Smithsonian Institution: Governance and Facilities Reforms Progressing, but Work Remains
Published: 2009-12-10T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Smithsonian Institution (Smithsonian) is the world's largest museum complex. Its funding comes from its own private trust fund assets and federal appropriations. The Smithsonian Board of Regents, the Smithsonian's governing body, is responsible for the long-term stewardship of the Smithsonian. In recent years, GAO and others have documented (1) significant governance and accountability breakdowns at the Smithsonian, which could ultimately put funding and the organization's credibility at risk, and (2) the deterioration of the Smithsonian's facilities and the threat this deterioration poses to the Smithsonian's collections. This testimony discusses (1) the Smithsonian's status in implementing governance reforms recommended by its Governance Committee and by GAO in a 2008 report (GAO-08-632)--as discussed in a GAO report being released today (GAO-10-190R)--and (2) the Smithsonian's progress in implementing facilities and funding recommendations GAO made in a 2007 report (GAO-07-1127). The work for this testimony is based on GAO-10-190R and an analysis of documentary and testimonial evidence from Smithsonian officials. GAO is not making recommendations in this testimony and did not make new recommendations in GAO-10-190R . The Smithsonian and the Board of Regents concurred with the findings of GAO-10-190R .
section_title: What GAO Found
paragraphs: Since May 2008 the Smithsonian has implemented 9 reforms recommended by the Board of Regents Governance Committee--in addition to the 30 it had implemented prior to May 2008--and 1 of 4 GAO recommendations, but work remains on 3 reforms and 3 recommendations. The 9 Governance Committee reforms implemented since May 2008 include efforts such as revising policies related to travel and expense reimbursement and event expenses, creating a regents' annual public forum, completing a review and revision of Board of Regents committees' charters, and developing an assessment process for the Board of Regents. The Smithsonian has not completed implementation of 3 Governance Committee reforms related to the Smithsonian's contracting policy, a comprehensive review of financial reporting and internal controls, and enhancing the role of advisory boards. Regarding GAO's May 2008 recommendations, the Smithsonian implemented GAO's recommendation to evaluate what actions it can take in the event of persistent neglect of duties by a regent, but has not completed implementation of the following three recommendations: (1) The Board of Regents has not fully implemented GAO's recommendation to develop and make public its process for the selection, use, and evaluation of nonregents. The Board of Regents posted on its Web site the process for selecting nonregent committee members but did not make a final decision regarding a proposed bylaw to give nonregent members of committees the same roles and responsibilities as regents. (2) The Board of Regents took steps to improve its relationship with stakeholders, including advisory boards. However, because of limitations of the efforts thus far--such as the informal nature of the Board of Regents' efforts and their focus on the dissemination of information from the regents rather than two-way communication--several advisory board chairs with whom GAO spoke expressed concern that the Board of Regents still lacked a sufficient understanding of Smithsonian museums and other entities to govern as effectively as possible. (3) The Board of Regents has not yet conducted a comprehensive evaluation of its reforms but plans to do so in fiscal year 2010. The Smithsonian has implemented four of GAO's five 2007 recommendations related to facilities and funding. These include recommendations related to improving the Smithsonian's security communications and the comprehensiveness of its capital plan. Furthermore, the Smithsonian has implemented GAO's recommendation to more comprehensively analyze nonfederal funding options to meet the needs of its facilities projects. The Smithsonian is planning to launch a national fund-raising campaign to raise private sector funds for its programs and facilities. It is unclear how much in funds will be raised or dedicated to facilities through such a campaign. The Smithsonian has not implemented GAO's recommendation to submit a report to Congress and the Office of Management and Budget on its funding strategy, but it plans to do so as part of its national fund-raising campaign.

