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Mr. Stanton gave a brief overview of the annual report of the Office of Audits and Investigations. He indicated that reviews of the following programs and activities were conducted:

Smithsonian Astrophysical Observatory
Joseph Henry Papers
National Associates Program
Unliquidated Obligations
Utilities Payment Process
Accounting Service Center
Mail Management
Internal Controls Over Cash Receipts at the 1988 Festival of American Folklife
Conservation Analytical Laboratory
American Art/Portrait Gallery Office of Building Management
Internal Controls Over Payroll Operations; Operations of the Payroll/Personnel System
Trust Fund Health Benefits Program
National Museum of Natural History Office of Building Management
Auxiliary Activities
Follow-up on Open Audit Recommendations

Mr. Stanton noted that significant recommendations emerged from only six of these reports. He informed the Committee that the Office also conducted 27 contract audit reports, six of which saved the Institution over $216,000 out of bids amounting to more than $1,800,000. He added that investigative activities in 1988 resulted in a range of convictions and pending prosecutive actions; fines, court-ordered restitution, and administrative recoveries; and administrative actions.

In discussion which ensued, the Committee invited Mr. Stanton as well as the representatives of Coopers & Lybrand to feel free to report directly to the Committee any matters requiring such confidentiality. The Committee also expressed its interest in being assured that the Office of Audit and Investigations is provided the resources to perform its function properly. In that vein it was suggested that, as might be detected in the findings of both the internal and external auditors discussed at this meeting and over the last several years, the Institution may have failed to augment less glamorous administrative and managerial functions at a pace commensurate with its phenomenal expansion of activities over the last several decades -- though this observation does not constitute an excuse.

After reviewing the list of matters which will be further reported on at the next meeting, the Audit and Review Committee adjourned its meeting at approximately 9:45 a.m.

[[underlined]] REPORT OF THE INVESTMENT POLICY COMMITTEE [[/underlined]]

Mr. McHenry introduced the following report of the Investment Policy Committee, noting especially that the market value of the endowment stands at