DENVER – The Denver Art Museum’s agreement with the city is unclear and lacks documentation of which entity owns what and what each entity’s responsibilities are, according to a new audit report from Denver Auditor Timothy M. O’Brien, CPA. The museum also needs to strengthen how it handles inventory planning, and its governing board could better represent the diversity of the communities it serves.
“The city needs to know what it owns and what it is responsible for, should something go wrong or need fixing in the future,” Auditor O’Brien said. “The city and the museum have put off making a new agreement for long enough. We need a clear understanding of responsibilities now, before a potential dispute that could lead to taxpayers’ money going toward a costly legal battle.”
The Mayor’s Office and the Denver Art Museum both disagreed with updating their agreement. Officials from both said they believe they can address the gaps identified in our report in other ways. However, without a clear, singular, and overarching agreement, the city and museum may disagree on which entity should pay for expensive building repairs or insurance or how proceeds from an art sale can be used.
“A clear legal understanding of rights and responsibilities is the foundation for any organization to have a good relationship with the city,” Auditor O’Brien said. “Clearing this up now should strengthen the relationship — which both the city and the museum value — and preserve it for the future.”
Officials at the city and at the museum each said they have what they believe to be a mutually beneficial relationship. However, the American Alliance of Museums — which accredits the Denver Art Museum — encourages clear agreements for joint governance models to ensure stability in the arrangement.
The city’s relationship with the museum dates back to a 1932 agreement, which initially formalized some responsibilities between the two.
When the first agreement began, the art museum was more financially dependent on the city, which covered all its operational costs. In addition, the city was listed as owning $1 million worth of art and funding for art purposes in the 1942 agreement. The art museum was listed as owning $200,000 worth of art at that time. Today, the art museum maintains more than 70,000 works of art and is more reliant on private donors and other funding sources to support its operations. Numerous other agreements with the city over the decades — containing varying degrees of detail — have muddied the formal responsibilities of both the city and the museum and which assets they each own.
The museum receives funding from the city every year for operational support and for the maintenance of its galleries and buildings. In 2017, the city gave $2.6 million to the museum. In 2018 and 2019, the city gave more than $20 million each year, including bond funds for building projects. The city also provides insurance coverage for the museum art and buildings.
We believe it is in the best interest of the city and the museum to clarify each party’s responsibilities and their ownership of art and buildings. A new, clearer operating agreement would help avoid disagreements during economic downturns when budgets are tight — such as the pandemic-caused recession we now face.
As an example, after the 2008 recession, Detroit wanted to sell off some art from the Detroit Institute of Arts to cover its budget shortfall. The institute had to raise enough money to pay the city to transfer ownership of art pieces to the nonprofit to avoid losing the works.
“Nobody wants to start selling off the Denver Art Museum’s collections,” Auditor O’Brien said. “However, from time to time, the art museum does sell pieces of art and ownership of those objects should be clear and well documented to ensure anything that is sold is done so appropriately.”
The audit team’s ability to fully assess the degree to which the city is fully informed of its assets at the museum was limited because museum officials refused to provide a full digital copy of the museum’s collection management database and because documentation of asset ownership between the city and the museum is vague and incomplete.
“My office has safeguards and protocols in place for working with sensitive or protected data,” Auditor O’Brien said. “I want to trust that the art museum is tracking art inventory properly, but as auditors, we must be able to verify.”
During the audit, our team found two pieces of art recorded in the art museum’s system as belonging to the city and they were listed as sold. Of the two still at the museum and recorded as owned by the city, one originally listed as “abandoned” but following our inquiries was marked as a long-term loan from the city. It also appears other pieces of art could belong to the city but are not listed as such in the art museum’s records, in the city’s records, or in required financial reports.
While our report does not identify the correct legal ownership of assets, the city and the museum need to clarify their rights, relationships, and ownership of all assets at the museum in an updated operating agreement.
Meanwhile, both the Mayor’s Office and the Denver Art Museum did agree to reconcile all city-owned assets used by or stored at the museum, and they each agreed to establish city representation on the governing board of trustees. We also recommend assigning a city agency responsible for managing the operating agreement on behalf of the city and a city employee should be responsible for checking on inventory owned by the city.
In the first-ever city audit of the Denver Art Museum, our team also found city leaders need to ensure better oversight over the museum. We compared the city’s agreement with the art museum to the city’s agreements with two other local cultural facilities — the Denver Zoo and the Denver Botanic Gardens — and the audit team found several key elements were missing.
Regarding the board of trustees, the audit team found the museum needs to update its governance approach. This includes ensuring trustees receive financial literacy training and improving recruiting practices to ensure the diversity of the trustees reflects the communities they serve.
Specifically, the board has fewer women and fewer Hispanic and Latinx individuals by percentage than the demographic makeup of the Denver metropolitan area. Based on our analysis, women should hold three to four more positions on the board than they currently do. Hispanic and Latinx trustees should occupy two to six more positions. And one to two more positions should go to individuals who belong to other races and ethnicities. In addition, we noted the board officers and the committee tasked with recruitment is all white and mostly men.
Such limited representation means trustees will have blind spots. Because members from diverse groups are not helping to make decisions, boards with limited representation cannot make the best choices on how to serve an array of audiences. The board members have already identified diversity as an area to improve upon in their goals.
“We are working to look at every agency or organization we audit through an equity lens,” Auditor O’Brien said. “I believe the Denver Art Museum Board of Trustees wants to improve its diversity, and I hope the analysis my team did will help trustees and recruiters set goals and move in a more inclusive direction.”
The Denver Art Museum also needs to improve its collections management policy and inventory guidelines to include steps to investigate and report missing objects. Although it’s not unusual for some items at museums to be designated as “missing,” fully documented procedures may better ensure staff complete consistent and prompt investigations into missing objects. Prompt research is key because identifying the cause becomes more difficult as time passes.
Limitations on our access to complete reports from the museum’s art inventory database and delays in providing some reports kept us from performing risk-based inventory sampling and from analyzing the total dollar value of items marked as “missing.”
The audit team made several more recommendations to encourage proper accounting of assets, to strengthen inventory planning and practices, to support the security of the artwork, and to help the museum prepare for and respond to emergencies.