Smithsonian Institution: Board of Regents Has Implemented Many Governance Reforms, but Ensuring Accountability and Oversight Will Require Ongoing Action
Published: 2008-05-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Smithsonian Institution's governing body, the Board of Regents (Board), has developed a set of actions to address governance and accountability breakdowns that came to light in 2007. These actions were aimed at problems in three main areas: (1) executive compensation, benefits, ethics, and operational policies and controls; (2) flow of information to the Board, transparency of Board operations, and relationship with stakeholders; and (3) the Board's responsibilities, structure, and performance. GAO was asked to assess the extent of the Board's progress in each of these areas. GAO obtained information and data from the Board's regents, Smithsonian executives, and other stakeholders and also analyzed other organizations whose boards had faced similar governance challenges.
section_title: What GAO Found
paragraphs: The Board has implemented several reforms related to executive compensation and benefits, but the development of policies for broader operational matters such as travel, event expenses, and contracting is still under way. Actions implemented include a revised salary range for the Smithsonian's Secretary-elect and a unified compensation policy for other executives. The Smithsonian is reviewing policies related to travel and other matters, including internal controls. Effectively implementing the new policies and procedures developed during these reviews is likely to depend on effectively training staff and establishing accountability, both of which may be challenging due to a level of standardization and requirements that did not exist before. The Board has completed the actions it proposed for improving its access to information and making its operations more transparent, but actions to improve communication and relationships with stakeholders are less far along. The Board now has avenues for obtaining information directly from senior officials rather than through the Office of the Secretary, and it has taken such steps as creating a Web page to better publicize its operations and decisions. The Board is studying how to improve links with its 30 advisory boards and has developed an overall strategy for communicating with the larger network of stakeholders, but neither action is far enough along to assess its potential for addressing past problems. The Board has largely completed the actions it proposed for clarifying regents' responsibilities and studying possible changes in its size and structure, but actions for assessing Board performance are still being developed. The Board altered its committee structure but decided that more fundamental changes in its size and composition were unnecessary. To provide further expertise where necessary under the existing structure, the Board is encouraging the addition of nonregents to committees. Thus far, however, the Board has not developed a process for assuring transparency and accountability in selecting nonregents and using them to enhance governance. The Board is also developing a self-assessment process, but it remains to be seen how the Board will hold regents accountable if they neglect their duties. Given the extensiveness of actions taken and still under way, it is likely that the effectiveness of some changes will only be evident over a longer time. The Board does not currently have plans to conduct a broader evaluation of its governance reform actions after such time has passed to determine if the actions taken have addressed governance and accountability problems which led to its reform actions.

section_title: Letter
paragraphs: The Smithsonian Institution (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. In addition to its 19 museums, the Smithsonian includes nine  research centers, the National Zoological Park, and a number of other  programs. Since its establishment in 1846, 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. Congress established the Smithsonian in 1846. In  fiscal year 2007, about 70 percent of the Smithsonian’s operating revenues  of approximately $1 billion came from federal sources, including direct  appropriations and government grants and contracts. The rest of its  operating revenues came from contributions, earnings from investments  and business operations, and other private sources. The act establishing  the Smithsonian in 1846 provided that, among other things, the business of  the Smithsonian be conducted by a board of regents. Currently, the Board  of Regents (Board) is comprised of 17 regents, including 2 ex-officio  regents—the Chief Justice and the Vice President of the United States—6  congressional regents, and 9 citizen regents. As the Smithsonian’s chief  decision-making body, the Board is responsible for the long-term  stewardship of the Smithsonian’s mission.
In 2007, serious governance challenges for the Board came to light.  Following a report from the Smithsonian’s Inspector General to the Board  on the then- Secretary’s compensation package and expenses, and related  inquiries, that Secretary resigned. Two subsequent studies were published  in June 2007, one by the Board’s Governance Committee and the other by  an Independent Review Committee (IRC) created at the Board’s request,  that identified such governance and accountability breakdowns as the  following:    Policies and internal controls were inadequate in such areas as conflicts of  interest, compensation, and travel.
The Board did not routinely receive or request information necessary to  support vigorous deliberation, well-reasoned decision making, and  adequate oversight.
The Board’s roles and responsibilities were not clearly defined, leaving the  role of the regents subject to interpretation.
The Board may have lacked sufficient expertise to conduct effective  oversight in some areas, and the size and structure of the Board itself may  be contributing to this problem.
Both studies recommended changes to address these governance  challenges. The Board adopted all 25 of the Governance Committee’s  recommendations and stated that the IRC’s recommendations were, for  the most part, encompassed by the Governance Committee’s  recommendations. The Board also created a scorecard to track the  implementation status of the Governance Committee recommendations,  which is posted on the Smithsonian’s Web site and updated monthly.  Several other senior Smithsonian executives resigned over the past year,  including the Deputy Secretary and the Chief Executive Officer of  Smithsonian Business Ventures, a centralized business entity responsible  for the Smithsonian’s various business activities.
You asked us to assess the extent of the Board’s progress in addressing the  areas of concern identified in the Governance Committee and IRC reports.  Specifically, we evaluated the Board’s actions related to three broad areas  of concern: (1) executive compensation, benefits, and expenses, ethics,  and operational policies and internal controls; (2) the flow of information  to the Board, the transparency of Board operations, and the Board’s  communication and relationships with stakeholders; and (3) the Board’s  responsibilities, composition, and performance.
To address these objectives we reviewed relevant laws and regulations  and Smithsonian policies, reports, and documents, including the new draft  compensation policies; Board meeting minutes; reports regarding  Smithsonian advisory boards; a recent consultant report on the size,  composition, and structure of the Board; and draft Board assessment  materials, among many other documents. To determine the adequacy of  proposed changes in Smithsonian policies and practices, we compared the  proposed changes to current governance practices in the private and  nonprofit sectors and also used GAO’s internal control standards and  other GAO criteria as appropriate. We compiled current governance  practices from several sources, including previous GAO work on  governance challenges at several organizations, including the John F.  Kennedy Center for the Performing Arts, the Legal Services Corporation,  and the Federal Deposit Insurance Corporation; as well as organizations  such as BoardSource, Independent Sector, Conference Board, the Museum  Trustee Association, the American Association of Museums, and the  Council on Foundations, that have compiled current practices in nonprofit  governance, and museum governance in particular. We also looked at  relevant governance documents and interviewed knowledgeable senior  officials from organizations that have recently undergone similar  governance reforms, including the American Red Cross, American  University, J. Paul Getty Trust, and United Way of America. We chose  these organizations because they have had similar governance problems,  have conducted a governance review, and have changed their practices or  structure; have a similar structure to the Smithsonian, such as consisting  of a central or national governing body with multiple programming units  and organizations; and face similar stewardship challenges. We did not  assess the effectiveness of governance reform efforts at these  organizations. We also collected and reviewed a variety of documentation  in order to validate that the changes to Smithsonian policies and  procedures were actually being carried out, such as reviewing Board  meeting minutes to validate that certain senior officials were in attendance  and provided input to the Board.
In addition to reviewing relevant documentation, we interviewed current  and former regents, senior Smithsonian officials, directors of Smithsonian  museums, members of Smithsonian advisory boards, and selected  governance experts to discuss their views on the Smithsonian’s  governance reforms and the appropriateness and potential effectiveness of  those reforms. Specifically, we interviewed all of the current citizen  regents, except the most recently appointed regent; three former citizen  regents; four congressional regents; and the primary staff liaisons to the  remaining two congressional regents. We also obtained a written response  from the Chief Justice to questions we provided. We also interviewed  senior Smithsonian officials—such as the Acting Secretary, the Chief  Financial Officer (CFO), the General Counsel, and the Inspector General,  as well as several other members of Smithsonian’s central management.  We interviewed the directors of all of the Smithsonian’s museums,  including the National Zoological Park, as well as the chairpersons of the  advisory boards of several of these institutions. Finally, we interviewed  selected experts in nonprofit governance, including those experts that  were advisors to the Board in the governance reform process, and others  that we identified through a literature search or were referred to us by  other experts in the field.
We conducted this performance audit from May 2007 to May 2008 in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives. Appendix I contains more information  about our scope and methodology.
subsections: section_title: Background
paragraphs: The Smithsonian Institution is a unique and complex organization.  Congress created the Smithsonian in 1846 as an independent trust  establishment of the United States. Congress did not establish the  Smithsonian within any branch of the federal government, and it is not a  federal agency unless Congress designates it as such for purposes of a  particular law or a federal court determines it to be. The Smithsonian Act  provided that the business of the Smithsonian be conducted by a board of  regents, and that the Board be drawn from all three branches of  government and the private sector. The Act delineates the structure and  composition of the Board. Table 1 provides more information on the  structure and current membership of the Board.
The Board traditionally has elected the Chief Justice of the United States  to be the Chancellor of the Board. The Chancellor presides over Board  meetings and selected ceremonial occasions, and until recent changes to  the role of the Chancellor, had several other leadership responsibilities.
