, , ,

How An External Forensic Audit of Amtrak Will Finally Provide Facts vs. Fiction

By M.E. Singer

The sudden, unexpected removal of the Pacific Parlour from the “Coast Starlight” should not be interpreted as anything more than it was apparently a long planned move by Amtrak deliberately withheld from the traveling public. Given how Amtrak has historically operated in a highly surreptitious style, terminating the Parlour can only be viewed as the opening battle.

It would be incorrect to allow our attention to be solely diverted on a piecemeal basis over the Parlour issue, and Amtrak’s superficial position, as many of us know there are a variety of Superliner feature cars stored at Beech Grove that could have been outfitted as Pacific Parlour II, including former “Auto Train” First Class lounges and Cross Country Diner/Lounges. Instead, we should again read the tea leaves to correctly interpret the deliberate route Amtrak is taking against the long distance trains.

As I recently pronounced to a friend and long-standing passenger railroad veteran, I see the anti-passenger train recipes used from the 1960s cook book prophetically referred to once again. This time it is by Amtrak,intent on dismembering the long distance routes. If Amtrak is actually cogently anticipating its future, perhaps this is planned in parallel with the Administration’s proposal to cut and divert Amtrak’s non-NEC funding to infrastructure projects?

Frankly, I see the long distance trains currently dangling from the trestle, for so long ignored with less than a sense of “benign neglect;” now more aggressive destructive acts intended to appease Amtrak’s detractors; its own Board. Patterns are important as they expose the intent of Amtrak, including:

Notice how OTP is no longer an issue professed these days by Amtrak? What better approach to disincentivize passengers than with late trains and missed connections; on top of already excessively padded schedules?

Operating dirty, broken equipment requiring massive amounts of duct tape, e.g., partitions between Superliner bedrooms B-C and D-E; smells permeating the bedrooms; windows no longer for viewing.

Diners still without a POS (Point-Of-Service) IT system to prevent stock-outs, waste, and ensure cash control. Remember bar coding? As a result, passengers continue to face a Guantanamo level of food quality, stock-outs, and hurried Express Meals on day of arrival; coach passengers still difficult to serve in diner; cafes continue to offer basic junk food.

Superliner lounges losing LSAs; inevitably, these feature cars will be withdrawn to save fuel, depreciation costs, and labor. Amtrak will push whatever cafe sales continue into diner, as evidenced by Cross Country format in use now-“Capitol Limited” and “Texas Eagle.”

No effort at marketing to promote and advertise trains. Of course, no capacity available to also expand consists during peak travel seasons. Question if any marketing effort at all to promote group travel; sell Special Trains?

Still no effort to build on-board revenues by operating a full bar operation to craft cocktails; offer regionally crafted beers (keg) and wines.

Lack of action as pointed out here helps to explain why no proforma prepared for Congress to acquire new equipment and power, as well as to rehab current rolling stock and power. Given how the long distance trains typically run practically full and how space is turned over 2.5 times per trip, it would appear that leasing such equipment would be a viable option, based upon the combination of achieving increased revenues while lowering maintenance costs.

Important politically is how the only logical reason for nominating to Amtrak’s Board of Directors, Leon Westmoreland, a former Congressman from Georgia, who voted against funding Amtrak twice is to complete the tilt of the Board majority to abandon the long distance routes and to solely focus on the NEC; whatever over-priced state-supported corridors will continue.

Also, Amtrak is returning to its earlier ballyhooed days enamored with the airline industry, as we see those people moving in on C-suite and executive level positions. Remember Harold Graham, Amtrak’s VP Marketing from Pan Am, who escaped audits for years when conniving with his wife, the travel coordinator, who referred mis-connects to their hotel conveniently near Chicago Union Station? I still do not understand how an IT person could overnight be deigned a marketing expert, except only at Amtrak. But why stop there, just as how the long distance routes are now managed by a recently promoted IT individual. In reference to how Jim McClellan used to require managers to frequently ride the trains to be able to understand and improve them, another industry person I know commented on Mark Murphy’s IT replacement over LD routes, questioning if he had ever ridden any train beyond a day trip on the NEC, let alone over the long distance routes? How feasible is it to think anything can be managed properly without even knowing the product; to be able to competently, and respectfully comment, change, and improve anything related to the LD routes? In the tech business world, their is a practice referred to as “dogfooding,” meaning to use your own product to understand its impact on the quality of the customer experience.

Given this scenario, and no hope of fresh air, i.e., an open, embracing culture, despite the dual CEOs of last year, we are faced with a real likelihood of the long distance trains to be slowly dismantled, if not before this summer, than certainly before summer 2019; destined to hit the bumper post before FY2020 begins.

As Amtrak’s own Board of Directors has colluded with management to persistently ignore and evade even the OIG reports depicting a forsaken enterprise, we have to petition Congress now to move to hold accountable all such decisions by ensuring full transparency of Amtrak. To what extent has Congress itself been victimized by the straw man argument against long distance trains by Amtrak? Has Congress even been afforded full disclosure of the cost for the multi-year severance program for union employees if the long distance routes are cut; let alone how the subsidy will not actually even be reduced, given the “shell game” played in support of the NEC?

As we already know that any business plan of Amtrak is a non-sequitur protected and prevented by determined opaque accounting, we must look at this proposed external forensic audit with keen interest for its potential application for sunlight and transparency at Amtrak–before any permanent action is taken against the long distance trains. Such an external forensic audit should clarify in vivid details for Congress, the media, and the public to reveal what did Amtrak’s Board of Directors know; when did they know; why did they not take corrective action; or, to what extent did they lead the lack of transparency and dissolution of Amtrak’s resources?

