gallus" 

~bgallus~oig.si.edu~,"Stuart Metzger" ~smetzger~oig.si.edus,"Alice Maroni" 

<MaroniA~si·edu~, "Andrew Zino" ~ZinoA~si.edus 

Sject: Secretary's Expenses Review * Second Th oughts 

I've been re-reading the draft AUP and thinking a lot about it over this weekend. I am 

not completely comfortable with calling theSecretary's car service expenses unallowable. 

Given his position, the value of his time, the uncertainties in reliably getting other 

modes of transportation (e.g.l cabs in New York City on a rainy day), and the possibility 

of giving rides to donors, I think that car service may be "most advantageous to SI when 

cost and other factors are considered." Before I decide, however, I would like to get 

more detail on a small sample of these expenses (e.g., the 

$1421 11/1/04 transaction) to find out the number and types of trips represented by amounts such 

as these. 

We'll talk in the morning. 

Thanks, 

Sprightley 
EXHIBIT 23 
~ SrmthsonianInstitution 

t_~lCiofRegents December 7, 2006 

'Chief~ustice 

cY~~e~ii~dst"es' - Sam Hadley, CPA, CGFM 

Partner 

Vice President 

of the United States, Cotton & Company LLP 

Richa'dB.Che"ey 635 Slaters Lane, 4fh Floor 

~:dH~e Alexandria, VA 22314 

The Honorable 

sillFrist, M.D. Dear Ms. Hadley: 

The Honorable 

P"t~~k i. Leahy Tn connection with your agreed-upon procedures engagement to review the 

The Honorable compensation and expenses of the Secretary of the Smithsonian Institution for fiscal years 

xavier eecerra 2000 through 2006, we confirm, tothe best of our knowledge and belief, the following 

The Honorable~~ao~fnosr~bl' representations made to you during your engagement: 

The Honorable 

Ralph Regula i. We have fully disclosed our objectives for this review. 

Eli Broad 

2. We acknowledge responsibility for determining the appropriateness of the procedures 

Anne d'Harnoncourt to ensure that our objectives are met. 

Phillip Frost. M.D. 

ShirleyAnn ~adtson 3. We acknowledge responsibility for selecting the transactions for your review 

)rt P. Kogad (identified on the Schedule of Expenditures, Schedule of Housing AUowances, 

Schedule of Compensation, and Schedule of Donations) and for ensuring that those 

~brslter E. Massey transactions meet our objectives. We understand that you have not reviewed the 

'·· _ ~~er W. Sant Schedule of Expenditures or Schedule of Housing Allowances for completeness or to 

Alan G. Spoon ensure that the selected transactions meet our objectives. 

Patricia Q. Stonesifer 

4. As party to the Secretary's employment agreement, we assert that the employment 

agreement was intended to compensate the Secretary for imputed mortgage interest, 

rather than to limit the compensation to actual mortgage interest incurred. The 

employment agreement states: 

The Secretary shall make his personal residence available for official 

Smithsonian hospitality and will receive a housing allowance not to 

exceed $150,000' per year in compensation for up to fifty percent 

(50%) of the actual costs of his houSing. Payment of these funds will 

be made by the Smithsonian to the Secretary monthly upon his 

presentation monthly of records of housing operating and 

'The housing allowance ceiling is adjusted annually. The amount shown here represents the amount from 

the initial agreement. 

Smithsonian Institution Building 

1000 ~efferson Drive sW 

washington DC 20560-0016 

Tel: (202) 633-1869 %/ ·, 

Pax: (202) 786-2515 

x 14 

E, Ln)ir·~ 
maintenance expenditures including but not to be limited to: 

homeowner's insurance, utilities, ordinary maintenance and 

i cleaning, grounds service, real estate taxes, mortgage interest or 

equivalent costs of home ownership, etc., but not capital 

expenditures. 

5. As party to the Secretary's employment agreement, we assert that the employment 

agreement was intended to allow the Secretary to be reimbursed for travel 

expenditures in excess of typical FTR limits, such as hotel daily ceilings and ground 

transportation choices, without requiring prior or specific justification or approval 

for those expenditures. The employment agreement states: 

The Smithsonian will provide for the Secretary's reimbursement for 

reasonable cost for official travel and of~cial entertainment, 

consistent with its policies for such expenditures. The Secretary is 

authorized to fly first class. The Secretary also is authorized to travel 

with his spouse at Smithsonian expense where her presence is 

ayyropriate. The Smithsonian will also provide a suitable car and 

driver for transportation to local official functions; this is not to 

include daily commuting between home and work. 

6. We know of no fraud involving Smithsonian employees related to these transactions. 

) V~y trulyyours, 

Roger W. Sant 

Chairman, Executive Committee 

Smithsonian Board of Regents 

Sa~~rce.. -~8M;~··O"r"*;··'·rr'·nr;3 cv~-ge~e~s 

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EXHIBIT 24 
~~ SmithsoruanInstirution 

January 4, 2007 

Sam Hadley, CPA, CGFM 

Partner 

Cotton & Company LLP 

635 Slaters Lane, 4th Floor 

Alexandria, VA 22314 

Dear Ms. Hadley: 

In connection with your agreed-upon proceduresngagement to review the compensation 

and expenses ofthe Secret~uy of the Smithsonian Institution for fiscal years 2000 through 

2005, we confirm, to the best of our knowledge and belief, the following representations 

made to you during your engagement (those representations applicable to all parties are 

confirmed by all parties, and those that are apphcable only to individuals are confirmed 

only by those individuals, as applicable): 

i. We acknowledgeresponsibility for determining the appropriateness of the 

procedures to ensure that our obj ectives are met. 

2. We are responsible for selecting the transactions for youreview (identified on the 

i Schedule ofExpenditures, Schedule ofsousing Allowances, Schedule of 

Compensation ad Schedule of Donations) and for ensuring that those 

transactions meet our objectives. We understand that you have not reviewed the 

Schedule ofExpenditures or Schedule of Bousing Allowances for completeness 

or to ensure that the selected transactions meet our objectives. 

3. We understandthatyouideritified transactions that were either unsupported or not 

spent in accordance with Smithsonian policies, but that you did not calculatehe 

portion of the transaction that represents unallowable costs such as travel costs 

incurred in excess of Smithsonian policies. Additionally, we understand that you 

did not test the reasonableness of the calculations of imputed home mortgage 

interest because calculations are based on assumptions provided by us (such as 

historical interest rates and home market values) outside of your expertise. 

4. We have made available to you all relevant records related to the Secretary's 

expenditures, donations, housing expenses, and income, and have not withheld 

from you any records or relatedata that in our judgment would be relevant to 

your engagement. 

5. We have identified and provided to you all relevant laws, policies, procedures, 

guidance, opinion letters, and the like, that govern the transactions covered by 

your review. 

·Q~@-·"·~
Agreed-Upon Procedures Engagement 

Representation Letter 

Rage Zof3 

6. We have identified no matters contradicting the materials we have provided to 

you or the assertions we have made to you, except for those that we have 

disclosed to you. 

7. We have responded fully to all inquiries made to us by you during the 

engagement. 

8. All amounts reported on the Schedule of Housing Allowance represent actual 

expenditures incurred solely for the primary residence of the Secretary, and were 

incurred for the purposes identified on the Schedule or supporting invoice. All 

expenditures reported were both necessary and reasonable housing expenditures 

and not capital improvements las identified in the employment agreement). 

9. As party to the Secretary's employment agreement, we assert that the employment 

agreement was intended to compensate the Secretary for imputed mortgage 

interest, rather than to limit the compensation to actual mortgage interest incurred. 

The employment agreement states: 

"The Secretary shall make his personal residence available for official 

Smithsonian hospitality and will receive a housing allowance not to exceed 

$150,000' per year in compensation for up to fifty percent (50%) of the actual 

i costs ofhis housing. Payment ofthese funds will be made by the Smithsonian 

to the Secretary monthly upon his presentation monthly of records of housing 

operating and maintenancexpenditures including but not to be limited to: 

homeowner's insurance, utilities, ordinary maintenance and cleaning, grounds 

service, real estate taxes, mortgage interest or equivalent costs of home 

ownership, etc., but not capital expenditures." 

10. As party to the Secretary's employment agreement, we assert that the employment 

agreement was intended to allow the Secretary to be reimbursed for travel 

expenditures in excess of typical FTR limits, such as hotel daily ceilings and 

ground transportation choices, without requiring prior or specific justification and 

approval for those expenditures. The employment agreement states: 

"The Smithsonian will provide for the Secretary's reimbursement for reasonable 

costs for official travel and official entertainment, consistent with its policies for 

such expenditures. The Secretary is authorized to fly first class. The Secretary also 

is authorized to travel with his spouse at Smithsonian expense where her presence 

is appropriate. The Smithsonian will also provide a suitable car and driver for 

transportation to local official functions; this is not to include daily commuting 

between home and work." 

i Housing allowance ceiling is adjusted annually. Amount shown here represents amount from the initial 

agreement. 
Agreed-Upon Procedures Engagement 

Representation Letter 

Page 30f3 

11. We know of no fraud involving Smithsonian employees related to these 

transactions. 

Very truly yours, 

wrence M. Small, Secretary 

~c~-~- 

Alice C. Maroni, Chief Financial Officer 

Andrew J. Zino, Comptroller 

p,~- 1~U,x~l~uSYC '"i~p~jC~ [M~iU~i~

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EXHIBIT 25 
~ Smithsonian Instifution 

-e~6~fiCf-B~fPrf~t 

January 16, 2007 

Audit and Review Committee 

Board ofRegents 

Smithsonian Institution 

Washington, D;.C.20560 

Dear Members of the Audit and Review Committee: 

Attached please find the Independent Accountant's Repo;t on ApplyingAgreed-Upon 

Procedures to a review ofthe Secretary's expenses, compensation, and donations for 2000 

through 2005, which was conducted at the Secretary's and your request.' 

In this transmittal we offer comments and re~commen~lations based on our oversight of 

the independent accountant's review, focusing on the Secretary's expenses. ~We note-those 

transactionsthat we believe the Regents could find to be appropriate, even if fhe 

transactions did not strictly'comply with Institution policies, as well as those that we 

believe the Regents could find inappropriate. In our view, the Institution would benefit 

frsm providing more specific guidance on expenses. In addition, we offer some 

observations on the Secretary's employment agreement and suggest that it be revised. 

Our comments follow the order of the attached report. 

The SeMetary's ExPenses 

As a trust.inStrumen~ality of the United States and as a chari~able organization ·under the 

Internal Revenue Code, the Smithsonian must ensure that expenses incurred by 

individuals in carrying out its mission are reasonable. The Smithsonian must also ensure 

that such expenses are properly documented; that they are for a Smithsonian purpose and 

not for personal benefit; and that they are not lavish or extravagant. 

Overall, we saw no evidence of fraud or.abuse associated with the ~experise transactions 

reviewed. We also saw no evidence that the expenses reviewed were solely for personal 

.benefrt. All the transactions for which there was support had a Smithsonian business · 

purpose. However, many transactions were not properly documented or were not in 

accordance ~iith Smithsonian policies. Additionally, some transactions might be 

considered lavish or extravagant. 

A sepahte report on a review of the expenses and compensation ofthe Chief Executive Officer of 

Smithsonian Business Ventures is forthcoming. 
Audit and Review Committee ~'~BIWFIBE~j~L 

january 16, 2007 

page 2 

Unsupported or Inadequately Supported Expense Transactions (Schedule B-I) 

~n~iy 42ior 4%) of the 1,040 transactions reviewed (totaling $846,312.34) hadinadequate 

support fdocumentation);2 out of those 42, only 12 (or 1"/a, worth $7,108.89) had no 

support at all. We note that where there is no support or inadequate support for the 

expense, there may be tax consequences to the Secrkary. 

Accordin~ly, werecommend that the Board of Regents ask the General Counsel to 

review the tax implications, if any, of the Institution reimbursing unsupported 

and inadequately supported expenses. 

Unauthorized Travel Transactions (Scheciule B-I) 

The report identifies nine travel transactions (related to four trips) as unauthorized. Six 

of these transactionsinvolved a single, round-trip charter night to San Antonio, Texas 

(totaling $ 14,509.40), where the Secretary attended the opening of an affiliate museum 

and a function held by a potential major donor and then needed to return for a Board of 

Regents meeting.' While the trip had a legitimate Smithsonian purpose and the charter 

night ensured that the Secretary would arrive back in time for the Regents, the use of a 

charter night was not authorized by his employment agreement or any Smithsonian 

policy and we therefore believe the cost was excessive. First-class roundtrip airfare - to 

which the Secretary is entitled under his employment agreement - between Washington, 

D.C. and San Antonio, Texas, at that time was approximately $2,000. 

Z The majority (34 out of 42) of'these transactions date from fiscal years 2000 and 2001. It is not surprising 

that some percentage of records could not be located, given the time elapsed, the'relocation of the Office of 

the Comptroller (including its voluminous and at that point poorly organized records) in 2000, and the 

turnover in personnel since then. 

'We note that a Washington Post account afew months after the trip cites an Institution spokesperson as

saying that the Secretary paid for the trip from a discretionary fund with his own money. That 

characterization is inaccurate. The trip was paid for with Smithsonian funds. It is true that the Secretary has 

been-very generous in his donations to the·Institution the gave almost $430,000 in cash and securities in the 

period covered by the review), and these donations are allocated to a discretionary trust fund from which he 

may make expenditures on behalf of the Institution; However, once an individual has donated money to 

the Institution.(and taken any resulting tax benefit), the donation becomes the property of the Institution 

and is subject to expenditure guidelines for "reasonableness" and other limitations flowing from the 

Institution's status as a trust and a 501(c)(3) organization. If the Secretary had paid for the charter flight 

with his own funds, the expenditure would not be subject to these restrictions, but it also could not be 

claimed as a charitable donation. 

4 Two Other transactions did not involvexcessive expenditures. One involved-a charter flight from 

Washington, D.C. to Pennsylvania ($1,348.75) for a Smithsonian-related function, and that flight may not 

have cost much more than a commercial flight and attendant ground transportation to the area. The other 

was an overnight stay at a motel ($67.06) near Dulles Airport when the Secretary was attending numerous 

functions related to the opening of the Udvar-Hazy Center. 
Audit and Review Committee ~BP~F~BEFFTI~ 

Tanuary 16, 2007 

page 3 

Accordingly, we recommend that the Board of Regents consider whether the 

Secretary's use of the charter flight was reasonable under the circumstances and if 

it was not, ask the Secretary to reimburse the Institution for the difference 

between first-class airfare and the cost of the charter night, and ask the General 

Counsel to review the tax implications, if any, of reimbursing the cost of the 

charter flight. 

The other travel transaction of concern is a reimbursement to the Secretary's wife for a 

trip she took to Cambodia with Smithsonian National Board members. Again, the trip 

clearly had a legitimate Smithsonian purpose, and we note that Smithsonian'travel policy 

does allow the Institution to pay the travelcosts of spouses of Smithsonian employees 

who are traveling to.attend an official function ·"if their services in an official capacity can 

be demonstrated in advance." The independent accountant, however, was not provided 

with evidence of prior authorization or-approval. We also note that the Institution's 

reimbursement of the Secretary's wife's travel expenses in this instance, and possibly in all 

instances, may have tax implications. 

Accordingly, we recommend that the Board of Regents ask the General Counsel to 

review the tax implications, if any, of reimbursing the Secretary's wife's travel 

expenses. 

Unauthorize~ Non-Trave2 Transactions (ScheduZe B-2) 

The independent accountant's report lists approximately 200 transactions (totaling 

$67,865.40) as unauthorized non-travel costs, or 8% of the cost of all expenie transactions 

reviewed. The majority of these transactions arguably were not inappropriate. 

Specifically, all but approximately $5,790 bfthese non-travel transactions, while not 

allowed under then-existing Smithsonian policies, would be authorized under current 

policy or if a different category ofrru~t funds had been used. The expenditures were for 

Smithsonian purposes, and were not for personal benefit, Smithsonian policies at the 

time, however, were either ambiguous or did not necessarily recognize'the purpose 

involired. According to the Secretary's staff, they believed that all these expenditures were 

allowed under Smithsonian policy or that the Secretary could waive any policy if it 

applied.5 

There were 15 transactions (totaling $2,679.73) involving the use of the Institution's 

"401 funds" (a type of Trust fund) for the purchase of alcoholic beverages for official 

Smithsonian functions prior to issuance of the new policy governing the expenditure of 

Trust funds in December 2004. Before that-time, the policy was silent on the purchase of 

alcoholic beverages. The new policy allows the Secretary and other specified staff to 

purchase alcoholic beverages for official occasions using the Institution's "402 funds." 

5 We are aware of no written authority for the Secretary to waive Smithsonian policies. 
Audit and Review Committee ` · ~B~6FfBE~TM~ 

lanuary 16, 2007 

page 4 

The independent accountant notes 104 transactions (totaling $45,140.78) involving staff 

breakfasts and other meals with staff that the Secretary hosted through November 2004, 

which, according to the Secretary!s staff, were working meals or staff morale-building · 

occasions. In December 2004, Institution policy governing the expenditure of Trust 

funds was explicitly changed to authorize such expenditures by the Secretary.6 Thus, 

currentl);, thes~ expenditures are allowed. We note, however, that th'ere` is no guidance 

that would help ensure that expenditures for these meals are kept within reasonable 

limits. In some instances, in our view, the cost of staff meals listed in the report might 

exceed what would be prudent under the circumstances. We also note that the policy on 

the expenditure of trust funds is an attachment to a trust fund allocation memo, rather 

than a Smithsonian Directive, the form Institution policies oflong-term significance take. 

The independent accountant also lists 66 gift transactions (totaling $14,387.89) as 

unauthorized. As noted in the report, Institution policy does not permit the expenditure 

of Trust funds for gifts and therefore the expenses were unauthorized. While generally 

that rule is appropriate, we believe. the -Regents should consider authorizing the Secretary 

land perhaps other Institution executives-involved in development, such as directors of 

museums and other programs) to spend Trust money on gifts for donors and board 

members in gratitude for their generosity and service to the Institution, so long as those 

gifts are not lavish or extravagant. Such gifts strengthen relationships with donors, 

potential donors, board members, and volunteers. Some gifts to employees may also be 

appropriate, as they enhance employee morale. However, we also believe that there 

should be limits on gifts to employees and that those limits should be.spelled out in 

appropriate guidance. For example, gifts could be restricted to the retirement oflongtime employees or condolence nowers or memorial contributions on the death of an 

employee. In all instances, the Institution should·be acknowledged as the source of the 

donation or gift. In addition, we note that, as with the expenditures on meals, some of 

the gifts listed in the report appear to be lavish. 

Accordingly, we recommend that the Board of Regents consider reviewing the 

t~ansactions involving meals with staff and the purchase of alcoholic beverages for 

official functions to determine-whether reimbursement would be warranted, 

recognizing that current Smithsonian policies would permit these expenditures. 

We also recommend that the Board of Regents direct the Institution to revise its 

policy governing the expenditure of'lirust funds to allow the Secretary ~and other 

officials to use su~h funds for token gifts on behalf of the Institution to donors, 

board members, and volunteers, and for token gifts to employees on limited 

occasi0ns; and to direct the Institution to develop a Smithsonian'Directive, with 

Board of Regents approval, providing guidance on appropriate levels of 

expenditures for these purposes. 

6 There were six occasions on which the Secretary had the Institution pay for personal lunches, but the 

Secretary reimbursed the Smithsonian for the full amount ($700) on December 12, 2006, as well as for a 

spousal privilege fee ($33.50) at the Cosmos Club that was reimbursed erroneously in 2000. 
Audit and Review Committee ~BIYFIBEP6TIAG 

January 16, 2007 

pages 

Finally, we note that there was a $4,811.50 cash award in 2000 to an assistant to the 

Secretary that the independent accountant lists as unauthorized. Evidence provided to 

the independent accountant indicated that the purpose for the award did not meet 

Smithsonian standards for the granting of such awar_ds, and no documentation was 

provided demonstrating otherwise. 

The Secretatv's Emb~oYment Agreement 

The terms of the Secretary's employment agreement posed numerous challenges to the 

review of his expenses and, in particular, of his housing allowance. To avoid similar issues 

in the future and, more importantly, to clarify the agreement's terms, we suggest that the 

Board of Regents and· the.Secretary revisit the agreement, with the·assistance of the 

Institution's General Counsel. 

Travel Provisions 

The Secretary's employment agreement explicitly authorizes the Secretary to fly first-class 

and states that Smithsonian travel policies - which follow the Federal Travel Regulation 

(FTR)- otherwise apply. Thus, on.its face the agreement does not appear to allow the 

Secretary to exceed FTR limits on hotel charges and apparent limits on 7using car services. 

But the Secretary's travel costs did no~ always come within those limits. · The 

representation letters to the independent accountant nonetheless established that the 

parties to the agreement (the. Secretary and Board of Regents through its Executive 

Committee) believe that the agreement entitled him to premium travel in all regards, not 

just premium air fare. The independent accountant therefore did not ultimately 

categorize the expenditures for car service and premium hotel accommodations as 

unauthorized. While we do not suggest the Secretary be subject to the FTR (or limits 

other than his travel expenses should further the Institution's mission and not be`lavish or 

extravagant),gwe believe there should be greater clarity and accountability. 

Accordingly, we recommend that the ~oard of Regents consider amending the 

Secretary's employment agreement to specify what level of travel servicethe 

Secretary is entitled to and what limitations, if any, should apply to his travelrelated costs. 

7 For example, the Secretary spent approximately $27,000 on car servite while on travel over the course of 

the 6-year review period. 

8 We note that the Panel on the Nonprofit Sector's Summer 2005 Reporto Congress and the Nonprotit 

Sector opposes limiting amounts paid by i~haritable organizations for travel, meals and accommodations to 

the federal government rate because doing so would place an unreasonable barrier to many activities of 

[an] organization." 
Audit and Review Committee ~BPl~hFIBE)~FjF~At 

January 16, 2007 

page6 

HousingAZlowance Provisions 

The Secretary's employment agreement also provides him with a housing allowance, as 

historically the Institution has provided its Secretary with a house and expects the 

Secretary to use it for official Smithsoriian hospitality. As with the provisions having to 

do with travel, it appeared that ~he literal language of two provisions of the agreement was 

not followed: that the allowance is not to exceed a specified amount "in·compensation for 

up to fifty percent (50%) of the actual costs of his housing;" and that payinent' will be 

made upon the Secretary's "presentation monthlyof records of housing operating and 

maintenance expenditures including but not to be limited to: homeowner's insurance, 

utilities, ordinary maintenance and cleaning, grounds ·service, real estate taxes, mortgage 

interest or equivalent costs of home ownership, etc., but not capital expenditures." 

We understand that for administrati\re ease, the Regents, a few months after the 

Secretary's arrival, ceased reciuiring monthly records of the Secretary's housing 

expenditures but did not amend the employment agreement 'accordingly. The Regents 

treated the allowance payri~ents -which increased each year with his salary - as if they 

were lump-sum payrf~ents due in the same manner as his salary. As a result, when this 

review· began, the monthly records of actual expenses had~to be. assembled for the 

independent accountant's review. 

Further, the most signi~cant housing expense listed is the Secretary's hypothetical 

mortgage interest, which is characterized as an equivalent cost of home ownership.g The 

agi·eement does not ~explain how this imputed interest would be calculated. The 

independent accountant did not review the·underlying assumptions or otherwise verify 

the resulting numbers. Yet those costs were the largest portion of the total housing 

allowance expenses. With different assumptions, it is possible the Secretary's costs would 

not have met the threshold necessary to receive the fnll amount of the housing 

allowance. 'O 

Accordingly, we recommend that the Board of Regents considerevising the 

Secretary's employment agreement to make the housing allowance a single yearly 

payment with no documentation of expenses or minimum amount required to 

qualify for the allowance; or, specify more clearly in the agreement what costs 

qualify for the allowance and what reco~dkeeping and reporting are required. 

Y In their representation letters to the Independent Accountant, the parties to the agreement stated that they 

intended the Secretary's im~uted mortgage interest to be an actual cost of housing that would count toward 

his housing allowance. 

'O For example, had an adjustable rate mortgage been used to impute the mortgage interest, the overall costs 

could have been lower. The calculations prepared by the Office of the Secretary used a 30-year fixed rate 

mortgage rate of8.32 percent from January, 2000. In 2000, the average i-year ARM was 7.04 percent, and 

interest rates declined steadily to an average of 3.90 percent in 2004, then increased in 2005 to 4.49 percent. 

Alternatively, refinancing might have been an option; average 30-year f~ed mortgage rates declined 

significantly from 2000 (when they averaged 8.05 percent) through 2005 (when they averaged 5.87 percent). 
Audit and Review Committee PAhTTITnI)h~rhT 

January 16, 2007 

page 7 

Recorc~kee~inPractices 

Finally, as.a result of this review, it became~ apparent thathe recordkeeping practices of 

the Secretary's office and the Office of the Comptroller need to be refined to allow for the 

separafe tracking and categorizing of the Sedretar~s expenses. The records of the 

Secretary's expeiises were not segregated from those of the Secretary's off;ce as a whole 

(for such expenditures as office products; travel for the Regents; furniture and other items 

for the Castle; and the like). It was therefore inifially difficult to determine which 

expenditures were attributable to the Secretary, find supporting documentation going 

back· 7 years, and decide what types of expenditures were involved without having to look 

at'the original receipts and other voluminous support. 

Recognizing these problems, the Office of.the Secretary, working with the Office of the 

Comptroller, theOf~ce of the Chief Information Officer and our of~ce, has already 

implemented a new coding system to track and categorize the Secretary's expenses more 

methodically beginning in fiscal year 2007. 

***~***+ 

Beginning this year, this office will conduct annual reviews of the Secretary's expenses. In 

~~._~~_~.__~____.an.era- oEse~er.eb~ud~iet-cOns~·;n~Edt~rl -C r^~"feSfi~6ff~ffitfiftett~itstrtrtiflv-ofl~rmr~ 

executive compensation and expenses, reviews such as this one help assure that the 

Smithsonian is using its limited assets prudently and solely for the benefit of the 

Institution's·mission. Examining the Secretary's expenses increases transparency and 

accountability and will thereby strengthen the trust and confidence of the public, 

Congress, and donors in the Institution. 

We look forward to your responses to our recommendations. Please do not hesitate to 

call me on 202.633.7095 if you have any questions or would like any further information. 

Very truly yours, 

I 

A. Sprightley Ryan 

Acting Inspector General 

cc Lawrence M. Small, Secretary 

Sheila P. Burke, Deputy Secretary and Chief Operating Officer 

~ohn E. Huerta, General Counsel 

Alice C. Maroni, Chief Financial Officer 

Andrew 7. Zino, Comptroller 

~ames M. Hobbins, Executive Assistant to the Secretary 
EXHIBIT 26 
~Co~ PIT0163~661U1 

,, ~lnrand~lr.~i~Pfld wm~cattoncp~~a~a, 

~NI]IEP~D~T ACCD~TSNTIWTfS R~EPORT Oh' 

APax~N~ Ac~n-1~PoN PR[bCEDURES 

Decem$er 22, 2006 

To the ~A~ciit and Revierv Committee of the Smithsonian Board of Rlegents: 

Cotton & Company %LP ~pe~formed the procedures enumerated t~er6w, urhich ~i~e agreed to by the 

~mithsonia~ InstitL;tion Office of the LI1SIKCtBT General ·atld: the irrstitution's.Chief Financ~ial.O~icer, 

solely to assist you In evahhatirag compensation of the Secretary of-the Smithsonian institution and in 

detennining iftra~l and other reimbursable expendituresincurr~d by me Secretary were ~aso~i~bTe in 

.the contex-t ofabusioess expense related to the Smithsonian missiox~ The 3a·tfU~sonian vras resh~a~ible 

for preparing the fow schedules provided.- for o~~vie~v: Schedule of Expenditures -of~hf: Office of the 

~ecri~ary, Schedule of Compensation for the Secretary ofthe Smithsonian ~insti&ttIon, Schedule of 

~fousi~ Allowances for the Secretary of the Smithsonian institution, and Schedule ofr>onatios frc~;sh~ 

Secretary to the Smi~fi~onia~ Trrstitution, 

HE~- conducted this agreed-upon procedures engagement in acf~~dan~e ·c~r~h attestation standards 

established try the American institute of Certified Pubtic Accountants, The fllfficiencyy of these 

procedures is solely· ~he:respP~ibilit5- of·Ehose parties specified in tin's report. Consequently. we make no 

representation regarding the snfficierlcy of procedures described beEow either for the purpose for whic~h 

this report has been requested or fdr any other purpose 

Osre~rv~s 

The Smithsonian ide;ntified its overall objectives as fo~~bws: 

i, Determine if transactions included on the Schedule of Expenditures ~s~eae properly supported 

2, Determine if tr;msadio~s included on the Schedule of Espeilditunes were valid business expenses 

related to the Smithsonian mission or were not incurred in accordance with Smithsonian policies 

and ~S~idance. 

3. Verify total compensation paidto the Secretary of the Smithsonian, to include if applicable: 

· sa~a~a~a~a~a~a~a~a~a~a~a~~ 

Bonuses 

· Benefits 

· E~busitmgal.Low~a~n~:es 

Honoraria 

r Laansorea~h~hdvanc~s 

I Housing or relocation t,upeIses 
· Automobile allosyaaces 

· Other remuneration or compensation, including severance and deferred compensation 

4. Verify the total amount of donations or securities contributions made by the 5eeretaty to the 

Institution, 

5. ~ify the total amount of related matching giffs associated with the Secretaryf s donations to the 

Smithsonian~ 

B~CKC~ROUND ANB SCOPE 

The Secretary offhe Smithsonian, on bfralfoft~e Audit e~ndRni~ Committee of the Board ofRegents, 

requested an'independent third-party review ofVleecretary's ~e~pe~dit~ues and c6mp~nsation~ The 

Smithsonian contracted with Cotton 6~ Company to review the: Schedules ·6f Expenditures, Compensation, 

Housis~ Atlowatlces, and Donations prepared by the Smithsonian's ChiefFidaacial OfIicer I~CFO). The 

period of the-agre~d-~pon procedures was RSCal Years (FYs) 2000 throw~h 2005. 

To gain an understanding ofthe req~mitements ofthis agreea-~u~pon procedures enga~m·e~t, Cotton & 

Company met vrith the acting Insp~ctorOeneraI~G) and senior managers ~om other SznitS~sonian 

o~g~anizati6ns on fury 26, 2006, and on subr~qnerrt dates as necessary. We review~6 schedules prepared 

by the Smithsonian O~f~i~e of the ChiefFiaancial C~B~cer, as well as the supporting documentatio~ We 

alsointrrieured Smithsonian officials who assist with daily administra~ion and operation of the 

Secretary's otSfice. 

In addition, we revi~ved policies andp~ocedures, references, ~andt~oo~s, and na~nlomnd~ms provided by 

the: Smithsonian as guidance to assist us in performing the agreed-upon procedures (See App%ndiu A for a 

comp~ehensiue list of references and ~uidancej~ ~tbe e~f~nt that the Secretary's employment agreement 

did not address, or was ambignons regardin& reixnbursement of certain expznditurzs, we 6b~aiwd 

cIarifiwtion from the Secretary's office and the Board of Regents on the intent of t~ agreement. We 

provided periodic status updates to the acting I% and Smithsonian staff, as well as the draft report 

documenting the re~s~a~ts of our agreed-upon pro@edures. 

acR~aD-~1Craow 25RoCEDURES AM) ~ES~LTS 

A-i. Trace allerpe~ifnre;8 reported on the Gchledule of E~peac~tures' to s0larxre documentation 

to determine if elpenditures wereproperty supIwrted. 

The-Smithsonian provided adequate documentation to support 998 ofthe 1,0~0 transactions we revie~d. 

Documentation could not be located for 15 add a~ails~Ie documentation for the other ~O ~cas not 

adequate to substantiate the business validity of the trans~tion. These unsupported transactions are 

i3fenti~eiln Schedule B-l. We classified the supported ~traasactions as either tnvel ~imbr~t~semcnt or 

other, as follows: 

The SEhednle nfExpd~din~s was prep~fi-e~ by the Smithsonian and was not raiaved by Cation t Company for 

completeness, 
number of Dollar Vaine of 

Cost Ca~gory Transactions Transactions 

Travel 260 $~298;135~28 

Otfier 738 51,011.48 

Unsupported 42 28,565.58 

Total 194n ~684Ci312~ 

A-2, ~e~vlt~-av supporting documentation for all ttrlnsacSi~ns iden·tifi~d on the Schedule of 

Espeodi~uiesto identify expenses not fulfiiltine the Smithsonian tnissi~n or not ~o·rurred in 

aceardance with Smithsonian poheies and gnidanee provided by Smithsonian staff 

Smithsonian policies and guidance provided ~to us are Listedin Appendix A. We identified unautt~6ri~ed 

transactions totaling $89,554,51 that were not incurred within limits prescribed by Smithsonian policies 

and guida~ce or~hat did not appear necessary to fUllill the Smitlsonian mission. Detail for those 

transactions and the reason why each, item was identi~ied as unautharized:is provided in Schedule B-2. 

B-l. Trace amounts reported on the ScheduL of~om~I~ensat~onl totaxable ~1~7~a~e olt9oaets 

reported on IRS Forms 990 C~Y~n-Pn~fif Tax Retuftl33, Smitltsonian's Slatements of Earniags and 

Le~v~ Secretary's ;lPS Form ~r,2s ~TE~cord of3Sompea~sat~i~n~ ademployment agreement 

AmoMts shown on the Schedule afl=c~mgensation were supported by Smithsonian Statements of 

Earnings, 1RS Form W-2s, and emp~o5nnent agreement. Amounts reported on ~ 7~-25 reconciled to the 

Smithsonian's Statement of Eami~s and ~eave, both of ~vhich are on. a caEe~daryear basis. Amounts 

reported on the Smifhsonian's ~t~em~nt o~arni~s and ~ea~re converted to afiscal~sear basis did not, 

however, reconcile to faxable wage ~m6~wfs reported on the Forms 990 br several fiscal years, as f~llow~: 

]F~ 2000 FY 2003 fPY 2002 FY 2003 FY 2004 FY 2005 

Taxable wage amounts 

on Form 990 %356,700 $655904 $746,069 $746,713 %7910,440 $819,323 

Statement ofEami~ 

and Leave 356i7100 649,176 ,,,,.,, 731,94·7 745,606 827.196 819322 

Difference ~c~zS: $14~n: ~21 %136756~ $1: 

The Schedule of Cornpe4sation did not include expenditures for honoraria loans or cash advances, or 

automobile advances. 