The Board is vested with governing authorities over the Smithsonian and  considers matters such as the Smithsonian’s budgets and planning  documents, new programs and construction proposals, appointments to  Smithsonian advisory boards, and a variety of other issues facing the  Smithsonian. The Board also has stewardship responsibilities, including  ensuring that the Smithsonian’s facilities and collections are maintained,  and ensuring that the Smithsonian has a funding strategy that provides  sufficient funds to support these activities. In recent years, the National  Academy of Public Administration, the Smithsonian, and we have reported  on the deterioration of the Smithsonian’s facilities and the threat posed by  this deterioration. For example, in September 2007, we reported that  funding challenges at the Smithsonian were affecting facilities’ conditions  and security, and endangering collections, and that the Smithsonian’s cost  estimate for facilities projects had increased to $2.5 billion from $2.3  billion in April 2005. In that report, we recommended that the Board  perform a 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 describing a funding  strategy for current and future facilities needs.
The Smithsonian manages two different types of funds—federal  appropriations and trust funds—which include revenue from donations,  grants, revenue-generating activities, interest on investments, and other  sources. In some cases, the Smithsonian’s policies related to activities  involving the expenditure of federal funds has differed from its policies  related to the expenditure of trust funds. For example, in 2006, we  reported that the Smithsonian had elected to follow the Federal  Acquisition Regulation (FAR) provisions for contracts involving the  expenditure of federal funds, while for business contracts that involved  neither the expenditure nor receipt of federal funds and for which the FAR  is inapplicable, the Smithsonian had elected to follow commercial  business practices. About two-thirds of Smithsonian employees, including  executives, are paid with federal funds, while other employees are paid  with trust funds. Federal employees are subject to the laws, regulations,  and policies for federal employment, while trust employees are covered by  Smithsonian policies for trust fund employment.
Adding to the complexity of the organization, in 1998, the Board  authorized the Secretary of the Smithsonian to reorganize the various  business activities within the Smithsonian into a centralized business  entity, Smithsonian Business Ventures (SBV). SBV’s mission is to generate  revenue from business activities to support the Smithsonian’s mission. The  Smithsonian’s business activities include a magazine and museum retail  operations.
The governance reform currently under way at the Smithsonian is not  unique among nonprofit organizations, or among other major arts and  educational institutions. In light of the Sarbanes-Oxley Act of 2002 and  governance reform in the corporate world, awareness has grown regarding  the need for improving governance practices in the nonprofit sector.  Several major nonprofit organizations, such as the American Red Cross,  the J. Paul Getty Trust, and the United Way of America, have recently  undergone major governance reform. These efforts were initiated in  response to similar problems that were identified at the Smithsonian  regarding controls over executive compensation and expenses, and  insufficient oversight and leadership by the boards of those institutions.  For example, the J. Paul Getty Trust initiated its governance reform in  response to similar criticism regarding executive compensation and  expenses, limited board oversight of those expenses, and similar issues  regarding weaknesses in conflicts-of-interest policies. We have found that  governance and accountability breakdowns can result in a lack of trust  from donors, grantors, and appropriators, which could ultimately put  funding and the organization’s credibility at risk.
Both the Smithsonian’s Governance Committee report, and the IRC’s  report highlighted several issues and areas of concern related to  governance of the Smithsonian and oversight of Smithsonian management.  While the Board accepted the IRC’s report, it did not concur with all of the  report’s findings. Both reports laid out recommendations to improve  governance which were adopted by the Board in June 2007. Specifically,  these reports highlighted:  inadequate policies in place and insufficient oversight of and knowledge  among regents concerning executive compensation, trust and federal pay  systems, leave for senior executives, conflicts of interest regarding service  on for-profit boards, travel expenses, event expenses, activities of SBV,  and internal financial controls;   a lack of critical information and relationships necessary to bring forward  important issues and concerns and to support vigorous deliberation and  well-reasoned decision making on the part of the Board, such as lack of  access for senior management to the Board, too much control within the  Secretary’s office regarding the information available to the Board and the  Board’s agenda, and a lack of transparency and connection to  stakeholders within the Smithsonian (such as museum directors and  advisory boards) and to the public at large; and IRC’s finding that there was insufficient action on the part of the Board to  demand critical information needed to conduct adequate oversight of the  Smithsonian, which was linked to a number of issues, such as unclear  roles and expectations for citizen, congressional, and ex-officio regents; a  lack of engagement and participation by some regents; unclear  responsibilities of Board committees and a lack of critical committees; a  lack of diversity of skills and expertise needed to conduct adequate  oversight; inflexible size and structure of the Board; and a lack of  accountability of regents with regard to their performance and to fulfilling  their fiduciary duties.
section_title: Board Has Implemented Some Executive and Ethics Reforms, and Has Begun a Review of Policies and Internal Controls, but Implementation Challenges Remain
paragraphs: The Board has implemented several executive reforms to address  concerns about executive compensation, benefits, and expenses, and has  established an overarching code of ethics applicable to everyone  associated with the Smithsonian, but development of policies and internal  controls for broader operational matters such as travel, event expenses,  and contracting is still under way. Training and establishing accountability  remain challenges. The recommendations covered in this section are  shown in figure 1. Appendix II provides information on the status of all of  the Governance Committee’s report recommendations.
subsections: section_title: The Board Has Implemented Several Executive and Ethics Reforms
paragraphs: The Board has implemented reforms related to the Secretary’s  compensation, executives’ compensation, executive leave policies, and  conflict-of-interest policies. Regarding the Secretary’s compensation, the  Board revised the process it used to establish compensation for the  Secretary-elect (scheduled to assume office in July 2008). This reform was  implemented to address concerns about the former Secretary’s  compensation. According to the IRC, the former Secretary’s total  compensation equaled $915,698 in 2007 and was troubling for two reasons.  First, it included a housing allowance that reached $193,000 in 2007, which  the IRC concluded did not in fact serve as a housing allowance but as a  “packaging device” to provide the Secretary with additional salary.  Second, the former Secretary’s starting base salary of $330,000 in 2000 was  increased significantly in 2001—and reached $617,672 in 2007—based in  part on compensation studies that the IRC concluded were not objective  and were used primarily as a method of justifying substantial  compensation increases.
On March 15, 2008, the Board announced that it had selected a new  Secretary of the Smithsonian. According to Smithsonian officials, the  Secretary-elect’s base salary will be $490,000 as compared to the former  Secretary’s 2007 base salary of $617,672. The Secretary-elect’s total  compensation, including base salary and employer pension contributions,  will be $524,000, considerably lower than the former Secretary’s 2007 total  compensation of $915,698. According to a Smithsonian official, the new  Secretary will not receive a housing allowance or any additional benefits  beyond those provided to all senior trust Smithsonian employees. In  setting this salary, the Board was guided by a compensation study that  used a methodology that addressed many of the concerns the IRC had had  about the previous compensation studies used to set the former  Secretary’s salary.
The Board also has reformed the Smithsonian’s executive compensation  system by implementing what it refers to as a unified compensation  philosophy. This effort involved establishing clear criteria to determine  whether the compensation of each trust executive is market based or  equivalent to the federal system. This reform grew out of concerns that the  Smithsonian had separate employment systems governing its federal, trust,  and SBV employees, and that the trust salaries for some positions—in  areas such as finance and administration—were unnecessarily higher than  those paid in much larger federal agencies.
The Board determined that the Smithsonian should follow the federal  guidelines for pay for senior-level positions except for limited instances  where the job functions do not exist in the federal sector or there is not a  candidate pool in the federal sector—in which case, compensation for the  position should be market based. The Board also approved a plan to  address the effects of applying the criteria. After applying the criteria, the  Smithsonian determined that 38 of its executives were in positions that  should follow a federal compensation approach. Of those 38, 19 had  salaries above the federal pay cap. According to the plan, the salaries for  these 19 positions will be brought in line with the federal pay cap within 5  years. A Smithsonian official stated that the implementation of this  recommendation was extensively debated. According to a Smithsonian  official, the 5-year transition plan was chosen to avoid the risk of having  all of the affected executives leave immediately, which could hurt the  Smithsonian; however, a Smithsonian official predicted that some of the  affected executives may leave the Smithsonian due to the change in their  salaries.
The Board also implemented a recommendation to place all Smithsonian  executives on the Smithsonian’s existing leave policy. This effectively  addressed a concern that some Smithsonian executives were exempt from  the generally applicable leave accrual system, and that as a result, the  former Secretary and former Deputy Secretary were absent from the  Smithsonian for about 400 and 550 workdays, respectively, between 2000  and 2006. On September 30, 2007, the Smithsonian transitioned all these  executives to the existing trust leave policy that is equivalent to the federal  leave policy for senior executives. The affected executives were provided  with opening leave balances for annual and sick leave according to a  formula. According to National Finance Center data, since the leave policy  went into effect on September 30, 2007, 33 of the 34 executives had  recorded some leave by February 16, 2008.
