    Kennedy Center: Progress Made on GAO Recommendations, but
    Oversight Challenges Still Exist (15-SEP-06, GAO-06-1025).

    In April 2005, GAO recommended that the John F. Kennedy Center
    for the Performing Arts (Kennedy Center) increase oversight of
    its management of federal funds, better comply with fire code,
    and conform to project management best practices. GAO was asked
    to evaluate (1) the progress the Kennedy Center has made in
    implementing GAO's April 2005 recommendations, (2) the status of
    federally funded capital projects and the planned spending of
    federal funds for capital projects as indicated by the Kennedy
    Center's most recent comprehensive building plan, and (3) the
    Kennedy Center Board of Trustees' responsibilities for federally
    funded capital projects and the extent to which the board
    fulfills these responsibilities. To fulfill these objectives, GAO
    examined Kennedy Center documents, visited other arts
    organizations, and interviewed affected parties.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-06-1025
        ACCNO:   A60965
      TITLE:     Kennedy Center: Progress Made on GAO Recommendations, but
    Oversight Challenges Still Exist
         DATE:   09/15/2006
      SUBJECT:   Building codes
    	     Construction (process)
    	     Construction costs
    	     Cost analysis
    	     Cost overruns
    	     Facility management
    	     Federal funds
    	     Federal regulations
    	     Financial management
    	     Safety regulation
    	     Schedule slippages
    	     Strategic planning
    	     Fire safety

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    GAO-06-1025

         * Report to the Subcommittee on Interior, Environment, and Related
           Agencies, Committee on Appropriations, House of Representatives
              * September 2006
         * KENNEDY CENTER
              * Progress Made on GAO Recommendations, but Oversight Challenges
                Still Exist
         * Contents
              * Results in Brief
              * Background
              * The Kennedy Center Has Taken Steps to Implement Our Oversight,
                Fire Safety, and Capital Project Recommendations, but More Work
                Remains
                   * The Kennedy Center Has Contracted for Audits of Its
                     Management of Federal Fund Expenditures
                   * The Kennedy Center Has Taken Some Steps to Implement Our
                     Fire Safety Recommendations, but More Work Is Needed
                   * The Kennedy Center Has Taken Some Steps to Implement Best
                     Practices to Improve Its Capital Project Management, but
                     More Work Is Needed
              * The Kennedy Center Will Not Complete All Planned Capital
                Renovations within CBP Budgets and Time Frames
                   * Estimated Costs for Remaining CBP Projects Have Increased by
                     $10 Million, or 21 Percent, Since 2004
                   * Most Plaza-Level Renovations Have Been Completed, but the
                     Eisenhower Theater Renovation Is Still in the Planning Stage
                   * The Kennedy Center Will Not Complete Terrace-Level
                     Renovations by the End of the CBP as Planned
              * The Kennedy Center Board of Trustees Has Delegated Its
                Responsibility for Federally Funded Capital Projects, but Has
                Provided Limited Oversight
                   * The Kennedy Center Board of Trustees Provides Limited
                     Oversight of Federally Funded Capital Projects
                   * Several Factors Limit the Board's Oversight of Federally
                     Funded Capital Projects
                        * The Board and Its Operations Committee Lack Procedures
                          on How to Carry Out Their Responsibilities for
                          Federally Funded Capital Projects
                        * Board Meeting Attendance Rates Have Been Low, and the
                          Operations Committee Has Not Met Regularly
                        * Lack of Information Has Prevented the Board and Its
                          Operations Committee from Monitoring the Implementation
                          of Federally Funded Capital Projects
              * Conclusions
              * Recommendations for Executive Action
              * Agency Comments and Our Evaluation
         * Scope and Methodology
         * Kennedy Center's Implementation of Our Recommendation to Design and
           Implement Financial Policies and Procedures
         * Comments from the John F. Kennedy Center for the Performing Arts
              * GAO Comments
         * GAO Contacts and Staff Acknowledgments
              * GAO Contacts
              * Staff Acknowledgments

                     United States Government Accountability Office

    Report to the Subcommittee on Interior,

        Environment, and Related Agencies, Committee on Appropriations, House of
                                    Representatives

    September 2006

    KENNEDY CENTER

    Progress Made on GAO Recommendations, but Oversight Challenges Still Exist

                                           a

    GAO-06-1025

    KENNEDY CENTER

    Progress Made on GAO Recommendations, but Oversight Challenges Still Exist

      What GAO Found

    The Kennedy Center has taken steps to implement GAO's oversight, fire
    safety, and capital project recommendations but more work remains. For
    example, to increase oversight of its management of federal funds, the
    Kennedy Center contracted with the Smithsonian Institution Office of the
    Inspector General for audits of federal funds used for capital projects.
    In addition, to better comply with fire safety code, the Kennedy Center
    has implemented GAO's recommendations to obtain a peer review of its
    firemodeling study and manage the storage of combustible materials. As a
    result of the peer review, the center made changes to its fire-modeling
    study. Finally, to better align with project management best practices,
    the Kennedy Center has implemented GAO's recommendations to design and
    implement contract, financial, and project management policies and
    procedures and control cost and schedule changes in future projects.

            Kennedy Center's Progress in Implementing GAO's Recommendations

    Oversight
    Fire safety
    Management of capital projects

    Recommendation hasbeen implemented.

    Steps havebeen taken to implement the recommendation, but more work is
    needed.

    Recommendation has not

    been implemented.

    Source: GAO.

    The Kennedy Center's 2005 comprehensive building plan (CBP)-or longterm
    renovation effort-shows that the center will not complete its capital
    renovations within the planned 2008 time frame and budgets. The estimated
    costs for the remaining CBP projects have increased from $48 million to
    $58 million since the 2004 CBP, and the center plans to defer most
    terrace-level renovations beyond 2008, the original completion date. The
    2005 CBP shows that the Family Theater was completed on schedule in 2005
    with limited cost growth. However, despite improved contracting practices,
    GAO found that the Kennedy Center did not fully comply with the Federal
    Acquisition Regulation (FAR) when it used an alternative contracting
    method. In addition, it increased the risk of cost overruns by authorizing
    Family Theater work to begin before establishing the contract's guaranteed
    maximum price.

    The Kennedy Center Board of Trustees has delegated to management most of
    its responsibilities for federally funded capital projects, which is a
    typical board action. However, GAO found that several factors limit the
    board's oversight of federally funded capital projects. The Kennedy Center
    Board of Trustees and its Operations Committee (1) lack procedures on how
    to carry out the board's responsibilities for federally funded projects
    (2) have experienced low attendance at meetings, and (3) lack information
    needed to evaluate the implementation of capital projects. In addition,
    the Operations Committee has met infrequently, which further limits
    oversight.

                     United States Government Accountability Office

                                        Contents

    Letter                                                                   1
               Results in Brief                                                 4
               Background                                                       8
                The Kennedy Center Has Taken Steps to Implement Our Oversight,
                    Fire Safety, and Capital Project Recommendations, but More
               Work Remains                                                    14
                  The Kennedy Center Will Not Complete All Planned Capital
                       Renovations within CBP Budgets and Time Frames          29
                   The Kennedy Center Board of Trustees Has Delegated Its
                 Responsibility for Federally Funded Capital Projects, but Has
               Provided Limited Oversight                                      36
               Conclusions                                                     49
               Recommendations for Executive Action                            50
               Agency Comments and Our Evaluation                              51

    Appendixes
                    Appendix I: Scope and Methodology                          53
                   Appendix II: Kennedy Center's Implementation of Our
                                Recommendation to Design and Implement
                                Financial Policies and Procedures              59
                  Appendix III: Comments from the John F. Kennedy Center
                                for the Performing Arts GAO Comments        62 69
                  Appendix IV:  GAO Contacts and Staff Acknowledgments GAO  72 72
                                Contacts
                                Staff Acknowledgments                          72

    Figures Figure 1: Diagram of the Kennedy Center's Plaza-Level Public
                         Spaces and Theaters                                    9
               Figure 2: Organization of the Kennedy Center for Selected
                         Positions and Offices                                 11
               Figure 3: Kennedy Center's Progress in Implementing Our
                         Recommendations                                       15
               Figure 4: Kennedy Center's Progress in Implementing Our Fire
                         Safety Recommendations                                19
               Figure 5: Location of Exit Signage at the Millennium Stages     21

    Contents

    : Kennedy Center's Progress in Implementing Our Recommendations to Better
    Align Its Capital Project Management with Best Practices 23
    :The Kennedy Center's Full Implementation of Financial Policies and
    Procedures in Several Specific Areas 25
    :Excerpt from The Kennedy Center's 2005 CBP Showing Eisenhower Theater
    Budget Changes from the 2004 CBP and Projected Obligations, in Dollars 27
    :AFI Theater before and after Its Conversion to the Family Theater 32
    January 1995 through April 2006 44 January 1995 through April 2006 45
    : Diagram of the Kennedy Center's Terrace-Level Public Spaces and Theaters
    34
    : Intervals between Operations Committee Meetings,
    : Attendance Rates at Operations Committee Meetings,
    :Budgeted and Actual Costs of Selected Federally Funded Kennedy Center
    Capital Projects 48
    :Recommendations to the Kennedy Center in Our April 2005 Report 54
    :Implementation Status of our Financial Recommendations in Several
    Specific Areas 59

    Contents

                                     Abbreviations

    CMAR               construction manager at risk
    CBP                comprehensive building plan
    FMO                Facilities Management Office
    FAR                Federal Acquisition Regulation
    GMP                guaranteed maximum price
    GSA                General Services Administration
    MOU                memorandum of understanding
    NARA               National Archives and Records Administration
    NPS                National Park Service
    OIG                Office of the Inspector General
    OMB                Office of Management and Budget
    PMO                Project Management Office

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
    copyright holder may be necessary if you wish to reproduce this material
    separately.

    A

    United States Government Accountability Office Washington, D.C. 20548

    September 15, 2006

    The Honorable Charles Taylor Chairman The Honorable Norman Dicks Ranking
    Minority Member Subcommittee on Interior, Environment,

    and Related Agencies Committee on Appropriations House of Representatives

    The John F. Kennedy Center for the Performing Arts (Kennedy Center) opened
    in 1971 as a national cultural arts center and presidential memorial.
    Every year, millions of people either visit the Kennedy Center to view the
    center and memorial or to attend live performances. Since at least 1990,
    the Kennedy Center facility has needed substantial capital repairs. At
    that time, officials from both the Kennedy Center1 and the Department of
    the Interior's National Park Service (National Park Service), which then
    shared responsibility for managing the Kennedy Center, acknowledged that
    the physical condition of the center had seriously deteriorated.

    In 1994, legislation was enacted that gave the Kennedy Center Board of
    Trustees sole responsibility for managing the facility. As part of that
    responsibility, the legislation required the Kennedy Center Board of
    Trustees to develop, and annually update, a comprehensive building needs
    plan. In response, the Kennedy Center developed a comprehensive building
    plan (CBP) in 1995 that included an assessment of the facility and
    identified the capital projects considered necessary to repair the center
    and bring it into compliance with current codes for fire safety and
    disabled access.2 The plan consisted of a long-term capital repair and
    upgrade project that, among other things, envisioned the center's meeting
    or exceeding relevant fire safety regulations by 2008 and addressing
    disabled access needs. To

    1For this report, the term Kennedy Center refers to the Board of Trustees
    and management officials unless otherwise specified.

    2The National Fire Prevention Association Life Safety Code is designed to
    protect building occupants from fire and other hazards. The code covers
    construction, protection, and occupancy features to minimize danger to
    life from fires, smoke, fumes, or panic before buildings are vacated. The
    Americans with Disabilities Act prohibits discrimination on the basis of
    disability in employment, services rendered by state and local
    governments, places of public accommodation, transportation, and
    telecommunications services.

    implement its CBP, the Kennedy Center received almost $216 million3 in
    federal funds during fiscal years 1995 through 2006 for capital repairs
    and alterations.

    For more than a decade, we have identified shortcomings in, and made
    recommendations to improve, the Kennedy Center's construction, planning,
    and management processes: (1) In the 1990s, we reported that the Kennedy
    Center did not have sufficient staff capability to effectively manage its
    capital improvement plans;4 (2) In 2003, we reported that the Kennedy
    Center needed to strengthen its management and oversight of large
    construction projects, such as the garage expansion and renovation
    project;5 and (3) In 2004, we reported that the Kennedy Center had
    implemented most of the projects in its CBP but would likely not complete
    its plan by 2008, given the number and size of the renovation projects
    that remained to be done, the amount of anticipated future appropriations,
    and the likelihood that project budgets may increase as designs are
    completed.6 Most recently, we reported that although the Kennedy Center
    completed four major renovations, each of these projects exceeded budget
    estimates, some by substantial amounts. We also found that the Kennedy
    Center lacked the comprehensive policies and procedures needed to
    adequately safeguard federal funds and did not appear to meet fire safety
    code requirements. Accordingly, we recommended in our April 2005 report
    that the Kennedy Center increase its oversight of federally funded capital
    projects, better comply with fire code, and better align its management of
    capital projects with best practices.7

    3This amount includes a beginning balance of $35.3 million, which is the
    value of transfers from the National Park Service and the Smithsonian
    Institution, and approximately $180.5 million in federal appropriations.

    4GAO, Kennedy Center: Information on the Capital Improvement Program,
    GAO/GGD-93- 46 (Washington, D.C.: Feb. 9, 1993) and Kennedy Center:
    Information on Facility Management Capability, GAO/GGD-98-56 (Washington,
    D.C.: Mar. 25, 1998).

    5GAO, Kennedy Center: Improvements Needed to Strengthen the Management and
    Oversight of the Construction Process, GAO-03-823 (Washington, D.C.: Sept.
    5, 2003).

    6GAO, Kennedy Center: More Information on Project Status and Budgets
    Needed to Understand the Impact of Future Funding Decisions, GAO-04-933
    (Washington, D.C.: Sept. 15, 2004).

    7GAO, Kennedy Center: Stronger Oversight of Fire Safety Issues,
    Construction Projects, and Financial Management Needed, GAO-05-516T
    (Washington, D.C.: Apr. 6, 2005) and GAO-05-334 (Washington, D.C.: Apr.
    22, 2005).

    To assist Congress, you requested that we examine the Kennedy Center's
    management and oversight of federally funded capital projects.
    Accordingly, this report evaluates (1) the progress the Kennedy Center has
    made in implementing the recommendations in our April 2005 report; (2) the
    status of federally funded capital projects and the planned spending of
    federal funds for capital projects, as shown in the Kennedy Center's most
    recent comprehensive building plan; and (3) the Kennedy Center Board of
    Trustees' responsibilities for federally funded capital projects and the
    extent to which the board fulfills these responsibilities.

