Activities of the Amtrak Inspector General (04-MAR-05,		 
GAO-05-306R).							 
                                                                 
In a prior report we suggested that the consolidation of certain 
offices of inspectors general (IG) could strengthen the 	 
independence, efficiency, and effectiveness of the IGs in the	 
federal government. Based on the potential for benefits and the  
similarities in their basic missions, we identified the Amtrak	 
Office of Inspector General and the Department of Transportation 
(DOT) Office of Inspector General as among those Congress might  
consider for consolidation. We reported that by consolidating the
office of the Amtrak IG with the larger DOT IG office, the	 
resulting office would have a larger budget and more staff with  
which to achieve its mission. Potential benefits include an	 
increased ability to improve the allocation of human and	 
financial resources and to attract and retain an adequate and	 
skilled workforce. We concluded that consolidation of smaller IG 
offices, if implemented properly with specific plans to mitigate 
potential weaknesses, is a means of achieving economies of scale 
and greater independence and of providing critical mass and range
of skills, particularly given the ever increasing need for	 
technical staff with specialized skills. This report responds to 
a Congressional request that, building on our prior report, we	 
review the nature of the audit and investigative activities of	 
the Amtrak IG and further consider the potential for		 
consolidating the Amtrak IG office with the DOT IG office.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-306R					        
    ACCNO:   A18716						        
  TITLE:     Activities of the Amtrak Inspector General 	      
     DATE:   03/04/2005 
  SUBJECT:   Agency missions					 
	     Federal agency reorganization			 
	     Inspectors general 				 
	     Internal audits					 
	     Internal controls					 
	     Investigations by federal agencies 		 
	     Productivity in government 			 
	     Railroad industry					 

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GAO-05-306R

United States Government Accountability Office Washington, DC 20548

March 4, 2005

The Honorable John F. Tierney House of Representatives

Subject: Activities of the Amtrak Inspector General

Dear Mr. Tierney:

In a prior report1 we suggested that the consolidation of certain offices
of inspectors general (IG) could strengthen the independence, efficiency,
and effectiveness of the IGs in the federal government. Based on the
potential for benefits and the similarities in their basic missions, we
identified the Amtrak Office of Inspector General and the Department of
Transportation (DOT) Office of Inspector General as among those Congress
might consider for consolidation. We reported that by consolidating the
office of the Amtrak IG with the larger DOT IG office, the resulting
office would have a larger budget and more staff with which to achieve its
mission. Potential benefits include an increased ability to improve the
allocation of human and financial resources and to attract and retain an
adequate and skilled workforce. We concluded that consolidation of smaller
IG offices, if implemented properly with specific plans to mitigate
potential weaknesses, is a means of achieving economies of scale and
greater independence and of providing critical mass and range of skills,
particularly given the ever increasing need for technical staff with
specialized skills.

This report responds to your request that, building on our prior report,
we review the nature of the audit and investigative activities of the
Amtrak IG and further consider the potential for consolidating the Amtrak
IG office with the DOT IG office. As agreed with your staff, we are
providing information on the types of investigations pursued by the IG,
the subjects that are the focus of IG investigations, the sources of
allegations and information that led to investigations, and the results of
the IG's investigations. We also agreed to report any trends or changes
indicated by our analysis of Amtrak IG activity. In addition to
investigations, we agreed to provide information on the types of audits
conducted and audit reports issued by the IG and on the overall results of
these audit efforts. We also identified any trends indicated by the audit
results. We also agreed to discuss specific information in the context of
our previous report regarding the potential for consolidating the Amtrak
and DOT IG offices.

