to your fist question sMerit does not increase automatically, unless you are a Merit Source. (What is a merit source? read this thread for the details about merit and smerits)

Second for every 2 merits you receive you will have 1 sMerit.

What you do mean by that? There were some default merits and sMerits, which were distributed when Merit System were introduced, so those 250 are probably default merits (does not mean he should have 74 smerits).
sMerits increased only when you receive merits from another member.