'fhe Schedule ofComptnsation ~as prepared ~6~ t~s Smi~sa~isn and wsls not ~viesved by :Corton ~LB. Company far 

compieteaess. 
B-2. Trace amounts reported on the Schedule of Rousing Allowances" to supporting 

docamentsti6ns% follonr~ to ensure existence ofactnal enpendttures: 

We performed the following yeri~cations: 

Type of_]Reimbursemeat Verlfi~fi6n P~ormed 

Utilities Traced a sample of2 transactions each year-to supporting invoices 

Insurance Traced all transactions to supporting invoices 

Real Estate Taxes Traced all transactions to supporting invoices 

crounds Service Traced all transactions over $2,000 to supporting invoices 

Cleaning (Housekeepers) Traced total cost tottle housekeepers' W-2s and the Employment 

Qua~fly Contribution and Wage Report (unemployment tax) 

~ulaintenance "r~cedal~ tsansa~ti~ns over $2,0010 and 5 transactions under S2,000 to 

supporting invoices 

Mlo~tga~e interest otEuiv~lent psJo testing w;is perfbrmed 

Cost ofH6me~pwners~ipu 

This is an imputed cost on the Schedule afHousing Allowances based on the 

%5;488,095 estimated rnaricet price of the Secretary's home at the time his 

employment agre~enleat was signed and the average interest rate of 8.32% for a 

30-year ~ixe~d-r~ste mortgage a~Wat time, Because this imputed cost was based on 

those assumptions, yve did not perform festing on the calculation. 

bl~ expenditures tested were supported by invoices, work orders, receipts or p~yro~l records, 

B-3. Compare theannnal h~ns`u~p ahowanee ceiliag ~is reported an the Secretary's employment 

agreement) to ~~ts incurred and imputed as reported on the Schedule of Housing Allowaaces, 

The ceiling identifi~d inthe Secretary's employment agreement is reported as "$150,000 per yeax,,,for up 

to fifty percent (50)0'0) ofthe actual costs of his housing," The housing allo~vance wiliag was increased 

each year as part offhe Secretary)s compensation package. 13ecause the housing allowance is approved 

on an annual calendar year basis, ~ve compared the cd.ling to costs incurred e;tch calendar year. 

In each year, incurred and imputed costs reported on the Schedule of Housing Allowances exceeded the 

ceiling allowance. a summary of these costs faf~laws: 

CY 2[309 CY 2001 CY 2902 CY 2803 GY 21104 CY 2005 

Casts Incurred %132,441 S156,333 $151,441 $162,456 %159,263 $139,103 

Imputed Costs 2_90,208 290,208 290,218 290308 290.208 290,208 

Total Costs $422,619 $496,551 $441,~49 %452,664 $454,471 $429,3 11 

50% of Total Costs $211,325 $223~270 $220,824 $226,532 $224,735 $214,656 

Ceiling %Iso,aoa %150,000 $157,155 $1(j5027 $I~9,172 %179,322 

A significant portion of the Secretary's housing costs are imputed as descri~d above. The Board of 

Regents clarified that it intended that these amounts he considered "equivalent costs of home ~n~rship" 

and thus reimbursable in accordance with the employment agreement. 

'Ihe Se~eduIe of~ousing AUEnvanE~s w;as prepared b~tht Smithsonian and ~ii~ not rcvicwcdhy Cotton &

Comp;any for oon~ple·teness. 
8-4, Compete the annual hons~n~ ahoorrance ceiling I'as rep~~ted on the Secmt;try)s employment 

agreement) to actoal payments Blade to the Secretary, 

Payments to the Secretary were made periodically, based on the employment agreement ceili~ instead 

o~rul documented actual expenses. While incurr~ct and imputed costs did exceed the ceiling diffaences 

were noted between ceilings and actual payments Chased mtRe Secretary's Statements of~arniap;s and 

LeaveX as follows: 

CY 2_000 CY 2008 CY 21002 CY 2003 CY 2004 CY 2005 

Ceding $150,000 $150,1000 8157, T55 %1~2,027 %1~5~, 172 $179,3~ 

Actual paymenxs made 

to the Secretary Is0.ooo lso.o00 ~65~8 1~92~ 140.977 179.322 

Ceiling Amount 

Ex~ediag payments $IQ ~eZ ~e 

C-l. Trade ah amouuts flom the;S~c~tedale~ ofDonatiols4 Ccesh or securities) to ar~cno~ledg~m~enlt 

letters from Be Smithsonian and accounting iecords documenting receipt of the ka`nsartion (La, 

general ledger) to determine if the apnountswere ac~urately recorded Trace all securities 

trsna~cti~nson the Schedale of Donations to available supporting documentation to ensure that 

transactions ·~er~~spropda6eIy~·aluedl Trace all matching gtftsmade by third parties contingent 

upon the Secretwry~3 donations to availabIc? supporting documentation and accounting records 

documenting receipt of the h*ansnction, 

Amounts reported on the Schedule QfDon~ions represented forrr t~pes of~arlsacdonsi as shown below; 

Nmn6er of Dollar Value of 

Transaction 'I~Srpe Transactions Transactions 

Secretary's C~ishI~onations 7 $2,938.31 

Secretaty's Secrtrities ·Do~a~ions 8 426a55.67 

~hird-Party ~ilatchi~ Donations 11 120,000,00 

In-Honor·OfD~~a~tjlons ~k ~5,000,00 

Total ~04~29~,98 

We traced all transactions, tosuppartiqg documentation and traced receipts to the Smithsonian general 

ledger. Amounts were accurately recorded and valued, The general ledger balance for donations didnot 

reflect receipts for 2 transactions totaling ;8321. ~atlsactions listed as '?d Honor Of' were not 

contributions of the Secretary or matching contributions; we dic~.hnw~sver, trace amo~nts tosupporting 

documentation and verifxed receipt. 

4 The Schedule of Donations was pre~p~s~a8 by theSmithsonian andwas not ~i~wed by ~ottoa f Cosnpany for

completeness. 
Pt.. O~tai~ maasgtsmentr~·presenfa~ion iettersfrom Smithsonian management and from the 

Ekoard ofRc~gents to confirm fDt~ best of thleir hnowiedge that representations w~re:accn~ste and 

pertained to the period under ~Yie~ 

'W~ requested and received management representation letters from Smithsonian management and 

Fepr~s~nt~i~ives from the Board of Regents. 

~Te were not tn~aSed to and did not conduct an examination, t~%objective ofwhich would he the 

expression of opinions on the Schedules described in the f~rsthar;agraph. Ac,cordinglSl, \x~e do not express 

such opinions. Had we p~f~rmei~ additional procedures, other matters might have come to our attention 

that would have heen reported to you. This report is int~~nded sofe~j for the information and use of the 

Of~c~ sfthe inspector iEeaeral and the Smithsonian Board of Regents and is not intended to ~ and 

should not be used by anyone other ·~t~ian these specif·ied parties. 

~O'ITO~ & COhSPANY LLP 

Sera Hadley, CPA, CGPM 

Partner 
$" 
APPENDLX A 

REF~NC~ IYIATE3UAL AM) GUIDANCE ~ROVID~I l1Y 1~HI~ 

ShaRSO;NIPIN ~NST~I~T~OM 

FY 1~~4 Federal Salaries & ~Sxoenses and Unrestricted General Trust F~md Bzrr~Allocations, 

ktbchment B - Use ofTnzsf Funds for Representational and Special Event Expenses 

Use of Trust Funds for Representational and Special Event Expenses, FY 2005 401 P~a~oca~i~n 

Memornndum 

Trust Budget Allocations and S~ending Plans, FYs 2000-2005 

Decision Brief far the UnderSecre~ary, August: 4, 1948 

Smit~onian institution Tt·avel Policies and Procedures Manual, in effect fr~m June 24, 2000 thru~ugh 

May 22, 2005 

Smithsonian Directive (SD~ 312, Travel, May 23, 2005 

Smithsonian Inst~ution Travel f3andboak, May 23, 2005 

Smitl~sonian Insfituri6n Employment ~eement far the Secret~t~t~t~t~t~t~t~t~t~t~t~t~t~t~t~~ 

:Smithsallian institution: Compeasatioafor Secretary Lawrence M. Small, Executive Committee af'tl~-e 

Board of~ents, FYs 2001-2005 

Smitihsa~ian 13irectivr: ISD3 213, Trust Personnel Handboo~ Cmnman Types c~fIneentive Awards 

OIG's Conclusions an the ApplicabilIty of Smithsonian Travel Policies, S~ptembe~ 28, 2006 

Interpre~atbn of Parsyraph 7 of Secretary Small's ~;t~.pl~yment Agreement, October 1 i, 21JOd: 
APPEWDIX B 

SCHEDI~E OB UEISUP~RTE~D ,di~fl, PNp~UIEQUATn~ SUPP·ORTED TE~PINSAC~IONS 

sCfIEDmE OF UNA~TE~ORI~ED T~I~NSAF~IONS 
SICRED~UL~ gSICHEDULE OF ~i~SUrPP~1~TED AND IW;1S~QUATI~LY ~UPPORTED ~IR~WSACTTQNS 

Lavbfce 

Date Vendor Amount Sta~as of Support 

0I/05/2000 FrBdricEc h·eiley & Assoc. ~6.00 No invoice,purc~aseorderonl~i 

01~05~000 FredrickMilq ~ Assoc. 2,774,50 No ~·nvo~c~,purchas~oI·d~:r~only 

0~/07~2000 HodgesOriginal - - 6,442,80 No invPice,purchaseorc3~ronlq· 

01111/2000 L'eufau$AP 327.35 Noinvoice,memoonty 

01/11~9,000 L'enfaz~AP 9~W,S3 No invoice,roernoonly 

0%12~i~2090 Sh_epher~~EledricC~, Inc. 4,600.00 No ·invoi~:~, purchase order6nl)a; 

0210712000 SI 202.93 Xnvoices of$57.19are illegible 

02(17/2000 Travel (Citiba~cAccount) 212.00 Nodocumen~ationprovided 

03/01120[30 Travel ~6itibank Account) 97.00 M~o~inv6ioe,SFSinvoice only 

03/14/2000 LawIenceM. Srra311 124.59 Noinvoice,metno only 

03,'14/2009 ~w~nwM, Small 1$2,00 Noinvoice,m~mo otly 

03123na00 Travel ~Citib~nkAct~ount) :2,493~80 Nadol~:um~n~ationprouided 

03127J2000 Lznvrefice NI..SmnlI 287.55 Na invoil;e, memo only 

03/3,7P2000 L"enfantAP 287.53 Nodocurn~nfatianprc~~ded 

05/05~2080 AugustGeorges 70.00 No invoi~~,p~~rchase~I~deTc~nIy 

o4/o5noo0 Au%wtGeor8es 2,043.00 Noinvoice,purchase orh~I·only 

04318/2000 ACEBeverage 138.58 Nainvoice, even~scheduleonly 

04~18m000 Party Rentals, ~L~d 587.43 Noinvoice, eventsCheduIeonly 

04~27~2000 BernharidFumitur~ 400,00 Mo invuicqpurchaseorderon$ 

04~37/2a00 Bernhard FupnSture 427.00 Noinvoice~purchase ord~r only 

05n512000 L~wrence~l.Small 212.50 Noiuyolce,memoonly 

Oti109~2QDO LawrenoeM. Small 277.05 No dp~umenta~on provided 

0~1/2"1/2000 La~ence~M. Small 443.80 No invoicq memo anlJ' 

O%h112000 PalaceFIosist 115.27 Ifiadnquatelq·docum~nted businessputpose 

OQ125R000 Travel ~CitibankAcct~unt~ 97.00 Na documentation provided 

~-0/O~R000 Travs~1(Ciltibank Account) 108.00 Nd dOcUmeIltat~OnpTOVidea 

16/20n900 l;awrenceM.Small 402.32 No d~c~a~nentationprc~,vidwj 

10/25~5100Y3 LwrrenceM.SmalI 108.00 Nd documentatianprovidsd 

10/31:n000 PalaceFlorist 117.00 inadequately clacumenbed businesspwpase 

01/12/2001 TravellCitiban~ Awount) 91,50 Norecpli~t, wron~,receiptprovj~de~ 

04/'1812001. Travel (~itibadkAccol~·a~it) 91.50 Noreceipf wro~·ngreceiptprov~dPd 

041~1~DOI Travel ICitib~i~kAccount) 91.50 a~·lo~rec~ip~,~·avefv~3ucheronly 

09E19l2901 ACEBeverage 3.31 ~·fodocum~nt~atic~nprovided 

09~30na01 CateringBJF Plrindows 3487.38 No documen~atianpro~ida 

03~0S~P~0112 Restaurant Associates IQ0,00 inadequately dc~cllmentedbusin~sspurpose 

04RMnlD02 ]Rest~ Associates IOP,OD No docu~lt~tationprovided 

05/03/2002 ;rravel CCitiba~trAcoount) 150.51] Travel voucher, noreceipts 

09~~4~002 ~est~rant Associates 100,00 Inadequately documented busine~spurpose 

01~17~2003 Ci~tibank 184.00 ~'~avc~l~urthorization only 

1u19n003 Citibank 532.50 No documentation provided 

04/0~-2004 ~aceFLotist 18.15 Inadcqua~elqrdacum~ented business purpose 

D~jr/25~D05 ~itibank 86.63 Nainv~ice~.creditcirrd s~atemnent~o~nly 

~Z~h~ 
S~1~D~L;E B-·2 

SCEIEDUIE OP fjMA~I~HORIiED TRANSPrCTIONS 

TRAVEL COSTS 

La~F~iet Total Unauthorized Reason (sea 

Date Yendor Amount Amonnt Description Note) 

11~0n000 CitihanlE ISouth $IP08.7U Si6348,TS Chantrflightfrom A 

Dakota), Nh.S Washin~fon, nC, to 

Lackawanna Station, ~Q 

(3512~3091 Martin Air, Inc. . S.j0 5~U Charter flight cost: domestic A 

se~m~tlt fee 

os~s~zrza0l Martin Air, Inc. 272.00 2.72.3)0 Chaitar flight cost: net of fuel A 

snrcharge and credit for night 

dctay 

oSR2Roor Maaia Air, Inc. 650.00 650.00 Charter ni~M cost: A 

landin~tpeaking 

o5~9~nool i~iartin Air, Inc. I,o~aoo 1,000.00 Charter flightt cost: aircraft A 

ouemighd 

05/2UZD0I h3artin Air, Inc. 1,011.90 1,01190 Chatter flight cost: Federal A 

excise tax 

o5n'uro01 Martin Air, Inc. 11,570.00 11,570.00 Cbart~r flight cost ·for round A 

trip hom WashingtoIlro San 

Antanio 

1~23~003 Lawrence M. Smal~ 67.06 67.06 HateI, Chad~illy VA B 

07113/2004 San~a B. Small 14~.73 S.764,B0 Trip to Camhodin: ~ur C 

package 

~24.6s~zn 

OTkIER COSTS 

lnvolce Total Unaatborized Ressran ~ee 

Date Vendor Amount Amount I~Fe~criptipn Note) 

OU0~2000 L'EnfanaAP SZ,T116.03 $149~05 L~unEh~s and apwsal privilege fee I~E· 

03101/2000 ST 339,3 1 47~j3 MtslwithN;2SMdi~c~tor E 

~BLFCO~ZOI)O Occasions Caterer~Inc, 334.50 334,50' Lunch with Director of Policy ~c~ E 

~na~a~ysis 

051;?3/2000 DssignCe~isine 41.00 414.00 S~tafFbffa~t 8 

Oi~5~DO SplendidPare Caaiwing 321.7~ 321.75 L;unch with development officer E 

05/3112000 Dtsi~dCuisibe 430.00 430.011 S~taffb~aI~Fast B 

06~02n~OQO Des~·Cuisine 414.00 414,00 Staffhreakfast B 

0810/2MX) De~silylCuisine 405.50 40550 Staffbreakfas~ E 

06~101`2000 DesignCuisine 421.50 $21.50 StaffbreakEast E 

06~1/2000 DesigcCirisine 421.50 421.50 Stsffbreakfast B 

07~532000 J~esi~Cuisine 421.50 .421,50 S~t~ffbtaakEast B 

Q7~14/r000 I3~signC~isine 421.50 421JO Staffbres~k~ast E 

07/25/2000 iiCEBever~e 193.81 5,96 Water, Secretaty's direct report 

dinner 

~7~512060 A1IanSlrroods 525.00 3~5~0 ~Iower asra~eruent, Sec-retar~'s B 

~F~o~e~s;rGifts, Inc, direct report dinner 
SCHEDULE B-2 

SCHEDULE OP UNAUTBQRIZED TBANSACTZ61NS 

OTIER ·COS'ES ~CONTI~I~UED3 

fdv6ice Total Unauthorized Reason Isee 

Elate YenaDr Amount ~kmaunf _ DescrPptSOo Note) 

O;rJ25n000 Party Rent~s, Ltd bSXO,gl %551).81 Flatware, tables, cd~ina, B 

~lassware rental for the 

Slecretarg's direct reports dinner 

a7125,9000 ~arY·est F~oon Inc T/A 1,2~9.00 1,239.00 Catering forthe Secretary's E 

EquiT1OX directrep0rtsdinncr 

03126PL000 Susan~G~r;Cnterets 1,932.0-0 1,932.00 Catetingforthe Sscrctar~'s E 

airoct reports 

osmzlz0or, Design Cuisine 421.sa 421.50 St·4ffbteskfast E 

08114PUIOII Design Cuisine 421.50 42150 S~affb~a~ast E 

OUrQ/20DQ Design Cuisine 421.50 421,50 Scaft'breakfast E 

09,'15/2000 Design Cuisine 449.00 449.00 Staffbreaktssb E 

OIW2612000 Design Cuisine 497.00 497,00 Sea~breaI~ast E 

1611]3/2000 Design Cuisine 597.00 497.00 Staft~tKcakfast E 

10J24n000 Design Cuisine 497.00 497.00 S~af~breakfi~st E 

1110852a00 Design Cuisine 561.5a 561,50 Staffb~ea~ast E 

115101200[) Design Cuisine 285.00 286.00 Lunch with Sf-managernent E 

01(17~2001. Design Cuisine 505.OD 51)5.00 S~affb~i~kfas;t E 

01128~2001 Design Cuisine 497.00 497,00 Staffbr~akfast E 

02105/2001 Design Cuisine 497.08 497.00 ~afF~b~cakfsst E 

02/0512001 Design Cuisine 739.00 739.00 S~f~arar~l breakfast E 

q2120n001 Design Cuisine 497.00 4~X7~00 StaffbreakEast 1! 

03107/2001 Design Cuisine 497.00 48~00 St~breskfast E 

03~1212001 Design Cuisine 497,00 487.06 StaffbFt~akfast B 

05n2/2001 Design Cuisine 497.00 497130 Staffbrea~fasf E 

03(14120~1 Design Cuisine 497.00 41)7.110 ~taffbreakfast E 

03/16(2001 Restaurant Associates 150,00 150.W I~unct~eon with SI mugellm E 

directors 

1)41I3312001 Design Cuisine 533,00 533.00 Staffb~-eakfi~s~ E 

o~ie/zool Design Cuisine 497,00 497.00 ~taffbreakfas~ E 

04Ea9/2001 RestawsM Associates 1,05200 1,052.00 Staffbreakf~st E 

04124f2001 Design Cuisine 533.0(1 53J.00 Stnffbreakfi~st B 

0~5/U)01 Design Cuisine 533,01) 533.00 StaffhreakFast E 

~L~2~200~ Restaurant Associates l00.00 100.00 Luncheon with director of E: 

HMSG 

05/01nOOi Desi~ Cuisine 449.00 449.60 StaffbaskFast E 

05/03~2~01 Design Cuisine 533.00 533.00 S~tatTbreakfwst E 

OS~D8nOD1 Design Cuisine 5116.00 506.00 Sfaffbreakfast E 

041[15/2001 Design Cuisine 533.00 533.00 Staff~eakfast E 

0~19~2001 Design Cuisine 508.50 508.50 St~t~ff~akfast E 

06J22n001. Design Cuidine 506.00 506.00 S~sff~akfast E 

07102/2001 Desi~pl Cuisine 506.00 506,00 SmffZKeakfast E 

D7J05n001 llarvestMdonlnc. 1,100.00 1,100.00 Luncheon ·f6r direct reports E 

1)7110n001 Design Cuisine 1,127.00 1,127.04 Secretary's tea f6r the Under E 

S6cretary's staff 

O;r118n001 Design Cuisine 533.00 533.00 Sts~ff~e~rfast E 

07r25/2~01 Alien Woods 2~5.00 Z~T.00 Luncheon for direct reports E 

071JOJ2001 Restaurant Associates 411.60 41 1.60 Luncheon ~vi~h the Under E 

Secretary's directors 
SCH~I~ULE, E-2 

SGREDULE OP WNAZ~TRCIRfZEI~ TRANSA~IONS 

OTHER icos·rs (C·O~~WI~D) 

linvoice Total Unauthorized Reason lIsee 

Date Vendor Amdunt ~mo~at Description Note) 

~7~1/2001 Pany Rm'tals~Ltd. $304.56 $304.S6 China glassware, fiatware, and B 

linens rental for direct reports 

luncheon 

0&r03/2001 Restaurant Associates 294~75 294,75 ~uachmn with the Under 8 

Secretary's directors 

osn4/u0ol Design Cuisine 138,00 128.09 Service charges for canceled B 

staffbr~akfa~ 

09n5nt)01 Design Cuisine 534,00 534.00 Staffbnakfsst E 

09~28/2001 Design Cuisine 555.50 595.5(1 Staffbreakfast E 

10I16CZM)I Restaurant Associates 376.00 376.00 Sklffbreakfast 

10~2ML001 Design Cuisine 489,99 489,00 Staffbrtakfast E 

10/31/2003 Design Cuisine 412.00 412.00 Staffbrtakfsst E 

11~02/2001 Design Cuisine 495.50 495.50 ,Staffbre~ikfast E 

1~0512[K)1 Rca~urantAssacista 380.00 380,04~ St~Lffbr~kfast E 

12/1412001 RRstauiant Associates 3%0.00 380.00 Staffb~e~kfast E 

12$29~2001 Restaurant Assuciates- 359.00 350.00 Se~vi~ charges for canceled E 

sta~b~takfast 

0 1/09/2002 Restaurant Associates 365.00 365.00 Staff breakfast E 

OuOSir2D02 Restaurant Associates 380.00 380.00 Staff breakfast E 

03/04/2092 Restaurant Associates 100.00 100.a0 Lunch with. HMSG director E 

05~1~1~2002 Susan Cage Caterers 1,725.00 1,725.110 Dmerto welcome new director E 

of development 

05/18/2002 Restaurant Associates 585.011 585.00 Re~es~ments for dip~L~ reports E 

and unit heads 

05P23n002 Allan Waods 340,90 340,00 Centerpiece, foyer arrangement, E 

Flowerw%ift~, Inc po~der room for dinner to 

welcome new director of 

deys9Ppment 

~6/I7~2(K12 Design Cuisine 406.00 106.1)0 Staff~reakf~st E 

Q6~22~~2 Design Cuisine 471.50 471.50 Staffbrealrfast E: 

(161238~2002 SI 281.1:8 124.50 Dinner with develo~ment E 

director 

0~06/2(EM Restaurant Associates 100.00 laOlQO Luncheon whh SAO director E 

07nOn002 Restaurant Associates 1(]0,00 100.00 Ludchesn with acting NMN~I E 

director 

0911-4/2002 Restaurant Associates 400.00 480.00 bffice ofthe Secretary staff E 

lunch 

0~8n3/2(102 Harvest hAaon Inc, 1,368,00 1,368.00 Direct reports dinner E 

Q~2512002 Design Cuisine 455.00 455.00 51affbreakfast II 

osnlrooz Dc Party Rental LLC '775.20 755.20 %lassware, flatware, china, and E 

linen rental for direct reports 

dinaer 

10~24/21002 AUan Woods 300.00 300.00 Flower arrangements f~r direct E 

reports dinner 

1~20~0~2002 Design Cuisine 427.5:0 427.50 St~ffbrea~Efsst 1! 

OV15n003 Restaurant Associates 100.013 I00.a0 Lunch Ari-t~ N~T~H director B 

02(2~2003 Design Cuisine 462.00 4_62.00 Staff~Lr~a_kf~t _ E 
SCHEDaLE B-2 

SCHED~LE ~OE~ UNrlUTAORtZED 'X~PkNSG1L~IIENS 

OTEIER C~C~iosTs ICBN4i~MF~ 

invoice Total Unaat~tor3red Reason Isee 

Date V~n~or Amount Amount Description Not·e) 

03~8~WHI·3 Restaurant Associates $100.00 $100.00 Lunch with development director E 

03/15/2003 Restaurant Associates 100i00 100.00 Lunch with acting NMNE~ director E 

OU12~UH13 Restaurant Associates 2,083.00' 100.00 Lunch witt~NMrVI director E 

0612~2003 Restaurant Associates 100.O~D 1011.90 Lunch ~th NMAH director B 

07n1~003 Design Cuisine $53.00 453,00 Sta~t~bIe~kfast E 

07ni/2603 Design Cuisine 4m.oo 462.00 StafFbreal~i~st E 

~9~1912M13 R~stauflnt Associates 100.00 100.00 Lunch witkMR~AH director a 

10/0lj~2003 Restaurant Associates 100.00 100.00 Lunch urth H~VISG diredbt E 

10J0912003 Design Cuisine 466.50 466.50 BaffbrtakfaE~ E 

1[Ln4n003 Restaurant Associates 350.00 350.00 Faraveli lunch for the Under E 

Secretary 

12/04~2~I13 Restaurant Associates 500.00 300.00 Luncheon with S~ employees E 

03(18(2004 Reptaurrmt Associates 100.DO 1M),00 Lunch with NMAH director B 

0512712004 Restaurant Associates 100,08 1010.0[) Lunch with ~WaAH~ director B 

06;EOa~004 Restaurant Associates 410:00 410.00 S~af~breakfas~ E 

06(30n604 Restaurant Associates 100.00 100,00 Lunch prith FSG director B 

07~0~2004 RestaurantAssociates 100,3131 100.00 Lunch with NMAHdi~ector E 

071~2612004 -LawrcnccM, Small 33;77 33.77 Breakfast with SBV Board E 

Member 

1D~05~2004 RestaurantAssocjates 488,70 48;8.70 Staffhreakfast : E 

27~5n001 Citibank 550.00 100.00 Lunch ~ithNMAHdirector E 

1)3;/15nI1a0: ~Lawren~eM. Smalt 266.5~ 142,00 Meal in 1999 F 

0j~0612(300 ACEBeverage IS99 1S99 Alcoholic beverages G 

05/17~2000 ACEBeverage 160.68 140.88 Alcoholic beverages (3 

07C2532000 ACE Beverage 193.81 1&7.85 Alcaholic beverages, Secretary's G 

direct ~rt dinner 

09/18/2000 ACE Beverage 537.08 41281 Alcoholic beverages G 

lollo~2ooo ACE Beverage 25333 248.86· Alcoholic beverages G 

11n1~000 A~A~A~A~A~A~A~A~A~A~~ Beverage 539.17 448,09 Alcoholic beverages G 

02/23/2001 ACE BCY~E~IT~b6 16338 16538 Alcoholic beverages G 

QSI2·mC~OII ACEBeverage 80,94 8094 Alcoholic beverages G 

05rJ0~2001 tlCE Beverage 26054 238,83 ~c6halic beverages G 

1VOSrZ001 A(3E Beverage 5596 55.96; Alcohclic.beveragc~s G 

0111612062 ACE Beverage 107.~9~L 107,92 Alcoholic beverages G 

05/14/2002 A~EBevet;b~e 139.14 109,41 Alcoholic beverages G 

(1~3112002 ACEBevMagt 161.27 t42.89 Alcoholic: beverages G 

09~24~a02 Ace Beverages 186.04 186.04 Alcoholic beverages G 

06/19/2004 Ace Beverages 139.88 139,8X Alcoholic beverages G 

013~22~2004 Restaurant Associates 100,00 100,00 Lunch for personal contact H 

0'j~1~2094 Restaurant Associates 100,00 1(EOiOa Lunch for personal contact ii 

0~0~8~20D4 Restaurant Associates 100.100 100.00 Lunch E~ip;ersonal contact Ii 

05f2112004 Restaurant Associates 100.00 100.00 Lunch for personal contact 1-i 

10~3-5~2004 Ciiibadk 580.00 200.00 Lunch for personal contact 11 

07P2V2005 Citibank 950.00 100,00 Ludbh for personal contact Ii 

0685u2000 ~t'enfi~n~ AP 4,811.0 4,811,56 Cash award to the Executive 1 

Ass~s;lant~ the Secretary 

i Actual invoice and amount paid-to the t-endar ~vere $la0, The $2,085,00 was a system error, 
SITHED~LEB-~ 

SCfI~T~ULE OP UNAIYHOEIZED TRANSACTIONS 

OT~R CO~TS I(CO~_~_l~_f~_ZNUPlf)4 _ _ 

Irr~olc~ Total ZT;oauthorized Reason Isee 

Date Yend~r Amount Amount Transaetion Descdption Note) 

0613012000 Palace Florist g690JO 3690=10 Pl~raI arrangements to former $I J 

employees and balsncf: fonvard on 

account 

07/31~2000 Palace Florist 54,55 54.6,5 Floral arrangement to SI employee J 

09115/2000 Palace-Florist 164.23 164.23 Floral arrangement to SI employee J 

09/18P2000 SI 137.56 137.56 I3ifts far donors J 

10~112000 Palace Florist 276.88 276.88 Floral arrangements to SI employees J 

ll/21ni]tlO sx 2?69.85 19.96 Donor gifts 

11/21n000 SI 456.02 424.00 GiAk I 

11n0/2000 Palace Florist 275.90 275.90 Floral arrangements to SI employees J 

12)04/2000 SI 318~2$ 97.60 Donor gifts J 

12130/2000 PalaceFlorisz . 212,95 212.95 Floral arrangement 03 SE employee f 

02131/2001 Palace Florist 119.45 119.~5 Floral ~R~tgameJlt to SI employee J 

0212212001 sx 136.85 52.56 Donor giffs 3 

O~LS812t101 Palace Florist 72.45 Flaral arrangemento donor J 

04~4)~00~ Palace Florist 118.70 118.70 Floral arrangement to donor J 

04/04~001 SI 45.54 485$ Books for a donor J 

05/31/2001 Palace Florist 112.95 11295 Floral arrangemento former SI J 

employee 

06230~210I)1 Pa~aceman'st 315,95 315,95 Floral anangement~o SI employees J 

08/01/2001 SI 70.16 15.99 Oiff for donor J: 

10~31f2001 ST 349.98 349.4$ Champagne and a giff basktt for SI J 

employees 

luY]~2001 SI 26.00 26,00 Clit for a donor J 

12n1~2~01 Palace Florist 325.90 325.90 Floral arrangement to SI employees 3 

1223212001 Palace Florist 338.85 338.85 Floral arrangements to SI employees J 

02/2832·002 Pdaw Florist 577.70 577~70 Floral arrangements to SI employees, J 

foI-mier Bmpf bJ(ee, former Regent and 

spouse of donor 

0312y2002 SI 71.18 13.69 Giff for donor J 

0~~22~2002 SI 80.1]0 40.00 Book for fnrmer Chair dSNB J 

03/30/2002 Palace Florist 340.90 340.96 Floral arrangements to spouse of 3 

ernplayee, donor, and spduse of 

donor 

0$130n602 Palace Florist 388.85 388,85 Flo~aI arrangements to SI employees J 

o~az~tz1002 Pata~a Florist 222.45 212.95 Floral arrangement to SI employee J 

07/16/2002 Palace Florist 338.85 338.85 Floral arrangements to SI employees J 

and donor 

08130~2D02 Palace Florist 11295 112.95 Floral arrangcmentta Sfemployee J 

09/27~2·002 SI 9.00 9S]O Museum ticket for donor J 

09130~2~02 Palace Florist 275.90 275.90 Floral arrangements to SI employees J 

1(1~M1~2002 palace Florist 501.80 901.8·0 Floral arrangement~ to SI employees J 

and h;rlsnce forwsrd 

11~0~2002 .PalacePlorist 285.90 285.90 Floral arrangements to former SL I 

employee and Regent 

12/31dOM Palace Florist 35.00 35.(10 Floral arrangemento SI employee J 

01131~003 Palace Florist 260.90 250,90 Floral ar~ang~ment~ toSI employees I 

03/3 1/2003 Palace Florist 27.95 7.95 Floral arrangement to donor J 

07/12~200~ Palace Florist 260.90 260.90 Floral ~arrangement~o Regent and J 

ba~anc~forrvard 
S~rraDuLE B-2 

SCKEDULE OF`ITN~TPL~HO~UZED TRANSACTI~S 

On;~R~C·QsTs(CoN·r~r~_) 

Invoice Tfotsl Unantlrorlzed ~eason Isee 

nate Vendor Amount Amount Transaetlen Deserlptlnn NOt~ 

OX(31PL~~3 P·afaceFlsrist %66.57 %66,57 Floral arrangeinentDu SI employee J 

0~1lr·003 PalaceFlorist 536.80 - - 536.80 Floral arrangements to SI employee J 

and BformerRegent, incl~de~ 

balance fo~ard 

10~31n90,7 PalaceFlorist 44.80 4J.g0 Floral arrangement to a-suppo~er I 

I10012DD3 PalactFlorist 22$.60 22460 Floral arrangements to donors J 

12131)2003 PalacePlorlst 119AS 119,44 Elloral arr;n~gem~lo SI~empIc~ye~ T 

02L/31M004 Palace-Florist 158.05 158.05 Floralarrangemento former chair I 

~fSWB 

O~MO~r004 PalEIePlorist 242.75 242.75 Floral ~arrangemet~t to former SI J 

employee and balance fa~ard 

o4~zxnao4 L~wreneeh~i~Small 257.60 257.60 Giff t6 cbair of SNB I 

o621n2004 PaIacePiorist 6%.90 bs~0 Floral ~r~g~sla~nto fbrmerRegent 3 

05126/2004 - Palacc:Fiorist 163,95 163.95 Flarid arrangement toformerRtgmt 

Q6/3D~Z(104 Palace-Florist 139,90 139~H) Floral.atrangemeat to f~rmer 51 J 

employee 

07131n004 Pala~Flori4 731.55 731.55 Floral man~menXs to ST employers T 

and a SNB board member, includes 

balance for~i~Pard 

09/15R004 PalaceBlodsf 114.95 114,95 Floral arrangement to $I; employee j 

1~031rZDOJ L~wren~tM. Small 4134.74 404.76 Giffs to dano~i : J 

12n5X~alL1 Citibanb: 1,806,76 664.96 Smlthsonlte for di6a61·s 3 

o~ns~aos Citibadk 11495 114.95 Floral ah·angement to SIemplo4'ee T 

01nsn005 LawrenceU Small 458,04 248.5 I Gift to a Regent J 

02125~2a05 Citibank 121.51 121.51 Floral arrangement to donor J 

03n5n005 Citibank 174.38 174.38 Floral2lnsnganentu> SI employee I 

04118YL00S Laavrenceha,Small 20,79 20,79 Book for a.Regent J 

o4nsrulos ~itiba~i · 242.01 242,0] Floral arrangements to donors J 

OSn5~OS Citibank 1733& 1n38 HbraI arrangement to SI employee J 

06n2/2005 LarvrenceM. Small 224.12 224.12 Floral arrangement to donor J 

o~t;nszzoloj Citibank 26531 2~531 Floral arrangements to SI employees J 

D7125~M05 CIrilsank 121.51 12151 Floral anaagcment to S;I employee J 

08111/2005 T~awrenPe~l, Small 2A8,83, 248.83 Gift to former Secretary of ST J 

08PZ5n005 Citlbarilr 4P2,57 49257 Floral arrsngemen~s- to SI employees I 

09123~2005 Citibank 64.95 hPP~ Floral arrangement to Regent staffer J 

~62$6e$a 
S~REDULE B-2 

NQTES 

A, The S~ecre~ry taol;·charter flights from Wash_ink~on, DC, to Sc~i~ton, Pen~syl~a~ia, on 

Novernber 30, 200[), and from Was~n%to~ I1C, to SanAntonio, Te.Yas, onMay 22, 2001, to 

attend Smithsonian-related social functions. The Smithsoniantravel policy states that travelers 

should seleh;t '9he mode oftransportatian ~hat:is most a~t·ildtageous to SI when cast and other 

factors are considesed..", and that special conveyances (such as Kiu;tte aircraft) may be used if 

authorized. SI could not provide authorizst~on for these flights. Justification fortte San Antonio 

charter indicated that there were commercial flights available, butthe charfer flight was chosen 

because of conc~ns about potential LILght deIa~s, 

B. The Secretary had avernigM accommodations at a hotel in Chantilly, Virginia, far Udvar-Hazy 

events on December 22, 2003. Chantilly is apprdximatelb 24 miIes ftom the Secretary's 

Washington, DC, bffice, Ixhich is considered his official du~ station. The Smithsonian's travel 

p6~iey states'ihat per diern starts when an employee departs his home, offi~ or duty station Due 

tothe proximity ofthe events, a Chantilly destination is considered local travel and thus not 

eligible forIbd~ing ~imb~nrse~nen~. 