1 GAO, Inspectors General: Office Consolidation and Related Issues,
GAO-02-575 (Washington, D.C.: Aug. 15, 2002).

Results in Brief

We found that, consistent with an increase in investigative budgets and
staff, the number of investigations opened by the Amtrak IG increased by
29 percent over the 5-year period we reviewed. This increase was mostly in
cases directed at fraud, theft, embezzlement, and other criminal activity
by Amtrak employees. Our review of closed investigations over a 3-year
period that included an 80 percent increase in the IG's fiscal year 2003
budget showed that both Amtrak union employees and Amtrak management
officials were increasingly the subjects of investigations. However, as
the IG's overall investigative activity increased, the Amtrak union
employees as subjects grew as a percentage of total investigations while
Amtrak management as subjects remained mostly constant. Also, for these 3
years, both Amtrak union employees and Amtrak management increased as the
sources of allegations leading to investigations. As a total of closed
investigations, Amtrak union employees increased as sources of allegations
slightly more than Amtrak management.

Regarding audit activity, the number of Amtrak IG audits has not changed
significantly over the 5-year period, but there has been a discernable
shift toward audits focused on internal operations, with fewer
procurement-related audits. The IG stated that this change in focus stems
from the office's perception of increased risk associated with cash
transactions and ineffective controls as indicated by the increase in
investigative cases.

Consistent with the conclusions of our previous report, consolidation
would likely provide opportunities to strengthen the ability of the
combined Amtrak and DOT IG offices to improve the allocation of human and
financial resources and to attract and retain a workforce with the talent,
multidisciplinary knowledge, and up-to-date skills needed to ensure that
the IG's office is equipped to achieve its oversight mission. Economies of
scale and an enhanced critical mass of skills and resources could be
provided by the relative size of the DOT IG office providing oversight. In
addition, consolidation would enhance the independence of Amtrak
oversight. At the same time a targeted plan that addresses the unique
characteristics of Amtrak and the resulting needs for oversight would need
to be put in place if the DOT and Amtrak IG offices were consolidated, in
order to mitigate the potential risk of a loss of oversight in significant
areas related uniquely to Amtrak. Amtrak is increasingly being viewed in
the context of an overall transportation strategy involving highways, air
travel, railroads, and environmental issues. Consolidation could serve to
strengthen IG capacity to address these issues in that context.

Scope and Methodology

We obtained information about the Amtrak IG's investigations and audits
from the IG's most recent 5 years of semiannual reports to Congress
covering fiscal years 2000 through 2004. From this information we
summarized the categories used by the IG to identify investigative cases
opened over this period, identified trends or significant changes in the
investigations, and summarized the results. We obtained additional
information from the IG's closed investigative case files for the 3 fiscal
years 2002 through 2004, to identify the subjects of investigations and
the sources of the information leading to investigations. This allowed us
to identify any significant trends or changes in the subjects of
investigations and in the sources of the allegations leading to
investigations over this period. Open case files were not reviewed to
avoid any impairment to the integrity of the investigations for possible
future prosecution. The information from closed investigations could vary
from that found in open cases. This 3-year period was selected due to the
arrival of a new Amtrak CEO in May 2002 and an 80 percent increase in the
IG's budget in fiscal year 2003.

We also reviewed the semiannual reports to obtain information about the
focus of the IG's audits and to identify any significant trends or changes
in the audits over fiscal years 2000 through 2004. We selected individual
audit reports to assist in determining any trends in reporting and used IG
planning and budget documents to analyze changes in IG resources. We
interviewed Amtrak and DOT IG officials regarding the nature of the audit
and investigative activities in their offices. We also obtained
information related to the Amtrak IG and DOT IG offices and analyzed that
information in the context of our previous report that addressed the
potential for consolidating IG offices across the federal government. In
addition, we obtained the views of both the Amtrak and DOT IGs on the
potential effects of consolidating their offices. We performed our audit
from July 2004 through January 2005 in accordance with U.S. generally
accepted government auditing standards. We provided draft copies of this
report to the Amtrak IG for comments, which are included in their entirety
in this report along with our response. The DOT IG was briefed on the
contents of this report but provided no formal comments.