    To determine the progress the Kennedy Center has made in implementing our
    April 2005 recommendations to increase oversight of its management of
    federal funds, better comply with fire code, and better align its
    management of capital projects with best practices, we reviewed Kennedy
    Center documents, including a 2005 risk assessment and internal audit
    plan; peer reviews of the center's fire-modeling study; annual CBPs;
    Family Theater contract modifications; and contract, financial, and
    project management policies and procedures. In addition, we spoke with
    management officials at the Kennedy Center, General Services
    Administration (GSA), and National Archives and Records Administration
    (NARA). To determine the status of federally funded capital projects and
    the planned spending of federal funds, as indicated by the Kennedy
    Center's most recent CBP, we reviewed the Kennedy Center's 1995 CPB and
    its 2004 and 2005 updates. Specifically, we examined the changes in the
    2005 CBP that were made since the 2004 CBP and developed a list of
    federally funded projects that the Kennedy Center plans to delay or defer
    and reviewed the Kennedy Center's request for additional funds. To
    determine the Kennedy Center Board of Trustees' responsibilities for
    federally funded capital projects and the extent to which the board
    fulfills these responsibilities, we analyzed various federal laws,
    documents from the Board of Trustees and its Operations Committee,8 and
    the annual updates to the CBP. Specifically, to examine the extent to
    which the board fulfills its responsibilities for federally funded capital
    projects, we reviewed Board of Trustees and Operations Committee
    information packets and meeting minutes from January 1995 through April
    2006 to determine how a variety of capital projects were overseen by the
    board. These projects included, but are not limited to, the Opera House
    renovation, fire alarm system replacement, public space modifications,
    site improvements

    8The Board of Trustees created the Operations Committee to help the board
    carry out its responsibilities for capital projects.

      Page 3 GAO-06-1025 Kennedy Center

    project, and the Family Theater. In addition, we interviewed current and
    previous trustees from the board and congressional staffers that are
    designees of Kennedy Center trustees. We also spoke with Kennedy Center
    management officials about the status of federally funded capital
    projects. To obtain information on how other boards govern, including
    their responsibilities for capital projects and oversight of public funds,
    we interviewed academics that focus on board governance; officials from
    nonprofit board governance associations, and officials from arts
    organizations that have characteristics similar to the Kennedy Center. We
    conducted our work in Los Angeles, California; New York City, New York;
    and Washington, D.C., between October 2005 and August 2006 in accordance
    with generally accepted government auditing standards (see app. I for more
    information on our scope and methodology).

      Results in Brief
    The Kennedy Center has taken steps to implement our oversight, fire
    safety, and capital project recommendations, but more work is needed to
    fully implement them. Since April 2005, the Kennedy Center has fully or
    partially implemented all of our 12 recommendations related to increasing
    oversight of its management of federal funds, better complying with fire
    code, and better aligning its management of capital projects with best
    practices. Specifically:

         o To increase oversight of its management of federal funds, the Kennedy
           Center has implemented our recommendation to work with an independent
           federal government oversight organization, such as the Smithsonian
           Institution Office of the Inspector General (OIG), for audits of the
           center's use of federal funds. In August 2005, the Kennedy Center
           hired a nongovernmental organization to develop a risk assessment and
           audit plan to assist the Kennedy Center Board of Trustees in
           overseeing the center's management of appropriated funds. In July
           2006, the Kennedy Center finalized a memorandum of understanding (MOU)
           with the Smithsonian OIG for audits of federal funds used for capital
           projects. In addition, the Kennedy Center has contracted with a
           nongovernmental organization to implement the portion of the audit
           plan that covers the federal funds used for operations and maintenance
           activities. According to a Kennedy Center management official, the
           Kennedy Center selected a nongovernmental organization to audit the
           federal funds used for operations and maintenance activities because
           this approach was more efficient and cost effective than contracting
           with an independent federal government organization.
              * To better comply with fire safety code, the Kennedy Center has
                implemented two of our five recommendations in this area-to (1)
                obtain a peer review of its performance-based fire-modeling study
                and
                   * manage the storage of combustible materials. In addition,
                     the center has partially implemented three of our fire
                     safety recommendations-to
                   * install exit signs, (2) correct a fire safety deficiency at
                     the Millennium Stages, and (3) ensure that doors in key
                     areas provide adequate separation from fire.
         o To better align its management of capital projects with best
           practices, the Kennedy Center has implemented four of our six
           recommendations-to (1) design and implement contract and project
           management policies and procedures, (2) control cost growth and
           schedule changes in future capital projects, (3) design and implement
           comprehensive financial management polices and procedures, and (4)
           establish and enforce a documents retention policy. However, the
           center has only partially implemented the remaining two capital
           project management recommendations-to (1) develop as-built drawings to
           prevent costly unforeseen site conditions and (2) provide more timely
           and accurate information about capital projects to stakeholders and
           Congress. For example, the Kennedy Center has created a policy that
           requires as-built drawings of new construction improvements to the
           building. However, this policy does not require the center to
           integrate the individual new construction as-built drawings into one
           master set of centerwide drawings, nor does it require as-built
           drawings to be updated as additional changes to the center are made.

    The most recent update of the CBP-the project-by-project plan for the
    comprehensive capital renovation of the Kennedy Center covering fiscal
    years 1995 through 2008-shows that the Kennedy Center will not complete
    all planned capital renovations within planned time frames and budgets.
    Although the 2005 CBP is better than previous versions because it provides
    information needed to evaluate the progress of federally funded capital
    projects, its new project-by-project budget reconciliations fail to show
    how changes in project budgets have affected the overall CBP budget,
    making it difficult to determine the overall impact of the changes on the
    CBP budget through 2008. According to our analysis, these changes will
    raise the cost of implementing the remainder of the CBP (for fiscal years
    2006 through 2008) from $48 million to $58 million-a 21 percent increase
    over the 2004 CBP. To improve information to Congress and the Kennedy
    Center Board of Trustees, we are recommending that the Kennedy Center
    identify in the CBP the impact of changes to individual project budgets on
    the plan's overall budget. The 2005 CBP further shows that the Family
    Theater was completed on schedule in 2005 with limited cost growth, unlike
    four federally funded capital projects that we reviewed in April 2005.
    According to our analysis, the Kennedy Center improved some of its
    contracting practices in completing the Family Theater project, but did
    not comply with the Federal Acquisition Regulation (FAR) in selecting its
    contracting method. In addition, the Kennedy Center authorized contractor
    work to begin on the Family Theater before establishing a guaranteed
    maximum price for the overall project. Consequently, had any cost
    increases occurred during construction, the Kennedy Center may have been
    obligated to pay for them. To comply with the FAR and prevent exposure to
    cost increases during construction, we are recommending that the center
    comply with the FAR provision regarding alternate contracting methods and
    ensure that contracting costs are agreed to before work begins on the
    project. The 2005 CBP also shows that the Eisenhower Theater renovations
    are scheduled to begin in fiscal year 2007, but may be delayed. Most
    terrace-level renovations will not be completed by 2008, even though they
    were originally scheduled for fiscal years 2000 through 2005. Finally, in
    addition to the changes identified in the 2005 CBP, more budget increases
    and project deferrals will be necessary before fiscal year 2008, according
    to Kennedy Center management officials. As a result, the Kennedy Center is
    seeking to extend the plan's period of implementation from 2008 to 2012.

    The Kennedy Center Board of Trustees has delegated to management its
    responsibilities for federally funded capital projects, as is typical for
    governing boards; however, it has provided limited oversight for these
    projects. Under the Kennedy Center Act, the Kennedy Center Board of
    Trustees is responsible for developing and annually updating the CBP;
    planning, designing, and constructing capital projects; and preparing a
    budget. Although management performs these responsibilities, the board has
    provided limited oversight of the about $121 million appropriated to the
    center for capital projects since 2000. For example, for 2000 through
    2005, we found no evidence that the board had approved the annual updates
    to the CBP, reviewed management's performance in implementing capital
    projects, or approved the center's proposed federal appropriation request,
    which includes funding for capital projects. These actions are all
    required by the board's policies and procedures manual. We also found that
    the Operations Committee, which the board created to help it carry out its
    responsibilities for capital projects, receives the annual updates to the
    CBP after the center's annual capital project budget is finalized,
    limiting the board's ability to ensure that the federally funded capital
    projects proposed in the CBP are in accordance with the requirements of
    the Kennedy Center Act.

    According to our analysis, several factors limit the board's oversight of
    federally funded capital projects. First, the Kennedy Center Board of
    Trustees lacks procedures on how the board and its Operations Committee
    are to carry out the board's responsibilities for federally funded capital
    projects. Second, attendance at meetings of the Kennedy Center Board of
    Trustees and its Operations Committee has been low, and extended periods
    of time have elapsed between meetings of the Operations Committee. Since
    most of the board's responsibilities are carried out at board and
    committee meetings, it is important for the board and its committees to
    hold regular meetings and for board members to attend these meetings.
    Lastly, the board and its Operations Committee lack information needed to
    monitor and evaluate whether all federally funded capital projects have
    been implemented efficiently and in accordance with the requirements in
    the Kennedy Center Act. Without information on original budgeted costs,
    the board and Operations Committee cannot hold management accountable for
    the implementation of federally funded capital projects.

    The board's lack of oversight may have contributed to the Kennedy Center's
    problems keeping federally funded capital projects within budget
    estimates-we found in 2005 that several of the Kennedy Center's largest
    federally funded capital projects exceeded budget estimates by amounts
    ranging from 13 to 50 percent. To strengthen the role of the Kennedy
    Center Board of Trustees', we are recommending that the board develop and
    implement procedures on how it is to carry out its responsibilities for
    federally funded capital projects and ensure that it receives information
    on how federal funds have been used for capital projects.

    We provided a draft of this report to the Kennedy Center for review and
    comment. In written comments on the draft report, the Kennedy Center
    generally agreed with our findings and two of our three recommendations.
    Specifically, the Kennedy Center agreed to (1) improve the CBP in several
    areas and (2) review and revise, if necessary, procedures on how the
    Operations Committee is to carry out its responsibilities and to provide
    the CBP to the Operations Committee in a more timely fashion. The Kennedy
    Center disagreed with our recommendation that it improve compliance with
    the FAR provision regarding alternative contracting methods and that it
    establish the guaranteed maximum government price for a capital project
    before proceeding with construction. We disagree with the Kennedy Center's
    assessment because we continue to believe that construction manager at
    risk is not covered by the FAR and that establishing a guaranteed maximum
    price prior to proceeding with work limits the government's risk of cost
    overruns. Therefore, we are retaining the recommendation. See appendix III
    for the Kennedy Center's comments and our responses.

      Background

    The Kennedy Center opened in 1971 and is located on 17 acres along the
    Potomac River in Washington, D.C. The center houses numerous theater,
    exhibition, and rehearsal spaces; public halls; educational facilities;
    offices; and meeting rooms in about 1.1 million square feet of space. The
    plaza level is the primary focus for patrons and tourists, including three
    main theaters, the Grand Foyer, the Hall of States, and the Hall of
    Nations. Access to other areas, such as the roof terrace level, is
    provided through the Grand Foyer, Hall of States, and Hall of Nations.
    Figure 1 provides a diagram of the Kennedy Center's plaza level.

    Figure 1: Diagram of the Kennedy Center's Plaza-Level Public Spaces and Theaters

    Potomac River

    Sources: Kennedy Center (data) and GAO (photos).

    The National Cultural Center Act of 1958 established the National Cultural
    Center as a bureau within the Smithsonian Institution and created a board
    responsible for constructing and administering the nation's performing
    arts center. The John F. Kennedy Center Act of 1964 renamed the National
    Cultural Center as the John F. Kennedy Center for the Performing Arts. The
    Kennedy Center is also a nonprofit organization with the authority to
    solicit and accept gifts. In 1972, Congress authorized the National Park
    Service to provide maintenance, security, and other services necessary to
    maintain the building, while making the Kennedy Center Board of Trustees
    responsible for performing arts activities at the Kennedy Center. Under
    this arrangement, the Kennedy Center facility incurred a backlog of
    capital repairs, in part because responsibility for identifying and
    completing capital repairs and improvements at the center was unclear.
    Legislation was enacted in 1990 that directed the National Park Service
    and the Board of Trustees to enter into a cooperative agreement clarifying
    their responsibilities for the maintenance, repair, and alteration of the
    center, but the parties were unable to reach an agreement. In 1994,
    legislation was enacted that gave the Board of Trustees sole
    responsibility for carrying out capital improvements at the Kennedy
    Center. One purpose of the 1994 legislation was to provide autonomy for
    the overall management of the Kennedy Center, including better control
    over its capital projects, and to renovate the center.

    Under the Kennedy Center Act, the Kennedy Center Board of Trustees
    currently consists of 59 trustees: 23 are ex officio trustees, appointed
    by virtue of the office or position they hold, including congressional
    members, and 36 are general trustees appointed by the President of the
    United States. Each presidentially appointed trustee serves a term of 6
    years. As the center's chief decision-making body, the Kennedy Center
    Board of Trustees is responsible for maintaining the Kennedy Center as a
    living memorial to President John F. Kennedy and executing other functions
    required of the board under the act. The Kennedy Center Act requires the
    Board of Trustees to develop and annually update a CBP; plan, design and
    construct each capital project at the center; and prepare a budget. The
    board's policies and procedures manual, which includes the board's bylaws,
    states that board responsibilities include approving the annual CBP
    updates, reviewing management's performance in implementing capital
    projects, and reviewing and approving the center's annual capital project
    budget. The Kennedy Center Board of Trustees has a number of standing
    committees, including Executive, Audit, Finance, and Operations committees
    to assist with the board's work. The Operations Committee is responsible
    for overseeing the general operations of the center, as well as all
    capital projects. Figure 2 shows the organization of the Kennedy Center,
    which includes the Board of Trustees and the center's management structure
    as it applies to capital projects.

    Figure 2: Organization of the Kennedy Center for Selected Positions and
    Offices

                      Source: GAO analysis of Kennedy Center data.