The Board strengthened its policies related to conflicts of interest by  prohibiting for-profit board service by its senior executives and requiring  prior approval for service on nonprofit boards by any senior executives.  The previous policy resulted in two senior executives, including the  former Secretary, serving on for-profit boards, one of which had a contract  with the Smithsonian; some regents were unaware of this board service.  The Board took action on this issue by creating a conflicts-of-interest  policy applicable to senior executives. In addition, the General Counsel  now reports to the Board’s Audit and Review Committee on senior  executives’ outside activities. Also, although the Smithsonian has  individual codes of ethics for employees, volunteers, regents, and advisory  board members, until the governance reform, it had no overarching code  for the entire institution. The Board approved a Statement of Values and  Code of Ethics in January 2008, which applies to everyone in the  Smithsonian community. A few additional efforts to improve the ethics  policy are planned, but not yet complete—for example, the creation of a  conflicts database. However, after reviewing the new policies and ethics  code and comparing them to current industry practices, we believe that  the new policies and ethics code follow current industry practices.
section_title: Smithsonian Established Some New Policies and Initiated Reviews of Policies and Internal Controls, but Implementation of These Efforts Is Likely to Include Challenges
paragraphs: The Board has established some new policies related to travel and event  expenses, and has initiated reviews to consider how to strengthen and  improve the Smithsonian’s travel and event expense policies and  contracting policies, including for SBV. The Board has also initiated a  separate review of its internal controls in these areas and on an overall  basis. In some cases, new policies have been established in the interim  while the final policy is under development. The Smithsonian’s CFO stated  that the teams addressing the Governance Committee’s recommendations  in these areas have generally expanded the scope of work beyond what  would be required to implement the recommendation to think about what  else needs to be done, and the Board has been supportive of this approach.  As a result, the implementation of some of these reforms has not yet been  completed. Successfully implementing these reforms is likely to include  challenges related to training and establishing accountability.
subsections: section_title: Review of Travel Policies
paragraphs: The ongoing effort to reform the Smithsonian’s travel policies is in  response to concerns about the former Secretary’s travel practices and  expenses, including a provision in his employment agreement that  authorized first-class air travel—and which he and the Board interpreted  to include premium travel in other regards as well. In addition, the IRC  pointed out that the former Secretary’s expenses were not reviewed for  reasonableness and raised concerns about his chartering of a private jet, at  a cost of $14,000, to travel to San Antonio, Texas, to receive an award and  return to Washington, D.C., the next day to attend a Board committee  meeting.
The Board adopted interim policies on travel expenses in April 2007 and  adopted them as standing policies in June 2007. Among other things, the  standing policies subject all Smithsonian officials and employees to a  single Smithsonian-wide policy that is compliant with federal travel  regulations—whether the travel is paid for with trust or federal funds— and established that the Smithsonian should not pay or reimburse the cost  of travel on chartered aircraft in the absence of demonstrated business  necessity. In addition, according to Smithsonian officials, the Acting  Secretary’s travel expenses are now approved by the CFO’s office prior to  his travel. A team also is reviewing the Smithsonian’s travel policies, with a  focus on clarifying the policies and procedures to make it easier for  Smithsonian employees to understand and follow them. The effort also is  focusing on establishing review and audit processes for travel and expense  reimbursement to strengthen internal controls in this area.
section_title: Review of Event Expense Policies
paragraphs: The Board also adopted some new policies on event expenses, while a  team is undertaking a broad review of event expense policies. The Board  undertook these actions in response to findings in the Inspector General’s  report related to the former Secretary’s entertainment expenses. The issue  of event expenses also was raised in late 2007 and early 2008, when the  media and some members of Congress expressed concern about the  reasonableness of the event expenses surrounding the departure of the  former Director of the National Museum of the American Indian. The  Board adopted policies that attempted to clarify this issue by stating that  Smithsonian funds, including for trust events, should only be used for  reasonable expenses in accordance with Smithsonian policies.
In its ongoing review, a Smithsonian team has developed an approach to  event expense policies that will divide Smithsonian events into three  categories, from the most formal to the least formal, with clearly identified  requirements for approvals and authorizations. The new policy will cover  both regent events and other Smithsonian events. The team also decided  that given the variation in size and mission of different Smithsonian  museums, research centers, and programs, each may supplement the  policy with additional expenditure and approval guidelines specific to  their organization. The details of this framework, scheduled to be  reviewed by the Audit and Review Committee in May 2008, have yet to be  finalized.
section_title: Review of Contracting Policies
paragraphs: Under the leadership of the Board, the Smithsonian also is reviewing its  contracting policies. This effort stemmed from concerns that the  Smithsonian had entered into confidential business contracts that  appeared to have been awarded in a manner not consistent with  contracting standards generally applicable in the public sector. For the  contracting review, a team has worked to formally document Smithsonian  contracting policies and procedures, and is clarifying any exceptions to  following the FAR. The team has drafted a contracting policy and is  working to develop a set of handbooks to further explicate specific areas  of contracting.
section_title: Review of SBV Policies
paragraphs: Regarding SBV’s policies, a team has reviewed Smithsonian and SBV  policies to determine which Smithsonian-wide policies are applicable to  SBV and under which circumstances SBV should deviate from  Smithsonian policies. This effort came out of concerns about the propriety  of SBV policies and activities. When SBV was created in 1999 to  consolidate and improve Smithsonian business activities, it was not  subject to all Smithsonian policies. According to the CFO, the team that  examined SBV’s policies found only three SBV policies that are not  consistent with relevant Smithsonian-wide policies and they all involve  financial or payroll systems SBV uses that differ from Smithsonian  systems. The team has drafted a new process by which SBV can request  an exception to Smithsonian policies that was  scheduled to be  implemented in April 2008. In addition, the Acting Secretary created a task  force that recommended significant changes to SBV, such as restructuring  and the creation of a uniform revenue-sharing formula. The Board  approved these recommendations in January 2008.
section_title: Review of Internal Controls
paragraphs: Another team, at the direction of the Board, is examining the  appropriateness of Smithsonian internal controls across the Smithsonian’s  operations. This reform effort relates to concerns about whether the  Smithsonian had appropriate policies and an effective process for  enforcing and monitoring compliance with its policies. Furthermore, a  management letter from the Smithsonian’s external auditor based on the  Smithsonian’s fiscal year 2006 financial statement audit cited inadequate  accounting resources and staff as a “reportable condition,” an internal  control weakness. The Smithsonian has defined internal control as a  process designed to provide reasonable assurance of the Smithsonian’s  ability to achieve and sustain effective and efficient operations, reliable  financial reporting, and compliance with applicable laws, regulations, and  policies. To implement this review of internal controls, the team  identified a core set of 16 critical processes where there is financial risk— including processes related to travel and event expenses, contracting,  SBV, and other areas such as financial reporting and federal and trust  funds control—and developed a framework with which to analyze each  process. The internal control framework for these reviews is closely  aligned with the framework established by our Standards for Internal  Control in Federal Government. In response to the outside auditor’s  concerns about the CFO’s resources, the Smithsonian is in the process of a  phased hiring of 10 additional accountants. According to the CFO, funding  has been attained for 8 of the 10 positions and has been requested for the  last 2 positions for fiscal year 2009.
section_title: Implementation of New Policies and Procedures Will Be Challenging
paragraphs: Effectively implementing the new policies and procedures developed  during these review efforts is likely to depend on effectively training  Smithsonian staff at all levels and on effectively establishing  accountability, both of which may be challenging for the Smithsonian. The  implementation of some of these reforms is scheduled to stretch beyond  2008; Smithsonian officials estimated that reforms related to travel  expenses and SBV policies would be fully implemented in the third quarter  of 2008, which will provide an important basis for taking further action to  strengthen the Smithsonian’s internal controls. According to Smithsonian  officials, the event expense policy and contracting reforms are scheduled  to be fully implemented by the end of 2008. The internal control  recommendations are scheduled to be approved by the end of 2008, with  the implementation of the approved recommendations scheduled to take  place in 2009.
Several of these efforts are likely to lead to a level of standardization or  requirements that did not exist before, which must be implemented by  staff at many levels and throughout many of the Smithsonian’s museums,  research centers, programs, and central offices. Smithsonian officials  acknowledged that effectively training staff on some of the new policies is  important and likely to be challenging. For example, according to  Smithsonian officials, new requirements and standardization related to the  changes in the Smithsonian’s events policy may cause confusion and  resistance from some Smithsonian staff, which could make training  challenging. According to a Smithsonian official, training is also important  to the success of the travel policy reforms. This official stated that while  the vast majority of Smithsonian staff are trying to follow the rules  regarding travel, the rules are complicated, and Smithsonian staff who are  creating travel requests at museums, research centers, or programs may  not understand the complexity of the rules as they apply to specific  situations.
Establishing accountability mechanisms to monitor whether new policies  are followed is also important for the success of these efforts—and likely  to be an ongoing challenge. Accountability represents the processes,  mechanisms, and other means by which an entity’s management carries  out its stewardship and responsibility for resources and performance.  Smithsonian officials emphasized that the teams undertaking the reviews  of Smithsonian policies are considering how to best establish  accountability processes and mechanisms to ensure compliance with new  policies. However, the Smithsonian’s ongoing efforts to establish  accountability for travel expenses illustrate challenges related to  determining how to monitor the compliance of top executives and how to  effectively establish audit processes given limited resources.
