Smithsonian Institution: Status of Efforts to Address a Range of Funding and Governance Challenges
Published: 2007-12-12T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Smithsonian Institution (Smithsonian) is the world's largest museum complex. Its funding comes from its own private trust fund assets and federal appropriations, with the majority of funds for facilities coming from federal appropriations. In 2005, GAO reported that the Smithsonian's current funding would not be sufficient to cover its estimated $2.3 billion in facilities projects through 2013 and recommended that the Smithsonian Board of Regents, its governing body, develop and implement a funding plan. Recently, problems related to a lack of adequate oversight of executive compensation and other issues have raised concerns about governance at the Smithsonian. This testimony discusses GAO's recently issued work on the Smithsonian's real property management efforts and its efforts to develop and implement strategies to fund its facilities projects. In addition, it describes preliminary results of GAO's ongoing work on the Smithsonian's governance challenges. The work for this testimony is based on GAO's September 2007 report, Smithsonian Institution: Funding Challenges Affect Facilities' Conditions and Security, Endangering Collections, which included recommendations. For ongoing governance work, GAO reviewed Smithsonian documents and interviewed Smithsonian officials, academics, and representatives of nonprofit associations.
section_title: What GAO Found
paragraphs: While the Smithsonian has made some improvements to its real property management, the continued deterioration of many Smithsonian facilities has caused problems, and the Smithsonian's real property management efforts face challenges. The deterioration of facilities has caused access restrictions and threatened collections. In addition, the Smithsonian's estimate for facilities projects increased to $2.5 billion. While the Smithsonian follows key security practices, communication of security information and funding constraints pose challenges. The Smithsonian has made significant strides in improving its real property portfolio management. However, the Smithsonian omitted privately funded projects from its capital plan, making it challenging to assess the total funding and scope of projects. GAO's September 2007 report recommended that the Smithsonian increase awareness of security issues and include privately funded projects in its capital plan. The Smithsonian concurred. To address GAO's 2005 recommendation that the Smithsonian develop a funding plan for facilities projects, the Board of Regents created an ad-hoc committee that reviewed nine options and chose to request increased federal funding. Some of the Smithsonian's evaluations of the nine funding options were limited in that they did not always provide complete analysis, fully explain assumptions, benchmark with other organizations, or consider combining options to increase revenue. GAO's September 2007 report recommended that the Smithsonian more comprehensively analyze funding options and report to Congress and the Office of Management and Budget on a funding strategy. The Smithsonian concurred. The Board of Regents recently established a prioritized list of funding options. Preliminary results of GAO's ongoing work on broader governance issues indicate that the Board of Regents has made some changes to strengthen governance, such as more clearly defining the Regents' oversight responsibilities and improving access between the board and key members of senior management. The board is also studying whether changes to its size and composition would strengthen governance. GAO's preliminary work suggests that the Board appears to have taken some positive steps toward governance reform, but that success will depend in part on how Regents embrace their new responsibilities and on their level of engagement.

section_title: Letter
paragraphs: Thank you for the opportunity to testify before you today on our work on  the Smithsonian Institution (Smithsonian). The Smithsonian has been  referred to as America’s museum, as its museums hold and provide access  to irreplaceable national collections in American and natural history, art,  and other areas. Since its beginning, the Smithsonian has evolved into the  world’s largest museum complex and research organization; two of its  museums on the National Mall in Washington, D.C., are the most visited in  the world. The act establishing the Smithsonian in 1846 provided, among  other things, that the business of the Smithsonian be conducted by a  Board of Regents.
In recent years, the National Academy of Public Administration (NAPA),  the Smithsonian, and we have reported on the deterioration of the  Smithsonian’s facilities and the threat posed by this deterioration to the  Smithsonian’s collections. For example, in April 2005, we reported that the  failing condition and closure of the Smithsonian’s 1881 Arts and Industries  building on the National Mall was the most significant example of a broad  decline in the condition of the Smithsonian’s facilities portfolio.  Moreover, we reported that structural deterioration and failing systems in  Smithsonian museums and other facilities presented serious long-term  risks to the Smithsonian’s collections. The Smithsonian’s annual operating  and capital program revenues come from its own private trust fund assets  and federal appropriations; however, the majority of funds for facilities  come from the Smithsonian’s federal appropriations.
