After Whistleblower Complaint, Palm Springs Art Museum Declines to Release Report on Allegations of Fraud and Theft, Claims They Are ‘Not Substantiated’

The Palm Springs Art Museum in California has released a three-page statement saying that an investigation conducted in response to a whistleblower complaint alleging mismanagement and fraud found no wrongdoing by the museum. The museum declined to provide ARTnews a copy of the resulting report, which will not be publicly released.

The whistleblower complaint made numerous detailed allegations. Among them are claims that the museum improperly reclassified funds in its endowment to meet cash crunches; that there is a $3 million discrepancy in the balance of the museum’s investment account; and that a former director was improperly forced out to make way to promote an internal hire after a problematic search process. The museum’s statement reveals little in the way of specifics about those allegatoins, but broadly says there was no wrongdoing and that while there may have been errors, there was no improper intent.

The museum retained law firm Barnes & Thornburg and forensic accounting firm RSM US to conduct the six-month investigation. Neither firm responded to a request to confirm that the museum’s statement completely summarizes the results of its investigation. 

The museum’s statement does not indicate that there will be any public release of the report or any forum for members of the community to respond to the statement and pose questions.

Founded in 1938 as the Palm Springs Desert Museum, the institution narrowed its focus to art and changed its name in 2005. Accredited by the American Alliance of Museums, it owns two historic buildings and operates a sculpture garden in Palm Desert. The museum, whose collection contains 5,000 works, has an endowment of about $23 million, per its 2024 financial statements. 

The outside investigation teams reviewed over 350,000 documents including financial records and board meeting minutes, according to the museum, and interviewed “numerous” witnesses including current and former staff, board members, finance personnel, and museum consultants.

The museum conducted “detailed transactional testing and financial statement analysis” for fiscal years 2021 through 2024, the statement reads, “and conducted targeted financial analyses of records dating back more than 10 years.”

It adds that “allegations of fraud, theft, and other malicious conduct were not substantiated,” before dismissing several of the allegations.

The whistleblower alleged that donor-restricted funds in the endowment had been improperly “reclassified” so they could be used to meet operating expenses, without the knowledge of the majority of the board. 

“No evidence was found to support allegations of intentional misappropriation of Museum funds or systematic concealment of financial information from the Board of Trustees,” the museum said in its statement. “Allegations that Museum employees and Board members acted with malicious intent were not substantiated.” The statement, however, does not provide details that substantiate this claim.

The Museum Used Art Sale Proceeds for Operating Costs

The whistleblower alleged that proceeds from sales of artworks that were being deaccessioned, which typically can be used only to bolster funds for new acquisitions, were improperly used to support operating expenses. The museum acknowledges this happened but says it was all above board. “The investigation confirmed a long-standing, Board-acknowledged practice of using such proceeds for purposes beyond strictly the acquisition of art during periods of operating stress,” the statement reads. The statement adds that the money was designated as an “internal loan” that the museum is repaying and will have repaid by 2030. “As of June 30, 2024, a balance of $544,403 remains to be reimbursed to the art acquisition account,” says a note in the museum’s 2024 financial statement. 

The statement notes that the museum was re-accredited in 2023 by the American Alliance of Museums (AAM), which can sanction museums when they do not follow professional guidelines. Asked for comment, AAM replied that its accreditation commission “makes accreditation decisions based on the information available to it at the time of review,” but that “accreditation is not static. If significant concerns, new information, or material changes come to light between regularly scheduled reaccreditation reviews, museums may be subject to a formal inquiry, early review, or probationary status, as appropriate.”

The whistleblower complaint also alleged tax fraud, saying that the museum improperly charged donors sales tax when they gave the museum money to support acquisitions of artworks. 

“Allegations of sales tax fraud were not substantiated; the investigation confirmed that the Museum had previously paid sales taxes in error on certain artwork acquisitions, corrected its practices upon learning of the applicable exemption, and obtained lawful refunds from the State of California,” the museum said in its statement, adding, “The Museum is in the process of confirming that no donors had funded these erroneous sales tax payments.”

The museum declined to answer a question about why a six-month investigation couldn’t determine this. Correspondence sent to ARTnews by a prospective donor (who did not wish to be identified) from then–museum director Adam Lerner shows that the museum did ask the donor to pay the sales tax. Lerner did not answer an email requesting comment.

The complaint also alleged payroll fraud, claiming that fictitious employees were being issued paper checks that were delivered to museum insiders. The museum said this is false but did not give clarifying information on this determination. 

The whistleblower complaint also alleged that Lerner was forced out over trumped-up staff complaints in order to make way for curator Christine Vendredi to ascend to the museum’s top role after a curtailed search. The museum said that it identified “certain procedural deficiencies in the process” but that there were no improper motives.

Former board member Patsy Marino, who chaired the search committee, is quoted in the whistleblower complaint saying the search process was subject to interference and manipulation; the museum’s statement, without going into specifics, denies that. Marino told ARTnews in an interview that she was not contacted or interviewed as part of the museum’s outside investigation.

The whistleblower alleged that funds donated to the museum for its Q+ initiative, to acquire works by LGBTQ+ artists, were also used for operating funds. The complaint also alleged that the incoming funds intended for the Architecture and Design Center and the Latinx Program, as well as a donation from the City of Palm Springs, were also directed toward operating funds. The museum’s statement only addresses the Q+ allegations, and says only that the investigation found that the allegations were “not substantiated.” 

The complaint pointed out that the museum has failed to comply with the Uniform Prudent Management of Institutional Funds Act (UPMIFA), which requires trustees to manage an endowment so that its spending power is maintained. The purchasing power of the museum’s endowment has declined considerably in the last two decades. That allegation is not acknowledged or answered in the museum’s statement.

Some Practices ‘Fell Short of the Board’s Standards’

The statement, however, does note some insufficiencies occurred on the part of its board. 

“The investigation confirmed that some of the Museum’s historical governance, reporting, and recordkeeping practices fell short of the Board’s standards,” the statement reads, “however, these shortcomings did not involve missing funds, errors in underlying balance sheet amounts, or discrepancies in bank account balances. With respect to the classification of endowment funds, the investigative team determined that the Museum’s management and advisors acted in good faith in addressing legacy issues and worked to align reported balances with donor intent and applicable accounting standards.” 

The statement, while denying wrongdoing, goes on to say that the museum has instituted “a comprehensive set of remedial measures.” These include governance training for trustees; enhanced financial reporting to the full board; a requirement that significant communications from outside auditors be communicated to the full board; and enhanced documentation for meeting minutes, governance records, and reclassification of accounting entries. Additionally, the board says it will implement a comprehensive review of policies on the use of funds from art sales and on restricted donor funds; enhanced protocol in the museum’s finance department; written charters for all committees; and a multi-year financial sustainability plan. 

The museum pledges to “provide updates to stakeholders as appropriate.”

In response to several questions, a museum spokesperson sent a statement reading, “The Museum’s detailed public statement from last week contains all of the information it intends to share publicly. We have no further comment on internal processes.”