To monitor the compliance of top executives, the CFO now approves the  Secretary’s travel spending in advance, which did not happen before, and  the undersecretaries’ offices review the appropriate directors’ travel in  advance, as was always the case. Prior to the reforms, the Secretary’s  anticipated travel expenses were not reviewed prior to travel. Under this  change, the Secretary’s travel is being approved by a subordinate—the  CFO. According Smithsonian officials, the Smithsonian decided on this  policy because the CFO has direct access to the Board, and through  informal benchmarking it found that some other federal agencies either  provided the agency head with blanket travel authorizations, which the  Smithsonian did not want to do, or had the agency head’s travel approved  by the executive secretary, a position that does not exist at the  Smithsonian. The CFO stated that to supplement this process, she is  planning to hire someone to support posttravel audits of the Secretary,  executives, and the entire Smithsonian.
The Smithsonian has not yet determined the extent to which the Board  will review the travel expenses of the Secretary and other executives.  Although the Governance Committee’s recommendation in this area calls  for the Audit and Review Committee to review the Secretary’s travel  expenses and to report to the full Board at least annually on these  expenses, the process by which this will occur on an ongoing basis has not  yet been established. According to Smithsonian officials, the Board did  review the Secretary’s travel in January 2008, and a team is considering a  posttravel audit approach that would include 100 percent travel voucher  audits for all senior executives with vouchers greater than $2,500. The  team working on this issue also will recommend how much information  from travel reviews or audits is to be provided to the Audit and Review  Committee. The new processes are scheduled to be implemented by the  end of the third quarter of 2008. According to officials at the J. Paul Getty  Trust, who told us that the Trust faced some similar governance issues  over the expenses of a previous chief executive officer, the Chair of the J.  Paul Getty Trust’s Board now reviews the chief executive officer’s travel  expenses on a quarterly basis. In addition, its audit committee receives  quarterly reports on the travel expenses of the chief executive officer and  nine senior directors.
Another ongoing challenge for the Smithsonian is implementing effective  accountability measures within limited resources. For example, the CFO  stated that while the Smithsonian had a long-standing practice of quarterly  posttravel compliance reviews of a sample of travel activity, the  Smithsonian has not been able to complete these reviews on a quarterly  basis since the second quarter of 2004—well prior to the governance  problems identified by the Governance Committee. While the Smithsonian  has completed assorted travel-related reviews, including checks for  duplicative payments and senior executive travel reviews, it has not  renewed its post-travel voucher audits. As described above, the outside  auditor’s management letter that accompanied the Smithsonian’s fiscal  year 2006 financial statement audit cited inadequate accounting resources  and staff as a reportable condition, and a team is working to address this  through hiring more accountants. Establishing accountability is especially  important because among the governance problems identified by the IRC  were that the Smithsonian did not comply with its existing policies and  procedures with respect to accounting for expenses, and the former  Smithsonian Secretary interpreted a Smithsonian policy authorizing his  first-class air travel to qualify him for first class accommodations as well— despite Smithsonian policies to the contrary. The fact that the Inspector  General found that the former Director of the Smithsonian’s Latino Center  had violated Smithsonian policies related to contracting, acceptance of  gifts from outside sources, and travel expenses, among other things, also  illustrates the importance of establishing effective accountability  mechanisms in these and other areas.
section_title: Board Has Implemented Reforms to Improve Information and Transparency; Efforts to Enhance Communication Are Not Fully Implemented
paragraphs: The Board has completed the actions it proposed for improving its access  to information and making its operations more transparent, but actions to  improve communication and relationships with stakeholders are not fully  implemented. Going forward, a challenge for the Board will be to ensure  that all actions taken to improve the engagement of advisory boards and  other stakeholders include a mechanism by which the Board can—on a  regular basis—receive and consider unfiltered, needed information; take  appropriate actions in response; and report its progress. The  recommendations covered in this section are shown in figure 2. Appendix  II provides the status of all of the Governance Committee’s report  recommendations.
subsections: section_title: Board Has Taken Actions to Improve Information Available to It, and the Transparency of Its Activities
paragraphs: The Board formally amended its bylaws to require attendance of the  General Counsel and the CFO, or their designees, at Board meetings. Also,  the reporting relationship for the Inspector General was changed from the  Secretary to the Board, and the Audit and Review Committee’s charter was  amended to reflect this change. These changes were in response to  concerns that the Board was not developing relationships necessary to  allow Smithsonian senior officials or staff to bring forward information of  concern to them. Our review of Board meeting minutes shows that the  General Counsel, CFO, and Inspector General have attended all full Board  meetings since the changes were made and have provided information and  raised concerns to the Board. Based on our interviews with the General  Counsel, CFO, and Inspector General, as well as regents and other officials  both before and after the changes were initiated, the changes have  generally improved access and communication and strengthened reporting  relationships and governance reform efforts. For example, the General  Counsel and CFO have been working with the Board’s committees in  carrying out governance reforms related to ethics and contracting policies,  respectively.
The Board also created an independent Office of the Regents with staff  dedicated and reporting to the Board in order to better control the agenda  of the Board and the level of information available to the Board. The  regents now have a greater role in determining which matters warrant the  Board’s time and attention, decisions that were previously largely made  within the office of the former Secretary. This is an important change in  the Board’s practice because it will serve to help prevent any future  Secretary from attempting to control the level of information provided to  the Board as the Governance Committee’s and IRC’s reports indicated the  previous Secretary had done.
The Acting Secretary designated the General Counsel as corporate  secretary who, among other duties, officially records the minutes of all  Board meetings—similar to practices of other nonprofit organizations.  Since November 2007, minutes of most Board meetings, including  committees, have generally been recorded by the corporate secretary or  his staff and are more thorough than they were previously and include  more context about information presented to the Board during the  meeting. For example, the reports of Board committees are more detailed  than previously. We also found that Board meeting minutes have been  improved to capture more deliberation than they did previously, which  will likely serve to help improve transparency of the Board’s actions.
Although the Smithsonian is not subject to the Freedom of Information  Act (FOIA), Smithsonian officials told us they follow the principles of  FOIA when fielding the public’s requests for access to records. The  Smithsonian created a FOIA policy in November 2007 to formalize and  clarify its records access policy. This change came about in response to  criticism that there was confusion as to which FOIA principles applied to  the Smithsonian. According to the General Counsel, the Board adopted a  FOIA policy to formally articulate and clarify the Smithsonian’s policy on  public access to Smithsonian records. We compared the Smithsonian’s  FOIA policy with FOIA itself and found that the Smithsonian’s policy is  consistent. The Smithsonian articulates its public records’ policy and  establishes exceptions or cases in which documentation would likely not  be provided, for example, certain commercial or personal data. According  to the General Counsel, contracts negotiated since this policy was created  no longer contain blanket confidentiality provisions. Furthermore, the  Smithsonian intends to remove its FOIA policy provision authorizing the  Secretary to carve out additional exceptions. The formulation of this  policy should result in less confusion regarding the public’s access to  records and provide greater transparency.
Finally, the Board created a Web page dedicated to governance to increase  the public’s access to information and improve transparency. Information  posted by the Board relates to its structure, membership, and functions.  For example, the Board has posted minutes, committee assignments,  reports to the Board, and a document tracking the governance reform  efforts, which is updated monthly. These changes were made in response  to criticisms about the lack of transparency regarding governance at the  Smithsonian following the recent governance problems. The Smithsonian  has improved the amount of governance information available to the  public, and by comparison, generally has more governance content  available to the public than some other nonprofit organizations’ Web sites.  The Board also is planning to post additional information in an effort to  improve the transparency of the Board’s policies and actions. For  example, according to a Smithsonian official, the executive compensation  study which describes the benchmarking used to determine the salary  range for the new Secretary, committee meeting minutes, and information  regarding criteria for regent nomination, eventually will be posted to the  Web page.
section_title: The Board Has a Study Under Way on How to Improve Its Relationship with Advisory Boards
paragraphs: In one effort to improve governance through strengthened stakeholder  relationships, the Board is studying how to improve the link between the  Board and the Smithsonian’s 30 advisory boards, which include a national  advisory board as well as advisory boards that focus on individual  museums, research centers, or programs. As the Board’s study and  recommendations on this issue have not yet occurred, it is too soon to  fully evaluate the Board’s efforts or conclusions. Past efforts to enhance  this relationship have been limited, and some directors and advisory board  chairs expressed ongoing concerns about the relationship.
Most advisory boards (except for those with mandated statutory  authority) have no independent governance function, and all are subject to  the authority of the Board. There is considerable variability among  advisory boards, reflecting the differences in how the boards came into  being, their missions, their bylaws, and the entities they serve. Their  primary purpose is to provide advice, support, and expertise to the  directors of museums, research centers, and programs, as well as to the  Board and Secretary. For example, some advisory board chairs we spoke  with assist their museums, research centers, or programs with  acquisitions, program development, strategic planning, or fundraising,  among other things. According to the Governance Committee’s report, the  advisory boards provide a key link between the Board and the public and a  direct connection to the museums. Some advisory boards include a regent,  while most do not.