As the Smithsonian’s chief decision-making body, the Smithsonian Board  of Regents is responsible for the long-term stewardship of the  Smithsonian’s mission, which includes maintaining the Smithsonian’s  facilities and collections, as well as ensuring that the Smithsonian has a  funding strategy that provides sufficient funds to support these activities.  In April 2005, we reported that the Smithsonian’s current funding would  not be sufficient to cover its estimated $2.3 billion in facilities projects  through 2013 and recommended that the Smithsonian Board of Regents  develop and implement a funding plan to address the Smithsonian’s  facilities projects. In April 2007, we testified before this committee that the  Smithsonian’s estimate for facilities’ projects had increased.
Recently, it has come to light that in addition to the challenge of  addressing the Smithsonian’s facilities needs, the Board of Regents faces  other governance challenges. In the past year, following a report from the  Smithsonian’s Inspector General to the Board of Regents on the  Smithsonian’s former Secretary’s compensation package and expenses,  the former Secretary resigned. In response to concerns about the  Smithsonian’s governance raised by the former Secretary’s compensation  and expenses, as well as other issues, two studies were conducted, one by  the Board of Regents’ Governance Committee and the other by an  Independent Review Committee (IRC) created at the request of the Board  of Regents. Among the findings of these studies were that the roles and  responsibilities of Regents were not clearly defined; under the former  Secretary of the Smithsonian, key senior officials such as the General  Counsel, Inspector General, and Chief Financial Officer were isolated from  the board; and the Regents did not routinely receive or request  information necessary to support vigorous deliberation, well-reasoned  decision making, and adequate oversight. Both studies included  recommendations. The Board of Regents adopted all 25 of the Governance  Committee’s recommendations and stated that the IRC recommendations  were for the most part encompassed by the Governance Committee  recommendations.
In my statement today, I will be focusing on the results of our recent  study—Smithsonian Institution: Funding Challenges Affect Facilities’  Conditions and Security, Endangering Collections—and on preliminary  results of our ongoing work on governance issues facing the Smithsonian.  My statement focuses on three topics: (1) the Smithsonian’s real property  management efforts, including the condition of the Smithsonian’s facilities,  costs of facilities’ projects, and efforts to improve real property security  and portfolio management; (2) the extent to which the Smithsonian has  developed and implemented strategies to fund its revitalization,  construction, and maintenance projects as we recommended in 2005; and  (3) some preliminary results of our ongoing work on governance changes  being made by the Smithsonian’s Board of Regents to address recent  governance problems.
We conducted our work for this testimony from October to December  2007 in accordance with generally accepted government auditing  standards. Our testimony regarding the Smithsonian’s real property  management is based on our September 2007 report on the Smithsonian’s  facilities and information provided by Smithsonian officials on steps taken  to develop a funding plan for facilities projects. Our testimony regarding  preliminary results of our ongoing work on the Smithsonian’s governance  changes is based on our review of Smithsonian and other documents, and  interviews with Smithsonian Regents and officials, including all museum  directors. In addition, we conducted a literature search to help identify  governance experts and organizations that had recently undergone  governance reforms. We identified and interviewed ten specialists on  nonprofit or museum governance, including academics and  representatives of associations dedicated to nonprofit governance. We  also reviewed literature on nonprofit governance to identify common  nonprofit governance practices, and we met with several organizations  that had some characteristics similar to those of the Smithsonian and that  had recently undergone governance reforms. For more information on the  scope and methodology of this testimony and our ongoing work on  governance issues, see Appendix 1.
subsections: section_title: Background
paragraphs: Congress established the Smithsonian in 1846 to administer a large  bequest left to the United States by James Smithson, an English scientist,  for the purpose of establishing, in Washington, D.C., an institution “for the  increase and diffusion of knowledge among men.” In accepting Smithson’s  bequest on behalf of the nation, Congress pledged the “faith of the United  States” to carry out the purpose of the trust. To that end, the act  establishing the Smithsonian provided for the administration of the trust,  independent of the government itself, by a Board of Regents and a  Secretary, who were given broad discretion in the use of the trust funds.  The Board of Regents currently consists of nine private citizens as well as  members of all three branches of the federal government, including the  Chief Justice of the United States, the Vice President, and six  congressional members, three from the Senate, and three from the House  of Representatives.
Over the last 160 years, the Smithsonian’s facilities inventory has  expanded to include 19 museums and galleries, 9 research centers, a zoo,  and other facilities—most located in or near Washington, D.C. The major  buildings owned by the Smithsonian range in age from about 160 years old  to less than 1 year old, with most of the facilities’ growth occurring since  the 1960s. (See figure 1.) The Smithsonian’s growth will continue with the  construction of an aircraft restoration area—phase 2 of the National Air  and Space Museum Steven F. Udvar-Hazy Center—and the design and  construction of a National Museum of African American History and  Culture, authorized by Congress in 2003. Beyond this, there has been  Congressional interest in developing a National Museum of the American  Latino.