This audit must include the following:

Why Amtrak has historically refused to accept and apply the standard industry measurement of determining acceptable  performance by “passenger revenues per mile,” as that indicator would have so obviously favored the long distance routes over the NEC?

As the long distance routes are cash-positive, how much per year in national system funding–and revenues–has been diverted to subsidize the NEC?

Why Amtrak has deliberately disregarded adhering to GAAP (Generally Acceptable Accounting Principles) for its methodology of cost allocations? Indeed, how has Amtrak consistently declared the NEC “profitable” before ever subtracting its overhead and infrastructure expenses?

How did Amtrak devise its cost methodology for allocations in defiance of GAAP to dump NEC overhead, NEC infrastructure costs, and corporate overhead onto the national system? What is the dollar value of this mis-allocation per year?

How was the cost allocation methodology developed to charge (actually, over charge) state-supported routes all possible cost allocations to ensure Amtrak would not operate any such service at a deficit when PRIIA 2008 was implemented?
Note an interesting parallel identified in The Washington Post in May, 2017, is how the Pentagon overcharged the armed services for fuel to create a slush fund (aka “Bishop’s Fund) to pay for mismanaged and underfunded programs. How true does this ring for the full cost allocation to state-supported corridors and the diversion of those funds to the NEC?

Other than the high frequency of re-organizations that appears to merely move around “cardboard suits,” what has the Board actually done to right size Amtrak’s proliferation of management?
Note another interesting parallel identified in The Washington Post in May, 2017, how “the Pentagon struggled to explain to Congress why it buried an internal study that exposed excessive administrative waste, including sky-high salaries for legions of defense contractors.”

To what direct extent was Amtrak involved in promoting, and actually preparing, PRIIA 2008, as a new source of revenue from non-NEC states? As benefactors of a trolley-like schedule frequency, why were the NEC states not also obligated and charged per Amtrak’s cost methodology?

What has been the disposition of the payments received by Amtrak since 2013 from the state-supported routes, given that such funds were not re-invested back into those state corridors? What is the dollar value of those payments per annum since 2013?

How does Amtrak explain its willingness to provide a free ride for years to the commuter rail lines using the Northeast Corridor, ever since acquisition of the NEC by Amtrak in 1976? However, why even after PRIIA 2008 did Amtrak continue to fail collecting from those commuter lines for operating, dispatching, and depreciation costs? Indeed, why did it eventually require an act of Congress in December, 2015, to require Amtrak to finally start collecting from those commuter lines using the NEC (actually, dominating the NEC)?

How much did Amtrak spend on its last big safety program instituted between 2009-2015? (Estimates are upwards to $75 mIllion.) Yet, to what extent did labor costs dramatically increase due to the need to replace employee observers and trainers on duty? Given such pathetic results what is the validation that nobody at Amtrak financially benefited from this purchased external program?

The recent wreck of the “Cascade” at DuPont, WA clearly points to a continuing systemic failure of an acceptable, consistent safety culture at Amtrak. To what extent does this clearly point to the failure of the expected stewardship of Amtrak’s Board of Directors? Why has this issue not been properly addressed by changing the Board’s composition to include those with railroad operating experience, in lieu of “wired in” real estate developers and financiers from the Northeast?

What has been the Board’s role to assess, input and encourage benchmarking to other transportation firms concepts to increase asset utilization; expeditiously turnaround equipment?

Despite the obvious accounting proformas depicting how it would be a lower cost to operate its own commissaries, what explicitly has been Amtrak’s evidence to continue the folly of outsourcing food and beverage commissaries? How was this decision determined; how verified;  how often has the contract been open for bids?  What is the validation that nobody at Amtrak has financially benefited from this contract?

What has Amtrak done to review, if ever even have contemplated, and study revenue-building  opportunities? For example, why are cafe/lounge cars closed at time of boarding at starting point and for an hour into the trip, to allow conductors to lift tickets; LSAs set-up the car? Also, why have LSAs not been trained in mixology, supplied with the tools, liquors, and mixers to craft cocktails; why no regional crafted beer kegs and wines?

To what extent is OTP impacted by requiring for the convenience of the crew state-supported trains to board en route through one coach?

Throughout the corporate world, except for Amtrak, Board of Directors are receiving a thorough, well deserved comeuppance for their failed stewardship placing the firm itself at risk. At Wells Fargo Bank, the institutional shareholders who vote on important corporate issues requested 80% of the Board of Directors to resign or be voted out in April, 2017, for knowing the egregious actions of management and doing nothing about them. As GE undergoes its own just desserts, The Wall Street Journal this month summarized its problems as “sunlight may be the best disinfectant, but General Electric is learning that it can leave some nasty burns-particularly for those who have spent too much time in the shade. While GE is a serial tweaker of financial disclosure, the company is doing the right thing by shifting its focus to more transparent free cash flow.”

As Amtrak pursues its self-destructive course, just as the American officer said in Hue, 1968, “we had to destroy the city to save it,” the vacuum in acceptable stewardship of a knowledgeable, involved Board of Directors must be filled in now by an external forensic audit. The results of this audit should then be embraced by Congress to provide a more legitimate, national direction. We seek the end of the Amtrak “shell games” pasting the long distance trains as its straw man, by securing confirmation that allocations have value only if the costs are appropriated accurately, and with full transparency, to ensure that the train or corridor covers or exceeds its own direct operating cost and contribution to its overhead.

Time is not on our side, as we can only assume Amtrak HQ has been burning the midnight oil for quite some time revisiting the recipes of the 1960s that dissolved the American passenger train. Unlike that period when the Boards of the private railroads sought to protect their freight business from being drained by their passenger trains, with Amtrak, we have a Board fully aware and endorsing the manipulation of data and numbers to singularly focus the attention of the organization on the Northeast Corridor–at the expense of the long distance trains.