By Jacqueline Trescott
Washington Post Staff Writer
Wednesday, April 19, 2006
The Smithsonian's Office of the Inspector General is looking into the executive compensation and accounting practices of Smithsonian Business Ventures, the division of the institution that operates its retail and publishing enterprises.
Inspector General Debra Ritt notified SBV Chief Executive Officer Gary M. Beer that she was starting an audit of how the salary and bonus levels of its managers are established and whether those payments met the agreements set by the Board of Regents.x
Since SBV was established in 1998 by the Smithsonian regents, the for-profit outfit has been the source of complaints and jealousy among many of the staff. The majority of Smithsonian employees are paid according to the federal civil service system. The 430 full-time employees of SBV follow a private-sector pay scale. Top executives and senior staff -- about 66 people -- draw salaries designed to be competitive with the business world. There also is a merit-based formula for increases and bonuses for SBV managers.
CEO Beer earned $525,000, according to the Smithsonian's 2003 tax return, the latest one available to the public. Lawrence Small, secretary of the Smithsonian, earned $813,000, according to the return, including a housing allowance. The top salary for civil service employees is $162,000.
Some staffers at individual museums are also displeased that SBV is not generating more income for the museums, which do not charge admission, and suggest that overhead and salaries may be too high.
"We are aware of some of the museums' displeasure with revenue sharing," said Stuart Metzger, the assistant inspector general for audits. "But right now we are sticking to our announced stated objectives. How much the road intersects, we don't know."
In an unrelated move, SBV is laying off nine employees because the National Museum of American History will close this fall for almost two years of renovations. The shutdown will reduce profits from two restaurants and six gift shops by $3 million. The design calls for reconfiguring the museum's central core and creating a new display for the Star-Spangled Banner.
While the number of SBV layoffs is small, the decision is another sign of strain in a unit created to improve the Smithsonian's for-profit ventures -- from the popular Smithsonian magazine to the 28 gift shops -- and brings much-needed unrestricted income to the Smithsonian. The stores generated sales of $49 million in fiscal 2005. The total for the retail cluster -- food and theaters as well as stores -- was $69 million.
From 2000 to 2005, according to the Smithsonian, SBV's profits contributed $155 million to the Smithsonian's unrestricted accounts.
In fiscal 2005, the unit provided $30 million, nearly half of the museum's unrestricted funds.
In fiscal 2004, the businesses grossed $156. 3 million and returned $26.7 million to the Smithsonian -- $6 million more than the previous year.
The financial relationship between the museums and SBV has raised some questions among museum staff. In general, 60 percent of the profit from gift shops and other business ventures goes to the central Smithsonian accounts and 40 percent goes back to the individual museums where the gift shops are housed.
In a few cases, the Smithsonian requires some of the 40 percent to be used to pay off debts the individual museums have accumulated. For example, the Natural History museum owes money for its West Court project, which includes the Imax theater, the African Voices exhibition and the Gem Hall renovation.
After these deductions, the museums can spend the money on their priority projects.
This year, according to documents provided to The Washington Post, officials at the National Museum of the American Indian and the National Museum of Natural History questioned their share of the profits. They thought they were shortchanged, according to the documents.
"Most of the museums are well past frustrated regarding communication of financial information," said one official in an e-mail.
Two employees, who spoke on the condition they not be identified, said that the SBV executives had added new expenses this year. That increased overhead cut into the money going back to the museums. In fiscal 2005, a new accounting system showed museum directors that they were being charged for administrative costs, including a share of the rent for the accounting office in Herndon and a percentage of the salaries of the SBV staff. That was not itemized before. A Smithsonian spokesperson said the overhead costs were always taken out but never shown.
Some employees have raised questions about whether money has been taken from the profits to pay severance packages for dismissed employees. All of the salaries and other compensation for SBV employees comes from the Smithsonian's private funds.
Earlier this year, Cristian Samper, the director of Natural History, received the proposed numbers for his museum's allocations and was unhappy. Beer said one of the problems was a "glitch" in the new automated accounting system. In an e-mail response, Semper told Beer: "Needless to say, we are shocked, disappointed and discouraged."
In an interview, Semper said, "What we are trying to understand is what the revenue shares are for the year, why some of the preliminary numbers showed a decline. I still don't have an answer, but we have received additional figures." Semper said SBV generally did a good job with the operations but, because of the success of the museum's stores, "the numbers for the first quarter made absolutely no sense."
At the American Indian museum, the disappointing results attributed to the Chesapeake Store, the high-end gift shop, alarmed some of the officials. The store grossed $1.6 million in its first full year and received $151, 064 in revenue sharing, according to the document.
Overall, two stores at the Indian museum grossed $8.6 million in the year after the museum opened in September 2004. The museum received $1.3 million in revenue sharing, but had expected $170,000 more, according to the correspondence.
The documents suggest that the new way of calculating expenses hurt the bottom line for the shops at American History. At the end of fiscal 2004, the stores brought in $7.4 million with a net income back to the Smithsonian of $2.9 million. The actual income in 2005 was more -- $7.9 million -- but the net income was less -- $1.5 million, according to a SBV document.
"It is bad accounting with a bloated overhead and it affects what goes to the museum," said an employee.
Linda St. Thomas, director of media relations for the Smithsonian, said SBV added an automated system that now follows the details of every operation of each of the 28 stores.
In addition to the staff reduction, the Smithsonian hopes that revenues from its publishing partnership with HarperCollins and a Showtime television production deal will help offset the losses when American History shuts down for renovations.
SBV is in charge of Smithsonian magazine, other publications, gift shops, restaurants, catalogue and online sales, theaters and Smithsonian Journeys, a travel group that at one point had almost 8,000 participants a year.
Before SBV was organized, the retail side of the Smithsonian produced $20 million for the general fund, according to a study on business operations. The study predicted that in five years SBV would return $55 million a year, a level it has not achieved.
After the downturn in business after the 89/11 terrorist attacks, the office laid off 100 employees, reduced hours at some shops, froze wages and hired outsiders to do some jobs. Incentives for executives were canceled in 2002 and 2003, according to officials.
The regents and an SBV board provide oversight for the unit.
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