section_title: Letter
paragraphs: Thank you for the opportunity to testify before you today on efforts by the  Smithsonian Institution (Smithsonian) to address challenges related to  governance and facilities. The Smithsonian has been referred to as  America’s museum, as its museums hold and provide access to  irreplaceable national collections in American and natural history, art, and  other areas. 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 among the most highly visited in the world.  The Smithsonian’s governing body, the Board of Regents, is responsible  for the long-term stewardship of the Smithsonian’s mission. In recent  years, we and others have documented significant governance and  accountability breakdowns at the Smithsonian, which could result in a  lack of trust from donors, grantors, and appropriators and ultimately put  funding and the organization’s credibility at risk. We and others have also  documented the deterioration of the Smithsonian’s facilities and the threat  this deterioration poses to the Smithsonian’s collections. For example, in  April 2005, we reported that the failing condition and closure of the  Smithsonian’s 1881 Arts and Industries building on the National Mall was  the most significant example of a broad decline in the condition of the  Smithsonian’s facilities portfolio.
In 2007, following a report from the Smithsonian’s Inspector General to the  Board of Regents on the then-Secretary’s compensation package and  expenses, and related inquiries, the then-Secretary resigned. Two  subsequent studies were published in June 2007, one by the Board of  Regents Governance Committee and the other by an Independent Review  Committee (IRC), created at the Board of Regents’ request, that identified  numerous governance and accountability breakdowns. Both studies  recommended changes to address these breakdowns. The Board of  Regents 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. In 2008,  in assessing the Smithsonian’s implementation of these 25  recommendations, we determined that some of these recommendations  had multiple parts. In order to assess the Smithsonian’s efforts to  implement these recommendations, we analyzed each reform contained in  the recommendations separately; therefore, we assessed the Smithsonian’s  efforts related to 42 reforms in the following areas:    policies on broader Smithsonian operations    access of senior officials to the Board of Regents and level of information  available to the Board of Regents  transparency of Board of Regents’ and the Smithsonian’s activities  regents’ roles and responsibilities  the Board of Regents’ structure and composition    assessment of the Board of Regents  In our previous report, we found that the Board of Regents had  implemented 30 of the 42 reforms to address these areas of concern, and  that it had not completed its implementation of 12 of the recommended  reforms. In that report, we also made four recommendations to strengthen  the Board of Regents’ governance reform efforts.
Moreover, in an earlier report, in September 2007, we had found that while  the Smithsonian had made some improvements to its real property  management, the continued deterioration of many facilities had caused  problems, the Smithsonian’s cost estimate for facilities projects had  increased to $2.5 billion through fiscal year 2013, and the Smithsonian’s  security and real property portfolio management efforts faced challenges.  In September 2007, we concluded that if the Smithsonian did not develop a  viable strategy to address its estimated $2.5 billion in facilities projects, its  facilities and collections would face increased risk, and the ability of the  Smithsonian to meet its mission would likely decline. We therefore  recommended, among other things, that the Smithsonian analyze funding  strategies and report to Congress.
In my statement today, I will discuss (1) the findings of a report we are  releasing today—Smithsonian Institution: Implementation of  Governance Reforms Is Progressing, but Work Remains —regarding the  Smithsonian’s efforts to implement governance reforms recommended by  the Board of Regents Governance Committee and by GAO in 2008, and (2)  provide a brief update on the Smithsonian’s efforts to implement our 2007  facilities and funding recommendations.
Information regarding the Smithsonian’s governance changes is based on  the work we did for the report being released today, which was in  response to a congressional mandate. In that report, we assessed the  extent to which the Smithsonian has implemented governance reforms  recommended by its Governance Committee and GAO, but we did not  evaluate the effectiveness of these reforms in improving Smithsonian  governance. Both the Smithsonian and the Board of Regents concurred  with the findings of that report. Information regarding the Smithsonian’s  efforts to implement our 2007 facilities and funding recommendations is  based on our September 2007 report on the Smithsonian’s facilities and  our review of updated information provided in Smithsonian documents— including Office of Protection Services documents, the Smithsonian’s draft  facilities capital program (fiscal years 2010-2014), and minutes from the  Board of Regents’ November 2007 meeting—and through interviews with  Smithsonian officials. We conducted our work for this report in November  and December 2009 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.