Background

Amtrak was created by the Rail Passenger Service Act of 1970 to provide
intercity passenger rail service because railroads existing at that time
found such service unprofitable. However, Amtrak's financial condition has
never been strong and it has been on the verge of bankruptcy several
times. With a history of operating losses, Amtrak is highly dependent on
federal government subsidies to sustain its operations. To illustrate,
while Amtrak had estimated ticket sales of about $1.3 billion in fiscal
year 2002 and about $1.2 billion in fiscal year 2003, Amtrak reported net
operating losses of approximately $1.1 billion and $1.3 billion,
respectively, for these years.

Funding to address Amtrak's losses is provided through DOT's
appropriations, which require the Secretary of Transportation to make
quarterly grants available to Amtrak to cover operating losses and capital
expenditures. Each Amtrak grant request to the Secretary must be
accompanied by a detailed financial analysis, revenue projection, and
capital expenditure projection justifying federal support. In addition,
Amtrak is required to transmit to the Secretary and to appropriate House
and Senate committees a comprehensive annual business plan. Congress
approved a total of $1.2 billion for Amtrak's quarterly grants for fiscal
year 2004. There were about 21,500 total Amtrak employees in fiscal year
2004, with 18,900 Amtrak union employees and 2,600 Amtrak management
employees.

The Amtrak Office of Inspector General was established by the Inspector
General Act Amendments of 1988, Public Law 100-504, to provide independent
audits and investigations; to promote economy, efficiency, and
effectiveness; and to prevent and detect fraud and abuse in Amtrak
programs and operations. The current Amtrak IG took office on April 3,
1989, after appointment by the Amtrak Chairman. This position is one of 28
IGs in designated federal entities (DFE) who are appointed by their agency
heads, in contrast to the 29 IGs who are nominated by the President and
confirmed by the Senate. Regardless of their appointment process, these
statutory IGs have basically the same duties and responsibilities for the
oversight of their respective agencies as set forth in the Inspector
General Act of 1978, as amended.

In fiscal year 2003, the Amtrak IG's budget increased by almost 80 percent
from $6.3 million in the prior fiscal year, to $11.3 million. Most of this
increase was for additional investigative staff to address identified
risks, and for professional contracts, computer equipment, and software.
For fiscal year 2004 the Amtrak IG had 88 staff and a $12.5 million
budget.

The Amtrak IG's Office of Investigations receives allegations of
misconduct from various sources including employees, confidential
informants, congressional sources, federal agencies, and other third
parties. The IG estimates that $17 million in ticket sales occurred on
board Amtrak trains in fiscal year 2004. Of these sales, the IG estimates
that over $1 million in revenues were lost due to failures to charge
proper on-board fares. Also, because approximately 70 percent of these
sales are cash transactions, there is a risk of embezzlement or theft. In
addition, Amtrak has 250 staffed ticket offices nationwide that handle in
excess of $250 million in cash annually, thus making this an additional
area for IG attention.

In 1996 the IG's Revenue Protection Unit became a part of the IG's Office
of Investigations to assist IG investigators in detecting theft, fraud,
and irregularities on board Amtrak trains. The IG also created an Office
of Security Oversight in 2004 to provide continual review of Amtrak's
security preparedness and counter terrorism programs. In fiscal year 2004,
the Office of Investigations had a total of 35 staff and hired outside
consultants on an as-needed basis for a total of $160,500.

The Amtrak IG's Office of Audits is responsible for conducting independent
reviews of Amtrak's internal controls, overseeing and assisting in audits
of Amtrak's financial statements, reviewing information technology
programs and information security, providing assistance to and oversight
of Amtrak financial operations, reviewing certain procurements and
material acquisitions, and monitoring compliance with laws and
regulations. The Office of Audits had a total of 44 staff in fiscal year
2004, half of the IG's total staff. The Amtrak IG also provides oversight
of Amtrak programs through the Inspections and Evaluations Unit. This unit
has 8 staff members who focus on management actions and performance in
specific areas and provide recommendations to improve the efficiency or
effectiveness of the effort in these areas. Evaluations include measuring
Amtrak's compliance with legislation, congressional directives, and
corporate policies.