    As part of its responsibility under the 1994 legislation, the center
    published its first CBP in 1995, describing the goals of a long-term
    renovation effort, including addressing fire safety and disabled access
    code deficiencies, replacing inefficient building systems, and improving
    visitor services. This original building plan anticipated that the
    proposed capital projects would be completed in two stages. Projects in
    the first stage-fiscal years 1995 through 1999-would address critical
    security and life safety measures and improve accessibility. Projects
    undertaken in the second stage-fiscal years 2000 through 20099-would
    eliminate the backlog of deferred capital repair projects. In 1995, the
    Kennedy Center anticipated undertaking critical fire safety projects by
    the end of fiscal year 1999. However, to minimize disruption to
    performances, the Kennedy Center changed its approach to making capital
    improvements. Rather than undertaking broadscale projects that could
    disrupt the entire center, the Kennedy Center chose to renovate the center
    incrementally while keeping the rest of the center open and operating.

    The center receives annual federal appropriations for capital projects
    based on the CBP and also for the operation, maintenance, and security of
    the facility. The funds appropriated for capital projects remain available
    to the Kennedy Center until they are expended. To implement its CBP, the
    Kennedy Center has received about $216 million since fiscal year 1995.
    This includes $35.3 million transferred from the National Park Service and
    the Smithsonian Institution and about $180.5 million in appropriated
    funds. In fiscal year 2006, the Kennedy Center received $13 million in
    federal funds for capital improvement projects and $17.8 million for the
    operation, maintenance, and security of the facility.10 According to a
    Kennedy Center official, this amount represents about 18 percent of the
    Kennedy Center's

    9The 2002 building plan shows projects being completed in fiscal year
    2008.

    10The Kennedy Center's appropriation for fiscal year 2006 is contained in
    the Department of the Interior, Environment, and Related Agencies
    Appropriations Act, P.L. 109-54, 119 Stat. 499, 546 (2005). P. L. 109-54
    appropriated to the Kennedy Center $13 million for capital improvements
    and $17.8 million for operations and maintenance. However two rescissions
    for fiscal year 2006 will affect the final amounts that the Kennedy Center
    will receive for capital improvements and for operations and maintenance.
    Section 439 of P.L. 109-54, 119 Stat. 499, 559 (2005) provided for an
    across-the-board rescission of 0.476 percent of the budget authority
    provided for fiscal year 2006 for any discretionary appropriation in the
    act, which would include the Kennedy Center appropriation. The second
    rescission is an across-the-board rescission of budget authority equal to
    1 percent for most agencies in any other fiscal year appropriation act,
    which also includes the Kennedy Center. See Department of Defense,
    Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of
    Mexico, and Pandemic Influenza Act, 2006, P.L. 109-148, 119 Stat. 2680,
    2791 (2005).

    anticipated fiscal year 2006 total operating expenses. The Kennedy Center
    generates the majority of its revenues from performances at the center,
    contributions, and investments. The center's federal appropriations are
    not used for performance-related expenses.

    The law governing facility construction or alteration at the Kennedy
    Center requires that the center be in compliance with nationally
    recognized model building codes and other applicable nationally recognized
    fire safety codes to the maximum extent feasible.11 As is the case for
    federal agencies, the Kennedy Center is the authority that makes the final
    determination on whether the center is complying with the fire safety
    code.12 The Kennedy Center policy on building codes states that, where
    feasible, the center will comply with the International Building Code
    (2003), International Fire Code (2003), and selected provisions of the
    National Fire Prevention Association Life Safety Code (NFPA 101) (2003).

    The John F. Kennedy Center Act Amendments of 1994 amended the Kennedy
    Center Act to designate the center as a federal entity for purposes of the
    Inspector General Act of 1978 (IG Act), as amended. The Kennedy Center Act
    states that only federally appropriated funds are subject to the
    requirements of a federal entity under the IG Act. The Kennedy Center Act
    authorizes the Smithsonian Institution OIG to audit and investigate
    activities of the Kennedy Center involving federal appropriated funds, on
    a reimbursable basis, if requested by the Board of Trustees. In July 2006,
    the Kennedy Center finalized an MOU with the Smithsonian OIG for audits of
    federal funds used for capital projects.

    1140 U.S.C. S:3312. 12Under certain laws, the Kennedy Center is treated as
    a federal agency.

    Page 13 GAO-06-1025 Kennedy Center

      The Kennedy Center Has Taken Steps to Implement Our Oversight, Fire Safety,
      and Capital Project Recommendations, but More Work Remains

    Recently, we recommended that the Kennedy Center increase oversight of its
    management of federal funds, ensure the fire safety of the center, and
    better align its management of capital projects with best practices.13
    While the Kennedy Center has fully or partially implemented all 12 of our
    recommendations, more work is needed to fully implement some
    recommendations in the areas of fire safety and management of capital
    projects. In particular, the Kennedy Center has taken steps to (1) address
    fire code deficiencies at the Millennium Stages, such as providing marked
    exit routes for occupants; (2) ensure that doors in key areas provide
    adequate separation from fire; (3) develop as-built drawings of the
    center; and (4) provide timely and accurate information about capital
    projects to stakeholders (see fig. 3).

    13 GAO-05-334.

        Figure 3: Kennedy Center's Progress in Implementing Our Recommendations

                                      Source: GAO.

        The Kennedy Center Has Contracted for Audits of Its Management of Federal
        Fund Expenditures

    In April 2005, we reported that the Kennedy Center had limited external
    reviews of how it maintains assurance regarding appropriate management of
    federal funds. Specifically, we found that the costs of four federally
    funded Kennedy Center capital projects exceeded the original budgeted
    costs and that a lack of comprehensive policies and procedures limited the
    Kennedy Center's ability to adequately manage federal funds. In addition,
    in April 2005, we reported that the Kennedy Center had not reported
    annually to Congress and the Office of Management and Budget (OMB) on its
    audit and investigative activities as required by the IG Act.14 To
    increase oversight of the Kennedy Center's management of federal funds, we
    recommended in April 2005 that the Kennedy Center work with an independent
    federal government oversight organization, such as the Smithsonian
    Institution OIG, for audits of the center's use of federal funds.15

    In response to our recommendation, the Kennedy Center hired a
    nongovernmental organization in August 2005 to develop a risk assessment
    and audit plan to assist the Kennedy Center Board of Trustees in its
    oversight of the center's management of federal funds. Specifically, the
    risk assessment and audit plan were created for the Facilities Management
    Office (FMO) and Project Management Office (PMO) because the Kennedy
    Center receives federal funds to support the activities of both offices.
    FMO manages operations, maintenance, and contracting, and PMO is one of
    three offices that conduct capital projects for the center.16 The risk
    assessment was designed to provide a summary of the center's potential
    risks for facilities and project management, including the specific risks
    the

    14See IG Act of 1978, as amended, 5 U.S.C. S: app. 3, section 8G, and 2005
    and 2006 List of Designated Federal Entities and Federal Entities, at 71
    Fed. Reg. 24872 (Apr. 27, 2006).

    15The Kennedy Center Act provides that only federally appropriated funds
    are subject to the requirements for a federal entity under the IG Act of
    1978 (5 U.S.C. App. 3). As a federal entity, the Kennedy Center is not
    required to establish an OIG; however, the center is required to report
    annually to Congress and OMB on its audit and investigative activities
    (See IG Act of 1978, as amended, 5 U.S.C. S: app. 3, section 8G, and 2005
    and 2006 List of Designated Federal Entities and Federal Entities, at 71
    Fed. Reg. 24872 (Apr. 27, 2006)). The Kennedy Center Act authorizes the
    Kennedy Center to request the Smithsonian OIG to conduct audits related to
    the expenditure of federal funds on a reimbursable basis (20

    U.S.C. S:76l(d)).

    16The Kennedy Center conducts capital projects primarily through three
    offices-Project Management, Contracts, and Finance. The Contracts Office
    is under the Facilities Management Office and negotiates, enters into, and
    manages procurements of products and services, including those related to
    capital projects.

    center faces in its use of federal funds. One such risk identified for
    project management is that capital projects could incur cost and time
    overruns if the project budget or schedule does not sufficiently allow for
    contingencies. The nongovernmental organization also prepared an audit
    plan, which was based on the center's potential facilities and project
    management risks. This audit plan was designed to address the key risk
    issues identified in the risk assessment and provide a strategy for
    another organization to review each risk. For example, to address the
    potential for cost and schedule overruns, an audit of the center's project
    management process was proposed.

    On May 16, 2006, the Kennedy Center awarded a contract to a
    nongovernmental organization to implement the audit plans for FMO
    activities. A Kennedy Center official told us that the nongovernmental
    organization began the FMO audit work several days after the contract was
    awarded. On July 25, 2006, the Kennedy Center finalized an MOU for the
    Smithsonian Institution OIG to conduct audits, on a reimbursable basis, of
    PMO activities. Specifically, the Smithsonian Institution OIG will conduct
    two audits on aspects of the center's capital project management process.
    The Smithsonian OIG expects that these two audits will take about 1 year.
    In addition, the Smithsonian Institution OIG will submit proposals to the
    Kennedy Center Board of Trustees for subsequent audit coverage. As we
    reported in April 2005, ongoing oversight of the center's use of federal
    funds is necessary to maintain assurance that they are managed
    appropriately. Therefore, to ensure ongoing oversight of the center's use
    of federal funds, it is important that the board examine and pursue future
    audit proposals from the Smithsonian OIG.

    The Kennedy Center Has Taken Some Steps to Implement Our Fire Safety
    Recommendations, but More Work Is Needed

    In April 2005, we reported that the Kennedy Center did not appear to meet
    some fire safety code requirements. Specifically, we identified problems
    with the performance-based approach the center used to overcome a
    deficiency in the number of emergency exits at the center,17 and we
    identified other code deficiencies in the center that were not covered by
    the performance-based approach. First, we found that the Kennedy Center
    had not fully implemented the conditions associated with its
    performancebased approach, which included installing sprinklers at the
    Millennium

    17Fire code allows an entity to provide an alternative to complying
    directly with fire code. This alternative, which allows people to exit the
    building safely in case of fire, is called a performance-based approach.

    Page 17 GAO-06-1025 Kennedy Center

    Stages and developing and implementing a program to manage the storage of
    scenery, props, and other combustible materials. In addition, the Board of
    Trustees had not accepted and adopted the terms of the performancebased
    approach as described in fire code. Since these steps had not been taken,
    we concluded that the performance-based approach was not yet valid for
    satisfying fire code. We also found that the fire-modeling study, on which
    the Kennedy Center's performance-based approach was based, had not
    undergone a peer review. Peer review of modeling studies is a common
    industry practice outlined in fire code. In addition, we concluded that a
    peer review was particularly important for the Kennedy Center because the
    center lacked sufficient on-staff expertise to adequately interpret and
    evaluate the modeling study, and the Kennedy Center's fire safety
    decisions were not subject to external review. Other fire code
    deficiencies remained to be addressed. For example, we found that there
    were no fire-rated doors in some areas that contain key emergency systems,
    and the Millennium Stages did not have two different, marked exit routes
    for occupants or an integrated smoke control, sprinkler, and smoke
    detector system over the stage area, as required by fire code. As a
    result, we recommended that the Kennedy Center improve its compliance with
    applicable fire codes in a number of ways (see fig. 4).

    Figure 4: Kennedy Center's Progress in Implementing Our Fire Safety
    Recommendations

    Category         Recommendation                                  Status
         Fire safety    Seek peer review by a knowledgeable third party
                        of the egressand fire-modeling study.
                        Implement fire-modeling peer review
                        recommendations, including marked exit routes
                        for occupantsat the Millennium Stages.
                        Develop and implement a program to manage the
                        storage of combustible materials.
                        Install asmoke control system that is
                        integrated with asprinkler system and smoke
                        detectorsover the Millennium Stages.
                        Ensure that doors in key areas provide adequate
                        separation from fire.
    Recommendation hasbeen implemented. Steps have been taken to implement the
    recommendation, but more work is needed. Recommendation has not been
    implemented.

    Source: GAO.

            * The Kennedy Center has implemented our recommendation to obtain a
              peer review of its fire-modeling study. In April 2005, we
              recommended that the Kennedy Center seek a peer review of its
              firemodeling study of the Grand Foyer, Hall of States, and Hall of
              Nations to determine if the study could be substituted for certain
              prescriptive fire code solutions. In July 2005, the Kennedy Center
              initiated two separate peer reviews, one with GSA and another with
              a nongovernmental fire protection consultant firm. Both peer
              reviews provided comments and expressed concerns about the
              assumptions used in the center's study. In response to the peer
              reviewers' comments and concerns, the Kennedy Center improved and
              updated its fire-modeling study, which was finalized in March 2006.
              The revised, peer-reviewed modeling study concludes that patrons
              can exit the Kennedy Center before it becomes untenable provided
              that (1) fire protection from the Lower Gift Shop is provided and
              (2) exit signs are installed in the Grand Foyer, Hall of States,
              and Hall of Nations. The Kennedy Center Board of Trustees is the
              authority responsible for determining if a performance-based design
              meets its objectives, as described in fire code. The Chairman of
              the
            * Kennedy Center Board of Trustees stated that after the updated
              study is finalized, the board will determine if it meets design
              objectives and then will formally accept the study and adopt its
              terms. Although the updated study was finalized in March 2006, the
              Board of Trustees has yet to formally accept the study and adopt
              its terms. The board's approval of the assumptions and conditions
              of the updated study is the final step in fully implementing our
              recommendation.
         o The Kennedy Center has implemented our recommendation to manage the
           storage of combustible materials. In April 2005, we recommended that
           the Kennedy Center meet the objectives of its performance-based study
           by developing and implementing a program to manage the storage of
           scenery, props, and other combustible materials. In April 2005, the
           Kennedy Center developed and implemented a policy to manage fuel load
           by limiting the storage of scenery, stage props, and other combustible
           materials. To implement this policy, a Kennedy Center official
           conducts compliance inspections using a fire and life-safety checklist
           prior to each new show.
         o The Kennedy Center has taken steps to implement our recommendation to
           address the code deficiencies at the Millennium Stages. In April 2005,
           we recommended that the Kennedy Center, in accordance with fire code,
           install an integrated smoke control, sprinkler, and smoke detector
           system over each Millennium Stage area and provide two different,
           marked exit routes for occupants at each Millennium Stage. The Kennedy
           Center believes the Millennium Stages have sufficient fire protection
           systems in place based on the results of its performance model. The
           revised, peer-reviewed modeling study concludes that smoke exhaust and
           sprinkler protection are not needed for the Millennium Stages provided
           the conditions of the revised modeling study are met. The Kennedy
           Center plans to adequately separate the Lower Gift Shop and the
           plaza-level public spaces as part of its life-safety improvements by
           spring 2007. Second, a Kennedy Center official said that exit signage
           is temporarily installed to mark the interior exit path during
           Millennium Stage performances and that the center plans to begin
           installing exit signs on the external doors in the Grand Foyer by the
           end of September 2006 (see fig. 5). Once the two conditions of the
           revised modeling study have been met, the Kennedy Center will have
           fully implemented our recommendation.