Although the Smithsonian is a trust instrumentality with a private  endowment, it is largely funded by federal appropriations. In fiscal year  2006, the Smithsonian’s operating revenues were about $947 million, of  which about 65 percent came from federal appropriations. The facilities  capital appropriation, which was about $98.5 million in fiscal year 2006,  provides funds for construction and revitalization projects. The salaries  and expenses appropriation, which was about $516.6 million in fiscal year  2006, includes funding for the program activities of each museum and  research center; rents; utilities; and facilities’ operations, maintenance,  and security costs. The remaining operating revenues come from the  Smithsonian’s private trust funds. These are of two types:    Restricted trust funds—which made up 29 percent of the Smithsonian’s  operating revenue in fiscal year 2006—include such items as gifts from  individuals and corporations that specify the purpose of the funds.
Restricted funds have been provided for some facilities’ construction  projects and enhancements related to revitalization projects.
Unrestricted trust funds—which made up 6 percent of the  Smithsonian’s operating revenue in fiscal year 2006—include income  from investment earnings and net proceeds from business activities,  and can be used to support any Smithsonian activity. The Smithsonian  typically has used unrestricted trust funds for fundraising, some salary  costs, and central administration costs. Although the Smithsonian can  use unrestricted trust funds for any purpose consistent with the  Smithson Trust and therefore could use them for facilities revitalization  and maintenance, it has not done so. Smithsonian officials stated that  the unrestricted trust fund budget is small and that if these salary and  central administration costs were not paid for with unrestricted trust  funds, they would have to use federal funds or eliminate positions or  programs to cover these expenses.
section_title: Despite Some Improvements, Deteriorating Facilities Threaten Collections, and Security and Real Property Portfolio Management Efforts Have Strengths and Limitations
paragraphs: With regard to real property management, the Smithsonian has made a  number of facilities improvements since our 2005 report, but the  continued deterioration of many facilities has caused access restrictions  and threatened the collections, and the Smithsonian’s cost estimate for  facilities projects has increased. The Smithsonian follows many key  security practices to protect its assets but faces communication and  funding challenges. The Smithsonian has taken steps to improve its real  property portfolio management but faces challenges related to funding  constraints and its capital plan.
subsections: section_title: Some Facilities Improvements Have Occurred, but Deteriorating Facilities Have Caused Problems and the Cost Estimate for Facilities Projects Has Increased
paragraphs: The Smithsonian improved the condition of a number of facilities since  our 2005 report. For example, the Smithsonian completed its revitalization  of the Donald W. Reynolds Center for American Art and Portraiture, which  houses the Smithsonian American Art Museum and the National Portrait  Gallery. The Smithsonian also completed the construction of Pod 5, a fire- code-compliant space, to store alcohol-preserved specimens of the  National Museum of Natural History. Many of these specimens are  currently stored within the museum building on the National Mall in  Washington, D.C., in spaces that do not meet fire-code standards.  Collections are scheduled to be moved to Pod 5 over the next 2 years.
At the same time, problems with the Smithsonian’s facilities have resulted  in additional access restrictions and damage and have continued to  threaten collections and cause other problems, according to museum and  facility directors:    At the National Air and Space Museum, power capacity issues caused  by inadequate electrical systems have forced the museum to  occasionally close galleries to visitors.
A lack of temperature and humidity control at storage facilities  belonging to the National Air and Space Museum has caused corrosion  to historic airplanes and increased the cost of restoring these items for  exhibit.
Chronic leaks in the roof of the Cultural Resources Center at Suitland,  Maryland, which was completed in 1998 and opened in 1999 to hold  collections of the National Museum of the American Indian, have  forced staff to place plastic over several shelving units used to store  collections, such as a set of wooden boats that includes an Eskimo  kayak from Greenland and a rare Yahgan dugout canoe from Tierra del  Fuego, according to officials at this facility (see fig. 2). The plastic  sheeting limits visitors’ visual access to the boats during open houses,  which provide Native Americans and other groups with access to the  collections.
Leaks in a skylight since 2005 have at times forced the National  Museum of African Art to cover the skylight with plastic to protect the  building and its collections (see fig. 3).
