Kennedy Center: Progress Made on GAO Recommendations, but Oversight Challenges Still Exist
Published: 2006-09-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In April 2005, GAO recommended that the John F. Kennedy Center for the Performing Arts (Kennedy Center) increase oversight of its management of federal funds, better comply with fire code, and conform to project management best practices. GAO was asked to evaluate (1) the progress the Kennedy Center has made in implementing GAO's April 2005 recommendations, (2) the status of federally funded capital projects and the planned spending of federal funds for capital projects as indicated by the Kennedy Center's most recent comprehensive building plan, and (3) the Kennedy Center Board of Trustees' responsibilities for federally funded capital projects and the extent to which the board fulfills these responsibilities. To fulfill these objectives, GAO examined Kennedy Center documents, visited other arts organizations, and interviewed affected parties.
section_title: What GAO Found
paragraphs: The Kennedy Center has taken steps to implement GAO's oversight, fire safety, and capital project recommendations but more work remains. For example, to increase oversight of its management of federal funds, the Kennedy Center contracted with the Smithsonian Institution Office of the Inspector General for audits of federal funds used for capital projects. In addition, to better comply with fire safety code, the Kennedy Center has implemented GAO's recommendations to obtain a peer review of its fire-modeling study and manage the storage of combustible materials. As a result of the peer review, the center made changes to its fire-modeling study. Finally, to better align with project management best practices, the Kennedy Center has implemented GAO's recommendations to design and implement contract, financial, and project management policies and procedures and control cost and schedule changes in future projects. The Kennedy Center's 2005 comprehensive building plan (CBP)--or longterm renovation effort--shows that the center will not complete its capital renovations within the planned 2008 time frame and budgets. The estimated costs for the remaining CBP projects have increased from $48 million to $58 million since the 2004 CBP, and the center plans to defer most terrace-level renovations beyond 2008, the original completion date. The 2005 CBP shows that the Family Theater was completed on schedule in 2005 with limited cost growth. However, despite improved contracting practices, GAO found that the Kennedy Center did not fully comply with the Federal Acquisition Regulation (FAR) when it used an alternative contracting method. In addition, it increased the risk of cost overruns by authorizing Family Theater work to begin before establishing the contract's guaranteed maximum price. The Kennedy Center Board of Trustees has delegated to management most of its responsibilities for federally funded capital projects, which is a typical board action. However, GAO found that several factors limit the board's oversight of federally funded capital projects. The Kennedy Center Board of Trustees and its Operations Committee (1) lack procedures on how to carry out the board's responsibilities for federally funded projects (2) have experienced low attendance at meetings, and (3) lack information needed to evaluate the implementation of capital projects. In addition, the Operations Committee has met infrequently, which further limits oversight.

section_title: Letter
paragraphs: The John F. Kennedy Center for the Performing Arts (Kennedy Center)  opened in 1971 as a national cultural arts center and presidential memorial.  Every year, millions of people either visit the Kennedy Center to view the  center and memorial or to attend live performances. Since at least 1990, the  Kennedy Center facility has needed substantial capital repairs. At that time,  officials from both the Kennedy Center and the Department of the  Interior’s National Park Service (National Park Service), which then shared  responsibility for managing the Kennedy Center, acknowledged that the  physical condition of the center had seriously deteriorated.
In 1994, legislation was enacted that gave the Kennedy Center Board of  Trustees sole responsibility for managing the facility. As part of that  responsibility, the legislation required the Kennedy Center Board of  Trustees to develop, and annually update, a comprehensive building needs  plan. In response, the Kennedy Center developed a comprehensive building  plan (CBP) in 1995 that included an assessment of the facility and identified  the capital projects considered necessary to repair the center and bring it  into compliance with current codes for fire safety and disabled access. The  plan consisted of a long-term capital repair and upgrade project that,  among other things, envisioned the center's meeting or exceeding relevant  fire safety regulations by 2008 and addressing disabled access needs. To implement its CBP, the Kennedy Center received almost $216 million in  federal funds during fiscal years 1995 through 2006 for capital repairs and  alterations.
For more than a decade, we have identified shortcomings in, and made  recommendations to improve, the Kennedy Center's construction,  planning, and management processes: (1) In the 1990s, we reported that the  Kennedy Center did not have sufficient staff capability to effectively  manage its capital improvement plans; (2) In 2003, we reported that the  Kennedy Center needed to strengthen its management and oversight of  large construction projects, such as the garage expansion and renovation  project; and (3)  In 2004, we reported that the Kennedy Center had  implemented most of the projects in its CBP but would likely not complete  its plan by 2008, given the number and size of the renovation projects that  remained to be done, the amount of anticipated future appropriations, and  the likelihood that project budgets may increase as designs are completed.    Most recently, we reported that although the Kennedy Center completed  four major renovations, each of these projects exceeded budget estimates,  some by substantial amounts. We also found that the Kennedy Center  lacked the comprehensive policies and procedures needed to adequately  safeguard federal funds and did not appear to meet fire safety code  requirements. Accordingly, we recommended in our April 2005 report that  the Kennedy Center increase its oversight of federally funded capital  projects, better comply with fire code, and better align its management of  capital projects with best practices.
To assist Congress, you requested that we examine the Kennedy Center’s  management and oversight of federally funded capital projects.  Accordingly, this report evaluates (1) the progress the Kennedy Center has  made in implementing the recommendations in our April 2005 report; (2)  the status of federally funded capital projects and the planned spending of  federal funds for capital projects, as shown in the Kennedy Center’s most  recent comprehensive building plan; and (3) the Kennedy Center Board of  Trustees’ responsibilities for federally funded capital projects and the  extent to which the board fulfills these responsibilities.
To determine the progress the Kennedy Center has made in implementing  our April 2005 recommendations to increase oversight of its management  of federal funds, better comply with fire code, and better align its  management of capital projects with best practices, we reviewed Kennedy  Center documents, including a 2005 risk assessment and internal audit  plan; peer reviews of the center’s fire-modeling study; annual CBPs; Family  Theater contract modifications; and contract, financial, and project  management policies and procedures. In addition, we spoke with  management officials at the Kennedy Center, General Services  Administration (GSA), and National Archives and Records Administration  (NARA). To determine the status of federally funded capital projects and  the planned spending of federal funds, as indicated by the Kennedy  Center’s most recent CBP, we reviewed the Kennedy Center’s 1995 CPB and  its 2004 and 2005 updates. Specifically, we examined the changes in the  2005 CBP that were made since the 2004 CBP and developed a list of  federally funded projects that the Kennedy Center plans to delay or defer  and reviewed the Kennedy Center’s request for additional funds. To  determine the Kennedy Center Board of Trustees’ responsibilities for  federally funded capital projects and the extent to which the board fulfills  these responsibilities, we analyzed various federal laws, documents from  the Board of Trustees and its Operations Committee, and the annual  updates to the CBP. Specifically, to examine the extent to which the board  fulfills its responsibilities for federally funded capital projects, we reviewed  Board of Trustees and Operations Committee information packets and  meeting minutes from January 1995 through April 2006 to determine how a  variety of capital projects were overseen by the board. These projects  included, but are not limited to, the Opera House renovation, fire alarm  system replacement, public space modifications, site improvements  project, and the Family Theater. In addition, we interviewed current and  previous trustees from the board and congressional staffers that are  designees of Kennedy Center trustees. We also spoke with Kennedy Center  management officials about the status of federally funded capital projects.  To obtain information on how other boards govern, including their  responsibilities for capital projects and oversight of public funds, we  interviewed academics that focus on board governance; officials from  nonprofit board governance associations, and officials from arts  organizations that have characteristics similar to the Kennedy Center. We  conducted our work in Los Angeles, California; New York City, New York;  and Washington, D.C., between October 2005 and August 2006 in  accordance with generally accepted government auditing standards (see  app. I for more information on our scope and methodology).
subsections: section_title: Background
paragraphs: The Kennedy Center opened in 1971 and is located on 17 acres along the  Potomac River in Washington, D.C. The center houses numerous theater,  exhibition, and rehearsal spaces; public halls; educational facilities; offices;  and meeting rooms in about 1.1 million square feet of space. The plaza level  is the primary focus for patrons and tourists, including three main theaters,  the Grand Foyer, the Hall of States, and the Hall of Nations. Access to other  areas, such as the roof terrace level, is provided through the Grand Foyer,  Hall of States, and Hall of Nations. Figure 1 provides a diagram of the  Kennedy Center's plaza level.
The National Cultural Center Act of 1958 established the National Cultural  Center as a bureau within the Smithsonian Institution and created a board  responsible for constructing and administering the nation’s performing arts  center. The John F. Kennedy Center Act of 1964 renamed the National  Cultural Center as the John F. Kennedy Center for the Performing Arts. The  Kennedy Center is also a nonprofit organization with the authority to solicit  and accept gifts. In 1972, Congress authorized the National Park Service to  provide maintenance, security, and other services necessary to maintain  the building, while making the Kennedy Center Board of Trustees  responsible for performing arts activities at the Kennedy Center. Under this  arrangement, the Kennedy Center facility incurred a backlog of capital  repairs, in part because responsibility for identifying and completing  capital repairs and improvements at the center was unclear. Legislation  was enacted in 1990 that directed the National Park Service and the Board  of Trustees to enter into a cooperative agreement clarifying their  responsibilities for the maintenance, repair, and alteration of the center,  but the parties were unable to reach an agreement. In 1994, legislation was  enacted that gave the Board of Trustees sole responsibility for carrying out  capital improvements at the Kennedy Center. One purpose of the 1994  legislation was to provide autonomy for the overall management of the  Kennedy Center, including better control over its capital projects, and to  renovate the center.
Under the Kennedy Center Act, the Kennedy Center Board of Trustees  currently consists of 59 trustees:  23 are ex officio trustees, appointed by  virtue of the office or position they hold, including congressional members,  and 36 are general trustees appointed by the President of the United States.  Each presidentially appointed trustee serves a term of 6 years. As the  center’s chief decision-making body, the Kennedy Center Board of Trustees  is responsible for maintaining the Kennedy Center as a living memorial to  President John F. Kennedy and executing other functions required of the  board under the act. The Kennedy Center Act requires the Board of  Trustees to develop and annually update a CBP; plan, design and construct  each capital project at the center; and prepare a budget. The board’s  policies and procedures manual, which includes the board’s bylaws, states  that board responsibilities include approving the annual CBP updates,  reviewing management’s performance in implementing capital projects,  and reviewing and approving the center’s annual capital project budget.  The Kennedy Center Board of Trustees has a number of standing  committees, including Executive, Audit, Finance, and Operations  committees to assist with the board’s work. The Operations Committee is  responsible for overseeing the general operations of the center, as well as  all capital projects. Figure 2 shows the organization of the Kennedy Center,  which includes the Board of Trustees and the center’s management  structure as it applies to capital projects.
