October 26, 2006 | Read Time: 7 minutes
Eighteen months after the Milwaukee Public Museum, one of the largest natural-history museums in the country, shocked the city by revealing that it was in a financial crisis, one of its top executives appears to be the only one to face criminal charges in the museum’s near collapse.
Terry A. Gaouette, who left his job as chief financial officer of the museum after its problems became public, was charged by Milwaukee’s district attorney with using money from the endowment to cover operating expenses as the museum sank into a financial crisis, and lying about his actions in board meetings to hold on to his job, according to criminal charges filed this month. He did not profit personally from his actions, according to the complaint.
Mr. Gaouette faces up to 24 years in prison if convicted of all charges.
“It’s only right that he should be paying for this,” says Scott Walker, the top executive for Milwaukee County, which provides about a quarter of the museum’s budget and appoints a third of its board members. “The museum is going to be paying for his misdeeds for years to come.”
Dean A. Strang, Mr. Gaouette’s lawyer, says his client is being set up as a scapegoat even though he kept board members and the museum’s then-president, Michael D. Stafford, who resigned in June 2005, informed of the museum’s mounting financial woes.
“It’s just disappointing to see those above him saying, ‘The buck stops over there with the guy who worked for us,’” Mr. Strang says. “Harry Truman would be embarrassed for the people on this board.”
Board Questioned
While the district attorney’s office said Mr. Gaouette will probably be the only person charged with a crime, county auditors found that weak oversight and poor decision making by the board and a string of presidents set the stage for the financial crisis. The auditors found that Mr. Stafford had some knowledge of the museum’s weakening financial condition, and said that a more diligent board would have probed more deeply into confusing data presented by Mr. Gaouette.
“It’s a little troubling that Gaouette is taking all of the blame when there’s a lot of blame to go around,” says Jack Siegel, a Chicago lawyer who advises charities and has closely followed the investigation into the museum’s woes on his blog, Charity governance.org. “This may be the easiest thing to prove, and they wanted to get their pound of flesh.” (Mr. Siegel is a close friend of a lawyer who initially represented Mr. Gaouette.)
County Financing
The Milwaukee Public Museum, which will celebrate its 125th anniversary next year, had embarked on an aggressive expansion to try to make up for stagnant fund raising and attendance and a reduced subsidy from the county. The county owned the museum and provided nearly all of its budget until 1992, when management was transferred to a separate nonprofit organization.
Beginning in the late 1990s, the museum built an IMAX theater, opened eight retail stores around the state, created a live butterfly exhibit, and bought acreage in a Costa Rican rainforest. The anticipated surpluses from these new activities never materialized, and debt ballooned as a result. The museum owed $28.8-million as of August 2005, up from just $900,000 when it was spun off by the county in 1992.
“When things weren’t going as they had hoped, it’s unfortunate that somebody didn’t say, ‘Let’s stop what we’re doing, re-evaluate, and try to do something different,’” says Michael A. Bernatz, the museum’s current chief financial officer, who joined the museum after the financial crisis erupted.
As the museum’s finances weakened, Mr. Gaouette transferred money out of the museum’s endowment in 2004 and 2005 to cover normal operating expenses, according to the court complaint. The endowment, which stood at $8.5-million in April 2002, dropped to $387,000 by August 2005. Endowment policy limited withdrawals for general operations to just 3 to 5 percent per year.
Mr. Gaouette intentionally misled the board’s endowment committee, and mentioned accounts that didn’t even exist, the district attorney’s complaint says. He also ignored a warning from another museum official that he could go to jail for using large portions of the endowment for operating purposes.
His salary rose sharply during the time of his alleged crimes — from $97,465 in 2002 to $139,423 in 2004. (He became chief operating officer for a time before Mr. Stafford was hired in December 2003.)
Although Mr. Gaouette didn’t personally profit from his moves, he provided “false reports” to the board “to preserve his job with the museum and his status within the museum community,” according to the complaint.
‘Apparent Contradictions’
Two board decisions helped make Mr. Gaouette’s alleged deceptions possible. The board commingled the endowment with the museum’s operating funds for investment purposes, and, in April 2002, gave Mr. Gaouette authority to make withdrawals from the endowment without a second signature.
The county auditor also said that the confusing financial statements supplied to the board’s endowment committee by Mr. Gaouette from 2001 to 2005 should have led to greater scrutiny of his actions.
“We identified numerous instances of confusing presentations, including the mixing of calendar year and fiscal year timelines, illogical column headings and dates, as well as apparent contradictions that would appear to have prompted probing questions from a diligent oversight board,” the county’s final audit said.
“You couldn’t have been looking at the financial statements seriously and claimed you didn’t see this coming,” says Mr. Siegel, the Chicago lawyer.
Aid Withdrawn
Questions remain about whether the museum intentionally withheld information about its financial crisis from Milwaukee County before the county tentatively approved a 20-year, $70-million aid package to the museum in March 2005. When Mr. Stafford disclosed information about the museum’s massive deficit to a Milwaukee Journal-Sentinel reporter a month later, the county backed out of the agreement, which had not yet been signed.
Mr. Stafford later told the Journal-Sentinel that he knew little about finances, and didn’t realize the severity of the museum’s fiscal woes.
“I literally handed over the keys to the guy,” Mr. Stafford said, referring to Mr. Gaouette. “For the first half a year, he really was the CEO and I was learning.”
Mr. Gaouette insists that he kept Mr. Stafford and the board informed about the museum’s financial difficulties. In a July 2004 e-mail message to Mr. Stafford, Mr. Gaouette warned that weak fund-raising results had forced him to borrow against the museum’s line of credit and tap the endowment for nearly $1-million. He wrote: “Our cash flow position is seriously compromised.”
Mr. Stafford has returned to the Cranbrook Institute of Science, in Bloomfield Hills, Mich., which he headed before taking the top job at the Milwaukee Public Museum. His lawyer, Craig Albee, told the Journal-Sentinel that the criminal complaint “demonstrates that the museum’s financial problems began long before Mr. Stafford took over as president and that the depth of the museum’s financial problems was concealed from him and others.”
The Milwaukee Public Museum has eliminated nearly half its staff, replaced two-thirds of its board members, and now requires two board-member signatures on any expenditure over $50,000, according to Mr. Bernatz, the chief financial officer.
On a brighter note, some 20,000 households still have a membership at the museum, and it raised $3.5-million last year, exceeding its fund-raising goals. It has high hopes for a new planetarium that will share space with the IMAX theater, and an exhibit opening in January that will feature the skeleton of Samson, a beloved 600-pound gorilla who died in the local zoo 25 years ago.
But the museum has no easy answers for how to pay off its $28-million debt, including $7.5-million that is due by 2010. Milwaukee County, which is staggering under its own financial problems, is unlikely to help the museum reduce its debt burden.
Museum leaders remain hopeful that local donors will step forward.
“This museum has been here since 1882,” Mr. Bernatz says. “I certainly don’t want to be the one that is here closing the doors.”
