Smithsonian Head's Expenses 'Lavish,' Audit Says
Board Calls Small's Charges 'Reasonable'

By James V. Grimaldi
Washington Post Staff Writer
Sunday, February 25, 2007

Lawrence M. Small, the top official at the Smithsonian Institution, accumulated nearly $90,000 in unauthorized expenses from 2000 to 2005, including charges for chartered jet travel, his wife's trip to Cambodia, hotel rooms, luxury car service, catered staff meals and expensive gifts, according to confidential findings by the Smithsonian inspector general.

"Many transactions were not properly documented or were not in accordance with Smithsonian policies," acting Inspector General A. Sprightley Ryan wrote on Jan. 16 to the Smithsonian Board of Regents Audit and Review Committee. "Some transactions might be considered lavish or extravagant."

Small, who in 2000 became the 11th Smithsonian secretary, will earn $915,698 this year in total compensation -- more than that of the outgoing president of Harvard University, which has an endowment about 30 times the size of the Smithsonian's. Over the past seven years, Small has also received $1.15 million for making his house available for official functions.

Small declined an interview. "Mr. Small is not going to talk about his own compensation," said Smithsonian spokeswoman Linda St. Thomas. "The regents determine all secretaries' compensation."

Small, 65, reports to the institution's 17-member Board of Regents, which referred the inspector general's findings to its audit committee, made up of four regents. The board last month accepted the committee's decision to dismiss the findings and defended Small's expenses as "reasonable." The regents also decided to rewrite several rules to authorize many of the transactions that had been deemed in violation of policy.

Sen. Charles E. Grassley (R-Iowa), who had requested the inspector general's review when he was chairman of the Senate Finance Committee last year, expressed outrage at the audit committee's response.

"I am shocked at what the Smithsonian is spending its money on when it comes to food, flowers, alcohol and other items," Grassley said in a letter last week to Chief Justice John G. Roberts Jr., who chairs the Board of Regents. Grassley criticized "what appears to be an 'anything goes' culture by the Smithsonian secretary and his staff, which views that his champagne lifestyle should be subsidized by the taxpayer."

The inspector general's letter and accompanying audit report were kept confidential at the request of Small's office, according to Grassley's staff.

Copies of the letter and report were obtained by The Washington Post.

The findings provide a rare look into Small's management style at an institution that encompasses 19 museums and galleries and the National Zoo and contains such national treasures as the Hope Diamond and the 1903 Wright Flyer. The Smithsonian is both a nonprofit organization under tax laws and a creation of Congress that receives 70 percent of its funding from the federal budget -- $715 million last year.

In the past seven years, the regents have nearly doubled Small's base salary, from $330,000 in 2000 to $617,672 today. The regents said they wanted to bring his pay in line with the median for college presidents and museum directors. Small's expenses for his first six years as secretary amounted to about $850,000, according to the audit report.

After reviewing the inspector general's findings, the regents' audit committee concluded that Small did not charge for expenditures "solely for personal benefit." The committee's report was written by Small's office using an outline provided by the committee, according to Grassley.

"Are you troubled by the secretary's office playing an important role in drafting a document that reviews the propriety of the secretary's own actions?" Grassley wrote to Roberts. "Does this raise questions in your mind about the board's independence?"

A spokeswoman for Roberts told The Post, "The chief justice has no comment."

Roger Sant, chairman of the audit committee and the executive committee, has been vocal in his support of Small's tenure and compensation.

"The guy took over a place that was really sort of falling apart," said Sant, who served on the Marriott International Inc. board with Small before becoming a regent. "There was hardly any fundraising capability. He's raised almost a billion dollars personally. What more could we have asked for as a regent?"

Sant, who was co-founder of AES Corp., said the other key members of the audit committee were Robert P. Kogod, a Washington real estate developer and philanthropist, and Patricia Q. Stonesifer, CEO of the Bill & Melinda Gates Foundation. Sant acknowledged that Small has encountered repeated controversy. Early in his tenure Small angered scientists over proposed changes in research across the institution. He upset historians and filmmakers seeking access to institution archives when he signed a semi-exclusive deal last year with the Showtime cable channel. Small also was convicted of violating the Migratory Bird Treaty when he imported indigenous headdresses festooned with feathers and animal parts from endangered species.

"I think that any of that is far outweighed by his performance as secretary in the past seven years," Sant said. "On any measure I can think of, his results have been outstanding."

A 'Hypothetical' Mortgage

Small took over the Smithsonian after serving as president and chief operating officer at Fannie Mae, where he earned $4.2 million in his last year in addition to bonuses. His original employment agreement provided him with a housing allowance so he could use his residence for "official Smithsonian hospitality." Previous secretaries had been allowed to live in a Smithsonian-owned home.

Small was allowed to claim reimbursement of up to 50 percent of his actual housing costs, up to $150,000 per year. He was to be paid after he provided documentation of such expenses as mortgage payments, homeowner's insurance, utilities and real estate taxes, or "equivalent costs of home ownership," according to a copy of the employment agreement.

A few months after Small became secretary, the inspector general said, he stopped filing the required monthly documentation "for administrative ease."

Instead, Small calculated his housing expense using a mortgage interest rate that was "hypothetical," the inspector general noted, because he owned his home free and clear.