As part of its responsibility under the 1994 legislation, the center published  its first CBP in 1995, describing the goals of a long-term renovation effort,  including addressing fire safety and disabled access code deficiencies,  replacing inefficient building systems, and improving visitor services. This  original building plan anticipated that the proposed capital projects would  be completed in two stages. Projects in the first stage—fiscal years 1995  through 1999—would address critical security and life safety measures and  improve accessibility. Projects undertaken in the second stage—fiscal  years 2000 through 2009—would eliminate the backlog of deferred capital  repair projects. In 1995, the Kennedy Center anticipated undertaking  critical fire safety projects by the end of fiscal year 1999. However, to  minimize disruption to performances, the Kennedy Center changed its  approach to making capital improvements. Rather than undertaking broad- scale projects that could disrupt the entire center, the Kennedy Center  chose to renovate the center incrementally while keeping the rest of the  center open and operating.
The center receives annual federal appropriations for capital projects  based on the CBP and also for the operation, maintenance, and security of  the facility. The funds appropriated for capital projects remain available to  the Kennedy Center until they are expended. To implement its CBP, the  Kennedy Center has received about $216 million since fiscal year 1995. This  includes $35.3 million transferred from the National Park Service and the  Smithsonian Institution and about $180.5 million in appropriated funds. In  fiscal year 2006, the Kennedy Center received $13 million in federal funds  for capital improvement projects and $17.8 million for the operation,  maintenance, and security of the facility. According to a Kennedy Center  official, this amount represents about 18 percent of the Kennedy Center’s  anticipated fiscal year 2006 total operating expenses. The Kennedy Center  generates the majority of its revenues from performances at the center,  contributions, and investments. The center’s federal appropriations are not  used for performance-related expenses.
The law governing facility construction or alteration at the Kennedy Center  requires that the center be in compliance with nationally recognized model  building codes and other applicable nationally recognized fire safety codes  to the maximum extent feasible. As is the case for federal agencies, the  Kennedy Center is the authority that makes the final determination on  whether the center is complying with the fire safety code. The Kennedy  Center policy on building codes states that, where feasible, the center will  comply with the International Building Code (2003), International Fire  Code (2003), and selected provisions of the National Fire Prevention  Association Life Safety Code (NFPA 101) (2003).
The John F. Kennedy Center Act Amendments of 1994 amended the  Kennedy Center Act to designate the center as a federal entity for purposes  of the Inspector General Act of 1978 (IG Act), as amended. The Kennedy  Center Act states that only federally appropriated funds are subject to the  requirements of a federal entity under the IG Act. The Kennedy Center Act  authorizes the Smithsonian Institution OIG to audit and investigate  activities of the Kennedy Center involving federal appropriated funds, on a  reimbursable basis, if requested by the Board of Trustees. In July 2006, the  Kennedy Center finalized an MOU with the Smithsonian OIG for audits of  federal funds used for capital projects.
section_title: The Kennedy Center Has Taken Steps to Implement Our Oversight, Fire Safety, and Capital Project Recommendations, but More Work Remains
paragraphs: Recently, we recommended that the Kennedy Center increase oversight of  its management of federal funds, ensure the fire safety of the center, and  better align its management of capital projects with best practices.  While  the Kennedy Center has fully or partially implemented all 12 of our  recommendations, more work is needed to fully implement some  recommendations in the areas of fire safety and management of capital  projects. In particular, the Kennedy Center has taken steps to (1) address  fire code deficiencies at the Millennium Stages, such as providing marked  exit routes for occupants; (2) ensure that doors in key areas provide  adequate separation from fire; (3) develop as-built drawings of the center;  and (4) provide timely and accurate information about capital projects to  stakeholders (see fig. 3).
subsections: section_title: The Kennedy Center Has Contracted for Audits of Its Management of Federal Fund Expenditures
paragraphs: In April 2005, we reported that the Kennedy Center had limited external  reviews of how it maintains assurance regarding appropriate management  of federal funds. Specifically, we found that the costs of four federally  funded Kennedy Center capital projects exceeded the original budgeted  costs and that a lack of comprehensive policies and procedures limited the  Kennedy Center’s ability to adequately manage federal funds. In addition, in  April 2005, we reported that the Kennedy Center had not reported annually  to Congress and the Office of Management and Budget (OMB) on its audit  and investigative activities as required by the IG Act. To increase  oversight of the Kennedy Center’s management of federal funds, we  recommended in April 2005 that the Kennedy Center work with an  independent federal government oversight organization, such as the  Smithsonian Institution OIG, for audits of the center’s use of federal  funds.
In response to our recommendation, the Kennedy Center hired a  nongovernmental organization in August 2005 to develop a risk assessment  and audit plan to assist the Kennedy Center Board of Trustees in its  oversight of the center’s management of federal funds. Specifically, the risk  assessment and audit plan were created for the Facilities Management  Office (FMO) and Project Management Office (PMO) because the Kennedy  Center receives federal funds to support the activities of both offices. FMO  manages operations, maintenance, and contracting, and PMO is one of  three offices that conduct capital projects for the center. The risk  assessment was designed to provide a summary of the center’s potential  risks for facilities and project management, including the specific risks the  center faces in its use of federal funds. One such risk identified for project  management is that capital projects could incur cost and time overruns if  the project budget or schedule does not sufficiently allow for  contingencies. The nongovernmental organization also prepared an audit  plan, which was based on the center’s potential facilities and project  management risks. This audit plan was designed to address the key risk  issues identified in the risk assessment and provide a strategy for another  organization to review each risk. For example, to address the potential for  cost and schedule overruns, an audit of the center’s project management  process was proposed.
On May 16, 2006, the Kennedy Center awarded a contract to a  nongovernmental organization to implement the audit plans for FMO  activities. A Kennedy Center official told us that the nongovernmental  organization began the FMO audit work several days after the contract was  awarded. On July 25, 2006, the Kennedy Center finalized an MOU for the  Smithsonian Institution OIG to conduct audits, on a reimbursable basis, of  PMO activities. Specifically, the Smithsonian Institution OIG will conduct  two audits on aspects of the center’s capital project management process.  The Smithsonian OIG expects that these two audits will take about 1 year.  In addition, the Smithsonian Institution OIG will submit proposals to the  Kennedy Center Board of Trustees for subsequent audit coverage. As we  reported in April 2005, ongoing oversight of the center’s use of federal  funds is necessary to maintain assurance that they are managed  appropriately. Therefore, to ensure ongoing oversight of the center’s use of  federal funds, it is important that the board examine and pursue future  audit proposals from the Smithsonian OIG.
section_title: The Kennedy Center Has Taken Some Steps to Implement Our Fire Safety Recommendations, but More Work Is Needed
paragraphs: In April 2005, we reported that the Kennedy Center did not appear to meet  some fire safety code requirements. Specifically, we identified problems  with the performance-based approach the center used to overcome a  deficiency in the number of emergency exits at the center, and we  identified other code deficiencies in the center that were not covered by  the performance-based approach. First, we found that the Kennedy Center  had not fully implemented the conditions associated with its performance- based approach, which included installing sprinklers at the Millennium  Stages and developing and implementing a program to manage the storage  of scenery, props, and other combustible materials. In addition, the Board  of Trustees had not accepted and adopted the terms of the performance- based approach as described in fire code. Since these steps had not been  taken, we concluded that the performance-based approach was not yet  valid for satisfying fire code. We also found that the fire-modeling study, on  which the Kennedy Center’s performance-based approach was based, had  not undergone a peer review. Peer review of modeling studies is a common  industry practice outlined in fire code. In addition, we concluded that a  peer review was particularly important for the Kennedy Center because the  center lacked sufficient on-staff expertise to adequately interpret and  evaluate the modeling study, and the Kennedy Center’s fire safety decisions  were not subject to external review. Other fire code deficiencies remained  to be addressed. For example, we found that there were no fire-rated doors  in some areas that contain key emergency systems, and the Millennium  Stages did not have two different, marked exit routes for occupants or an  integrated smoke control, sprinkler, and smoke detector system over the  stage area, as required by fire code. As a result, we recommended that the  Kennedy Center improve its compliance with applicable fire codes in a  number of ways (see fig. 4).
The Kennedy Center has implemented our recommendation to obtain  a peer review of its fire-modeling study. In April 2005, we  recommended that the Kennedy Center seek a peer review of its fire- modeling study of the Grand Foyer, Hall of States, and Hall of Nations to  determine if the study could be substituted for certain prescriptive fire  code solutions.  In July 2005, the Kennedy Center initiated two separate  peer reviews, one with GSA and another with a nongovernmental fire  protection consultant firm. Both peer reviews provided comments and  expressed concerns about the assumptions used in the center’s study. In  response to the peer reviewers’ comments and concerns, the Kennedy  Center improved and updated its fire-modeling study, which was  finalized in March 2006. The revised, peer-reviewed modeling study  concludes that patrons can exit the Kennedy Center before it becomes  untenable provided that (1) fire protection from the Lower Gift Shop is  provided and (2) exit signs are installed in the Grand Foyer, Hall of  States, and Hall of Nations. The Kennedy Center Board of Trustees is the  authority responsible for determining if a performance-based design  meets its objectives, as described in fire code.  The Chairman of the  Kennedy Center Board of Trustees stated that after the updated study is  finalized, the board will determine if it meets design objectives and then  will formally accept the study and adopt its terms. Although the updated  study was finalized in March 2006, the Board of Trustees has yet to  formally accept the study and adopt its terms. The board’s approval of  the assumptions and conditions of the updated study is the final step in  fully implementing our recommendation.
The Kennedy Center has implemented our recommendation to manage  the storage of combustible materials. In April 2005, we recommended  that the Kennedy Center meet the objectives of its performance-based  study by developing and implementing a program to manage the storage  of scenery, props, and other combustible materials. In April 2005, the  Kennedy Center developed and implemented a policy to manage fuel  load by limiting the storage of scenery, stage props, and other  combustible materials. To implement this policy, a Kennedy Center  official conducts compliance inspections using a fire and life-safety  checklist prior to each new show.