C. The Sec~t~y and his spouse attended a Smithsonian aJafionaI Board ~SNB) meeting in China in 

May 2008, Before mtuming to the United States, NErs, Small took a sid~t~p to Cambodia with 

the SMB; biI~ without~t~e Secretary. She:later+eceived reimbursement for that ~ip. The 

Srnithsonian travel policy states that spouses of SI employees who are trinre~ing toattend an 

official function may be authorized to travel if their services in an official capacity can be 

d~m6ns~ted inady9lnce, and the travel is approved by the Under Secretary, Smithsonian 

representatives could not provide support to document that the trip ~vas aPlthDri~d in advance, or 

approved by the Under Secretary. 

D. The Secretary received reimbursement for his m~nnb~shipn the Cosmos Clu~ which provides 

the option ~jf sponsal privilege, The Secretary opted to pay the S34 spausal pri~ilege fee and was 

~i~im~ursed from the Smithsonian for the year 21100. The Secretary's employment agreernent 

does not authorize sppusaJ. privilege as Smithsonian ex~ense, and hilrs. Small was not an 

~np~oy·8e who would be entitled to such rnemhership. 

E, The S~cI~t~J~- f~equently worked through lunch or dinner ~iith his staft*9nd charged meal costs on 

these occasi~rts. He also hosted a number ofsta~~akfasts. The costs of these meals ~uec~ 

charged to l"unds 401 and 402. The 1999 Uae of Trust I;unds for Representational and Special 

Event E~penses, the Instihrtion' sof~cial policy regarding the use of tt~s~t funds;, states: 

T~bstj~nds mc~y not be used fo cover cosis ofworRing lun~he~vrr inv~o~i~g only 

Slsl-a~t~n~mbrrs. 

Fu~her, it states: 

Smi~trsonian-gr~o~vided meals ~c~ ~lmjt~cil ItD OCCcnni4ns wfrer~ the~ arejudged 

e~se~fia~ to ~l~ierrt, successful compl~ri~3 of rht~ project. 

This guidance \vas updated ·on December i, 2004, to state that trust funds can only be used for 

staff -meetings and luncheons if "a~a~Lorimd foruse by the Secretary.,.to support staff 

breakfastrlunc~ meetings." We therefore classified only those staffrneall costs incurred before 

December i, 2004 as una~rt~ori~d. 
F. The Secretary tuas reimhursed in March 2000 for a December 8, 1999, lunch with a Smithsonian 

employee. The Secretary was n~t~E~et a Smithsonian eraployee in DacerrZber. ~Tefo~ the 

reimburs~mentisunauthorIze~~. 

IG. Costs of alcoholic bev~e~ served at dinners hosted by the Secretary were paid out 6ft"ne 401 

Fund. The 1989 Use of Trust Frmds for Represelitational and Special Event Expenses does pot 

list alcoholic beverages as an allowable expense, while the 2004 version explicitly states that the 

401 Fund cannot be used for alcoholic beverages." 

H. The Secretary was reimbursed for lunches ~vi~h personalc~ntacts, Those lunches were not hosted 

for Srnithson~m business purposes. Therefote, reimbu~eroent of personal contact 1Emchles inot 

authorized. 

I. The Secretary awarded a $4,812 cash bonus to the Executive Assistant to the Secretary inJune 

2000. The S~nithsonian bonus policy, Common Types oflncen-tive 14wards, i&entifie~ two ~types 

elf cash awards: cash awards for sustained superior performance and for special acts or services. 

Based onthe evidence provided, the ExeartIve Assistant's bonus did not qualifjr under either df 

these descriptions and is therefore unauthorized. 

J. The Secretary purchased vari~~sgifts(such as Ba~Hers, plants, books, ties, and smithsonite) far 

Smithsonian employe~sj donors, and others. These gifts were c~ar~ed against 401 and 402 hards. 

The 15)~9 Use of TnrSt Fwlcisfor Representational and Special Event Expenses da~s notlist gifts 

as an authorized expense, while ttle 2004 ver;sioa explicitly s~ate~ that;bnlst fUnds cannot be used 

for gifts for any plapo~e for SnIttwonian staff; irolunteers, donors, etc. 

6 The Secretary's staff believed that he rvas authorized touse Smithsonian funds to purchase alcoholic ~u~lslge~ and 

gifts because the Fr' 2004 and 20[)5 trust fund spendiag guIdelines tissued by th~ O~ice af Plarming, Management 

gE Bud~tt) state that ~i~4 addition to geawal autbosized usd:of allocated central trust fimds for ~6presdn~atisnalnd 

SpBc~;BI event purposes, these fUnds are avaiIsble.to the Office of the SecretarJI to allo~v the Secretary to farr5r~ut 

[sic] his afficiat duties." We ~DHOt berieve, hi~wev~ that this lang~age allows the Secretary to use the funds in 

ways otherwise not authorized by the hdicy, 
APPENDIX C 

ACRONYMS ~TSED BY TEE SMITHSONIbN INST~UTION 
AP~PF~NIIM C 

ACRO~M~ USED BYTI-TJ~ SMITBSONfh~LN INSI~TUTION 

k~onq?ns Pnll ~ame 

CFO rJhiefFinancial Olfficer 

FSG - -· Freer and Sackler Galleries 

FY Fiscal Year 

Hitsfi~~mniIuseum and Sculpture Garden 

MAS~I Nat~onal ~ir LE Space Museu~ 

NBIAH Na~-t~anal Museum ofAmrrican Histo~y 

NM~MH Natiaa~lMuseunz o~~a~ HiStory 

O'"~ OfXieg ~f the Inspectar General 

SAO Smit$sonia~EA9tro~,hysicat ClbservatorqSI SmitZlsoniasllnstitution 

S8V Sruithscaiau Easiness Ventures 

SNB Smi~hsanian Natio~`Board 
EXHIBIT 27 
BYLAWS 

oftJie 

BOARD OF REGENTS 

and 

CHARTER PROVISIONS 

ofttie 

S11IITHSONIAN INSTITUTION 

Smithsonian Institution 

IRC0771 
co NTENTS 

ART i.BYLAWS OF THE BOARD OF REGENTS 

SECTION 1.PROMULGATION 

1.01 - Charter 

1.02 Amendment 

SECTION 2. BOARD OF REGENTS 

2.01 Powers and Composition 

2.02 Appointment 

2.03 Term ofOffice and Vacancies 

2.04 Meetings 

2.05 Notice ofMeetings 

2.06 Action by Ballot Without a Meeting 2.07 Emergency Meetings 

2.08 Method of Communication for Action Without a Meeting 2.09 Quorum 

2.10 Minutes 

2.11 Regent Emeritus 

2. 12 Indemnification 

2.13 Ethics and Conflicts of Interest 

SECTION 3. EXECUTIVECOMMITTEE 

3.01 Powers; Composition 

3.02 Appointment 

3.03 Meetings 

3.04 Minutes 

3.05 Rules 

SECTION 4. OTHER COMMITTEES 

4.01 Audit and Review Committee 

4.02 Finance and Investment Committee 

4.03 Nominating Committee 

4.04 Other Standing or Special Committees 

4.05 Quorum 

4.06 Chair; Rules 

SECTION5. OFFICERS 

5.01 Chancellor 

5.02 Secretary 

5.03 Under Secretary 

5.04 ChiefFinancial Officer 

5.05 General Counsel 

5.06 Other Senior Officers 

IRC0772 
SECTION 6. ADMINISTRATION 

6.01 Authorityo Receive and Dispose of Property 

6.02 Endowment Fund; Other Nonappropriated Funds 

6.03 Appropriated Funds 

6.04 Budget 

6.05 Audit 

6.06 Execution of Documents 

PART 2. CHARTER PROVISIONS OF THE SErlITHSONIAN INSTITUTION 

(Title 20, United States Code) 

CHAPTER 3. . SMITHSONIAN ISTITUTION 

NATIONAL MUSEUMS AND ART GALLERIES 

Subchapter ~ - Charter Provisions 

SECTION 41. Incorporation of the Institution 

42. Board of Regents; members 

43. Appointment of regents; terms of office; vacancies 

44. Organization ofboard; expenses; gratuitous services 

45. Special meetings of members 

46. Duties of Secretary 

46a. Employment afaliens by Secretary 

47. Acting Secretary 

48. Salary and removal of Secretary and assistants : 

49. Statement ofexpenditures 

50. Reception ad arrangement of specimens and objects of art 

50a. Gellatly art collection; estimates ofsums needed for preservation and 

inaintenahce 

51. Library 

52. Evidence of title to site and buildings 

53. Protection ofproperty 

53a. Authorization of appropriations 

54. Appropriation of interest 

55. Acceptance ofother sums 

56. Disposal ofunappropriated money 

57. Disbursements 

58. Omitted 

59. Collections ofNational OceanSurvey, Geological Survey, and others 

deposited in National ~c~useum 

60. Army articles furnished to National Museum 

IRC0773 
61. to 64. Repealed Oct. 31, 1951, ch. 654, ~ 1(37) to (40), 65 Stat. 702 

65. Repealed. Pub. L. 89-674, g 3, Oct. 15, 1966, 80 Stat. 953 

65a. Director of the National Museum 

66. Repealed. June 30, 1949, ch. 288, title VI, ~ 602(a)(19), 63 Stat. 400, eff. Suly 1, 1949, renumbered Sept. 5, 1950, ch. 849, 9 6(a)j(b), 64Stat. 583 

67. RightofrepeB1 

68. Repealed Oct. 10, 1940, ch. 851, 8 4, 54 Stat. 1111 

69. Anthropological researches; cooperation of Institution with States, educational 

institutions, or scientific organizations 

70. Authorization of appropriations; cooperative work 

List of Sections 71 through 85 of Title 20, United States Code 

IRC0774 
HISTORY OF THE BYLAWS OF THE BOARDOF REGENTS 

The Bylaws of the Board of Regents 

or me L~oard ot Kegents wereere;~pg~194WS adopted by resolution of the Board at its meeting on September 

By resolution at the meeting of the Board ofRegents on September 22, 1980, the Board amended theBylaws 

to include Section 2.08 Regent Emeritus. 

By resolution at the meeting of the Board of Regents on January 25, 1982, the Board amended the Bylaws to include Section 2.09 Indemnification. This section was fUrther amended by resolution of the Board at its 

meeting on May 3, 1982. 

By resolution at the meeting of the Board ofRegents onMay 5, 1986, the Board amended theBylaws to include Section 2.10 Disclosure. 

By resolution at the meeting of the Board ofRegents on January 30, 1989, the Board amended the Bylaws 

~to include a new Section 4.03 Nominating Committee andto make other editorial changes. 

By resolution at the meeting of the Board of Regents on May 7, 1990, the Board amended the Bylaws to :include revisions to Sections 6.01 and 6.06. 

By resolution at the meeting of the Board of Regents on September 16, 199 1,the B oard amended the Bylaws 

to include an additional provision under Section 2.10 Disciosure and to describe responsibilities under Section 5.05 ChiefFinancial Officer. 

.: By resolution at the meeting of the Board of Regents on May 8, 1995, the Board amended sections 2.03, 5.02, 5.03, and 5.04 of the Bylaws and adopted section 5.07 of the Bylaws primarily to reflecthe currentable of 

organization. 

By resolution at the meeting of the Board of Regents on May 8, 2000, the Board amended sections 4.02, 5.03, eliminated5.04, and renumbered thefollowing sections of the Bylaws accordingly to reflect the current table 

of organization. 

By resolution at the meeting of the Board of Regents on May 6, 2002, the Board amended the Bylaws to include Sections 2.06 Action by Ballot Without a Meeting, 2.07 Emergency Meetings, and 2.08 Method of 

~fltion for Action Without a Meeting, and renumbered the following sections of the Bylaws 

By resolution at the meeting of the Board of Regents on September 23, 2002, the Board amended the Bylaws 

to include, by way of substitution, Section 2. 13 Ethics and Conflicts of Interest. 

IRC0775 
SMITHSONIAN INSTITUTION 

Bylaws of the Board of Regents 

2003 

~ 

Section i. Promulgation 

-------~- 

1.01 CHARTER 

These bylaws have been adopted by the Board ofaegentso govern the conduct 

ofthe Smithsonian Institution's businesspursuant to an Act ofCongress approved 

August 10, 184~, us amended(20 U.S.C. ~ 41, ct seq.) which act as so amended 

is hereinafter referred to as the "Charter.~~ These bylaws are in all respectsubj ect 

to the provisions of the Charter and shall be interpreted accordingly. 

1.02 AhlENDMENT 

These bylaws may be amended at any meeting of the Board of Regents by a 

majority vote of the Regents present, provided that the proposed amendments 

have been mailed to each member of the Board of Regents not later than thirty 

days prior to such meeting. 

--------- 

Section 2. Board ofRegents 

----------- 

2.01 POWERS AND COMPOSITION 

The governing body of the Smithsonian Institution is the Board of Regents 

specified in the Charter. (See also 20 U.S.C: ~ 42.) 

2.02 APPOINTMENT 

Members of the Board of Regents are appoibted or elected in the manner 

specified by the Charter. When avacancy arises from death, resignation or 

retirement ofa citizen memberlected byjoint resolution of Congress, the Board 

of Regents shall nominate a proposed successor for consideration by the Senate 

and the House of Representatives. (See also 20 U.S.C. ~ 43.) 

2.03 TERM OF OFFICE AND VACANCIES 

Regents shall Serve such terms, and vacancies onthe Board of Regents shall be 

filled, as specified in the Charter. In nominating citizen members of the class, 

other than residents ofthe District of Columbia, for election byjoint resolution 

of Congress, the Board of Regents shall give consideration to rotation of 

membership among citizens of the various states. The Board of Regents shallnot 

IRC0776 
nominate citizen members to succeed themselves after they have served two 

consecutive six-year terms. (See also 20 U.S.C. ~ 43.) 

2.04 MEETINGS 

The Board of Regents shall hold regularnd special meetings at such times and 

places as the Board of Regents may~om time to time determine, provided that 

one meeting annually shall be held in the District of Columbia, and provided 

further that any meeting at which a Chancellor or a Secretaj is elected shall be 

held in the District ofColumbia. A special meeting of the Board ofRegents may 

be called on request of any three members of the Board of Regents. (See also 20 

u.s.c. ~44.) 

2.05 NOTICE OF MEETINGS 

Notice of regular meetings of the Board of Regents shall be given in writing to

each Regent at leasthirty days prior to such meetings. Notices of special 

meetings shall be given to each Regent aleast ten days prior to such meetings. 

Information about matters to be considered shall be furnished to the Regents as 

soon as practicable prior to each meeting. (See also 20 U.S.C.9 44.) 

2.06 ACTION BY BALLOT WITHOUT A MEETING 

When requested bythe Executive Committee, any action required orpermitted 

to be taken at a meeting of the Board of Regents, except the election of a 

Secretary orthe nomination ofa member of the Board, may be· taken without a

meeting if a majority of the Board of Regents votes to approve the action by 

responding affirmatively to awritten ballot distributed to each Regent by the 

Office of the Secretary. The ballot shall set forth the proposed action(s) and 

provide an opportunity to specify approval ordisapproval of each proposed 

action, a place for the Regent's signature, and a reasonable time withia which to 

return the balloto the Office of the Secretary. Each Regent who wishes to vote 

must mark and sign the ballot and return itto the Office of the Secretary within 

the time specified. The Regents' approval or disapproval of any action by this 

method shall have the same force and effect as a vote by the Board of Regents at 

a formal meeting of the Board; All ballots returned to the Office of the Secretary 

shall be filed with the records of the proceedings of the Board of Regents 

maintained in the Office of the Secretary: 

2.07 EIMERGENCY MEETINGS 

When requested by the Executive Committee, any six Regents, the Chancellor, 

the Chairman of the Executive Committee, or the Secretary, the Off~ce of the 

Secretary may convene an emergency meeting ofthe Board of Regents by 

providing 72 hours notice, including notice by telephonic communication. The 

emergency meeting may be conducted in person, telephonically, or by such other 

means as may be determined by the Executive Committee. 

~RC0777 
2.08 METHOD OF COMMUNICATION FOR ACTION WITH OUT A MEETING 

Any and all communications to and from Regents seeking or taking action by the 

Regents without a meeting may be made by hand delivery, by depositn U.S. 

Mail, by express mail, by electronic fasimile, or by such other means as may be 

determined by the Executive Committee. 

2.09 QUORUM 

At any meetingof the Board of Regents, eight members constitute a quorum, but 

in the absence ofa quorum a lesser number may adjourn the meeting. (See also 

20 U.S.C. ~ 44.) 

2.10 MINUTES 

Minutes of meetings of the Board of Regents shall be made available to all 

members of the Board of Regents and to the Congress as soon as practicable after 

each meeting. 

2.11 REGENT E~UIERITUS 

The Board of Regents may, by resolution, confer the title of Regent Emeritus on 

former Regents who accept responsibilities for continuing activities in the 

interests ofthe Smithsonian Institution. 

2.12 INDEMNIPICATION 

Members of the Board of Regents, Regents' Committees and Smithsonian 

advisory bodies, Regents Emeritus, officers, or employees of the Smithsonian 

maybe indemnifred for any and all liabilities and reasonable expenses incurred 

in connection with any claim, action, suit, or proceeding arising from present or 

past service for the Smithsonian Institution, in accordance with resolutions 

adopted by the Board. 

2.13 ETHICS AND CONFLICTS OF INTEREST 

The Board of Regents shall adopt and members of the Board of Regents shall 

adhere to ethics guidelines setting forth appropriate standards of conduct, 

provisions to avoid potential conflicts ofinterest, and requirements fordisclosure 

of personal interests that may relate to the Smithsonian Istitution. 

------------ 

Section 3. E~cecutive Committee 

-----~- 

3.01 POWERS; COMPOSITION 

The Board of Regents shall elect fi~om its members anExecutive Committee 

consisting of three members tin accordance with 20 U.S.C. 8 44). The Executive 

Committee shall have and may exercise ali powers of the Board of Regents when 

the Board of Regents is not in session, except thosexpressly reserved toitself 

IRC0778 
by the Board of Regents, provided that all such proceedings shall be reported to 

the Board of Regents when next the Board me~ts. 

3.02 APPOINTMENT 

Elections to the Executive Committee may be made at any regular or special 

meeting of the Board of Regents. The Executive Committee shall include at least 

two citizen members ofthe Board of Regents who are elected byjoint resolution 

of Congress. 

3,03 MEETINGS 

The Executive Committee shall hold meetings at such times as it shall determine. 

Meetings of the Executive Committee shall be held in the District of Columbia 

unless otherwise determined by the Executive Committee. Expenses of Regents 

in attending meetings of the Executive Committee, including travel expenses to 

and from the place ofmeeting, may be paid by the Institution. Two members of 

the Executive Committee shall constitute a quorum. 

3.04 MINUTES 

Minutes of all meetings of the Executive Committee shall be made available to 

all members of the Board of Regents as soon as practicable. 

3.05 RULES 

The Executive Committee shall have power to adopt rules for the conduct of its 

business inrespect to all matters not provided for in the bylaws or by rules 

adopted by the Board of Regents. 

--------- 

Section 4. Other Committees 

---- 

4.01 AUDIT AND REVIEW- COMMITTEE 

With approval of the Board of~gents, the Chancellor shall appoint anaudit and 

review committee including no fewer than three members of the Board of 

Regents. The audit and review committee shall do all things necessary to assure 

the Board that the Institution'saccounting systems and internal financial controls 

are in good order and tofacili~ate communication between the Board of Regents 

and the Institution's internal auditors, its independent auditors, and those of the 

General Accounting Office. The audit and review committee shall provide a 

direct channel of communication between the Board of Regents and the 

Institution's independent auditors who shall be certified public accountants 

nominated by the committee and appointed by the Board of Regents. The audit 

and review committee shall'review the Instit~ition's operations for compliance 

with approved programs and policies and shall perform related functions as 

directed by the Board of Regents. The committee may call upon the Institution's 

officers or staff for assistance as necessary and may employ outside professional 

IRC0779 
assistance in performance of its duties ifit deems this desirable. The audit and 

review committee shall report its findings directly to the Board of Regents at appropriate intervals but not less ~equentlyhan annually. 

4.02 FINANCE AND INVESTMENT COMMITTEE 

With approval of the Board of Regents, the Chancellor shall appoint aFinance 

and Investment Committee including no fewer than four members of the Board 

ofRegents. TheFinance and Investment Committee shall be responsible for 

oversight of the Institution's annual budgets, long-range financial panning, investment program and strategies, and shall perform such related fimctions as 

may be assiened to it by the Board of Regents. The Finance and Investment Committee may.call upon theInstitution's officers orstaffor assistance and may seek outside consultation or professional assistance in the performance of its 

duties ifit seems desirable. The Finance and Investment Committee shall report its findings, conclusions and recommendations to the Board of Regents. 

4.03 NOMINATING COMMITTEE 

With approval of the Board of Regents, the Chancellor shall appoint a 

nominating committee including three members of the Board of Regents, one of whom shall be a member of the Executive Committee. The nominating committee shallbe responsible for recommending candidates for service as citizen members of the Board, for nominating candidates for election as 

Chancellor or'members of the Executive Committee, and for such other 

nominations or recommendatiOns as may be required by the Board ~om time to time. The nominating committee may call upon the Institution's officers or staff 

for assistance and may seek outside consultation or professional assistance in the 

performance ofjts duties. 

4.04 OTHER STANDING OR SPECIAL COMMITTEES 

The Board of Regents shall have power to establish other standing orspecial 

committees. Anycommitteeso established maycall upon the Institution'sfficers 

or staff for assistance and 

may seek outside consultation or professional assistance in theperformance of its assigned functions. 

4.05 QUORUM 

Unless otherwise specified by the Board of Regents, amajority of the members 

ofall standing and special committees as may be established by the Board shall 

constitute a quorum. 

4.06 CHAIR;RULHS 

Each committee established by the Board of Regentshall perform its fUnctions 

under the general directionfa chair appointed by the Chancellor with approval ofthe Board ofRegents. Each such committee shall have the power to adopt rules for the conduct of its business in respect of all matters not provided for in the bylaws or by rules adopted by the Board of Regents. Expenses of members in 

attending meetings ofcommittees established by the Board of Regents, including 

IRC0780 
travel expenses toand from the place of meeting, maybe paid by the Institution. 

Each committeestablished by the Board of Regents shall keep or cause to be 

kept minutes of its meetings, which shall be filed and maintained in the office of 

the Secretary of the Institution. 

---------- 

Section 5. O~fjcicers 

--------- 

5.01 CHANCELLOR 

The presiding officer of the Institution shall be the Chancellor elected in 

accordance with the Charter. As chair of the Board of Regents, the Chancellor 

may call upon the Executive Committee or any other committee established by 

the Board ofliegents for assistance in the performance of the Chancellor's duties. 

(See also 20 U.S.C. ~~ 44 and 47.) 

5.02 SECRETARY 

The Secretary, who shall be elected in accordance with the Charter, shall serve 

as the chief executive officer of the Institution. The Secretary shall be responsible 

for carrying into effecthe policies and programs approved by the Board of 

Regents and those provided for in applicable laws and regulations. Allemployees 

of the Institution shall perform their duties under the Secretary's general direction. 

The Secretary shall provide for maintaining theInstitution's official records, 

including the proceedings of the Board of Regents,he Executive Committee, and 

other standing and select committees of the Board. In accordance with applicable 

statutes and the policiestablished by the Board of Regents,he Secretary may 

employ assistants and shall prescribe and document the Institution's organization 

structure, operating policies and procedures, and delegations of authority. (See 

also 20 U.S.C. 9~ 44 and 46.) 

5.03 UNDER SECRETARY 

In consultation with the Board of Regents,he Secretary shall appoint one or 

more Under Secretaries who shall be the Secretary's principal officer(s) for 

administering the operations of the Institution. Pursuant tohe written designation 

and appointment byhe Chancellor, an Under Secretary may exercise all the 

functions and authorities of the Secretary whenever the Secretary shall be unable 

from illness, absence, or other cause to perform the duties of the office. (See also 

20 U.S.C. ~~ 46, 47, and 48;) 

5.04 CHIEF FINANCIAL OFFICER 

In consultation with the Board ofRegents, the Secretary shall designslte a: Chief 

Financial Officer, who shall have charge of all funds of the Institution, keep the 

books of account, designate depositories for funds of the Institution, and 

generally supervise investment ofhe Institution's funds as limited by section 

4.02. The Chief Financial Officer shall assisthe Board of Regents, its 

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committees, and the Secretary in the exercise oftheir fiduciary responsibilities. 

(See also 20 U.S.C. 9~ 46 and 48.) 

5.05 GENERAL COUNSEL 

In consultation with the Board of Regents, the Secretary shall appoint a counselor 

who shall 

serve as general counsel to the institution and shall advise the Secretary 

on such legal matters as may be referred to the counselor by the Secretary or the 

Board of Regents orits committees. (See also 20 U.S.C. ~8 46 and 48.) 

5.06 OTHER SENIOR OFFICERS 

In consultation with the Board of Regents,he Secretary shall appoint such other 

senior officers and assign them such titles, duties, and responsibilities as may be 

necessary for effective management ofthe Institution's affairs. In accordance with 

their assigned responsibilities, such other senior officers shall provide advice and 

assistance to the Secretary andone or more-under Secretaries, and shall provide 

direction toorganization units designated by the Secretary. (See also 20 U.S.C. 

96 46 and 48.) 

------~- 

Section 6. Administration 

--------- 

6.01 AUTHORITYO RE6EIVE ANDDISPOSE OF PROPERTY 

In accordance with policiestablished by the Board of Regents, the Secretary 

may accept or receive for the Institution gifts, grants, bequests, and other transfers 

of real and personal property, and may hold and dispose of the same In promotion 

of the purposes ofthe Institution; and shall administer and budget the use of such 

property for the purposes specified, if any. The Secretary may delegatehis 

authority to employees of the Institution. (See also 20 U.S.C. ~55.) 

6.02 ENDOWMENT FUND; OTHE$ NONAPPROPRIATED FUNDS 

Unless otheiwise dsignated bythe donor or directed by the Board of Regents, 

all monies derived f~om gifts made by will, trust, or similar instrument shall be 

received in and held in th~ Smithsonian Institution endowment fund. The Board 

of Regents may augment the Institution's endowment fund from time to time 

through budgetary tansfers ofthe net income derived from investments, 

donations, or revenues from auxiliary activities. (See also 20 U.S.C. ~~ 54 to 56.) 

6.03 APPROPRIATED FUNDS 

The Institution shall, in accordance with applicable statutes and administrative 

regulations, request an annual appropriation fr the necessary expenses ofthe 

Smithsonian Institution in executing itsstatutory responsibilities. The Boardof 

Regents shall authorize the expenditure of appropriated funds by the Secretary 

in accordance with law and the policies of the Board of Regents. (See also 20 

U.S.C. ~g 53a, 54, 65a and 70.) 

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6.04 BUDGET 

The Secretary shall prepare and recommend an annual budget-for consideration 

by the Board of Regents showing the institution's program plans, its estimated 

income from all sources, and the expenditures proposed for the ensuing fiscal 

year. With approval of the Board of Regents, the Secretary shall submit the 

institution's request for appropriations to ·the Office of Management and Budget 

for incorporation in the Budget ofthe United States. The Secretary shall provide 

all supporting data required for Congressional reviewofthe Institution's budget. 

When the annual appropriation act has been approved, theBoard of Regents shall 

review the Institution's budget with the Secretary and authorize the Secretary to 

expend appropriated and nonapproprIated fUnds id accordance with the approved 

budget. The Secretary may authorize any necessary reprogramming within any limitations established by the Board of Regents or the Congress and may 

recommend tothe Board of Regents anynecessaryamen~mentof theEnstitution's 

budget The Institution shall make no expenditures except those authorized in a

budget so approved or so amended. 

6.05 AUDIT 

The accounts of the nonappropriated funds of the Institution shall be audited 

annuallyby a recognized firm of certified public accountants, which shall submit 

its reporto the Board of Regents. This audit shall be in addition to audits of 

grant and contract fUnds conducted by the designated Federal audit agency and 

audits conducted by the General Accounting Office under other authority with 

respect to appropriated funds. The Secretary shall provide for an internal audit of 

the Institution's activities to 

ensure compliance with statutes and budgetary 

authorizations in the execution of programs. 

6.06 EXECUTION OF DOCUMENTS 

Pursuant tothe Secretary's general authority aschief executive officer of the 

Institution, the Secretary may execute in the name and behalf of the Institution 

any documentsecessary to the acceptance, transfer, sale or redemption of real 

or personal property (including the sale or redemption'of ·stocks, bonds, other 

investments) acquired or to be acquired, held, or disposed. of by the Institution 

through gifts, devises, bequests, or other transfers, and~may execute loans, 

mortgages, sureties, contracts, and any other documents necessary tothe 

administration of the Institution. Such actions shall be reportedto the Board of 

Regents in accord;mce with policies established by the Board. The Secretarymay 

delegate authority for executing such documents to employees of the Institution. 

IRC0783 
E~HIBIT 28 
SMITHSONIAN INSTITU'fiCN 

Charter Provisions 

(Title 20, United States Code, Sections 41-70) 

------~--~-- 

Chapter 3. Smithsonian Institution, 

N~a tional Museums and A rt Galleries 

Subchapter I- Charter Provisions 

~ 41. Incorporation of Institution 

The President, the Vice President, the Chief~ustice, and the heads of executive departments are cqnstituted an establishment by the name of the Smithsonian Institution for the increase and 

diffusion of knowledge among men, and by that name shall be known and have perpetual succession with the 

powers, limitations, and restrictions hereinafter contained, and no other. 

(R.S. ~ 5579; Feb. 27. 1877. ch. 69, 19 Stat. 253; Mar. 12, L894, ch. 36, 28 Stat. 41.) 

CODIFICATION 

R.S. 8 5579 derived ~om Acts Aug. 1-0, 1846, ch. 178 ~ 1,9 Stat. 102; Mar. 20, 1871,ch. i, 17 Stat. i. 

R.S. ~8 5579 to 5594 (codified as sections 41 to 46, 48, 50, 51 to 53, 54 to 57, and 67 of this title) constituted Title 73 of the Revised S tatutes, entitled "The Smithsonian Institution." A preamble to these sections was as follows: "James 

Smithson, esquire, of London, in the kingdom of Great Britain, having by his last will and testament given the whole of his property to the United States ofAmerica, to found, at Washington, under the name of the Smithsonian Institution' 

an establishment for the increase and diffUsion of I(nowledge among men; and the United States having, by an act of Congress, received said property and accepted said trust; therefore, for the faithful executionf said trust according tothe will of the liberal and enlightened do nor.'' 

R.S. 8 5579, as originally enacted, constituted the Presiaent, the Vice-President,he Secretaries of State, the Treasury, War, and the Navy, the Postmaster-General, the Attorney-General, the ChiefJustice, the Commissioner of the Patent Office, and the Go 

vernor of the District ofColumbia, and such persons athey m ight elect honorary members, 

an establishment by the name of the "SmitfisonianInstitution," for the purposes and with the powers specified in the section as set forth here. 

AMENDMENTS 

1894--Act Mar. 12, 1894,~substiti~ted ~"thb ChiefJustice, and heads of executive.departments'. for "the Secretary of State, the Secretary of the Treasury, the Secretary ofVi~ar, the Secretary ofthe Navy, the Postmaster-General, the Attorney General the Chief Justice,the Commissioner of Patents, the governqr ofthe District of Columbia, and other such persons as they may elect honorary members". 

1877--Act Feb. 2'7, 1877, substituted ~Patents" for "Patent Office". 

SECTION REFERRED TO IN OTHER SECTIONS 

This section is referred to in sections 57, 67 of this title. 

g 42. Board of Regents; members 

(a) The business of the Institution shall be conducted atthe city of Washington by a Board of 

Regents, named the Regents of the Smithsonian Institution, to be composed of the Vice President, the ChiefJustice ofthe United States, three Members of the Senate, three Members of the House of 

Representatives, and nine other persons, other than Members of Congress, two of whom shall be 

IRC0784 
resident inhe city of Washington, and seven of whom shall be inhabitants of same State, but no two 

of them of the same State. 

(b) Notwithstanding any other provision of law, the Board of Regents of the Smithsonian 

Institution may modify the number ofmembers, manner ofappointment of members, or tenure of 

members, of the boards or OI me ooaras orcommissions commissions~~pers, under thejurisdiction of theSmithsonian Institution, other 

(I) the Board of Regents of the Smithsonian Institution; and 

(2) the boards or commissions of the National Gallery of Art, the John F. Kennedy Center 

for the Performing Arts, and the Woodrow Wilson International Center for Scholars. 

(R.S. g 5580; Mar. 12, 1894, ch. 36, 28 Stat. 41;Dec. 15, 1970, Pub. L. 91 -551, 8 I(a), 84 Stat. 143 9, as amended O ct. 

