• Amtrak Accounting Practices

  • Discussion related to Amtrak also known as the National Railroad Passenger Corp.
Discussion related to Amtrak also known as the National Railroad Passenger Corp.

Moderators: GirlOnTheTrain, mtuandrew, Tadman

  by Arlington
This view seems remarkably durable and widespread here.
daybeers wrote: Tue Jul 16, 2019 12:06 am Why the LD trains are losing money is because of Amtrak's phony accounting, which nobody seems to ever bring up in the public space. This needs to be addressed immediately.
What does this mean? "Phony Accounting" is essentially a charge of accounting fraud, which is generally a crime. If there's a crime being charged (stealing from either from The American Public or passengers, one supposes), it would be good to lay out a plausible case.

I'd like proponents of the "phony accounting" view to address two things. Phony implies both "inaccurate" (or somehow divergent from applicable norms, like GAAP) and implies "intentially/knowingly misleading" (to people who would otherwise expect the accounting to be normal and give a normal picture of financial condition)

So what is the case for:
  by Arlington
SouthernRailway wrote: Mon Jun 25, 2018 8:36 am If I understand correct, Amtrak's accounting is non-GAAP and it allocates costs to LD trains and the NEC as it sees fit (i.e., Amtrak does its accounting any way it wants).
SouthernRailway wrote: Sat Nov 05, 2016 3:47 pm $10 million savings is Amtrak's made-up number: the same "accounting" that somehow creates profits for the Northeast Corridor. Under GAAP, Amtrak's numbers would look a lot different.
For the record, Ernst & Young, as Amtrak's auditor, says that management prepares its statements in conformity with GAAP (U.S. Generally Accepted Accounting Principles), which, frankly, is as strong an assurance of being GAAP as one can get in this life, and has signed its audit saying so since at least 2013 (links further back are broken)


The beef that people actually have is a question GAAP is silent on: the assignment of costs to the network, which is a "fight" that all transportation companies have. There is no one best answer to these questions. You may say you think they paint an unfair picture to a particular line of business, but there is not a basis for saying it is "phony"

Examples and then Amtrak:
These are not rhetorical questions...they absolutely have to be answered (or ruled out) by an accounting system. But they are also not possible to cleanly divide into "real" vs "phony"

Should the costs of an road-rail intermodal terminal be assigned by train, by railcar, by track, or by load? Assign it by train, and short trains look unprofitable. Assign it by load, and long trains won't get/report their economies of scale. How about revenues? How much of a double stack's revenues were earned by the terminal, the gondola, the locomotive, or the rails? Time of Day: Should only trains at peak times pay for "surge" capacity, and capacity be assumed to be "sitting there for free" the rest of the time? Should the cost of the gondola be its lease cost, depreciated purchase price, replacement value, or something else?

Should the costs of an airline hub be assigned by gate, by flight, by seat, or by passenger? Assign costs by gate and little planes look bad. Assign costs by passenger and big, full planes look relatively worse (and empty flights look great). Assign it by passenger dollar and emptier flights with high-fare customers and empty seats look pretty good. Then assign revenues between the segments flown and the connecting terminal. How do you assign the costs of the flight between First and Coach? By square inch? By pound (full or empty weight?) As a fixed % of revenue?

Should the costs of the NEC be assigned by train, by coach, by seat, or by passenger? Or how about by axle-mile-Newton (calculated to show heavier pounding by heavier and higher speed trains). Should only Acelas be assigned the costs of maintaining the highest track Class(es)? What is a fair estimate of how much more (really) the highest track costs? Should a train pay the high-Class premium if it only *could have* gone fast, or only if it actually *does* go fast. Or only for the stretches it matters (or that they actually "do" top-class speeds? How should the costs of Penn Station be assigned (and should they show a net subsidy to NJ & LIRR commuters?)
SouthernRailway wrote: Mon Jun 25, 2018 8:36 am If I understand correct, Amtrak...allocates costs to LD trains and the NEC as it sees fit (i.e., Amtrak does its accounting any way it wants).

If that's true, why can't Amtrak just allocate more sleeping car revenues to dining service and eliminate any dining losses by just allocating more sleeping car revenues to it?
Because a logical problem then arises: if you allocate too much of a fare to a particular amenity, you end up with the absurd proposition that the "plain old seat" in a Roomette is worth less than it'd be in coach, even though that seat is demonstrably larger&better.

Further, now that we have data from the Star, we actually know a lot better what the value of a Roomette-without-food is, which limits how much you can honestly say the diner food is worth. In fact, the average yield in paired Star/Meteor markets comes pretty close to telling you *exactly* what the Diner food is worth. (with a fudge for the factor of schedule, which is probably worth something too)
  by Gilbert B Norman
This posting is adapted from that I made elsewhere, so please forgive if I have duplicated any points within Mr.
Arlington's discussion of the subject.