Leaks in the National Zoological Park’s sea lion and seal pools as of  July 2007 were causing an average daily water loss of 110,000 gallons,  with a water replacement cost of $297,000 annually (see fig. 4).
According to Smithsonian officials, repairs to some of these problems are  scheduled to take place over the next several years.
The Smithsonian’s cost estimate for facilities projects from fiscal year 2005  through fiscal year 2013 has increased since April 2005 from about $2.3  billion to about $2.5 billion for the same time period. According to  Smithsonian officials, this estimate includes only costs for which the  Smithsonian expects to receive federal funds, and it could increase  further. According to Smithsonian officials, the increase in this cost  estimate was due to several factors. For example, Smithsonian officials  said that major increases had occurred in projects for the National  Zoological Park and the National Museum of American History because  the two facilities had recently developed master plans that identified  additional requirements. In addition, according to Smithsonian officials,  estimates for antiterrorism projects had increased due to adjustments for  higher costs for security-related projects at the National Air and Space  Museum, and the increase in the cost estimate also reflects the effect of  delaying corrective work in terms of additional damage and escalation in  construction costs.
section_title: Security Efforts Include Following Key Security Practices but Face Challenges
paragraphs: The Smithsonian follows key security practices to protect its assets, but it  faces two key challenges, one related to ensuring that museum and facility  directors are aware of important security information and the other  related to funding constraints. The Smithsonian follows key security  practices we have identified in prior work, such as allocating resources  to manage risk by contracting for a risk assessment report. This report,  which includes individual assessments for over 30 Smithsonian facilities,  was completed in 2005. The Smithsonian performs risk assessments for its  facilities every 3 to 5 years to determine the need for security  enhancements.
Despite these efforts, we found that nine museum and facility directors we  spoke with were unaware of the contents of the Smithsonian’s risk  assessment report. The Smithsonian’s Office of Protection Services (OPS)  is responsible for operating programs for security management at  Smithsonian facilities. However, some museum and facility directors’ lack  of awareness of the risk assessment report limits their ability to work with  OPS to identify, monitor, and respond to changes in the security of their  facilities.
Furthermore, some museum and facility directors cited an insufficient  number of security officers to protect assets due to funding constraints.  We found that the overall number of security officers had decreased since  2003, at a time when the Smithsonian’s square footage had increased.  Some of the Smithsonian’s museum and facility directors said that in the  absence of more security officers, some cases of vandalism and theft have  occurred. In addition, two museum directors stated that it has become  more difficult for them to acquire collections on loan because lenders have  expressed concern with the lack of protection. In our September 2007  report, we recommended that the Smithsonian increase awareness of  security issues. The Smithsonian concurred with this recommendation.
section_title: Real Property Portfolio Management Efforts Include Improvements but Face Challenges
paragraphs: Faced with deteriorating facilities and an increased cost estimate for  facilities projects, the Smithsonian has taken steps to improve the  management of its real property portfolio but faces challenges related to  funding constraints and its capital plan. The Smithsonian’s centralized  office for real property management, known as the Office of Facilities  Engineering and Operations (OFEO), has made significant strides in  several areas related to real property portfolio management, including  improving real property data, developing performance metrics, and  refining its capital planning process.
At the same time, however, funding constraints have presented  considerable challenges to OFEO’s efforts. For example, while a majority  of museum and facility directors stated that OFEO does a good job of  prioritizing and addressing problems with the amount of funds available,  several museum and facility directors expressed frustration that projects  at their facilities had been delayed. In addition, OFEO officials stated that  a lack of sufficient funds for maintenance has limited their ability to  optimally maintain equipment, leading to more expensive failures later on.
The Smithsonian has omitted privately funded projects from its capital  plan and its estimate of $2.5 billion for facilities projects through 2013,  making it challenging for the Smithsonian and other stakeholders to  comprehensively assess the funding and scope of facilities projects. In  recent years, private funds have played an important role in funding some  of the Smithsonian’s highest-priority construction and revitalization  projects, making up 39 percent of the Smithsonian’s capital funds for  facilities projects for fiscal years 2002 through 2007. Smithsonian officials  noted that the majority of these private funds were donated for the  construction of new facilities—namely, the National Museum of the  American Indian and the National Air and Space Museum Steven F. Udvar- Hazy Center—and said there is no assurance that private funds would  make up a similar percentage of the Smithsonian’s funds for capital  projects in future years. However, other organizations we visited during  our review include both private and public investments in their capital  plans to inform their stakeholders about the scope of projects and the  extent of such partnerships used to fund capital needs. As a result, our  September 2007 report recommends that the Smithsonian include  privately funded projects in its capital plan. The Smithsonian concurred  with this recommendation.