21, 1998,Pub. L. 105-277, Div. A., ~ IOl(e) [Title III, Q 355], 112 Stat. 2681-303.) 

CODIFICATION 

R.S. 8 5580 derived from Acts Aug. 10, 1846, ch. 178, g 3, 9 Stat. 103; Jan. 10, 1865, ch. ii, 13 Stat. 420; Mar. 20, 1871,ch. I, 17 Stat. 1. 

AMENDMENTS 

1998- Act Oct. 21, 1998, designated the existing provisions as subsec. (a) and added subsection (b). 

1970--Pub. L91-55 1 authorized three additional persons on the Board of Regents. 

1 894--Act Mar. 12, 1894, struck out "The Governor of the District oPColumbia," after "the Chief Justice of the 

United States,". 

CROSS REFERENCES 

National Zoological Part, administration by Regents of Smithsonian Institution, see section 81 of this title. 

SECTION REFERRED TO IN OTHER SECTIONS 

This section is referred -to in sections 57, 67 of this title. 

~ 43; Appointment of regents; terms of office; vacancies 

The regents to be selected shall be appointed as follows: The Members of the Senate by the President thereof; the Members of the House bythe Speaker thereof and the nine other persons by joint resolutionf the Congress. TheMembers of the House so appointed shall serve for the term 

of~o years; and on every alternate fourth Wednesdayof December a like numbershall beappointed in the same manner to serve until the fourth Wednesday in December in the second year succeeding their appointment. The Senators so appointed shall serve during the term for which tey shall hold, 

without reelection, their office as Senators. Vacancies, occasioned by death, resignation, or 

otherwise, shall be filled as vacancies in committees arefilled. The regular term of service for the 

other nine membershall be six years; and new elections thereof shall be made byjoint resolutions 

of Congress. Vacancies occasioned by death, resignation,r otherwise may be filled in like manner 

by joint resolution of Congress. 

(R.S. ~ 5581; Dec. 1Z, 1970, Pub. L. 91-551, 8 I(b), (c), 84 Stat. 1440.) 

CODIFICATION 

R.S. B 5581 derived from Act Aug. 10, 1846, ch. 178, 8 3, 9 Stat. 103. 

AMENDMENTS 

1970--Pub. L. 91-551 authorized the appointments of three additional members of the Board byjoint resolution of the Congress. 

IRC0785 
SECTION REFERRED TO M OTHER SECTIONS 

This section is referred to in sections 57, 67 of this title. 

8 44. Organization of board; expenses; gratuitous services 

The Board of Regents shall meet in the city of Washington and elect one of their number as chancellor, who shall be the presiding officer of the Board ofRegents, and called the chancellor of the Smithsonian Institution, and a suitable 

person as Secretary of the institution, who shall also be the secretary of the Board of Regents. The board shall also elect three of their own body as an executive committee, and shall fix the time for the regular meetings of the board; and, on application of any three of the regents to the Secretary ofthe institution, it shall be his duty to appoint a special meeting of the Board of Regents, of which he shall give notice, by letter, to each of the members; and, at any meeting of the board, eight shall constitute a quorum to do business. Each member of the board shall ~e paid his 

necessary taveling and other actual expenses in attending meetings of the board, which shall be audited by the executive committee, and recorded by the Secretary ofthe board; but his service as Regent shall be gratuitous. 

(R.S. ~ 5582; Dec. 15, 1970, Pub. L. 91-551. B I(d), 84 Stat. 1440.) 

CODIFICATION 

R.S. 8 5582 derived from Act Aug. 10, 1846, ch. 178, ~ 3, 9 Stat. 103. 

AMENDMENTS 

1970--Pub. L. 91-551 increased the number of members required to constitute a quorum from five to eight. 

SECTION REFERRED TO M OTHER SECTIONS 

This section is referred to in sections 5 7, 67 of this title. 

~ 45, Special meetings of members 

The members of the institution may hold stated and special meetings, for·the supervision of the affairs of the institution and the advice and instruction of the Board of Regents, tobe called in the 

manner provided for inthe bylaws ofthe institution, at which the President, and in his absence the Vice President, shall preside. 

(R.S. 8 5585.) 

CODIFICATION 

R.S. ~ 5585 derived from Act Aug. 10, 1 846, ch. 178, 8 8, 9 Stat. 103. 

SECTION REFERRED TO M OTHER SECTIONS 

This section is referred to in sections 57, 67 of this title. 

~ 46, Duties of Secretary 

The Secretary of the Board of Regentshall take charge of the building and property of the institution, and shall, under their direction, make a fair and accurate record ofall their proceedings, to be preserved in the institution until 

no longerneeded in conducting current business; and shall also discharge the duties of librarian and of keeper of the museum, and may, with the consent of the Board ofRegents, employ assistants. 

(R.S. 85583; Oct 25. 195 i,ch. 562. ~ 2(4), 65 Stat. 639.) 

IRC0786 
CODIFICATION 

R.S. g 5583 derived from Act Aug. 10, 1846, ch. 178, 8 7, 9 Stat 105. 

AMENDMENTS 

1951--Act Oct. 25, 1951, inserted "until no longer needed in conducting current business". 

CROSS REFERENCES 

Management and d isposition of records, see sections 2 101 et 

seq., 2301 et seq., 2501 ct seq., 2901 et seq.. 3101 et 

seq., and 3 301 ct seq. of Title 44, Public Printing and Documents. 

Statement of expenditures, see section 49 of this title. 

SECTION REFERRED TO LN OTHER SECTIONS 

This section is referred to in sections 57, 67 of this title. 

~ 46a. Employment of aliens by Secretary 

The Secretary ofthe SmithsonianInstitution, subjectto adequate scurityand other investigations 

as he may determine to be appropriate, and subject furtherto a prior determination by him that no 

qualified United States citizen is available for the particular position involved, is authorized to 

employ and compensate aliens in a scientific or technical capacity at authorized rates of 

compensation without regard tostatutory provisions prohibiting payment ofcompensation to aliens. 

(Pub. L. 88-549, Aug. 31, 1964, 78 Stat. 754.) 

g 47. Acting Secretary 

The chancellor of the Smithsonian Institution·may~ by an instrument in writing-filed in the office of the Secretary thereof, designate and appoint a suitable person to act as Secretary of the Institution 

when there shall be a vacancy in said office, and whenever the Secretary shall be unable from illness, 

absence, or other cause to perform the duties of his office; and in such case the person so appointed 

may perform all the duties imposed on the Secretary by law until the vacancy shall be filled or such 

inability shall cease. The said chancellor may change such designation and appointment from time 

to time as the interests of the institution may in his judgment require. 

(May 13, 1884, oh. 44, 23 Stat. 21.) 

PRIOR PROVISIONS 

Act May 13, 1884, is derived from Act Jan. 24, 1879, ch. 21, 20 Stat 264. 

~ 48, Salary and removal of Secretary and assistants 

The Secretary and his assistants shall, respectively, receive for their servicesuch sum as may be allowed bythe Board ofRegents; and shall be removable by the Board ofRegents whenever, in 

their judgment, the interests of the institution require such removal. 

(R.S. B 5584.) 

CODIFICATION 

R.S. 8 5584 derived from Act Aug. ill, 1846, ch. 178, g 7, 9 Stat 105. 

Provisions which related to semi-annual payments on the first day of January and July have been omitted. 

SECTION REFERRED TO n\r OTHER SECTIONS 

This section is referred to in sections 57, 67 of this title. 

LRC0787 
~ 49, Statement of expenditures 

The Secretary shall submit to Congress annually at the beginning of each regular session thereof 

a detailed statement of the expenditures of the preceding fiscal year, under appropriations for "International Exchanges, ~~T~orth American Ethnology," and the "National Museum." 

(Oct. 2, 1888, ch. 1069,25 Stat 529.) 

CROSS REFERENCES 

Annual report of salaries, see section 58 of this title. 

DocuP~kO~~ aRd distribution of reports of Smithsonian Institution, see section 1341 ofTitle 44. Public Printing ad

~ 50. Reception and arrangement of specimens and objects of art 

Whenever suitable arrangements can be made from time to time for their reception, all objects of art and of foreign and curious research, and all objects of natural history, plants, and geological and mineralogical specimens-tielbriging to the United States, which may be in the city of Washington, in whosesoevercustody they may be, shall be delivered tosuch persons as may be authorized by the Board of Regents toreceive them, and shall be so arranged and classified in the 

building erected for the Institution as best to facilitate the examination and study of them; and whenever new specimens in natural history, geology, or rnineralogy are obtained for the museum of the Institution, by exchanges of duplicate specimens, which the Regents may in their discretion 

make, or by donation, which they may receive, or otherwise, the Regents shall cause such new 

specimens to be appropriately classed and arranged. The minerals, books, manuscripts, and other 

property of James Smithson, which have been received by the Government ofthe United States, shall be preserved separate and apart from other property o fthe Institution. 

(R. S. 8 55 86.) 

HISTORICAL AND STATUTO RY NOTES 

COD~FICATION 

R.S. 8 5586 derived from Act Aug. in, 1846, ch. 178, ~ 6, 9 Stat 105. 

PRESERVATION OF SEPTEMBER Il'hARTIFACTS IN NATIONAL MUSEUM OF AMERICAN HISTORY 

Pub.L. 107-1 17, Div. B, Ch. 7, ~ 701, Jan. 10, 2002, 115 Stat. 23 i 1, provided that: 

"(aj In general.-The Secretary of the Smithsonian Institution shall collect and preserve in the National Museum of American History artifacts relating to the September 11" attacks on the World Trade Center and the Pentagon. 

"(b) Typ es of a rtifa cts.-In carrying out subsection (a) Cof this note], the Secretary o f the Sm ithsonian Institution shall consider collecting and preserving- 

"(1) pieces of the World Trade Center and the Pentagon. 

"(2) still and video images made by private individuals and the media; 

"(3) personal narratives ofsurvivors,escuers, and government officials; and 

"(4) other arti~cts, recordings, and testimonials that the Secretary of the Smithsonian Institution determines have lasting historical significance. 

"(e) Auth o rizatio a o f an prop riatioos.- There is authorized to be appropriated to the Smithsonian lnstitufion$5,000,000 to carry out this section [this note]." 

THE SMITHSONIAN ASTROPHYSICAL OBSERVATORY SUBMILLIMETER ARAY 

Pub. L. 106-383, ~4 1 to 2, Oct. 27, 2000, 114 Stat. 1459, provided that: 

IRC0788 
"Sec. 1. Facility authorized. 

"The B oard of Regents of the Smithsonian Institution is authorized to plan, design, construct, and equip laboratory, 

administrative,and support space tohouse base operations for tbe Smithsonian Astrophysical Observatory Submillimeter 

Array located on Mauna Kea at Hilo, Hawaii. 

"Sec. 2. Authorization of appropriations. 

"There are autho rized to be apprdpriatedo the B oard of Regents ofthe Smithsoniannstitution to carry outhis Act, 

%2.000,000 for fiscal year 2001, and $2,500,000 for fiscal year 2002, which shall remain available until expended." 

SMITHSONIAN INSTITUTION TRANSPORTATION PROGRAM 

Pub. L. 105-17 8, Title I, 8 12 14(b), June 9, 1998, 1 12 Stat. 204, provided that: 

"(1) In general.-The Secretary of Transportation shall allocate amounts made available by this subsection for 

obligation at the discretionf the Secretary of the Smithsonian Institution, in consultation with the Secretary of 

Transportation, to carry out projects and activities described in paragraph (2). 

"(2) Eligible uses.-Amouhts allocated under paragraph (1) may be obligated only- 

"(A) for transportation-related exhibitions, exhibits, and educational outreach programs; 

"(B) to enhance the care and pro tection of the Nation's collection of transportation-relatedrtifacts; 

"(C) to acquire historically significant transportation-related artifacts; and 

"(D) to supportesearch programs within the Smithsonian Institution that document the history and evolution of

transportation, in cooperation with other museums in the United States. 

"(3) Authorization of appropriations.-There is authorized to be appropriated out of the Highway Trust Fund 

(other than the Mass Transit Account) %1,000,000 for each o f fiscal years 1998 through 2003 to carry out this subsection. 

"(4) Applicability of Title 23.-Funds authorized by this subsection shall be available for obligation ithe same 

manner as if such funds were apportioned under chapter I of title 23, United States Code [section 10 1 ct seq. of Title 

23 i, exce pt thathe Fed eral share of the cost o f any project or activity under this subsection shall be 100 percent and such 

funds shall remain available until expended." 

NATIONAL MUSEUM OF HEALTH AND MEDICINE 

NOTE: Pub. L: 105-78, Title VII, 18 701, 703 to 708,Nov. 13, 1997, 11 1 Stat. 1524, the National Health Museum 

D evelopm ent Act, which authorized co nstruction o fthe N ational Health Museum and provided for the establishment and 

.termination of the National Health Museum Commission, was repealed by Pub. L. 107-303, Title II1, 8 303; Nov. 27, 

2002, 116 Stat. 2361. 

[The National Health Museum had no affiliation with the Smithsonian Institution, other than being a"National" 

museum.] 

WEST COURT OF NATIONAL MUSEUM OF NATURAL HISTORY BUILDTNG 

Pub. L. 103-151, Nov. 24, 1993? 107 Stat: 1515, provided that: 

"SECTION 1. PLANNING DESIGN, AND CONSTRUCTIONF WEST COURT OF NATIONAL MUSEUM 

OF NATURAL HISTORY BUILDING. 

"The Board of Regents of the Smithsonian Istitution isauthorized toplan, design, and construct the West Court 

of the National Museum of Natural History building. 

"SECTION 2. FUNDING. 

"No appropriated funds may be used to pay any expense of the planning, design, and construction .authorized by 

section i." 

EAST COURT OF NATIONAL MUSEUM OF NATURAL HISTORY MUSEUM 

Pub. L. 101_455, Oct. 24, 1990, 104 Stat. 1067, as amended by Pub. L. 103-98, ~ I(a), Oct. 6, 1993, 107 Stat. 1015, 

provided that: 

"SECTION I. ADDITIONAL SPACE IN NATIONGL MUSEUM OF NATURAL HISTORY. 

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"The Board of Regents of the Smithsonian Institution is authorized toplan, design, construct, and equip approximately 80,000 square feet of space in the East Court of the National Museum o f Natural History building. 

"SECTION 2. AUTHO RIZATION OF APPROPRIATIONS. 

"There is authorized to be appropriated to the Smithsonian Institution for fiscal year 1991 and succeeding fiscal 

years not to exceed $30,000,000 to carry out this Act." 

[Sec~onl(b)ofPub.L.I03-ggprovided that: "fhe amendment made by subsection (a) [amending section 2of Pub. L. 101-455, set out above] shall take effect as of October 24, 1990."] 

CONSTRUCTIONF CHARLES McC. MATHIAS, JR· LABORATORY FOR ENVIRONMENTAL RESEARCH Pub. L. 99-617, 8 1, Nov. 6, 198ti, 100 Stat. 3488, provided that: 

"(a) Construction authorizetion.--The Board o f Regents of the Smithsonian Institution isauthorized toconstruct the Charles McC. Mathias, Jr. Laboratory far Environmental Research. 

"(b) Location.--The Charles McC. Mathias, Jr. Laboratory for Environmental Research shall be located at the Smithsonian Environmental Research Center, a bureau ofthe Smithsonian Institution,located Edgewater, Maryland. "(c) Authorization of appropriations.-Effective October 1, i 986, there is authorized to be appropriated tothe Board of Regents of the Smithsonian Institution S1~000,000 tocarry out the purposes of this section. 

"(d)Transfer of Cunds.--Any porti~on of the sums appropriated to carry out the purposes of thisection may be transferred to the GeneralServices Administration which, in consultation withthe Smithsonian Institution, is authorized 

to enter into contracts and take such other action, to the extent of the 

carry out such purposes." sumso transferred to it, as may be necessary to 

SMITHSONIAN ASTROPHYSICAL OBSERVATORY AND SMITHSONIAN TROPICAL RESEARCH INSTITUTE; AUTHORIZATION OF CONSTRUCTION AND APPROPRIATIONS 

Pub. L. 99-423, Sept. 30, 1986, 100 Stat 963,provided: 

"That the Board of Regents ofthe Smithsonian Institltion is aumorized to plan and construct facilities for the Smithsonian Astrophysical Observatoiy and the Smithsonian Tropical Research Institute. 

Insti~St~hj~. Effectise October I , 1 986, there is authorized to he appropriated to the Board of Regents of the Smithsonian 

"(a) %4,500,000 for the Smithsonian Astrophysical Observatory; and 

"(b) $11,100,000 for the Smithsonian Tropical Research Institute. 

"Sec. 3. Any portion of the sums appropriated to carry out the purposes of this Act may be trans ferred to the General Services Administration which, in consultation withthe Smithsonian Institution, is authorized to enter into contracts and take such other action, to the extent of the 

sums so transferred to it, as may be necessary to carry out such purpo ses." 

FRED LAWRENCE WHIPPLE OBSERVATORY; PURCHASE OF LAND 

Pub. L. 98-73, Aug. 11, 1983, 97· Stat. 406, provided: 

"That the Smithsonian Institution is authorized to purchase land in Santa Cruz County, Arizona, for the permanent headquarters of the Fred Lawrence Whipple Observatory. 

"Sec. 2Effective October 1, 1 984; there isauthorized to he appropriated $ 15 0,00 Oto carry out the purposes of this Act." 

CONSTRUCTION OF NATIONAL MUSEUM OF AFRICAN ART, CENTER FOR EASTERN ART, AND STRUCTURES FOR RELATEDEDUCATIONAL FACILITIES 

Pub. L. 97-203, 8~ 1 to 3, June 24, 1982, 96 Stat. 129, provided: 

"That the Board of Regents ofthe Smithsonian Institntion is authorized to construct a building for the National Museum of African Art and a center foi Eastern art together with structures for related educational activities in the area south of the original Smithsonian Institution Building adjacent to Independence Avenue at Tenth Street Southwest, inthe city of Washington. 

"Sec. 2. EffectiveOctober I~lgg2~there is authorizedtobeappropriated toheBoard of Regents of the Smithsonian Institution $36.500,000 to 

carry out the purposes of this ~ct. Except for funds obligated or expended for planning, administration, and management expenses, and architectural 

or other consulting services, no funds appropriated pursuant to this section shall be obligated or expended until such time 

as there is available to such Board, from private donations 

or from other non-Federal sources, a sum which, when combined with the funds so appropriated, is sufficient to carry out the purposes of this Act. 

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"Sec. 3. Any portion of the sums appropriated to carry out the purposes of this Act may be transferred to the General Services Administration which, in consultation with the Smithsonian Institution, is authorized to enter into contracts and take such other action, to the extent of the 

sums so transferred toit, as may be necessary to carry out such purposes." 

SMITHSONIAN INSTITUTION; DEVELOPMENT OF PROPERTY ADJACENT TO ORIGINAL BUILDING Pub. L. 96-36, July 20, 1979, 93 Stat. 94, provided: 

"That the Board of Regen$ of the Smithsonian Institutions authorized to plan for the development of the area south ~f t~es~;ll~gnl~:~lnSmimsoninn Institution Building adjacentto Independence Avenue at Tnth Street, Southwest, in the city 

"Sec. 2. Effective October i, 1979, there is authorized tobe appropriated to the Board of Regents of the Smithsonian Institution $ 500.000 to carry out the purposes of this Act. 

"Sec. 3. Any portion of the sums appropriated to carry out the purposes of this Act may be transferred to the General S ervices Adm inistration which, in consu Itation with the Smithsonian Institution, is authorized to enter into contracts and take such other action, to the extent of the 

sums so transferred toit, as may be necessary to carry out such purposes." 

SMITHSONIAN INSTITUTION PLANS FOR AND CONSTRUCTION OF MUSEUM SUPPORT FACILITIES; APPROVAL, OF PLANS AND SPECIFICATIONS; SITUS; TRANSFER OF LAND; APPROPRIATIONS; CONTRACTS By GENERAL SERVICES ADMINISTRATION 

Pub. L. 94-98, Sept 19, 1975, 89 Stat. 480, as amended by Pub. L. 95-569, Nov. 2, 1978, 92 Stat. 2444, provided: "The Regents of the Smithsonian Istitution are authorized to prepare plans for, and to construct, museum support facilities to be used for(l) the care, curation, conservation, deposit, preparation, and study of the national collections ofscienti6c, historic, and artistic objects, specimens, and artifacts; (2) the related documentationf such collections of the Smithsonian Institution; and (3) the training of museum conservators. No appropriation shall be made to construct the facilities authorized by this Act until the Committee on Public Works and Transportation of the House of Representatives and the Committee on Rules and Administration of the Senate, by resolution approve the final plans and specifications of such facilities. 

"Sec. 2. The museum support facilities referred to in section 1 shallbe located on federally owned land within the metropolitan area of Washington, District of Columbia. Any Federal agency is authorized to transfer land under its jurisdiction to the Smithsonian Institution for such purpo ses witho ut reimb ursement. 

"Sec. 3. There is authorized ~o be approp riated to the Smithsonian Institution IEZ1.500,000 to carry outhe purpo ses of this Act. Any portion of the sums appropriated for such purposes may be transferred to the General Services Administration which, in consultation with the S mithsonian Istitution, is authorized toenter into contracts and take such other action, to the extent of the sums ·so transferred to it, as may be necessary to carry out such p urpo ses." [Amendment of section 3 of this Act effective Oct. i, 1979.i 

rAny reference in any provision of law enacted before Jan. 4, 1995, to the Committee on Public Works and Transp ortation of the House of Representatives treated 

as referring to the Committee on Transpo rtatio n and In frastructure ~t~~HnOg~essqf Reprssenta~ives, see section l(a)(9) of Pub.L. 1()4-14. set out as a note lireceding section 2 1 ofTitle 2, 

NATIONAL MUSEUM 

The National Museum was not created'by any express statutbry provision for that purpose. It was first mentioned in an appropriation for postage for "the National Museum in the Smithsonian Institution," contained inAct June 20, 1874, oh. 328, ~ i, 18 Stat. 103. An appropriation for a building for the use of the National Museum was made by Act ~:~~~~c'h"b7~ilcd~;l:82,8 1.20Staf.397, and annualppropriations have continuouslybeen made for expenses of heating, 

NATIONAL MUSEUM EXHIBIT 

Res. Feb. 28, 1922, cb 86, 42 Stat 399, authorized theSecretary of State to transfer tothe custody ofthe Secretary of the Institution for safekeeping and exhibition in the National Museum the sword ofGeorge Washington andthe staff of Benjamin Franklin, presented by Samuel T. Washington, andthe sword of Andrew Jackson, presented by the family of General Robert Armstrong. 

TRANSPORTATION OF PROPERTY 

The QuartermasterGeneral and his officers were required to receive and transport property fo r the Natio nal Museum by a provision of Act July 5, 1884, ch. 217, 23 Stat. 107. 

IRC079 I 
SECTION REFERRED TO IN OTHER SECTIONS 

This section is referred to in sections 57, 67 of this title. 

NOTES OF DECISIONS 

Placement of natural history objects in Institution 

i. Placement of natural history objects in Institution 

9 OpT~~PCieeCnTS460.f natural history belonging to the government are to be placed in the Smithsonian Instiiution. 1857, 

~ 50a. Geilatly art collection; estimates of sums needed for preservation and maintenance 

The Smithsonian Institution is authorized to include in its estimates ofappropriations such sums 

as may be needful for the preservation and mamtenance of the John Gellatly art collection. 

(June 5, 1929, ch. 9, 46 Stat. 5) 

NOTES OF DECISIONS 

Validity of transfer 1 

i. Validity oftransfer 

Where owner of valuable art collection offered it to the Smithsonian Institution upon certain conditions, and offer was accepted and transfer was completed, and Institution made payments of rent on gallery then under lease in New York, made payments of salary to the curator and expended sums for maintenance and upkeep, payments did not constitute aconsideration so as to invalidate the transfer as 

a gift. G~y_v~l~n~ C.A.D.C. 1949, 177 F.2d 73, 85 U.S.App.D.C. 227, certiorari denied 70 S.Ct 513, 339 U.S. 905, 94 L.Ed. 1334. 

Where owner of valuable art collection signed a formal document of transfer of art collection to the Smithsonian Institution, and Congress by acts approved, and appropriated funds necessary to meet conditions of the transfer and thereafter the owner of the collection married a woman who was ignorant ofthe transfer, which was never repudiated by the owner but was expressly confirmed prior to his death, the transfer was binding, and there was no basis in law or in equity to set aside the transfer or to allow 

F:Supp. arecovery in behalf of the owner's estate. G_ellatly v. U.S. Ct.CI. 1947, 7 1 357, 108 CtCI. 650. 

~ 51. Library 

The Regents shall make, from the interest ofthe fund, an appropriation, notexceeding anaverage of$25,000 annually, for the gradual formation of a library composed ofvaluable works pertaining to all departments of human knowledge. 

(R.S. ~55 87.) 

CODIFICATION 

R.S. 8 5587 derived from act Aug. 10, 1846, ch. 178, ~ 8, 9 Stat. 105. 

PUBLIC USE OF RESEARCH AND STUDY FACILITIES OF CERTAIN INSTITUTIONS 

Under provisions ofR.S. ~ 94 and act Mar. 3, 1875, ch. 179, 18 Stat 512, the Joint Committee on the Library of Congress was authorized to extend the use of the Library tothe Regents ofthe Smithsonian Institution. These provisions 

were not classified to the Code, being rendered superfluous by a general dec laration ofpub lic policy by Congress, by 

a joint resolution adopted Apr. 12, 1892, 27 Stat. 395, to the effect that facilities for study and research in the Library of Congress, the National Museum, and similar institutions shah be afforded investigators, students, etc., in the several 

states and territories as well as in the District of Columbia. 

IRC0792 
CROSS REFERENCES 

Appropriation of interest moneys, see section 54 of this title. 

Regulations governing Smithsonian Institution; see sections 151 and 152 of Title 2, The Congress. 

SECTION REFERRED TO ZN OTHER SECTIONS 

This section is referred to in sections 57, 67 of this. title. 

8 52, Evidence of title to site and buildings 

The, site and lands selected for buildings for the Smithsonian Institution shall be deemed appropriated to the institution, and the record of the description of such site and lands, or a copy thereof, certified by the chancellor and Secretary of the Board of Regents, shall be received as evidence in all courts of the extent and boundaries of the lands appropriated to the institution. 

(R.S. g 5588.) 

CODIFICATION 

R.S. 8 5588 derived ~om Act Aug. 10; 1846, ch. 178, ~ 4, 9 Stat 104. 

FEDERAL RULES OF CIVIL PROCEDURE 

and Judicial Procedure.~uf~:c~ta~'fp~:,lrep4fl ~(j~ fhis Secson. seenote of Advisory Committee set outunderrule 44, Title 28, Appendix, Judiciary 

Proof of official record, see rule 44. 

SECTION REFERRED TO IN OTHER SECTIONS 

This section is referred to in s 57, 67 of this title. 

~ 53, Protection of property 

All laws for the protection of publicproperty in the city of Washington shall apply to, and be in force for, the protection of the lands, buildings, and other property of the Smithsonian institution. 

All ·moneys recovered by or accruing to the Institution shall be paid into the Treasury of the United States, to the credit of the Smithsonian bequest, and separately accounted for. 

(R. S. 8 5589.) 

CODIFICATION 

R.S. g 5589 derived from Act Aug. 10, 1846, ch. 178, 8 5, 9 Stat. 104. 

SECTION REFERRED TO-IN OTHER SECTIONS 

This section is referred to in sections 57, 67 of this title. 

~ 530. Authorization of appropriations 

Appropriations are authorized for the maintenance of the Astrophysical Observatory and the making of solar observations at high altitudes; for repairs and alterations of buildings and grounds occupied by the Smithsonian Institution in the District of Columbiand elsewhere; and for 

preparation of manuscripts, drawings, and illustrations forpublications. 

(Aug. 22, 1949, ch. 494, ~ 2, 63 Stat. 623.) 

~ 54, Appropriation of interest 

So much of the property of James Smithson ·as has been ~received in money, and paid into the Treasury of the United States, being the sum of $541,979.63, shall be lento the United States 

IRC0793 
Treasury and invested in public debt securities with maturities requested by the Smithsonian Institution hearing interest at rates determined by the Secretary of the Treasury. based upon current market yields on outstanding marketableobligations of the United States of comparable maturities, and this interest is hereby appropriatedforthe perpetual maintenance andsupport of the Smithsonian Institution; and all expenditures andappropriations to be made, from time to time, to the purposes of the Institution shall be exclusivelY from the accruing interesf and not ~om the principal of the fund. All the moneys and stocks which have been, or may hereafter b, received into the Treasury of the United States, on account of the fund bequeathed by James Smithson, areherebypledged to refund to the Treasury of the United States the sums hereby appropriated. 

(R. S. ~ 5590; Pub. L, 97-199, 8 1, June 22, 1982, 96 Stat. 121.) 

CODIFICATION 

R.S. ~ 5590 derived ~am Acts Aug. 10, 1846, cb. 178, g 2, 9 Stat. 142; Feb. 5,1867, cb~ 34,~ 2, 14 Stat. 391. 

AMENDMENTS 

1982--Pub. L. 97-199substituted "and invest~d 

Smithsonian in public debt securities with maturities requested bythe Institution bearing interest at rates determ ined by the Secretary of the Treasury, based upon current market yields on outstanding marketable obligations ofthe United S tates of comparable maturities, and this interest i hereby" for ", at 6 per centum per annum interest; and 6 per centum interest on the trust-fund and residuary legacy received into the United States Treasury, payable in half-yearly payments, on the first of January and July in each year, is", substituted "purposes of the Institution" for "purposes of the institution", and substituted "are hereby pledged" for "are pledged". 

EFFECTIVE DATE OF 1982 AMENDMENT 

Sec tion 2 o f pub. L. 97-199 provided that: 

"The amendment made by the first 

after September 30, 1982. " section[amending thisection] shall apply with respect to fiscal years beginning 

CROSS REFERENCES 

Expenses ofSmithsonian Institution Trust Fund, see section 1321 of Title 3 i, Money and Finance. Permanent indefinite appropriation for Smithsonian Istitution, see section 1305 of Title 3 i. 

SECTION REFERRED TO IN OTHER SECTIONS 

Thisection is referred to in sections 57, 67 of this title; title 3l.sedtion 1305. 

~ 55. Acceptance of other sums 

The Secretary of the Treasury is a~ithorized and directed to receive into the Treasury, on the same terms as the original bequeslt of JamesSmithson, such sums as the Regents may, from time to time, see fit to deposit, not exceeding, witki the original bequest, the sumof$1,000,000. This shall not 

operate as a limitation on the power of the Smithsonian Institution t receive money orother Ph~eqPeeo~Y by gift, bequest, or devise, andto hold and dispose ofthe same in promotion of the purposes 

(R.S. 4 5591; Mar. 12, 1894, ch. 36, 28 Stat. 41.) 

CODIFICATION 

R.S. 8 559 1 derived ~om Act Feb. 5, 1867, cb. 34, 8 1, 14 Stat 391. 

AMENDMENTS 

1894--Act Mar. 12, 1894, made the limitation on 

and devises depositsnto the treasu ry inapp licable toreceipt ofgifts, bequests and dispo sitions of money or other property. 

IRC0794 
SECTION REFERRED TO IN OTHER SECTIONS 

This section is referred to in sections 57, 67 of this title. 

NOTES OF DECISIONS 

i. Fund raising 

The Board of Regents ofSmithsonian Institution may employ a firm of experts toassist in increasing the endowment of 

the Institution, said firm being paid out of contributions to be donated for that purpose. 1924, 34 Op.Atty.Gen. 338 

2. Limitations on interest payments 

This section does not place alimitation the amount which the Smithsonian Institution may receive but only limits the 

amount upon which the Treasury of the United S tates is authorized topay interest at the rate of 6% per annum. 1 924, 

34 Op.Atty.Gen.338. 

~ 56. Disposal of unappropriated money 

The Regents are authorized to make such disposal of any other moneys which have accrued, or 

shall hereafter accrue, asinterest upon the Smithsonian fud,not herein appropriated, or not required 

for the purposes herein provided, as they shall deem best suited for the promotion of the purpose of 

the testator. 

(R. S. ~5592.) 

CODIFICATION 

R.S. 8 5592 derived from Act Aug. 10, 1846, ch. 178, 8 9, 9 Stat 105. 

SECTION REFERRED TO IN OTHER SECTIONS 

This section is referred to in sections 57, 67 of this title. 

NOTES OF DECISIONS 

1. Disposal of accumulated interest 

While the principal ofthe endowment fund of the Smithsonian Institution may not be appropriated by the Board of 

Regents, the accumulated interest thereon may be used by the Board in promotion of the purpose of the endowment. 

1924, 34 Op.Atty.Gen. 338. 

~ 57. Disbursements 

Whenever money is required for the payment of the debts or performance ofthe contracts of the 

institution, icurred orentered into in coriformity with the provisions of sections 41 to 46, 48, 50, 

51 to 53, 54 to 57, and 67 of this title, or for making the purchases and executing the objects 

authorized by said sections, the Board of Regents, orthe executive committee thereo~ may certify 

to the chancellor and secretary of the board that such sum of mo neyis required, whereupon they shall 

examine the same, and, if they shall approve thereof, shall certify the same to the proper officer of 

the Treasury for payment. The board shall submit to Congress, at each session thereof, a report of 

the operations, expenditures, and condition of the institution. 

(R.S. 8 5593.) 

CODIFICATION 

R.S. 8 5593 derived from Act Aug. Id, 1846, ch. 178, 8 3, 9 Stat 103. 

IRC0795 
SECTION REFERRED TO ~ OTHER SECTIONS 

This section is referred to in section 67 of this title. 

~ 58. Omitted 

HISTORICAL AND STATUTORY NOTES 

CODIFICATION 

section, Act Mar. 3, 1 899, c. 424, B 1, 30 Stat 1085, which required that the salaries of all officers and emp loyees paid from appropriations under the SmithsonianInstitution be reported to Congress annually, terminated, effective May IS, 2000, pursuanto section 3003 of Pub. L. 104-66, as amended, set out as a note under 31 U.S.C.A. 8 1 1 13. See, also, 

page 192 oftIouse Document No. 103-7. 

~ 59. Collections of National Ocean Survey, Geological Survey, and others deposited in 

National Museum 

All collections of rocks, minerals, sells; fossils,and objects ofnatural history, archaeology, and 

ethnology, made by the National Ocean Survey, the United States Geological Survey, or by any other parties for the Government of the United State~, when no longer needed for investigations in 

progress shall be deposited in the National Museum. 

(Mar. 3, 1879! ch. 182, ~ 1,20 Stat. 394; 1965 Reorg. Plan No. 2, eff. July 13, 1965, 30 F. R. 8819, 79 Stat 1318; 1970 

Reorg. Plan No. 4, eff. Oct: 3, 1970, 35 F.R. 15627, 84 Stat. 2090; Nov. 13, 1991, Pub. L. 102-154, Title I, 105 Stat. 