subsections: section_title: Background
paragraphs: Congress established the Smithsonian in 1846 to administer a large  bequest left to the United States by James Smithson, an English scientist,  for the purpose of establishing, in Washington, D.C., an institution “for the  increase and diffusion of knowledge among men.” In accepting  Smithson’s bequest on behalf of the nation, Congress pledged the “faith of  the United States” to carry out the purpose of the trust. To that en act establishing the Smithsonian provided for the administration of the  trust, independent of the government itself, by a Board of Regents a nd a  Secretary, who were given broad discretion in the use of the trust funds.  The Board of Regents currently consists of nine private citizens as well as  members of all three branches of the federal government, including the  Chief Justice of the United States, the Vice President, and six  congressional members, three from the Senate and three from the House  of Representatives.
The three senators are appointed by the President of the Senate, the three representatives  are appointed by the Speaker of the House, and nine citizens are appointed by joint  resolution of Congress—two from the District of Columbia and seven from the states.
Culture, authorized by Congress in 2003. Beyond this, in May 2008,  Congress established a commission to study the potential creation of a  National Museum of the American Latino and whether the museum should  be located within the Smithsonian.
In addition to its stewardship duties, the Board of Regents is vested with  governing authorities over the Smithsonian. It 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.
Although the Smithsonian is a trust instrumentality of the United States  with a private endowment, about two-thirds of its operating revenues in  fiscal year 2008 came from federal appropriations. In fiscal year 2008, the  Smithsonian’s operating revenues equaled about $1 billion, while its  federal appropriations equaled about $678.4 million—$107.1 million for  facilities capital, which provides funds for construction and revitalization  projects, and $571.3 million for salaries and expenses, which includes  funding for the program activities of each museum and research center,  rents, utilities, and facilities’ operations, maintenance, and security costs.  The Smithsonian’s fiscal year 2008 appropriation was subject to an across- the-board rescission of 1.56 percent, which according to the Smithsonian  resulted in an appropriation of $105.4 million for facilities capital and  $562.4 million for salaries and expenses. The remaining operating  revenues came from the Smithsonian’s private trust funds. For fiscal year  2008, the Smithsonian was also appropriated an additional $15 million for  facilities capital (reduced to $14.8 million by the rescission), referred to as  the Legacy Fund, to be provided if the Smithsonian received matching  private donations of at least $30 million; however, according to a  Smithsonian official, the Smithsonian did not meet the matching donations  requirement and therefore has not received these funds. In fiscal year  2009, the Smithsonian was appropriated $123 million for facilities capital  and $593.4 million for salaries and expenses. The Smithsonian was also  appropriated an additional $15 million for the Legacy Fund, with the same  requirements as for fiscal year 2008, except that funds were made  available for individual projects in incremental amounts as matching funds  were raised. The Smithsonian was also appropriated an additional $25  million for facilities capital under the American Recovery and  Reinvestment Act of 2009.
In fiscal year 2010, the Smithsonian was appropriated $125 million for  facilities capital and $636.16 million for salaries and expenses. Of the $30  million appropriated for the Legacy Fund in fiscal years 2008 and 2009, the  approximately $29.8 million unobligated balance was rescinded, and $29.8  million was appropriated under a new requirement—the Legacy Fund is now  directed to the Arts and Industries Building for the purpose of facilitating the  reopening of this building. The Appropriations Act makes funds available in  incremental amounts as private funding becomes available. Private donations,  including major in-kind donations, that contribute significantly to the  building’s reopening will be matched dollar for dollar.