section_title: The Smithsonian Has Taken Some Steps to Address Our Recommendation Regarding Funding Strategies, but Its Evaluation of Funding Options Has Been Limited
paragraphs: Funding constraints are clearly a common denominator with regard to the  Smithsonian’s security and real property management, but while the Board  of Regents has taken some steps to address our 2005 recommendation to  develop a funding plan to address its facilities revitalization, construction,  and maintenance needs, its evaluation of funding options has been limited.  In September 2005, an ad-hoc Committee on Facilities Revitalization  established by the Board of Regents reviewed nine funding options that  had been prepared by Smithsonian management for addressing this  estimated funding need. The nine options are briefly described in Table 1.
After reviewing materials on these nine options prepared by Smithsonian  management, the ad-hoc committee decided to request an additional $100  million annually in federal funds for facilities over its current  appropriation for 10 years, starting in 2008, for a total of an additional $1  billion. To implement this recommendation, in September 2006, several  members of the Board of Regents and the Secretary of the Smithsonian  met with the President to discuss the issue of increased federal funding for  the Smithsonian’s facilities. According to two members of the Board of  Regents, this option was selected because the board believed that the  revitalization, construction, and maintenance of Smithsonian facilities are  federal responsibilities. According to Smithsonian officials, it is the  position of the Smithsonian, based on an historical understanding, that the  maintenance and revitalization of facilities are a federal responsibility.  Smithsonian officials pointed out that as early as the 1850s, the federal  government has provided appropriations to the Smithsonian for the care  and presentation of objects belonging to the United States. The President’s  fiscal year 2008 budget proposal included an increase of about $44 million  over the Smithsonian’s fiscal year 2007 appropriation, far short of what the  Smithsonian requested, and it is not clear how much of this proposed  increase would be used to support facilities.
Our analysis of the Smithsonian’s evaluations of the eight other funding  options, including the potential benefits and drawbacks of each, showed  that the evaluations were limited in that they did not always include a  complete analysis, fully explain specific assumptions, or benchmark with  other organizations—items crucial to determining each option’s potential  viability. For example, the Smithsonian’s analysis of a general admission  fee option included an adjustment of annual net gains to account for  losses in revenue at restaurants and stores. However, the Smithsonian’s  materials did not discuss whether other museums had experienced such  losses after establishing admission fees. We spoke with six other museums  and a zoological park that stated that instituting or increasing admission  fees did not decrease the amount of money visitors spent in restaurants  and stores. In addition, although several of the nine options were  dismissed because independently the options would not generate the  amount of revenue required to address the Smithsonian’s facilities  projects, the evaluation did not consider the potential of combining  options to generate more revenue.
In our September 2007 report, we concluded that if the Smithsonian does  not develop a viable strategy to address its growing cost estimate for  facilities projects, its facilities and collections face increased risk, and the  ability of the Smithsonian to meet its mission will likely decline. We  therefore concluded that the Board of Regents’ stewardship role obligates  it to consider providing more private funds to meet the funding  requirements of its overall mission. We recommended that the  Smithsonian Board of Regents perform a more comprehensive analysis of  alternative funding strategies beyond principally using federal funds to  support facilities and submit a report to Congress and the Office of  Management and Budget (OMB) describing a funding strategy for current  and future facilities needs. The Smithsonian concurred with this  recommendation.
Recently, the Smithsonian Board of Regents has taken some additional  steps towards developing a funding plan for facilities’ projects. According  to a Smithsonian official, at the Board of Regents’ November 19, 2007,  meeting, the Chair of the Committee on Facilities Revitalization, which  became a standing committee in June 2007, reported to the board on the  committee’s activities. These activities included several meetings and  conversations, including some with Smithsonian management, and the  consideration of some new papers on funding options. The papers  contained information on some previously identified options as well as on  some new options. A Smithsonian official acknowledged, however, that  these papers did not provide comprehensive analysis and that many were  not significantly different from the previous materials. According to a  Smithsonian official, the Smithsonian determined that it did not wish to  spend resources further analyzing all options but instead will analyze  those the board has decided to pursue. According to a Smithsonian  official, at this November 19 meeting of the Board of Regents, the Regents  concurred with a prioritized list of funding options that was presented by  the committee. This list includes establishing a national campaign to raise  private sector funds for Smithsonian programs and facilities, a request that  Congress match funds raised in the national campaign with additional  appropriations, and several other options.