The DOT IG has a substantive role in assessing Amtrak's financial
performance as required by the Amtrak Reform and Accountability Act of
1997.2 This act directs the Secretary of Transportation to contract
annually for an independent assessment of Amtrak's need for federal
financial support. The act also requires the DOT IG to oversee this
contract and to reassess Amtrak's financial performance and needs for
every year after 1998 in which Amtrak requests federal financial
assistance. In 2002, the DOT IG concluded that Amtrak had not made
sufficient progress in financial improvements to achieve and sustain
operating self-sufficiency. In 2004, the DOT IG concluded that the
existing Amtrak system was not sustainable at current funding levels. The
DOT IG had fiscal year 2004 budget authority of about $63 million and 430
full time staff to provide independent audits and investigations at DOT,
including broad financial performance and requirements audits of Amtrak.

Amtrak IG Investigations

The Amtrak IG's Office of Investigations reported opening 798
investigative cases during fiscal years 2000 through 2004, with the number
of investigations increasing from 157 cases in fiscal year 2000 to 203 in
fiscal year 2004, for an increase of 29 percent. Of the total reported
investigations for the period, 47 percent were directed at fraud, theft,
and embezzlement. The remaining cases were spread across investigations
categorized by the IG as other criminal issues, false time and attendance
records, mismanagement, abuse of position, noncriminal allegations, false
claims, kickbacks, waste, and other irregularities.

Comparing fiscal year 2000 to fiscal year 2004, the number of
investigations opened that address fraud, theft, and embezzlement
increased from 69 to 100 cases. The number of criminal investigations
increased from 6 to 23. (See fig. 1 and table 1). These investigative
cases included, among other things, wrongdoing by Amtrak conductors,
ticket offices, vendors, and food service employees resulting in criminal
indictments, guilty pleas, felony prosecutions, and pending civil and
criminal

2 Public Law 105-134, 111 Stat. 2570 (December 2, 1997).

referrals. The IG has reported about $6 million in fines, penalties,
restitutions, and other fees over the 5-year period.

Figure 1: Classification of Investigative Cases Opened by Type from Fiscal
Years 2000 through 2004

Numer of cases

     Fraud/theft/ embezzlement Mismanagement, kickbacks, abuse of position,

                                and false claims

Noncriminal other, waste, and other

                       Time and attendance Criminal other

                                FY 2000 FY 2001

FY 2002 FY 2003 FY 2004

Source: Amtrak IG.

Table 1:	Number and Percentage of Investigative Cases Opened by Type from
Fiscal Years 2000 through 2004

Amtrak Office of           FY 2000     FY 2001     FY 2002     FY 2003     FY 2004
Inspector General                                                        
Classification           No. Percent No. Percent No. Percent No. Percent No. Percent 
Fraud/theft/embezzlement  69      44  86      56  61      47  62      40 100      49 
          Mismanagement,                                                             
     kickbacks, abuse of  39      25  25      16  21      16  43      28  30      15
  position, false claims                                                     
     Non-criminal other,  27      17  24      15  29      23  26      17  34      17 
            waste, other                                                     
       Time & attendance  16      10   9       6  10       8  11       7  16       8 
          Criminal other   6       4  11       7   8       6  12       8  23      11 
                  Totals 157     100 155     100 129     100 154     100 203     100 

                               Source: Amtrak IG

Our review of information from investigations closed during fiscal year
2004 indicated that 50 percent of the subjects investigated were Amtrak
union employees. For the same year, we found that Amtrak management
officials were subjects of 32 percent of the investigations. Of the
remaining cases, outside entities such as contractors were the subject of
13 percent of the investigations. Four percent of the case files did not
identify the subjects of investigation, and one percent of cases had other
subjects.