    Figure 5: Location of Exit Signage at the Millennium Stages

                                                                    Potomac River
            Millennium Stage       Grand Foyer
                 Concert                            Hall o                  Opera
                  Hall             f Nations                                House
               Stage area

    Sources: Kennedy Center; GAO.

    o  The Kennedy Center has taken some steps to implement our recommendation
    to ensure that doors in key areas provide adequate separation from fire.
    In April 2005, we recommended that the Kennedy Center comply with fire
    safety code by ensuring that fire-rated doors are installed in key areas
    to provide adequate separation from fire. In March and May 2006, the
    Kennedy Center had a fire protection inspector assess the fire rating of
    the doors in the fire pump room, Fire Command Center and Concert Hall
    exits. The fire protection inspector found that these doors needed some
    repairs in order to obtain the fire-rating label. In response, the Kennedy
    Center repaired the doors in the fire pump room and Fire Command Center
    and, therefore, the fire protection inspector was able to certify that
    these doors provide adequate separation from
    fire. In addition, the Kennedy Center is making the necessary repairs to
    the doors at the Concert Hall exits to ensure that they provide adequate
    separation from fire. A Kennedy Center official stated that he plans to
    have the Concert Hall exit doors repaired, inspected, and labeled as
    firerated by the end of December 2006. Once the Concert Hall exit doors
    have been repaired, inspected, and labeled as fire-rated, the Kennedy
    Center will have fully implemented our recommendation.

        The Kennedy Center Has Taken Some Steps to Implement Best Practices to
        Improve Its Capital Project Management, but More Work Is Needed

    In April 2005, we reported that although the Kennedy Center achieved its
    goal of renovating four key federally funded capital projects, costs
    exceeded budget estimates for each project. Project cost growth resulted
    from modifications made during the renovation process, in part, because
    the Kennedy Center lacked knowledge of the building's site conditions.
    Modifications led to overtime charges paid to meet tight construction
    schedules. In addition, the center may have paid more than necessary by
    negotiating contract modification values after work was completed. A lack
    of comprehensive policies and procedures limited the Kennedy Center's
    ability to adequately safeguard federal funds. In addition, the Kennedy
    Center did not always communicate timely or accurate information on
    project cost growth and schedule delays to its board or Congress. In April
    2005, we made several recommendations to better align the Kennedy Center's
    capital project management with best practices (see fig. 6).

    Figure 6: Kennedy Center's Progress in Implementing Our Recommendations to
    Better Align Its Capital Project Management with Best Practices

    Category                 Recommendation                             Status
    Management of capital    Design and implement comprehensive
    projects                 contract and project management
                                policiesand procedures.
                                Take steps to control cost growth and
                                schedule changes in future capital
                                projects.
                                Design and implement comprehensive
                                financial policiesand procedures to
                                addressseveral specific areas.
                                Establish and enforce a documents
                                retention policy that allows for
                                accountability of the Kennedy Center's
                                federal funds.
                                Develop as-built drawingsand better track
                                changes to the center.
                                Provide more timely and accurate
                                information about capital projects to
                                stakeholders.
    Recommendation hasbeen implemented. Steps have been taken to implement the
    recommendation, but more work is needed. Recommendation has not been
    implemented.

    Source: GAO.

         o The Kennedy Center has implemented our recommendation to design and
           implement contract and project management policies and procedures in
           accordance with prescribed federal guidance. In January 2006, the
           Kennedy Center designed and implemented contract and project
           management policies and procedures to guide various activities related
           to the acquisition of goods and services for its capital improvements
           program. The contract and project policies and procedures were drawn
           from the FAR, which generally applies to federal contracting
           activities. We did not assess the effectiveness of these policies and
           procedures because they were recently implemented.
         o The Kennedy Center has implemented our recommendation to control cost
           growth and schedule changes in the Family Theater by setting more
           flexible construction schedules and improving its management of
           contract modifications. In February 2006, the Kennedy Center
           implemented a contract and project management policy that requires
           contract modification values to be negotiated before work is
           completed.

    For this report, we performed a limited assessment of the center's
    implementation of this policy based on a review of some Family Theater
    contract modifications. We found that the Family Theater was completed on
    schedule and with limited cost growth. In particular, contractors did not
    proceed with additional work until it was approved by the contracting
    officer, and overtime was not paid to accelerate the schedule. The Kennedy
    Center's progress in setting more flexible schedules and improving its
    management of contract modifications on larger federally funded projects,
    such as the Eisenhower Theater, will better indicate whether the center
    can effectively control cost growth and schedule changes. The Kennedy
    Center estimates that the construction period for this project will be
    from spring 2007 through summer 2008.

    o  The Kennedy Center has implemented our recommendation to design and
    implement financial policies and procedures to strengthen financial
    management controls in several specific areas (see fig. 7). In January
    2006, the Kennedy Center designed and implemented financial policies and
    procedures for activities funded by federal appropriations. The financial
    policies and procedures were drawn from various laws and regulations,
    including the FAR. Our analysis found that the Kennedy Center has
    implemented our recommendations to ensure that complete, up-to-date costs
    are recognized and used to prepare financial reports and that payments to
    other federal agencies are consistent with the Economy Act agreement.18 In
    addition, the Kennedy Center implemented a procedure to ensure that
    receipt information is recorded and compared with field inspection reports
    to verify the validity of invoices prior to payment. The Kennedy Center
    also developed and effectively implemented new policies and procedures to
    ensure that (1) invoices contain sufficient detail to support their
    accuracy and validity and (2) invoices match with inspection reports and
    previously paid invoices to prevent duplicate payments. A more detailed
    discussion of our analysis of the Kennedy Center's implementation of its
    financial policies and procedures can be found in appendix II.

    1831 U.S.C. S:S:1535 and 1536.

    Figure 7: The Kennedy Center's Full Implementation of Financial Policies
    and Procedures in Several Specific Areas

    Source: GAO.

         o The Kennedy Center has implemented our recommendation to establish and
           enforce a documents retention policy that allows for accountability of
           the center's federal funds. In June 2006, the Kennedy Center
           established and enforced a documents retention policy and issued a
           procedures manual for federal and nonfederal documents based on
           guidance from several sources, including the Internal Revenue Service,
           NARA, and the Smithsonian Institution. In conjunction with this
           manual, the center developed and implemented a computerized system to
           assist in the storage, retrieval, and destruction of all records.
              * The Kennedy Center has taken some steps to implement our
                recommendation to better develop as-built drawings and better
                track future changes to the center. In January 2006, the Kennedy
                Center created a project management policy that requires as-built
                drawings of any new construction improvements to the building.
                As-built drawings of the new construction will allow the center
                to better track future
              * changes to these areas. However, this policy does not require the
                center to integrate the individual new construction as-built
                drawings into one master set of centerwide drawings nor does it
                require updating as-built drawings as additional changes to the
                center are made. A Kennedy Center official told us that the
                center agrees that as-built drawings of the entire center are
                needed to prevent costly unforeseen site conditions; however,
                assembling and updating a master set of as-built drawings is
                expensive and not a Kennedy Center priority. Nevertheless, since
                incomplete knowledge of site conditions has contributed to cost
                overruns in the past, it remains important for the Kennedy Center
                to start assembling and consistently updating a comprehensive set
                of asbuilt drawings of the entire center.
         o The Kennedy Center has taken some steps to implement our
           recommendation to provide timely and accurate information about
           capital projects by detailing their budget, scope, and cost and
           providing to stakeholders an annual reconciliation of the status of
           all planned, delayed, eliminated, and actual projects. We found that
           the 2005 CBP is better than previous versions because it includes the
           details of, and explanations for, project budget changes since the
           2004 CBP. The 2005 CBP also includes the actual and projected
           obligations for each capital project by fiscal year through 2008, the
           last year of the CBP. Figure 8 illustrates how the Kennedy Center's
           2005 CBP conveys actual and projected obligations for the Eisenhower
           Theater for this period. These actions are responsive to our
           recommendation that the Kennedy Center provide more timely and
           accurate information to Congress and the Board of Trustees on the
           status of all planned and actual projects.

    Figure 8: Excerpt from The Kennedy Center's 2005 CBP Showing Eisenhower
    Theater Budget Changes from the 2004 CBP and Projected Obligations, in
    Dollars

    Source: Kennedy Center.

    Note: The Kennedy Center's 2005 CBP section titled "Eisenhower Theater
    Renovation: Comparison with Previous CBP" does not show that the numbers
    indicate dollars.

    In some instances, we found that the 2005 CBP did not provide timely or
    accurate information about federally funded capital projects. First, the
    2005 CBP does not include original budgets for several federally funded
    projects, which would be needed to compare actual costs with originally
    budgeted costs to identify project cost overruns. Without this
    information, the Kennedy Center Board of Trustees and Congress lack
    accurate information to monitor and evaluate whether federally funded
    capital projects have been implemented effectively and efficiently.
    Second, the 2005 CBP remains unnecessarily difficult to understand.
    Specifically, it describes its capital renovation efforts in two different
    sections of the report. The first section provides an assessment of the
    different parts of the center and makes recommendations for improvement,
    and the second section lays out specific CBP capital projects and budgets.
    However, there is no crosswalk between the recommendations and the
    federally funded capital projects, making it difficult to identify how, or
    if, each project addresses specific facility issues. For example, although
    the 2005 CBP establishes a project numbering system, it does not use the
    numbering system in the other sections of the report to link specific
    projects to the issues discussed, making it difficult to understand how
    each project addresses these issues.

    In addition, the center has not provided accurate or timely information to
    the Kennedy Center Board of Trustees or OMB about the cost of federally
    funded capital projects. The Kennedy Center sends monthly reports to OMB
    that provide detailed information, project by project, on budgets and
    schedules. However, we identified eight capital project budgets in the
    December 2005 OMB reports that do not match the capital project budgets in
    the most recent CBP, which was finalized in December 2005. For example,
    the most recent CBP shows that the total projected obligations for the
    Eisenhower Theater are about $15.8 million, whereas the OMB report lists
    the project budget at about $16.8 million. While one of these two budget
    figures may be accurate, it is impossible for stakeholders to know which
    is accurate because the publication date for both is the same, December
    2005.

      The Kennedy Center Will Not Complete All Planned Capital Renovations within
      CBP Budgets and Time Frames

    The Kennedy Center's 2005 CBP indicates that the center will need
    additional budget resources to complete the federally funded projects
    remaining in its CBP and that the terrace-level renovations will be
    deferred until after the CBP ends in 2008. However, the 2005 CBP fails to
    calculate the sum of individual project cost changes, making it difficult
    to determine the overall impact of these changes. We found that the total
    budget for the 22 planned, ongoing, or recently completed projects in the
    2005 CBP has increased by $10 million, or 21 percent, since 2004, bringing
    the total cost of the remaining CBP projects to $58 million. The 2005 CBP
    indicates that the Kennedy Center completed the Family Theater renovation
    on schedule in 2005 with limited cost growth and plans to begin renovating
    the Eisenhower Theater in 2007. However, the 2005 CBP also indicates that
    Kennedy Center deferred most terrace-level renovations that had originally
    been planned for the CBP, including renovations to the Terrace Theater,
    Theater Lab, States and Nations Galleries, and Atrium. In addition, the
    Kennedy Center has acknowledged, since the 2005 CBP was issued, that more
    budget increases and project deferrals may be necessary before the CBP is
    scheduled to end in 2008.

        Estimated Costs for Remaining CBP Projects Have Increased by $10 Million, or
        21 Percent, Since 2004

    In accordance with our April 2005 recommendation, the 2005 CBP now
    reconciles the budget changes from the 2004 CBP to the 2005 CBP for the 22
    planned, ongoing, or recently completed projects in the CBP, allowing
    readers to more easily track budget changes for individual projects.19
    However, these new reconciliations fail to calculate the sum of individual
    project changes, making it difficult to determine their overall impact on
    the CBP budget through 2008. Our analysis shows that the cost of the
    remaining CBP has increased about $10 million, or 21 percent, since 2004,
    bringing the total cost of the remainder of the CBP from about $48 million
    to $58 million for fiscal years 2006 through 2008.20 Although the budgets
    for a number of projects have changed since the 2004 CBP, our analysis
    shows that the net increase of about $10 million was generally
    attributable to large increases in the following five projects:

    19However, as we previously noted, it is impossible to identify how some
    project budgets have shifted without original budgets.

    20The $10 million increase includes about $2.5 million in cost growth for
    projects in fiscal year 2005.

    Page 29 GAO-06-1025 Kennedy Center

         o The Site Improvements project budget increased by $4.2 million, or 71
           percent, from the 2004 CBP. The 2005 CBP indicated that the Kennedy
           Center needed additional funds to address unforeseen site conditions,
           construction problems, and outstanding contractor claims. Although not
           detailed in the 2005 CBP, outstanding contractor claims on the Site
           Improvements project may cost millions of dollars in federal funds to
           settle, according to a Kennedy Center official. The project includes
           improvements to the service tunnel, plaza, west fascia and safety
           railing, garage, and the streets surrounding the Kennedy Center.
         o The Toilet Room Renovation project budget increased by $2.3 million,
           or 94 percent, from the 2004 CBP. The 2005 CBP indicated that the
           Kennedy Center had expected the project to proceed several years
           earlier than currently scheduled, the planned project costs have since
           escalated, and further increases are anticipated. This project will
           focus on upgrading the toilet rooms throughout the center, including
           finishes, equipment, and flooring of toilet rooms throughout the
           center.
         o The Level A Back-of-House Renovations project budget increased by $2
           million, or 97 percent, from the 2004 CBP. According to the 2005 CBP,
           the budget increased because work was rescheduled to coincide with
           related renovation efforts, such as theater renovations, and changed
           market conditions. This project's goal is to renovate offices,
           training rooms, locker rooms, backstage areas, dressing rooms,
           wardrobe areas, and other miscellaneous nonpublic spaces.
         o The Curtain Wall/Door Replacement project budget increased by $1.5
           million, or 28 percent, from the 2004 CBP. The 2005 CBP indicated that
           the budget grew because of project deferrals, market conditions, and
           extremely high inflation in recent construction costs. This project
           will replace the acoustical glazing on the curtain (nonweight bearing)
           walls for the west plaza level, hall entrances, and roof
           terrace-level.
         o The Hazardous Materials Abatement project budget increased by about
           $900,000, or 72 percent, from the 2004 CBP. The 2005 CBP indicated
           that the budget increase was due to the asbestos abatement associated
           with the Eisenhower Theater project. Originally, the Kennedy Center
           planned to leave the asbestos undisturbed and unabated, but later
           decided to remove it. The 2005 CBP indicates that the scope of the
           project increased when planning for the Eisenhower Theater revealed a
           greater need for abatement than was previously anticipated.

