June 23,2006

Grassley Pleased With Assurance of Independent Inspector General for Smithsonian

M E M O R A N D U M

To: Reporters and Editors
Re: Responses on Smithsonian inspector general
Da: Friday, June 23, 2006

Today Sen. Chuck Grassley, chairman of the Committee on Finance, received responses to
his inquiry regarding the Smithsonian’s inspector general. He made the following comment on the
responses. His original inquiry follows.

“This is a good, fast response from both OMB and the Smithsonian’s board. It’s very positive
that the inspector general will be an independent choice who will report to the Smithsonian board,
not to the head of the agency. I’m glad to see a shot in the arm for strong, independent oversight to
protect a national treasure.”

For Immediate Release
Monday, June 12, 2006

Grassley Seeks Independent Choice of Smithsonian Inspector General

WASHINGTON – Sen. Chuck Grassley, chairman of the Committee on Finance, is seeking to
prevent the head of the Smithsonian from choosing the inspector general who will critique the
agency. Grassley is concerned that Smithsonian Secretary Lawrence M. Small has a troubled
performance record.

“There’s a fox-guarding-the-hen-house dynamic here,” Grassley said. “It’s wrong to let the head of
this institution hand-pick the inspector general who critiques his agency. The pick should be
independent. The person running the Smithsonian was highly criticized by a government report for
his work as a leader of Fannie Mae. It seems common sense that a guy with a cloud over his head
shouldn’t get to choose the inspector general of his agency. The Smithsonian’s Board of Regents
should choose the inspector general, and the inspector general should report to the board. Also, it’s
troubling that the departing inspector general feels her office got short shrift. The Smithsonian is an
American treasure, holding billions of dollars worth of assets, as well as priceless assets, and it needs
scrutiny from a strong inspector general to function well.”

Grassley said two letters expressing his concern. The text follows here.

June 9, 2006

Director Rob Portman
Office of Management and Budget
725 17th Street, NW
Washington, DC 20503

Dear Director Portman:

The Smithsonian’s Inspector General, Debra Ritt, has announced her resignation from the Office of
the Inspector General (“OIG”). At this time, the OIG is investigating several matters including but
not limited to salaries paid to executives and senior managers, accounting practices of Smithsonian
Business Ventures (“SBV”), and contracts entered into on behalf of the Smithsonian. These
investigations are critical to ensure that the Smithsonian is most efficiently utilizing their resources
to guarantee that they can continue to fulfill their mission.

The power to appoint the Inspector General (“IG”) currently lies with the “head” of the entity
pursuant to the 1988 amendments to the Inspector General Act of 1978. Currently it appears the
“head” of the Smithsonian who is responsible for the appointment of the next IG is Secretary Small.
I am concerned that there is an inherent conflict of interest with Secretary Small nominating the IG
who will be responsible for continuing the on-going investigations regarding his salary and the
contracts he entered into on the Smithsonian’s behalf.

According to the Inspector General Act of 1978, the Director of OMB “after consultation with the
Comptroller General of the United States” is required annually to publish a list of designated entities
and the head of each entity. This Act also states the power of the “head” of an entity can rest with
the chief policymaking officer or board. Congress has vested responsibility for administering the
Smithsonian in the Board of Regents. Thereby, I suggest this same Board of Regents be designated
as the ones responsible for the appointment of the Inspector General rather than Secretary Small.

In addition, a recent report released by the Office of Federal Housing Enterprise Oversight
(“OFHEO”) regarding Mr. Small’s involvement in the extensive financial fraud that took place at
the Federal National Mortgage Association only heighten my concern with Secretary Small’s
continual leadership of the Smithsonian. His circumvention of generally accepted accounting rules
to meet earning targets in order to increase bonuses for top executives runs afoul of the type of
leadership needed to protect the nation’s treasures at the Smithsonian. In light of OFHEO’s report
which details Mr. Small’s involvement in these matters; does the Administration believe Secretary
Small is the appropriate steward of the Smithsonian?

Thank you for your time and attention to this matter. I would ask for a response in thirty days.
Cordially yours,

Charles E. Grassley

Chairman

cc: Smithsonian Board of Regents

June 9, 2006

Debra S. Ritt
Inspector General
Smithsonian Institution
Washington, D.C. 20560-0905

Dear Ms. Ritt:

I have noted with interest your recent announcement of an audit of executive compensation and
related accounting practices of the Smithsonian Institution’s Business Ventures unit. As you know,
I along with the Committee have a strong interest in non-profit governance, accountability, and
transparency in financial operations.

Because your audit will enhance understanding of executive compensation practices and provide an
accounting of how funds raised by Smithsonian Business Ventures have been spent for the charitable
purposes of the Institution, I urge you to make your audit a high priority. I would also request that
you expand the scope of your work to include the compensation of other executives and senior
managers throughout the Institution.

With respect to compensation please include within the scope of your audit all types of compensation
and perquisites that were paid to executives and senior managers. Specifically if there were any
arrangements that included for example housing allowances, automobile allowances, loans or cash
advances, and performance incentives paid to anyone. This is just a small selection of the types of
payments that could be included in an executive compensation package.

I am also aware of your recent resignation from the Office of the Inspector General. I hope that your
successor is equally enthusiastic to ensure that the Smithsonian is run both economically and
efficiently while remaining true to the mission of creating an “establishment for the increase and
diffusion of knowledge.”

Please ensure that your office keeps the Committee apprised of your progress on this audit. Thank
you for your attention to these important issues. We look forward to receiving a full report of your
findings.

Sincerely,

Charles E. Grassley
Chairman

cc: Smithsonian Board of Regents

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