section_title: Preliminary Results Suggest that the Board of Regents Has Made Some Changes to Strengthen Governance, but Governance Challenges Remain
paragraphs: According to preliminary results of ongoing work, as of November 2007,  the Board of Regents had largely implemented 12 of the Governance  Committee’s 25 recommendations.  The board had taken steps towards  implementing the other 13 recommendations, including, among other  things, arranging for the implementation of some recommendations to be  studied further and establishing target dates for implementation that range  from December 2007 to mid 2008. The 12 recommendations implemented  by the board include, for example, more clearly defining the roles and  responsibilities of Regents and regent committees, improving access  between the board and key members of senior management, and  strengthening some policies regarding conflicts of interest and executive  expenses. The board is also conducting studies on whether changes to the  size and composition of the board would improve governance, how to  effectively engage the Smithsonian’s advisory boards, and executive  compensation.  Governance experts and others we interviewed stated that  in general, the board appears to have taken some positive steps toward  governance reform.  However, according to the literature we reviewed and  governance experts we interviewed, success will depend in part on how  Regents embrace their new responsibilities and on their level of  engagement, as good governance results from a board that consists of  active and deeply engaged members.
subsections: section_title: The Board Has Implemented Several Changes to Improve Governance
paragraphs: The board reports that it has largely implemented 12 of the 25  recommendations of the Governance Committee. Appendices II and III  provide summaries of the implementation status of the Governance  Committee and IRC recommendations. The following are descriptions of  some of the key recommendations that have been implemented.
Duties and responsibilities of Regents and regent committees  have been clarified. Previously, the roles and responsibilities of  Regents and regent committees were not clearly and explicitly stated.  The Governance Committee found that without a formal job  description, the role of a regent was subject to individual  interpretation, and it determined that adopting a clear statement of  regent duties and responsibilities would reaffirm that the board is the  Smithsonian’s ultimate governing authority. Accordingly, the board has  taken several actions to clarify these responsibilities, including 1)  adopting specific written responsibilities and expectations for all  Regents, including that all Regents should participate in committees; 2)  clarifying the duties of the Chancellor (who by tradition is the Chief  Justice) and creating a new board Chair position to play a leadership  role in guiding the board in the exercise of its oversight functions; and  3) appointing new leadership for all committees. These changes are  now being put into practice and it is therefore too soon to evaluate  whether they will be effective in improving governance at the  Smithsonian.
Access of key management to the board and information  available have been improved. Several of the recent governance  problems reported at the Smithsonian have been attributed to the  isolation of certain members of senior management from the board and  the office of the former Secretary’s tight control of information  available to the board. The board has taken a number of steps to  address these issues, including 1) amending its bylaws to require the  attendance of the General Counsel and Chief Financial Officer, or their  designees, at all meetings of the board and relevant board committees,  2) strengthening the relationship between the Inspector General’s  office and the board, and 3) establishing an independent Office of the  Regents that is responsible for, among other things, setting the agenda  for the board in concert with the Secretary and through consultation  with Smithsonian museum directors and others. While we have not  independently validated these changes to assess whether they will be  effective in improving oversight, both senior management and the  Board of Regents’ staff told us that communication between the  Regents and senior management has improved. For example, the  General Counsel and Chief Financial Officer both told us that they are  now directly reporting to the Regents and are available at board  meetings to discuss details and answer questions about information  they bring to the Regents.
Management policies have been strengthened. The Governance  Committee found that previous policies regarding expense  reimbursement (including travel) and conflict-of-interest policies were  not well-defined, which contributed to the lack of oversight of certain  practices of the former Secretary as well as the failure to actively  manage apparent conflicts of interest at the Smithsonian. The board  has clarified management policies on travel and expense  reimbursement, and created new ones, such as prohibiting senior  executives from serving on the boards of for-profit companies. We have  not independently validated these changes to assess whether they will  be effective in improving oversight, and it is not yet clear how these  policies will improve the governance of the institution in practice.
