DIVISION I #1 Newport Harbor 18, #8 Mater Dei 9 #4 Corona del Mar 10, #5 Oaks Christian 6 #3 San Diego Cathedral 15, #6 Mira Costa 10 #2 La Jolla 15, #7 Loyola 12
Serious financial woes have plagued the Palm Springs Art Museum for at least six years, according to internal documents obtained by The Times. Recent developments have opened a Pandora’s box.
On Jan. 15, the accounting firm conducting the annual audit of the museum’s 2024 books attached to its report a “letter of material weakness,” a standard accounting practice for alerting a client to the reasonable possibility that its internal financial statements are significantly out of whack.
Less than three months after the audit letter, in early April, the museum’s director suddenly resigned, and trustee defections began. A cascade of at least eight resignations from the museum’s board of trustees — nearly one-third of its membership — has occurred since spring. One resignation came on the advice of the trustee’s attorney. With 19 trustees remaining, according to a listing on the museum’s website, the total number has fallen below the minimum of 20 required in the museum’s by-laws.
Palm Springs Art Museum board chair Craig Hartzman did not respond to multiple requests for comment.
Accountants at Eide Bailly, citing a “deficiency in internal control” at the museum, highlighted six areas of concern, including problems with reporting of endowment spending, improper recording of the market value of donated and deaccessioned art, and faulty recording of admissions revenues.
Former museum director Adam Lerner had reportedly been negotiating a three-year contract renewal when he stepped down. Without elaborating on his unexpected decision to depart, he was cited in a museum press release as leaving for personal reasons. Lerner returned to Colorado, where he previously headed the Museum of Contemporary Art Denver.
Reached by text, Lerner declined a request for interview, referring questions to the museum.
Financial problems at PSAM are not new. According to six pages of notes obtained by The Times, compiled by a trustee who led a task force charged with examining museum finances, the ending statement on the 2019 endowment balance was $3 million higher than the beginning balance on the 2020 statement. Audits and tax returns posted on the museum website confirm the puzzling discrepancy.
The notes say it is “highly unlikely” the funds were stolen. Instead, they question internal museum accounting practices, which can create a misleading appearance of fiscal health. By the 2021 audit, the outside accounting firm that had been preparing them annually prior to Eide Bailly had quit.
“This is always a red flag,” wrote museum trustee Kevin Comer, an art collector who retired after 30 years as a managing director at Deutsche Bank in New York, and who is a former professor of accounting and fiduciary management techniques at the Ohio State University. A trustee for less than two years, Comer resigned Nov. 6.
Reached by telephone, Comer declined to discuss the accounting firm’s letter or the task force notes.
Palm Springs Art Museum
(Guillaume Goureau/Palm Springs Art Museum)
Since late July, a lengthy anonymous email has also been circulating from a self-described “whistleblower with a direct relationship” to the Palm Springs Art Museum. Fourteen itemized complaints, most concerning fiscal matters, are presented with sobriety, plus a slow burn of understandable anger. Whether or not the unidentified whistle blower has an ax to grind is unknown to me, but plainly the email is not a list of wild accusations hurled by an unreliable gadfly.
The coherent level of informed specificity certainly suggests authorship by a knowledgeable insider. Some stated grievances may have benign explanations, while others are troubling.
Comer pulled few punches in his own letter of resignation to fellow trustees, also obtained by The Times. The fiduciary expert, a former member of the board’s finance committee, said he was resigning on the advice of his attorney.
The board, Comer alleged, is sidestepping the fundamental fiduciary obligation to protect “the integrity of the museum, despite our best intentions.” The letter urges hiring both a law firm and a forensic accounting firm to review museum finances, partly to untangle apparently inappropriate methods in the past for the benefit of the current board, and partly to address potential liability.
An earlier task force suggestion to that effect was discussed by the board but went unheeded, he charges.
Especially concerning is a 2019 reclassification of some restricted funds. Task force notes suggest the $3-million discrepancy between 2019 and 2020 may have originated as a change in restricted funds to unrestricted status. Assets specifically donated for a particular function could then appear to be available for general operating purposes.
The museum consistently operated at a loss, the notes say, with some operating shortfalls covered by the 2019 reclassification. A deficit is not unusual for an art museum, but whether the reclassifications of some restricted funds were appropriate appears to be in doubt. Presumably, funds reclassified as unrestricted at the end of one year to make the financial filing look good may have had their restricted status restored at the start of the next year.
Restricted funds can include money raised through the deaccession and sale of art donated to a museum’s collection. Common museum ethical standards require income from deaccessioned art to be sequestered, used only for other art purchases, as well as for direct care of the collection. For accounting purposes, the monetary value of a nonprofit museum’s art collection is not considered a material asset to be carried on the books. Reclassification of sequestered art funds could support an appearance of general financial vigor.
During the lengthy 2020 pandemic closure, the cash-strapped museum made the controversial decision to deaccession and then sell a prized 1974 Helen Frankenthaler painting, which brought $4.7 million at auction. The 2024 audit puts total donor restricted funds for art purchases and collection maintenance at $7.8 million.
To pay the bills the museum has also been drawing down the endowment. According to the 2024 audit, the most recent financial statement currently available, the endowment is slightly more than $17 million — extremely small for a museum that last year had an operating budget of approximately $10.5 million.
“Endowment draws over the past decade totaled roughly $8 million, and contributions to the endowment totaled roughly $500,000,” the notes report. “Most years the museum operated at a loss, including for the last three years when the board believed we were profitable,” it states.
Such a disproportion between fundraising and expenditure, between money coming in and money going out, is frankly unsustainable for this — or any — art museum, especially when inflation is factored in.
The endowment is a nonprofit’s “seed corn,” eaten for short-term gain only at its long-term peril. Most disturbing: The notes suggest that while the five-person executive committee may have been aware of some of the situation’s more difficult details, the rest of the board appears not to have been fully informed of the museum’s financial position . “Bottom line,” Comer’s resignation letter astutely observes, “this is a leadership group that doesn’t know what it doesn’t know, and that is the most dangerous place in which an institution can be placed.”
The Palm Springs Art Museum has apparently wedged itself firmly between a rock and a hard place. Now, it is unclear how the museum can move forward without a full cohort of 20 trustees authorized to vote on making essential decisions — including accepting new members to the board.
