Nassau County Comptrollers Office

WEITZMAN AUDIT FINDS LAX MANAGEMENT,
ABSENCE OF INTERNAL CONTROLS AT AVIATION MUSEUM

An audit of the Cradle of Aviation Museum at Mitchel Field has revealed a "distressing lack of financial controls and management oversight across the board," Comptroller Howard S. Weitzman said today. The audit was initiated at the request of Judy Jacobs, Presiding Officer of the Nassau County Legislature, and Craig Johnson, Chairman of the Legislature’s Finance Committee, who expressed concerns about the Museum’s financial operations in letters to the Comptroller last April.

"The Cradle of Aviation celebrates Long Island’s pivotal role in the development of air travel, from the first biplanes to man walking on the moon," Comptroller Weitzman said. "Unlike the marvelous vintage aircraft on exhibit there, however, the Museum has barely gotten off the ground. Attendance is declining and deficits are growing. Our audit found that staff conflict contributes to the dysfunctional operation of the Cradle and impedes efforts at reform. Drastic operational changes must be implemented if the Museum is to achieve viability."

The Cradle of Aviation is operated under an agreement with the county by Museums at Mitchel (MAM), a not-for-profit organization. The Comptroller’s audit, covering operations and finances for the period from July 2003 to April 2006, found that:

the Museum has been ineffective in its fundraising. Board members, usually appointed at non-profits for their ability to raise money, and the president, who was hired specifically to lead efforts in this area, do not participate substantially in fundraising for the Museum;

the Museum has spent down substantially all donations pledged in the past and has not generated new pledges, making future deficits likely;

the Museum has not aggressively pursued State or Federal grant funding;

the Museum has not yet been accredited by the American Association of Museums, nor has it sought accreditation, a fact that hinders its ability to raise funds with donors and foundations;

the Museum Board’s development committee, organized to develop plans for Board participation in fundraising efforts, rarely met, and never met with the Director of Development or other top museum executives;

the Museum did not develop required procurement policies for the first four years of its operating agreement, and when it did finally issue those policies, failed to follow them regarding competitive bids for contracts with a value of more than $5,000. Numerous instances were found of contracts awarded with no competition, including one agreement for over $300,000. Contracts were awarded without competition on the recommendation of Board members, in some cases to companies with which Board members had an affiliation.

"What was particularly surprising – and dismaying – was the lack of competitive procurement and controls over spending and cash receipts," Comptroller Weitzman said. "The Vice President of Administration and Finance – herself a part-time employee who works offsite from her home in Virginia – informed our auditors that some vendors were considered ‘vendors of choice,’ to be selected without competition because they were favored by members of the museum board," Comptroller Weitzman said. "This kind of favoritism is unacceptable and is, in fact, a violation of MAM’s own written policy."

The Cradle of Aviation Museum was built with a $40 million investment from Nassau County. Although a 2001 agreement obligated MAM to pay the county approximately $2.5 million, the Nassau Legislature has agreed to waive that debt if the museum meets certain fiscal targets.

The museum’s poor financial performance is directly attributable to its declining attendance and its lackluster fundraising, the Comptroller said. Annual visitors have declined from 246,415 in fiscal year 2003 to 161,191 in fiscal year 2006. A financial analysis by the Comptroller’s Office projects that the Museum will lose $113,000 this fiscal year; the red ink is predicted to grow to a loss of $1.4 million in fiscal year 2007.

During the audit period, the Cradle’s fundraising was inadequate for its needs, raising an average of $136,000 per year from contributions and $167,000 per year from an annual gala, the report says. It is unlikely that the fundraising goal of $500,000 for fiscal year 2006 will be met.

"When Museums at Mitchel hired a new president in early 2005, he was given a mandate to concentrate on fundraising," Comptroller Weitzman said. "Yet when interviewed by my staff, the president agreed that he had not devoted time to fundraising, choosing to concentrate instead on expense reduction, a task that should have been assumed by the museum’s chief operating officer, who had been employed in that position for the previous three years."

Comptroller Weitzman also noted that the museum’s preliminary 2006 attendance numbers show an uptick in visitors, yet a smaller increase in receipts from attendance than those numbers would suggest. "We are asking the Museum to review and explain these numbers, which the Comptroller’s Office will then verify for accuracy."

Among the report’s other findings:

A no-bid relationship with Mainline Electric Corporation was used to supplement normal staff, at an exorbitant cost of $91.12 per hour. An electrician, on site for about 200 days between April 2004 and February 2005, at a cost of $140,000, was used to perform routine maintenance work. Over the audit period, total payments to the vendor exceeded $325,000;

Museum personnel spent approximately $45,000 on travel to conferences during the audit period. Until July 2005 there were no written policies governing such travel. The policies, once issued, were not followed. Trips were found to have been made without written approval, and expense guidelines were exceeded;

The Museum allowed employees to use credit and debit cards without supervision, approval or, in many cases, receipts. Approximately $178,000 was expended using such cards during the period audited;

MAM has not sought accreditation, according to the Museum’s chief operating officer, because it lacks a number of required documents and procedures including a 10-year business plan, a code of ethics, and environmentally adequate storage conditions for certain of its collections;

The Cradle has issued neither audited financial reports for 2003-2004 and 2004-2005, nor any financial or strategic plans. The absence of such documents was judged to impede MAM’s ability to successfully apply for grants;

MAM’s Board chairperson acknowledged that the Board has spent little time on the fiscal and operational problems of the Cradle, concentrating instead on site development activities for other museums at Mitchel Field;

Despite the fact that catering services are a major source of museum revenues, MAM never exercised its right to audit the contract with its house caterer, CulinArt Inc., nor did it require CulinArt to maintain records that could be used to determine whether its payments to the Museum were accurate. Similarly, no records were kept that could verify costs incurred by CulinArt and billed to the Museum for services rendered in-house;

Auditors found inadequate internal controls over all major financial functions, including accounting, handling of cash receipts, disbursements, and petty cash.

The complete audit report may be read or downloaded by clicking the report title below:

WEITZMAN AUDIT FINDS LAX MANAGEMENT, ABSENCE OF INTERNAL CONTROLS AT AVIATION MUSEUM

WEITZMAN AUDIT FINDS LAX MANAGEMENT,
ABSENCE OF INTERNAL CONTROLS AT AVIATION MUSEUM