To compare how the subjects of investigations may have changed before and
after the IG's increase in investigative staff and budgets, we compared
information from the closed investigations for fiscal years 2002, 2003,
and 2004 to analyze trends in the focus of the IG's investigations. We
found that Amtrak union employees were subjects of investigations in 41
cases closed in fiscal year 2002 and 76 cases in 2004, an increase of 85
percent. As a percentage of all closed investigations, Amtrak union
employees increased as subjects of investigations from 36 percent to 50
percent. For this time period, we found that Amtrak management officials
were subjects of investigations in 36 cases in fiscal year 2002 and 48
cases in fiscal year 2004, an increase of 33 percent, but with no
appreciable increase as a percentage of total investigations for those
years which stayed fairly constant at about 30 percent. (See fig. 2 and
table 2).

Figure 2: Comparison of Subjects of Allegations in Closed Cases from
Fiscal Years 2002 through 2004

Number of cases 80

70

60

50

40

30

20

10

0 Union/union Management/ Outside entity/ Not available Other

management executive outside management

Fiscal year 2002

Fiscal year 2003

Fiscal year 2004

Source: Amtrak IG.

Table 2:	Number and Percentage of Closed Cases by Subject of Allegations
from Fiscal Years 2002 through 2004

     Amtrak Office of Inspector General     FY 2002     FY 2003     FY 2004
         classification of subjects       No. Percent No. Percent No. Percent 
           Union/union management          41      36  62      38  76      50 
      Management/executive management      36      31  50      30  48      32 
           Outside entity/outside          25      22  36      22  20      13 
               Not available               10       9  13       7   6       4 
                   Other                    2       2   4       3   2       1 
                   Totals                 114     100 165     100 152     100 

Source: Amtrak IG
Note: The category identified as Union/union management refers to Amtrak
union employees, and the category
identified as Management/executive management refers to Amtrak management.

To analyze trends in the sources of allegations, we obtained information
from the IG's closed investigations for fiscal years 2002, 2003, and 2004.
This information included cases where the sources of allegations were
confidential or otherwise unavailable. For those cases where the sources
were available, we found that Amtrak union employees were increasingly the
sources of allegations, from 21 cases in fiscal year 2002 compared to 38
cases in fiscal year 2004. As a percentage of total closed cases, the
sources of allegations from Amtrak union employees increased from 18
percent to 25 percent for those years. In addition, Amtrak management
increased as a source of allegations, from 41 cases in fiscal year 2002 to
60 cases in fiscal year 2004. As a percentage of total closed cases, the
source of allegations from management increased slightly from 36 percent
to 39 percent. (See fig. 3 and table 3).

Figure 3: Comparison of Sources of Allegations in Closed Cases from Fiscal
Years 2002 through 2004

Number of cases

80

70

60

50

40

30

20

10

0

Union/union Management/ Outside entity/ Not available Other

management executive outside management

Fiscal year 2002 Fiscal year 2003 Fiscal year 2004

Source: Amtrak IG.

Table 3:	Number and Percentage of Closed Cases by Source of Allegations
from Fiscal Years 2002 through 2004

     Amtrak Office of Inspector General     FY 2002     FY 2003     FY 2004
         classification of sources        No. Percent No. Percent No. Percent 
      Management/executive management      41      36  55      33  60      39 
                   Union                   21      18  39      24  38      25 
           Anonymous/confidential          20      18  29      18  24      16 
               Not available               14      12  10       6   3       2 
        Office of Inspector General         8       7  13       8   8       5 
            Outside entity/other           10       9  19      11  19      13 
                   Totals                 114     100 165     100 152     100 

Source: Amtrak IG
Note: The category identified as Management/executive management includes
all Amtrak management
sources and the category identified as union includes all union sources.