1000; May is, 1992, Pub. L. 102-285, 8 10(a), 106 Stat. 171.) 

CODIFICATION 

Words "Coast and Interior Survey" appearing in Act Mar. 3, 1879, were in prior editions ofthe Code changed to 

"Coast and Geodetic Survey." Congress never created a Coast and Interior Survey. In a communication dated Nov. 6, 

1940, the Director of the Geological Survey explainedthat the words "Coast and Interior Survey" were inadvertently 

incorporated upon authority of report contained in Senate Misc. Doe. No. 9, 45th Congress, 3dSession, which 

recommended the"Coast and Geodetic Survey" be changed to "United States Coast and Interior Survey" and an 

organization be created in the Interior Department to be known as the "United States Geological Survey." Congress adopted only the latter suggestion. 

The Coast and Geodetic Survey was consolidated with the National Weather Bureau·in 1965 to form the 

Environmental Science Services Adminis ration by Reorg. Plan No. 2 of 1965, eff. July 13, 1965, 30 F.R. 8 8 19, 79 S tat. 

1318. The Environmental Science Services Administration was abolished in 1970 and its personnel, property, reco rds, 

etc., were transferred to the National-Oceanic and Atmospheric Administration by Reorg. Plan No. 4 of 1970, eff. Oct. 

3, 1970, 35 F.R. 15627, 84 Stat 2090. By order of the Acting Associate Administrator of the National Oceanic and 

Atmospheric Administration, 35 F;R. 19249, Dec. 19, 1970, the Cdast and Geodetic Survey was redesignated the 

National Ocean Survey. See notes under section 3i 1 of Title 15, Commerce and Trade. 

CHANGEOFNAME 

Pub. L. 102-285, 8 10(a), May 18, 1992, 106 Stat 171, redesignated the Geological Survey and provided that on 

and after May 18, 1992, it shatl be Imown as the United States Geological Survey. An earlier statute CPub. L. 102-154, Title I,Nov. 13, 1991,05 Stat IqbO] bad provided for the identical change Ofname effective on and after Nov. 13, 

199 1. See note under section 31 of Title 43, Public Lands, 

NATIONAL MUSEUM 

Establishment of the National Museum, see note set out under section 50 of this title. 

NATIONAL MUSEUM OF AMERICAN HISTORY 

Pub. L. 96-441, 8 2, Oct. 13, 1980, 94 Stat. 1884,provided that: "The bureau of the Smithsonian Institution known 

as the Museum of History and Technology and so referred to in the Act entitled 'An Act to authorize the construction 

o f a building fora Museum of History and Technology for the Smithsonian Institution,ncluding thepreparation of plans 

IRC0796 
and specifications, and all other work incidental thereto', approved June 28, 1955 (20 U.S.C. 59 note), shall be known 

as the 'National Museum of American History'." 

For provision deeming references to the Museum ofHistory and Technology in laws and regulationsto be references 

:~e~e National Museum of American H istory, see section 3of Pub. L. 96-441, set out as a note under section 71 of this 

MUSEUM OF HISTORY AND TECHNOLOGy FOR THE SMITHSONIAN INSTITUTION 

Act June 28, 1955, ch. 201, 69 Stat. 189, authorized construction of a building for a Museum of History and Technology, which was redesignated the National Museum of American History, for the use of the Smithsonian Institution, at a cost not to exceed 336,000.000. 

~ 60. Army articles furnished to National· Museum 

The Secretary of the Army is authorized to furnish to the National Museum, for exhibition, upon request therefor by the administrative head thereof, such articles of arms, materiel, equipment, or clothing as have been issued ~om time to time to the United States Army, or which have been or 

may hereafter be produced for the United States Army, and which are objects of general interest or 

~ of foreign or curious research, provided that such articles can be spared. 

(Mar. 4, 1921, ch. 166, B g~~4k:~SZ:a;.c~~~, i. 41 Stat. 1438; luly 26, 1947, ch. 343. Title II, P 205(a). 61 Stat. 501;Oct 3 1, 19Sl.ch. 654, 

AMENDMENTS 

195 1-- Act Oct. 3 i, 195 i, struck out "are surplus or" after "articles". 

CHANGEOFNAME 

The Department of War was designated the Department of the Army and the title of the Secretary of War was changed to Secretary of the Army by section 205(a) of act July 26, 1947, ch. 343, Title 11, 6 1 Stat. 50 i. Section 205(a) of Act July 26, 1947, was repealed bysection 53 of Act Aug. 10, 1956, ch 1041,70A Stat. 64 i. Section 1of Act Aug. 10, 1956, enacted'Title 10, Armed Forces" which in sections 3010 to 3013 continued the military Department of the Army under the administrative supervision ofa Secretary ofthe Army. 

SECRETARY OF AIR FORCE 

For transfer of certain personal property and personal property functions, insofars they pertain to the Air Force, ~rf~:m~:ha~SleSc,~le~)aq~.~of 'he Army to tbe Secretary of the Air Force, seeSecretary of Defense Transfer Order No. 39 [B 2vv], 

~g 61 to 64. Repealed Oct. 31, 1951, ch. 654,. ~1(37)to(40), 65 Stat. 702 

HISTORICAL AND STATUTO Ry NOTES 

Section 61, Act Mar. 3, 1879, ch. 182, 8 I, 20 stat. 397, required archives, records and materials relating to the Indians of North America to be turned over from the Geographical and Geological Survey to the Smithsonian Institution for purposes ofcompletion of collection of information and its publication. 

Section 62, Act Aug. i, 1914, ch. 223, ~ i, 38 Stat. 661, authorized the Secretary of Commerce to transfer instruments of historical value of the Coast and Geodetic Survey [the National Ocean Surveyl to the Smithsonian Institution. See section 483 of Title 40, Public Buildings, Property, and Works. 

Section 63, ActJune 5, 1920, oh 235, ~ 

~, 41 Stat. 930, related to transfer, by the Secretary of Commerce, ofCoast and Geodetic Survey [the National Ocean Surveyl instruments of historical value, to educational institutions and 

museums. See sections 483 and 484 of Title 40. 

IRC0797 
Section 64, Act Mar. 3, 1883, ch. 143, 22 Stat. 629, related to distnbutionf specimens of National Museum and Bureau of Fisheries toschools and colleges. See sections 483 and 484 of Title 40. 

~ 65, Repealed. Pub. L. 89-674, ~ 3, Oct. 15, 1966, 80 Stat. 953 

Section, Act July 7, 1884, ch. 332, 23 Stat 2 14, required the Director of the National Museum to report annually to Congress on the progress of the Museum during the year and its present condition. See section 65a of this title. 

~ 65a. Director of the National Museum 

(9) Duties; programs and studies; annual report to Congress 

Institution shall--~h~'~~nDni~hC~:~_l_of the National Museumnder the direction of the Secretary of the Smithsonian 

(I) cooperate with museums and their professional organizations in a continuing study of museum problems and opportunities, both in the United States and abroad; (2) prepare and carry out 

programs bygrant, contract, or directly for training career employees in museum practices incooperationwith museums, their professional organizations, and institutions ~f~~~~~~ion ctherat the Smithsonian Institution or athe cooperating museum, organization, 

(3) prepare and distribute significant museum publications; (4) perform research on, and otherwise 

with contribute to~ the development of museum techniques, emphasis on museum conservationconservation; and the development of a national institute formuseum 

(5) cooperate with departments and agencies of the Government of the United States operating, assisting, or otherwise concerned with museums; and 

(6) report annually to the Congress onprogress in these activities. 

(b) Adthorization of appropriations. 

There are hereby authorized to be appropriated to the Smithsonian Institution fr the fiscal year 1981, the sum of$803,000, and for the fiscal year 1982, the sum of$1,000,000. 

(Pub. L. 89-674, ~ 2, Oct. 15, 1966, 80 Stat 953; Pub. L. 91-629,~8 1~ 2~ Dec. 31, 1970, 84 Stat. 1875; Pub. L. 93-349, ~~~jl.luly 12, 1474, 88Stat. 339; Pub. L94-336, July i, 1976, 90Stat. 795; Pub. L96-268,lune 13, 1980, 94 Stat. 

AMENDMENTS 

1980--Subsec. (b). Pub. L. 96-268 substituted 

1981 provisions authorizing appropritioosf $803,000 for fiscal year and %1,000,000 for fiscalyear 1982 for for' fiscal provisions which had authorized appropriations of$1,000,000 each year years 1978, 1979.~and 1980. 

1976--Subsec. (b). Pub. L. 94-336 substituted prov~slons authorizing the appropriation of$1,000,000 each year for fiscalyears 1978, 1979, and 1980, for provisions under which mere had been authorized to be appropri ated whatever sums as might be necessary to carry out the purposes of the section, with aproviso that no more than 8 1,000,00 could be appropriated annually through fiscal year 

out subsec. (a)(4) of this section. 1977. ofwhich no less than $200,000 was to be allocated and used to carry 

1974--Subsec. (a)(4). Pub. L. 93-34 5, 

ofa a i, inserted "~ with emphasis on museum conservationnd the development national insdtute formuseum conservation" following "museum techniques". Subsec. (b). Pub. L. 93-345, ~ 2, substituted provisions limiting to $1,000,000 the amount which may be appropriated annually through fiscal year 1977, with no 

out less than t200,000 annually to he allocated and used to carry the purposes of subsection (a)(4) of this section for provisions limiting to%1,000,000 the amount which could be appropriated annually through fiscal year 1974, ofwhich $300,000 annually bad to be allocated and used according to the formula of 331/3 per centum for purposes of subsec. (a)(2), 33 113 per centum for assistance to museums under section 954(9) of this title, and 33 1/3 per centum for assistance to 

museums under section 956(9) of this title. 

IRC0798 
1970--Subsec. (a)(2). Pub. L. 91-629, 8 2, inserted tbe provisions that programs beprepared and carried out by · 

grant, contract, or directly and which authorized the training of career employees inmuseum practices in cooperation 

with institutions of higher education, and substituted provisions which authorized training programs to be conducted 

either at the Smithsonian Institution, orat the cooperating museum, organization, or institutions, for provisions which 

authorized such programs to be conducted at the best locations. 

Subsec.(b). Pub. L. 91-629, BI,substituted provisions which authorized to be appropriated such sums as necessary 

to carry out the purposes ofthis section, with no more than 8 1.000,000 to be appropriated annually through fiscal year 

1974, of which S300.000, annually, to be allocated in the enumerated manner, for provisions which authorized to be 

appropriatedto carry out this section, not to exceed 5200.000 for the fiscal year ending June 30, 1968, S250,000 for the 

fiscalyears ending June 30, 1969, and June 30, 1970, and %300,000 for the fiscalyear ending lune 30, 1971.and in each 

subsequent fiscal year, only such sums as the Congress hereafter authorizes by law. 

SHORT TITLE 

Pub. L. 89-674, 8 I, provided: "Thathis Act [enacting this section and repealing section 65 of this title] may be 

cited as the 'National Museum Act of 1966'." 

~ 66, Repealed. June 311, 1949, ch, 288, title VI, ~ 6020)(19), 63 Stat. 400, eff, July 1, 1949, 

renumhered Sept. 5, 1950, ch. 849, ~ 6(9),(11), 64 Stat. 583 

Section, Act Mar. 3, 1915, ch. 75, g 1, 38 Stat. 839, related to exchangi of typewriters and adding machines. See 

section 48 1 of Title 40, Public Buildings, Property, and Works. 

~ 67, Right of repeal 

Congress may alter, amend, add to, or repeal any of the provisions of sections 4 1 to 46, 48, 50, 

51 to 53, and 54 to 57, of this title; but no contract or individual right made or acquired under such 

provisions shall be thereby be divested or impaired. 

(R. S. 8 5594.) 

CODIFICATION 

R.S. 8 5594 derived from Act Aug. 10, 1846, ch. 178, ~ 11,9 Stat 106. 

SECTION REFERRE~D TO IN OTHER SECTIONS 

This section is referred to in section 57 of this title. 

~ 68, Repealed Oct, 10, 19411, ch, 851, ~ 4, 54 Stat, 1111 

Section, Act Feb. 11, 1927, ch. 104, ~ i, 44 Stat. 1081, related to advertisements for proposals for purchases and 

services. See section 5 of.Title 41, Public Contracts. 

~ 69, Anthropological researches; cooperation of Institutioh with States, educational 

institutions, or scientific organizations 

The Secretary of the Smithsonian Institution ishereby authorized to cooperate with 

any State, educational institution, or scientific organization in the United States to continue independently or in cooperation anthropological researches among the American Indians and the natives 

of lands under thejurisdiction or protection of the United States and the excavation andpreservation 

of archaeological remains. 

(Apr. 10, 1928, ch. 335, ~ 1,45 Stat. 413;Aug. 22, 1949, ch. 494, 8 1,63 Stat. 623.) 

AMENDM BNTS 

1949--Act Aug. 22, 1949, substituted "to continue independently or in cooperation anthropological" for "for 

continuing ethnological" and inserted "and the natives of lands under thejurisdiction or protection of the United States". 

IRC0799 
SECTION REFERRED TO IN OTHER SECTIONS 

This section is referred to in section 70 of this title. 

~ 70. Authorization of appropriations; cooperative work 

There is authorized tobe appropriated, out of any money in the Treasury not otherwise appropriated, the sum of $20,000, which shall be available until expended for the purposes stated in section 69 of this title: Provided, That at such time as the Smithsonian Institution is satisfied that 

any State, educational institutio~ or scientific organization in any of the United States iprepared to contribute to such investigation and when, in its judgment such investigation shall appear meritorious, the Secretary of the Smithsonian Institution may directhat an amount from this sum equal to that contributed by such State, educational institution, or scientific organization, notto exceed $2,000, to be expended from such sum in any one State during any calendar year, be made available for cooperative investigation: PYovidedSurther. That all such cooperative work and division of the result thereof shall be under the direction of the Secretary of the Smithsonian Institution: Providedfurrher, That where lands are involved which are under the jurisdiction of the Bureau of Indian Affairs orthe National Park Service, cooperative work thereon shall be under such regulations and conditions as the Secretary of the Interior may provide. 

(Apr. 10, 1928, ch. 335, ~ 2, 45 Stat. 413.) 

IRC0800 
Statutory provisions for individual 

Sections 71-85, Smithsonian Bureaus are set forth in Title 20, United States Code, as follows: 

Subchapter II- National Galle~y ofArt 

Section 71. Designation ofsite. 

CIncluded in the."Historical and Statutory Notes" following this section are notes on: (i) Pub.L. 106-385, Oct. 27, 2060, 114 Stat. 1463, Renaming the National Museum of American Art as the Smithsonian American Art Museum; (ii) Pub.L. 98-523, Oct. 19, 1984, 98 Stat. 2433, General Post Office Building, Transfer to Smithsonian Institution for Use as Art Galleries; Relocation ofUnited States InternationalTrade Commission; (iii) Pub.L. 96- 441, ~~ I, 3, 4, Oct. 13, 1980 94 Stat. 1884, renaming the National Collection of Pine Arts 

as the National Museum of AmericanArt; and the Museum of History and Technology as the National Museum ofAmerican History; and (iv) Act Mar. 24, 1937, c. 50, 50 Stat. 51, 99 1 to 5, designatingthe then-xisting bureau ofthe Smithsonian institution I~nown as the national gallery ofart as the National Collection of Fine Arts.] 

71a. Additions; payment of construction costs from trust funds 

71b. Status of completed addition 

72. BoardofTrustees 

(a) Establishment 

(b) Method of selection; term of office 

73. Acceptance ofgift from ·A. W. Mellon 

74. Maintenance 

(a) Pledge of funds for upkeep; authorization ofappropriations (b) Acceptance of gifts and other property; investment offunds 

(c) Appointment and cornpensation ofofficers and employees (d) Review of actions of board 

74a. Permanent loan qffunds by Board ofT 

to Board rustees to Treasury, semiannual interest payments 

75. Authority and functions of the Board 

(a) Official seal; bylaws, rules, and regulations; quorum 

(b) Quality of works of art 

(c) Powers and obligations 

(d) Annual reports 

Subchopter III'National Portrait Gallery 

75a. Definitions 

75b. Establishment of National Portrait Callety; fUnctions 

75c. Creation of National Portrait 

75d. Gallery Commission; members; functions, powers Acceptance of gifts; title to property 

75e. Powers of Board 

75f. Director; appointment and compensation; officers and employees 75g. Authorization of appropriations 

Subchapler IV- Smithsonian Calleiy ofArr 

76, 76a. Omitted 

76b. Functions of the Regents 

TRC0801 
(a) Solicitation of construction fUnds 

@) Construction ofthe building 

(c) Name of the building; supervision ad control 

76c. Policy to foster appreciation of past and contemporary at 

(a) Solicitation ofprivate donations 

(b) Solicitation of funds to acquire and sell works ofart; employ artists, award scholarships, etc. 

76d. Donations of works of art from Governmentagencies 

76e. Housing or exhibiting objects of art possessed by Smithsonian Institution 76f. Appointrnent, compensation,nduties ofDirector ofCallery; personnel 76g. Authorization ofappropriations 

Subchop~er V- John F. Kennedy Centerfor ~he P,~f,,ing Arfs 

76h. BoardofTrustees 

(a) Establishment 

(1) In general 

(2) Membership 

(b) General trustees 

(c) Advisory Committee on the Arts 

76i. John F. Kennedy Center for the Performing Arts 

(a) In general 

(b) Parking garage additions and site improvements 

(1) In general 

(Z) Availability 

(3) Limitation on use of appropriated funds 

76j.· Duties of Board 

(a) qrograms, activities, and goals 

(b) Restriction on additional memorials 

76k. Powers ofBoard 

(a) Solicitation ad acceptance of gifts 

(b) Appointment of officers and employees 

(c) Transfer of property 

(d) Transfer of personnel 

(e) Review of Board actions 

(f) Collectitre bargaining 

(g) Pedestrian and vehicular access 

7~61. Official seat, Board vacancies andquorum, trustee powers and obligations, 

reports, support services, and review and audit 

(a) Adoption of seal; Board fUnction notwithstanding vacancies; quorum (b) Powers and obligations of Board in respect of trust fUnds 

(c) Annual report of operations and finances 

(d) Inspector General 

(e) Property and personnel compensation 

76m. Repealed 

76n. Repealed 

76o. Borrowing authority to finance parking facilities 

(a) Revenue bonds 

(b) Interest 

(c) Kennedy Center Revenue Bond Sinking Fund 

IRC0802 
76p. Acceptance and disposition ofgifts to the United States cc~ntributed in honor or memory of the late President John F. Kennedy 

76q. environsSole national memorial to the late John F. Kennedy, within the city of Washington and 

76q-i John F. Kennedy Center Plaza 

(a) Definitions 

(b) Responsibility of the- Secretary 

(c) Responsibilities ofthe Board 

(d) Responsibilities of the District of Columbia 

(e) Ownership 

(f) National highway boundaries 

76r. Authorization ofappropriations 

(a) Maintenance, repair, and security 

(b) Capital projects 

(c) John F. Kennedy Center Plaza 

(d) Limitation on use of fUnds 

76s. Definitions 

Subchapter yl-Joseph H. Hiushhorn Museum and Sculpture Garden 

76aa. Site for museum and sculpture garden 

(a) Appropriation ad availability 

(b) Powers and duties of Board of Regents 

76bb. JosephH. HirshhomMusenm andScu~ptureGarden 

(a) Designation; administration by Board of Regents; cooperation of Board with 

Secretary ofInterior 

(b) Federal fUnds 

(c) Uses 

76cc. BoardofTrustees 

(a) Establishment; powersand duties 

(b) Membership; ·appointment; terms of office; vacancies 

76dd. dD~~pr, adrmnlstralor, curators, and other personnel; appointment, compensation, ad 

76ee. Authorization ofappropriations 

Subchaptep VII- NationaC Air and Space Museum 

77. National Air and Space Museum 

(a) Establishment; board; administration; reimbursement of expenses (b) Appointment and compensation of head of museum 

77a. Functions of museum 

77b. Repealed 

77c. Museum board 

(a) Seal; regulations; vacancies 

(b) Annual report 

77d. Transfer or loan of aeronautical or space flight equipment to museum 

Subchapter VIII- Paleontological Investigations 

78. Cooperation of Smithsonian Institution with State institutions for continuing paleontological investigations 

IRC0803 
78a. Authorization of appropriations; availability of funds; limit on use of funds during fiscal 

year; supervision; rules and regulations 

Subchapter LX- Canal Zone Biological Area 

79. Barro Colorado Island in Gatun Lake to be setaside 

79a. Preservation of natural features for scientific observation and investigation 

79b. Functions of Smithsonian Institution 

79c. Resident manager; powers and duties; compensation 

79d. Deposit of receipts into Treasury; disbursements 

79e. Authorization of appropriations 

Subchapter X- National Armed Forces Museum Adviso~y Board 

80. National Armed Forces Museum Advisory Board 

(a)Establishment; functions 

(b) Membership 

~c) Term ofoffice; vacancies 

(d) Quorum 

(e) Compensation, travel, and other expenses 

(f) Biennial organizations; rules and regulations 

80a.. Display of contributions of Armed Forces 

(a) Study center; historical collections 

(b) National Air and Space Museum provisions unaffected 

80b. Selectionofsite 

(a) Authorization of Board of Regents; submission of recommendations toCongress 

(b) Public exhibits and study collections; exhibits of military and naval operations 

80c. Transfer or loan ofobjects, equipment and records to Smithsonian Institution. 

80d. Authorization of appropriations 

SubchapterXT- Woodrow Wilson International Centerfor Scholars 

80e. Congressional declaration ofpolicy 

80f. Woodrow Wilson International Center for Scholars; Board of Trustees of the Center 

(a) Establishment 

(b) Composition of Board 

(c) Appointment of alternate members by members of Board 

(d) Terms of office; vacancies; reappointment 

(e) Chairman and Vice Chairman of Board 

80g. Powers and duties of Board 

(a) Appointment ofscholars; gifts, bequests, etc.; grants; location of Center; physical 

facilities; compensation ofofficers; plans and specifications for Center 

(b) Relocation assistance and programs 

808-1. Hubert H. Humphrey Fellowship in Social and Political Thought 

(a) Establishment inCenter 

(b) Selection of Humphrey Fellow; term; compensation 

(c) Functions of Humphrey Fellow; publication and dissemination by Board of Memorial 

Lectures 

(d) Hubert H. Humphrey Fellowship Trust Fund; establishment, composition, investments, 

etc. 

(e) Payments to Board from investments for implementation of Fellowship purposes 

IRC0804 
(f) Authorization of appropriations 

80h. Administration; quorum 

80i. Authorization of appropriations; limitations 

80j. Auditofaccounh 

Subch~pter XII- Museum of African Art 

80k. Donation and transfer of lands and improvements, works of art, and other assets and 

property of Museum of African Art to Smithsonian Institution 

801. Establishment of Museum of Afiican Art; fUnctions 

80m. PowersofBoard 

(a) Acquisition, retention, and dispositionfproperty; research and education programs 

(b) Recommendations of Commission 

80n. Commission for the Museum of African Art 

(a) Establishment; duties 

(b) Membership 

(c) Terms ofoffice 

(d) Quorum; vacancies 

(e) Travel, subsistence, and other expenses 

(f) Selection of officers; bylaws 

800. Director, officers, and employees; appointment, compensation, and duties 

80p. Funding 

(a) Federal funds for Museum 

(b) Authorization ofappropriations 

Subchapter XCLI- National Museum of the American Indian 

80q. Findings 

80q-1. National Museum of the American Indian 

(a) Establishment 

(b) Purposes 

80q-2. Authority of the Board of Regents to enter into an agreement providing for transfer of 

Heye Foundation assets to the Smithsonian Institution 

80q-3. Board of Trustees of the National Museum of the American Indian 

(a) In general 

(b) General duties and powers 

(c) Sole authority 

(d) Authority 

(e) Initial appointments to the Board of Trustees 

(f) Subsequent appointments to the Board of Trustees 

(g) Quorum 

(h) Expenses 

80q-4. Director and staff of the National Museum 

(a) In general 

(b) Offer of employment to Heye Foundation employees 

(c) Applicability of certain civil service laws 

80q-5. Museum facilities 

(a) National Museum Mall facility 

(b) National Museum Heye Center facility 

(c) Museum Support Center facility 

(d) Minimum square footage 

IRC0805 
(e) Authority to contract with GSA 

(f) Limitation on obligation of Federal fUnds 

80q-6. Custom House office space and auditorium 

(a) Repairs and alterations 

(b) Authorization ofappropriation 

80q-7. Audubon Terrace 

(a) Ingeneral 

(b) Determination of charges 

(c) Definition 

80q-8. Board oflegents functions with respect to certain agreements and programs 

(a) Priority to be given to Indian organizations with respect to certain agreements 

Cb) Indian programs 

(c) Indian Museum Management Fellowships 

(d) Authorization ofappropriations 

80q-9. Inventory identification, and return of Indian human remains and Indian funerary objects 

in the possession of the Smithsonian Institution 

(a) Inventory and identification 

(b) Notice in case of identification of tribal origin 

~c) Return of Indian human remains and associated Indian Eunerary objects 

fd) Return of Indian funerary objects not associated with Indian human remains 

(e) Interpretation 

(f) Authorization of appropriations 

s0q-9a Summary and Repatriation of Unassociated Funerary Objects, Sacred Objects, and 

Cultural Patrimony 

(a) Summary 

(b) Repatriation 

(c) Standard of Repatriation 

(d) Museum Obligation 

(e) Statutory Construction 

(f) Native Hawaiian Organization. Defined 

80q-10. ·Special committee toreview the inventory, identification, and return of 

Indian human remains and Indian funerary objects 

(a) Establishment; duties 

@) Membership 

(c) Access 

(d) Pay and expenses of members 

'(e) Rules and administrative support 

(f) Report and termination 

(8) Nonapplicability ofthe Federal Advisory Committee Act 

01) Authorization of appropriations 

80q-11. Inventory, identification, and return of Native Hawaiian human remains and Native 

Hawaiian funerary objects in the possession of the Smithsonian Institution 

(a) In general 

(b) Definitions 

80q-12. Grants by the Secretary of the Interior to assist Indian tribes with respect to agreements 

for the return of Indian human remains and Indian funerary objects 

(a) In general 

(b) Authorization ofappropriations 

80q-13. Grants by the Secretary of the Interior to assist Indian organizations with respect to 

renovation and repair of museum facilities and exhibit facilities 

(a) Grants 

IRC0806 
(0) Indian organization contribution 

(6) Tribal Museum Endowment Fund 

(d) Annual report 

80q-14. Definitions 

80q-15. Authorization ofappropriations 

(a) Funding 

(b) Period of availability 

Chapter 4. National Zoological Park 

----~--~-- 

81. Administration by Regents of Smithsonian Institution 

82. Aid in acquisition of collections 

83. Omitted 

84. Plans for buildings and bridges 

85. Concessions 

(a) Authorization; use of proceeds for research and educational work 

(b) Voluntary services 

IRC0807 
EXHIBIT 29 
~i."---;- :-;-~i~--,,~i~,~f,,,~? ;,;,~-~i ~,, ·~a;ins-i' .' . ~ ;.1. I .._._.....~rse! 

From: James M. Hobbins 

To: Maroni, Alice 

Date: Tue, Dec 18, 2003 3:18 PM 

Subject: Re~ Executive Compensatkn-We need mw mom Ulk\g 

Alice, 

I'm quL sure I wrote something far the record on the Executive Committee's action last year at about this 

time I1I do some digging and let you know what I can find. 

WrVh best wishes. 

Jim 

>,> A#ce Maronl ~2116/03 ~2:40PM s,, 

Sheila and 3imI have copied you on a rang e~ma# from the Institution's accountant in OSP (Fred Helm) who shepards 

through the A133 audit ton grants and contrads) for hw Insdtubon. He is the herowho b trying towin the 

day for us on the Seaetarl)s compensation, which you will recall has been questioned by the ~udemal 

auditors. 

in Ms a-mail, Fred recounts what we have provkled the audbrs. He notes at the end of his e-maU that he 

still needs evidence that the Regents actuany reviewed and approved the Secretaryrs compensation for 

FY2002. What wrft8en record is therethat we could shoe the audkom to make that point? Minutes3 

Notes frwn the Executive Committee meetings') 

Frecrs note reads, "Nothing we reviewed Indicated whether the Board of Regents considered and 

appraved tha SecreEeryrs compensabion level for fiscal year 2002 (which DCAA has questioned) orwhat 

compensation elements were included or what benchmark may have been oonsidered as part of the 

approval prccess. If a record of such deabbeetions exists, It would be appropriate CP include that in the 

Iknited access folder this office is holding." Do you know of any wtman matetlal that we could 

provide Fred fat Ms negotlstlons? 

Additionally, ~rad repeats my offer to involve someone at a more senior level to participate in this 

negotiation-someone who could sununarits the process for the auditors-if needed. If we end up going 

thd way, who should be that person3 

Thanks for yam help with this. 

-Alice 

CC: B~ke. Shella 

IRC12668 
EXHIBIT 30 
REPORT OF THE AUDIT AND REVIEW COMMITTEE'S REVIEW OF THE 

SECRETARY'S EXPENSES 

In June 2006 the Secretary and the Audit and Review Committee asked the Chief 

Financial Officer, with help from an independent auditor, to undertake a six-year review 

of the Secretary's expenses during fiscal years 2000 through 2005 and determine if travel 

and other reimbursable expenditures incurred by the Secretary were reasonable in the 

context of a business expense related to the Smithsonian's mission. By August 2006, the 

Institution entered into a contract with Cotton & Company to conduct this review, and the 

Chief Financial Officer determined that the Smithsonian's Inspector General should serve 

as the Institution's technical representative with respect to that contract. 

According to the Cotton & Company December 22, 2006 report and the Inspector 

General's January 16, 2007 letter transmitting the report to the Audit and Review 

Committee, the six-year review of 1,040 transactions from 2000 through 2005 disclosed 

"no evidence of fraud or abuse associated with the expense transactions reviewed." 

Moreover, the Inspector General expressly found "no evidence that the expenses 

reviewed were solely for personal benefit." The Inspector General further noted that 96% 

of these transactions were fully documented. Of the 3% found to be inadequately 

supported, most of those transactions were deemed to be inadequately supported because 

only partial documentation, not the original invoices or receipts, could be found. These 

transactions also occurred primarily in 2000 and 2001, and the Inspector General noted 

that gaps in records could be attributed to the lapse oftime, relocation of the Office of the 

Comptroller, and staffturnover. The remaining transactions, which represented only 1% 

(worth $7,108.89) of all reviewed expenses, were deemed to be unsupported. The Office 

of the Secretary and the Chief Financial Officer provided the Audit and Review 

Committee with supplemental documentation establishing the legitimate business 

purposes for the 4% of transactions deemed in the report to have been unsupported or 

improperly supported. 

The Inspector General specifically questioned two transactions: (1) a $14,509.40 roundtrip charter flight in May 2001, when the Secretary attended the opening of an affiliate 

museum and, at the request of one of the Institution' s largest donors, a function held by a 

major potential donor and then needed to return to Washington for a Board of Regents 

meeting; and (2) a $5,764 reimbursement for the three-day Cambodia portion of the 

Smithsonian National Board's 2004 China/Cambodia trip for the Secretary's wife. She 

agreed to represent him and the Smithsonian for the last portion of the trip so he could 

return to commitments in Washington. After reviewing the relevant supplemental 

documentation for each of these transactions, as well as the articulated business purpose 

for each expense, the Audit and Review Committee finds that these transactions were 

consistent with the Smithsonian's mission and would have been authorized by the 

Regents as proper business expenses if presented to the Regents for advance approval. 

Similarly, the Committee recognized that a $4,811.50 cash award in June 2000 for a 

long-service employee, while technically unauthorized, was justified in the same manner 

and would have met with the Regents' approval. 

IRC8984 
The Inspector General noted that approximately 200 transactions (representing 8% of the 

cost of all transactions) for gifts and meals for donors and staff were not authorized in 

some years due to inconsistent policy guidance. According to the Inspector General, 

most of these transactions were undertaken for legitimate business purposes, none were 

for the Secretary's personal benefit, and all would have been permissible if the policy had 

been clear. We agree with the conclusion of the Inspector General with respect to these 

expenses, and we understand that such policies are already being clarified. 

Finally, the Inspector General recommended that "the Board of Regents consider 

amending the Secretary's employment agreement to specify what level of travel service 

the Secretary is entitled to.., and to make the [Secretary's] housing allowance a single 

yearly payment with no documentation of expenses or minimum amount required to 

qualify for the allowance...." In the Audit and Review Committee's opinion, making 

these terms unambiguous through simple amendments will clarify the intent of the 

agreement and make the accounting for his compensation more straightforward. The 

Smithsonian's General Counsel is working on proposed amendments. 

At its meeting on January 22, 2007, the Audit and Review Committee met with the 

Acting Inspector General in executive- session to discuss her observations. The 

Committee also examined the supporting documentation and found both that the 

documentation was adequate to support the expenses and that the expenses were incurred 

for demonstrable business purposes, no personal benefit for the Secretary, and in 

furtherance of the mission of the Institution. 

The Audit and Review Committee respectfully suggests the following motion: 

VOTED that the Board of Regents acknowledges the Inspector General's 

diligent management of the review of the Secretary's expenses and accepts 

the Audit and Review Committee's conclusions that the expenses were 

incurred for demonstrable business purposes in furtherance of the mission 

of the Institution, the Secretary received no personal gain from any 

transaction, and there was no evidence of fraud or abuse in any 

transactions in this review. The Regents authorize the Chairman of the 

Executive Committee to execute clarifying amendments to the Secretary's 

employment agreement. 

IRC89s5 
EXHIBIT 3 11 
LAWRENCE M. SMALL - OUTSIDE ORGANIZATIONS AND COMPENSATION 2000-2007 

Marriott 2000 $43,1 50 1,371 $45,243 2,126 $26,979 $115,372 

2001 $50,400 3.598 $149,533 1,932 $0 $199,933 

2002 $54,075 $54,075 

2003 $62,300 228 $9,402 $71,702 

2004 $98,800 1.714 $80,588 2,986 $0 $179,388 

2005 $102,100 1 $77,637 3,640 $0 $179,737 

2006 $148,600 1 48 $81,030 696 $0 $229,630 

2007 2,300 $106,862 2,768 $0 $106,862 

TOTAL $559,425 11,698 $550,295 16,148 $26,979 $1,136,699 

CHUBB Corp. 2000 1,346 $83,820 $83,820 

2001 1,091 $80,758 000 $0 $80,758 

2002 1.90 $134,859 7,634 $0 $134,859 

2003 1.489 $82,743 108,000 $946,840 $1.029.583 

2004 10,585 $730,271 $730 1 

2005 930 $233,520 $233.520 

2006 $83,500 4 4,67 $258,838 $342,338 

2007 39,358 $1,364,677 49,266 $804,409 $2,169,086 

TOTAL $83,500 63,385 $2,969,486 $21 $1,751,249 $4,804,235 

TOTALS $3,519,781 $1,778,228 $5,940,934 

1. Cash compensation records from documents provided to Mr. Small by Maniott and CHUBB Corp., except where otherwise noted. 