The Kennedy Center has taken steps to implement our  recommendation to address the code deficiencies at the Millennium  Stages. In April 2005, we recommended that the Kennedy Center, in  accordance with fire code, install an integrated smoke control,  sprinkler, and smoke detector system over each Millennium Stage area  and provide two different, marked exit routes for occupants at each  Millennium Stage. The Kennedy Center believes the Millennium Stages  have sufficient fire protection systems in place based on the results of  its performance model. The revised, peer-reviewed modeling study  concludes that smoke exhaust and sprinkler protection are not needed  for the Millennium Stages provided the conditions of the revised  modeling study are met. The Kennedy Center plans to adequately  separate the Lower Gift Shop and the plaza-level public spaces as part of  its life-safety improvements by spring 2007. Second, a Kennedy Center  official said that exit signage is temporarily installed to mark the interior  exit path during Millennium Stage performances and that the center  plans to begin installing exit signs on the external doors in the Grand  Foyer by the end of September 2006 (see fig. 5).  Once the two  conditions of the revised modeling study have been met, the Kennedy  Center will have fully implemented our recommendation.
The Kennedy Center has taken some steps to implement our  recommendation to ensure that doors in key areas provide adequate  separation from fire. In April 2005, we recommended that the Kennedy  Center comply with fire safety code by ensuring that fire-rated doors are  installed in key areas to provide adequate separation from fire. In March  and May 2006, the Kennedy Center had a fire protection inspector assess  the fire rating of the doors in the fire pump room, Fire Command Center  and Concert Hall exits. The fire protection inspector found that these  doors needed some repairs in order to obtain the fire-rating label. In  response, the Kennedy Center repaired the doors in the fire pump room  and Fire Command Center and, therefore, the fire protection inspector  was able to certify that these doors provide adequate separation from  fire. In addition, the Kennedy Center is making the necessary repairs to  the doors at the Concert Hall exits to ensure that they provide adequate  separation from fire. A Kennedy Center official stated that he plans to  have the Concert Hall exit doors repaired, inspected, and labeled as fire- rated by the end of December 2006. Once the Concert Hall exit doors  have been repaired, inspected, and labeled as fire-rated, the Kennedy  Center will have fully implemented our recommendation.
section_title: The Kennedy Center Has Taken Some Steps to Implement Best Practices to Improve Its Capital Project Management, but More Work Is Needed
paragraphs: In April 2005, we reported that although the Kennedy Center achieved its  goal of renovating four key federally funded capital projects, costs  exceeded budget estimates for each project. Project cost growth resulted  from modifications made during the renovation process, in part, because  the Kennedy Center lacked knowledge of the building’s site conditions.  Modifications led to overtime charges paid to meet tight construction  schedules. In addition, the center may have paid more than necessary by  negotiating contract modification values after work was completed. A lack  of comprehensive policies and procedures limited the Kennedy Center’s  ability to adequately safeguard federal funds. In addition, the Kennedy  Center did not always communicate timely or accurate information on  project cost growth and schedule delays to its board or Congress. In April  2005, we made several recommendations to better align the Kennedy  Center’s capital project management with best practices (see fig. 6).
The Kennedy Center has implemented our recommendation to design  and implement contract and project management policies and  procedures in accordance with prescribed federal guidance. In January  2006, the Kennedy Center designed and implemented contract and  project management policies and procedures to guide various activities  related to the acquisition of goods and services for its capital  improvements program. The contract and project policies and  procedures were drawn from the FAR, which generally applies to  federal contracting activities. We did not assess the effectiveness of  these policies and procedures because they were recently implemented.
The Kennedy Center has implemented our recommendation to control  cost growth and schedule changes in the Family Theater by setting  more flexible construction schedules and improving its management  of contract modifications. In February 2006, the Kennedy Center  implemented a contract and project management policy that requires  contract modification values to be negotiated before work is completed.
For this report, we performed a limited assessment of the center’s  implementation of this policy based on a review of some Family Theater  contract modifications. We found that the Family Theater was  completed on schedule and with limited cost growth. In particular,  contractors did not proceed with additional work until it was approved  by the contracting officer, and overtime was not paid to accelerate the  schedule. The Kennedy Center’s progress in setting more flexible  schedules and improving its management of contract modifications on  larger federally funded projects, such as the Eisenhower Theater, will  better indicate whether the center can effectively control cost growth  and schedule changes. The Kennedy Center estimates that the  construction period for this project will be from spring 2007 through  summer 2008.
The Kennedy Center has implemented our recommendation to design  and implement financial policies and procedures to strengthen  financial management controls in several specific areas (see fig. 7). In  January 2006, the Kennedy Center designed and implemented financial  policies and procedures for activities funded by federal appropriations.  The financial policies and procedures were drawn from various laws  and regulations, including the FAR. Our analysis found that the Kennedy  Center has implemented our recommendations to ensure that complete,  up-to-date costs are recognized and used to prepare financial reports  and that payments to other federal agencies are consistent with the  Economy Act agreement. In addition, the Kennedy Center  implemented a procedure to ensure that receipt information is recorded  and compared with field inspection reports to verify the validity of  invoices prior to payment. The Kennedy Center also developed and  effectively implemented new policies and procedures to ensure that (1)  invoices contain sufficient detail to support their accuracy and validity  and (2) invoices match with inspection reports and previously paid  invoices to prevent duplicate payments. A more detailed discussion of  our analysis of the Kennedy Center’s implementation of its financial  policies and procedures can be found in appendix II.
The Kennedy Center has implemented our recommendation to  establish and enforce a documents retention policy that allows for  accountability of the center’s federal funds. In June 2006, the Kennedy  Center established and enforced a documents retention policy and  issued a procedures manual for federal and nonfederal documents  based on guidance from several sources, including the Internal Revenue  Service, NARA, and the Smithsonian Institution. In conjunction with this  manual, the center developed and implemented a computerized system  to assist in the storage, retrieval, and destruction of all records.
The Kennedy Center has taken some steps to implement our  recommendation to better develop as-built drawings and better track  future changes to the center. In January 2006, the Kennedy Center  created a project management policy that requires as-built drawings of  any new construction improvements to the building. As-built drawings  of the new construction will allow the center to better track future  changes to these areas. However, this policy does not require the center  to integrate the individual new construction as-built drawings into one  master set of centerwide drawings nor does it require updating as-built  drawings as additional changes to the center are made. A Kennedy  Center official told us that the center agrees that as-built drawings of the  entire center are needed to prevent costly unforeseen site conditions;  however, assembling and updating a master set of as-built drawings is  expensive and not a Kennedy Center priority.  Nevertheless, since  incomplete knowledge of site conditions has contributed to cost  overruns in the past, it remains important for the Kennedy Center to  start assembling and consistently updating a comprehensive set of as- built drawings of the entire center.
The Kennedy Center has taken some steps to implement our  recommendation to provide timely and accurate information about  capital projects by detailing their budget, scope, and cost and  providing to stakeholders an annual reconciliation of the status of all  planned, delayed, eliminated, and actual projects. We found that the  2005 CBP is better than previous versions because it includes the details  of, and explanations for, project budget changes since the 2004 CBP. The  2005 CBP also includes the actual and projected obligations for each  capital project by fiscal year through 2008, the last year of the CBP.  Figure 8 illustrates how the Kennedy Center’s 2005 CBP conveys actual  and projected obligations for the Eisenhower Theater for this period.  These actions are responsive to our recommendation that the Kennedy  Center provide more timely and accurate information to Congress and  the Board of Trustees on the status of all planned and actual projects.
In some instances, we found that the 2005 CBP did not provide timely or  accurate information about federally funded capital projects. First, the  2005 CBP does not include original budgets for several federally funded  projects, which would be needed to compare actual costs with originally  budgeted costs to identify project cost overruns. Without this information,  the Kennedy Center Board of Trustees and Congress lack accurate  information to monitor and evaluate whether federally funded capital  projects have been implemented effectively and efficiently. Second, the  2005 CBP remains unnecessarily difficult to understand. Specifically, it  describes its capital renovation efforts in two different sections of the  report. The first section provides an assessment of the different parts of the  center and makes recommendations for improvement, and the second  section lays out specific CBP capital projects and budgets. However, there  is no crosswalk between the recommendations and the federally funded  capital projects, making it difficult to identify how, or if, each project  addresses specific facility issues. For example, although the 2005 CBP  establishes a project numbering system, it does not use the numbering  system in the other sections of the report to link specific projects to the  issues discussed, making it difficult to understand how each project  addresses these issues.
In addition, the center has not provided accurate or timely information to  the Kennedy Center Board of Trustees or OMB about the cost of federally  funded capital projects. The Kennedy Center sends monthly reports to  OMB that provide detailed information, project by project, on budgets and  schedules. However, we identified eight capital project budgets in the  December 2005 OMB reports that do not match the capital project budgets  in the most recent CBP, which was finalized in December 2005. For  example, the most recent CBP shows that the total projected obligations  for the Eisenhower Theater are about $15.8 million, whereas the OMB  report lists the project budget at about $16.8 million. While one of these  two budget figures may be accurate, it is impossible for stakeholders to  know which is accurate because the publication date for both is the same,  December 2005.
section_title: The Kennedy Center Will Not Complete All Planned Capital Renovations within CBP Budgets and Time Frames
paragraphs: The Kennedy Center’s 2005 CBP indicates that the center will need  additional budget resources to complete the federally funded projects  remaining in its CBP and that the terrace-level renovations will be deferred  until after the CBP ends in 2008. However, the 2005 CBP fails to calculate  the sum of individual project cost changes, making it difficult to determine  the overall impact of these changes. We found that the total budget for the  22 planned, ongoing, or recently completed projects in the 2005 CBP has  increased by $10 million, or 21 percent, since 2004, bringing the total cost  of the remaining CBP projects to $58 million. The 2005 CBP indicates that  the Kennedy Center completed the Family Theater renovation on schedule  in 2005 with limited cost growth and plans to begin renovating the  Eisenhower Theater in 2007. However, the 2005 CBP also indicates that  Kennedy Center deferred most terrace-level renovations that had originally  been planned for the CBP, including renovations to the Terrace Theater,  Theater Lab, States and Nations Galleries, and Atrium. In addition, the  Kennedy Center has acknowledged, since the 2005 CBP was issued, that  more budget increases and project deferrals may be necessary before the  CBP is scheduled to end in 2008.
subsections: section_title: Estimated Costs for Remaining CBP Projects Have Increased by $10 Million, or 21 Percent, Since 2004
paragraphs: In accordance with our April 2005 recommendation, the 2005 CBP now  reconciles the budget changes from the 2004 CBP to the 2005 CBP for the  22 planned, ongoing, or recently completed projects in the CBP, allowing  readers to more easily track budget changes for individual projects.   However, these new reconciliations fail to calculate the sum of individual  project changes, making it difficult to determine their overall impact on the  CBP budget through 2008. Our analysis shows that the cost of the  remaining CBP has increased about $10 million, or 21 percent, since 2004,  bringing the total cost of the remainder of the CBP from about $48 million  to $58 million for fiscal years 2006 through 2008. Although the budgets for  a number of projects have changed since the 2004 CBP, our analysis shows  that the net increase of about $10 million was generally attributable to large  increases in the following five projects:  The Site Improvements project budget increased by $4.2 million, or 71  percent, from the 2004 CBP. The 2005 CBP indicated that the Kennedy  Center needed additional funds to address unforeseen site conditions,  construction problems, and outstanding contractor claims. Although not  detailed in the 2005 CBP, outstanding contractor claims on the Site  Improvements project may cost millions of dollars in federal funds to  settle, according to a Kennedy Center official. The project includes  improvements to the service tunnel, plaza, west fascia and safety railing,  garage, and the streets surrounding the Kennedy Center.