There has been much controversy regarding Amtrak accounting practices both within recognized railroad media (TRAINS) and at Amtrak related discussion sites - one of which emblazoned the discussion with adjectives such as "fraudulent".

I think we need to divide Amtrak accounting into two distinct parts. One part is the Financial Accounting and the other is Responsibility Accounting.

Financial Accounting is that addressing the change in the Balance Sheet (that document that shows "what you got", "what you owe", and "what's left over"). The changes that have occurred between the two Periods Ended result from either additions or retirements of assets (the stuff you have acquired in the current or prior periods that will generate sales/revenue during the current and into future periods), or from the Revenue and Expenses that occur during the period. That is known as the Income Statement, which in the case of Amtrak, has always been a Net Loss and presently something under $1B.

The resulting Financial Statements have always been audited by a "Final Four" (which were the Big Eight when I started out) firm to determine that the assets and results of operations are "fairly stated". Amtrak has always received a "Qualified Opinion" owing to that if it did not receive an Appropriation, it could no longer be considered a "going concern".

Now to address the other area of accounting - Responsibility Accounting. This "picks up" where Financial Accounting leaves off by allocating all the revenue and expenses over all the entity's activities. That means the CEO's and lesserlings expenses are allocated over all operations Systemwide. Same for any other activities that cannot be assigned to one route or the other.

Now this is where the LD advocates and Corridor interests differ. The LD's hold that disproportionate costs are being assigned to the LD's and, as a result, their expenses, and hence Loss, are being inflated.

Now we must note that in any Responsibility Accounting system, everthing must be assigned to one Responsibility Location (known as a ResLoc in Amtrakese) or the other. The allocation of the Expenses fall into two groups
- Direct and Allocated. Direct Expenses are definite and determinable, and hence, easiest to understand.

Obviously gas up the engines on the Empire Builder that gas will be charged to a ResLoc that eventually will be assigned to the train. Same will be for the employees, except things get a bit more cloudy when you add the "fringe benefits" (Vacation, Holiday, Health, et magna alia). So long as there is only one train on the route, so will all the costs of the stations.

Now where things get cloudy is the allocation of the indirect and fixed expenses - right down to the rent on One Mass and the salaries of everyone in it.

You can be sure the various "interested parties" both within and without Amtrak all will feel "they're getting screwed". I'm sorry, that's how it is within any entity using Responsibility Accounting.

For whatever their reasons may be and on substance they draw from, the LD advocacy community holds that the LD's get disproportionately charged (think that's called "screwed") with allocable expenses and, you'll have to ask them, contend the LD's actually break even or even make $$$$ on a cookie jar basis. They learn of discrepancies such as snow removal allocated over all stations without regard to those that never see snow. I have complete confidence that when detected, such is addressed.

There are the demands from such advocates that Amtrak Accounting is "fraudulent" and that Responsibility Accounting should be within the scope of a Financial Audit.

Well volks, it ain't. Likely the only reason that Amtrak has the annual independent audit is that some party in interest "slipped it in" to RPSA 70 in the name of the "for profit" corporation charade.

Of course "Corridors only" contend that that they too are getting shafted. How much of the One Mass bureaucracy, and even the Wilmington CNOC, is directed to the support of LD's; is it sufficient, or "otherwise".

The Local agencies that support regional Amtrak operated services are also picking through the Amtrak ResLocs associated with their supported services. They of course "find things" - and make sure there is a reporter or two around when they announce such.

To wrap this up, I have presented many a point of contention, but, I admit, no solutions. While I haven't seen any advocacy group suggest such, the suggestion could be made that Amtrak be split into three independent business entities - Corridor, Outside Supported, and Long Distance. Such would only add to the costs, and I'm certainly not about to advocate such (I really don't ride anymore, but if I find an acceptable rate, I just might be curious enough to sample the Auto-Train "enhanced service") as a taxpayer. There are also many Responsibility Accounting issues arising in any business entity having a system of such, i.e. how many costs of the closed Lordstown plant is General Motors allocating over other plants that have accepted displaced Lordstown workers? Do they belong to that receiving plant, or not?

Wish I knew.
Last edited by Gilbert B Norman on Tue Jul 16, 2019 12:20 pm, edited 1 time in total.
  by Arlington
Thank you Mr. Norman. What you'd call Responsibility Accounting, I'd call Network Accounting. They address the same thing: allocating costs and revenues to different parts of "the system" that produces a mix of outputs from a mix of inputs.

