Passenger Trains > Inspector General: Significant Waste of Funds

Amtrak audit uncovers 'significant waste of funds'
E&E Publishing
by Sean Reilly
Friday, March 27, 2015

> A key Amtrak supplier tacked on markups of up to almost 2,400 percent
> for repaired parts while the passenger railroad failed to collect
> millions of dollars in penalties due from the company for late
> deliveries, Amtrak's inspector general concluded in a recent audit.
>
> The audit, which found "a significant waste of funds," casts a harsh
> light on Amtrak's management of the sole-source contract with Alstom
> Transportation Inc. for parts needed to maintain and overhaul Acela
> express trains. First signed in 2006, the agreement has since been
> extended to run through September 2016. By May of last year, Amtrak
> had bought more than $236 million in parts through the contract,
> according to the audit report released earlier this month.
>
> Nonetheless, Amtrak's oversight was haphazard to nonexistent, the
> inspector general found, with contract files in disarray and the
> management team hampered by repeated turnover.
>
> Amtrak had "no process for conducting parts price reviews, no system
> in place to track and report Alstom's parts delivery performance and
> return of parts, no process in place for settling outstanding
> warranty claims and no formal process for approving minimum inventory
> levels," the report said. Instead, Amtrak managers relied on
> information from Alstom "to monitor these functions," the report
> said.
>
> For a total of nine repaired parts, ranging from a coffee maker to a
> door control station, Amtrak paid almost $85,000 more than Alstom's
> actual repair costs, which already included a profit markup, the
> audit said. For individual items, the additional markups varied from
> 118 percent to 2,377 percent of the repair costs.
>
> And while the contract calls for Alstom to pay penalties for parts
> delivered late, Amtrak's lack of a tracking system again led to
> dependence on the company, according to the audit.
>
> Based on available records for late deliveries since 2013, Amtrak
> failed to claim as much as $19.4 million in penalties. According to
> one Amtrak official, however, the railroad had "a verbal agreement"
> not to assess penalties in return for Alstom's not claiming bonuses
> for delivering parts early. Beyond that, more than $18 million in
> warranty claims piled up because "there are no formal procedures" to
> process and settle them. As an example, auditors cite a microwave
> oven that was returned to Alstom, repaired and reissued 11 times even
> as all 11 warranty claims remained outstanding.
>
> Alstom Transportation, whose website touts a relationship with Amtrak
> "built on trust," is carefully reviewing the audit but has no further
> comment at this point, spokesman Lawrence McDonnell said in an email.
> The company is a branch of Alstom SA, a French multinational whose
> products include wind turbines and locomotives.
>
> In a three-page response attached to the audit, Amtrak Chief
> Financial Officer Gerald Sokol did not contest the findings...

Amtrak audit uncovers 'significant waste of funds'

Well Sokol is relatively new (maybe a 1 year plus) so he can probably cast blame on some of his predecessors.

Interesting that this $236 million of "waste" is on the precious NEC......I thought it was just the LD trains and LD Diners that produce "waste."

..... and anyone is surprised at this?

If you only knew the half of it...waste is rampant at Amtrak.

Posted from Android

It would be financially beneficial to all of the OIG would actually assign OIG personnel to Amtrak's finance and procurement departments BEFORE these issues occur.

The OIG is so proficient in finding problems between Amtrak and suppliers after the fact.  For all the money us taxpayers pay for the OIG to function, we could save money if the OIG could identify problem areas, assign OIG auditors and monitor the contract and procurement process before, during and after these big projects are going on.

Every major Amtrak procurement/development/construction project should have an OIG representative overseeing everything to ensure it is done correctly.  It makes no sense AFTER THE FACT when the money has already been squandered to step in and say this or that was/is being carried out incorrectly.  Just another waste of taxpayer dollars!

Announcement Thursday that Amtrak was cutting cost effective June 1st by freezing management pensions at current levels, and eliminating the medical bridge for managers between the ages of 60 to 65.  Seems like they could have saved more and kept the incentive for getting into management by eliminating waste as you stated Poon.  But at the same time they reward incompetent managers with pay increases instead of holding them responsible and accountable for their performance.  By far the most incompetent management structure of any railroad regardless of size or class.