The Toilet Room Renovation project budget increased by $2.3 million,  or 94 percent, from the 2004 CBP. The 2005 CBP indicated that the  Kennedy Center had expected the project to proceed several years  earlier than currently scheduled, the planned project costs have since  escalated, and further increases are anticipated. This project will focus  on upgrading the toilet rooms throughout the center, including finishes,  equipment, and flooring of toilet rooms throughout the center.
The Level A Back-of-House Renovations project budget increased by $2  million, or 97 percent, from the 2004 CBP. According to the 2005 CBP,  the budget increased because work was rescheduled to coincide with  related renovation efforts, such as theater renovations, and changed  market conditions. This project’s goal is to renovate offices, training  rooms, locker rooms, backstage areas, dressing rooms, wardrobe areas,  and other miscellaneous nonpublic spaces.
The Curtain Wall/Door Replacement project budget increased by $1.5  million, or 28 percent, from the 2004 CBP.  The 2005 CBP indicated that  the budget grew because of project deferrals, market conditions, and  extremely high inflation in recent construction costs. This project will  replace the acoustical glazing on the curtain (nonweight bearing) walls  for the west plaza level, hall entrances, and roof terrace-level.
The Hazardous Materials Abatement project budget increased by about  $900,000, or 72 percent, from the 2004 CBP. The 2005 CBP indicated that  the budget increase was due to the asbestos abatement associated with  the Eisenhower Theater project. Originally, the Kennedy Center planned  to leave the asbestos undisturbed and unabated, but later decided to  remove it. The 2005 CBP indicates that the scope of the project  increased when planning for the Eisenhower Theater revealed a greater  need for abatement than was previously anticipated.
section_title: Most Plaza-Level Renovations Have Been Completed, but the Eisenhower Theater Renovation Is Still in the Planning Stage
paragraphs: According to the 2005 CBP, the Kennedy Center still plans to complete  renovations to the major performance and public spaces located on the  plaza level within the CBP time frame. The plaza level includes interpretive  displays about John F. Kennedy and the Kennedy Center and consists  primarily of four theaters—the Opera House, Concert Hall, Eisenhower  Theater, and Family Theater (formerly the AFI Theater)—and of three main  public spaces—the Grand Foyer, Hall of States, and Hall of Nations. We  reported in 2005 that the Kennedy Center had completed renovations to the  Concert Hall, Opera House, and plaza-level public spaces but that the  projects all experienced cost growth because of management and  construction problems.
The 2005 CBP indicates that the conversion of the AFI Theater into the  Family Theater was completed in 2005, within established time frames and  with limited cost growth (see fig. 9). The cost of the project was about $9.1  million—an amount that included cost growth, due to change orders, that  was within the amount allocated for contingency. With seating for 320  people, the Family Theater renovation project was smaller in scale than  other theaters on the plaza level. Kennedy Center management officials  said that the lower grade finishes of the AFI Theater reduced the need to  retain acoustic integrity and allowed for more detailed investigations  during the project’s design stage. These investigations likely limited the  number and severity of unexpected site conditions, which contributed to  cost overruns for the Concert Hall and Opera House renovations.
We also found that the Kennedy Center was more careful in the way it  handled contract modifications during the construction of the Family  Theater, which may have contributed further to limiting cost overruns on  the project. In addition, Kennedy Center management officials said that the  use of a different contracting approach, called construction manager at risk  (CMAR), helped the Kennedy Center complete the project within budget  and on schedule. Under a CMAR arrangement, a construction manager is  hired as a general contractor to provide services during project design and  then take over construction as the general contractor. We do not believe  that the use of CMAR had a significant impact on the final cost or  timeliness of the Family Theater’s construction.  This is because CMAR  contractors increase the price of their bid to compensate for the additional  risk they take on as part of the contract. In addition, we found that the  Kennedy Center’s use of CMAR did not comply with the FAR.  Specifically,  the Kennedy Center did not obtain a required deviation from the FAR, and  it authorized contractor work to begin on the Family Theater before  establishing the guaranteed maximum price of the project. These actions  undermined the Kennedy Center’s claim of compliance with the FAR. In  addition, the center’s negotiation of prices after work had begun placed the  government at increased risk of cost overruns.
The last major project on the plaza level is the renovation of the  Eisenhower Theater, which will address life safety concerns, upgrade  finishes, and make the theater accessible to the disabled. With seating for a  total of 1,100 people in three tiers, the Eisenhower Theater is larger than  the former AFI Theater. The 2004 CBP indicated that the Eisenhower  Theater renovation work would begin in fiscal year 2007, assuming  adequate funding, a schedule that was reiterated in the 2005 CBP. The  project’s budget was stable through the 2004 and 2005 CBPs at about $15.8  million. However, since December 2005, the project’s cost has increased  $900,000, or 6 percent, because of what the Kennedy Center describes as  escalating construction costs, among other things.  The 2005 CBP also  indicated that the Kennedy Center would need to calculate another cost  estimate once the schematic design is completed. Continued cost growth  may hamper the Kennedy Center’s ability to complete the Eisenhower  Theater renovation within the CBP’s budget and time frame. The President  of the Kennedy Center told the Board of Trustees’ Operations Committee in  September 2005 that the Eisenhower Theater renovation was then in  jeopardy because of funding concerns.
section_title: The Kennedy Center Will Not Complete Terrace-Level Renovations by the End of the CBP as Planned
paragraphs: Although the Kennedy Center’s original goal for the CBP was to completely  renovate the Kennedy Center and meet all life safety and accessibility  requirements by the end of 2008, we concluded in 2004 that it was unlikely  that the Kennedy Center would be able to meet that goal because of  increasing project costs and time lines. Nevertheless, the Kennedy Center  indicated in 2004 that it still intended to complete the vast majority of the  projects in the CBP. However, the 2005 CBP shows that the center now  plans to defer most terrace-level renovations beyond the end of the CBP.  The terrace level of the Kennedy Center sits above the plaza level and  comprises the Terrace Theater, the Theater Lab, States and Nations  Galleries, Atrium, and two restaurants. (See fig. 10).
According to the 2005 CBP, sprinklers were extended into the Terrace  Theater in 2005, and the remaining life safety deficiencies will be addressed  as part of the Roof Terrace Life Safety Project.  The 2005 CBP does not  describe the Roof Terrace Life Safety Project; but allocates $4.5 million for  the project and schedules the bulk of the work for fiscal year 2007. This  budget and schedule, however, are likely to change, possibly slipping until  after 2008. The budget for the Roof Terrace Life Safety Project was  estimated in 2002, before the scope was set or any detailed planning or  design work had been conducted. The 2005 CBP further notes that the Roof  Terrace Life Safety Project may be deferred to ensure that the Eisenhower  Theater renovation can continue on schedule. Given the recent cost growth  in that project, deferral of the Roof Terrace Life Safety Project seems  increasingly likely. The scope of the Roof Terrace Life Safety Project has  still not been set, making it difficult to evaluate the feasibility or adequacy  of the project. The 2005 CBP indicates that the project will extend  sprinklers to the States and Nations Galleries, protect the Terrace Theater  exit stairway from fire, and consider other projects unrelated to life safety  during planning.
Apart from the Roof Terrace Life Safety Project, the 2005 CBP indicated  that the Kennedy Center is deferring or placing a low priority on other  terrace-level projects. Specifically, the Kennedy Center is deferring the  following projects:  Terrace Theater renovation. Originally scheduled for fiscal year 2005,  the major portions of the Terrace Theater renovation have been  deferred beyond the time frame of the CBP, including associated  renovations to the auditorium, lobby, hallways, backstage areas, and  some technical systems. With seating for 513 people, the Terrace  Theater is the largest performance space on the terrace level. It was  opened in 1978 and is in need of renovation because it does not  currently offer accessibility for the disabled throughout the auditorium  and suffers from other deficiencies in acoustics and finishes.
Theater Lab renovation. Originally scheduled for fiscal year 2001,  renovations of the Theater Lab—a 398 seat theater—have mostly been  deferred, including previous plans to address deficiencies related to  disabled access, acoustics, and support spaces.
Terrace-level public spaces. Originally scheduled for fiscal year 2000,  repairs of known architectural and finish deficiencies throughout the  terrace-level public spaces will not be done as part of the CBP. Affected  spaces include the States and Nations galleries and the atrium.  According to the 2005 CBP, the terrace-level public spaces suffer from a  number of problems—including deteriorated floor tiles, poor  accessibility to restrooms, inadequate circulation patterns, and muddled  acoustics—that will only be considered as funding allows.