I will say that in my experience as a manager at a Public company, Auditors will enforce a rule of consistency. I sold a value pack of several products that the company sold separately--not unlike selling a "full service" ticket at an airline that also (at some other fares) sold luggage and assigned seats separately.

The question was, when could we recognize revenue from the sale of "the value pack". The big rule was: be consistent (and don't defer to me based solely on my being the creator of the Value Pack). The way that each thing in my "value pack" was sold separately (both its price and how its revenue was recognized) were held to be binding on my value pack, and we had long (kinda tense) meetings with the Auditor (that resulted in my Value Pack's earnings being deferred because the coupons in it had a long expiration date, even though they were designed to be a "throwaway" gift in the purchase of the "core product").

The Meteor offers a "value pack" of a core product that the Star started selling unbundled. Suddenly there was data for what a roomette alone was worth, with implications not just for paired markets with the Meteor, but also the whole LDSL system and the other "Florida Market" train (the Auto Train)

I wouldn't be surprised if the Auditor's demand for consistency ended up forcing the financial accountant's hands on both:
- lowering the % of fares on LDSLs that they could allocate to the diner
- raising the % of fares on the AT that they could allocate to the diner

Once roomettes become available for short trips entirely "intramural" to the NEC, I'd expect that the Auditors will force the issue of both the revenue and costs of a roomette seats going NWK-BAL compared to NER and Acela. It will likely be demanded that the LD's finances be re-synched with the NEC's based on how roomette fares synch with NER & Acela.
  by Arlington
In which the "non GAAP' accusation is repeated:
https://www.railwayage.com/passenger/in ... ity-needs/
  by Arborwayfan
These are four excellent posts.

Probably the best thing would be to report three separate figures: (1) the costs definitely attributable to each train (the fuel, the payments to the railroads, the equipment by some combination of days aka ownership cost and miles aka wear and tear, the agents in stations served only by each train, the salaries and the fraction of the benefits that are earned by the people earning those salaries that is if someone works half their year on 5 and 6 and half their year on Illinois service, apply half of their benefits vacation etc to each), (2) the fixed costs of the system (The CEO and similar central staff), and *3) the ambiguous costs (Chicago Union Station, timetables, shops, etc.).

This has often come up before: the cost of an LD train including a slice of the shared systemwide costs, a slice of the costs of shared stations, etc., is greater than the avoidable cost of that train -- the amount that Amtrak would save by eliminating the train. It seems obvious to me that decisions on adding or cutting trains should only look at the avoidable costs. (E.g. cutting all LD's out of Chicago would not reduce the costs of the building, the yards, etc; it might eliminate a few station staff jobs or the entire Metropolitan Lounge, or it might not; including a share of the unavoidable costs of the station and the system in the LD costs could lead to wrong decisions about the LD's) On the other hand, those fixed costs are real costs of operating all the trains, and it does not make sense to allocate all those costs to the corridor trains. So an ideal study of the different trains would give each train's direct costs, ignore the core fixed costs of the system, and give a couple different ways of allocating the total system costs. That probably doesn't need to go in an audit, but it is what goes in the great LD debate.

Complicated? Sure. Presented a certain way to give a desired impression? Sure. Interpreted a certain way because someone already has a particular opinion? Sure. Fraudulent? Not really.
  by gokeefe
Arlington wrote: Tue Jul 16, 2019 12:18 pmWhat you'd call Responsibility Accounting, I'd call Network Accounting.
With due deference to a retired CPA with railroad experience I would note that the term "Responsibility Accounting" is a professional term. I suspected as much from the post and Google readily confirms it.
  by JoeG
This thread is very interesting and informative. I especially thank Mr Norman for clarifying a distinction I never understood. I have always understood that the allocations were part of the audit; now I see that isn't true.

These allocation issues have been around forever, way before Amtrak. When I was in high school in the late fifties railroads were canceling trains claiming big losses. I saw one article that said the Union Pacific lost $50 million annually on passenger service . Yet, they ran relatively few trains, especially compared to the Eastern roads I knew best. How could those few trains cost them so much? Then I learned that they were charging a lot of MOW expenses to their passenger service, claiming that they wouldn't have to have such well-maintained track if they had no passenger trains.
Of course I had no ability to tell if UP was being fair then, and it is difficult to tell how fair Amtrak is being now.

So, if it is beyond the purview of auditors to rule on the fairness or reasonableness of allocations, who, if anyone, protects us from unfair or unreasonable allocation decisions?
These issues go way beyond Amtrak. It would seem to me that wildly bad allocation decisions could amount to fraud, but I'd love to know how these issues are resolved (or not) in the real world.
  by Arlington
^ if the higher MOW expenses were an avoidable cost--something they could/would stop spending if the passenger train stopped running and something they had to reinstate if it resumed -it is completely OK to allocate them all to the passenger train.
  by Gilbert B Norman
Wiki has a rather comprehensive article regarding Internal Control. It reads to me as if it were an essay question on the CPA exam. I think others holding this credential around here will agree.