The Board has not always fully implemented past recommendations to  enhance the relationship between the Board and advisory boards. A 2002  internal Smithsonian study found that the advisory boards were an  underutilized asset and recommended, among other things, that each  advisory board should submit a report to the regents every 3 years on its  museum or facility on a rotating basis, and the Board should respond in  writing to these reports. In response to this recommendation, the  Smithsonian implemented the practice of having a subset of advisory  boards submit a paper to the Board for its meetings starting in September  2003, with the idea that each advisory board would report every 3 years.  However, the second half of the internal recommendation, that the regents  should respond in writing to the papers, was never implemented. The  practice was discontinued after January 2007.
Our work suggests a continued broad level of concern over the lack of  engagement of the regents with advisory boards. Nine of the 10 advisory  board chairs we spoke with stated that they had had little to no direct  contact with the Board. Although 2 of the 10 advisory board chairs we  spoke with were generally satisfied with the current level of interaction  between the Board of Regents and the advisory boards, 6 of the advisory  board chairs we spoke with were not. Some of the museum directors  with whom we spoke also raised concerns about the current relationship  between the advisory boards and the Board, and the majority of the  museum directors see additional value in enhancing the relationship  between the Board and the advisory boards. Negative effects of the  current relationship described by several advisory board chairs or  museum directors included concerns that the Board’s lack of  understanding of individual museums, research centers, and programs  reduces the Board’s ability to effectively oversee the prioritizing of the  Smithsonian’s budget, limits the effectiveness of the Smithsonian’s  fundraising efforts, and limits the Board’s ability to articulate a unifying  vision for the Smithsonian to strengthen its mission and better leverage its  future potential. According to Smithsonian officials, the Chair of  Smithsonian’s National Board, which is a Smithsonian-wide advisory  board, attends all Board meetings and to the extent that advisory boards  interact with the National Board, is therefore an existing vehicle for  communication between advisory boards and regents. However, most of  the advisory board chairs we spoke with did not think that the National  Board Chair served as a liaison between the advisory boards and the  Board of Regents.
The Smithsonian has taken some steps to rethink this relationship. In  January 2008, the National Board changed the agenda of an annual  meeting to which it invites all advisory board chairs to include roundtable  discussions, a luncheon with the Acting Secretary, and a presentation by a  regent. According to Smithsonian officials and the two advisory board  chairs we spoke with about this meeting, the meeting was positive.  However, the two advisory board chairs we spoke to stated that the  meeting focused on enhancing the relationship among advisory boards  rather than on what they saw as a remaining need to enhance the  engagement of the regents with the advisory boards and the museums,  research centers, or programs they represent. Going forward, according to  a Smithsonian official, Office of the Regents’ staff will attend business  meetings of the advisory boards to serve as direct liaisons to those boards  and the regents.
Four organizations we spoke with that have undergone governance  reforms and that, like the Smithsonian, have a structure that includes a  number of units, described to us various models they have developed to  engage their advisory boards and obtain their input. For example, the  United Way of America, which in reforming its governance in 2000 moved  away from having members of a number of local affiliates as board  members, now has a council of its chapter boards that provides advice to  the chief executive officer and whose concerns are communicated to the  board at an annual meeting. The American Red Cross holds an annual  convention at which its chapter boards may interact with its governing  board. American University has representatives from different  constituents provide input to board committees. These representatives  also may attend board meetings. After its governance reforms, the J. Paul  Getty Trust, a much smaller organization, increased communication  between its board and the four unit heads by inviting them to attend and  participate in board meetings. A noticeable similarity of the way that these  four organizations engage and obtain input from their constituent parts is  that they all have a mechanism whereby the governing board engages in  personal interaction with these constituent representatives on a regular  basis.
Directors and advisory board chairs we spoke with had a variety of  suggestions for improving the relationship between the advisory boards  and the Board. Some suggestions sought to help regents thoroughly  understand each museum, research center, or program—for example, by  having a regent serve on each advisory board or having a regent hold  regular discussions with the director or advisory board chair. Other  suggestions included inviting advisory board chairs to the Board’s  meetings or having advisory board representation on the Board. Any  actions taken to improve the relationship between the Board and the  advisory boards will involve balancing the regents’ time demands with  ensuring that the Board has a strong enough understanding and  relationship with the museums, research facilities, and programs it  governs to effectively prioritize the Smithsonian’s budget, encourage  fundraising efforts, and strengthen the Smithsonian’s mission.
section_title: Plans for Annual Public Meeting and Communication Strategy Are Not Fully Implemented
paragraphs: The Board is currently developing a plan for an annual public meeting to  enable interested stakeholders to address information and make inquiries  directly to the Board. This change is being considered in response to  criticisms about the lack of transparency regarding governance at the  Smithsonian following the recent incidents of governance and  accountability breakdowns. According to the Governance Committee’s  report, this annual meeting should be an opportunity for the Board not  only to disseminate information, but also for the Board to receive  information and input from interested stakeholders including the public,  Smithsonian staff, and others to help inform the Board’s decision making.  Originally planned for June 2008, the Board’s Chief of Staff told us that, as  of May 2008, plans have not yet been fully developed and, because the new  Secretary’s term begins on July 1, the Board plans to hold the public  meeting after the new Secretary has begun his service, at either the  Board’s September 2008 or November 2008 meeting. The Board has  enlisted a governance consultant to provide technical assistance in  developing the meeting agenda and is planning for the meeting to focus on  specific topics well-suited for stakeholder input, for example, strategic  planning or the future of the Arts and Industries Building.
Also in response to criticisms regarding a lack of communication and  transparency at the Smithsonian, the Smithsonian’s Director of  Communication and Public Affairs led a team to develop a strategy to  increase available information about the Board’s and Smithsonian  activities and operations to identified stakeholders, such as senior  management, staff, and the public. The Governance Committee’s report  directed that the communication strategy be modeled after best practices  in the federal government, nonprofit organizations, and universities. The  Governance Committee’s recommendations for the communication  strategy appear to be in line with practices we have identified for federal  agencies undergoing major transformations. For example, the  Governance Committee recommended that the strategy include (1)  mechanisms to foster communication between and among senior  management and regents, staff, and other stakeholders; (2) a framework to  ensure effective congressional outreach and information; and (3) a plan to  ensure all stakeholder constituencies are routinely informed of important  decisions and have opportunity to provide comments or information to the  Board and management. Our work similarly suggests that an effective  communication plan should reach out to all employees, customers, and  stakeholders and seek to genuinely engage them; communication should  facilitate a two-way exchange of information; and it is important for  feedback from stakeholders to be considered, and appropriate actions  made in response and progress reported.
Originally scheduled to be complete in December 2007, the Smithsonian’s  communication strategy was finalized and approved by the Board on May  5, 2008. Because this effort is not yet fully implemented, we were not able  to assess the communication strategy in its entirety, and it remains to be  seen how effective the communication strategy will be. However, the team  has taken a number of steps thus far. For example, the team has defined  stakeholders, analyzed existing communication processes, performed  broad stakeholder surveys and analyses, and developed a communication  plan. Officials told us that among issues the team is still considering is  what information stakeholders most need. The team also is seeking to  avoid duplication of efforts; for example, where there are already multiple  avenues for receiving information, the team will consider whether tools  such as a hotline or a public ombudsman are necessary. A challenge going  forward will be to ensure that actions taken to improve communication  with stakeholders include a mechanism by which the Board can—on a  regular basis—receive and consider unfiltered, needed information; take  appropriate actions in response; and report its progress.
section_title: Board Has Taken Actions to Clarify Roles and Responsibilities and Studied Possible Changes in Its Composition, but Establishing Accountability Remains a Challenge
paragraphs: The Board has largely completed the actions it proposed for clarifying  regents’ responsibilities and studying possible changes in its size and  structure, but actions for assessing Board performance are still being  developed. The Board has not yet developed a process for assuring  transparency and accountability in selecting nonregents and using them to  enhance governance. The Board is developing a self-assessment process to  examine its performance, but it is not clear how the Board will hold  regents accountable in the event of performance problems. The Board  does not currently have plans to conduct a broader evaluation of its  governance reform efforts after a suitable period of implementation to  determine if they have been effective in addressing the governance and  accountability breakdowns that occurred. The recommendations covered  in this section are shown in figure 3. Appendix II provides the status of all  of the Governance Committee’s report recommendations.
subsections: section_title: Actions to Clarify Roles and Responsibilities for All Regents, and Leadership of the Board Are Largely Completed
paragraphs: As part of its governance reform efforts, the Board adopted a specific set  of duties and expectations for all regents, which is a key step in  governance reform. Previously, the roles and responsibilities of regents  were not clearly and explicitly defined, which, in part, led to the lack of  oversight and awareness evidenced in recent problems at the institution.  Elements of the regents’ written duties and responsibilities, such as  engaging in forthright discussions about the Smithsonian’s strategic and  operational issues, are in accordance with current board duties of  comparable organizations with established practices. While we did not  evaluate the effectiveness of governance reforms at comparable  organizations, many have highlighted the importance of clearly delineating  roles and expectations of regents and of holding regents accountable for  their individual performance. For instance, American Red Cross  emphasized how this process of clarification has helped to create a culture  of accountability among its board members, resulting in greater vigilance  in their oversight activities. Through our interviews with regents and  senior Smithsonian officials, these clarifications appear to have  contributed to a greater awareness of the regents’ roles and  responsibilities in overseeing the institution.