        Most Plaza-Level Renovations Have Been Completed, but the Eisenhower Theater
        Renovation Is Still in the Planning Stage

    According to the 2005 CBP, the Kennedy Center still plans to complete
    renovations to the major performance and public spaces located on the
    plaza level within the CBP time frame. The plaza level includes
    interpretive displays about John F. Kennedy and the Kennedy Center and
    consists primarily of four theaters-the Opera House, Concert Hall,
    Eisenhower Theater, and Family Theater (formerly the AFI Theater)-and of
    three main public spaces-the Grand Foyer, Hall of States, and Hall of
    Nations. We reported in 2005 that the Kennedy Center had completed
    renovations to the Concert Hall, Opera House, and plaza-level public
    spaces but that the projects all experienced cost growth because of
    management and construction problems.21

    The 2005 CBP indicates that the conversion of the AFI Theater into the
    Family Theater was completed in 2005, within established time frames and
    with limited cost growth (see fig. 9). The cost of the project was about
    $9.1 million-an amount that included cost growth, due to change orders,
    that was within the amount allocated for contingency. With seating for 320
    people, the Family Theater renovation project was smaller in scale than
    other theaters on the plaza level. Kennedy Center management officials
    said that the lower grade finishes of the AFI Theater reduced the need to
    retain acoustic integrity and allowed for more detailed investigations
    during the project's design stage. These investigations likely limited the
    number and severity of unexpected site conditions, which contributed to
    cost overruns for the Concert Hall and Opera House renovations.

    21 GAO-05-334.

    Figure 9: AFI Theater before and after Its Conversion to the Family
    Theater

    Sources: GAO; Kennedy Center.

    We also found that the Kennedy Center was more careful in the way it
    handled contract modifications during the construction of the Family
    Theater, which may have contributed further to limiting cost overruns on
    the project. In addition, Kennedy Center management officials said that
    the use of a different contracting approach, called construction manager
    at risk (CMAR), helped the Kennedy Center complete the project within
    budget and on schedule. Under a CMAR arrangement, a construction manager
    is hired as a general contractor to provide services during project design
    and then take over construction as the general contractor. We do not
    believe that the use of CMAR had a significant impact on the final cost or
    timeliness of the Family Theater's construction. This is because CMAR
    contractors increase the price of their bid to compensate for the
    additional risk they take on as part of the contract. In addition, we
    found that the Kennedy Center's use of CMAR did not comply with the FAR.22
    Specifically, the Kennedy Center did not obtain a required deviation from
    the FAR, and it authorized contractor work to begin on the Family Theater
    before establishing the guaranteed maximum price of the project. These
    actions undermined the Kennedy Center's claim of compliance with the FAR.
    In addition, the center's negotiation of prices after work had begun
    placed the government at increased risk of cost overruns.

    The last major project on the plaza level is the renovation of the
    Eisenhower Theater, which will address life safety concerns, upgrade
    finishes, and make the theater accessible to the disabled. With seating
    for a total of 1,100 people in three tiers, the Eisenhower Theater is
    larger than the former AFI Theater. The 2004 CBP indicated that the
    Eisenhower Theater renovation work would begin in fiscal year 2007,
    assuming adequate funding, a schedule that was reiterated in the 2005 CBP.
    The project's budget was stable through the 2004 and 2005 CBPs at about
    $15.8 million. However, since December 2005, the project's cost has
    increased $900,000, or 6 percent, because of what the Kennedy Center
    describes as escalating construction costs, among other things.23 The 2005
    CBP also indicated that the Kennedy Center would need to calculate another
    cost estimate once the schematic design is completed. Continued cost
    growth may hamper the Kennedy Center's ability to complete the Eisenhower
    Theater renovation within the CBP's budget and time frame. The President
    of the Kennedy Center told the Board of Trustees' Operations Committee in
    September 2005 that the Eisenhower Theater renovation was then in jeopardy
    because of funding concerns.

    22The Kennedy Center follows FAR when procuring contracts utilizing
    appropriated funds. If the center elects not to follow FAR, it must seek a
    FAR deviation. FAR Subpart 1.4, Deviations (January 2006).

    23The budget for the Eisenhower Theater renovation actually increased by
    about $2.1 million, but about $1.2 million of that increase was caused by
    the Kennedy Center's shifting resources from the Hazardous Materials
    Abatement project to the Eisenhower Theater renovation.

        The Kennedy Center Will Not Complete Terrace-Level Renovations by the End of
        the CBP as Planned

    Although the Kennedy Center's original goal for the CBP was to completely
    renovate the Kennedy Center and meet all life safety and accessibility
    requirements by the end of 2008, we concluded in 2004 that it was unlikely
    that the Kennedy Center would be able to meet that goal because of
    increasing project costs and time lines.24 Nevertheless, the Kennedy
    Center indicated in 2004 that it still intended to complete the vast
    majority of the projects in the CBP. However, the 2005 CBP shows that the
    center now plans to defer most terrace-level renovations beyond the end of
    the CBP. The terrace level of the Kennedy Center sits above the plaza
    level and comprises the Terrace Theater, the Theater Lab, States and
    Nations Galleries, Atrium, and two restaurants.25 (See fig. 10).

    Sources: Kennedy Center; GAO.

    According to the 2005 CBP, sprinklers were extended into the Terrace
    Theater in 2005, and the remaining life safety deficiencies will be
    addressed as part of the Roof Terrace Life Safety Project. The 2005 CBP
    does not describe the Roof Terrace Life Safety Project; but allocates $4.5
    million for

    24See GAO-04-933.

    25We do not address the condition of the restaurants, since they are
    outside the scope of the CBP.

    Page 34 GAO-06-1025 Kennedy Center

    the project and schedules the bulk of the work for fiscal year 2007. This
    budget and schedule, however, are likely to change, possibly slipping
    until after 2008. The budget for the Roof Terrace Life Safety Project was
    estimated in 2002, before the scope was set or any detailed planning or
    design work had been conducted. The 2005 CBP further notes that the Roof
    Terrace Life Safety Project may be deferred to ensure that the Eisenhower
    Theater renovation can continue on schedule. Given the recent cost growth
    in that project, deferral of the Roof Terrace Life Safety Project seems
    increasingly likely. The scope of the Roof Terrace Life Safety Project has
    still not been set, making it difficult to evaluate the feasibility or
    adequacy of the project. The 2005 CBP indicates that the project will
    extend sprinklers to the States and Nations Galleries, protect the Terrace
    Theater exit stairway from fire, and consider other projects unrelated to
    life safety during planning.

    Apart from the Roof Terrace Life Safety Project, the 2005 CBP indicated
    that the Kennedy Center is deferring or placing a low priority on other
    terrace-level projects. Specifically, the Kennedy Center is deferring the
    following projects:

         o Terrace Theater renovation. Originally scheduled for fiscal year 2005,
           the major portions of the Terrace Theater renovation have been
           deferred beyond the time frame of the CBP,26 including associated
           renovations to the auditorium, lobby, hallways, backstage areas, and
           some technical systems. With seating for 513 people, the Terrace
           Theater is the largest performance space on the terrace level. It was
           opened in 1978 and is in need of renovation because it does not
           currently offer accessibility for the disabled throughout the
           auditorium and suffers from other deficiencies in acoustics and
           finishes.
         o Theater Lab renovation. Originally scheduled for fiscal year 2001,
           renovations of the Theater Lab-a 398 seat theater-have mostly been
           deferred, including previous plans to address deficiencies related to
           disabled access, acoustics, and support spaces.
         o Terrace-level public spaces. Originally scheduled for fiscal year
           2000, repairs of known architectural and finish deficiencies
           throughout the terrace-level public spaces will not be done as part of
           the CBP. Affected

    26The Kennedy Center added handrails and sprinklers to the Terrace Theater
    as part of the CBP.

    Page 35 GAO-06-1025 Kennedy Center

    spaces include the States and Nations galleries and the atrium. According
    to the 2005 CBP, the terrace-level public spaces suffer from a number of
    problems-including deteriorated floor tiles, poor accessibility to
    restrooms, inadequate circulation patterns, and muddled acoustics-that
    will only be considered as funding allows.

    Since the 2005 CBP was issued, the Kennedy Center has indicated that
    additional deferrals will be necessary. The President's fiscal year 2007
    budget provides $4.9 million less than was projected in the 2005 CBP. If
    this amount becomes the final budget, the Kennedy Center will further
    defer or reduce several projects whose costs have grown, including the
    Curtain/Wall Door Replacement, Toilet Room Renovation, and Level A
    Back-of-House renovation. In addition, the Eisenhower Theater renovation's
    cost growth may necessitate additional deferrals to other projects.
    Because the CBP will not be completed in 2008 as planned, the Kennedy
    Center has hired a consulting firm to survey the Kennedy Center and
    recommend center upgrades that have not yet been completed, with a goal of
    extending the CBP's implementation period to 2012. A Kennedy Center
    official told us that projects not completed by 2008 as planned will be
    included in this new building survey.

      The Kennedy Center Board of Trustees Has Delegated Its Responsibility for
      Federally Funded Capital Projects, but Has Provided Limited Oversight

    Under the Kennedy Center Act, the Board of Trustees is responsible for
    developing and annually updating the CBP; planning, designing, and
    constructing capital projects; and preparing a budget. Consistent with the
    practices of other governing boards, the Kennedy Center Board of Trustees
    has delegated these responsibilities to management. Although a board can
    delegate responsibilities to management, it remains responsible for
    overseeing management's work. We found that the Kennedy Center Board of
    Trustees provides limited oversight of its federally funded capital
    projects. Specifically, we found no evidence that the board, as required
    by its policies and procedures manual, approves the annual updates to the
    CBP, reviews management's performance in implementing capital projects, or
    approves the annual capital project budget. Furthermore, the Kennedy
    Center Board of Trustees has provided limited oversight to ensure that its
    appropriated funds are used efficiently, effectively, and in compliance
    with applicable laws. Three factors limit the board's oversight of
    federally funded capital projects. First, it lacks procedures on how to
    carry out its responsibilities for federal funds. Second, attendance at
    board and Operations Committee meetings has been low, and the Operations
    Committee has met infrequently and at irregular intervals. Third, the
    board
    does not receive information needed to evaluate whether federally funded
    capital projects have been implemented efficiently.

        The Kennedy Center Board of Trustees Provides Limited Oversight of Federally
        Funded Capital Projects

    According to the Kennedy Center Act, it is the board's responsibility to
    develop and annually update the CBP, which serves as the center's longterm
    capital planning document. The board has delegated the annual update of
    the CBP to the center's PMO and a consulting firm.27 Although such
    delegation is not uncommon for a governing board, we found that the
    Kennedy Center provides limited oversight of its federally funded capital
    projects in a number of ways. Our analysis of board meeting minutes and
    information packets, from January 2000 through January 2006, and
    interviews with Kennedy Center officials revealed no evidence that the
    board reviews or approves CBP projects and budgets as it is responsible
    for doing, according to its policies and procedures manual. A center
    official told us that each trustee of the board does not receive the CBP:
    only trustees on the Operations Committee are in receipt of this document.
    The Chairman of the Board told us that because of its large size, the
    board rarely discusses policy issues at board meetings. Instead, the
    chairman stated, full board meetings are used as a forum for announcements
    about upcoming programs and events. Without an opportunity to review the
    CBP, the board cannot ensure that federally funded capital projects
    planned for construction at the center are in accordance with the
    requirements of the Kennedy Center Act and that the expenditure of federal
    funds is reasonable.

    Both the Kennedy Center Act and the board's policies and procedures manual
    assign budgeting responsibilities to the board for appropriations. Under
    the act, the board is responsible for preparing a budget in accordance
    with specified federal statutes, and under the manual, the board is
    responsible for approving the Kennedy Center's budget, which includes
    private and federal funds. The President of the Kennedy Center stated that
    management verbally presents the proposed federal appropriation request to
    the board, which is the federal portion of the center's budget, for
    approval. In addition, the President of the Kennedy Center told us that
    the Operations Committee also approves the proposed federal appropriation
    request for the center's capital projects and

    27Although a full architectural/engineering survey by an outside
    consulting firm is planned every 4 to 5 years in accordance with typical
    industry practices, the CBP is updated by the center's PMO annually.

    Page 37 GAO-06-1025 Kennedy Center

    operations and maintenance. However, in our analysis of board and
    Operations Committee meeting minutes from January 1998 through September
    2005, we found no evidence that the board or its Operations Committee had
    approved the center's proposed federal appropriation request. For example,
    in the September 2005 Operations Committee meeting minutes, a Kennedy
    Center official reported to the trustees of the Operations Committee that
    the center's fiscal year 2007 request for appropriations had already been
    submitted to OMB. In addition, the Chairman of the Board of Trustees and
    the Chairman of the Operations Committee told us that they were not
    certain if the board approved the federal portion of the center's budget.
    However, although this report does not include a review of the center's
    private funds, our analysis of board meeting minutes found that the
    Kennedy Center Board of Trustees approves the center's budget for trust
    funds.

    In contrast, we found that the Smithsonian Institution Board of Regents-
    which also oversees federal appropriations for capital projects and trust
    funds, oversees several arts organizations, and has its board membership
    defined by legislation-does review and approve the federal portion of its
    budget.28 Our analysis of Smithsonian Institution Board of Regents meeting
    minutes found that this board first reviews the Smithsonian Institution's
    budget request for appropriated funds. Next, the Board of Regents votes to
    approve the budget request before it is presented to OMB. Finally, the
    resolution made by the Board of Regents states that any changes made to
    this federal request for appropriated funds can be made only with the
    approval of the Board of Regents or the Executive Committee. Since the
    Smithsonian Institution Board of Regents has been authorized to plan and
    construct numerous facilities with federal funds, the board's review and
    approval of the Smithsonian Institution's federal budget request is
    important to ensure that the request for the money is consistent with its
    responsibilities under the law.

    According to the Kennedy Center board's policies and procedures manual, it
    is the board's responsibility to "formulate the organization's policies
    and review management's performance in achieving them," as well as,
    "assist the Chairman in selecting, monitoring, appraising, advising,
    stimulating, and rewarding the President." However, in our analysis of
    board and Operations Committee meeting minutes, as well as in interviews
    with

    28The Smithsonian Institution Board of Regents also approves the
    Institution's budget for nonfederal funds.