Amtrak IG Audits

During the 5-year period, fiscal years 2000 through 2004, the Amtrak IG
issued 246 audit reports that showed an evolving change in the IG's audit
focus. To illustrate, in fiscal year 2004, 47 percent of all audits were
of internal operations, which include environmental issues, inventory,
ticket sales, and station controls. Also in fiscal year 2004, 29 percent
of the IG's audits were for procurement support, which includes audits of
questioned costs, contractor labor rates, scope of work, and other
contracting issues. In contrast, for fiscal year 2000 the IG's audits of
internal operations were 25 percent of all audits and procurement support
was 46 percent of all audits. To partially explain this switch in
emphasis, the IG stated that an increased focus on Amtrak's internal
operations is a result of the risk associated with cash transactions and
the increase in investigative cases which indicates a lack of effective
internal controls. The remaining IG focus includes audits of labor,
material, and equipment from various freight railroads and terminal
companies that support Amtrak's passenger services. Additional IG audits
addressed Amtrak leases and licensing agreements, Amtrak's self-insured
health care plans for its employees, and information technology. (See
table 4).

Table 4: 	Number and Percent of Audit Reports by Subject Matter from
Fiscal Years 2000 through 2004

Classification   FY 2000     FY 2001     FY 2002     FY 2003     FY 2004
                  No. Percent No. Percent No. Percent No. Percent No. Percent 
         Internal  15      25  17      33  13      32  17      39  24      47 
       operations                                                     
      Procurement  27      46  20      39  17      41  15      34  15      29 
          support                                                     
Contractor       4       7   7      14   2       5   6      14   6      12 
audits                                                             
     Self-insured                                                             
      health care   3       5   3       6   3       7   4       9   1       2
          program                                                     
            Other  10      17   4       8   6      15   2       4   5      10 
           Totals  59     100  51     100  41     100  44     100  51     100 

Source: Amtrak IG

Over the 5-year period, the Amtrak IG's audits questioned about $75
million in costs where the IG found either violations of laws,
regulations, contracts, grants, or agreements; or that the expenditure of
funds for an intended purpose was unnecessary or unreasonable. In
addition, for the same period the IG reported about $15 million in
unsupported costs that do not have adequate documentation, and $12.6
million in funds to be put to better use where the IG has identified
inefficiencies.

Consolidation of Amtrak IG and DOT IG

In our August 2002 report, we concluded that the consolidation of selected
IG offices could, if implemented properly, serve to enhance the overall
independence, economy, efficiency, and effectiveness of the IG community.
We also recognized potential risks of consolidation that would have to be
mitigated through proactive and targeted actions in order for the benefits
to be realized without adversely affecting audit coverage in designated
federal agencies. Our prior report also provided matters for congressional
consideration that included amending the IG Act to consolidate IGs in
designated federal entities with IGs appointed by the President and
confirmed by the Senate, where the IGs have related agency missions or
where potential benefits to IG effectiveness can be shown. Among examples
of potential consolidations provided in the prior report was the
consolidation of the Amtrak IG and DOT IG offices because of the related
missions of their agencies and the resulting increase in the independence
of Amtrak oversight.

The DOT IG already has considerable oversight responsibility for Amtrak
operations and financial matters. In accordance with the requirements of
the Amtrak Reform and Accountability Act of 1997, the DOT IG performs
financial performance audits of Amtrak. The DOT IG also considers Amtrak's
role as part of an overall transportation strategy that includes highways,
airports, and railroads. The DOT IG concluded in the 2004 Amtrak financial
performance report that the existing Amtrak system is not sustainable at
current funding levels and that Amtrak could languish as an undeveloped
alternative to congested roads and airports.3

Given the related agency missions and potential benefits in improved
oversight, we continue to believe that consolidation of the Amtrak and DOT
IGs is a viable action for congressional consideration. However, while
both the Amtrak and DOT IGs recognize a potential enhancement to
independent oversight through consolidation, there are agency-specific
considerations that would need to be addressed. For example, the key risk
pointed out by the Amtrak IG would be the initial lack of firsthand
knowledge and day-to-day contact with Amtrak operations and personnel on
the part of DOT IG staff. This potential risk is based on an assumption of
the loss or relocation of Amtrak IG employees and a resulting loss of
Amtrak institutional experience, a situation that may not occur, depending
on how the consolidation is implemented.