2. Stock shares and values from registered Form 4 submissions to the SEC. When no value was given for stock option granted on Form 4, opening price of st

grant of stock was used to calculate value of shares. 

3. Number of Work Days = Total Hours Workedl 10 Hours in Work Day. Mr. Small's Calendars report data from 9/2000 forward. For prior 2000 meetings, orga

assuming a 2 hour time commitment per meeting. 

4. Figure from 3/23/07 CHUBB Corp. proxy statement registered with the SEC. 

5. 2007 hours reported were recorded from 112007 through 4/2007 
EXHIBIT 32 
LAWRENCE M. SMALL - OUT OF OFFICE 8/2000-9/2006 

2000 

8/1-9/1 Out 4 

12/23-12/29 SLC 4 

12/31 St. Thomas 

28 

1!1-1!6- St. Thomas 4 

1/27-1/31 St. Thomas 3 

3/23-4/9 St. Thomas 6 

4/11-4/15 Divi 3 

5/25-5/28 Brown Commencement 0 

7/11-7/250ut 11 

8/1-8/31 Vacation 23 

10/6-10/8 0 

12/21-12/28 SLC 5 

12/30-12/31 St. Thomas 1 

56 

2002 

1/1-1/7 St. Thomas 3 

1/24-1/31 St. Thomas 6 

2/20-2/25 SLC 4 

3/17-3/24 St. Thomas 5 

4/9-4/14 Divi 4 

8/1-8/31 Vacation 22 

11/29 Out 0 

12/11-12/16 Chile 4 

-12/21-12/31 St. Thomas 6 

54 

2003 

1/1 St. Thomas 0 

2/2-2/9 St. Maarten 5 

2/28 Denver 1 

3/22-3/30 St. Thomas 5 

4/8-4/13trip &C 4 

6/30 Chi 1 

7/25-8/4 Seabourn Spirit 7 

8/16-9/5 Vacation 14 

9/1 2-9/15 2 

9/18-9/21 Annapolis 0 

11/19-11/30 Hawaii 6 

12!18-12/31 Belize 

54 

1!16-1!20 

19-2/29 St. Thomas 7 

3/25-3/31 St. Thomas 5 

16-4/20 Divi 3 

5/4-5/11 Bahamas 6 

8/6-9/1 Vacation 19 

12!17-1 2/26 On BG 6 

12/27-12/31 Miami 5 

53 

1 of 2 
LAWRENCE M. SMALL - OUT OF OFFICE: 8/2000-9/2006 

2005 

1/1 Miami 3 

1/14-1/21 Milan 5 

2/11-2114 Brekenridge 2 

2/19-2/27 St. Thomas 4 

3/18-3/27 St. Thomas 6 

4/8-4/12 Divina 13 

7/18-8/3 Vacation 13 

8/12-8/14 Denver 1 

8/23-914 Vacation 9 

12/15-12/24 St. Thomas 7 

12/26-12/31 Cavman 15 

55 

2006 

1/1-112 Cayman 1 

1/19-1/26 Vacation 6 

2/1 8-2/26 Vacation 4 

3/18-3/26 Vacation 5 

4/19-4/23 Divina 13 

8/4-9/4 Vacation 20 

39 

July 2006, records incomplete 

TOTAL Work Days on Vacation 339 

TOTAL Work Days Missed for 

Non-SI Obligations 64 

TOTAL WORK DAYS OUT1 403 

1. Out of office on vacation or for non-SI obligations, excluding weekends and federal holidays 

2 of 2 
EXHIBIT 33 
SHEILA P. BURKE - OUTSIDE ORGANIZATIONS AND COMPENSATION 2000-2007 

Kaiser Family 

Foundation 2000 $10,750 $10,750 

2001 $21,250 $21 

2002 $28,000 $28,000 

2003 000 000 

2004 000 $22,000 

2005 $29.250 $29 

2006 $33.750 $33.750 

2007 

TAL $173,000 $173,000 

CHUBB 2000 $71,750 265 $17,225 4,000 $0 $88,975 

2001 $75.500 265 $17.066 4.000 $0 $92,566 

2002 $119 265 1 4.000 $0 $139.841 

2003 $90 4,000 480 980 

2004 $86,251 2,267 $156,844 72.000 $388,960 $632,055 

2005 $58.788 6.151 $593,045 000 $5.480 $657.313 

2006 $108.500 6.541 $407 16 $516.016 

2007 11,629 $708,845 $708,845 

IAL $610,789 27,383 $1,920,882 11 $2,931,591 

1. Cash compensation records from documents provided to Ms. Burke by Kaiser and CHUBB Corp. 

2. Stock shares and values from registered Form 4 submissions to the SEC. When no value was given on Fon 4, opening price of stock on next business day after grant 

calculate value of shares. 

3. Number of Work Days = Total Hours Workedl 10 Hours in Work Day. Ms. Burke's calendars report data From 9/2000 forward. For prior 2000 meetings, organization rec

assuming a 2 hour time commitment per meeting. 

4. 2007 Hours reported were recorded from 1/2007 to 4/2007 
SHEILA P. BURKE - OUTSIDE ORGANIZATIONS AND COMPENSATION 2000-2007 

ABIM Foundation 2000 $10,000 $10,000 

2001 $11.750 $11,750 

2002 $14,000 $14,000 

2003 $1 $13.250 

2004 $14.500 $14.500 

2005 $7,200 $7.200 

2006 $0 $0 

TOTAL $70,700 $70,700 

Community 

Health 2000 $0 $0 

2001 $0 $0 

2002 $0 $0 

2003 $10,750 $10,750 

AL $10,750 $10,750 

Inc. 2000 $39,600 3,2005 $54,525 $94,125 

2001 $40.500 1,700 $183, $223,930 

otalpotentialgain 

2002 $37 17.200 5 $31 stock options $353.426 

2003 $49,750 5 $11 as of 1/08/2007 = $160.336 

2004 $47,000 1.615 $127 $5,244,4568 $174,237 

2005 1,890 $254,898 $331.098 

2006 $75.847 3,340 $243.386 $322.573 

2007 $249,998 $249,998 

TOTAL $366,397 32,145 $ $1,909,723 

$5,244, $7,154,179 

1. Cash compensation records from documents provided to Ms. Burke by ABIM, CHS and WellPoint. 

2. Stock shares and values from registered Form 4 submissions to the SEC. When no value was given on Form 4, opening pn'ce of stock on next business day after grant 

calculate value of shares. 

3. WellPoint Totals Received per Year do not reflect stock options granted because insufficient infonation available to break down option grants by year. 

4. Number of Work Days = Total Hours Workedl 10 Hours in Work Day. Ms. Burke's calendars report data from 912000 fo~ward. For pn'or 2000 meetings, organization rec

assuming a 2 hour time commitment per meeting. 

5. No infonation on stock-based compensation available from Form 4. Stock-based compensation From documents provided to Ms. Burke by WellPoint. 

6. From options and awards summary provided to Ms. Burke by WellPoint. The total value of Ms. Burke's stock option awards may be understated, in that any options exc

January 8,2007 are not reflected in this total. 

7. 2007 Hours reported were recorded from 1/2007 to 4/2007 
SHEILA P. BURKE - OUTSIDE ORGANIZATIONS AND COMPENSATION 2000-2007 

Marymount 

1992-2005 $ol 1 I I I $0 

University of San 

Francisco" 1997-2006 $ol I I I I 80 

Center for 

HealthCare 

1998-2004 $ol I I I I 80 

Kaiser 

Commission on 

Medicaid and the 

Uninsured7 2000-2006 $0) I I I I $ol 

Harvard University 

Kennedy School of 

Government8 2000-2006 Travel onlyl I I I I $ol 

Medicare Payment 

Advisory 

Committees 2000-2006 Per Diem II I I I $0 

Potomac School'" 12001-2006 / $ol I I I I $0 

Healthll I I $ol I I I I $ol 

Robert Wood 

Johnson Health 

Policy Fellowship 

Board'2 2002-2006 $0) I I I I $ol 

National Academy 

of Social Insurance 

Long Tern Care Study 

Panell3 2003-2005 $ol I i I I $oi 

Georgetown 

University Public 

institute" 2004-2006 $ol I I I I $ol 

Institute of 

Medicine Panel on 

Drug Safetyls 2005-2006 $ol i I I I $ol 

20

TOTALS $1,231,636 $3,460,868 $5,644,3761 $10,340,220 4

1. Cash compensation records from documents provided to Ms. Burke by organizations. 

2. Number of Work Days = Total Hours Workedl 10 Hours in Work Day. Ms. Burke's calendars report data from 9/2000 forward. For prior 2000 meetings, organization rec

assuming a 2 hour time commitment per meeting. 

3. SPB not on Board of organization past 2006, but Total Hours out of office include hours through 4/2007. 

4. Reporting period 1012000-12/2005 10. Reporting period 1/2001- 4/2007 

5. Reporting period 9/2000- 12/2006 11. Reporting period 12/01- 12/2006 

6. Reporting period 1/2001- 12/2004 12. Reporting period 1212000- 4/2007 

7. Reporting period 9/2000- 4/2007 13. Reporting period 1/2001- 12/2005 

8. Reporting period 10/2000- 4/2007 14. Reporting period 1/2002- 12/2006 

9. Reporting period 6/2001-4/2007 15. Reporting period 9/2000; 6/2005- 12/2006 
EXHIBIT 34 
SHEILA P. BURKE - OUT OF OFFICE 9/2000-3/2007 

;D 

2000 

9/1-9/3 Vacation 1 

2001 

3/19-3/23 Vacation 5 

8/13-9/3 Vacation 16 

11/20-11/24 Vacation 2 

23 

2002 

8/9-8/25 Vacation 11 

11/26-11/30 Vacation 2 

12/23-1 2/31 Vacation 6 

19 

2003 

1/1-1/2 Vacation 1 

8/8-9/2 TNo calendar entries 

11/25-11/29 Vacation 2 

12/22-12/30 Vacation 7 

10 

2004 

8/6-8/31 Vacation 18 

11/23-11/27 Vacation 2 

12123-12/31 Vacation 7 

27 

2005 

6/16-6/22 Vacation 5 

8/11-8/28 Vacation 12 

12/21-12/31 Vacation 8 

25 

2006 

1/1-1/2 Vacation 1 

3/18-3/23 Vacation 4 

6/22-7/4 Vacation 8 

8/9-8/27 [Calendar entries 

incomplete- appears to be on 

Vacation at least 8/15-8/233 7 

12/23-12/31 Vacation 4 

24 

2007 

1/1-1/2 Vacation 1 

TOTAL Work Days on Vacation 130 

TOTAL Work Days Missed for NonSI Obligations 416 

TOTAL WORK DAYS OUT1 546 

i. Out of office on vacation or for non-SI obligations, excluding weekends and federal holidays 

1 of 1 
EXI-3[IBIT 35 
ARNOLD 6r rORTER LLP James P.Joseph 

JamesJoseph@aporter.com 

202.942.5355 

202.942.5999 Fax 

202.251.7319 Cell 

555 Twelfth Street, NW 

Washington, DC 20004-1206 

June 7, 2007 

William J. Kilberg, Esq. 

Gibson, Dunn & Crutcher LLP 

1050 Connecticut Avenue, N.W. 

~Washington, D.C. 20036-5306 

Re: Independent Review Committee Report 

Dear Mr. Kilberg: 

Thank you for your letter from earlier today. Please be assured that the 

Smithsonian Institution Independent Review Committee (the "Committee") has 

considered and taken into account the points raised in your letters. The Committee is 

confident that it has presented the information regarding Ms. Burke accurately and f~ir!~·. 

As indicated in Charles Bowsher's letter to you yesterday, the Committee made 

adjustments to our preliminary calculations after we sent you the draft summary last 

week, and we have made additional changes in light of your letters. 

Sincerely, 

James P. laseph:i~-~ 

cc: Mark E. Matthews, Esq. 
GIBSO~P~, DUNN SrCRUTCFIER]ILP 

LAWYERS 

n REGISTERED LIMLTED LIABILITY PARTNERSHIP 

INCLUDING PROFESSIONAL CORPORATIONS 

1050 Connecticut Avenue, N.W. Washington, D.C. 20036-5306 

(202) 955-8500 

www.gibsondunn.com 

WKilbel·gOgibsondunl~.com 

June 7, 2007 

VIA ELECTRONIC MAIL, TO COUNSEL AND OVERNIGHT MAIL 

Direct Dial Client No 

(202) 955-8573 C 12393-00001 

Fax No. 

(202) 530-9559 

Charles A. Bowsher 

4503 Boxwood Road 

Bethesda, MD 

Re: lizdependent Review Committee Repovt 

Dear Mr. Bowsher: 

Thank you for your letter of June 6, 2007, responding to my letter of June 4th to James P. 

Joseph, of Amold & Porter LLP, counsel to the Independent Review Committee ("Committee"), 

of which you are Chairman. In that letter, I set out certain serious concerns regarding what the 

Committee intended to say in its report to the Smithsonian's Board of Regents about Ms. Sheila 

P. Burke's outside activities. I was troubled that without putting the matter in proper context, it 

would be grossly unfair to use Ms. Burke's outside activities as a basis for any change in the 

current policy that does not prohibit Smithsonian executives from giving speeches to outside 

groups, serving on the boards of directors of outside organizations, or teaching at academic 

institutions. 

In that: regard, I thought it very important that the Committee's report make plain that 

Ms. Burke accepted employment with the Smithsonian on the express understanding that she 

could engage in various outside activities, including teaching at Harvard University and serving 

on Boards of profit and non-profit organizations. I also emphasized that it is essential that the 

report make clear that Ms. Burke disclosed her outside activities and the compensation she 

received in her annual Smithsonian financial disclosure statement, and that she was never asked 

to curtail those activities. 

My June 4th letter also questioned the relevance of trying to calculate the time Ms. Burke 

spent on outside activities. I pointed out that Ms. Burke's value to the Smithsonian was not 

measured by "billabte hours", but whether she carried out her responsibilities effectively. I think 

it indisputable that Ms. Burke's tenure has, by any reasonable measure, been a success, as 

recognized when the Regents awarded her the Secretary's Gold Medal for Exceptional Service. 

LOSANGELES NEWYORK WASHINCTON.D.C. SAN F~NCISCO PALOALTO 

LONDON PARIS MUNICH RRUSSELS ORANGECOUNTY CENTURYCITY DALLAS DENVER 
GIBSON, DU~T~ G~CRUTCHER LLLP 

Charles A. Bowsher 

June 7, 2007 

Page 2 

Finally, I pointed out that, although strongly disagreeing with how the Committee was 

apparently assessing her tenure through a "Work Days Out" calculation Ms. Burke believed that 

the calculation should at least be accurate. In that regard, I noted that the Committee had 

assigned some 540 hours of outside activity to the Kaiser Commission on Medicaid and the 

Uninsured, while the Commission's records showed no more than a maximum possible 115 

hours. I also pointed out the " Total Work Days Out" calculated included some federal holidays. 

And I noted that the Committee charts also included time before and after Smithsonian's regular 

work day. 

While your letter advises that the Committee took into account all of the points in my 

June 4th letter, you only responded to my complaints that the "Work Day Out" calculation 

overstates the time Ms. Burke spent away from the Smithsonian and is otherwise inaccurate. I 

hope that your focus on that issue means that the Committee's report will prominently set out that 

Ms. Burke's outside activities were permitted and fully disclosed, and that no one has suggested 

that her performance has suffered as a result, that she was unavailable at any time, or that her 

commitment to the Smithsonian's business was ever less than total. 

With respect to my various objections to the "Work Days Out" calculation, your defense 

of each is not well-taken. First, you maintain that the almost 540 hours of outside activities that 

the Committee's charts include in its "Work Days Out" calculation includes her service on both 

the Kaiser Foundation and the Kaiser Commission boards. However, the Committee's charts 

show that 539.75 hours is counted for her service for the Foundation and then again for the 

Commission. (X have circled the relevant entries on the attached Commission charts.) 

Second, you also state that the Committee excluded weekend and federal holidays from 

its calculation. Again, that is mistaken. The Committee's chart entitled "SHEILA BURKE - 

Vacation Time Taken 9/2000-3/2007", includes for 2001 through 2004 the Thanksgiving Day 

holiday and the following Friday - days on which her office was closed. 

Third, although you do not dispute that the Smithsonian's normal work day is from 9:00 

a.m. to 5:30 p.m., you defend the 10 hour work day (8:00 a.m. to 6:00 p.m.) that the Committee 

used as a baseline to calculate "Work Days Out" because Ms. Burke on various occasions started 

work earlier and worked later. It is, however, quite pen~erse to stigmatize Ms. Burke as "not 

working" for the Smithsonian before or after the normal work day when you do not give her any 

credit for working for the Smithsonian on weekends and during vacations, not to mention before 

and after the normal Smithsonian work day. Indeed, you include 10 hours for each vacation day 

in the "Work Days Out" calculation even though Ms. Burke told the Committee during her May 

3rd interview that she worked on Smithsonian business for a substantial part of each day she was 

on vacation. 

Finally, although seeming to acknowledge their inaccuracy, you apparently defend the 

use ofMs. Burke's calendars as the basis of the "Work Days Out" calculation on the ground that 
C;IBSON, DU~NN GrCRUTCHER LL.P 

Charles A. Bowsher 

June 7, 2007 

Page 3 

the calendars are what the Committee has and that it has attempted to verify the information 

"whenever possible." But, while we provided third party documentation where possible, even 

those documents do not reflect actual time, and in most instances such records are not available. 

In these circumstances, you cannot truly maintain that the "Work Days Out" calculation 

that you apparently intend to report to the Regents is accurate. As currently calculated, it 

overstates the total by at least 62 days -- based solely on the double counting of 540 hours or 54 

days with respect to the Kaiser Foundation and Commission, and the eight holiday days that are 

included in the total. (It would appear that there are other Smithsonian holidays counted as 

"Work Days Out", see, for example Martin Luther King Day in 2001, as well as double counting 

of vacation days and Board meetings). What is clear is that, given the nature of the calendars on 

which the entire enterprise is based, the dimension of the real overstatement is simply not 

ascertainable. As we have noted from the outset, the calendars are simply a listing of events, 

some of which occurred and some of which did not. And, some events that did occur are not 

reflected on the calendars. The calendars are not an accurate accounting of Ms. Burke's time. 

They certainly should not be used to create any chart that purports to show as a matter of fact the 

time Ms. Burke did not spend on Smithsonian business. 

Reporting to the Regents what may be grossly inaccurate, and certainly is misleading, 

information regarding Ms. Burke's service to the Smithsonian is hardly consistent with the 

rigorous fairness that the Committee has pledged itself to follow in presenting its report. rt also 

hardly does credit to the valuable service that Ms. Burke has given the Smithsonian over the last 

seven years. 

To reiterate the key point I made in my June 4th letter, the effort to calculate the time 

Ms. Burke spent on non-Smithsonian business is a fatally flawed exercise. It says nothing about 

how she performed her duties, and unfairly subjects Ms. Burke's outside activities to new afterthe-fact standards by inaccurate and uneven-handed methods. The Committee should not 

include the "Work Days Out" calculation in your report to the Regents. If the Committee does, it 

should at a minimum correct the errors I have identified. In any event, this letter along with my 

June 4th letter should be included as exhibits to any report to the Regents. 

Very truly yours, 

;;""~~ William Iberg, P.C. 

WJK/rap 

Attachments 

cc: Sheila P. Burke 

Mark E. Mathews, Esq. 

James P. Joseph, Esq. 
7fo: Drew 

f4rom: Diane · June 4, 2007 

FRE: KAISER COMMISSION ON MEDICAID AND THE UNINSURED 

I reviewed the Commission meeting agendas and minutes from July 2000 

through our last meeting on March 8, 2007, to determine the meeting times and 

~ttendees. The records show whether a Commission member was atthe 

meeting, but do not show what portion of the meeting was attended, Thsrefare, 

the number of meeting hours shown here is the maximum time (i,e, opening to 

~djournments) that Sheila Burke could have participated in KCMU meetings. 

this would substantially overstate Sheila's time spent at Commission meetings 

~s she was only able to participate for a portion of most meetings she attended. 

Of she had been present for the entire meeting, she would have spent a maximum 

bf about 115 hours at KCMU meetings. 

~·LI-.' ...i.'· I-:::1: "' 

··- ":''' ...... '?'''~ ··· ::..I·. '·'·.: "' "` ~ "'' 

2000 Ju 17-18 Menlo Park 8-4, 8:30-11:30 11 

December 7-8 St DC 1 :9:00-12:15 7% 

'2001 AprB 26-27 Reagan Bldg, DC 12:15-5, 8:15-1:15 9% 

Evening: Rec~ptlon/dinner 

American Indian Cultural 

Center 

12-13 Four DC 1:30'5, 912:15 65/4 

October 25-26 National Press DC 1:30-5. 9-12:15 6"/4 

2002 March 4-5 StR 1, 912:15 6% 

11-12 National Press Club~DC i: 9-12:00 6'X 

November 14-15 DC 1:00-5: 9-12:30 7% 

2003 3-4 KFF/DC 12-5: 9-1 2:30 B 

10-11 KFFIDC 1-5: 9-12:30 7% 

November 17-18 KFF1DC 1-5: 9-12 7 

2004 March 11-12 KFFIDC 1 :4-12 7 

J 15-16 KFF/DC 1:15-5. 9-12:15 7 

November 18-19 KFFIDC Sheila did not attend 

: 2005 March 10-11 KFFIDC Sheila did not attend 

June 22-23 Menlo Park(with Board) Sheila did not attend 

KCMU 

November 17-18 KFF/DC 1-5:30; 9-12 7% 

2006 March 9 KFFIDC Sheila did not attend 

June 15 KFF/DC Sheita did not attend 

November 2 KFFIDC 10:00-5:15 71/4 

(Recall Sheila left at 

12:00 

2007 March 8 KFF/DC Sheila did attend 
LMS and SPB- Outside Organizations and Compensation 2000-2006 

Sheila P. Burke 

...--~;d i; 

·:B~ ··i -;~ ; ~~ ~t

?"r~"~ :-· ~"~ .· 

·I,· 

... 

... :·::·1 

··~·~-~i·!-; ·i~ ";-"ii i:i::;:: ·ia 

KaiserFarniiy 

Foundation 2000 $10, $18, 

2001 $21 $21 1 

2002 000 

2003 $28.000 

2684 $22, 

2005 $29 $29 

2006 $33,750 

201 

AL 8 d 

Corp. 2000 $71,7 $17,225 4,000 $88,975 

2001 $75.500 265 $17,066 4.006 

2002 $119,500 265 %20 1 4.886 $139.841 

2613 $90,506 4 $5, $95,980 

2004 $86.251 7 $1 000 10 

$58.788 6.151 $5 13 9 

$108 541 7 1 $516 9 

11, $708,84 $708 3 

AL $610.789 27,383 81 1 $2,931,591 

1. Cash compensation records from documents provided to Ms. Burke by Kaiser and CHUBB Corp. except where otherwise noted. 

2. Stock shares and values from registered Form 4 submissions to the SEC. When no value was given on Form 4, opening price of stock on next business day after grant of sto

to calculate value of shares. 

3. Number of Work Days = Total Hours Workedl 10 Hours in Work Day. Ms. Burke's calendars report data from 9/2088 forward. For prior 2000 meetings, organization records 

assuming a 2 hour time commitment per meeting. 

4. 2007 Hours reported were recorded from 112BQ7 to 4/2007 
LMS and SPB- Outside Organizations and Compensation 2000-2006 

~~;;·-c: :~ · ·;· ·-: ;" 

-·g;~~ i·XI- .. W ?4~1~ iS; 

.I i~i·~i· 

;~9 "' i;. " "" 41 

·· ·-· 

·-- 

~iir ·· s: .. 

r: 

i· ^-~I ··-·-· 

ii;. ·ili·;; 