    Page 38 GAO-06-1025 Kennedy Center

    members of management and board members, we found no evidence that the
    board formally evaluates management's performance or monitors the
    president's implementation of federally funded capital projects. In
    addition, the Operations Committee, which receives most of the information
    on capital projects, does not receive the information it needs to evaluate
    federally funded capital projects. For example, the Operations Committee
    does not receive key indicators, such as the original versus the actual
    budget and schedule, to determine if all federally funded capital projects
    are implemented on time and within budget. The President of the Kennedy
    Center told us that he annually writes his self-assessment and presents it
    to the Chairman of the Board and to the Personnel Committee. However, the
    President of the Kennedy Center and the Chairman of the Board told us that
    there are no formal evaluation criteria. In particular, there is no
    standard or goal to measure the president's performance in implementing
    federally funded capital projects. In lieu of formal criteria, the
    Chairman of the Board told us that he uses his intuition to assess the
    president's overall performance, including the president's implementation
    of capital projects.

    In contrast, a Smithsonian Institution official said that the Smithsonian
    Institution Board of Regents evaluates the secretary's performance
    annually. According to this official, the secretary, with the Board of
    Regents' approval, sets goals each year that include the secretary's
    ability to complete capital projects on time and within budget. At the end
    of the year, the Board of Regents rates the secretary's performance,
    comparing outcomes with the secretary's established goals. In addition,
    several experts on nonprofit boards noted that a formal, periodic, and
    comprehensive evaluation of a nonprofit organization's chief executive is
    needed to ensure that the organization's goals are reached. Furthermore, a
    routine evaluation of a chief executive's work allows the board to see if
    its decisions are being properly executed by management. The board and
    chief executive need to agree on the purpose and process of a formal
    performance evaluation, including the primary criteria to be used for
    review, such as the chief executive's annual goals and objectives for the
    organization.

        Several Factors Limit the Board's Oversight of Federally Funded Capital
        Projects

    Like other organizations that receive federal funds, the Kennedy Center
    Board of Trustees must ensure that appropriated funds are used as
    productively as possible, achieve intended goals and objectives, and are
    spent in compliance with applicable laws. However, several factors limit
    the Kennedy Center Board of Trustees' oversight for federally funded
    capital projects.

    Page 39 GAO-06-1025 Kennedy Center

    The Board and Its Operations Committee Lack Procedures on How to Carry Out
    Their Responsibilities for Federally Funded Capital Projects

    The Kennedy Center Act generally describes the board's responsibilities
    for capital projects, such as its duty to maintain the functionality of
    the center at current standards of life, safety, security, and
    accessibility. Although, the act is not specific about how the board is to
    carry out its responsibility for federally funded capital projects, it
    authorizes the board to create bylaws, rules, or regulations, as it deems
    necessary, to administer its responsibilities under the Kennedy Center
    Act. When the Kennedy Center Act was amended in 1994 to give the board
    sole responsibility for capital projects, the board used this authority to
    create the Operations Committee-a committee of the board-to help it carry
    out this responsibility.

    The board's policies and procedures manual provides information on the
    board's responsibilities, the center's organizational structure, and
    performance activities. In addition, the board has created bylaws that
    describe the general duties of board members, officers of the board, and a
    certain number of committees of the board. However, neither the manual nor
    the bylaws describe how the board or its Operations Committee is to
    administer its responsibility under the Kennedy Center Act for federally
    funded capital projects. This lack of procedures hinders the board and its
    Operations Committee in assessing whether federal funds for capital
    projects have been spent efficiently, effectively, and legally. In
    addition, a board expert stated that committees need clear direction to
    perform well and to avoid confusion and conflict over their
    responsibilities and the amount of authority delegated to them. This board
    expert also stated that carefully written policies are needed to help
    avoid unnecessary confusion and conflicts.

    The board's lack of procedures for carrying out its Kennedy Center Act
    responsibilities relating to federally funded capital projects has led to
    a number of different interpretations by Kennedy Center trustees and a
    management official on how the board accomplishes its responsibilities for
    federally funded capital projects and on the Operations Committee's
    overall responsibility. For example, the board has created and relies on
    the Operations Committee to assist in the oversight of federal funds spent
    for capital projects. Although a Kennedy Center management official, a
    previous trustee, and a current trustee stated that the Operations
    Committee had some jurisdiction over capital projects, they did not agree
    on the committee's responsibilities and how it accomplishes its
    responsibilities. The previous trustee stated that the responsibility of
    the Operations Committee is to keep Members of Congress that are trustees
    abreast of how capital projects are progressing. The current trustee
    stated
    that the Operations Committee's responsibility is strictly one of
    oversight for capital projects and that any policies relating to capital
    projects are made by the board's Executive Committee. The Kennedy Center
    management official stated that the Operations Committee's responsibility
    is to make policies relating to capital projects and oversee the
    implementation of these policies. Furthermore, we reported in 1998 that
    the Operations Committee provided policy guidance, resolved the most
    serious issues requiring board input, and functioned as the eyes and ears
    of center operations.

    Board Meeting Attendance Rates Have Been Low, and the Operations Committee
    Has Not Met Regularly

    Since most of a board's responsibilities are carried out at board and
    committee meetings, it is important for a board and its committees to hold
    meetings regularly and for board members to attend these meetings.
    However, we found that attendance at board and Operations Committee
    meetings has been low and that the Operations Committee has met
    infrequently and at irregular intervals. Low attendance rates and
    infrequent committee meetings limit the board's ability to monitor and
    review management's implementation of federally funded capital projects.

    Despite congressional and board efforts to develop more active trustees
    and increase attendance rates, trustee attendance rates at regularly
    scheduled board meetings have been low. In 1994, when Congress amended the
    Kennedy Center Act and gave the board sole responsibility for capital
    projects, it also reduced the term length of trustees from 10 to 6 years.
    Congress believed that the shorter term would result in the selection of
    trustees who would be more active members of the board. Despite this
    change, the percentage of trustees attending each board meeting from 1995
    through 2005 has ranged between 29 and 58 percent. The Executive Committee
    first tried in 1997 to improve attendance at board meetings by reducing
    the annual number of meetings from four to three because of low
    attendance. Then in 2000, a private consulting firm, hired by the Kennedy
    Center, found that the board's governance could be strengthened by
    creating mechanisms to ensure more balanced involvement from all trustees.
    The consulting firm recommended that the center use attendance at meetings
    as a requirement for retaining board membership. In response, the board
    instituted an attendance policy that requested trustees to attend a
    minimum of three full board or committee meetings annually to retain their
    trustee status. However, despite these efforts, attendance rates at board
    meetings have never been above 58 percent. Trustees told us that the
    volunteer nature of board membership and the geographic location of
    members' residences have led to poor attendance rates. Another trustee
    said that many trustees see their appointments as "honorific" and that
    their main responsibilities are to make donations to and raise funds for
    the center. The trustee further stated that the majority of decisions are
    made by the president and not by the board.

    In analyzing attendance rates for meetings of the Smithsonian Institution
    Board of Regents, we found that from January 2000 through September 2005,
    the median attendance rate at board meetings was 69 percent and ranged
    from about 47 percent to 94 percent (i.e., one-half of these meetings had
    attendance rates above 69 percent). In contrast, from April 2000 through
    September 2005, the median attendance rate at regularly scheduled Kennedy
    Center Board of Trustees meetings was 49 percent and ranged from about 37
    percent to 58 percent.

    In addition, we found that some Kennedy Center trustees send designees to
    represent them at board and committee meetings. Board experts with whom we
    spoke expressed different opinions about trustees sending designees to
    represent them at board and committee meetings. For example, some experts
    stated that sending a designee to a board or committee meeting is not
    conducive to board governance and is contrary to volunteerism. However,
    another expert told us that there could be situations in which the use of
    a designee would be appropriate, provided the designee's responsibility
    and authority is clarified in the board's bylaws. We found that it is
    unclear what responsibility and authority designees have for carrying out
    the board's responsibilities under the Kennedy Center Act. Currently,
    neither the board's policies and procedures manual nor its bylaws address
    designees' responsibility or authority. We found that the Lincoln Center
    for the Performing Arts-which is also a performing arts organization with
    a governing board of comparable size-has defined the responsibility and
    authority of its Board of Directors and of designees in its bylaws. For
    example, the bylaws state that any Lincoln Center board member entitled to
    a vote at a meeting may appoint any other person to act as such member's
    proxy in that member's capacity. In addition, each designee's authority
    shall be revocable at the pleasure of the member who appointed the
    designee, and the designee can serve no longer than 11 months from date of
    appointment unless otherwise stated by the member.

    The Operations Committee has also met infrequently, and attendance at its
    meetings has been low. In 1994, when the board was given responsibility
    for the center's capital projects, the board created the Operations
    Committee to ensure the appropriate use of federal funds spent for capital
    projects at the Kennedy Center. However, the Operations Committee's
    ability to ensure the appropriate use of federal funds has been hindered
    by the infrequent meetings and low trustee attendance rates. From 1995 to
    1998, the Operations Committee met three times a year. However, from 1998
    through 2005, the Operations Committee met inconsistently and
    infrequently, even though several federally funded capital projects were
    in progress at the Kennedy Center (see fig. 11). For example, during the
    most recent period without a committee meeting, which lasted about 12
    months, center management obligated about $21 million for 13 federally
    funded capital projects. The Operations Committee Chairman told us that
    currently the committee meets twice a year and that this is sufficient to
    oversee capital projects.

      Source: GAO analysis of Kennedy Center Operations Committee meeting minutes.

                           Page 44 GAO-06-1025 Kennedy Center

    In addition, trustee attendance rates at Operations Committee meetings
    have been low. From January 1995 through April 2006, there were 18
    Operations Committee meetings, of which attendance records were available
    for 13. Of these 13 meetings, 10 had attendance rates of 50 percent or
    less (see fig. 12). A former Operations Committee Chairman stated that,
    because the Operations Committee was composed of ex-officio congressional
    members, it was difficult to schedule a time when members could be
    present.

          Figure 12: Attendance Rates at Operations Committee Meetings, Jan u a r y
          1995 through A pril 2006

            Per c e n t age

    100 90 80

    69%

    67%

    70

    60

    54%

    50%

    50

    43%

    40%

                                          38%

    38% 31%

    40

    30

    23%

    20% 21%

    20

    16%

    10 0

    y 1995

                                        ne 1995

                                  tember 1995 ne 1996

                                     eptember 1996

                            April 1997 eptember 1997 y 1998

                                     eptember 1999

                            eptember 2000 October 2002 2005

                                        ber 2005

                                         April

    Januar

                                         Januar

    Ju

                                           Ju

                                         eptem

                                           ep

                                           S

                                           S

                                           S

                                           S

                                           S

                                           S

            Date

    Source: GAO analysis of Operations Committee information packets.

    Note: The Operations Committee met 18 times from January 1995 through
    April 2006. However, attendance data were available for only 13 of these
    meetings, as indicated in figure 12.

    Lack of Information Has Prevented the Board and Its Operations Committee
    from Monitoring the Implementation of Federally Funded Capital Projects

    In general, to measure if a capital project has been successfully
    implemented, a board or committee would need information on (1) the actual
    cost of the project versus the budgeted cost, (2) the actual schedule of
    the project versus the original schedule, and (3) if the project provided
    the benefits intended.29 Providing these types of information to the board
    pressures the project team to meet the established cost, schedule, and
    performance goals for the project.

    Although the Operations Committee receives some of this information on
    federally funded capital projects, we found that it lacks key information
    needed to ensure that the project team is implementing capital projects
    within cost and schedule goals. The Operations Committee is to meet twice
    a year, and its trustees receive an information packet before each
    meeting. In reviewing meeting packets for January 2000 through September
    2005, we found that these packets generally included information on
    ongoing federally funded capital projects, such as the amount of previous,
    actual, and projected obligations for each capital project, by fiscal
    year, and a description for each capital project. This information is
    useful to understand current and future obligations for each project.
    However, the meeting packets did not include the baseline cost and
    schedule estimates that would indicate if an ongoing project is within the
    budget or on schedule. Without baseline cost and schedule estimates, the
    Operations Committee and subsequently the board cannot identify project
    cost growth or schedule changes. For example, our analysis found that
    during a January 2003 Operations Committee meeting, a Kennedy Center
    official stated that the site improvement project would not require more
    than $40 million in federal funds. However, in April 2005, an Operations
    Committee information packet indicated that the center had obligated
    approximately $49.8 million for the site improvement project. The most
    recent CBP states that the total anticipated federal portion of the
    project's cost will be about $54.7 million, or about $15 million more in
    federal funds than center management officials told the Operations
    Committee in 2003. Although the Operations Committee had received
    information anticipating that additional funds would be needed for the
    site improvement project, it did not simultaneously receive information on
    the project's original budgeted cost, which would have indicated the
    degree of cost growth on the project. Without information on original
    budgeted costs, the committee cannot hold

    29GAO, Executive Guide: Leading Practices in Capital Decision Making,
    GAO/AIMD-99-32 (Washington, D.C.: December 1998).

    Page 46 GAO-06-1025 Kennedy Center

    management accountable for the successful implementation of capital
    projects paid for with federal funds.

    The President of the Kennedy Center stated that the Operations Committee
    does receive information on capital projects that enables it to compare
    actual costs with budgeted costs and schedules. However, our analysis of
    Operations Committee meeting packets from January 1998 through September
    2005 found no indication that Operations Committee members received
    information for comparing the actual cost with the original budgeted cost.
    Additionally, although the center's most recent Operations Committee
    packet, dated April 2006, contains the original budgeted costs for 6
    capital projects, this information is missing for the remaining 17 capital
    projects listed. Thus, although this packet provides improved budget
    information to stakeholders, it does not allow trustees to monitor the
    implementation of all federally funded capital projects. In addition, when
    we spoke with the Operations Committee Chairman about the board's use of
    budgeted versus actual information, he stated that he leaves it up to
    management to ensure that costs are within established budgets.

    As we have reported previously, the implementation of a capital project's
    success is determined primarily by whether the project was completed on
    schedule, within budget, and provided the benefits intended.30 Without
    this information the Operations Committee is unable to assist the board in
    its oversight of the federal funds spent for capital projects. For
    example, in April 2005, we reported that since 2003, each of the three
    federally funded capital projects that we reviewed had experienced cost
    overruns, one as great as 50 percent (see fig. 13). However, we did not
    find any evidence that the board or its Operations Committee was informed
    of these cost overruns, such as the Opera House's $4 million cost
    increase. For example, two trustees that served on the board during the
    implementation of these projects told us that they did not know of any
    capital projects that had cost overruns. One of these trustees said that
    the Opera House renovation was on budget.