Other unique aspects of Amtrak would also need to be considered if the IG
offices were consolidated, including the following:

o  	Amtrak is a service organization with extensive decentralized
operations.

3 DOT IG, Assessment of Amtrak's 2003 and 2004 Financial Performance and
Requirements, National Railroad Passenger Corporation, Report Number:
CR-2005-013 (Washington, D.C.: Nov. 18, 2004).

o  	Because Amtrak operations involve extensive cash handling at
decentralized levels, a focus on investigative activities at these levels
is important.

o  	A heightened focus on the security and safety of Amtrak operations has
become increasingly important since September 11, 2001.

o  Amtrak functions in a mixed private/public sector model.

A targeted plan that deals with the unique characteristics of Amtrak and
the resulting needs for IG oversight would have to be put in place if the
DOT and Amtrak IG offices were consolidated. We believe that by mitigating
potential weaknesses, consolidation need not result in any material
reduction in the oversight of Amtrak and has the potential to create more
efficient and independent oversight. For example, the IG's day-to-day
contact with Amtrak personnel and communication with the agency head can
be successfully maintained as long as the IG has a physical presence at
Amtrak and takes other proactive steps to mitigate any potential reduction
in communication and audit coverage given the unique characteristics and
oversight needs of Amtrak. A dedicated staff for Amtrak oversight issues
would likely need to be maintained and a consolidated IG office would
still need to carry out risk assessments of Amtrak activities. Currently,
in addition to other cities, the DOT IG has an office in each metropolitan
area where there is an Amtrak IG office. Therefore, the DOT IG's oversight
of Amtrak could be planned to take advantage of the combined resource base
in these metropolitan areas, thus achieving greater efficiency.
Consolidation could also enable the larger DOT IG office to better target
overall resources to areas of greatest value and risk to Amtrak
operations.

The consolidation of the two IG offices could also enhance the
independence of Amtrak audits and investigations. The Amtrak IG is
appointed, and may be removed, by the head of Amtrak. In contrast, the DOT
IG is nominated by the President and confirmed by the Senate, and may be
removed only by the President. Appointment by the President with Senate
confirmation has been recognized previously by Congress as a way to
enhance IG independence. Typically, the further removed the appointment
source is from the entity to be audited, the greater the level of
independence. For example, the perceived limitation of the Federal Deposit
Insurance Corporation IG's independence as an agency-appointed IG was
recognized as a reason to convert the IG to appointment by the President
with Senate

4

confirmation. In addition, the Tennessee Valley Authority IG was an
agencyappointed IG, but was converted to appointment by the President with
Senate

5

confirmation to enhance the independence of that office. Consolidation of
the Amtrak IG with the DOT IG could also serve to enhance independence.

Other IG offices have also been consolidated. For example, through
statute, the Department of State IG provides oversight of the Broadcasting
Board of Governors and the International Broadcasting Bureau. There are
also examples where oversight, provided by IGs appointed by the President
and confirmed by the Senate,

4 Public Law 103-204, 107 Stat. 2369 (December 17, 1993). 5 Public Law
106-422, 114 Stat. 1872 (November 1, 2000).

crosses several federal agencies. For example, the IG at the Agency for
International Development is authorized by specific statutes to provide
oversight of the Overseas Private Investment Corporation, the
Inter-American Foundation, and the African Development Foundation.

Agency Comments and Our Response

In commenting on a draft of this report, the Amtrak IG discussed the
unique operations of his office, current Amtrak oversight, and his views
about consolidation. The Amtrak IG stated that, while there are arguments
for consolidation, there are also strong and practical reasons for keeping
the Amtrak and Transportation IG offices separate.