Under Sarbaines-Oxley - legislation enacted in the wake of Enron, WorldCom, and others of that ilk, Independent Auditors can no longer wash their hands of internal controls, but the thrust of their examination is largely directed towards the safeguard of assets, which can be interpreted to include management review to ensure that any "rouge" accounting activities that could materially affect the financial results are detected by review. Amtrak's Audited Financial Statements include the separate report of Internal Control procedures.

The reliability of the management information derived from Responsibility Accounting is an activity that falls to a concern's Internal Audit department. That on Amtrak, is known as the Inspector General (use of that term by Amtrak is simply further recognition that Amtrak is a Federal Agency, as that is the term used for these activities throughout the Government), and they issue reports separate from those regarding Financial Accounting.

So it is "sport" for this admitted "non LD advocate" to read stuff by the LD advocacy parties about "fraudulent non-GAAP accounting practices" and know it grabs headlines within their groups. Somewhat more disturbing is that recognized industry media such as Railway Age, and to a lesser extent TRAINS, give these "fraudulent" thoughts "ink".
  by Matt Johnson
The claim that the Northeast Corridor is profitable is highly dubious at best, no? I assume it totally ignores capital expenses.
  by Gilbert B Norman
Mr. Johnson. I think the term you are looking for is either Capital Cost or Capital expenditure.

The reason is any disbursement for a project to be capitalized means the cost of such paid during a current Accounting Period will become expense during future periods by means of Depreciation.

Under GAAP, if Capital expenditures are being made at an ever increasing rate, as is the case with Amtrak directing more of its ever increasing Appropriation to such, that will increase Depreciation rightly assigned against the Corridor and reduce its "profit".
  by rcthompson04
Responsibility Accounting and the allocation of costs are always an interesting point of contention in large companies. Facilities and IT costs are two of the biggest flashpoints because not all FTEs (full time equivalents) and facilities (physical locations) are the same in their cost needs.

For example, many companies allocate IT costs based on size of the line of business and/or headcount. Either method leads to distortions because some departments use more IT services than others (Legal for example is usually a low cost IT user while many front-end businesses need lots of systems). Special projects might be broken out separately.

Another example is facilities, the more locations you have, the more likely you are going to have service contracts that cover multiple facilities and costs are allocated on a per facility basis not based on what is used.

In Amtrak's case, you got to wonder if the problem is that it is trying to run a couple different businesses under one corporate umbrella. Even if you broke it out into a "regional division" and "national division", there would be Responsibility Accounting issues because how would you assign costs for somewhere like Washington Union Station, which is served by trains that would fall into both divisions.

Story is that no method is perfect and that you are probably going to get screwed eventually even if you win most of the draws.
  by Arlington
Matt Johnson wrote: Thu Jul 18, 2019 8:14 am The claim that the Northeast Corridor is profitable is highly dubious at best, no? I assume it totally ignores capital expenses.
"is profitable" is too vague
"totally ignores" is a little strong.

We say that the NEC has an operating profit, and the SST and LDs do not, we are making an apples-to-apples comparison because both Amtrak and their Hosts have big depreciation costs on assets, none of which get passed along fully, either by the host to Amtrak as tenant, nor by Amtrak to its own trains. (Because the costs don't involve cash changing hands, they involve depreciating past capitalizations).

There's good discussion in the Amtrak Report on Internal Controls.

In the 5 year plans, you do see that the NEC has a whole lot of capital-related line items.
https://www.amtrak.com/content/dam/proj ... 8-FY23.pdf
Last edited by Arlington on Thu Jul 18, 2019 11:27 am, edited 1 time in total.
  by Gilbert B Norman
Thank you Mr. Thompson for your insight into Responsibility Accounting matters, especially today, when IT, has taken such a greater in the operation in any business enterprise, since I left the MILW during December '81.

When I left, you can be assured that the desktop computer in the ofice was simply charged to our office, without any thought whatever what departments within the railroad would benefit because we had it.

In my private practice, I had contracts with two different not-for-profit agencies to be their "comptrollers for hire". "Getting them ready" for their audits involved allocating their expenses over their programs and their administrative expenses over Management and General and Fund Raising. Needless to say, the Executive Directrix of either, wanted "everything program", especially since one was United Way funded. I of course could not accept that; somehow we struck happy mediums, which of course was weighted towards their views. How often did I hear "I answer to the Board, not you".

C'est la vie.