    30 GAO/AIMD-99-32.

    Figure 13: Budgeted and Actual Costs of Selected Federally Funded Kennedy
    Center Capital Projects

            Dollars in millions

    25 21% increase

    20

    15

    10

    50% 13% increase increase

    5

    0

    Opera House Fire alarm Public space renovation system modifications

    Estimated budget Actual cost

    Source: GAO analysis of Kennedy Center data.

    In addition to the information packets, the Operations Committee receives
    the center's annual CBP. Previously, we mentioned that the center's 2005
    CBP is better than previous versions because it includes the details of,
    and explanations for, project budget changes since the 2004 CBP. The 2005
    CBP also includes the actual and projected obligations for each capital
    project, by fiscal year, through the end of the CBP in 2008. However, the
    2005 CBP does not provide original project budgets for all capital
    projects. Therefore there is no way to quantify how well the project's
    implementation matched the center's original comprehensive plan. In
    addition, we found that trustees of the Operations Committees did not
    receive the most recent CBP in a timely manner. For example, the
    Operations Committee received the most recent CBP in January 2006, about 4
    months after the center's fiscal year 2007 budget was submitted to OMB.
    Without an opportunity to review the CBP before the budget is submitted to
    OMB, the committee cannot ensure that federally funded capital projects
    planned for construction at the center are authorized by the Kennedy
    Center Act.

      Conclusions

    We have made numerous recommendations to the Kennedy Center within the
    past 9 years to improve its use and oversight of the federal funds that it
    receives, and the Kennedy Center has made significant improvements.
    Specifically, the Kennedy Center has made considerable progress over the
    past year in implementing our recommendations to improve fire safety and
    project management and to better align its activities with capital project
    best practices. Nevertheless, although some of our recommendations have
    not been fully implemented, it is critical that the Kennedy Center fully
    implement our recommendations and ensure that these changes become
    permanent.

    Changes to the Kennedy Center's contracting practices and CBP provide good
    illustrations of the progress that the Kennedy Center has made and the
    work that remains. Since 1993, when we first began reporting on its
    capital improvement plan, the Kennedy Center has made a number of
    important improvements to its contracting management practices and to the
    CBP. For example, in 2005, the Kennedy Center added project-by-project
    reconciliations to the CBP as recommended in order to illustrate changes
    in project budgets and schedules over time. However, the Kennedy Center
    placed federal funds at risk by not fully complying with the FAR, and the
    CBP does not yet fully disclose the overall financial impact of project
    changes. During a time when the Kennedy Center is deferring many of its
    terrace-level renovations, the price of the CBP's implementation is
    growing because of steep increases in the costs of some of the remaining
    projects. While many of the key facts are included in the 2005 CBP,
    putting the whole picture together requires gathering and analyzing
    information from previous and current versions of the CBP to ascertain how
    budget changes to individual projects affect the overall CBP budget
    through 2008.

    Much of our Kennedy Center work has found insufficient oversight for
    federally funded capital projects. Although the board has delegated much
    of the day-to-day work of running the center to the center management, the
    board retains ultimate responsibility for safeguarding funds and holding
    the center management accountable for its actions. Yet the board is
    providing limited oversight of its federal funds spent on capital
    projects; it does not approve CBP updates, does not review management's
    performance in implementing capital projects in a structured way, and does
    not meet regularly. It may be telling that the board provides more
    oversight of its nonappropriated funds, including programming revenue and
    investment income. More detailed, transparent, and timely information on
    how federal funds have been budgeted and spent would allow the board to
    hold center managers accountable for completing federally funded capital
    projects on time and within budget estimates.

      Recommendations for Executive Action

    1. To improve compliance with the FAR, the Chairman of the Board of
    Trustees should direct the President of the Kennedy Center to properly
    obtain the required FAR deviation when using the construction manager at
    risk contracting method. In addition, the Kennedy Center should establish
    the guaranteed maximum government price for a capital project before
    proceeding with construction.

          2. To improve the information the Kennedy Center provides to Congress
            and the Board of Trustees, the Chairman of the Board of Trustees
            should direct the President of the Kennedy Center to improve the
            Comprehensive Building Plan by taking the following two actions:
               o Clearly identify the overall impact that changes to individual
                 project budgets from the previous year will have on the overall
                 plan's budget.
               o Clarify which federally funded projects the Kennedy Center
                 intends to complete as part of the plan and which ones will be
                 deferred. In doing so, establish clear scope and budget
                 estimates for the Roof Terrace Life Safety project for the 2006
                 update of the Comprehensive Building Plan.
        3. To strengthen the Kennedy Center Board of Trustees' role in
            overseeing federally funded capital projects and to improve the
            board's ability to carry out its responsibilities under the Kennedy
            Center Act, we recommend that the Chairman and Trustees of the Board
            take the following two actions:
               o Develop and implement procedures on how the board and its
                 Operations Committee are to carry out their duties under the
                 Kennedy Center Act and their responsibilities for overseeing
                 federal funds, including a clarification of the roles and
                 responsibilities of the Operations Committee;
               o Ensure that the board receives detailed, transparent, and timely
                 information on how federal funds for capital projects have been
                 budgeted and spent on capital projects, such as information on
                 original versus actual project budgets and schedules.

      Agency Comments and Our Evaluation

    We provided a draft of this report to the Kennedy Center for its review
    and comment. The Kennedy Center provided written comments, which appear in
    appendix III, together with our responses. In general, the Kennedy Center
    agreed with the draft report's findings and with two of the report's three
    recommendations. The Kennedy Center agreed to (1) improve the CBP in
    several areas and (2) review and revise, if necessary, procedures on how
    the Operations Committee is to carry out its responsibilities and to
    provide the CBP to the Operations Committee in a more timely fashion. The
    Kennedy Center disagreed with our recommendation to better comply with a
    provision of the FAR and establish the guaranteed maximum government price
    for a capital project before proceeding with construction. However, based
    on our discussions with a GSA official, we are retaining the
    recommendation. The CMAR contracting method is not covered by the FAR and,
    consequently, requires a deviation. We also believe that the Kennedy
    Center could have limited the government's risk of cost overruns by
    establishing the guaranteed maximum price for the project before
    authorizing the contractor to begin. The Kennedy Center provided technical
    comments and clarifications, which we have incorporated as appropriate
    throughout this report.

    As arranged with your offices, unless you publicly announce its contents
    earlier, we plan no further distribution of this report until 30 days
    after the date of this letter. At that time, we will send copies to
    interested congressional committees, the Chairman of the Kennedy Center
    Board of Trustees, and the President of the Kennedy Center. We will also
    make copies available to others on request. In addition, the report will
    be available at no charge on the GAO Web site at h ttp://www.gao.gov.

    If you or your staff has any questions, please contact me at (202)
    512-2834 or g oldsteinm@gao.gov. Contact points for our Offices of
    Congressional Relations and Public Affairs may be found on the last page
    of this report. See appendix IV for a list of the major contributors to
    this report.

    Mark L. Goldstein Director, Physical Infrastructure Issue

    Appendix I

    Scope and Methodology

    This report responds to your request that we conduct a study on The John
    F. Kennedy Center for the Performing Arts' (Kennedy Center) management and
    oversight of federal funds spent for Kennedy Center projects. Our
    objectives were to determine (1) the progress the Kennedy Center has made
    in implementing the recommendations in our April 2005 report, (2) the
    status of capital projects and the planned spending of federal funds for
    capital projects as indicated by the Kennedy Center's most recent
    comprehensive building plan, and (3) the Kennedy Center Board of Trustees'
    responsibilities for federally funded capital projects and the extent to
    which the board fulfills these responsibilities.1

    To determine the progress Kennedy Center has made in implementing the
    recommendations in our April 2005 report, we interviewed Kennedy Center
    management officials and reviewed Kennedy Center documents (see fig. 14
    for a list of our April 2005 recommendations). Specifically, to assess the
    steps taken to implement the first of these recommendations-that the
    Chairman of the Kennedy Center Board of Trustees increase oversight of its
    management of federal funds by working with an independent federal
    government oversight organization-we analyzed the Kennedy Center's risk
    assessment and internal audit plan for the ongoing oversight of the
    center's use of federal funds. In addition, we interviewed Kennedy Center
    management officials to determine how the Kennedy Center intends to
    implement its internal audit plan. We also reviewed the John F. Kennedy
    Center Act, as amended, and the Inspector General Act of 1978, as amended.

    1For this report, we did not examine the Kennedy Center's use of
    nonfederal funds to finance capital improvements. In particular, we did
    not review the center's use of private funds or bonds in the garage and
    site improvements projects.

    Page 53 GAO-06-1025 Kennedy Center Appendix I Scope and Methodology

    Figure 14: Recommendations to the Kennedy Center in Our April 2005 Report

    Categories            Recommendation
             Oversight       Work with an independent federal government
                             oversight organization.
            Fire safety      Seek peer review by a knowledgeable third party
                             of the egressand fire-modeling study.
                             Implement fire-modeling peer review recommendations,
                             including marked exit routes for occupantsat the
                             Millennium Stages.
                             Develop and implement a program to manage
                             the storage of combustible materials.
                             Install asmoke control system that is integrated
                             with asprinkler system and smoke detectors
                             over the Millennium Stages.
                             Ensure that doors in key areas provide adequate
                             separation from fire.
           Management of     Design and implement comprehensive contract
         capital projects    and project management policiesand procedures.
                             Take steps to control cost growth and schedule
                             changes in future capital projects.
                             Design and implement comprehensive financial
                             policiesand procedures to addressseveral
                             specific areas.
                             Establish and enforce a documents retention
                             policy that allows for accountability of the
                             Kennedy Center's federal funds.
                             Develop as-built drawingsand better track
                             changes to the center.
                             Provide more timely and accurate information
                             about capital projects to stakeholders.

    Source: GAO.

    To assess the steps taken by the Chairman of the Kennedy Center Board of
    Trustees to implement our April 2005 recommendations on fire safety, we
    analyzed the two peer reviews of the Kennedy Center's fire-modeling study
    used as a substitute for prescriptive code solutions that were conducted
    by the General Services Administration (GSA) and a nonfederal entity.
    Additionally, we interviewed Kennedy Center management and GSA officials
    to determine the actions taken to implement recommendations from the two
    peer reviews. To further asses the steps taken to ensure fire

    Appendix I Scope and Methodology

    safety, we reviewed the Kennedy Center's policy and procedure for managing
    the storage of combustible materials; reviewed the Kennedy Center's
    inventory of doors in key areas that needed to be fire rated; and toured
    the Kennedy Center to visually examine the exit signage installed at the
    Millennium Stages during a performance. We also interviewed a Kennedy
    Center management official to determine how the Kennedy Center implements
    its combustibles policy and procedure; the time frame for inspecting and
    installing fire-rated doors in key areas; and the installation of exit
    signs in the Grand Foyer at the Millennium Stages.

    To assess the steps taken by the Chairman of the Kennedy Center Board of
    Trustees to implement our April 2005 recommendations on managing capital
    projects, we interviewed Kennedy Center management officials and analyzed
    Kennedy Center documents. Specifically, to determine how the Kennedy
    Center provides more timely and accurate information about capital
    projects to stakeholders, we reviewed the Kennedy Center's 2004 and 2005
    comprehensive building plans (CBP); fiscal year 2007 budget justification
    to Congress; information packets and minutes from Board of Trustees and
    Operations Committee meetings (for 2004 through 2006); and the monthly
    reports the Kennedy Center sends to the Office of Management and Budget
    (OMB) that provide information on capital projects. To evaluate the steps
    taken by the Kennedy Center to control cost growth and schedule changes in
    future capital projects, we conducted a limited assessment of Family
    Theater contract modifications. The contract modifications we reviewed
    each had cost changes over $15,000 and in total represented about 58
    percent of all cost changes for this project. We examined these contract
    modifications to evaluate whether the contractors' proposals were fair and
    reasonable; the Kennedy Center had established the scope and cost for the
    modifications before directing the contractor to proceed with the work;
    and the Kennedy Center paid overtime to accelerate the project's schedule.
    To obtain information on the construction manager at risk (CMAR) method of
    delivery, we reviewed the Federal Acquisition Regulation (FAR), GSA
    policy, and industry standards. We contacted GSA officials and an industry
    official. To assess the steps taken by the Kennedy Center to strengthen
    financial management controls, we analyzed the Kennedy Center's contract,
    financial, and project management policies and procedures as they relate
    to the recommendations in our April 2005 report. In addition, we discussed
    with Kennedy Center management officials the time frame for implementation
    and the federal guidance used for the development of its contract,
    financial, and project management policies and procedures. While we did
    not assess the implementation of the Kennedy Center's contract and project

    Appendix I Scope and Methodology

    management policies and procedures because they were recently implemented,
    we were able to assess the adequacy of the Kennedy Center's financial
    policies and procedures that relate to our specific financial
    recommendations. We reviewed the financial policies and procedures and
    spoke with management officials to verify that the policies and procedures
    contained guidance to address our recommendations. Specifically, we
    reviewed receipt information contained on recent invoice certification
    forms, and we also reviewed invoices paid from the Project Management
    Office contractor files where we had noted exceptions in our April 2005
    report. To determine the status of the Kennedy Center's document retention
    policy, we interviewed Kennedy Center management officials to discuss the
    steps taken to establish and enforce a policy. In addition, we spoke with
    National Archives and Records Administration (NARA) officials about the
    requirements for a federal records management policy, and we reviewed
    legislation and regulations relating to NARA. To determine the status of
    the Kennedy Center's steps to better track future changes to the center,
    we spoke with Kennedy Center management officials and reviewed the
    center's project management policy that addresses as-built plans.

    To determine the status of capital projects and the planned spending of
    federal funds for capital projects as indicated by the Kennedy Center's
    most recent CBP, we reviewed the Kennedy Center's initial 1995 CBP and its
    2004 and 2005 updates to the plan. Specifically, we examined the changes
    in the 2005 CBP made since the 2004 CBP and developed a list of projects
    the Kennedy Center plans to delay or defer and the additional funds
    needed. To determine the accuracy of some of the data in the 2005 CBP, we
    reviewed the monthly reports the Kennedy Center sends to OMB; the Kennedy
    Center's fiscal year 2007 budget justification to Congress; and the
    President's fiscal year 2007 budget for the Kennedy Center. In addition,
    we spoke with Kennedy Center management officials to obtain justifications
    for the projects it intends to delay or defer.