In describing some of the unique aspects of Amtrak, the IG points out that
Amtrak is a service organization in the business of national rail
passenger service and operates in a mixed private sector/public sector
environment. For example, the IG refers to Amtrak as a "de facto"
government corporation that is exempt from most Office of Management and
Budget circulars and many statues that directly impact IGs. In addition,
the IG points out that Amtrak is not subject to Federal Procurement
Regulations, Amtrak employees are not under Federal Civil Service, and
Amtrak financial statements are prepared according to generally accepted
accounting principles used in the private sector.

The IG also discussed the independence of his office, stating that the
resolution of reporting responsibility of the IG to the Chairman of the
Amtrak Board has improved the IG's independence. We agree that this is a
positive development that should be maintained. The IG also stated that
the quality of work of the Amtrak IG is enhanced by having an OIG presence
within the organization itself, including attending many key staff
meetings.

The Amtrak IG's comment letter also includes additional analysis of his
office's investigative activities. The IG stated that investigations are
driven by the allegations regardless of the source. For example, the IG
pointed out that there has been a concentrated effort over the last few
years to assess and investigate operations or circumstances where
employees handle cash and that investigations have covered both Amtrak
management and union employees. Our analysis also indicates that both
Amtrak management and union employees have been subjects of IG
investigations.

We agree that there are arguments both for and against consolidation in
this case. The IG's comments and our report highlight many of the specific
considerations that would need to be taken into account if the IG offices
were to be consolidated. These considerations represent specific
trade-offs that would need to be weighed in any consolidation decision. In
this regard, we continue to believe that a targeted plan that deals with
the unique characteristics of Amtrak could be put in place to mitigate
potential risks and enhance the oversight of Amtrak through consolidation
with the DOT IG. For example, our report recognizes that cash handling at
decentralized levels and a heightened focus on security and safety are
examples of Amtrak

characteristics that would need to be addressed by any office
consolidation. Our report also states that the IG's day-to-day contact
with Amtrak personnel and communication with the agency head can be
successfully maintained as long as the IG has a physical presence at
Amtrak and takes other proactive steps to mitigate any potential reduction
in communication and audit coverage. In addition, we noted that a
dedicated staff for Amtrak oversight issues would likely need to be
maintained with an understanding of Amtrak's unique operating environment.

Given the related agency missions and potential benefits of consolidation
discussed in our August 2002 report and this report, we continue to
believe that the consolidation of the Amtrak and DOT IGs is a viable
action for congressional consideration. At the same time, as discussed in
our report and the IG's comments, the unique characteristics of Amtrak and
the related needs for oversight would need to be specifically addressed
for any consolidation to be fully effective.

As agreed with your office, unless you announce its contents earlier, we
plan no further distribution of this report until 30 days after its
issuance date. At that time, we will send copies to the Amtrak IG; the DOT
IG; the Deputy Director for Management of the Office of Management and
Budget; the Chairman and Co-Chairman of the Senate Committee on Commerce,
Science and Transportation; the Chairman and Ranking Democratic Member of
the House Committee on Transportation and Infrastructure; other
congressional committees; and interested parties. After our final
distribution this report will be available at no charge on the GAO Web
site at http://www.gao.gov.

If you have any questions or would like to discuss this report please
contact me at (202) 512-9471 or by e-mail at [email protected], or Jackson
Hufnagle, Assistant Director, at (202) 512-9470, or by e-mail at
[email protected].

Sincerely yours,

Jeanette M. Franzel
Director
Financial Management and Assurance

Appendix I

Agency Comments from the Amtrack Inspector General

       Appendix I Appendix I Appendix I Appendix I Appendix I Appendix I

Appendix I

(194459)
Page 22 GAO-05-306R Activities of the Amtrak IG

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