While the initial set of written roles and responsibilities applied to all  regents, in practice there have been differing expectations in the level of  participation and involvement of citizen, congressional, and ex-officio  regents. Previously, citizen regents were expected to chair committees and  have historically had greater involvement on committees, and have often  participated on multiple committees. Congressional regents have not been  expected to chair committees, and some have not served on committees in  the past. Furthermore, the Vice President, an ex-officio regent, has not  participated in any Board meetings. However, according to the General  Counsel, the regents are charged with a sole trust responsibility: to  increase and diffuse knowledge among mankind. In discharging that  responsibility, all regents are subject to the same fiduciary duties as other  trustees: loyalty, prudence, and due care. The IRC recommended that  congressional and citizen regents should accept a fiduciary relationship  with the institution and devote the requisite time to carry out those duties.  The IRC also recommended that the ex-officio regents continue to serve  on the Board, but in an advisory role, without fiduciary duties to the  institution.
The Board has recently decided to expand the expectations regarding the  duties and responsibilities of congressional regents—including  expectations for them to serve on at least two committees and serve as  committee chairs when needed, and equally carry the workload as that of  citizen regents. Given their other duties as members of Congress and in  order to fulfill their expanded roles and responsibilities, the Board  envisions the regent liaisons playing a larger role in assisting the  congressional regents in fulfilling their duties. In creating this expanded  role for liaisons in the functioning of the Board, it will be important for the  Board to clearly delineate what is expected of regent liaisons. The Board  has not changed the role or expectations of the Vice President as a  member of the Board, but sees value in retaining representation from the  executive branch.
Once the Board finalizes the expectations regarding the duties and  responsibilities of its regents, a revised set of written roles and  responsibilities will be included in the orientation program that is still  under development. According to the Chief of Staff to the Board,  implementation of the orientation program was not completed in time for  the new regent, who began his term in March 2008.
The Board also has clarified the duties of the Chancellor, who by tradition  has been the Chief Justice, and created a Chair position to recognize that  the Chair of the Board has more leadership responsibilities. Previously,  the Smithsonian bylaws established the Chancellor as the Chair of the  Board, although the Chair of the Executive Committee in practice  performed many duties that would otherwise be expected of the Chair of  the Board. The lack of clarity and specificity with regard to leadership on  the Board and the limited engagement in Board activities that can  reasonably be expected from the Chief Justice were factors that both the  Governance Committee and IRC reported were associated with the  Board’s lack of oversight. To further strengthen leadership, the Board also  has recently decided to create a Vice Chair position.
Although it is not yet clear how these changes will affect Board leadership,  regents we interviewed expressed the belief that this structure would  retain the value they perceived in having the Chief Justice’s involvement  and also address the limitations on his involvement. The Chair, who was  recently elected by the Board, is now expected to play a greater leadership  and oversight role in the governance of the Board, including being the  chief spokesperson for the Board, working with senior Smithsonian  officials to communicate and oversee implementation of policies adopted  and approved by the Board, and leading the Board in its annual evaluation  of the Secretary’s performance and compensation. The Chancellor’s role  includes presiding over Board meetings and selected official ceremonies.  According to several regents we interviewed, the skill with which the  current Chief Justice has led Board meetings was perceived to add  tremendous value to the proceedings. According to some governance  experts, this structure retains the potential for the magnitude of the Chief  Justice’s office to suppress and discourage honest and candid deliberation  due to the deference individuals may give the Chief Justice, which can  hinder Board performance; although according to regents we interviewed,  there is no indication that this has occurred.
section_title: Board Has Taken Steps to Strengthen its Committee Structure, but Issues Regarding the Executive Committee and Use of Nonregents Remain
paragraphs: The Board has taken a number of steps to strengthen its committee  structure, such as creating new committees, appointing new committee  chairs, and directing all committees to review their charters. Previously,  committees were not consistently examining their roles, responsibilities,  and jurisdiction, and the June 2007 Governance Committee report raised  concerns that some committees were not effectively carrying out their  proper oversight functions as a result. Most committees have now  completed this review. However, the review of the Executive Committee’s  charter has not yet been finalized. The IRC’s report criticized the  Executive Committee for taking certain actions independently of the  Board as a whole, such as approving the compensation of the former  Secretary, and then seeking approval of the full Board after the fact. While  it is not unique for an executive committee to take certain actions or make  decisions outside of the full board, experts we spoke with cited concerns  when too much authority to make decisions is placed in the hands of just a  few board members. Moreover, a January 2008 BoardSource report  cited similar concerns and provided several options for reforming the  committee, including increasing the size to avoid the risk of delegating  decision-making powers to too small a group. Nonetheless, the Board has  decided to maintain the current size and scope of responsibilities of the  Executive Committee, but may recommend reconsideration at another  time. The Board also has decided that the newly created Vice Chair of the  Board will be a member of the committee, and the Board has made it a  responsibility of the Governance and Nominating Committee to closely  monitor the activities of the Executive Committee. It remains to be seen  whether these steps will be sufficient to ensure that the Executive  Committee does not begin to act in lieu of the full Board when it should  and could be engaged.
At the onset of its governance reform effort, the Board created new  standing committees on governance and facilities that previously did not  exist; however, the Board noted in the Governance Committee’s report  that significant areas of Smithsonian activities were not within the  oversight of any of the Board’s committees, including fundraising and  development, most programmatic activities, and strategic planning. The  BoardSource report also noted the need and potential for adding  additional committees, and suggested enhancing the current committee  structure by creating a committee on resource development to  demonstrate the Board’s commitment to obtaining appropriate resources  beyond federal allocations. The report also suggested establishing a  strategic planning committee to lead the Smithsonian through the strategic  planning process that would identify programmatic and fundraising goals.  In addition, the report from the SBV task force that was issued in January  2008 also recommended creating a committee or subcommittee to focus  on increased oversight of SBV programs.
As a result of these reports, the Board has decided to create new  committees on strategic planning and programs, and advancement. Since  these committees have just been created, it remains to be seen how they  will improve the Board’s engagement in the Smithsonian’s strategic  planning and budget formulation processes and change its role in raising  funds for advancement and development.
The Board has addressed issues regarding the need for additional  expertise by increasing the use of nonregents on committees, though  some issues are still under consideration regarding the appropriate  selection and use of nonregents. The IRC’s report noted concern that the  Board may have needed expertise in some areas—such as financial or  accounting expertise—and that this contributed to the lack of oversight of  executive compensation and expenses. According to some governance  experts and the BoardSource report, bringing in nonregents with specific  expertise to be part of Board committees can be effective in providing an  independent and different perspective and in “doing the work” of the  committee. Comparable organizations also recruit nonboard committee  members to provide advice and different perspectives. For instance,  officials from the United Way of America stated that half of its board’s  committees have nonboard members in addition to board members. Table  2 shows the increase in the use of nonregents on the Board of Regents’  committees as well as the relative workload changes for citizen and  congressional regents.
While using nonregents permits the Board to increase its knowledge base  without changing its size or structure, no formal process exists for the  identification and selection of nonregents, and certain policies regarding  the appropriate role of nonregents are still under development.  Nonregents are currently recruited and vetted through informal channels.  For example, regents may reach out within their particular field or  professional network for recommendations or referrals for experts in a  particular discipline. The full Board then approves the appointment of  nonregents. According to the Chief of Staff to the Board, the Governance  and Nominating Committee is considering policies and processes  regarding the use of nonregents. For example, one option under  consideration is to look to first recruit nonregent expertise from the  advisory boards within the Smithsonian before looking outside the  institution. In addition, the Governance and Nominating Committee is still  considering whether and how nonregents should take on leadership roles  in the committees.
section_title: Board Does Not Plan to Make Major Structural Changes to Its Composition
paragraphs: The Board has decided that no major structural changes should be made  to the Board’s composition. Many have suggested that the Board’s  composition contributed to governance breakdowns because of concerns  about a lack of engagement of some regents and concerns of whether the  Board is large enough to house the diversity of skills and expertise needed  to effectively carry out its oversight activities. The BoardSource report  reinforced these concerns and found that the statutorily required structure  and composition of the Board can, in fact, create limitations for the Board  with regard to evenly spreading its workload, and adding a diversity of  skills and expertise. Furthermore, the Board has no authority in recruiting  and appointing congressional and ex-officio regents, which can limit its  ability to add needed expertise within its current structure. Our analysis of  the criteria developed for citizen regents finds that the criteria are  consistent with current accepted practices, and include such things as  whether individuals can serve in leadership roles, whether they have well- rounded experience in multiple fields, and whether they have specific  expertise needed on the Board and are appropriate for the Smithsonian’s  specific needs. However, in selecting congressional regents, it is unclear  whether the President Pro Tempore of the Senate and the Speaker of the  House—who appoint congressional members—consider such criteria  when selecting congressional regents.