section_title: Smithsonian Implemented Most Governance Committee Reforms and One of Four GAO Governance Recommendations, but Work Remains on Others
subsections: section_title: The Smithsonian Has Implemented 39 of 42 Governance Committee Reforms, while Work Remains on 3 Reforms
paragraphs: The Smithsonian has implemented 9 reforms recommended by the Board  of Regents’ Governance Committee since May 2008—in addition to the 30  reforms it had implemented as of May 2008—bringing the total number of  reforms implemented to 39 of 42 reforms.  The Smithsonian has not  completed implementation of 3 reforms—2 related to improving policies  on broader Smithsonian operations (to develop a contracting policy and  conduct a comprehensive review of financial reporting and internal  controls) and one related to communication and stakeholder relationships  (to enhance the role of the Smithsonian advisory boards). Figure 1  summarizes the status of the Smithsonian’s implementation of the  Governance Committee’s recommended reforms as of May 2008 and  December 1, 2009.
As shown in Figure 1, the Smithsonian has implemented 9 Governance  Committee reforms since May 2008, including the following: The  Smithsonian (1) developed a database to identify potential conflicts of  interest; (2) implemented a policy requiring the former Smithsonian  Business Ventures (SBV)—now reorganized and renamed Smithsonian  Enterprises—to follow Smithsonian policies except in the case of a few  documented exceptions; (3) developed an event expense policy covering  regent and other Smithsonian events; (4) completed a review of the  Smithsonian’s internal controls for travel and expense reimbursement and  implemented a number of additional accountability measures for travel  and expense reimbursement; (5) held two regent annual public forums;  (6) developed a Board orientation process; (7) completed a review and  revision of the Board of Regents committees’ charters; (8) completed a  review of appointment procedures to Board of Regents committees, which  included clarifying the process for appointing nonregents to committees  and making this process publicly available on the Smithsonian’s Web site;  and (9) implemented a reform calling for a regular assessment of the  Board, its committees, and its members.
While the Smithsonian has made considerable progress in implementing  the Governance Committee’s reforms, work remains on 3 reforms  recommended by the Governance Committee: 2 related to policies on  broader Smithsonian operations and 1 related to communication and  stakeholder relationships. According to Smithsonian officials, generally,  the Board of Regents is responsible for setting the policies, and the  Smithsonian administration is responsible for implementing those policies.  While the Board of Regents has approved policies or plans related to the   2 policy-related reforms, the Smithsonian has not completed its  implementation of these reforms. In our May 2008 report, we raised  concerns about challenges associated with these efforts, stating that  effectively implementing the new policies and procedures developed  during these reviews was likely to depend on effectively training staff and  establishing accountability, both of which could be challenging because of  a level of standardization and requirements that did not previously exist.  The following provides a brief summary of the Smithsonian’s efforts  regarding these reforms:    Operational policies—contracting: The Smithsonian has taken steps  toward but not fully implemented the governance reform related to  improving contracting policies and procedures. The Smithsonian has  issued a new contracting policy and is currently writing formal  procurement and contracting procedure manuals that implement this  policy and provide the rules and procedures for day-to-day procurement  and contracting activities. According to the Smithsonian’s Chief Financial  Officer (CFO), two of seven parts of the manual are completed and in use  and the rest are scheduled to be completed by the end of fiscal year 2010.  Completing these manuals is important because a lack of agency-specific  policies and procedures can result in an increased risk of improper or  wasteful contract payments.
Operational policies—financial reporting and internal controls: The  Smithsonian has taken steps to implement its reform to conduct a  comprehensive review of the Smithsonian’s financial reporting and  internal controls. The Smithsonian conducted an initial review of  financial reporting and internal controls which led to a plan—approved by  the Audit and Review Committee in March 2009—to reduce the risk level  of five processes identified by the Smithsonian as high risk by the end of  fiscal year 2012. The work laid out in the plan for accomplishing this goal  includes such tasks as writing new policies and procedures, training staff  on responsibilities and procedures for which they are accountable, and  testing and validating controls through policy compliance reviews or  personal property inventories. The CFO reported to the Audit and Review  Committee that effective execution of the plan will require a commitment  to increasing staffing and other resources over time. During the discussion  with the CFO, members of the Audit and Review committee expressed  concern that providing these resources may be challenging for the  Smithsonian, given limited available resources and other priorities, such as  collections care and research.