    To determine the Kennedy Center Board of Trustees' responsibilities for
    federally funded capital projects and the extent to which the board
    fulfills these responsibilities, we analyzed Board of Trustees and
    Operations Committee documents; appropriation laws; the John F. Kennedy
    Center Act, as amended; the CBP and its various updates; and the monthly
    reports the Kennedy Center sends to OMB. Specifically, to examine the
    extent to which the board fulfills its responsibilities for federally
    funded capital projects we reviewed Board of Trustees and Committee
    information packets and meeting minutes from January 1995 through April
    2006 to determine how a variety of capital projects were overseen by the
    board.

    Appendix I Scope and Methodology

    These projects included, but are not limited to, the Opera House
    renovation, fire alarm system replacement, public space modifications,
    site improvements project, and Family Theater. In addition, we interviewed
    current and previous trustees from the board and its Operations and
    Executive Committees. We spoke with two previous and four current trustees
    about the board's responsibilities for overseeing federal funds, including
    the types of information used to make decisions on capital projects. In
    addition, we spoke with congressional staffers that are designees for two
    Kennedy Center Trustees and the President of the Kennedy Center. We
    selected trustees for interviews by first constructing a list of trustees
    that served on the board from 1995 to 2006. We choose 1995 because it was
    the year that Congress transferred responsibility for capital projects
    from the National Park Service to the Kennedy Center Board of Trustees.
    From this list, we selected previous and current trustees of the board and
    its Operations and Executive Committees who were either chairpersons or
    had not missed more than one board meeting per year of their tenure. In
    addition, we interviewed Kennedy Center executives to understand
    management's role in the supervision of capital project costs and
    schedules and management's responsibilities to the Board of Trustees.

    We calculated Board of Trustees and Operations Committee attendance rates
    and meeting frequencies using the information packets, which included
    meeting minutes, sent to trustees before scheduled board and committee
    meetings from January 1995 through April 2006. For the Board of Trustees
    meetings, we calculated attendance rates by comparing the number of
    trustees present at each regularly scheduled meeting with the total number
    of trustees designated under the Kennedy Center Act. For Operations
    Committee meetings, we calculated attendance rates by comparing the number
    of trustees present at each meeting with the information packet
    distribution list and the board's policies and procedures manual. We
    calculated Operations Committee meeting attendance rates for the 13 of 18
    meetings for which we had distribution lists. To ensure that the Kennedy
    Center provided us with all of the Board of Trustees and Operations
    Committee information packets and meeting minutes from January 1995
    through April 2006, we cross referenced the materials we received against
    a list that was verified for a previous GAO report2 and against the Board
    of Trustees' annual list of scheduled meetings. We are confident that we
    have accounted for all Board of Trustees and Operations Committee
    information packets and meeting minutes from 1995 through

    2 GAO-04-334.

    Appendix I Scope and Methodology

    2006 and therefore believe that the attendance rate and meeting frequency
    data are reliable for the purposes of this report. To calculate attendance
    rates for the Smithsonian Institution Board of Regents, from January 2000
    to September 2005, we compared the number of regents present and absent at
    each regularly scheduled board meeting with the total number of regents
    set forth in law relating to the Smithsonian Institution. In some
    instances, we found that the number of regents attending and absent from
    meetings did not match the number of regents set forth in the law. For
    example, there were times when a vacancy on the board occurred while
    legislation to appoint a regent was pending. In these instances, we had
    Smithsonian Institution officials verify that during some board meetings,
    the number of regents attending and absent from these meetings did not
    match the number of regents set forth in law. Therefore, we believe that
    the attendance rate data are reliable for the purposes of this report.

    To obtain information on board governance practices, we interviewed
    academics, board organizations, and officials of other arts organizations.
    We reviewed relevant articles on board governance to select the academic
    and board organizations. To obtain information on how other boards govern,
    including their responsibilities for overseeing capital projects, we
    interviewed officials and reviewed documents from other arts
    organizations, including the Lincoln Center for the Performing Arts, the
    Los Angeles Music Center, the National Gallery of Art, and the Smithsonian
    Institution. We selected these organizations because they all have some
    features in common with the Kennedy Center, including authorizing
    legislation; capital projects; board member composition; organizational
    mission; and federal funding.

    We conducted our work in Los Angeles, California; New York City, New York
    and Washington, D.C., between October 2005 and August 2006 in accordance
    with generally accepted government auditing standards.

    Appendix II

    Kennedy Center's Implementation of Our Recommendation to Design and Implement
    Financial Policies and Procedures

    In April 2005, we recommended that the Kennedy Center strengthen financial
    management controls by designing and implementing financial policies and
    procedures in accordance with prescribed federal guidance. Specifically,
    we recommended that the financial policies and procedures address several
    areas, as detailed in figure 15. In January 2006, the Kennedy Center
    designed and implemented financial policies and procedures for activities
    funded by federal appropriations. The financial policies and procedures
    were drawn from various laws and regulations including the FAR. As shown
    in figure 2 and as discussed in the remainder of this appendix, the
    Kennedy Center has fully implemented our financial recommendations in
    several specific areas.

    Figure 15: Implementation Status of our Financial Recommendations in
    Several Specific Areas

          Recommendation                                                Status
          Design and implement comprehensive financial policiesand procedures to
          addressseveral specific areas to ensure that:
          complete up-to-date costs for construction and other
          servicesare recognized and used to prepare financial
          reportsand manage project costs;
          for Economy Act transactions, payments to other federal
          agenciesare for actual costs consistent with the Economy Act
          agreement;
          receiving reportsare prepared when goods or servicesare
          received to verify the validity of invoices;
          invoices contain sufficient detail to support their accuracy
          and validity; and
          invoices match with inspection reportsand previously paid
          invoices to prevent duplicate payments.
    Recommendation hasbeen implemented. Steps have been taken to implement the
    recommendation, but more work is needed. Recommendation has not been
    implemented.

    Source: GAO.

    As figure 15 indicates, we recommended that the Kennedy Center recognize
    and use complete up-to-date costs for construction and other services to
    prepare financial reports and manage project costs. In response

    Page 59 GAO-06-1025 Kennedy Center Appendix II Kennedy Center's
    Implementation of Our Recommendation to Design and Implement Financial
    Policies and Procedures

    to our recommendation, the Kennedy Center now submits monthly progress
    reports on its obligations for services and capital federal expenditures
    to OMB. For each capital project, the reports contain the month's
    anticipated, actual, and total up-to-date obligations made with federal
    funds. The center uses a cash basis to report costs in monthly financial
    reports on capital federal expenditures, which is acceptable to OMB.
    Therefore, this recommendation has been implemented.

    In our previous report, we recommended that for Economy Act transactions,
    payments to other federal agencies be for actual costs consistent with the
    Economy Act agreement. In response to our recommendation, the Kennedy
    Center established a policy that requires other federal agencies to
    clearly indicate that they are charging the center for actual costs
    incurred, under an Economy Act agreement. In addition, the policy includes
    an example of a letter that provides clear guidance to contracting staff
    on the language needed to ensure that an agency is charging the center for
    actual costs incurred. Therefore, this recommendation has been
    implemented.

    We recommended that financial policies and procedures ensure that
    receiving reports are prepared when goods or services are received to
    verify the validity of invoices. In response to our recommendation, the
    center's procedures direct staff to enter receiving information on an
    invoice certification form-once the invoice is received-and to compare
    construction invoices to the architect's field inspection reports. We
    examined recent invoice certification forms and found that they contained
    the project title and the period of performance. Each invoice
    certification form we reviewed also included a schedule of values
    detailing (1) the work being billed and (2) the percentage of work
    completed to date. The project title and the period of performance provide
    the information necessary to tie the construction services performed to
    the invoice and to Kennedy Center records. Therefore, this recommendation
    has been implemented.

    We recommended that financial policies and procedures ensure that invoices
    contain sufficient detail to support their accuracy and validity. In
    response to our recommendation, the center's procedures direct staff to
    contact the vendor if additional detail is needed to support information
    on goods or services billed. We reviewed recent invoices and found that
    they now contain sufficient detail to support the accuracy and validity of
    the amounts invoiced. Therefore, this recommendation has been implemented.

    Finally, we recommended that the financial policies and procedures ensure
    that invoices are matched against inspection reports and previously paid
    invoices prior to payment to prevent duplicate payments. In response to
    our recommendation, the center's procedures direct staff to consider
    whether goods and services have been billed on a previously approved
    invoice. This procedure also directs staff to look for any charges outside
    the period of billing and provides further detail instructing staff on
    data sources to consider in determining if payment has already been made.
    Therefore, this recommendation has been implemented.

    Appendix III

    Comments from the John F. Kennedy Center for the Performing Arts

    Note: GAO comments supplementing those in the report text appear at the
    end of this appendix.

    See comment 1.

                                     See comment 2.

                                     See comment 3.

                                     See comment 4.

                                     See comment 5.

                                     See comment 6.

                                     See comment 7.

                                     See comment 8.

                                     See comment 9.

                                    See comment 10.

                                    See comment 11.

                                    See comment 12.

    The following are GAO's comments on the John F. Kennedy Center for the
    Performing Arts' (Kennedy Center) letter dated August 24, 2006.

      GAO Comments

    1. We disagree with this interpretation. Construction manager at risk is
    not covered by the FAR; and, consequently, a deviation must be authorized
    and justified in the contract file. We also continue to believe that
    establishing a Guaranteed Maximum Price (GMP) prior to proceeding with
    work limits the government's risk of cost overruns. During the audit, we
    spoke with an official in the GSA Office of the Chief Architect who
    advises GSA staff on construction issues. The GSA official said that a GMP
    should be established in order to effectively use the construction manager
    at risk project delivery method and a deviation from the FAR is required.
    Because the Kennedy Center stated in its comments that it consulted with
    GSA and was told that it did not need a deviation for the contract, we
    reconfirmed the situation with GSA and were advised again that a deviation
    is required because of the use of the GMP.

    2. We updated the report to indicate that the Kennedy Center and the
           Smithsonian Office of the Inspector General finalized a memorandum of
           understanding, in July 2006, that establishes audits of federal funds
           used for capital projects. In addition, we incorporated into the
           report, the Kennedy Center's rationale for selecting a nongovernmental
           organization to audit the federal funds used for operations and
           maintenance activities.
    3. The revised, peer-reviewed modeling study concludes that smoke exhaust
           and sprinkler protection are not needed on the Millennium Stages,
           provided that the conditions of the revised modeling study are met.
           Once the two conditions of the revised modeling study have been met,
           the Kennedy Center will have fully implemented our recommendation to
           install smoke exhaust and sprinkler protection at the Millennium
           Stages.
    4. We disagree with the Kennedy Center's approach to this recommendation,
           which is to assemble all existing as-built drawings into a single set.
           The Kennedy Center can accomplish our recommendation in a
           cost-efficient way by integrating the as-built drawings from each
           successive capital project into a master plan for the center and by
           updating the drawings as additional changes to the center are made.
           This would ensure that the Kennedy Center is tracking
    future changes to the center and using the most up-to-date drawings of
    site conditions. Our report notes that it is important for the Kennedy
    Center to start assembling and consistently updating a comprehensive set
    of as-built drawings of the entire center to prevent costly unexpected
    site conditions.

    5. We agree that the difference between a project's original budget and
           the final cost does not, by itself, necessarily indicate ineffective
           or inefficient management. However, we do believe that the Kennedy
           Center Board of Trustees and Congress need information on project cost
           overruns in order to monitor and evaluate whether federally funded
           capital projects have been implemented effectively and efficiently.
    6. We believe our point is accurate and have further clarified the report
           to indicate that the cost of the Family Theater project was about $9.1
           million, which includes cost growth, due to change orders, that was
           within the amount allocated for contingency.
    7. The most recent Operations Committee meeting was held on April 2006;
           and as of this meeting, the Roof Terrace Life Safety Project scope was
           not developed. In addition, neither our review of Kennedy Center
           documents nor discussions with Kennedy Center officials indicated that
           the scope of the Roof Terrace Life Safety Project was developed.
           Although the Kennedy Center states that the scope of the Roof Terrace
           Life Safety project was developed in April 2006, they did not provide
           the details of this scope in their agency comments.
    8. The Kennedy Center has deferred many of the terrace-level projects
           that were planned for the CBP beyond the scheduled completion of the
           plan in 2008, which significantly reduced the scope of the CBP.
    9. See comment 6.
    10. We agree that an ongoing capital plan is essential for the maintenance
           of the Kennedy Center as a presidential memorial and national
           performing arts center. The report notes that the Kennedy Center has
           hired a consulting firm to survey the center and recommend upgrades
           that have not been completed. This survey will cover years 2008
           through 2012. We added into the report that a Kennedy Center official
           told us that the new survey will include projects listed in the CBP
           that were not completed in 2008 as planned, as well as new projects.

    Therefore, we consider the survey an extension of the original CBP.
    Although the extended CBP may include new projects to facilitate ongoing
    capital planning, it will include deferred projects that were originally
    scheduled to be completed in 2008.

    11. We did not include designees' attendance in our calculations of board
           and Operations Committee attendance rates for several reasons. First,
           membership on the Kennedy Center Board of Trustees is set forth in the
           Kennedy Center Act and does not include designees. Therefore, we based
           our calculations on the attendance records for those persons legally
           serving as trustees. In addition, since designees have no legal
           authority for making decisions, including those with respect to
           federally funded capital projects, we did not consider their
           participation in board and committee meetings. Lastly, in analyzing
           board meeting minutes, we found instances in which a trustee sent more
           than one designee to a meeting. In these cases, attendance rates would
           be inflated if designees were included in the attendance calculations.
           As noted in the report, we found that it is unclear what
           responsibility and authority designees have for carrying out the
           board's responsibilities under the Kennedy Center Act, which limits
           the board's oversight of federally funded capital projects.
    12. We agree that a lack of attendance at board and committee meetings
           does not necessarily indicate that a trustee is not informed or
           engaged. However, during our audit we found, as noted in the report,
           that with respect to capital projects, trustees were not informed of
           project cost overruns, project budgets, or proposed projects. For
           example, as highlighted in the report, in April 2005, we reported that
           since 2003, each of the three federally funded capital projects that
           we reviewed had experienced cost overruns, one as great as 50 percent.
           However, we did not find any evidence that the board or its Operations
           Committee was informed of these cost overruns, such as the Opera
           House's $4 million cost increase. For example, two trustees that
           served on the board during the implementation of these projects told
           us that they did not know of any capital projects that had cost
           overruns. One of these trustees said that the Opera House renovation
           was on budget.

    Appendix IV

                         GAO Contacts and Staff Acknowledgments

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    Krump, Susan Michal-Smith, Josh Ormond, Julie T. Phillips, and Carrie
    Wilks made key contributions to this report.

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