Amtrak accounting

[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".

[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.

[Arlington]

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

[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.

[Arlington]

...another Railway Age article in which Andrew Seldon wants us to believe him and not Ernst & Young and repeats the claim that Amtrak accounting is not GAAP,
https://www.railwayage.com/news/amtraks ... rtunities/

[rcthompson04]

...another Railway Age article in which Andrew Seldon wants us to believe him and not Ernst & Young and repeats the claim that Amtrak accounting is not GAAP,
https://www.railwayage.com/news/amtraks ... rtunities/

Insert eye rolling emoji... this article is anecdotal evidence on top of anecdotal bits of information.

[gokeefe]

The thing about that article that really bothers me is doing yield analysis without access to the real data. I agree ... It's all anecdotal at best.

[David Benton]

There is a confusion between 2 issues.
I don't think anyone is suggesting Amtrak is not using correct accounting practices , as confirmed by the auditors.
The questioning is around the allocation of expenses between business units ( mainly the LD been saddled with more than its fair share of expenses because it is politically able to "wear" them.
When you look at over $ 100M of expenses against the train like the Empire Builder, then I think there is good reason to be skeptical. Again , not suggesting Amtrak is doing anything wrong , or that such practices don't also happen in many govt organisations , or even Businesses.

[rcthompson04]

There is a confusion between 2 issues.
I don't think anyone is suggesting Amtrak is not using correct accounting practices , as confirmed by the auditors.
The questioning is around the allocation of expenses between business units ( mainly the LD been saddled with more than its fair share of expenses because it is politically able to "wear" them.
When you look at over $ 100M of expenses against the train like the Empire Builder, then I think there is good reason to be skeptical. Again , not suggesting Amtrak is doing anything wrong , or that such practices don't also happen in many govt organisations , or even Businesses.

Businesses often allocate costs the same way because it is nearly impossible to allocate some expenses on a granular level. The most common is allocation of IT expenses. Rarely are IT costs allocated down to the level of a mouse or keyboard. There might be a general cost for each employee's work station, but that is a generalized cost not really tied to what the employee does with it.

The level of detail they are demanding is not expected or proper under GAAP. People would be filling out paperwork all day if they did and be expected to know hundreds of cost centers. There are clear statements that the accounting is not in accordance with GAAP. If Railway Age feels so passionately about it, they should report the auditor to the appropriate regulator for review of their professional credentials.

[Tadman]

That's a good point. How do you properly allocate IT costs? Per ticket sold? Train mile traveled? Passenger-mile?

Ticket sold strikes me as a good idea, because most of the IT costs are in processing the sale. But we don't know that's how they do it. They might do it by train mile, which would make no sense but would help management support their claim that the LD is not profitable.

____

Another controversy is that the NEC has an operating profit, but this largely ignores the infrastructure costs. LD proponents argue that this actually supports LD's because BNSF or NS is footing the cost for most of the track under 49 or 3, while Amtrak/feds must support the track under Acela.

That makes sense until one considers that BNSF et al charge Amtrak far less than market rate for a 79mph track slot. At the end of the day it seems there is funny money accounting for track slots on either end of the business.

[mtuandrew]

The solution of course is to run more trains on LD routes which reduces the per-train and presumably the per-passenger cost of fixed facilities like stations and crew bases, with a more modest increase in operational cost. I also wonder if Amtrak is allocating the cost of the new Siemens Charger LD engines to the off-corridor trains exclusively, which would raise the loss for those routes.

[Gilbert B Norman]

Discussion here of Amtrak accounting relating to the latest Selden diatribe in Railway Age, shows to this Retired CPA a high level of understanding to both sides of the issue.

Over at another site at which I now only read, their regulars enjoy saying how Amtrak accounting is non-GAAP compliant and is "fraudulent" (LD'are break even to profitable).

Let's consider Mr. Thompson's thoughts on the depths to which Responsibility Accounting is taken. It's a simple fact that when such a system in any entity is tsken the level of which RESLOC (Amtrak's term) to charge a new computer mouse to is simply cost ineffective. Sure, there are deficiencies such as Amtrak charging snow removal costs against stations in Florida, but is that the difference whether the Meteor and Star become profitable?

Uh, not likely.

I remember how on the MILW, Internal Audit was always taking issue with how the Mechanical Department was simply allocating Shop employees with pre allocated time sheets. I can recall at a conference (at which I was simply "wallpaper"), how the CMO told us that he would lose production efficiency if every time an Electrician moved from one locomotive to another, he had to stop and record such. In the end, it would simply be immaterial.

There is a fellow over at another site that knew Mr. Selden through Sunday School. He has noted how "Andy was the smartest kid in the room". Now if such be the case, it is time for him to recognize that LD's (Interregional seems to be his new buzzword) are simply hopeless losers and whatever "essential" transportation they provide can be provided more economically by other modes, and without interfering with the efficient movement of commerce.

[ExCon90]

Apparently there is a tipping point at which the cost of allocating exceeds any benefit achieved. Imagine legions of employees throughout a company diligently dividing their workday into 12-minute segments and carefully allocating each segment to the proper cost center: they'd spend more time doing that than on productive work*. I suppose a subjective decision has to be made as to when that tipping point is reached.
* I'm sure I've read of instances where that has actually been done.

[JoeG]

I have had several jobs where we were supposed to allocate our time into small intervals, often 6 minutes. What happened universally was that everyone just made up the numbers to add up to 8 hours a day. No one ever questioned the numbers except if you made a mistake and the numbers didn't add up to 8 hours. Then, in my college days I worked for a while at the main post office in NY. You got a ticket for each tray you sorted, and it wasn't hard to meet the quota. Some people had trouble meeting the quota. Usually they just swiped tickets and handed them in as their own. The most inept guys just took trays of unsorted mail and labeled them as sorted to some random destination. I suspect that went on enough so eventually management scrapped the system.
I guess the point of this is that overly onerous allocation systems will be evaded. A company needs an allocation system that will actually reflect reality. I would also suspect too many significant figures in any published allocation numbers.

[rcthompson04]

Discussion here of Amtrak accounting relating to the latest Selden diatribe in Railway Age, shows to this Retired CPA a high level of understanding to both sides of the issue.

Over at another site at which I now only read, their regulars enjoy saying how Amtrak accounting is non-GAAP compliant and is "fraudulent" (LD'are break even to profitable).

Let's consider Mr. Thompson's thoughts on the depths to which Responsibility Accounting is taken. It's a simple fact that when such a system in any entity is tsken the level of which RESLOC (Amtrak's term) to charge a new computer mouse to is simply cost ineffective. Sure, there are deficiencies such as Amtrak charging snow removal costs against stations in Florida, but is that the difference whether the Meteor and Star become profitable?

Uh, not likely.

I remember how on the MILW, Internal Audit was always taking issue with how the Mechanical Department was simply allocating Shop employees with pre allocated time sheets. I can recall at a conference (at which I was simply "wallpaper"), how the CMO told us that he would lose production efficiency if every time an Electrician moved from one locomotive to another, he had to stop and record such. In the end, it would simply be immaterial.

There is a fellow over at another site that knew Mr. Selden through Sunday School. He has noted how "Andy was the smartest kid in the room". Now if such be the case, it is time for him to recognize that LD's (Interregional seems to be his new buzzword) are simply hopeless losers and whatever "essential" transportation they provide can be provided more economically by other modes, and without interfering with the efficient movement of commerce.

There are some costs that likely go the other way in the case of snow removal in Miami. I would imagine Harrisburg does not need year round landscaping, which Miami almost certainly would need. I wonder if Harrisburg has such an allocation.