Communication and stakeholder relationships—role of advisory  boards: The Smithsonian has taken steps to implement its reform to  enhance the role of its 30 advisory boards, which include a national  advisory board as well as advisory boards that focus on individual  museums, research centers, or programs, but has not resolved all issues.  The primary purpose of advisory boards is to provide advice, support, and  expertise to the directors of museums, research centers, and programs, as  well as to the Board of Regents and Secretary. We discuss the  Smithsonian’s efforts regarding this reform later in this testimony, when  we discuss the Smithsonian’s actions toward implementing our related  May 2008 recommendation.
For more information on the Smithsonian’s efforts related to these  reforms, see our newly issued report on this subject.
section_title: The Smithsonian Has Implemented One of GAO’s Four Governance Recommendations, While Work Remains on the Other Three
paragraphs: The Smithsonian has implemented one of the four recommendations we  made in 2008 to strengthen its governance reform efforts, and it has taken  steps to implement the other three recommendations. (See fig. 2.)
Assessment—actions in the event of persistent neglect of duties:  The Smithsonian implemented GAO’s recommendation to evaluate what  actions it can take in the event of persistent neglect of duties by a regent.  In July 2009, the Board of Regents Governance and Nominating  Committee implemented this recommendation by considering a staff  paper that described actions that could be taken in the event of persistent  neglect of duties, and approving an approach that included initial  counseling and potential referral to the full Board of Regents for  appropriate action.
Structure and composition: The Board of Regents has not fully  implemented GAO’s recommendation to develop and make public its  process for the selection, use, and evaluation of nonregents. The Board of  Regents implemented part of the recommendation by posting on its Web  site the process for selecting nonregent committee members. However,  the Board of Regents did not make a final decision regarding the use of  nonregents on committees when in July 2009, its Governance and  Nominating Committee tabled a proposed bylaw to give nonregent  members of committees the same roles and responsibilities as regents.  Committee members cited issues such as the lack of statutory authority of  nonregent committee members and uncertainty over whether certain  ethical and disclosure obligations of regents should apply to nonregent  committee members, and requested that Smithsonian staff provide the  regents with further information on potential implications of this bylaw.  According to the chief of staff to the Board of Regents, subsequently, the  Smithsonian concluded that existing governance requirements in  committee charters require that all committee members, including  nonregent members, file annual financial disclosures, and the Smithsonian  plans to apply this requirement to these individuals. The Board of Regents  official also stated that the Governance and Nominating Committee plans  to further discuss this issue at its March 2010 meeting.
Communication and stakeholder relationships: The Board of Regents  took steps to improve its relationship with stakeholders, including  advisory boards. For example, the Chair of the Board of Regents now  sends a quarterly email to all advisory board chairs providing information  on the most recent Board of Regents’ meeting and asking to be contacted  directly with any concerns. According to a Smithsonian official, when a  concern is brought to the Chair’s attention, it is either responded to  immediately or tracked by the Office of the Board of Regents until  responded to. In addition, the Smithsonian conducted a workshop of  advisory board chairs in April 2009 as part of its strategic planning  process, which was organized through the regents and led by the Chair of  the Board of Regents and the Secretary of the Smithsonian.  According to  a Smithsonian official, the input provided by these advisory board chairs  was considered as the strategic plan was developed. However, due to  limitations of the efforts thus far—such as their informal nature and focus  on dissemination of information from the regents rather than two-way  communication—several advisory board chairs with whom we spoke  expressed concern that the Board of Regents still lacked a sufficient  understanding of Smithsonian museums and other entities to govern as  effectively as possible.
