Commentary: Audit questions roil the Palm Springs Art Museum

Serious fiscal woes person plagued the Palm Springs Art Museum for astatine slightest six years, according to interior documents obtained by The Times. Recent developments person opened a Pandora’s box.

On Jan. 15, the accounting steadfast conducting the yearly audit of the museum’s 2024 books attached to its study a “letter of worldly weakness,” a modular accounting signifier for alerting a lawsuit to the tenable anticipation that its interior fiscal statements are importantly retired of whack.

Less than 3 months aft the audit letter, successful aboriginal April, the museum’s manager abruptly resigned, and trustee defections began. A cascade of astatine slightest 8 resignations from the museum’s committee of trustees — astir one-third of its rank — has occurred since spring. One resignation came connected the proposal of the trustee’s attorney. With 19 trustees remaining, according to a listing connected the museum’s website, the full fig has fallen beneath the minimum of 20 required successful the museum’s by-laws.

Palm Springs Art Museum committee seat Craig Hartzman did not respond to aggregate requests for comment.

Accountants astatine Eide Bailly, citing a “deficiency successful interior control” astatine the museum, highlighted six areas of concern, including problems with reporting of endowment spending, improper signaling of the marketplace worth of donated and deaccessioned art, and faulty signaling of admissions revenues.

Former depository manager Adam Lerner had reportedly been negotiating a three-year declaration renewal erstwhile helium stepped down. Without elaborating connected his unexpected determination to depart, helium was cited successful a depository property merchandise arsenic leaving for idiosyncratic reasons. Lerner returned to Colorado, wherever helium antecedently headed the Museum of Contemporary Art Denver.

Reached by text, Lerner declined a petition for interview, referring questions to the museum.

Financial problems astatine PSAM are not new. According to six pages of notes obtained by The Times, compiled by a trustee who led a task unit charged with examining depository finances, the ending connection connected the 2019 endowment equilibrium was $3 cardinal higher than the opening equilibrium connected the 2020 statement. Audits and taxation returns posted connected the depository website corroborate the puzzling discrepancy.

The notes accidental it is “highly unlikely” the funds were stolen. Instead, they question interior depository accounting practices, which tin make a misleading quality of fiscal health. By the 2021 audit, the extracurricular accounting steadfast that had been preparing them annually anterior to Eide Bailly had quit.

“This is ever a reddish flag,” wrote depository trustee Kevin Comer, an creation collector who retired aft 30 years arsenic a managing manager astatine Deutsche Bank successful New York, and who is simply a erstwhile prof of accounting and fiduciary absorption techniques astatine the Ohio State University. A trustee for little than 2 years, Comer resigned Nov. 6.

Reached by telephone, Comer declined to sermon the accounting firm’s missive oregon the task unit notes.

Palm Springs Art Museum

(Guillaume Goureau/Palm Springs Art Museum)

Since precocious July, a lengthy anonymous email has besides been circulating from a self-described “whistleblower with a nonstop relationship” to the Palm Springs Art Museum. Fourteen itemized complaints, astir concerning fiscal matters, are presented with sobriety, positive a dilatory pain of understandable anger. Whether oregon not the unidentified whistle blower has an ax to grind is chartless to me, but plainly the email is not a database of chaotic accusations hurled by an unreliable gadfly.

The coherent level of informed specificity surely suggests authorship by a knowledgeable insider. Some stated grievances whitethorn person benign explanations, portion others are troubling.

Comer pulled fewer punches successful his ain missive of resignation to chap trustees, besides obtained by The Times. The fiduciary expert, a erstwhile subordinate of the board’s concern committee, said helium was resigning connected the proposal of his attorney.

The board, Comer alleged, is sidestepping the cardinal fiduciary work to support “the integrity of the museum, contempt our champion intentions.” The missive urges hiring some a instrumentality steadfast and a forensic accounting steadfast to reappraisal depository finances, partially to untangle seemingly inappropriate methods successful the past for the payment of the existent board, and partially to code imaginable liability.

An earlier task unit proposition to that effect was discussed by the committee but went unheeded, helium charges.

Especially concerning is simply a 2019 reclassification of immoderate restricted funds. Task unit notes suggest the $3-million discrepancy betwixt 2019 and 2020 whitethorn person originated arsenic a alteration successful restricted funds to unrestricted status. Assets specifically donated for a peculiar relation could past look to beryllium disposable for wide operating purposes.

The depository consistently operated astatine a loss, the notes say, with immoderate operating shortfalls covered by the 2019 reclassification. A shortage is not antithetic for an creation museum, but whether the reclassifications of immoderate restricted funds were due appears to beryllium successful doubt. Presumably, funds reclassified arsenic unrestricted astatine the extremity of 1 twelvemonth to marque the fiscal filing look bully whitethorn person had their restricted presumption restored astatine the commencement of the adjacent year.

Restricted funds tin see wealth raised done the deaccession and merchantability of creation donated to a museum’s collection. Common depository ethical standards necessitate income from deaccessioned creation to beryllium sequestered, utilized lone for different creation purchases, arsenic good arsenic for nonstop attraction of the collection. For accounting purposes, the monetary worth of a nonprofit museum’s creation postulation is not considered a worldly plus to beryllium carried connected the books. Reclassification of sequestered creation funds could enactment an quality of wide fiscal vigor.

During the lengthy 2020 pandemic closure, the cash-strapped depository made the arguable determination to deaccession and past merchantability a prized 1974 Helen Frankenthaler painting, which brought $4.7 cardinal astatine auction. The 2024 audit puts full donor restricted funds for creation purchases and postulation attraction astatine $7.8 million.

To wage the bills the depository has besides been drafting down the endowment. According to the 2024 audit, the astir caller fiscal connection presently available, the endowment is somewhat much than $17 cardinal — highly tiny for a depository that past twelvemonth had an operating fund of astir $10.5 million.

“Endowment draws implicit the past decennary totaled astir $8 million, and contributions to the endowment totaled astir $500,000,” the notes report. “Most years the depository operated astatine a loss, including for the past 3 years erstwhile the committee believed we were profitable,” it states.

Such a disproportion betwixt fundraising and expenditure, betwixt wealth coming successful and wealth going out, is frankly unsustainable for this — oregon immoderate — creation museum, particularly erstwhile ostentation is factored in.

The endowment is simply a nonprofit’s “seed corn,” eaten for short-term summation lone astatine its semipermanent peril. Most disturbing: The notes suggest that portion the five-person enforcement committee whitethorn person been alert of immoderate of the situation’s much hard details, the remainder of the committee appears not to person been afloat informed of the museum’s fiscal position
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“Bottom line,” Comer’s resignation missive astutely observes, “this is simply a enactment radical that doesn’t cognize what it doesn’t know, and that is the astir unsafe spot successful which an instauration tin beryllium placed.”

The Palm Springs Art Museum has seemingly wedged itself firmly betwixt a stone and a hard place. Now, it is unclear however the depository tin determination guardant without a afloat cohort of 20 trustees authorized to ballot connected making indispensable decisions — including accepting caller members to the board.