·· ·-· 

~~~" -- ;·· , ...;;·- 

i~;:"R~ 

Foundation 2000 $1Q, 

2061 $11 $11, 

1614, $14 

$13 $13 

2004 $14 $14 

$7 $7 7 

AL 870, ~70, 

Health Systems 1 

2001 $0 

$0 1 

$10,750 

AL $10,750 510, 

Inc. $39,600 $54 $94.1 4 

2001 640.580 1. $1 

$37,500 otal potential $31 

stock options $4 758 $110,586 olllQB/2007= $ 

$47,000 1.615 $127 ,4565 $1 12 

$7 1~ $254,898 $331 1 

$75.847 3 43.386 

$249,998 

AL 8,545 $1 $1,909, 

95,2 (7,154, 

1. Cash compensation records from documents provided to Ms. Burlte by ABIM, CHS and WellPoint, except where otherwise noted. 

2. Stock shares and values from registered Form 4 submissions to the SEC. When no value was given on Form 4, opening price of stock on next business day after grant of sto

to calculate value of shares. 

3. WellPoint Totals Received per Year do not reflect stock options granted because insufficient information available to break down option grants by year. 

4. Number of Work Days = Total Hours Worked/ 10 Hours in Work Day. Ms. Burke's calendars report data from 9/2008 forward. For prior 28(8 meetings, organization records w

assuming a 2 hour time commitment par meeting. 

5. From options and awards summary provided to Ms. Burke from WellPoint. The total value of Ms. Burke's stock option awards may be understated, in that any options excercis

January 8,2007 are not reflected in this total. 

6. 20617 Hours reported were recorded from 1/2007 to 4/2807 
LMS and SPB· Outside Organizations and Compensation 2000-2006 

·u~ 

:'(.·=(Othe'~Nb'ii·':·: 

··i····-, 

Marymount 

1992-2605 1 501 1 I I 1 $01 4 

University of San 

Francisco" 1997-2886 1 $~I I I I I $0I 7 

Center for 

1998-2884 1 $0I I I I 1 $01 3 

Kaiser 

on 

and the 

Uninsured7 2000-2006 1 $0) I I I I $0 541 

Harvard University 

School of 

2600-2006 Travel only( I I I I 1 94.51 

Medicare 

2886 1 Per Dieml i I I I $? 49 

olomacSchw~B12001-20~6 801 I I I 1 $0 13 

Health" I I I I I 1 $01 21 

Wood 

Health 

Fellowship 

Board '2 j2002-2886 1 $Oj I I I I $0 3 

Academy 

Social 

Insurance Long r 

Panel" 12613-20051 scl I I I 1 801 6 

University Public 

institute" 12004-2006 1 $01 1 I I I rscal 2 

Institute of 

Medicine Panelon 

Drug Safehl's 12065-2006 $01 1 I I I $el 121 

OTALS $1,231,6361 1 $3,460,868 $5,644,376 $10,340,2201 471 

1. Cash compensation records from documents provided to Ms. Burlte by organizations. 

2. Number of Work Days I Total Hours Workedl 10 Hours in Work Day. Ms. Burke's calendars report data from 9/2000 forward. For prior 2000 meetings. organization records 

assuming a 2 hour time commitment per meeting. 

3. SPB not on Board of organization past 2006, but Total Hours out of office include hours through 4/2867. 

4. Reporting period 1012008-12/2685 10. Reporting period 1/2001-412007 

5. Reporting period 9/2000- 1212006 11. Reporting period 12181- 12/2006 

6. Reporting period 1/2001- 12/2804 12. Reporting period 1212011- 4/2887 

7. Reporting period 9/2000- 4/2007 13. Reporting period 1/2081- 12/2005 

8. Reporting period 1012000- 4/2007 14. Reporting period 1/2002- 1u2006 

9. Reporting period 612001-4/2007 15. Reporting period 9/28(0; 6/2005- 12/2006 
SHEILA P BUR~E- Vacation Time Taken ~0~3~Q~ 

2000 

9/1 1 

2001 

3/19- 5 

8/1 16 

11/28-11/2 

25 

2002 

8/9-8/2 11 

11/26-1 4 

1U23-1U31 office 6 

2003 

111-1/2 out of office i 

8/8-9/2 mo calendar entries 

11/24-11 

12/22-1 7 

12 

18 

11/23-11 4 

12/23-12131 out of office 7 

29 

11 12 

12/21-12/31 out of office 8 

25 

1/1-1/2 out of office 1 

18-3/23 out of office 

-7/ 8 

8198/27 [calendar entries 

to be ir·l)at least 8115- 

12M3-12131out of office 

1/1-1/2 out of office 1 

OTAL Work on Vacation 138 

TAL Work Days Missed for NonObligations /471 

TOTAL WOR~ DAYS OUT 609 

i. Total Vacation Days. exduding weekends and Federal Hdidays 

verage Work Days on Vacation 

23 
Charles A. Bowsher 

4503 Boxwood Road 

Bethesda, Maryland 

June 6, 2007 

William J. Kilberg, Esq. 

Gibson, Dunn & Crutcher LLP 

1050 Connecticut Avenue, N.W. 

Washington, D.C. 20036-5306 

Re: Independent Review Committee Report 

Dear Mr. Kilberg: 

Thank you for your letter date June 4, 2007 regarding the facts compiled by the 

Smithsonian Institution Independent Review Committee (the "Committee") on Sheila 

But-l<e's non-Smithsonian compensation and time out of the office. In compiling the 

information regarding Ms. Burke's compensation and time out of the office for nonSmithsonian activities, the Committee took into consideration all of the points raised by 

you. I will not go through each of the points in your· letter, but I did want to respond to 

three of the issues raised by you. 

In your letter, you note that Ms. Burke only spent 112 hours serving on the Kaiser 

Commission on Medicaid and the Uninsured, and not 549 hours as indicated in the 

Committee's summary chart. As you know, in addition to the Kaiser Commission, 

Ms. Burke also served on the board of the Kaiser Family Foundation during these years, 

receiving $173,000 for her service on that board and generally attending four, multi-day 

board meetings a year. The 549 hours included in the Committee's chart is for both the 

Kaiser Foundation and the Commission. (Attached is a summary of Ms. Burke's service 

on the Kaiser Family Foundation's board provided by the Smithsonian to Senator 

Grassley, which we used in preparing our summary.) 

You state in your letter that the Committee included holidays and weekends in its 

total calculations. This is incorrect. The Committee excluded weekends and federal 

holidays from the total time out of the office on non-Smithsonian business and vacation, 

which, for Ms. Burke, was over four weeks a year. 

For meetings and phone calls that lasted one or two hours, the Committee counted 

the actual hours listed in Ms. Burke's calendar. In addition, recognizing that Ms. Burke 

does not work from 9:00 to 5.30, the Committee deter-mined, from the calendars provided 
William J. Kilberg, Esq. 

June 6, 2007 

Page 2. 

to us, that Ms. Burke generally is in the office from 8:00 to 6:00 on a normal work day. 

Any meetings that are outside of this time pel-iod were not included in the total hours out 

of office. In calculating the total number of days out of the office, we assumed that 

Ms. Burke worked 10 hours a day and divided Ms. Burke's total number of hours out of 

the office by 10 to arrive at the over 400 wortk days out of the office reflected in the 

Committee's summary chart. 

Finally, you state in your letter that Ms. Bur·ke's calendars are not accurate 

reflections of her- time. The Committee attempted to verify the information in 

Ms. Burke's calendar, whenever possible. For example, in calculating time out of the 

office for cot-porate board service, the Committee relied on summaries of meetings 

received by Ms. Burke and used by the corporations in calculating the fees she received 

for each meeting attended. 

The Committee has continued to review the materials provided by Ms. Burke and 

the Smithsonian, and we have made some adjustments to our calculations, reducing 

slightly Ms. Burke's number of days out of the office. The Committee believes that the 

information included in our final report to the Board of Regents is accurate. 

T` you have additional information for the Committee to assist it in estimating 

Ms. Burke's time out of the office, we will consider it and update our charts, if 

appropri ate. 

Sincel-ely, 

Charles A. Bowsher 

cc: Mark E. Matthews, Esq. 
Sheila Burke 

Board Service and Compensation Summary: 2000 - 2006 

Kaiser Family Foundation 

KFF Board KFF Board KFF Board KFF Board KCMU** 

Meeting 1 Meeting 2 Meeting 3 Meeting 4 Honorarium TOTA~ 

2000 

Sept 7-8. Dec 14-15 

$5,125 $5,125 $500 $10,750 

2001 Mar 23-24 June 14-15 Sept 13-14 Dec:13-14* 

$5,125 $5,125 $7,000 $4,000 $21,250 2002 Mar·-15-16 Juns-13-14 Sept 17 . Dec 13-14 

$7,000 $7,000 $7,0~ $7.000 $28,000 2003 ~:Miar':27-~ " 

~- ]-;I:i Jun~;12-j3 Sept::~~2~_,-._;.~e ·18-1:9: . :: 

$7,000 $7.000 $7,000 $7,000 $28,000 2004 i.; Apr_l~t::i;:l :' July 4-10 Sept-~1Bb''i::lli· Dec:7i8* 

$4,000 $7,01)0 $7,q00 $4,000 $22,000 2005 Mar::24-25 Jun:e:~23-24 Sept ~--5rl:8:: · - D'ec 1-2 

$7,000 $7,000 $7,000 $8.250 $29,250 .2006 : -Mar-23~4-: .'-May -3-i-June 1 Sept 5-16;- :'Nov'll:6-1 7 ;:. 

$8,250 $8,250 $8,625 $8,625 $33,750 

Grand Total $173,000 

* did not attend this meeting (receives Board retainer but not meeting stipend) '* Kaiser Commission on Medicaid and Nle Uninsured 

Notes 

1.Began serving on KFF Board in September of 2000 

2. Began serving as Chair of the Trustee Selection Committee in September of2001 3. Beganserving as Chair of the Board in December of 2005 

SG0493 
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LAWUERS 

h REGISTERiED LLMITED LIABILITY PAR~NERSHLP 

INCLUDING I'fiOFESSIONAL COfiPORhTIONS 

1050 Connecticut Avenue, N.W. Washington, D.C. 70036-5306 

(202) 955-8500 

ww~v.gibsondunn.com 

wkilbel·gOgibsond Ililn.com 

June 4, 2007 

Direct Dial Client No. 

(202) 955-8573 C 12393-00001 

Fax No. 

(302) 530-9559 

Via Email and Messenger Delivery 

James P. Joseph, Esq. 

Amold 8L Porter LLP 

555 Twelfth Street, N.W. 

Washington, D.C. 20004 

Re: I~2~E~l~elzrl~lzt Review Conlnzittee R~l~ort 

Dear Mr. Joseph: 

The Board of Regents of the Smithsonian Institution has empanelled an Independent 

Review Commission, comprised of Charles A. Bower, Stephen D. Potts, and A.W. "Pete" Smith, 

Jr., to review various governance matters, including the outside activities of senior executives of 

the Smithsonian. hi that regard, Ms. Sheila P. Burl<e, Deputy Secretary of the Smithsonian, 

voluntarily provided the Committee with the calel7dars she maintained since joining the 

Smit-hsonian in July 2000, as well as information about the compensation she received from her 

service as a member of the boards of directors of various profit corporations and non-profit 

organizations. Ms. Burlte also met with the Committee on May 3, 2007 for approximately two 

hours to discuss those and other matters. She has cooperated fully with the Committee and has 

responded to every cluestion and request Inade by the Committee. Subsequently, at the 

Committee's invitation she provided additional comments as to how to malte Smithsonian 

operations more transparent 

You have since advised me that the Comnlittee's report to the Regents may contain a 

discussion of Ms. Burlte's outside activities and may include as attachments various charts that 

I3U'port to capture and summarize the time Ms. Burl<e spent on outside activities as well as the 

compensation she received. 

As I stated when you first mentioned that possibility, doing so without putting matters in 

their proper context would be extremely unfair to Ms. Burlte as it would not provide am accurate 

LOSANGELES NEWYORK WASHINGTON.D.C. SAN FRANCISCO PALOALTO 

LONDON ~PhRIS MUNICI-I BRUSSELS ORANGECOUNTY CENTURYCITY DALLAS DENVER 
CIBSON, DUL~I~J GrCRUTCfIER LLP 

James P. Joseph, Esq. 

June 4, 2007 

Page 2 

representation of her Smithsonian work and her accomplisl?ments on behalf of the Institution. 

Consecluently, it is very important that the Committee's report talte care to note prominently that 

Ms. Burlte accepted employment with the Smithsonian on the express understanding that she 

could engage in various outside activities, including teaching at I-Iarvard University and serving 

on the Boards of profit and non-profit organizations. 

The report should also malte clear that Ms. Burke disclosed her activities and the 

compensation she received from those outside activities in her annual Smithsonian financial 

disclosure statement. And in discussing Ms. Burl<e's outside activities, the Report should note 

that the majority of those activities were with governmental, academic or non-profit research 

organizations, whose missions complement that of the Smithsonian - "the increase and diffusion 

of knowledge." 

Putting aside for the moment that your "Work Days Out" charts grossly overstate the time 

Ms. Burlte spent "away fronm work" for the Smithsonian, it is an entirely misbegotten proposition 

that "Worl< Days Out" is a relevant or material metric of Ms. Burke's contribution to the 

Smithsonian. Ms. Burke was not retained to work on an hourly basis and, unlilte, for example, in 

a law firm, her value to the Smithsonian is not measured in billable hours. Rather, the test is 

whether her efforts have put the Smithsonian's operations she was responsible for on a more 

efficient and professionalbasis. By ally reasonable measure, Ms. Burke's tenure has been an 

unqualified success. 

During her tenure Ms. Burlte has overseen the efforts to modernize the financial reporting 

systems of the Institution; entirely reorganized the operation of the Human Resources 

department; and oversaw the management of upgrading the Institution's infonnation technology 

systems. She was responsible for establishing the Institution wide factual and reputational 

review of the new Smithsonian on Demand activities. She oversaw the successful $254111 

construction of the Steven Udvar-Hazy Center, the $219m National Museum of the American 

Indian on the Mall and the $225m restoration of the Patent Office Building, now known as the 

Donald W. Reynolds Center for Art and Portraiture as well as its soon to be completed domed 

courtyard. During her 7 year tenure she was promoted from Under to Deputy Secretary, 

recognized by the Regents in 2005 for her work and awarded the Secretary's Gold Medal for 

exceptional service. Ally discussions with her colleagues would evidence her commitment to the 

Institution, her strong worl( ethic, her full and constant engagement with the business of the 

Smithsonian, and above all her ability to produce results. 

Indeed, until now no one raised any cluestion about Ms. Burke's approved outside 

activities or the compensation she received in that regard. Nor did anyone suggest that she 

should curtail those activities. As she discussed at length with the Committee, Ms. Burlte has 

always been available to deal with Smithsonian business no matter where she was, and no matter 

whether it was before or after the nonnal Lvorl< day or whether she was on vacation. Ms. Burke 

is and has been a hard working senior executive, dedicated to improving the Smithsonian, and 
6-liB S ON, DUNN S~ C RUTCHER LLP 

James P. Joseph, Esq. 

June 4, 2007 

Page 3 

effective in doing so. If the Regents deeln it appropriate to change the policy going forward with 

respect to outside activities of senior executives, that is certainly their right. It is, however, 

grossly unfair to shine an after-the-fact spotlight on Ms. Burke's outside activities, presumably to 

hnl~ ----- hpr ---- rmlrlllrt --·----· nl~t --- -- a~ thp ·-·- hasic ---·- fr\l- --· a~l~~ -··J rllange -··-·· in the current policy. 

Compounding that. injustice is how you have calculated the time Ms. Burke pulyortedly 

spent on non-SmithsoniaII business. As best as we can determine, you did so based upon the 

calendars that Ms. Burlte provided the Committee. However, as I emphasized in the transmittal 

lettel-s, the calendars are not an accurate reflection of her Smithsonian work or her outside 

activities. As I explained, the calendars list many outside events that, in fact, never occurred, or 

in which Ms. Burke did not participate (for example, the weekly Institute of Medicine conference 

calls), and do not include Smithsonian activities that did, in fact, occur. I also pointed out that no 

effort was made after the fact to harnlonize the calendars with what actually happened. As a 

result, your charts grossly overstate the time Ms. Burke spent on outside activities and grossly 

understate the time and effort Ms. Burlte devoted to Smithsonian business. For example, you 

have calculated the time over the seven year period she spent on the non-profit Kaiser 

Commission on Medicaid and the Uninsured to be 549 hours. That organization's records 

indicate that her time spent over that period could have been no more than 112 hours, and may 

well be less as their records to not reflect whether or not she attend the entirety of the meeting or 

just a portion of it. 

As Ms. Burlte explained to the Committee, she viewed her work at the Smithsonian to be 

a twenty-four hour, seven day a weel<job. She explained she routinely tended to Smithsonian 

business when on vacation, on weekends, in the evenings and even when away from the office 

attending nllt~i~p 177P~tin09 Ch~ \XIR~ rnncf.n~~tl~l m~ ]?pl- rPll-nh~17P ~n~ nll hPr hlarlhplrlr Ilpal;l,n ---··-·--- ""'""'b"' U"' "UV VV"V'C"'L'~I VII I1VI VVII rllVIIV UIIY V11IIVI VIUVI~VV119 UVU11116 

with matters involving the Smithsonian and was available to her co-workers at all times. She 

said just that during her meeting with the Committee, and there followed an extensive discussion 

on this point with the Committee members. Yet, your charts fail to ack~owledge this or to give 

her ally credit for the hours she spent oil Smithsonian business before or after the workday, on 

weekends, on vacation or when away from the office. 

Also, your charts frequently bundle up one or two hour conference calls or meetings and 

mistakenly count them as full days for the purpose of the "Total Work Days Out" calculation, 

that again badly overstates the matter. If, for exalnple, Ms. Burke spent an hour on the phone 

dealing with issues pertaining to organizations on whose boards she served, she simply worked 

an hour or two longer for the Smithsonian if that was necessary to address Smithsonian business. 

In numerous cases the charts also fail to credit activities clearly indicated on the calendar as 

Smithsonian events on days that were counted as "Work Days Out." Your charts also mistakenly 

count as "Work Days Out" Smithsonian holidays such as Thanltsgiving Day and Martin Luther 

King Day. It is hard to understand how such obvious inaccuracies could escape the Committee's 

review. 
GIBSON, DUN~d SrCR~JTCIIER LLP 

James P. Joseph, Esq. 

June 4, 3007 

Page 4 

Additionally, including vacation days in that calculation simply serves to inflate the total 

for no apparent purpose other than to inflate the total number of days that Ms. Burke allegedly 

did not do work for the Smithsonian. Not only does it ignore the work that Ms. Burke did for the 

Smithsonian while on vacation, the charts confuse the real issue here because they say nothing 

about whether Ms. Burke did her job effectively, which is, of course, the true measure of an 

executive's perfonnance. The implication is that being away from the office means that no work 

is being done. Under that approach, Suprenne Court Justices do not conduct any Court business 

for some 90 days a year - as the Court's ten?? begins in the first Monday in October and generally 

concludes at the end of June. I'm sure t-l~at Justice Stevens would be surprised to learn that in his 

thirty-five years on the Court he missed some 3,150 days - or more and eight and one-half years 

- of work. 

Furthermore, it appears that you have included in your "Work Days Out" calculation nonSmithsonian activities that occurred befol-e or after the regular Smithsonian work day. While 

Ms. Bul-lte believes that totaling hours or "Work Days Out" is not how her perfonnance should 

be measured, if the report to the Regents contains that sort of an analysis, then it should be 

accurate. The traditional Smithsonian work day begins at 9 a.m. and ends at 5:30 p.m., with onehalf hour for lunch. This is an eight and one-half hour day, not the ten hour day you have 

apparently used as a baseline. As a result, your charts include time on outside activities that 

started before the official work day began, and also time after the work day ended. For exa~nple, 

meetings of the Potomac School Finance Committee were held in Ms. Burlte's office and usually 

started at 8 a.m., and Ms. Burke left these meetings promptly at 9 a.m. to attend regularly 

scheduled Smithsonian staffmeetings. Your charts also appear to count Potomac School 

activities that occurred after the end of the business day. There are other numerous instances 

where the "Worl< Days Out" calculation also includes time before and after the regular 

Smithsonian work day. If you are not going to give Ms. Burke credit for the time she spent on 

Smithsonian business outside the nonnal work day, then time she spent on non-Smithsonian 

business before or after the regular work day ended should not be charged to some "Work Days 

Out" account. 

In summary, the Committee's effort to calculate the time that Ms. Burlte spent on 

non-Smithsonia11 business is a fundamentally flawed exercise. It is not an accurate reflection of 

her perfonnance. It unfairly subjects Ms. Burke's outside activities to new after-the-fact 

standards, and does so by inaccurate and uneven handed methods. In these circumstances, I 

believe that the charts should not be included in the Committee's report as they do not in their 

present for-? reflect the facts. If you do decide to include the charts, this letter should be 

included as an exhibit to any report the Committee makes to the Regents in order to provide the 

accurate and appropriate context. 
GIBSO~T, ]DUNN 6r CRUTC~C-~ER LL'P 

James P. Joseph, Esq. 

June 4, 2007 

Page 5 

Ms. Burl<e believes that it is a privilege to work at the Smithsonian. Having spent the 

majority of her professional career as a public servant, she recognizes the responsibilities bome 

by those who worl< in the government or in the non-profit sector. She fully acl<nowledged at all 

times her outside activities, the majority of which were uncompensated and for academic, 

governmental or 17011-p10fit entities. At no time did ally of her activities create a conflict of 

interest. Other than her family, her responsibilities at the Smithsonian have been and continue to 

be her first priority. 

We appreciate the opportunity to review and provide these comments to the material you 

sent us. In the interest. of assuring fairness and accuracy, we expect that Ms. Burl<e will be given 

a similar opportunity to review ally other issues and/or material pertaining to her that the 

rnn7177ittr~ miOht CIPridP tn inrlllrlp i~~ itF I-Pnm-t tn t17P RPOPnf9 FTR\lil70. TPrPiTIP~ nPithP1. 911rh 

~ ~~~~~~~~~~-- ^'~'i~^~" ~~~~~~" ^^'~"'"~ "^ ^'" '~~~"' ""'~"~3~""' ""'"'~`~~~''~" """'V' VUV" 

materials nor any such indication from you, we presume there will be no other such issues 

specific to Ms. Burke in the report. 

Very truly yours, 

~---x 

" ·"h3, 

William JrX.ilberg 

PB/slc 

cc: Sheila P. Bmke 

Mark E. Matthews, Escl. 

100235340 i .I)OC: 
EXE-IIBIT 36 
Q Smithsonian Institution7--~ Memo 

Office of the Secretary 

ua!e November 9, 2006 

To Sprightiey Ryan 

From lim Hobbins 

S~~~jecl The Secretary's "Blanket" 'I'ravel Authorization 

We have found the accompanying copy of the Secretary's blanket travel authorization for 

fiscal year 2001. We haven't located one for fiscal year 2000, but we recall distinctly that 

it was essentially identical Co this one. 

I should add that we abandoned this practice of using a blanket authorization when we 

switched to Travel Manager in October 2001, since each trip was authorized individually 

as part ofthat system. 

Please let me know if you need any additional information. 

With thanks and best wishes, 

~ 

Smithsonian Institution Duilding Room 215 

1000 Jelferson Drive SW 

Washington DC 20560-001h 

202.633.1869 Telephone 

202.786.2515 Fax 

IRC 12699 

EXHIBIT 37 
L~J~a 

KPMG LLP 

2001M Street, NW 

Washington, DC 20036 

February 20, 2007 

The Audit and Review Committee oftfie Board of Regents 

and the Inspector General 

Smithsonian Institution 

1000 Jefferson Drive SW 

Washington, DC 20560-0017 

Dear Committee Members and Inspector General: 

We have audited the financial statements of the Smithsonian Institution (Smithsonian) as of and for the 

year ended September 30, 2006 and have issued our report thereon dated February 20, 2007. In planning 

and performing our audit of the financial statements, we considered internal control in order to determine 

our auditing procedures for the purpose of expressing our opinion on the financial statements. An audit 

does not includexamining the effectiveness of internal control and does not provide assurance on internal 

control. 

However, we noted certain matters involving internal control and its operation that we consider to be 

reportable conditions under standards established by the American Institute of Certified Public 

Accountants. Reportable conditions are matters coming to our attention that, in our judgment, relate to 

significant deficiencies in the design or operation of internal control and could adversely affect the 

organization's ability to record, process, summarize, and report financial data consistent with the assertions 

of management in the financial statements. Our consideration of internal control would not necessarily 

disclose all matters in internal control that might be reportable conditions. 

The reportable conditions noted during our audit, which have been discussed with the appropriate members 

of management, relate to the accounting resources and staff capacity and the valuation of "altemative" 

investments and are presented in the attached Exhibit. Although not considered to be reportable conditions, 

we also noted other matters in the course of our audit which we would like to bring to your attention. These 

matters are also presented in the attached Exhibit. 

A material weakness is a reportable condition in which the design or operation of one or more internal 

control components does not reduce to a relatively low level the risk that errors or fraud in amounts that 

would be material in relation to the financial statements being audited may occur and not be detected 

within a timely period by employees in the normal course of performing their assigned functions. 

Our consideration of internal control would not necessarily disclose all matters in internal control that 

might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions 

that are also considered to be material weaknesses as defined above. However, we do not consider the 

reportable conditions described above to be material weaknesses. 

The matters presented in the Exhibit were considered in determining the nature, timing, and extent of the 

audit tests applied in our audit of the 2006 financial statements, and this report does not affect our report on 

these financial statements dated February 20, 2007. We have not considered internal control since the date 

ofour report. 
This report is intended solely for the information and use of the Board of Regents, management and others 

within the organization, and is not intended to be and should not be used by anyone other than these 

specified parties. 

It was a pleasure to work with the management and employees of the Smithsonian. We sincerely appreciate 

the courtesies and_assistance extended to our team in the course of our work. 

Very truly yours, 

~p~c~~ LLP 

cc: Mr. CristiBn Samper, Acting Secretary 

Ms. Alice C. Maroni, Chief Financial Officer 

Mr. Andrew J. Zino, Comptroller 
Exhibit 

KPMG Recommendations Arising from the September 30, 2006 Audit 

Accounting Resources and Staff Capacity - Reportable Condition 

We noted that the accounting personnel resources of the Of~ce of the Comptroller (OC) and Smithsonian 

Business Ventures (SBV) were stretched thin during fiscal year 2006. We understand that the staffing 

situation reflects continuing budget constraints, but believe that there are a number of other contributing 

factors, including the increasing complexity of the applicable accounting pronouncements, additional 

federal reporting requirements, inquiries from external regulators, including Congress and the GAG, 

continuing system implementations and other special projects, and high turnover of employees (including 

two recent high-level vacancies at SBV). 

We recommend that the CFO and other appropriate members of the Smithsonian's financial management 

team reevaluate the accounting resource needs and staff capacity in OC and SBV during fiscal year 2007, 

and consider adding qualified individuals to the accounting staff in order to ensure that (1) greater 

supervisory depth is in place (e.g., an assistant or deputy comptroller) and (2) that staff capacity is adequate 

to meet the organization's requirements. 

Mananemenf's Res~onse: 

Smithsonian recognizes the need for qualified supervisory and other accounting and financial personnel 

within SBV and OC to meet the continuing growth in requirements for accurate and reliable financial 

information. Competition to recruit qualified accounting personnel in the greater Washington area has 

been intense in the past few years, and attracting individuals to the Smithsonian, despite its worldwide 

recognition, has been difficult. Recruiting accounting personnel has been a top priority of the CFO in 

recent years who is personally involved in the hiring of senior finance personnel across the Smithsonian, as 

well as for OC and SBV positions. The CFO is committed to hiring a Deputy Comptroller and at least two 

additional audit staff within OC in the current year. In addition, the CFO plans to hire six additional 

personnel in the upcoming years (2 in OC and 4 in critical areas outside of OC that prepare and feed 

financial information to OC) to support the Smithsonian's financial operations and the financial statement 

audit. Likewise SBV has already started to rebuild its financial staff. Plans are also in place to continue 

the upgrade and recruitment of additional SBV accounting staff to further enhance the financial operations 

ofthis organization. 

Valuation ofAlternative investments - Reportable Condition 

Alternative investments are defined by the AICPA as investments not listed on national exchanges, over 

the counter markets, or for which quoted market prices are not available from sources such as financial 

publications, the exchange, or NASDAQ. Alternative investments include hedge funds, private equity 

funds, real estate funds, commodity funds, funds of funds, as well as commingled funds. Alternative 

investments continue to draw increased focus regarding how organizations obtain sufficient support for the 

existence and valuation of those investments. These challenges arise due to the lack of a readily 

determinable fair value for these investments and sometimes limited information provided by fund 

managers, including a lack of visibility into the underlying investments. The Smithsonian's position in 

alternative investments, as defined by the AICPA, at September30, 2006, was approximately 

$580.8 million (approximately 62% of the fair value of the investment portfolio), including $181.8 million 

in hedge funds, $394.6 million in non-publicly traded commingled and index funds, and $4.4 million in 

private equity and venture capital funds. Most of the hedge fund investments were made in 2006. 

3 (Continued) 
Exhibit 

KPMG Recommendations Arising from the September 30, 2006 Audit 

During 2006 and 2005, the AICPA issued extensive guidance on the expectations of both management and 

auditors regarding audit evidence over the valuation of alternative investments. As a result of the growth in 

the Smithsonian's alternative investment portfolio and the need to comply with the AICPA guidance, we 

recommend the Smithsonian develop a comprehensive process to monitor the valuation of its alternative 

investments which includes the procedures and controls summarized below: 

· Management should determine and document how the estimated fair value of each investment is 

determined. 

· For those investments where the underlying investment information can be obtained, we recommend 

that management obtain the detail from the fund managers at the balance sheet date and perform 

procedures to evaluate the reasonableness of the valuations. In cases where the underlying investments 

are readily marketable securities, price testing should be performed (i.e., recalculate value using an 

independent pricing service such as Bloomberg) toverify the values provided by the fund managers. 

· For those investments where underlying detail is not available, we recommend that management 

communicate with the fund managers as necessary (e.g., via conference calls, site visits, etc.) to 

perform ongoing monitoring. The agendas for these communications should be formally documented 

along with the level of visibility into the underlying securities that was obtained and any valuation 

procedures performed. 

· We recommend that management obtain the audited financial statements for all of the investments and 

review them to determine the type of audit opinion and confirm the basis for reporting fair value. An 

analysishould be prepared and documented tocompare the audited fair value (at the share level) to the 

reported fair value at the financial statement date and identify and explain the reasons for any 

differences. 

· For tracking purposes, we recommend that management maintain a rollforward analysis for each 

investment to track cost basis and fair value. The rollforward analysis should include information such 

as beginning/ initial cost basis, additional follow-on investments/ contributions and/or 

redemptions/distributions during the year, share/ series class, changes in valuation, and ending fair 

value. This information will be helpful in understanding the nature and components of the changes in 

the cost and fair value of each investment from year to year. 

As part of the Smithsonian's investment valuation process, aquarterly report is prepared for review by the 

Smithsonian Ivestment Committee, which contains information on the investments including performance 

results. This information is helpful in understanding the process in place over the valuation of the 

investments. We recommend that the fourth quarter report be enhanced to include a direct link to the 

Smithsonian's actual return on each of the investments for the fiscal year and a discussion on any deviation 

between Smithsonian's return and the investee funds' actual returns. The fourth quarter report should 

include a discussion of any benchmarks used to measure performance of the investments and rationale as to 

why the chosen benchmarks are considered appropriate for the respective investments. The report should 

also include a discussion on how management determined the valuations of the investments were 

reasonable. Finally, the fourth quarter report should be prepared prior to the start of the audit so that it 

serves as a basis for management's assertion over the valuation of these investments. 

4 (Continued) 
Exhibit 

KPMG Recommendations Arising from the September 30, 2006 Audit 

Management 's Resit~onse.. 

In March 2006 shortly after the Smithsonian started investing in hedge-fuilds and private equity, 

management met with KPMG to discuss the design and implementation of control procedures for these 

investments. Based on these discussions, the Institution put in place new procedures. These were 

reviewed again with KPMG in July and were further refined. While we agree with the recommendations 

that these procedures should be further strengthened and better documented, we find questionable KPMG's 

classification of commingled and indexed funds (42% of the fair value of the investment portfolio) as 

alternative investments. 

Specifically, we are taking the following actions: 

· We will further define, develop and documenthe Endowment's investment policies, processes 

and procedures that will guide our initial due diligence, ongoing monitoring and financial 

reporting. 

· We will continue to do quarterly reports for the Smithsonian Investment Committee. The report 

for the fourth quarter will be further enhanced to include an expanded discussion of manager 

performance against the selected benchmarks and deviations of Smithsonian performance from 

that of the overall fund. Every effort will be made to complete this fourth quarter report before 

the start ofthe audit. 

· We will formalize our current practice of obtaining and reviewing the audited financial 

statements for all the funds in which we are invested. This review will include a confirmation of 

the basis for valuation used by the manager and a comparison of the reported fair value of the 

Smithsonian investment to that in the audited statement. 

· We will strengthen the policies and procedures for the monitoring of the valuation of 

investments in non-publicly traded funds as follows: 

o For index funds we will continue to track fund performance against the appropriate 

index and investigate and document any large deviations from the index. 

o For other funds where information on the underlying investments is available, we will 

strengthen and document procedures for independent valuation of the underlying 

investments and a comparison to those provided by the manager. 

o For investments where information on underlying investments is not available we will 

strengthen and formalize documentation of our current process for communication (i.e. 

conference calls, site visits, analysis of quarterly reports, etc.) with fund managers and 

analysis of other data obtained from the managers to perform ongoing monitoring. We 

will also institute the recommended "roll forward" analysis to track the cost and fair 

value basis for our investments. 

5 (Continued) 
Exhibit 

I<PMG Recommendations Arising from the September 30, 2006 Audit 

Documentation ofAccounting Policies and Procedures 

As the Smithsonian's operations have grown and evolved o3er time, they have become more varied and 

complex. The applicable accounting and financial reporting requirements have also increased significantly 

in their complexity, but the Smithsonian's practices for documenting its accounting policies and procedures 

have remained informal. 

We believe that the Smithsonian would benefit from a more formal approach to documenting its 

accounting policies, positions and procedures, especially in dealing with personnel turnover and 

understanding the basis for past decisions that continue to have significant effects on the accounting and 

external reporting processes. We noted Smithsonian would specifically benefit from enhanced 

documentation in areas such as conclusions over treatment of complex contribution arrangements such as 

Lockheed Martin, the methodology for allocation of facilities costs, and the accounting treatment for nonconsolidated affiliates such as Friends of the National Zoo. In addition we believe that the Smithsonian 

should apply the same rigor in documenting significant current year accounting matters, such as the lease 

accounting for the Victor Building and the adoption of FASB Interpretation 47 related to conditional asset 

retirement obligations. 

Accordingly, we recommend that the Smithsonian develop a plan and timetable for compiling and 

maintaining an accounting policies and procedures manual in 2007. Such a manual should provide 

information about the selection and application of all significant accounting policies, a discussion of 

alternatives considered, conclusions reached and authoritative literature consulted, and guidance on related 

procedures and controls. In addition, it is crucial for the Smithsonian to view certain policies, such as cost 

allocation policies and allowances for uncollectible receivables, as living documents that will need to be 

revisited periodically to ensure current facts remain supportive of past policies. We believe that this 

information would provide a valuable reference source for accounting and management personnel and an 

effective training tool for new employees or employees who change responsibilities. 

ManaRement S Response: 

Smithsonian supports the concept of documenting significant accounting policies, procedures, and 

positions and currently performs these functions informally. The initial compilation and maintenance of a 

formal accounting policies and procedures manual is a costly and labor intensive process. Funding and 

staffing limitations will limit our ability to develop and finalize this manual in the near term. Smithsonian 

however, will develop a plan and timetable for creating an accounting policy manual. 

Financial Statement Preparation 

Preparation of the Smithsonian's year-end financial statements requires significant disaggregation and 

analysis of balances in the PeopleSoft general ledger in order to derive the information needed for the 

financial statements. In addition, certain accounts, such as restricted contributions and net assets, are not 

accurately classified in the PeopleSoft system. As a result, the Smithsonian relies on external spreadsheets 

as the supporting records to properly present these items in the financial statements. 

The use of manual spreadsheets to track and develop critical financial statement balances causes an 

unnecessary level of risk of reporting errors. In addition, the supplemental analysis and reporting required 

outside the basic general ledger system creates unnecessary staff hours that could be directed to other 

priorities if the system capabilities were more fully utilized. 

6 (Continued) 
Exhibit 

KPMG Recommendations Arising from the September 30 2006 Audit 

In order to minimize the risk of errors and reduce the need for off-line analyses, we recommend that 

appropriate individuals review the current chart of accounts structure during fiscal year 2007 and initiate 

procedural and other changes that willBllow financial statement information tobe derived directly from the 

Smithsonian's general ledger to the greatest extent practical. 

Mananement 's Res~onse: 

Smithsonian will endeavor to review the PeopleSoft general ledger structure in order to enhance the 

financial statement process. Limitations in funding and staffing to perform this review, and the possible 

need for PeopleSoft programming changes, may inhibit completion of this review in the near future. 

SBYAccouniing Procedures 

We noted several areas, as discussed below, where additional analysis, review or procedural changes would 

help ensure the accuracy and quality of the information included in the books and records of SBV. 

· Bank account reconciliations - SBV policy requires that bank reconciliations be approved by an 

individual other than the preparer. In our sample of 13 bank reconciliations performeduring 2006, we 

noted 6 reconciliations that did not include evidence of review. We recommend SBV reiterate its 

current policy to require management review and approval (via sign off on the reconciliation) ofall 

monthly bank reconciliations inorder to ensure that any unusual or significant reconciling items are 

identified and resolved. 

· Reliance on third party service organizations: 

a) Catalog inventory (PFSWeb)- SBV utilizes PFSWeb for all catalog fulfillment functions other 

than inventory purchasing. We noted that SBV management was not reviewing transactional level 

reports provided by PFSWeb during fiscal year 2006. In order to ensure that there is appropriate 

oversight of this service provider and that any significant or unusual matters are identified 

promptly, we recommend that SBV implement procedures for timely review of PFSWeb 

transaction reports by an appropriate individual during fiscal year 2007. 

b) Subscription fulfillment (Palm Coast Data)- SBV uses Palm Coast Data reports as the basis for 

recording revenue, accounts receivable and deferred revenue for the magazines business. 

Management performs alimited review of the annual "SAS 70 report" (relating to the design and 

operation of controls in place at Palm Coast Data); however, no documentation of the review is 

prepared and we noted that user controls at SBV are not designed to respond fully to the user 

control considerations recommended by the service auditor. In order to improve controls in this 

area, we recommend that SBV implement procedures to document its review of the Palm Coast 

Data SAS 70 report and ensure that all relevant user control considerations identified in the report 

are addressed in fiscal year 2007. 

· Accounts receivable -SBV maintains an accounts receivable subsidiary ledger for receivables 

generated from the magazine business and a secondary subsidiary ledger for receivables generated 

from all other businesses. However, the secondary subsidiary ledger is not used consistently by all SBV 

departments and as such, not all receivable data is captured within this subsidiary ledger. Accordingly, 

a routine aging report is not generated for other SBV receivables, which approximated $6 million at 

September 30, 2006. In order to ensure that there is timely follow-up and proper valuation of these 

7 (Continued) 
Exhibit 

KPMG Recommendations Arising from the September 30, 2006 Audit endations 

receivables, we recommend that management of SBV establish procedures for periodic (e.g., monthly 

or quarterly) _re~iew of the aging and collection status of these receivables in fiscal year 2007. 

Manqpement 's Response: 

The SBV Controller has emphasized the policy regarding bank reconciliations to the current staff, 

including the requirement that appropriate adjustments be approved and recorded on a timely basis. 

Senior SBV staff is working with both the Catalog and Magazine Management groups to develop and 

document review procedures regarding the use of third-party provided financial information. This will 

include developing criteria for the timely review, analysis and proper valuation of the reported financial 

information. 

Criteria for the proper review of accounts receivable aging and collection status will be developed by the 

SBV Controller. 

Reconciliation oflntercompany Accounts 

SBV uses an accounting system (Lawson) that is not integrated with the system used for the other units of 

the Smithsonian (PeopleSoft). Intercompany accounts are used for SBV cash receipt and disbursement 

transactions processed by OC as SBV cash is managed by SI and, accordingly, all SBV accounts are zero 

balance accounts. During fiscal year 2006, OC and SBV reconciled the cash transactions on a monthly 

basis to ensure the accuracy of the information. However, we noted that there is an unreconciled difference 

between the recorded intercompany account balances in the SBV and OC systems which has been 

accumulating since SBV implemented separate systems several years ago and which had grown to 

approximately $17 million at September 30, 2006. We recommend that appropriate individuals at OC and 

SBV assign a high priority to their efforts to resolve this difference during fiscal year 2007 and to fully 

identify the source of such differences to prevent the out-of-balanceondition from recurring. 

Management S Response: 

An intensive reconciliation process has already commenced and has been given high priority by the 

Comptroller of the Smithsonian. Proper account reconciliation for all activity between SBV and SI will be 

completed by the end of the third quarter of fiscal 2007. 

Journal Entries andAccount Reconciliations 

During our testing of journal entries recorded by both OC and SBV, we noted entries posted to the 

PeopleSoft and Lawson systems which did not contain evidence of review. We also noted a bank 

reconciliation prepared in OC which contained a $2.5 million unreconciled difference. In addition, there is 

no documented review of any entries prepared and recorded by the Financial Accounting Manager in OC 

nor was there evidence of review of the bank reconciliation prepared by this same individual. Additionally, 

we noted multiple instances of unresolved differences greater than $500 thousand in reconciliations 

provided to us as audit support. 

8 (Continued) 
Exhibit 

KPMG Recommendations Arising from the September 30, 2006 Audit 

In order to improve controls over journal entries and account reconciliations, we recommend that the 

Smithsonian implement procedures requiring that alljournal entries and reconciliations be reviewed and 

`approved by management and that the approval be documenteh. Further, although we recognize there is a 

cost/benefit to investigating differences identified in reconciling accounts, we recommend the Smithsonian 

develop a policy and process to better monitor, quantify, and documenthe extent of unresolved errors in 

its financial accounting process. 

Manspement 's Resaonse: 