A compensation range to guide the search for a new secretary  has been established. In response to concerns about the  compensation of the former Secretary (which included, among other  things, a housing allowance that some Regents were unaware of), the  board contracted for a study to identify a compensation range to guide  the search for a new secretary, with the goals of making the secretary’s  compensation transparent and balancing the Smithsonian’s public trust  status with the need to attract the best leader. According to a Board of  Regents’ staff member, the study included benchmarking with about 30  comparable organizations. In October, the Board of Regents approved  the range recommended by the study to be used in the recruitment  process. We have not independently validated this recommended  range.
section_title: Some Recommendations Have Yet to Be Implemented, and Other Governance Issues Are Still Being Studied
paragraphs: Several recommendations have not yet been fully implemented but are  actively being considered and debated. For example, at the direction of the  Regents, the Smithsonian is examining the extent to which Smithsonian  Business Ventures (SBV), a centralized business entity responsible for the  Smithsonian’s various business activities, should follow Smithsonian-wide  policies for areas such as contracting and travel. Previously, SBV adopted  its own policies and was not subject to all Smithsonian policies. The  efforts underway are preliminary and final actions have not yet been  taken, but the Regents report them as being on track toward  implementation. In addition, in August 2007, the Acting Secretary  established a task force to review the entirety of SBV and make  recommendations on its governance, structure, and the role of revenue- generating activities within the Smithsonian. Those recommendations will  be presented to the Acting Secretary by the end of the year and to the  Regents at their January 2008 meeting.
The Board of Regents is continuing to study other important issues related  to improving governance at the Smithsonian. In particular, some observers  have suggested that the size and composition of the board contributed to  the lack of oversight of management practices, and in response, the Board  of Regents, with the assistance of outside consultants, is evaluating  potential structural changes to the board. The report is due in January  2008. Any changes to the size and composition of the board would require  legislative action. Currently, the Board of Regents consists of 17  members—9 citizen Regents, 6 Congressional Regents, and 2 ex-officio  Regents (the Vice President and the Chief Justice)—which is the average  size for boards of nonprofit organizations. However, much of the work of  the Board of Regents is conducted at the committee level, and in the past,  not all Regents have served on committees, suggesting that in practice, the  “working” size of the board has been somewhat smaller than 17.  Nonetheless, based on our review of common non-profit governance  practices, and according to governance experts and others we consulted,  there is no “right” number of board members. A board that is small will  have fewer members to serve on committees, whereas having too many  board members can lead to increased difficulty in making decisions and  can stifle the effectiveness of the board. Determining the appropriate size  for a board entails balancing the need for a board that is of a manageable  size with such things as ensuring the board has the expertise necessary to  achieve its mission and achieving an appropriate diversity of values and  perspectives among board members.
Beyond the size and structure of the board, several governance experts we  interviewed stressed that having board members who actively participate  and are engaged is central to good governance, and some nonprofit  organizations we met with stated that they focused on changing the  governance culture at their organization. For example, representatives  from one nonprofit organization we spoke with—which recently had  similar issues related to executive compensation and expenses—stated  that they have focused on creating a culture of accountability and  transparency in the board’s activities. They told us that they did not  change the size or structure of the board, but rather clarified roles and  responsibilities, improved communication throughout the various  divisions of the organization, and took other actions aimed at improving  the accountability and transparency of the board.
In order to address other governance recommendations, the Board of  Regents has planned another longer term study, due in May 2008, aimed at  establishing a stronger link between the board and the Smithsonian’s 30  advisory boards. These boards include the Smithsonian National Board as  well as advisory boards that focus on individual museums or research  centers. According to the Governance Committee, the advisory boards  provide a key link between the Regents and the public and a direct  connection to the museums. Based on preliminary findings of our ongoing  work, the Regents generally have had limited interaction with the advisory  boards, although the advisory boards serve important functions in the  operations of the individual museums and other facilities across the  Smithsonian. Preliminary results from our ongoing work indicate that  several museum directors are concerned about the Regents’ level of  interaction with advisory boards and most museum directors see  additional value from having a more direct relationship between the Board  of Regents and the various museums, research facilities, and other  institutions within the Smithsonian.
Governance experts and others we spoke with said that, in general, the  board appears to have taken some positive steps toward governance  reform.  However, according to the literature we reviewed and governance  experts we interviewed, success will depend in part on how Regents  embrace their new responsibilities and on their level of engagement, as  good governance results from a board that consists of active and deeply  engaged members.
In our ongoing work, we will continue to assess the Board of Regents’  governance changes and how the board is addressing long-term  governance challenges facing the Smithsonian. We expect to report on  these issues in 2008.
