National Museum of Industrial History

Despite having been donated a building at the site of the Bethlehem Steel in South Side Bethlehem in 1997, the proposed museum has never approached completion, Northampton County District Attorney John Morganelli said today. And the grand jury recommends CEO Stephen Donches, inset, be removed from running the organization.

(Express-Times File Photos)

A

grand jury is calling on the state to review and possibly dissolve the nonprofit group behind the

proposed for Bethlehem, saying it may be fatally plagued by negligence.

While the grand jury discovered no evidence of criminal activity, its members felt they needed to alert the public of the mismanagement within the organization, District Attorney

said this afternoon.

"This is to protect the public. It is to protect donors who might want to give their money somewhere else that is actually going to result in something concrete, and it's to protect the taxpayers," he said.

Since officials with the now-defunct

Corp. announced plans for a museum at its South Side

site in 1997, little has been accomplished despite millions of dollars in operating costs, Morganelli said.

The museum has spent $2.4 million alone on benefits and salary for CEO Stephen Donches since 2002, according to the grand jury report. By comparison, the nonprofit has spent somewhere between $2.5 million and $3 million on exterior renovations to the building along East Third Street, the 38-page report states.

Donches possesses no qualifications or experience needed to oversee the startup of a nonprofit, the report states. The grand jury recommends in its report he resign immediately or that the board terminate him. In either case, the board should hire a more qualified chief executive and reconsider the museum's future, the report states.

The grand jury also recommends the board hire an attorney and consider suing Donches for negligence and breach of contract for mismanaging funds donated to the museum.

Neither Donches nor Curtis "Hank" Barnette, the former CEO of Bethlehem Steel, returned phone calls tonight seeking comment. Barnette, along with serving on the museum's board, also donated almost $1 million to the nonprofit, according to the report.

Museum 'a resting place'

The museum's board of directors faces problems of its own, the report found. The original members were all former Bethlehem Steel employees like Donches, a former vice president of public affairs. The board provided little oversight to Donches while placing blind faith in a man with little to no qualifications for the job, the grand jury found.

"The museum was a resting place for soon-to-be unemployed officials of the (Bethlehem Steel) corporation who continued to benefit from high-paying salaries, retirement benefits and other benefits at the expense of the organization," the report states.

Several members of the group presented conflicts of interest by bidding on paid contracts to complete work for the museum, including L. Alvin Butz, the chairman of construction company Alvin H. Butz Inc., the report states.

Efforts failed to reach Butz for comment after business hours today.

Morganelli said the investigation was based partially off media reports about the continued delay of the museum. The Express-Times reported in 2010 the museum had

but still did not have a completed museum. The same article reported Donches' salary of $180,000 was more than double the earnings of the executive director of the similarly sized America on Wheels museum in Allentown.

Funds down to $770,000

The media reports raised suspicion in the district attorney's office, leading to an informal investigation, Morganelli said. An audit of the National Museum of Industrial History found that 80 percent of its budget -- about $15 million -- has covered operational costs, the report states.

A review of the books found much of that money was wasted by poor planning, Morganelli said. Some $257,000 was spent to move donated artifacts from the Smithsonian Institution in Washington, D.C., between 1999 and 2010. However, the artifacts could not be stored in the unfinished building, forcing the museum to spend another $350,000 to lease climate-controlled storage space, Morganelli said.

The museum also spent about $1 million to hire four different businesses to bolster the organization's fundraising efforts between 1999 and 2011, the report states. For its investment, the consultants netted the museum just $75,000, and Donches testified that it was lost money, according to the report.

At no point did Donches put the contracts for these businesses or others out for bid, he testified, because he was not legally obligated to. Instead, he steered work to friends and people he knew, such as Butz, according to the report.

After 17 years of planning, the museum has only $770,000 left in its account, the report found. About half of that will cover the salary and benefits of Donches and Treasurer Theodore Harlan. Even though the museum's most generous donor, Priscilla Payne Hurd, died last year after giving a total of $9 million, Donches refused to believe the museum could fail, the report states.

"He was steadfast in his view that he could, with more money ($3 million) and time, get the museum up and running," the report states.

Morganelli said it appears museum officials operated with the best intentions but had wasted millions of dollars. As a result, the grand jury requested the Pennsylvania Attorney General's Office investigate and forcibly dissolve the nonprofit if it finds the museum has failed its mission.