In accordance with current Smithsonian policy, alljournal entries are to be properly reviewed and 

documented. Appropriate personnel will be reminded of their responsibility to adhere to current 

Smithsonian policy. 

In addition, supervisory personnel will be instructed to properly document their review of bank 

reconciliations prepared by their staff. 

Information Technology Controls 

We noted several areas, as discussed below, for enhancements, to the information technology general 

controls surrounding the PeopleSoft financial system. 

· New User Accounts - Management does not have the ability to determine the date a new user account 

is added to the PeopleSoft application. This capability is not included as part of the delivered 

functionality of the version of the PeopleSoft applications currently inuse at the Smithsonian (although 

it maybe available in a later version which could then be addressed as part of a planned software 

upgrade). We recommend management continue to explore system feasibility to capture user account 

addition dates or consider this matter in the planned system update. 

· Job Transfers - Management does not have the ability to identify users who transfer internally within 

Smithsonian functions and departments since these changes do not generally require a formal personnel 

action. The responsibility for identification of staff role changes that impact system access 

requirements resides with the administrative officers within the applicable Units. Users who perform 

functions requiring the same or similar access will generally need to request an access change since 

functions relating to purchasing and purchase cards are restricted within the system by department, 

origin codes, location codes, and buyer assignments. However, the risk remains that access privileges 

for individuals who transfer within functions and departments may not be appropriate. We recommend 

a periodic recertification of all users on a rotating basis to identify users who should have their access 

modified or removed. 

o Remote Network Access - Current Smithsonian procedures allow maintenance of remote network 

access approval documentation within the Help Desk's HEAT system via the service ticket request. For 

remote network access granted prior to the implementation of the electronic document maintenance, 

hard copy approval documentation has not always been maintained. During our testing, we noted 

documentation was not available for 24 of30 users sampled. We recommend the Smithsonian include 

reauthorization of the remote network access as a component of the recertification recommended above 

to ensure current approvals are available for all users with such access. 

9 (Continued) 
Exhibit 

KPMG Recommendations Arising from the September 30, 2006 Audit 

Incompatible System Duties - Smithsonian has granted certain individuals system access that overrides 

the segregation of duties established w~ithin the PeopleSoft system and results in selected users having 

incompatible duties. In response to our inquiries, the Smithsonian validated the access privileges 

assigned to these individuals, although no formal approval was maintained. We recommend that 

Smithsonian regularly review the users with incompatible system duties required for job function to 

ensure such access continues to be appropriate and retain special approval documentation that details 

the incompatible duties and the specific reasons why such access is granted. This information may be 

communicated to IT or OC personnel as management considers appropriate. 

Man4eement 's Resl70nse: 

Senior systems personnel in the Office of the Chief Information Officer (OCIO) agree with all of the above 

recommendations. With respect to the comment regarding Remote Network Access, OCIO will review all 

user accounts provided with remote network access privileges to ensure the appropriate approval 

documents are on file. All users without appropriate approval documentation will be required to 

reauthorize their remote access privileges. 

NewAccounting Standard: Employers' Accounting for Defined Benefit Pension and Other 

Postretirement Plans 

In September2006, the Financial Accounting Standards Board issued a new standard implementing 

significant changes in accounting by sponsors of defined benefit pension and other retiree benefit 

programs. The standard's goals are to make financial statement information more useful and transparent 

for investors, creditors, employees, retirees, and other users. 

The new standard will alter the balance sheets:of sponsors of defined benefit pension and postretirement 

plans, in some cases significantly. The changes include: 

(1) recognizing any over- or under-funded status as an asset or liability in the balance sheet; 

(2) eliminating the current option for sponsors that permit plan assets and obligations to be measured as of 

a date up to three months prior to the balance sheet date; 

(3) revising certain disclosure requirements. 

The change in measuring reported assets or liabilities related to the plan's funded status (item 1 above) is 

effective for Smithsonian for the fiscal year ending September 30, 2007. Elimination of the three month 

window for actuarial measurements is not required until the fiscal year ending September 30, 2009. The 

measurement changes, when adopted, do not require retrospective application to prior period information 

in comparative financial statements. We recommend that appropriate Smithsonian personnel and its 

consulting actuaries evaluate the impact of the new standard with respect to the postretirement plan for 

trust employees during fiscal year 2007. 

ManaRemenf S Ressonse.· 

Smithsonian personnel in conjunction with our consulting actuaries will review the impact of the new 

standard on the postretirement plan for trust employees prior to the end of fiscal 2007. 

10 (Continued) 
Exhibit 

KPMG Recommendations Arising from the September 30, 2006 Audit 

New Auditing Standard: Reporting on Internal Control 

The Auditing Standar'ds Board issues standards governing the conduct of independen't audits, including the 

manner in which internal control weaknesses are communicated to management and board committees of 

all organizations subject to audit. 

In May 2006, the Auditing Standards Board released SAS No. 112, Communicating Internal Control 

Related Matters identified in an Audit. For audits as of December 31, 2006 and thereafter, this new 

standard requires auditors of private organizations to conform to the definitions used for public companies 

in characterizing control deficiencies. 

It is clear that these new definitions "lower the bar" in requiring more matters to be characterized as 

"significant deficiencies" or "material weaknesses" in the annual written management letter received by 

our clients. The term "reportable condition" will no longer be part of audit terminology, as it is replaced by 

the concept of"significant deficiency." For many organizations, as auditor we may be required to expand 

our documentation of the effectiveness of certain types of controls. Unlike for audits of public companies 

however, there remains no requirement for the audit Jirm to issue an opinion on the effectiveness of 

controls over financial reporting for private organizations. 

It is important for clients and their audit committees to appreciate that the new standard identifies specific 

controls that, if not deemed effective by the auditor, are to be reported as at least significant deficiencies, 

with consideration as to whether a material weakness is indicated. The standard further identifies a number 

of high level controls (including the overall control environment, effective board oversight, and 

compliance functions for regulated organizations) that, if not effective, are strong indicators of a reportable 

material weakness. 

For organizations receiving federal assistance such as the Smithsonian, the GAO is now addressing how 

these new requirements will affect the compliance audits of federal awards under Circular A-133. The 

GAO has issued a recent proposal to conform their reporting definitions to those described above which 

will be applicable to financial statement audits. 

We recommend that Smithsonian financial management become familiar with the information in the new 

standard, and help educate management and the board on the changes. Management should also consider 

reviewing the sufficiency of policies and documentation related to those controls specifically named in the 

standard, which may or not have been subject to specific testing as part of past audits. 

Mananement 's Res~onse: 

Smithsonian financial management will become familiar with the new requirements of the Auditing 

Standards Board SAS No. 112. In addition, management will review current Smithsonian policies and 

documentation for sufficiency, as they relate to the specific controls named in this standard. 

11 (Continued) 
Exhibit 

KPMG Recommendations Arising from the September 30, 2006 Audit 

Investments Held by Trustees 

We noted that the Smithsonian did not have current information relating to investments held in a trust 

managed by a trustee at September 30, 2006. The trust was valued at approximately $7 million based on 

information provided by the trustee as of September 30, 2005. It is important to recognize that the 

Smithsonian's responsibility over the valuation of investments extends to investments held by third party 

trustees, such as with perpetual trusts and split-interest agreements. We recommend that the Smithsonian 

implement procedures to obtain investment statements from all third party trustees as of its balance sheet 

date land more frequently, where significant) and develop the appropriate level of understanding and 

documentation to support the reported fair values of the trust assets. 

Mananement 's Response: 

We have contacted the third party Trustees and have obtained agreements that they will provide data for 

the Smithsonian year end valuation on a more timely basis to allow the Institution to record a more current 

valuation in its financial statements. They have also agreed to provide additional information on the basis 

for the valuation of the Trusts. 
EX~IBIT 38 
EIdentical letter sent to Mr. Norman D. Dicks, Chairman SLade Gorton and Senator Robert C. Byrd] 

O Ym~thsanianInrtifutlon 

Lawrence ~t Small 

Secretary 

May 30, 2000 

The Honorable Ralph Regula 

Chairman 

Subcommittee on Interior and Related Agencies 

Committee on Appropriations 

U.S. House ofRepresentatives 

Washington, DC 20515 

Dear Mr. Chairman: 

The Smithsonian Institution respectfully requests permission of the Subcommittee to 

reprogram 55,000,000 appropriated in the FY 2000 Salaries 8r E.rpenses account. We 

make this request in order to attract new audiences to the Smithsonian and to expand and 

improve the channels by which we reach them. The enclosed copy of my memorandum 

to senior Smithsonian staff outlines this concept broadly. 

Our request consists of three items. 

· $3,000,00P (one-time)--lapsed salary funds to support the pan-Institutional 

e?rhibition on the American presidency, whi6h will open at the National Museum of 

American History in November 2000 and will ultimately travel. 

We are withdrawing funds equivalent to three months of lapsed salary costs from all 

Federal vacancies occurring in this fiscal year. We project a total accumulation of 

S3,000,000. 

The exhibition will feature objects from Smithsonian collections, and those ofothers, 

which illustrate themes of the presidency, such as campaigns, elections. and 

inaugurations, Popular images and a complete timeline of Xmericrtn Presidents-- 

from George Washington to November's winner--~vill be Features of the e~chibition to 

be initially housed in a newly refurbished, j,~00 square-foot gallery on the third aoor 

of the iCluseum. Fund raisin:: for additional resources is well under way. 

· S 1 ,000,000 (on~-time)---dra~Y downs o f no-year balances in the in ~ormation Rr3·jOL?TCa 

~lansgcmtnt and Research Equipment pools in the umoun[s 015700,000 and 

S300,000 respectively. 

SmithsoniJn :-rtiturion Building 

L000 ~siicrr-'r ?.r~ve SW 

W~shing:··- . ..'0560-0016 

?o2.35;.IJ'O -; ~7hcnr 

Z0'.;9n 11 
With these funds the Smithsonian institution Traveli'n,a Exhibition Service (SITES) 

will develop prototypes ofnew, collections-based exhibitions that are easy to 

transport, install, and maintain, along with strategies to increase the total volume of 

such exhibitions in its program. As a result, they also will be less expensive, more 

suitable for venues other than museums, and allow for the successive replacement of 

artifacts and curatorial information on different themes over extended periods of 

time~ 

$1,000,000 (permansnt)--from the Information Resource ~lanagement and 

Research Equipment pools in the amounts ofS~00,000 and S400,000 respectively. 

Of these funds, %300,000 will be applied to the costs of reorganization, including a 

new division for managing American museums and national programs. The balance 

ofS700,000 will be used for national programs-Smithsonian Affiliations, the 

Smithsonian Center for Education and liuseum Studies, and the Smithsonian 

Associates; for accelerating current SITES activity; and to provide funds to support 

related units such as the· offices of Government Relations and Communications. 

We have not easily reached the decision to draw do~vn pool funds or to ask that half of 

those funds be permanently reprogrammed. However, we have clear, near-term 

opportunities to engage audiences throughout the country. At the same time, we have yet 

to bring on board a ChiefTechnology Officer who will analyze our entire information 

technology structure. We have concluded that immediate needs related to information 

technology and research equipment can be managed within the balances that remain in 

the pools, while releasing the amounts requested for significant public purposes. 

However, recognizing the importance of the uses of these pool funds, particularly those 

that relate to providing more access to our collections, we intend, based on carefi~l 

analysis, to make every effort to recapture these funds and restore them to the base of the 

pool programs in the future. 

please let me know what additional information you require in support of this request. In 

addition, you may be certain of the willingness of my staff to work with yours in order to 

achieve the objectives described. 

Ail the best, 

i~·l-·- 

bc: GinnyJames (Gorton), Peter Kiefhaber (Byrd), Debbie Weatherly (Regula) 

Leslie Turner (Dicks), Secretary's Files (3), Under Secretary O'Connor, 

Under Secretary Burke, Under Secretary Bailey, Tom Lentz, Maura Reidy, 

Jim Hobbins, Mary Tanner, Austin Hatthews, Barbara Schnieder 
Qtongree'~e' oft4e Iltlniteb Btatee: 

'Q~Inb~ington, 39& 20525 

June 12, 2000 

Mr. Lawrence Small 

Secretary 

Smithsonian Institution 

1000 Jefferson Drive, S, W. 

Washin~ton, D. C. 20560-0016 

Dear Mr. Secretary: 

By letter of May 30, 2000, you requested the reprogramming of $5,000,000 in fiscal year 

2000 funds to support several programs. The large amount of funding identified as available for 

redirection concerns the Committees in light of the fact that there are less than four months 

remaining in the current fiscal year. 

The request is denied for several reasons. First, exhibits are justified and approved in the 

budget process and accelerating such an exhibit without a compelling reason is not an intended 

use of the repro,oramming process. Second, you state that you hope to restore base funding for 

your offsets in the future and, again, this is a misuse of the reprogramming process. Third, you 

propose to use appropriated fUnds for activities previously fUnded with non-appropriated dollars. 

This constitutes starting a new program with appropriated f`unds and is another violation of the 

reprogramming process. 

You are aware of the Committees' ~continuing concern with respect to the backlog 

maintenance needs of the Smithsonian. Indeed, your remarks suggest you share that concern. 

This repro,sramming purports to identify i'excess funds'' but redirects those fUnds into 

bureaucratic expansion and program accelerations. Such initiatives should be addressed through 

the budget process. To the extent that any excess fitnds are available. the Committees would be 

willing to consider a repro~amming request to direct those ti~nds toward necessary maintenance 

and operational activities such as security, conservation of collections and the escalating 

requirements of the National Museum of the American Indian. Further, the Cornmittees are 

~·illing to consider a budget amendment to the Smithsonian's fiscal year 3001 request in support 

of additional fUnds to create an American presidents exhibit provided that more detailed 

in formation is made available to explain specifically how such tzunds will be used. 

In closing, the Committees wish to express their concern over a recent Washington P~~~1 

article, which reports that approval has been given by the Smithsonian to move forward in 

spending millions on the American presidents eshibit. While understanding the Smithsonicin`s 

eagerness to proceed with its plans, the Commitrees question the appropriateness of announ~ I n~ 
June 12, 2000 

Page two 

a project for which fUnding has yet to be resolved. This criticism does not call into question the 

merits of the proposed exhibit, but rather is meant to underscore the Com~·nittees' participation in 

this process. 

We share your enthusiasm for attracting new audiences to the Smithsonian and look 

forward to working with you through the established budget justification process to achieve that 

mutual goal. 

Sincerely, 

hX-L~T~Z~Z 

Ralph Reg~lla Slade Gorton 

Chairman %hairman 

House Appropriations Subcommittee Senate Appropriations Subcommittee 

on Interior and Related Agencies on Interior and Related Agencies 

~34t a;L~- 

Norm Dicks Rolkrt C. Byrd 

Ranking Minority h/Iember Ranking Minority Member 

House Appropriations Subcommittee Senate Appropriations Subcommittee 

on Interior and Related Agencies on Interior and Related Agencies 
EXHIBIT 39 
s~F~ ~8~ lhB~f6~ 119~8e 

2001M Street, N.W. 

Washington, D.C. 20036 

April 4, 2001 

The Audit and Review Committee of the Board of Regents 

Smithsonian Institution 

Dear Committee Members: 

We have audited the financial statements of the Smithsonian Institution (the Smithsonian) as of 

and for the year ended September 30, 2000 and have issued our report thereon dated January 12, 

2001. 

Based on our audit for fiscal year 2000 and our review of the status of the recommendations we 

made in connection with our audit for the year ended September 30, 1999, we developed a 

number of recommendations relating to accounting procedures, internal controls and other 

operating matters, The recommendations that we consider most significant are summarized in 

the attachment to this letter. Theses recommendations have been discussed with appropriate 

members of management and their responses are included in the attachment along with 

information concerning the status of the recommendations we made in our fiscal year 1999 audit. 

Our other recommendations, which relate primarily to technical accounting issues or procedural 

matters in specific offices or areas of the Smithsonian, have been summarized in a separate letter 

to Ms, Alice C, Maroni, 

As you know, the primary purpose of our audit is to express an opinion as to whether the 

Smithsonian's financial statements present fairly its financial position, changes in net assets and 

cash flows. In planning and performing the audit of the financial statements of the Smithsonian, 

we considered internal control in order to determine our auditing procedures for the purpose of 

expressing our opinion on the financial statements, The review which we made of internal 

control would not necessarily disclose all weaknesses in internal control. Further, our audit is 

based on tests of financial balances and transactions and errors or fraud might exist that an audit 

may not disclose. We have not considered internal control since the date of our report. 

We will continue to assist management in implementing the recommendations, wherever 

appropriate, 

******* 

IBII in,,un,*sllrn.i ,;l.;.,.e ,,,,,,,a,, 
Page 2 

The Audit and Review Committee of the Board of Regents 

Smithsonian Institution 

April 4, 2001 

It was a pleasure to work with the management and employees of the Smithsonian. We sincerely 

appreciate the courtesies and assistance extended to our team in the course of our work. 

Very truly yours, 

KPMG LLP 

John J. Keenan 

Pallnel· 

Cc: Mr. Lawrence M. Small, Secretary 

Mr. Robert D. Bailey, Under Secretary for Finance and Administration 

Ms. Alice C. Maroni, Chief Financial Officer 

Mr. Thomas D. Blair, Inspector General 
Smithsonian Institution 

Fiscal Year 2000 Management Comments from KPMG 

Core Financial System........................................~~~.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1 

Accounting for Property and Equipment................................................................~~~~~~~~~~~~~~~ 2 

Status of Prior Recommendations: 

Core Financial System.........................................................~~~~.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 3 

Centralized Development Process................................... ........._,.. ..............~~~~~~~~~~~~ 3 

System Accreditation Process ....................................................................~~~~~~~~~~~~~~~ 3 

Consideration of a Finance Committee ........................ ........ ............;............ ........._ 3 
Fiscal Year 2000 MailaRement Con2mentsfram KPMG 

Core Financial System 

In our letter of February 10, 2000, we recommended that management assign a high 

priority to obtaining funding for a new core financial system and to developing a 

timetable for implementation of that system. We understand that no federal 

appropriations were made for the new financial system in the fiscal year 2001 budget and 

that the outlook forthe fiscal year 2002 budget is uncertain. Due to the operating risks 

and inefficiencies inherent in the current core financial system, we believe that it is 

critical for the Smithsonian to avoid further delays in initiating the project to replace the 

system. Accordingly, we recommend that management develop a contingency plan to 

finance the new system from trust sources in the event that the federal appropriations for 

fiscal year 2002 do not provide funding for this project (or provide funding that is 

inadequate to meet the need). 

Snzithsoizian 's Response 

We agree with KPMG's recommendation. Smithsonian's management has assigned the 

highest priority to obtaining a new core financial system. Our Chief Technology Officer, 

has defined a clear approach and methodology for implementing a new core system. At 

this time, the Chief Financial Officer is focused on pursuing federal funding beginning 

with 2002. 
Fiscal Year 2000 Managenzenr Comnzentsfrom KPMG 

Accounting for Property and Equipment 

The Office of Physical Plant (QPP) is responsible for overseeing the construction of new 

facilities and the repair/restoration of existing facilities. OPP manages the contracts with 

architects, engineers, construction contractors and others working on the facilities and 

tracks related commitments and payments (primarily using spreadsheet software). OPP is 

also responsible for maintaining the detailed financial and accounting records relating to 

property and equipment costs, summarizing related transactions and activity and 

communicating the required accounting information to the Office of the Comptroller. 

OPP's primary focus is project/contract management. Its systems and procedures are not 

designed to serve as an accounting and management control system for property and 

equipment assets and its records are not linked to the Smithsonian Financial System 

(SFS). As a result, the accounting for property and equipment is cumbersome and time 

consuming, the risk of errors is higher and there is limited accounting control over the 

assets. 

In the circumstances, we recommend that management give serious consideration to 

acquiring and implementing a property and equipment accounting and management 

system as part of the new core financial system. We believe that this would allow the 

Smithsonian to address effectively the issues summarized above while significantly 

improving its capacity to address potentially significant near-term challenges in this area, 

including the following: 

· A substantial increase in the volume of property-related activity, including 

construction of new facilities (such as theNatioilal Museum of the American 

Indian and the National Air and Space Museum Dulles Center) and the 

repair/restoration of existing facilities required to address the deferred 

maintenance issue; 

· Recently proposed changes in the accounting rules relating to property and 

equipment which would require component-level depreciation of facilities and 

impose much more stringent and detailed requirements with respect to 

accounting for replacements and renovations of property and equipment 

assets. 

Smithsonialz's Respolzse 

We agree with KPMG's recommendation. We have included "a property and equipment 

accounting and management system" in our overall requirements for a new core financial 

system. 
Status qfPrior Recommendations 

The status of the recommendations set forth in our letter of February 10, 2000 is 

summarized as follows: 

Core Financial System 

Management continues to use consultants to maintain its core financial system, SFS, until 

a new system can be implemented. An updated recommendation with respect to a 

financial plan for the new system is presented above. 

Centralized Development Processes 

This recommendation related to capturing all contribution activity in the central financial 

system in the period it occurs. We noted continued improvement in this area, with only 

immaterial contributions from 1999 recognized in 2000. 

Systems Accreditation Process 

This recommendation related to consistent enforcement of Smithsonian policy relating to 

accreditation of new systems before they go into production status. We understand that 

the process set forth in the Smithsonian Computer Security Manual is considered 

outdated and that the Office of Technology is in the process of developing a new process 

that will be implemented for all new systems in the future. 

Consideration of a Finance Committee 

At its May 8, 2000 meeting, the Board of Regents approved an amendment to the by-laws 

under which a new Finance and Znvestment Committee was formed. This committee 

performs the functions of the former Investment Policy Committee and assumed the 

responsibilities often perfor~ned by a Finance Committee. 
EXI~IIBIT 40 
2001M Street. N.W 

Washington. DC 20036 

The Audit and Review Committee of the Board of Regents 

Smithsonian Institution 

Dear Committee Members: 

We have audited the financial statements of the Smithsonian Institution (the Smithsonian) as of and for the year ended September 30, 2001 and have issued our report thereon dated February 8, 2002. 

Based on our audit for fiscal year 2001 and our review of the status of the recommendations we made in 

connection with our audit for the year ended September 30, 2000, we developed anumber of recommendations 

relating to accounting procedures, internal controls and other operating matters. The recommendations that we 

consider most significant are summarized in the attachment to this letter. Theses recommendations have been 

discussed with appropriate members oT management ad theiresponses are included inthe attachment along with information concerning the status of the recommendations we made in our fiscal year 2000 audit. Our other 

recommendations, which relate primarily to technical accountingssues or procedural matters inspecific offices 

or areas of the Smithsonian, have been summarized in a separate letter to Ms. Alice C. Maroni. 

As you know, the primary purpose of our audit is to express an opinion as to whether the Smithsonian's financial 

statements present fairly its financial position, changes in net assets and cash flows. In planning and performing the audit of the financial statements of the Smithsonian, we considered intemai control in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements. The review that we 

made of internal control would not necessarily disclose all weaknesses in internal control. Further, our audit is based on tests of financial balances and transactions and errors or fraud might exist that an audit may not disclose. We have not considered internal control since the date of oureport. 

We will continue to assist management in implementing the recommendations, wherever appropriate. 

~C****** 

It was a pleasure to work with the management and employees ofthe Smithsonian. We sincerely appreciate the courtesies and assistancextended to our team in the course of our work. 

~PltIG LLP 

April 9, 2002 

Cc: Mr. Lawrence M. Small, Secretary 

Ms. Alice C. Maroni, Chief Financial Officer 

Mr. Thomas D. Blair, Inspector General 

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Fiscal Year 2001 ManaRemelzt Comments~from KPMG 

DOCUMENTATION OF pO 

- ~_· LICIES AND PROCEDURES 

KPMG Comment: 

The Smithsonian's practices for communicating and documenting accounting policies and procedures have generally been informal. In addition, we noted that revi~ew~approval procedures performed with respect to reconciliations, reports and/or analyses that support account balances 

or entries to the accounts are frequently not documented. 

We believe that the Smithsonian would benefit from a more formal approach to the documentation of its accounting policies and procedures. Accordingly, we recommend that the 

Smithsonian consider assigning ateam to assume responsibility for developing acomprehensive 

accounting policies and procedures manual in 2002. This manual would provide information 

about the application of significant accounting policies and guidance on related procedures, 

Including requirements for documentation of the review/approval procedures performed. It could be made available on the network and would provide avaluable reference source for accounting and management personnel and a useful training tool for new employees or employees who change responsibilities. 

Smithsonian Response: 

We agree with KPMG's recommendation. The Office of the Comptroller (OC) completed the 

staffing of its Financial Policies and Procedures Division iMarch 2002. This Division has 

developed a fiscal year 2002 strategic plan for creating an OC financial procedural manual as 

well as updating Smithsonian Directives related to financial policies. 

1 (Continued) 
Fiscal Year 2001 Manngement Commants~from KPMC 

SMTTHSON~AN BUSINESS VENTURES 

KPMG Comment: 

In connection with our audit, we performed areview of the information technology (IT) 

infrastructure and the gales and inventory management processes of Smithsonian Business 

Ventures (SBV) and provided a detailed report of our findings and recommendationso SBV 

management. Our principal recommendations included the following: 

· SBV should develop and implement standard policies and procedures in various 

areas in order to improve controls over its r~ resources. These areas include systems 

security, logical access and program change controls and procedures to discontinue 

the access of terminated employees to the SBV network: 

· SBV should explore electronically interfacing the inventory management systems 

used for the catalogue and museum stores and the advertising management system 

used for the magazines with its general ledger accounting system (Lawson) in order 

to improve the efficiency of the accounting function and reduce the potential for 

errors; 

· SBV should develop and implement procedures to monitor itsinventory management 

systems in order to identify unauthorized or irregularctivity; 

· The Catalogue division should implement a formal policy with respect to 

merchandise credits and refunds and consider revising its return policy to include 

time and condition parameters. The division should also adopt the average costing 

method for its inventory in order to be consistent with other divisions of SBV; and 

The Museum Stores division should perform physical inventories more frequently 

(perhaps using a cycle count approach) and implement procedures to follow-up on 

discrepancies promptly. The division should also develop and implement an 

inventory obsolescence policy. 

Smithsonian Response: 

SBV has received KPMG's report, and is currently preparing a detailed response toeach 

recommendation. In general, management is in agreement with KPMG's recommendations, and 

in most cases, corrective action is under way. 

A few of the recommendations require further study, as there are indications thatpecific actions 

proposed by KPMG may not be cost beneficial. Several recommendations relating to the 

Catalogue systems are being addressed in connection with the planned outsourcing of the 

Chantilly facility; the outsourcing itself is expected to result in major changes to the systems. 

2 (Continued) 
Status qf Prior Recommer2dalions 

The status of the recommendations set forth in our letter of April4, 2001 is summarized as 

follows: 

Core Financial System 

This recommendation related to developing a contingency plan to finance a new core financial 

system to replace the Smithsonian Rnancial System (SFS). Federal appropriations were made Tore 

the system in the fiscal year 2002 budget and management expects to implementhe new 

Peoplesoft core financial system for the fiscal year beginning October i, 2002. 

Accounting for Property and Equipment 

This recommendation related toacquiring and implementing a property and equipment 

accounting and management system as part of the new core financial system. Management has 

included a property and equipment accounting and management system in the overall 

requirements for the new core financial system. 
EXHIBIT 41 
Installation address Page 1 of4 

aThe JEBectronic Smithsonian 

Installation Address, 19 September 1994 

I. Michael Heyman, law professor and former chancellor of the University of 

California at Berkeley, was installed Sept. 19 as the IOth secretary of the Smithsonian Institution. Chief 

Justice William Rehnquist, Smithsonian chancellor, presided at the ceremony, which was held outdoors 

on the Mall in front of the Castle. Secretary Heyman succeeds Robert McC. Adams, who has retired 

after 10 years as secretary. 

The U.S. Navy Ceremonial Band performed a medley including "This is My Country," "Columbia" and 

"America," and the audience sang the national anthem during the Presentation of Colors by the Joint 

Armed Forces Color Guard. 

Chancellor Rehnquist opened the ceremony, remarking on "the infrequent succession of great scholarly 

leaders, rooted in the rhythms of academe more than politics," that has brought SI nine secretaries in a 

span of time that has seen "30 presidents, 33 speakers of the house and 12 chiefjustices." The 

installation, he ~dded, was "momentous by any Washington standards." Rehnquist then announced that 

the regents had bestowed on Adams the title of Secretary Emeritus. 

Adams thanked the regents and recalled "just such a splendid day in September a decade ago," at his 

own installation. The task of managing the Smithsonian, he said, is like uneasily threading along a knife 

edge between beckoning abysses...change and opportunity and stability and caution. "My own 

conviction is that a decade is long enough for this balancing act." He spoke of his sense of satisfaction 

and pleasure at the regents' choice of Heyman. "He is an acutely perceptive, supple, pragmatic, broadranging generalist.... I think he can be counted on to provide wise leadership during the lean times that 

lie ahead. 

Heyman then stepped to the podium with his wife, Terese, and Chancellor Rehnquist presented the new 

secretary with the 5-inch brass key that has become the traditional symbol of installation in the position. 

Adams received it from then-Chancellor Warren Burger in 1984, and S. Dillon Ripley received from 

retiring Secretary Leonard Carmichael in 1964. It is believed to be an original key to the Castle. 

Heyman, who is 64, was elected by the Board of Regents at a meeting May 25. (See "Ira Michael 

Heyman to become the Smithsonian's IOth secretary," Page 1, The Torch, July 1994.) His installation 

address follows: 

Distinguished guests: One of my mentors, Clark Kerr, when running afoul of a new governor who was 

outraged by 1960s protest and disruption at the University of California, told reporters that he left the 

~ Presidency fired with the same enthusiasm he had had when appointed President years before. You 

should know that I, similarly, am fired with enthusiasm for this extraordinary Institution, but I don't have 

any intention to speculate on how my tenure might eventually end. 

Every Secretarial era reflects unique circumstances and poses its own opportunities and problems. At 

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Installation address Page 2 of4 

present, resources are relatively short. My recent predecessors until a few years ago could count on a 

generous Congress and Executive Branch. Public fiscal prospects, however, are bleaker at this time. 

Agency budgets are largely capped. Appropriation subcommittees must stay within set limits. 

While we must argue vigorously for special treatment, realism counsels that we not depend solely on 

public revenues to grow substantially in the near future. Realistically, we must work very hard to guard 

against erosion of our base budget and for adequate resources to fund the heavy future obligations which 

the Smithsonian and the Congress and the Office of the President have jointly undertaken, such as the 

completion and full staffing of the National Museum of the American Indian. 

This means that the Smithsonian must rely more heavily in the future on private support from 

individuals and corporations. A systematic effort to increase private support has started very well under 

Secretary Adams. We must enhance that success by working closely with donor groups--ones that 

already exist and others that will come together in the future especially in support of each of our 

museums and other major activities. And we must enlarge our connections with the corporate world. 

Substantial movement in these directions presents great opportunities to shore up our resource base, but 

change is also threatening. Many, especially internally, shrink from any identification of the 

Smithsonian with corporate sponsors. I remember outrage among some faculty at Berkeley when 

professional chairs endowed by corporations bore the name of the business donor. We obviously should 

not sell the Smithsonian's name; on the other hand, we should not shrink from tasteful indications in 

advertising that the corporate donor supports the Smithsonian. 

I refer to this because we're working very hard to interest corporate sponsors in 

joining our 150th-year celebration. Ifwe're successful, the Institution's logo will appear broadly, and the 

Smithsonian will go public nationally on television and media in ways new to all ofus. I ask my 

colleagues to applaud this audacity rather than grumble at the change. 

This new era also demands from public las well as private) organizations increased fiscal accountability. 

We must use our resources effrciently and intelligently both to husband them and to underscore our 

credibility to those who provide them--the government and our donors. I believe that frugality also has a 

positive side. For example, it will require us to agree more specifically than in the past on the 

dimensions of our mission. 

The Smithsonian resembles to me a great public university with a very broadly stated mission: the 

increase and diffusion ofknowledge. Within this we have centered on three major tasks. First is public 

education (largely through our exhibitions of art and scientific and historical objects, but also in a host 

of auxiliary ways: tours, classes, print and audio publications, and lectures). Second is a university--ike 

research operation, primarily in the biological and physical sciences. We also accomplish serious 

research in the arts, humanities, and social sciences, but there more frequently in relation to organizing 

exhibitions. The third task is hosting and maintaining at last count 140 million objects (this undertaking 

has led, of course, to that description of us as "The Nation' attic"). 

Generally speaking we do an excellent job. Most of our exhibitions are well conceived. Each of our 

museums is in the top groupings of like museums in the U.S. and the world. We carry on research 

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Installation address Page 3 of4 

programs important for both the creation of new knowledge and the application of knowledge to solve 

real-world problems. We expend considerable resources maintaining our collection. 

It is crucial that we sustain excellence in all that we do. If ourresource base shrinks, we must be 

prepared to jettison the less important of our activities rather than reduce all our activities pro rata and 

thus threaten the excellence of our most important ones. To do this rationally we have to plan, and I 

expect that a goodly portion of my time, and the time of my colleagues, will be devoted to shaping a 

comprehensive plan for the Institution for consideration of the regents. 

Tough financial times, however, ought not to mean institutional paralysis. We must find ways to finance 

needed new activities, and I have two in mind presently. 

One is S~eeper participation by the Smithsonian in the environmental debates raging in this country. My 

time at the Department of Interior land my background in teaching) reinforce my belief that the 

Smithsonian can convene and preside over conferences that explore both the scientific and policy issues 

that surround contemporary environmental disputes. And we can do this in an even-handed manner that 

involves responsible people on the many sides of issues and that will inform the political debate and 

give interested people a relatively neutral template through which to make their own judgments. 

I am appointing Thomas Lovejoy as a Counsellor to me, to the Secretary, and I am asking him to plan 

the first of what I hope will be annual conferences. The first topic, timely because Congress will be 

facing the need to legislate, is biodiversity and endangered species. And I'm looking down there at my 

former boss, the Secretary of the Interior, and wondering if he's glad or sad that we make such an 

undertaking. 

As the example indicates, I see as an important educational role of the Smithsonian the presentation of 

facts that surround controversial subjects--subjects that are within the circle of Smithsonian activity and 

expertise. We are all aware that a planned exhibition at the National Air and Space Museum on the 50th 

anniversary of the ending of the war in the Pacific by the dropping of atomic bombs on Hiroshima and 

Nagasaki, and the display of the Enola Gay, has caused considerable controversy. 

The Smithsonian could have avoided controversy by ignoring the anniversary, or by simply displaying 

the Enola Gay without comment, or setting forth only the justification for the use of atomic weapons 

without either reporting the contrary arguments or indicating the impact of the bombs on the ground. My 

view is that the Smithsonian has a broader role than simply displaying items in the so-called Nation's 

attic or eschewing important topics because of the political difficulties created by the exhibition. The 

Smithsonian, as a meaningful and responsible public educational institution, should seek to present 

matters in their full dimension. At the same time, however, we should do our level best to be balanced, 

especially when we deal with matters that engender serious political controversy. Our viewers should 

make up their own minds. 

This is what we are trying to do now, as we revise the Enola Gay exhibition. Our first script for the 

exhibition was deficient. Too much of the context for the use of atomic bombs was taken for granted. In 

this and other ways, the proposed exhibition was out ofbalance. This is being remedied as we consult 

with additional historians and interested groups. I believe that our final product, to go on exhibition next 

May, will properly present the record of what happened and will be the basis for justified national pride 

in the sacrifices of our veterans, the technical proficiency of our scientists, and the productivity of our 

industries. And this evenhandedness is what I have in mind with environmental topics like the protection 

of endangered species. 

The second activity, much more massive and potentially important for the Institution, is the 

development of our capacity to give electronic access to our collections throughout the nation. The 

technical capacity exists now to record our collections in digital form and to transmit them in on-line 

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Installation address Page 4 of4 

computer networks and on discs. Presently, a number of finns are experimenting with like television 

transmission, although it will take some time before substantial numbers of homes can be reached in 

such networks. In the short run, however, it is probable that transmissions will be broadly accessible to 

schools; the formal educational opportunities by one-way or interactive systems will become substantial 

in the near future. 

These technological developments will enable the Smithsonian to be truly national. We presently share 

our exhibitions through a splendid system of traveling shows, and we obviously share research 

infonnation through articles and books and on-site work by visiting scholars. Electronic communication, 

however, broadens our potentialities immensely and at a relatively low cost, certainly at a much lower 

cost than seeking to build buildings and run them throughout the United States. 

Parts of the Smithsonian are already engaged in these undertakings. I intend to devote considerable time 

to enhancement and coordination of our present activities. Five years hence I hope that the Smithsonian 

(together with the Library of Congress, the National Gallery, and other federal, state and private 

agencies) will be deeply engaged in this new world of information transmission and sharing. We should 

be more than the place to visit in Washington; we should also be present throughout the country in a 

whole variety ofways. 

My last obsen~ation suggests that the Smithsonian should be working with other institutions in sharing 

electronic communications. A broad view of institutional interrelationships is another way to enhance 

and enlarge our effectiveness. Our joint program with Harvard in astrophysics is an example of what I 

mean. I hope that we will explore deeply its effective emulation in natural history and other of our 

activities. 

There is a third area of prior achievement which deserves our continued attention and energy. The 

Smithsonian is becoming self-consciously inclusive: more of its exhibitions and activities reflect the art, 

culture and history of all of our major ethnic groups. We still have a way to go, and we will be paying 

special attention in the next few years to that large group of Americans of Hispanic origin whose culture 

has not adequately been represented at the Smithsonian. We do this not to differentiate, but to educate 

all of us about our origins in a way that will foster senses of pride and thus counter separation and make 

more attainable the creation of one set of Americans out of many. 

I am delighted to be named the 10th Secretary of the Smithsonian Institution. I look forward with 

pleasure to leading one of the great cultural and scientific institutions of the United States. I urge all of 

you to participate deeply in our 150thLyear celebration through your energy, your creativity, and, when 

the time comes, your pocketbook. Thank you. 

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