Madam Chairman, this concludes my prepared statement. I would be  happy to respond to any questions you or other Members of the  Committee may have at this time.
section_title: GAO Contact and Acknowledgements
paragraphs: For further information on this testimony, please contact Mark L.  Goldstein at (202) 512-2834 or goldsteinm@gao.gov. Individuals making  key contributions to this testimony include Brandon Haller, Carol Henn,  Jennifer Kim, Margaret McDavid, Susan Michal-Smith, Amanda Miller, Sara  Ann Moessbauer, Dave Sausville, Stanley Stenerson, Andrew Von Ah, and  Alwynne Wilbur.
section_title: Appendix 1: Scope and Methodology
paragraphs: We conducted our work for this testimony from October to December  2007 in accordance with generally accepted government auditing  standards. Our testimony regarding the Smithsonian’s real property  management is based on our past report on the Smithsonian’s facilities,  including their condition, security, management, and funding, and  information provided by Smithsonian officials on steps taken to develop a  funding plan for facilities projects. Our testimony regarding preliminary  results of our ongoing work on the Smithsonian’s governance changes is  based on our review of Smithsonian and other documents, and interviews  with Smithsonian Regents and officials and others.  Specifically, we  reviewed laws relating to the Smithsonian, the Independent Review  Committee report, and the Smithsonian’s Governance Committee Report,  and spoke to Smithsonian Regents and officials on their progress towards  implementing governance recommendations.  We also interviewed all  Smithsonian museum directors. We conducted a literature search to help  identify governance experts and organizations that had recently  undergone governance reforms. We identified and interviewed ten  specialists on nonprofit or museum governance, including academics and  representatives of associations dedicated to nonprofit governance. This  included four governance or museum experts who had advised or  consulted with the Smithsonian during its governance review, as well as  six that we identified through a literature search or were referred to us by  other experts in the field.
We also reviewed literature on nonprofit governance to identify common  nonprofit governance practices, including literature from organizations  such as the American Association of Museums, BoardSource, Council on  Foundations, and Independent Sector. In addition, we met with several  organizations that had characteristics similar to those of the Smithsonian  and that had recently undergone governance reforms. We focused on  organizations that had had similar governance problems, conducted a  governance review, and changed their practice or structure; organizations  that had a structure that consisted of a central or national governing body  with multiple programming units; and organizations with similar missions  and stewardship challenges. As of December 5, 2007, we had met with  officials from American University, American National Red Cross, Getty  Trust, National Trust for Historic Preservation, and United Way of  America.
In ongoing work, we are continuing to evaluate the Smithsonian Board of  Regents’ governance reforms. Our objectives for this ongoing work  include assessing (1) how governance changes being made by the Board of  Regents address recent governance problems and how changes will be  implemented and evaluated, and (2) how the Board of Regents is  addressing other long-term governance challenges facing the Smithsonian,  such as funding, strategic planning, facilities, collections and museum  management, and what, if any, additional oversight activities would be  beneficial to the board in achieving its mission. We are also continuing to  interview recognized experts in nonprofit governance selected through the  process described above to obtain their independent views on the  Smithsonian’s governance problems and whether recent governance  changes will address those problems; and we are conducting interviews  and reviewing documents from organizations selected through the process  described above that have recently changed their governance structure  and practice. We expect to report on these issues in 2008.
section_title: Appendix II: Implementation Status of Governance Committee Recommendations
paragraphs: According to Smithsonian Institution (Smithsonian) officials, the  Smithsonian Board of Regents has largely implemented 12 of the 25  recommendations made by the Board of Regents’ Governance Committee  based on its internal study, and has taken steps towards implementing the  other recommendations. The implementation of some of these  recommendations is under further study by the board. Figure 5 provides a  summary of the board’s efforts towards implementing these  recommendations, as described by Smithsonian officials.
section_title: Appendix III: Implementation Status of Independent Review Committee Recommendations
paragraphs: The Smithsonian Institution (Smithsonian) Board of Regents has stated  that the Governance Committee’s 25 recommendations generally  encompass the recommendations made by the Independent Review  Committee (IRC) as part of its study to address governance problems at  the Smithsonian. As such, the Smithsonian is not tracking its  implementation of these recommendations individually, except that it  notes which IRC recommendations are relevant to each Governance  Committee recommendation. Based on information provided to us by  Smithsonian officials, the board has implemented 3 of the IRC’s 12  recommendations, and has taken steps towards implementing the others,  with the exception of one recommendation (IRC recommendation number  12) that was not issued directly to the board.  Several of these  recommendations are being considered as part of ongoing studies  undertaken by the board to address the Governance Committee  recommendations. Figure 6 provides a summary of the board’s efforts  towards implementing the IRC recommendations, as described by  Smithsonian officials.