Assessment—evaluation: The Board of Regents has not yet conducted a  comprehensive evaluation of its reforms but plans to do so in fiscal year  2010.
For more information on the Smithsonian’s efforts related to these  recommendations, see our newly issued report on this subject. Both the  Smithsonian and the Board of Regents concurred with the findings of that  report.
section_title: Smithsonian Implemented Most GAO Facilities Recommendations, but Has Not Submitted a Recommended Report to Congress
paragraphs: The Smithsonian has fully implemented four of the five recommendations  we made in our September 2007 report on the Smithsonian’s facilities,  security, and funding challenges. It has not implemented the fifth  recommendation regarding submitting a report to Congress and the Office  of Management and Budget (OMB) on its funding strategy, but plans to do  so. (See fig. 3.) Furthermore, although the Smithsonian has implemented  our recommendation to more comprehensively analyze funding strategies  to meet the needs of its facilities projects and is planning to launch a  national fundraising campaign, it is unclear what amount of funds will be  raised through such a campaign and, more specifically, what amount will  be dedicated to facilities. In September 2007, we found that the  Smithsonian faced challenges related to communicating security-related  information to museum and facility directors and omitted private funds  from its capital plan, reducing stakeholders’ ability to comprehensively  assess the funding and scope of facilities projects. We also found the  Smithsonian did not have a viable strategy to address its growing cost  estimate for facilities projects, increasing the risks faced by its facilities  and collections, and likely decreasing its ability to meet its mission.
Security of facilities—communicating information on security staff  levels and all-hazards risk assessment: The Smithsonian implemented  our recommendations to communicate information to museum and facility  directors on (1) daily security staff levels and (2) its all-hazards risk  assessment.
Planning of capital projects—capital plan: The Smithsonian  implemented our recommendation to include the full scope of planned  projects and information on planned funding sources—federal and private  funds—for each project in its capital plan. In September 2008, the  Smithsonian created a facilities capital plan for fiscal years 2008 through  2017 that includes a description of planned projects and their funding  sources.
Funding of capital projects—analyzing funding strategies: The  Smithsonian implemented our recommendation to analyze nonfederal  funding strategies in a more comprehensive manner. In November 2007,  the Board of Regents concurred with a more comprehensively analyzed  and prioritized list of nonfederal funding strategies, which included  establishing a national campaign to raise private sector funds for  Smithsonian programs and facilities, among other strategies. According  to Smithsonian officials, in the wake of the Board of Regents’ September  2009 approval of a new strategic plan for the Smithsonian, the Board of  Regents Advancement Committee is developing a plan for a national  fundraising campaign in concert with Smithsonian staff, who, among other  things, are determining what staff resources are necessary and are  coordinating with the Smithsonian museums, programs, and other entities  on goals for the plan. The Board of Regents Advancement Committee  expects to approve a full national fundraising campaign plan no later than  September 2010. While these steps implement our recommendation, it is  unclear at this time how much in funds will be raised and, more  specifically, what amount will be dedicated to facilities.
Funding of capital projects—reporting to Congress and OMB:  According to a Smithsonian official, the Smithsonian has not submitted a  report to Congress and OMB on its fundraising efforts but plans to do so in  the future as part of its communications strategy related to the national  fundraising campaign.
Mr. Chairman, this concludes my prepared statement. I would be happy to  respond to any questions you or other Members of the Subcommittee may  have at this time.
section_title: GAO Contact and Acknowledgments
paragraphs: For further information about this statement, please contact Mark L.  Goldstein, Director, Physical Infrastructure Issues, at (202) 512-2834 or at  goldsteinm@gao.gov. Contact points for our offices of Congressional  Relations and Public Affairs may be found on the last page of this  statement. Key contributors to this statement include David Sausville  (Assistant Director), Brian Hartman, Susan Michal-Smith, Alwynne Wilbur,  and Carrie Wilks.
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