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 [email protected]. 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
GAO Contacts
Mark Goldstein, (202) 512-2834
GAO Contacts
Tammy Conquest, (202) 512-2834
Staff Acknowledgments
In addition to those named above, Michael Armes, Keith Cunningham,
George Depaoli, Bess Eisenstadt, Craig Fischer, Brandon Haller, John
Krump, Susan Michal-Smith, Josh Ormond, Julie T. Phillips, and Carrie
Wilks made key contributions to this report.
GAO's Mission
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