Your tax dollars at work....or in this case...not so much.

fulham Wrote:
-------------------------------------------------------
> It would be financially beneficial to all of the
> OIG would actually assign OIG personnel to
> Amtrak's finance and procurement departments
> BEFORE these issues occur.
>
> The OIG is so proficient in finding problems
> between Amtrak and suppliers after the fact.  For
> all the money us taxpayers pay for the OIG to
> function, we could save money if the OIG could
> identify problem areas, assign OIG auditors and
> monitor the contract and procurement process
> before, during and after these big projects are
> going on.
>
> Every major Amtrak
> procurement/development/construction project
> should have an OIG representative overseeing
> everything to ensure it is done correctly.  It
> makes no sense AFTER THE FACT when the money has
> already been squandered to step in and say this or
> that was/is being carried out incorrectly.  Just
> another waste of taxpayer dollars!

In theory, Amtrak's internal auditors are supposed to be monitoring processes and purchases on a daily basis, but that seems to be another under-staffed and hollowed out department. If there's no process for the auditors to do anything about over billing, etc then nothing changes.

By definition, the OIG is supposed to be reviewing how well management actually managed. I believe they're prohibited from monitoring plans and in process work. That's for the auditors to do.

[I suspect everybody anywhere near the purchasing and operations function sees a job with the suppliers as their next career move. That's rarely a good position for their current employer.  Same problem happens in military procurement.]

Thanks for adding clarity. Yes, the OIG by definition is an after the fact review. This is a serious situation, it's not the guy who delivers office supplies or tools.  Major contractor with one of the largest contracts in the system. Rather than bashing this one or that, let's hope that some positive action results from this exposure.

So do airlines, Interstate highway system and any other public transportation. Don't forget the Govt. itself-the biggest waster of them all.

My point was, if Amtrak is so screwed up regarding contracts/procurement/construction etc. when it comes to accurate invoicing, payment, etc., and the OIG seems to be able to go in and immediately find these issues, why doesn't the OIG assign people to oversee the process in real time?

I know the OIG is an "after-the-fact" organization, but it makes no sense for all this money to be wasted on an investigation when OIG "seems" to have all the answers.  OIG appears to be playing a "gotcha" game with Amtrak when in fact they should be working with the company to ensure things are done correctly and proper procedures are followed.  If they are not followed, heads need to roll at Amtrak.  But, we haven't heard Amtrak's side of this story.  Sometimes I wonder if the OIG is nothing more than a political animal designed to make Amtrak look bad, and also, who knows if OIG's analysis is accurate?  My experience with auditor's is that they sometimes do not know the whole back story to why things occur a certain way...not saying this is the case with the OIG, but one wonders.

fulham Wrote:
-------------------------------------------------------
> My point was, if Amtrak is so screwed up regarding
> contracts/procurement/construction etc. when it
> comes to accurate invoicing, payment, etc., and
> the OIG seems to be able to go in and immediately
> find these issues, why doesn't the OIG assign
> people to oversee the process in real time?
>
> I know the OIG is an "after-the-fact"
> organization, but it makes no sense for all this
> money to be wasted on an investigation when OIG
> "seems" to have all the answers.  OIG appears to
> be playing a "gotcha" game with Amtrak when in
> fact they should be working with the company to
> ensure things are done correctly and proper
> procedures are followed.  If they are not
> followed, heads need to roll at Amtrak.  But, we
> haven't heard Amtrak's side of this story.
>  Sometimes I wonder if the OIG is nothing more
> than a political animal designed to make Amtrak
> look bad, and also, who knows if OIG's analysis is
> accurate?  My experience with auditor's is that
> they sometimes do not know the whole back story to
> why things occur a certain way...not saying this
> is the case with the OIG, but one wonders.

Amtrak is a government agency, and is subject to the rules which establish the OIG and define what the OIG can and can't do.

If Amtrak management had an (any?) interest, it could strengthen its own internal audit team, which is supposed to be looking at these issues in real time. It could fire managers and supervisors who violate the rules. There are lots of things it could do, but doesn't.

It's easier to let Alstom tell you what they need, what you owe, etc than to spend time figuring it out. It's easier to let your property manager tell you what the going rate is for rent in your building, and that's what they collected. It's easier for you to allow your commissary management to tell you what they bought, etc. But doing things the easy way isn't what management is being paid to do.

When the OIG takes a look, it's pretty easy to find the problems, and the buckets of money flowing out the door.  Which is a shame for the customers and employees who have to work under difficult circumstances.

If Amtrak would just stay accountable, especially having people who know how to do finances and all that and keep costs under control they wouldn't have the IG breath down their necks all the time!

ProAmtrak Wrote:
-------------------------------------------------------
> If Amtrak would just stay accountable, especially
> having people who know how to do finances and all
> that and keep costs under control they wouldn't
> have the IG breath down their necks all the time!

Why pick just on Amtrak, go after every other Govt. agency. How about the Govt. itself, it's certainly disfunctional when it comes to spending.