Since the 2005 CBP was issued, the Kennedy Center has indicated that  additional deferrals will be necessary. The President’s fiscal year 2007  budget provides $4.9 million less than was projected in the 2005 CBP. If this  amount becomes the final budget, the Kennedy Center will further defer or  reduce several projects whose costs have grown, including the  Curtain/Wall Door Replacement, Toilet Room Renovation, and Level A  Back-of-House renovation. In addition, the Eisenhower Theater  renovation’s cost growth may necessitate additional deferrals to other  projects. Because the CBP will not be completed in 2008 as planned, the  Kennedy Center has hired a consulting firm to survey the Kennedy Center  and recommend center upgrades that have not yet been completed, with a  goal of extending the CBP’s implementation period to 2012. A Kennedy  Center official told us that projects not completed by 2008 as planned will  be included in this new building survey.
section_title: The Kennedy Center Board of Trustees Has Delegated Its Responsibility for Federally Funded Capital Projects, but Has Provided Limited Oversight
paragraphs: Under the Kennedy Center Act, the Board of Trustees is responsible for  developing and annually updating the CBP; planning, designing, and  constructing capital projects; and preparing a budget. Consistent with the  practices of other governing boards, the Kennedy Center Board of Trustees  has delegated these responsibilities to management. Although a board can  delegate responsibilities to management, it remains responsible for  overseeing management’s work. We found that the Kennedy Center Board  of Trustees provides limited oversight of its federally funded capital  projects. Specifically, we found no evidence that the board, as required by  its policies and procedures manual, approves the annual updates to the  CBP, reviews management’s performance in implementing capital projects,  or approves the annual capital project budget. Furthermore, the Kennedy  Center Board of Trustees has provided limited oversight to ensure that its  appropriated funds are used efficiently, effectively, and in compliance with  applicable laws. Three factors limit the board’s oversight of federally  funded capital projects. First, it lacks procedures on how to carry out its  responsibilities for federal funds. Second, attendance at board and  Operations Committee meetings has been low, and the Operations  Committee has met infrequently and at irregular intervals. Third, the board  does not receive information needed to evaluate whether federally funded  capital projects have been implemented efficiently.
subsections: section_title: The Kennedy Center Board of Trustees Provides Limited Oversight of Federally Funded Capital Projects
paragraphs: According to the Kennedy Center Act, it is the board’s responsibility to  develop and annually update the CBP, which serves as the center’s long- term capital planning document. The board has delegated the annual  update of the CBP to the center’s PMO and a consulting firm. Although  such delegation is not uncommon for a governing board, we found that the  Kennedy Center provides limited oversight of its federally funded capital  projects in a number of ways. Our analysis of board meeting minutes and  information packets, from January 2000 through January 2006, and  interviews with Kennedy Center officials revealed no evidence that the  board reviews or approves CBP projects and budgets as it is responsible for  doing, according to its policies and procedures manual. A center official  told us that each trustee of the board does not receive the CBP: only  trustees on the Operations Committee are in receipt of this document. The  Chairman of the Board told us that because of its large size, the board  rarely discusses policy issues at board meetings. Instead, the chairman  stated, full board meetings are used as a forum for announcements about  upcoming programs and events. Without an opportunity to review the CBP,  the board cannot ensure that federally funded capital projects planned for  construction at the center are in accordance with the requirements of the  Kennedy Center Act and that the expenditure of federal funds is  reasonable.
Both the Kennedy Center Act and the board’s policies and procedures  manual assign budgeting responsibilities to the board for appropriations.  Under the act, the board is responsible for preparing a budget in  accordance with specified federal statutes, and under the manual, the  board is responsible for approving the Kennedy Center’s budget, which  includes private and federal funds. The President of the Kennedy Center  stated that management verbally presents the proposed federal  appropriation request to the board, which is the federal portion of the  center’s budget, for approval. In addition, the President of the Kennedy  Center told us that the Operations Committee also approves the proposed  federal appropriation request for the center’s capital projects and  operations and maintenance. However, in our analysis of board and  Operations Committee meeting minutes from January 1998 through  September 2005, we found no evidence that the board or its Operations  Committee had approved the center’s proposed federal appropriation  request. For example, in the September 2005 Operations Committee  meeting minutes, a Kennedy Center official reported to the trustees of the  Operations Committee that the center’s fiscal year 2007 request for  appropriations had already been submitted to OMB. In addition, the  Chairman of the Board of Trustees and the Chairman of the Operations  Committee told us that they were not certain if the board approved the  federal portion of the center’s budget. However, although this report does  not include a review of the center’s private funds, our analysis of board  meeting minutes found that the Kennedy Center Board of Trustees  approves the center’s budget for trust funds.
In contrast, we found that the Smithsonian Institution Board of Regents— which also oversees federal appropriations for capital projects and trust  funds, oversees several arts organizations, and has its board membership  defined by legislation—does review and approve the federal portion of its  budget. Our analysis of Smithsonian Institution Board of Regents meeting  minutes found that this board first reviews the Smithsonian Institution’s  budget request for appropriated funds. Next, the Board of Regents votes to  approve the budget request before it is presented to OMB. Finally, the  resolution made by the Board of Regents states that any changes made to  this federal request for appropriated funds can be made only with the  approval of the Board of Regents or the Executive Committee. Since the  Smithsonian Institution Board of Regents has been authorized to plan and  construct numerous facilities with federal funds, the board’s review and  approval of the Smithsonian Institution’s federal budget request is  important to ensure that the request for the money is consistent with its  responsibilities under the law.
According to the Kennedy Center board’s policies and procedures manual,  it is the board’s responsibility to “formulate the organization’s policies and  review management’s performance in achieving them,” as well as, “assist  the Chairman in selecting, monitoring, appraising, advising, stimulating,  and rewarding the President.” However, in our analysis of board and  Operations Committee meeting minutes, as well as in interviews with  members of management and board members, we found no evidence that  the board formally evaluates management’s performance or monitors the  president’s implementation of federally funded capital projects. In addition,  the Operations Committee, which receives most of the information on  capital projects, does not receive the information it needs to evaluate  federally funded capital projects. For example, the Operations Committee  does not receive key indicators, such as the original versus the actual  budget and schedule, to determine if all federally funded capital projects  are implemented on time and within budget. The President of the Kennedy  Center told us that he annually writes his self-assessment and presents it to  the Chairman of the Board and to the Personnel Committee. However, the  President of the Kennedy Center and the Chairman of the Board told us  that there are no formal evaluation criteria. In particular, there is no  standard or goal to measure the president’s performance in implementing  federally funded capital projects. In lieu of formal criteria, the Chairman of  the Board told us that he uses his intuition to assess the president’s overall  performance, including the president’s implementation of capital projects.
In contrast, a Smithsonian Institution official said that the Smithsonian  Institution Board of Regents evaluates the secretary’s performance  annually. According to this official, the secretary, with the Board of  Regents’ approval, sets goals each year that include the secretary’s ability  to complete capital projects on time and within budget. At the end of the  year, the Board of Regents rates the secretary’s performance, comparing  outcomes with the secretary’s established goals. In addition, several  experts on nonprofit boards noted that a formal, periodic, and  comprehensive evaluation of a nonprofit organization’s chief executive is  needed to ensure that the organization’s goals are reached. Furthermore, a  routine evaluation of a chief executive’s work allows the board to see if its  decisions are being properly executed by management. The board and  chief executive need to agree on the purpose and process of a formal  performance evaluation, including the primary criteria to be used for  review, such as the chief executive’s annual goals and objectives for the  organization.
section_title: Several Factors Limit the Board’s Oversight of Federally Funded Capital Projects
paragraphs: Like other organizations that receive federal funds, the Kennedy Center  Board of Trustees must ensure that appropriated funds are used as  productively as possible, achieve intended goals and objectives, and are  spent in compliance with applicable laws. However, several factors limit  the Kennedy Center Board of Trustees’ oversight for federally funded  capital projects.
subsections: section_title: The Board and Its Operations Committee Lack Procedures on How to Carry Out Their Responsibilities for Federally Funded Capital Projects
paragraphs: The Kennedy Center Act generally describes the board’s responsibilities for  capital projects, such as its duty to maintain the functionality of the center  at current standards of life, safety, security, and accessibility. Although, the  act is not specific about how the board is to carry out its responsibility for  federally funded capital projects, it authorizes the board to create bylaws,  rules, or regulations, as it deems necessary, to administer its  responsibilities under the Kennedy Center Act. When the Kennedy Center  Act was amended in 1994 to give the board sole responsibility for capital  projects, the board used this authority to create the Operations  Committee—a committee of the board—to help it carry out this  responsibility.
The board’s policies and procedures manual provides information on the  board’s responsibilities, the center’s organizational structure, and  performance activities. In addition, the board has created bylaws that  describe the general duties of board members, officers of the board, and a  certain number of committees of the board. However, neither the manual  nor the bylaws describe how the board or its Operations Committee is to  administer its responsibility under the Kennedy Center Act for federally  funded capital projects. This lack of procedures hinders the board and its  Operations Committee in assessing whether federal funds for capital  projects have been spent efficiently, effectively, and legally. In addition, a  board expert stated that committees need clear direction to perform well  and to avoid confusion and conflict over their responsibilities and the  amount of authority delegated to them. This board expert also stated that  carefully written policies are needed to help avoid unnecessary confusion  and conflicts.
The board’s lack of procedures for carrying out its Kennedy Center Act  responsibilities relating to federally funded capital projects has led to a  number of different interpretations by Kennedy Center trustees and a  management official on how the board accomplishes its responsibilities for  federally funded capital projects and on the Operations Committee’s  overall responsibility. For example, the board has created and relies on the  Operations Committee to assist in the oversight of federal funds spent for  capital projects. Although a Kennedy Center management official, a  previous trustee, and a current trustee stated that the Operations  Committee had some jurisdiction over capital projects, they did not agree  on the committee’s responsibilities and how it accomplishes its  responsibilities. The previous trustee stated that the responsibility of the  Operations Committee is to keep Members of Congress that are trustees  abreast of how capital projects are progressing. The current trustee stated  that the Operations Committee’s responsibility is strictly one of oversight  for capital projects and that any policies relating to capital projects are  made by the board’s Executive Committee. The Kennedy Center  management official stated that the Operations Committee’s responsibility  is to make policies relating to capital projects and oversee the  implementation of these policies. Furthermore, we reported in 1998 that  the Operations Committee provided policy guidance, resolved the most  serious issues requiring board input, and functioned as the eyes and ears of  center operations.
section_title: Board Meeting Attendance Rates Have Been Low, and the Operations Committee Has Not Met Regularly
paragraphs: Since most of a board’s responsibilities are carried out at board and  committee meetings, it is important for a board and its committees to hold  meetings regularly and for board members to attend these meetings.  However, we found that attendance at board and Operations Committee  meetings has been low and that the Operations Committee has met  infrequently and at irregular intervals. Low attendance rates and infrequent  committee meetings limit the board’s ability to monitor and review  management’s implementation of federally funded capital projects.
