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

Letter

Background

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.

Smithsonian Implemented Most Governance Committee Reforms and One of Four GAO Governance Recommendations, but Work Remains on Others

The Smithsonian Has Implemented 39 of 42 Governance Committee Reforms, while Work Remains on 3 Reforms

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.

The Smithsonian Has Implemented One of GAO’s Four Governance Recommendations, While Work Remains on the Other Three

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.

Smithsonian Implemented Most GAO Facilities Recommendations, but Has Not Submitted a Recommended Report to Congress

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.

GAO Contact and Acknowledgments

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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