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[[underlined]] REPORT OF THE AUDIT AND REVIEW COMMITTEE [[/underlined]]

Mr. Acheson introduced the following report, emphasizing that corrective measures regarding controls in auxiliary activities have been an urgent matter in recent months and are apparently being satisfactorily addressed by the Treasurer and other Smithsonian officials. The Committee plans to continue monitoring improvements in this area until it is clear that problems of inventory management and accounting have been corrected.

* * * * *

The Audit and Review Committee met on Tuesday morning, October 3, 1989, in the Naturalists' Center of the National Museum of Natural History and was called to order shortly after 8:00 a.m. by the Chairman. Present were:

David C. Acheson, Chairman
Jake Garn
Robert B. Morgan
Charles McC. Mathias, Jr.

Also present were: Under Secretary Dean W. Anderson; Assistant Secretaries John F. Jameson, Tom L. Freudenheim, and Robert S. Hoffmann; Treasurer Ann R. Leven; General Counsel Peter G. Powers; Executive Assistant to the Secretary James M. Hobbins; Comptroller, Office of Accounting and Financial Services, Shireen Dodson; Acting Inspector General John C. Fawsett; Acting Deputy Director of the National Museum of Natural History Stanwyn G. Shetler; Director of Facilities Services Richard L. Siegle; Office of Design and Construction Program Manager for the National Museum of Natural History Donald Dormstetter; Acting Director of Museum Shops Edward F. Sullivan; Assistant to Mr. Mineta Phyllis A. Guss; Engagement Manager A. Robert Bloom and Engagement Partner John D. Strom, both of Coopers & Lybrand.

At Mr. Acheson's invitation, Miss Leven briefly reviewed corrective measures which have stemmed losses of inventory and cash in the Museum Shops. As a result of joint efforts with the Office of the Inspector General, a variety of new procedures has led to significant improvements in museum shop management and operations, to the point where losses are now within industry norms. Mr. Sullivan described for the Committee the specific strategies which are being followed to monitor performance in the shops and in the warehouse. Mr. Strom noted that Coopers & Lybrand believes the Smithsonian has a reliable accounting system and generally sounder inventory procedures than in years past; potential weaknesses in inventory belonging to selected activities stem primarily from utilizing commercial warehouse facilities which also house non-Smithsonian activities and from improper counting procedures. He added that Coopers & Lybrand is generally satisfied with the corrective measures which have been taken. Their report will not be available until the fiscal year 1989 audit is completed. In discussion the Committee suggested that management should deal with suboptimal warehousing services by changing contractors.