Despite congressional and board efforts to develop more active trustees  and increase attendance rates, trustee attendance rates at regularly  scheduled board meetings have been low. In 1994, when Congress amended  the Kennedy Center Act and gave the board sole responsibility for capital  projects, it also reduced the term length of trustees from 10 to 6 years.  Congress believed that the shorter term would result in the selection of  trustees who would be more active members of the board. Despite this  change, the percentage of trustees attending each board meeting from 1995  through 2005 has ranged between 29 and 58 percent. The Executive  Committee first tried in 1997 to improve attendance at board meetings by  reducing the annual number of meetings from four to three because of low  attendance. Then in 2000, a private consulting firm, hired by the Kennedy  Center, found that the board’s governance could be strengthened by  creating mechanisms to ensure more balanced involvement from all  trustees. The consulting firm recommended that the center use attendance  at meetings as a requirement for retaining board membership. In response,  the board instituted an attendance policy that requested trustees to attend  a minimum of three full board or committee meetings annually to retain  their trustee status. However, despite these efforts, attendance rates at  board meetings have never been above 58 percent. Trustees told us that the  volunteer nature of board membership and the geographic location of  members’ residences have led to poor attendance rates. Another trustee  said that many trustees see their appointments as “honorific” and that their  main responsibilities are to make donations to and raise funds for the  center. The trustee further stated that the majority of decisions are made by  the president and not by the board.
In analyzing attendance rates for meetings of the Smithsonian Institution  Board of Regents, we found that from January 2000 through September  2005, the median attendance rate at board meetings was 69 percent and  ranged from about 47 percent to 94 percent (i.e., one-half of these meetings  had attendance rates above 69 percent). In contrast, from April 2000  through September 2005, the median attendance rate at regularly  scheduled Kennedy Center Board of Trustees meetings was 49 percent and  ranged from about 37 percent to 58 percent.
In addition, we found that some Kennedy Center trustees send designees to  represent them at board and committee meetings. Board experts with  whom we spoke expressed different opinions about trustees sending  designees to represent them at board and committee meetings. For  example, some experts stated that sending a designee to a board or  committee meeting is not conducive to board governance and is contrary to  volunteerism. However, another expert told us that there could be  situations in which the use of a designee would be appropriate, provided  the designee’s responsibility and authority is clarified in the board’s bylaws.  We found that it is unclear what responsibility and authority designees have  for carrying out the board’s responsibilities under the Kennedy Center Act.  Currently, neither the board’s policies and procedures manual nor its  bylaws address designees’ responsibility or authority. We found that the  Lincoln Center for the Performing Arts—which is also a performing arts  organization with a governing board of comparable size—has defined the  responsibility and authority of its Board of Directors and of designees in its  bylaws. For example, the bylaws state that any Lincoln Center board  member entitled to a vote at a meeting may appoint any other person to act  as such member’s proxy in that member’s capacity. In addition, each  designee’s authority shall be revocable at the pleasure of the member who  appointed the designee, and the designee can serve no longer than 11  months from date of appointment unless otherwise stated by the member.
The Operations Committee has also met infrequently, and attendance at its  meetings has been low. In 1994, when the board was given responsibility  for the center’s capital projects, the board created the Operations  Committee to ensure the appropriate use of federal funds spent for capital  projects at the Kennedy Center. However, the Operations Committee’s  ability to ensure the appropriate use of federal funds has been hindered by  the infrequent meetings and low trustee attendance rates. From 1995 to  1998, the Operations Committee met three times a year. However, from  1998 through 2005, the Operations Committee met inconsistently and  infrequently, even though several federally funded capital projects were in  progress at the Kennedy Center (see fig. 11). For example, during the most  recent period without a committee meeting, which lasted about 12 months,  center management obligated about $21 million for 13 federally funded  capital projects. The Operations Committee Chairman told us that  currently the committee meets twice a year and that this is sufficient to  oversee capital projects.
In addition, trustee attendance rates at Operations Committee meetings  have been low. From January 1995 through April 2006, there were 18  Operations Committee meetings, of which attendance records were  available for 13. Of these 13 meetings, 10 had attendance rates of 50 percent  or less (see fig. 12). A former Operations Committee Chairman stated that,  because the Operations Committee was composed of ex-officio  congressional members, it was difficult to schedule a time when members  could be present.
In general, to measure if a capital project has been successfully  implemented, a board or committee would need information on (1) the  actual cost of the project versus the budgeted cost, (2) the actual schedule  of the project versus the original schedule, and (3) if the project provided  the benefits intended. Providing these types of information to the board  pressures the project team to meet the established cost, schedule, and  performance goals for the project.
Although the Operations Committee receives some of this information on  federally funded capital projects, we found that it lacks key information  needed to ensure that the project team is implementing capital projects  within cost and schedule goals.  The Operations Committee is to meet  twice a year, and its trustees receive an information packet before each  meeting. In reviewing meeting packets for January 2000 through September  2005, we found that these packets generally included information on  ongoing federally funded capital projects, such as the amount of previous,  actual, and projected obligations for each capital project, by fiscal year, and  a description for each capital project. This information is useful to  understand current and future obligations for each project. However, the  meeting packets did not include the baseline cost and schedule estimates  that would indicate if an ongoing project is within the budget or on  schedule. Without baseline cost and schedule estimates, the Operations  Committee and subsequently the board cannot identify project cost growth  or schedule changes. For example, our analysis found that during a January  2003 Operations Committee meeting, a Kennedy Center official stated that  the site improvement project would not require more than $40 million in  federal funds. However, in April 2005, an Operations Committee  information packet indicated that the center had obligated approximately  $49.8 million for the site improvement project. The most recent CBP states  that the total anticipated federal portion of the project’s cost will be about  $54.7 million, or about $15 million more in federal funds than center  management officials told the Operations Committee in 2003. Although the  Operations Committee had received information anticipating that  additional funds would be needed for the site improvement project, it did  not simultaneously receive information on the project’s original budgeted  cost, which would have indicated the degree of cost growth on the project.  Without information on original budgeted costs, the committee cannot hold  management accountable for the successful implementation of capital  projects paid for with federal funds.
The President of the Kennedy Center stated that the Operations Committee  does receive information on capital projects that enables it to compare  actual costs with budgeted costs and schedules. However, our analysis of  Operations Committee meeting packets from January 1998 through  September 2005 found no indication that Operations Committee members  received information for comparing the actual cost with the original  budgeted cost. Additionally, although the center’s most recent Operations  Committee packet, dated April 2006, contains the original budgeted costs  for 6 capital projects, this information is missing for the remaining 17  capital projects listed. Thus, although this packet provides improved  budget information to stakeholders, it does not allow trustees to monitor  the implementation of all federally funded capital projects. In addition,  when we spoke with the Operations Committee Chairman about the  board’s use of budgeted versus actual information, he stated that he leaves  it up to management to ensure that costs are within established budgets.
As we have reported previously, the implementation of a capital project’s  success is determined primarily by whether the project was completed on  schedule, within budget, and provided the benefits intended. Without this  information the Operations Committee is unable to assist the board in its  oversight of the federal funds spent for capital projects. For example, in  April 2005, we reported that since 2003, each of the three federally funded  capital projects that we reviewed had experienced cost overruns, one as  great as 50 percent (see fig. 13). However, we did not find any evidence that  the board or its Operations Committee was informed of these cost  overruns, such as the Opera House’s $4 million cost increase. For example,  two trustees that served on the board during the implementation of these  projects told us that they did not know of any capital projects that had cost  overruns. One of these trustees said that the Opera House renovation was  on budget.
In addition to the information packets, the Operations Committee receives  the center’s annual CBP. Previously, we mentioned that the center’s 2005  CBP is better than previous versions because it includes the details of, and  explanations for, project budget changes since the 2004 CBP. The 2005 CBP  also includes the actual and projected obligations for each capital project,  by fiscal year, through the end of the CBP in 2008.   However, the 2005 CBP  does not provide original project budgets for all capital projects. Therefore  there is no way to quantify how well the project’s implementation matched  the center’s original comprehensive plan. In addition, we found that  trustees of the Operations Committees did not receive the most recent CBP  in a timely manner. For example, the Operations Committee received the  most recent CBP in January 2006, about 4 months after the center’s fiscal  year 2007 budget was submitted to OMB. Without an opportunity to review  the CBP before the budget is submitted to OMB, the committee cannot  ensure that federally funded capital projects planned for construction at  the center are authorized by the Kennedy Center Act.
section_title: Conclusions
paragraphs: We have made numerous recommendations to the Kennedy Center within  the past 9 years to improve its use and oversight of the federal funds that it  receives, and the Kennedy Center has made significant improvements.  Specifically, the Kennedy Center has made considerable progress over the  past year in implementing our recommendations to improve fire safety and  project management and to better align its activities with capital project  best practices. Nevertheless, although some of our recommendations have  not been fully implemented, it is critical that the Kennedy Center fully  implement our recommendations and ensure that these changes become  permanent.
Changes to the Kennedy Center’s contracting practices and CBP provide  good illustrations of the progress that the Kennedy Center has made and  the work that remains. Since 1993, when we first began reporting on its  capital improvement plan, the Kennedy Center has made a number of  important improvements to its contracting management practices and to  the CBP. For example, in 2005, the Kennedy Center added project-by- project reconciliations to the CBP as recommended in order to illustrate  changes in project budgets and schedules over time. However, the Kennedy  Center placed federal funds at risk by not fully complying with the FAR,  and the CBP does not yet fully disclose the overall financial impact of  project changes. During a time when the Kennedy Center is deferring many  of its terrace-level renovations, the price of the CBP’s implementation is  growing because of steep increases in the costs of some of the remaining  projects. While many of the key facts are included in the 2005 CBP, putting  the whole picture together requires gathering and analyzing information  from previous and current versions of the CBP to ascertain how budget  changes to individual projects affect the overall CBP budget through 2008.
Much of our Kennedy Center work has found insufficient oversight for  federally funded capital projects. Although the board has delegated much  of the day-to-day work of running the center to the center management, the  board retains ultimate responsibility for safeguarding funds and holding the  center management accountable for its actions.  Yet the board is providing  limited oversight of its federal funds spent on capital projects; it does not  approve CBP updates, does not review management’s performance in  implementing capital projects in a structured way, and does not meet  regularly. It may be telling that the board provides more oversight of its  nonappropriated funds, including programming revenue and investment  income. More detailed, transparent, and timely information on how federal  funds have been budgeted and spent would allow the board to hold center  managers accountable for completing federally funded capital projects on  time and within budget estimates.
section_title: Recommendations for Executive Action
paragraphs: 1. To improve compliance with the FAR, the Chairman of the Board of  Trustees should direct the President of the Kennedy Center to properly  obtain the required FAR deviation when using the construction  manager at risk contracting method. In addition, the Kennedy Center  should establish the guaranteed maximum government price for a  capital project before proceeding with construction. 2. To improve the information the Kennedy Center provides to Congress  and the Board of Trustees, the Chairman of the Board of Trustees  should direct the President of the Kennedy Center to improve the  Comprehensive Building Plan by taking the following two actions:   Clearly identify the overall impact that changes to individual project  budgets from the previous year will have on the overall plan’s budget.