Small's office calculated his "hypothetical" mortgage at $3.5 million, using an 8.32 percent interest rate for a 30-year fixed mortgage, dating back to Small's hiring date in 2000. When he was hired, interest rates averaged 8.05 percent, but they dropped over the next four years and averaged 5.87 percent in 2005, the inspector general said.

With refinancing or an adjustable-rate mortgage, "the overall costs could have been lower," the inspector general said.

After reviewing the inspector general's letter, the regents disregarded a recommendation to require more "record-keeping and reporting" from Small. Instead, they endorsed the existing arrangement and authorized a $193,000 housing fee for 2007.

Side Trip to Cambodia

The inspector general found that Small's chartered-jet travel breached Smithsonian policy. The inspector general singled out a $14,509 round-trip charter flight to San Antonio in May 2001. Small attended the opening of a museum affiliated with the Smithsonian and "Smithsonian-related social functions" in Texas. He then returned to Washington for a Board of Regents meeting on a Learjet.

The inspector general found the expense "excessive" because commercial flights were available.

Small stayed in Texas because a major donor, Kenneth Behring, who has given $100 million to the institution, had invited him to a conference and the Learjet was the only way to attend the event and return in time for the regents meeting, Sant said. Also on board, Sant said, was Sen. Bill Frist (R-Tenn.), a regent at the time.

Sant defended the expense but said Small's handling of the flight "was a little less rigorous than it should have been."

Smithsonian policy states that employees should select transportation that is "most advantageous" to the institution when "cost and other factors are considered."

At the time of the San Antonio flight, the inspector general noted, a Smithsonian spokesman told The Washington Post that Small had paid for the trip using a discretionary account funded with his own money. "That characterization is inaccurate," the inspector general said. "The trip was paid for with Smithsonian funds."

The inspector general determined that Small had given the institution almost $430,000, primarily in securities, making him eligible for a tax deduction. But there was no separate discretionary fund. The inspector general noted that any donations become the property of the institution and are subject to its guidelines, which require "reasonableness."

Sant said that Small misunderstood how the donations would be handled. "He had the impression at the time that it was to create a slush fund to use for things, and that was ultimately incorrect," Sant said. "That was a mistake. But I don't think it was a personal-gain sort of thing."

Another trip highlighted by the inspector general involved Small's wife, Sandra, who in 2004 was reimbursed $5,764 for a three-day side trip to Cambodia after she and Small had traveled to China for the Smithsonian. The institution's policy permits spouses to accompany employees at Smithsonian expense "if their services in an official capacity can be demonstrated in advance." The auditor "was not provided with evidence of prior authorization or approval," the inspector general said.

The inspector general also found that while Small's employment agreement permitted first-class travel, he is required to abide by Federal Travel Regulations, which mandate that federal employees use government travel rates. "The Secretary's travel costs did not always come within those limits," the inspector general found. "For example, the Secretary spent approximately $27,000 on car service while on travel over the course of the 6-year review period."

In response to the findings regarding travel, the regents in January reversed a policy requiring Small to abide by Federal Travel Regulations. Instead, they authorized first-class travel, the use of car services, quality hotel accommodations and meals.

In response to the section about Small's wife's trip to Cambodia, the regents changed Small's employment agreement to waive preapproval, which is required for other Smithsonian employees.

Yesterday, Sant said that change was "a mistake" and went further than intended; he added that Small should be required to get pre-approval for his wife's paid travel.

Flowers for the Staff

The secretary's staff justified some spending that appeared to violate policy because they believed "the Secretary could waive any policy if it applied" to him.

The inspector general replied in a footnote, "We are aware of no written authority for the Secretary to waive Smithsonian policies."

A list of expenses prepared by an outside auditor working for the inspector general showed that Small often purchased expensive floral arrangements, rented tables, china and flatware, and hired high-end caterers for meals for employees who reported directly to him. The expenses included more than $2,000 for alcohol, though the auditor found that the rules do not allow the purchase of alcohol. Small also threw staff dinners, including one in July 2000 that cost $4,300.

Small justified the meals by telling the auditors that his staff frequently worked through lunch or dinner. Nevertheless, the auditors ruled the meals unauthorized because Smithsonian policy through December 2004 prohibited payment for meals unless they were essential to complete a project.

In December 2004, the rule was changed to allow the secretary to authorize staff meals at his discretion.

The inspector general also determined that Small had charged the institution hundreds of dollars for unauthorized "personal lunches" without any Smithsonian business purpose. After the investigation began, Small reimbursed the Smithsonian more than $700 for lunches and his wife's spousal fee at Washington's exclusive Cosmos Club.

Of 200 non-travel transactions identified as unauthorized, 66 involved gifts, including a $4,800 unauthorized bonus for an assistant to the secretary.

Small sent gifts to employees and donors, including plants, books, ties and smithsonite -- a mineral named for James Smithson, whose endowment to the United States resulted in Congress creating the Smithsonian Institution and trust. Between 2000 and 2004, Small spent $9,300 on flowers for staff, donors and regents.

The gifts were charged against a trust fund that does not authorize gifts to staff, volunteers and donors, the inspector general found.

On Christmas Day 2004, according to the outside auditor's report, Small charged $1,800 for "smithsonite for donors." "Some of the gifts listed in the report appear to be lavish," the inspector general said.

Research director Lucy Shackelford and research editor Alice Crites contributed to this report.

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