The BoardSource report suggested four options for the Board to consider  that included making no major structural changes to the Board and a  range of increases in the size of the Board either through adding more  citizen regents, decreasing the number of congressional regents, or both.  The report noted that any changes to the Board’s composition regarding  its size or representation would require legislative action. All four options  would maintain representation from all three branches of government, and  thus retain different expectations for citizen, congressional, and ex-officio  regents.
Literature we reviewed and governance experts we spoke with indicated  that it is not necessarily the particular size or structure of the board, but  rather a board’s high level of engagement and participation, and a broad  diversity of skills and expertise that seem to drive effective governance.  Experts we spoke with pointed to examples of successful boards of many  sizes and structures. In theory, boards with ex-officio and other  governmental members can still be effective, but their effectiveness  depends on having clear and specific expectations of the level of  commitment and contribution board members can realistically make.  Moreover, some experts we interviewed held the view that major  structural changes may not be the most effective approach when  considering governance reform, and that there is some evidence—though  not conclusive—that reforms aimed at changing the “culture” of a board to  be more participatory and accountable are ultimately more effective at  improving governance. The J. Paul Getty Trust, which, according to  officials, faced many of the same issues regarding inadequate oversight of  executive compensation and expenses, did not make significant structural  changes to its board, but rather focused on instilling a culture of  accountability. Although we did not assess the effectiveness of their  reforms, officials involved with the board indicated that these changes  resulted in major improvements from their perspective with regard to their  board’s engagement and accountability.
According to the Chief of Staff to the Board, the Board expects that  further clarification of duties and expectations of all regents—such as  increasing the participation level of congressional regents in committees  and distributing the workload equally among the citizen and congressional  regents—and increased use of nonregents to address the need for diverse  expertise and skills in committees will adequately address the major  governance issues regarding size and structure facing the Board.  Furthermore, as previously mentioned in this report, staff liaisons for  congressional regents—who, according to the BoardSource report and to  regents we interviewed, have been viewed as an important conduit for the  congressional regents to keep them abreast of the activities of the Board— also are envisioned to play a greater role in assisting congressional  members in taking on more responsibilities. However, these changes have  just been instituted, and thus it remains to be seen whether the Board’s  actions will be sufficient to ensure that all regents are fully engaged and  held accountable for fulfilling their roles and expectations.
section_title: Performance Assessment Process Needed to Ensure Accountability of Board Members and Committees Is Under Development
paragraphs: The Board is in the process of developing a self-assessment process to  examine its performance, which is not expected to be finalized and  implemented until June 2008. Previously, the Board lacked a formal and  regular assessment of its performance to determine its effectiveness in  governance and oversight of Smithsonian management. Our review of  standards of practice for nonprofit boards indicates that implementing a  regular and consistent self-assessment process is critical to improving  individual performance and contribution to a governing board. If a board  does not assess its performance, it is missing a key opportunity for input  from its own members for improving its operations and governance  policies. A self-assessment of the board, committees, and individual  members enables a board to identify areas for improvement in the board’s  operating procedures, its committee structure, and its governance  practices.
The Board has drafted a self-assessment questionnaire to facilitate the  evaluation process and help the Board understand what it does well and  what needs to improve. However, the draft questionnaire does not fully  address evaluation of performance against the full range of regent  expectations, such as the Board’s role in the Smithsonian’s strategic  planning process. The self-assessment process will need to be further  developed to reflect changes to expectations for congressional regents and  their liaisons. According to the Chief of Staff to the Board, the Board is  currently considering changes to the draft assessment tool to reflect these  concerns.
Other organizations go beyond self-assessments and can remove board  members whose performance is inadequate or not up to expectations. For  instance, American University told us that its Board of Trustees conducts  an individual and peer assessment every 3 years (board members have 3- year terms), at the conclusion of a member’s term, before reappointment.  Board members whose terms are up for renewal complete a self-  assessment form, and their colleagues on the board also assess the board  members’ performance, using a different assessment form. If a board  member has not performed up to expectations, he or she will not be  nominated for re-election. A similar practice was instituted at the United  Way of America in its governance reform, where officials told us there  have been cases where a board member was removed because the  member was not attending meetings and fulfilling board duties and  obligations. In other organizations, boards retain the authority to remove  board members for cause. For example, the board of the Legal Services  Corporation, which is a federally chartered nonprofit organization  consisting of 11 bipartisan board members, has the authority to remove its  members for cause, such as persistent neglect of duties, by a vote of at  least 7 members. While board members are appointed by the President  with the advice and consent of the Senate, neither the President nor the  Senate has the power to remove the Legal Services Corporation board  members.
Although the Smithsonian Governance and Nominating Committee can  examine and determine the level of interest of a regent in continuing his or  her service and weigh the interest of other regents before calling on a vote  for the regent’s renomination, the Board has no authority to remove  regents for cause, such as persistent neglect of duties during a regent’s  term. The Smithsonian’s General Counsel told us that the Board itself  cannot remove regents—only Congress can take action to remove a  regent. In our interviews with Smithsonian officials, it is unclear what  actions the Board could or would take in the event of persistent neglect of  duties by any of its regents. Removal of a regent has occurred at least once  in the history of the Smithsonian, but not in recent memory. It remains to  be seen how the Board will proceed with its self-assessment process, and  a key challenge for the Board will be how to hold all regents accountable  for individual performance. Moreover, no mechanism is planned to  evaluate the implementation and effectiveness of the governance reforms  after enough time has passed for the Smithsonian to operate in a fully  reformed environment.
Literature we reviewed indicated that while self assessments are valuable  and important, they are limited to the views of those being surveyed, and a  governing board should occasionally solicit the viewpoints of stakeholders  and others close to the governance process to continuously search for  ways to improve. Another approach to performance assessment is bringing  in outside consultants to interview board members and present results.  Current practices include appointing an independent task force or  commission to interview board officers and others in an institution every  few years concerning the board’s strengths and weaknesses, and what the  board could do to empower staff and advisory boards to fulfill their  responsibilities more effectively. One governance expert we interviewed  commented that boards undergoing governance reform should undertake  a thorough, independent, postgovernance reform review to evaluate the  effectiveness of governance changes. Although most of the organizations  we spoke with that have recently undergone governance reform have not  yet performed a comprehensive, postgovernance reform assessment,  American University officials told us that the university is planning to  conduct a review of its governance reform in a 5-year period to assess  whether its governance practices and structure are effective. Given the  extent and pace of changes occurring at the Smithsonian, as well as other  transformations of the institution, including the hiring of a new Secretary  and significant reforms to SBV, among other things, it is likely that many  governance reforms will not be completely implemented for some time,  and the effectiveness of some reforms will only be evident over a longer  period of implementation.
section_title: Conclusions
paragraphs: The Smithsonian Institution relies significantly on funding from taxpayers  and donors, and as such, effective governance and accountability are key  to maintaining trust and credibility. Governance and accountability  breakdowns can result in a lack of trust from donors, grantors, and  appropriators, which could ultimately put funding and the organization’s  credibility at risk. The Smithsonian’s Board of Regents has taken many  steps to implement governance reforms since June 2007 to address several  of the problems that led to the incidents that caused concern about  governance and accountability. The Board has reformed executive  compensation and benefits, initiated reviews of the Smithsonian’s policies  and internal controls, enhanced the access of key stakeholders to the  Board, increased transparency, and clarified the roles and responsibilities  of regents.
We acknowledge and recognize the efforts that have been made by the  Board and Smithsonian staff in confronting these governance issues.  However, we also note that there are some areas where reforms have yet  to be developed, or where improvements to the transparency and  accountability mechanisms of the Board could be taken further. For  example, reforms related to enhancing the Board’s relationships with  important stakeholders, including museum advisory boards and the public,  remain under consideration, and current efforts have yet to fully develop  mechanisms by which the Board can receive and consider unfiltered,  needed information from these stakeholders on a regular basis. Without  such mechanisms, these efforts may not have the desired impact of  creating an environment for governance that is inclusive of the broad  diversity of activities and viewpoints of stakeholders within and outside of  the Smithsonian. Furthermore, while the Board is still considering how it  can best recruit and use nonregent experts—potentially using advisory  board members—there is currently little transparency as to how  nonregent experts on committees are to be selected, used, or evaluated.  Moreover, while the Board has made strides in defining and refining the  roles and responsibilities of regents, it remains unclear what actions the  Board can take to hold its regents and their liaisons accountable in the  event that they do not fulfill their roles and expectations. Finally, while the  Board and the Smithsonian as a whole are currently focused on extensive  governance reforms, and the Board is tracking the implementation of  these reforms through a scorecard that is posted on the Smithsonian’s  Web site and updated monthly, no mechanism is planned to evaluate the  implementation and effectiveness of these reforms after enough time has  passed for the Smithsonian to operate in a fully reformed environment.  Over the long term, focusing on regular and continuous improvements in  these areas could help to enhance the credibility of and the public’s trust  in the Board, as well as its current governance reform efforts.
section_title: Recommendations for Executive Action
paragraphs: We are making the following four recommendations to the Board of  Regents to strengthen its governance reform efforts:  In implementing the Governance Committee’s recommendations related to  stakeholder relationships, the Board of Regents should develop a regularly  occurring mechanism that ensures an understanding of and meaningful  consideration by the Board of the key concerns of advisory boards and  other stakeholders, and a formal means by which the Board follows up on  those concerns.