Clarify which federally funded projects the Kennedy Center intends  to complete as part of the plan and which ones will be deferred. In  doing so, establish clear scope and budget estimates for the Roof  Terrace Life Safety project for the 2006 update of the Comprehensive  Building Plan. 3. To strengthen the Kennedy Center Board of Trustees’ role in overseeing  federally funded capital projects and to improve the board’s ability to  carry out its responsibilities under the Kennedy Center Act, we  recommend that the Chairman and Trustees of the Board take the  following two actions:  Develop and implement procedures on how the board and its  Operations Committee are to carry out their duties under the  Kennedy Center Act and their responsibilities for overseeing federal  funds, including a clarification of the roles and responsibilities of the  Operations Committee;  Ensure that the board receives detailed, transparent, and timely  information on how federal funds for capital projects have been  budgeted and spent on capital projects, such as information on  original versus actual project budgets and schedules.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Kennedy Center for its review and  comment. The Kennedy Center provided written comments, which appear  in appendix III, together with our responses. In general, the Kennedy  Center agreed with the draft report’s findings and with two of the report’s  three recommendations. The Kennedy Center agreed to (1) improve the  CBP in several areas and (2) review and revise, if necessary, procedures on  how the Operations Committee is to carry out its responsibilities and to  provide the CBP to the Operations Committee in a more timely fashion.  The Kennedy Center disagreed with our recommendation to better comply  with a provision of the FAR and establish the guaranteed maximum  government price for a capital project before proceeding with  construction. However, based on our discussions with a GSA official,  we  are retaining the recommendation. The CMAR contracting method is not  covered by the FAR and, consequently, requires a deviation. We also believe  that the Kennedy Center could have limited the government’s risk of cost  overruns by establishing the guaranteed maximum price for the project  before authorizing the contractor to begin. The Kennedy Center provided  technical comments and clarifications, which we have incorporated as  appropriate throughout this report.
As arranged with your offices, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 30 days after the  date of this letter. At that time, we will send copies to interested  congressional committees, the Chairman of the Kennedy Center Board of  Trustees, and the President of the Kennedy Center. We will also make  copies available to others on request. In addition, the report will be  available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff has any questions, please contact me at (202) 512-2834  or goldsteinm@gao.gov. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this report.  See appendix IV for a list of the major contributors to this report.
section_title: Scope and Methodology
paragraphs: This report responds to your request that we conduct a study on The John  F. Kennedy Center for the Performing Arts’ (Kennedy Center) management  and oversight of federal funds spent for Kennedy Center projects. Our  objectives were to determine (1) the progress the Kennedy Center has  made in implementing the recommendations in our April 2005 report, (2)  the status of capital projects and the planned spending of federal funds for  capital projects as indicated by the Kennedy Center’s most recent  comprehensive building plan, and (3) the Kennedy Center Board of  Trustees’ responsibilities for federally funded capital projects and the  extent to which the board fulfills these responsibilities.
To determine the progress Kennedy Center has made in implementing the  recommendations in our April 2005 report, we interviewed Kennedy Center  management officials and reviewed Kennedy Center documents (see fig. 14  for a list of our April 2005 recommendations). Specifically, to assess the  steps taken to implement the first of these recommendations—that the  Chairman of the Kennedy Center Board of Trustees increase oversight of its  management of federal funds by working with an independent federal  government oversight organization—we analyzed the Kennedy Center’s  risk assessment and internal audit plan for the ongoing oversight of the  center’s use of federal funds. In addition, we interviewed Kennedy Center  management officials to determine how the Kennedy Center intends to  implement its internal audit plan. We also reviewed the John F. Kennedy  Center Act, as amended, and the Inspector General Act of 1978, as  amended.
To assess the steps taken by the Chairman of the Kennedy Center Board of  Trustees to implement our April 2005 recommendations on fire safety, we  analyzed the two peer reviews of the Kennedy Center’s fire-modeling study  used as a substitute for prescriptive code solutions that were conducted by  the General Services Administration (GSA) and a nonfederal entity.  Additionally, we interviewed Kennedy Center management and GSA  officials to determine the actions taken to implement recommendations  from the two peer reviews. To further asses the steps taken to ensure fire  safety, we reviewed the Kennedy Center’s policy and procedure for  managing the storage of combustible materials; reviewed the Kennedy  Center’s inventory of doors in key areas that needed to be fire rated; and  toured the Kennedy Center to visually examine the exit signage installed at  the Millennium Stages during a performance. We also interviewed a  Kennedy Center management official to determine how the Kennedy  Center implements its combustibles policy and procedure; the time frame  for inspecting and installing fire-rated doors in key areas; and the  installation of exit signs in the Grand Foyer at the Millennium Stages.
To assess the steps taken by the Chairman of the Kennedy Center Board of  Trustees to implement our April 2005 recommendations on managing  capital projects, we interviewed Kennedy Center management officials and  analyzed Kennedy Center documents. Specifically, to determine how the  Kennedy Center provides more timely and accurate information about  capital projects to stakeholders, we reviewed the Kennedy Center’s 2004  and 2005 comprehensive building plans (CBP); fiscal year 2007 budget  justification to Congress; information packets and minutes from Board of  Trustees and Operations Committee meetings (for 2004 through 2006); and  the monthly reports the Kennedy Center sends to the Office of Management  and Budget (OMB) that provide information on capital projects. To  evaluate the steps taken by the Kennedy Center to control cost growth and  schedule changes in future capital projects, we conducted a limited  assessment of Family Theater contract modifications. The contract  modifications we reviewed each had cost changes over $15,000 and in total  represented about 58 percent of all cost changes for this project. We  examined these contract modifications to evaluate whether the  contractors’ proposals were fair and reasonable; the Kennedy Center had  established the scope and cost for the modifications before directing the  contractor to proceed with the work; and the Kennedy Center paid  overtime to accelerate the project’s schedule. To obtain information on the  construction manager at risk (CMAR) method of delivery, we reviewed the  Federal Acquisition Regulation (FAR), GSA policy, and industry standards.  We contacted GSA officials and an industry official. To assess the steps  taken by the Kennedy Center to strengthen financial management controls,  we analyzed the Kennedy Center’s contract, financial, and project  management policies and procedures as they relate to the  recommendations in our April 2005 report. In addition, we discussed with  Kennedy Center management officials the time frame for implementation  and the federal guidance used for the development of its contract, financial,  and project management policies and procedures. While we did not assess  the implementation of the Kennedy Center’s contract and project  management policies and procedures because they were recently  implemented, we were able to assess the adequacy of the Kennedy Center’s  financial policies and procedures that relate to our specific financial  recommendations. We reviewed the financial policies and procedures and  spoke with management officials to verify that the policies and procedures  contained guidance to address our recommendations. Specifically, we  reviewed receipt information contained on recent invoice certification  forms, and we also reviewed invoices paid from the Project Management  Office contractor files where we had noted exceptions in our April 2005  report. To determine the status of the Kennedy Center’s document  retention policy, we interviewed Kennedy Center management officials to  discuss the steps taken to establish and enforce a policy. In addition, we  spoke with National Archives and Records Administration (NARA) officials  about the requirements for a federal records management policy, and we  reviewed legislation and regulations relating to NARA. To determine the  status of the Kennedy Center’s steps to better track future changes to the  center, we spoke with Kennedy Center management officials and reviewed  the center’s project management policy that addresses as-built plans.
To determine the status of capital projects and the planned spending of  federal funds for capital projects as indicated by the Kennedy Center’s most  recent CBP, we reviewed the Kennedy Center’s initial 1995 CBP and its 2004  and 2005 updates to the plan. Specifically, we examined the changes in the  2005 CBP made since the 2004 CBP and developed a list of projects the  Kennedy Center plans to delay or defer and the additional funds needed. To  determine the accuracy of some of the data in the 2005 CBP, we reviewed  the monthly reports the Kennedy Center sends to OMB; the Kennedy  Center’s fiscal year 2007 budget justification to Congress; and the  President’s fiscal year 2007 budget for the Kennedy Center. In addition, we  spoke with Kennedy Center management officials to obtain justifications  for the projects it intends to delay or defer.
To determine the Kennedy Center Board of Trustees’ responsibilities for  federally funded capital projects and the extent to which the board fulfills  these responsibilities, we analyzed Board of Trustees and Operations  Committee documents; appropriation laws; the John F. Kennedy Center  Act, as amended; the CBP and its various updates; and the monthly reports  the Kennedy Center sends to OMB. Specifically, to examine the extent to  which the board fulfills its responsibilities for federally funded capital  projects we reviewed Board of Trustees and Committee information  packets and meeting minutes from January 1995 through April 2006 to  determine how a variety of capital projects were overseen by the board.
These projects included, but are not limited to, the Opera House  renovation, fire alarm system replacement, public space modifications, site  improvements project, and Family Theater. In addition, we interviewed  current and previous trustees from the board and its Operations and  Executive Committees. We spoke with two previous and four current  trustees about the board’s responsibilities for overseeing federal funds,  including the types of information used to make decisions on capital  projects. In addition, we spoke with congressional staffers that are  designees for two Kennedy Center Trustees and the President of the  Kennedy Center. We selected trustees for interviews by first constructing a  list of trustees that served on the board from 1995 to 2006. We choose 1995  because it was the year that Congress transferred responsibility for capital  projects from the National Park Service to the Kennedy Center Board of  Trustees. From this list, we selected previous and current trustees of the  board and its Operations and Executive Committees who were either  chairpersons or had not missed more than one board meeting per year of  their tenure. In addition, we interviewed Kennedy Center executives to  understand management’s role in the supervision of capital project costs  and schedules and management’s responsibilities to the Board of Trustees.