To provide more transparency into the use of nonregents, the Board  should clarify and make public the process used to select nonregents for  service on its committees, the roles and expectations for nonregents, and  how nonregents’ performance will be evaluated.
To improve the accountability of regents in fulfilling their newly clarified  roles and responsibilities, the Board should evaluate what actions it can  take in the event of persistent neglect of duties by any regents or their  liaisons.
To ensure that the multiple governance and management reform efforts  underway are effective in addressing the issues that led to governance and  accountability breakdowns, and also to ensure that the Board is focused  on continuous improvement of the governance and management practices  at the Smithsonian, the Board should plan to have an evaluation of its  comprehensive governance reform efforts conducted after a suitable  period of operation in the reformed environment.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Smithsonian Board of Regents  and the Smithsonian Institution for their official review and comment.  Both the Board and the Smithsonian concurred with all our  recommendations. In addition, they provided technical clarifications to the  draft which we incorporated into the final report, where appropriate.
Regarding our recommendations, both the Board and the Smithsonian  stressed the importance of enhancing relationships with stakeholders and  agreed that these relationships and related communication can be  improved. The Board and the Smithsonian underscored that they are  working together to enhance these relationships and communication—  particularly with advisory boards. In addition, the Smithsonian provided  examples of recent efforts to enhance communication with stakeholders.  Although all recommendations are directed at the Board, the Smithsonian  noted its role in helping the Board implement the recommendations  related to improving stakeholder relationships and ensuring that sound  governance is a priority in Smithsonian operations. The Board highlighted  the importance of making the selection process for nonregents transparent  and holding all regents accountable for their performance. The Board’s  comments to our report can be found in appendix III and the  Smithsonian’s comments to our report can be found in appendix IV.
We are sending copies of this report to the appropriate congressional  committee. We are also sending this report to the Chair of the Smithsonian  Institution’s Board of Regents and the Acting Secretary of the Smithsonian  Institution. We will make copies available upon request. In addition, this  report will be available at no cost on the GAO Web site at  http://www.gao.gov. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this report.
If you or your staff have any questions about this report, you may contact  me at (202) 512-2834 or at goldsteinm@gao.gov. Major contributors to this  report are listed in appendix V.
section_title: Appendix I: Scope and Methodology
paragraphs: To determine the extent to which the Smithsonian Institution’s Board of  Regents’ (Board) actions have addressed issues related to executive  compensation, travel, and internal control and other policies, we  interviewed senior Smithsonian Institution (Smithsonian) management  officials and regents and reviewed Smithsonian and other documents.  Specifically, we met with regents, the Acting Secretary, the Chief Financial  Officer, Director of Government Relations, Chief of Staff to the Board of  Regents, Director of Human Resources, and other senior officials and staff  to obtain the implementation status of the recommendations relating to  these areas. We also reviewed Smithsonian and other supporting  documents, including the report from the Smithsonian Business Ventures  Task (SBV) Force, the PricewaterhouseCoopers unified executive  compensation study, and the Mercer Human Resource Consulting  executive compensation study that was used in the search process for the  new Secretary. We reviewed the Smithsonian worksheets used to create  leave balances for all executives transitioning to a leave policy and  National Finance Center records to validate that all these executives are  now recording leave. We reviewed internal Smithsonian documents  describing ongoing efforts related to reviewing travel and event expenses,  contracting policies, SBV’s policies, and its internal control review, and we  reviewed Smithsonian directives relevant to each of these areas. We met  with the Inspector General to discuss ongoing efforts of this office to  review the travel expenses of Smithsonian executives and reviewed  Inspector General reports in this area. Furthermore, we also reviewed  GAO’s prior work on these issues, including travel expenses, contracting,  and internal controls, and we reviewed the policies of the comparable  organizations described below in relation to these activities.
To determine whether the Board has addressed issues related to  improving information available to the Board, and transparency and  communication concerning the Board and Smithsonian operations, we  reviewed Smithsonian laws, policy directives, and other documentation.  We interviewed senior Smithsonian management officials, including three  undersecretaries or acting undersecretaries, directors of all Smithsonian’s  museums, including the Director of the National Zoological Park, and one  research center director, to discuss issues related to their understanding  of Board functions and their level of communication with the Board. To  assess how the Board has improved transparency, we reviewed the  Board’s Web page and policies and procedures related to providing  information to the public, including its Freedom of Information Act policy,  and compared it to the Act. We interviewed key Smithsonian officials,  including the Chief of Staff to the Board of Regents, Acting Secretary, the  Director of External Affairs, and the Director of Communications and  Public Affairs to learn the status of the Board’s plans to improve  transparency. We also met with the General Counsel, the Chief Financial  Officer, and the Inspector General to assess the level of communication  and access between the Board and key Smithsonian officials, before and  after governance changes. We reviewed the Board’s meeting minutes and  supporting documents, including revised bylaws and position descriptions  to determine the extent to which information regarding the Board’s  decisions was made available to the public. We met with chairs of selected  advisory boards to obtain their perspective of the Board’s interaction and  communication with them. We interviewed 10 science, arts, history and  culture, and research-oriented advisory boards to obtain a  nongeneralizable representation. To assess the Board’s efforts at  improving communication with other stakeholders, we reviewed GAO’s  work on federal agency communication strategies.
To determine the extent to which the Board has addressed issues related  to roles and responsibilities, size and structure, and performance of the  Board, we reviewed Smithsonian and other documents to assess current  board practices and the Board’s progress towards implementing  governance reform efforts. To examine the roles and responsibilities of the  Board, we looked at relevant laws pertaining to the creation and operation  of the Smithsonian Board of Regents and reviewed Smithsonian  documents, including Board bylaws and written set of the Board’s and its  committees’ duties and responsibilities. To assess the size, composition,  and structure of the Board, we reviewed a recent BoardSource report that  was commissioned by the Board to examine possible options for the  Board’s size and structure. To assess the extent the Board has addressed  issues related to its performance assessment, we examined relevant  Smithsonian documents, including a draft board assessment instrument,  compiled current governance practices from several sources, and  interviewed key Smithsonian officials. We interviewed all of the current  citizen regents, except the most recently appointed regent, three former  citizen regents, and four congressional regents and the primary staff  liaisons to the remaining two congressional regents. We also obtained a  written response from the Chief Justice to questions we provided. We  interviewed senior Smithsonian officials, including the Chief of Staff to the  Board of Regents and General Counsel to obtain their perspective and  information on the status of the governance reform efforts. To identify  current nonprofit governance practices, we reviewed literature on  corporate and nonprofit governance, including literature from  organizations such as the American Association of Museums,  BoardSource, Council on Foundations, Independent Sector, the Museum  Trustee Association, and The Conference Board. We also reviewed GAO’s  work on governance of several organizations, including the John F.  Kennedy Center for the Performing Arts, Legal Services Corporation, and  Federal Deposit Insurance Corporation. We identified and interviewed  governance experts on nonprofit governance, including academics, to  obtain independent views on the Smithsonian’s governance problems and  whether recent governance changes will address those problems. The  governance experts we interviewed included four governance or museum  experts who advised 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.
To perform all of our work on all of the above objectives, we also met with  officials from several institutions that had some similarity to 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 practices 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. We met with officials from  American University, American National Red Cross, J. Paul Getty Trust,  and United Way of America, who had in-depth knowledge and contributed  to governance reform efforts at the respective organizations. We also met  with officials from the National Trust for Historic Preservation, an  organization that, according to officials, initiated governance reform  without having experienced similar governance challenges. We reviewed  recently enacted legislation relating to governance for one of the  organizations. While we did not evaluate the effectiveness of the  governance reforms efforts at these comparable organizations, we  reviewed and analyzed documents from these organizations relevant to  their governance reform efforts.
We conducted this performance audit from May 2007 to May 2008 in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives.
section_title: Appendix II: GAO’s Assessment of Governance Committee’s Report Recommendations (as of May 2008)
paragraphs: II: GAO’s Assessment of  s of May 2008)
Completed (the recommendtion has een implemented)
Under dy (implementtion of the recommendtion i nder frther dy)
Stepken (tepve een tken to implement the recommendtion, but more work i needed)
We confirmed that the executive compensation process that was followed to set the salary range for  the next Secretary’s compensation package was refined to address many of the IRC’s concerns  about the previous compensation process, but we did not validate the extent to which this process  follows best practices.
section_title: Appendix III: Comments from the Smithsonian Institution Board of Regents
section_title: Appendix IV: Comments from the Smithsonian Institution
section_title: Appendix V: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition Andrew Von Ah, Assistant Director; Shane Bechtold; Seth  Dykes; Delwen Jones; Jennifer Kim; Margaret McDavid; Kim McGatlin;  Susan Michal-Smith; Amanda Miller; Sara Ann Moessbauer; Stanley  Stenersen; and Alwynne Wilbur made key contributions to this report.