We calculated Board of Trustees and Operations Committee attendance  rates and meeting frequencies using the information packets, which  included meeting minutes, sent to trustees before scheduled board and  committee meetings from January 1995 through April 2006. For the Board  of Trustees meetings, we calculated attendance rates by comparing the  number of trustees present at each regularly scheduled meeting with the  total number of trustees designated under the Kennedy Center Act. For  Operations Committee meetings, we calculated attendance rates by  comparing the number of trustees present at each meeting with the  information packet distribution list and the board’s policies and procedures  manual. We calculated Operations Committee meeting attendance rates for  the 13 of 18 meetings for which we had distribution lists. To ensure that the  Kennedy Center provided us with all of the Board of Trustees and  Operations Committee information packets and meeting minutes from  January 1995 through April 2006, we cross referenced the materials we  received against a list that was verified for a previous GAO report and  against the Board of Trustees’ annual list of scheduled meetings. We are  confident that we have accounted for all Board of Trustees and Operations  Committee information packets and meeting minutes from 1995 through  2006 and therefore believe that the attendance rate and meeting frequency  data are reliable for the purposes of this report. To calculate attendance  rates for the Smithsonian Institution Board of Regents, from January 2000  to September 2005, we compared the number of regents present and absent  at each regularly scheduled board meeting with the total number of regents  set forth in law relating to the Smithsonian Institution. In some instances,  we found that the number of regents attending and absent from meetings  did not match the number of regents set forth in the law. For example,  there were times when a vacancy on the board occurred while legislation to  appoint a regent was pending. In these instances, we had Smithsonian  Institution officials verify that during some board meetings, the number of  regents attending and absent from these meetings did not match the  number of regents set forth in law. Therefore, we believe that the  attendance rate data are reliable for the purposes of this report.
To obtain information on board governance practices, we interviewed  academics, board organizations, and officials of other arts organizations.  We reviewed relevant articles on board governance to select the academic  and board organizations. To obtain information on how other boards  govern, including their responsibilities for overseeing capital projects, we  interviewed officials and reviewed documents from other arts  organizations, including the Lincoln Center for the Performing Arts, the Los  Angeles Music Center, the National Gallery of Art, and the Smithsonian  Institution. We selected these organizations because they all have some  features in common with the Kennedy Center, including authorizing  legislation; capital projects; board member composition; organizational  mission; and federal funding.
We conducted our work in Los Angeles, California; New York City, New  York and Washington, D.C., between October 2005 and August 2006 in  accordance with generally accepted government auditing standards.
section_title: Kennedy Center’s Implementation of Our Recommendation to Design and Implement Financial Policies and Procedures
paragraphs: In April 2005, we recommended that the Kennedy Center strengthen  financial management controls by designing and implementing financial  policies and procedures in accordance with prescribed federal guidance.  Specifically, we recommended that the financial policies and procedures  address several areas, as detailed in figure 15. In January 2006, the Kennedy  Center designed and implemented financial policies and procedures for  activities funded by federal appropriations. The financial policies and  procedures were drawn from various laws and regulations including the  FAR. As shown in figure 2 and as discussed in the remainder of this  appendix, the Kennedy Center has fully implemented our financial  recommendations in several specific areas.
As figure 15 indicates, we recommended that the Kennedy Center  recognize and use complete up-to-date costs for construction and other  services to prepare financial reports and manage project costs. In response  to our recommendation, the Kennedy Center now submits monthly  progress reports on its obligations for services and capital federal  expenditures to OMB. For each capital project, the reports contain the  month’s anticipated, actual, and total up-to-date obligations made with  federal funds. The center uses a cash basis to report costs in monthly  financial reports on capital federal expenditures, which is acceptable to  OMB. Therefore, this recommendation has been implemented.
In our previous report, we recommended that for Economy Act  transactions, payments to other federal agencies be for actual costs  consistent with the Economy Act agreement. In response to our  recommendation, the Kennedy Center established a policy that requires  other federal agencies to clearly indicate that they are charging the center  for actual costs incurred, under an Economy Act agreement. In addition,  the policy includes an example of a letter that provides clear guidance to  contracting staff on the language needed to ensure that an agency is  charging the center for actual costs incurred. Therefore, this  recommendation has been implemented.
We recommended that financial policies and procedures ensure that  receiving reports are prepared when goods or services are received to  verify the validity of invoices. In response to our recommendation, the  center’s procedures direct staff to enter receiving information on an invoice  certification form—once the invoice is received—and to compare  construction invoices to the architect’s field inspection reports. We  examined recent invoice certification forms and found that they contained  the project title and the period of performance. Each invoice certification  form we reviewed also included a schedule of values detailing (1) the work  being billed and (2) the percentage of work completed to date. The project  title and the period of performance provide the information necessary to tie  the construction services performed to the invoice and to Kennedy Center  records. Therefore, this recommendation has been implemented.
We recommended that financial policies and procedures ensure that  invoices contain sufficient detail to support their accuracy and validity. In  response to our recommendation, the center’s procedures direct staff to  contact the vendor if additional detail is needed to support information on  goods or services billed. We reviewed recent invoices and found that they  now contain sufficient detail to support the accuracy and validity of the  amounts invoiced. Therefore, this recommendation has been implemented.
Finally, we recommended that the financial policies and procedures ensure  that invoices are matched against inspection reports and previously paid  invoices prior to payment to prevent duplicate payments. In response to  our recommendation, the center’s procedures direct staff to consider  whether goods and services have been billed on a previously approved  invoice. This procedure also directs staff to look for any charges outside  the period of billing and provides further detail instructing staff on data  sources to consider in determining if payment has already been made.  Therefore, this recommendation has been implemented.
section_title: Comments from the John F. Kennedy Center for the Performing Arts
paragraphs: The following are GAO’s comments on the John F. Kennedy Center for the  Performing Arts’ (Kennedy Center) letter dated August 24, 2006.
subsections: section_title: GAO Comments
paragraphs: 1. We disagree with this interpretation. Construction manager at risk is  not covered by the FAR; and, consequently, a deviation must be  authorized and justified in the contract file. We also continue to believe  that establishing a Guaranteed Maximum Price (GMP) prior to  proceeding with work limits the government’s risk of cost overruns.  During the audit, we spoke with an official in the GSA Office of the  Chief Architect who advises GSA staff on construction issues. The GSA  official said that a GMP should be established in order to effectively use  the construction manager at risk project delivery method and a  deviation from the FAR is required. Because the Kennedy Center stated  in its comments that it consulted with GSA and was told that it did not  need a deviation for the contract, we reconfirmed the situation with  GSA and were advised again that a deviation is required because of the  use of the GMP.  2. We updated the report to indicate that the Kennedy Center and the  Smithsonian Office of the Inspector General finalized a memorandum  of understanding, in July 2006, that establishes audits of federal funds  used for capital projects. In addition, we incorporated into the report,  the Kennedy Center’s rationale for selecting a nongovernmental  organization to audit the federal funds used for operations and  maintenance activities.  3. The revised, peer-reviewed modeling study concludes that smoke  exhaust and sprinkler protection are not needed on the Millennium  Stages, provided that the conditions of the revised modeling study are  met. Once the two conditions of the revised modeling study have been  met, the Kennedy Center will have fully implemented our  recommendation to install smoke exhaust and sprinkler protection at  the Millennium Stages. 4. We disagree with the Kennedy Center’s approach to this  recommendation, which is to assemble all existing as-built drawings  into a single set. The Kennedy Center can accomplish our  recommendation in a cost-efficient way by integrating the as-built  drawings from each successive capital project into a master plan for  the center and by updating the drawings as additional changes to the  center are made. This would ensure that the Kennedy Center is tracking  future changes to the center and using the most up-to-date drawings of  site conditions. Our report notes that it is important for the Kennedy  Center to start assembling and consistently updating a comprehensive  set of as-built drawings of the entire center to prevent costly  unexpected site conditions. 5. We agree that the difference between a project’s original budget and the  final cost does not, by itself, necessarily indicate ineffective or  inefficient management. However, we do believe that the Kennedy  Center Board of Trustees and Congress need information on project  cost overruns in order to monitor and evaluate whether federally  funded capital projects have been implemented effectively and  efficiently. 6. We believe our point is accurate and have further clarified the report to  indicate that the cost of the Family Theater project was about $9.1  million, which includes cost growth, due to change orders, that was  within the amount allocated for contingency. 7. The most recent Operations Committee meeting was held on April  2006; and as of this meeting, the Roof Terrace Life Safety Project scope  was not developed. In addition, neither our review of Kennedy Center  documents nor discussions with Kennedy Center officials indicated  that the scope of the Roof Terrace Life Safety Project was developed.  Although the Kennedy Center states that the scope of the Roof Terrace  Life Safety project was developed in April 2006, they did not provide the  details of this scope in their agency comments. 8. The Kennedy Center has deferred many of the terrace-level projects  that were planned for the CBP beyond the scheduled completion of the  plan in 2008, which significantly reduced the scope of the CBP.  9. See comment 6. 10. We agree that an ongoing capital plan is essential for the maintenance  of the Kennedy Center as a presidential memorial and national  performing arts center. The report notes that the Kennedy Center has  hired a consulting firm to survey the center and recommend upgrades  that have not been completed. This survey will cover years 2008  through 2012. We added into the report that a Kennedy Center official  told us that the new survey will include projects listed in the CBP that  were not completed in 2008 as planned, as well as new projects.
Therefore, we consider the survey an extension of the original CBP.  Although the extended CBP may include new projects to facilitate  ongoing capital planning, it will include deferred projects that were  originally scheduled to be completed in 2008. 11. We did not include designees’ attendance in our calculations of board  and Operations Committee attendance rates for several reasons. First,  membership on the Kennedy Center Board of Trustees is set forth in the  Kennedy Center Act and does not include designees. Therefore, we  based our calculations on the attendance records for those persons  legally serving as trustees. In addition, since designees have no legal  authority for making decisions, including those with respect to  federally funded capital projects, we did not consider their  participation in board and committee meetings. Lastly, in analyzing  board meeting minutes, we found instances in which a trustee sent  more than one designee to a meeting. In these cases, attendance rates  would be inflated if designees were included in the attendance  calculations. As noted in the report, we found that it is unclear what  responsibility and authority designees have for carrying out the board’s  responsibilities under the Kennedy Center Act, which limits the board’s  oversight of federally funded capital projects. 12. We agree that a lack of attendance at board and committee meetings  does not necessarily indicate that a trustee is not informed or engaged.  However, during our audit we found, as noted in the report, that with  respect to capital projects, trustees were not informed of project cost  overruns, project budgets, or proposed projects. For example, as  highlighted in the report, in April 2005, we reported that since 2003,  each of the three federally funded capital projects that we reviewed had  experienced cost overruns, one as great as 50 percent. However, we did  not find any evidence that the board or its Operations Committee was  informed of these cost overruns, such as the Opera House’s $4 million  cost increase. For example, two trustees that served on the board  during the implementation of these projects told us that they did not  know of any capital projects that had cost overruns. One of these  trustees said that the Opera House renovation was on budget.
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to those named above, Michael Armes, Keith Cunningham,  George Depaoli, Bess Eisenstadt, Craig Fischer, Brandon Haller, John  Krump, Susan Michal-Smith, Josh Ormond, Julie T. Phillips, and Carrie  Wilks made key contributions to this report.